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SCHEDULE 14A INFORMATION
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Preliminary Proxy Statement
[_]Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
THE FAIRCHILD CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
THE FAIRCHILD CORPORATION
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (check the appropriate box):
[X]No fee required
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
--------
*Set forth the amount of which the filing is calculated and state how
it was determined.
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
===============================================================================
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THE FAIRCHILD CORPORATION
45025 AVIATION DRIVE
SUITE 400
DULLES, VA 20166-7516
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 19, 1998
----------------
TO THE STOCKHOLDERS OF THE FAIRCHILD CORPORATION:
The Annual Meeting of Stockholders of The Fairchild Corporation, a Delaware
corporation (the "Company"), will be held at the Washington Dulles Airport
Hilton, 13869 Park Center Road, Herndon, Virginia, on Thursday, November 19,
1998, at 10:00 a.m. (local time), for the following purposes:
1. To elect fourteen (14) directors of the Company for the ensuing year;
2. To amend the Company's Stock Option Plan by increasing the number of
shares issuable thereunder;
3. To amend the Company's Stock Option Plan to permit plan participants
to defer the gain that would otherwise be received by such plan
participants upon exercise of a stock option;
4. To approve the grant of options to certain executive officers and
employees under the Company's Stock Option Plan;
5. To approve the material terms of the performance goal for the fiscal
1999 incentive compensation award for the Company's President and Chief
Operating Officer;
6. To approve the material terms of the performance goals for the fiscal
1999 incentive compensation award for the Company's Chief Executive
Officer;
7. To approve an amendment to a warrant issued to an affiliate of the
Company's Chief Executive Officer; and
8. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Only stockholders of record as of the close of business on September 28,
1998, will be entitled to notice of and to vote at the Annual Meeting and at
any adjournments or postponements thereof.
By Order of the Board of Directors
Donald E. Miller
Executive Vice President & Secretary
October 9, 1998
KINDLY DATE AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE
ENCLOSED STAMPED, ADDRESSED ENVELOPE
<PAGE>
THE FAIRCHILD CORPORATION
45025 AVIATION DRIVE
SUITE 400
DULLES, VA 20166-7516
October 9, 1998
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors (the "Board") of The Fairchild
Corporation (the "Company") for use at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at 10:00 a.m. on Thursday, November 19, 1998, and
at any adjournments or postponements thereof, at the Washington Dulles Airport
Hilton, 13869 Park Center Road, Herndon, Virginia. Only holders of record of
the Company's Class A Common Stock, par value $.10 per share ("Class A
Stock"), and Class B Common Stock, par value $.10 per share ("Class B Stock"),
at the close of business on September 28, 1998, will be entitled to vote at
the Annual Meeting. On September 28, 1998, there were 19,496,345 shares of
Class A Stock and 2,624,662 shares of Class B Stock outstanding and eligible
to vote. Class A Stock and Class B Stock are sometimes collectively referred
to herein as "Stock." Shares of Stock owned by Banner Aerospace, Inc. (or any
other Company subsidiary) are not entitled to vote, and are not included in
the number of outstanding shares. As of September 28, 1998, there were 938,800
shares of Class A Stock owned by Banner Aerospace, Inc.
This Proxy Statement and enclosed proxy form are first being mailed to the
Company's stockholders on or about October 9, 1998.
Any proxy given pursuant to this solicitation and received in time for the
Annual Meeting will be voted as specified in such proxy. If no instructions
are given, proxies will be voted "FOR" the election of the nominees named
below under the caption "Election of Directors--Information as to Nominees,"
and "FOR" each of the other proposals set forth in the Notice of Annual
Meeting and this Proxy Statement.
QUORUM AND VOTING REQUIREMENTS
The holders of record of a majority of the outstanding shares of Common
Stock will constitute a quorum for the transaction of business at the Annual
Meeting.
Each share of Class A Stock entitles the holder thereof to one vote, and
each share of Class B Stock entitles the holder thereof to ten votes, on each
matter scheduled to come before the Annual Meeting.
ABSTENTIONS: For purposes of the quorum and the discussion below regarding
the vote necessary to take shareholder action, shareholders of record who are
present at the meeting in person or by proxy and who abstain, including
brokers holding customers' shares of record who cause abstentions to be
recorded at the meeting, are considered shareholders who are present and
entitled to vote and they count toward the quorum.
UNINSTRUCTED SHARES AND BROKER NON-VOTES: Brokers holding shares of record
for customers generally are not entitled to vote on certain matters unless
they receive voting instructions from their customers. As used herein,
"uninstructed shares" means shares held by a broker who has not received
instructions from its customers on such matters and the broker has so notified
the Company on a proxy form in accordance with industry practice or has
otherwise advised the Company that it lacks voting authority. As used herein,
"broker non-votes" means the votes that could have been cast
<PAGE>
on the matter in question by brokers with respect to uninstructed shares if
the brokers had received their customers' instructions.
ELECTION OF DIRECTORS: Directors are elected by a plurality and the fourteen
nominees who receive the most votes will be elected. Abstentions and broker
non-votes will not be taken into account in determining the outcome of the
election.
AMENDMENT TO INCREASE NUMBER OF SHARES UNDER THE COMPANY'S STOCK OPTION
PLAN: To be approved, this matter must receive the affirmative vote of the
majority of the shares present in person or by proxy at the meeting and
entitled to vote on such matter. Uninstructed shares are entitled to vote on
this matter. Therefore, abstentions and broker-non votes have the effect of
negative votes. In addition, under New York Stock Exchange rules, all votes
cast for or against such proposal must (in the aggregate) represent at least
50% of the outstanding shares of the Company entitled to vote on such matter
(the "50% voted shares requirement"). Abstentions and broker-non votes are
deemed not to have been voted (either for or against) such matter, and are
counted as non-voted shares in determining whether the 50% voted shares
requirement has been satisfied.
AMENDMENT TO PERMIT DEFERRAL OF GAIN UNDER THE COMPANY'S STOCK OPTION PLAN;
AND APPROVAL OF GRANT OF OPTIONS TO CERTAIN EXECUTIVE OFFICERS AND EMPLOYEES
UNDER THE COMPANY'S STOCK OPTION PLAN: To be approved, each of these matters
must receive the affirmative vote of the majority of the shares present in
person or by proxy at the meeting and entitled to vote on such matter.
Uninstructed shares are entitled to vote on these matters. Therefore,
abstentions and broker-non votes have the effect of negative votes.
COO, CEO PERFORMANCE GOALS AND AMENDMENT TO WARRANT: To be approved, each of
these matters must receive the affirmative vote of the majority of the shares
present in person or by proxy at the meeting and entitled to vote on such
matter. Uninstructed shares are not entitled to vote on these matters, and
therefore broker non-votes do not affect the outcome. Abstentions have the
effect of negative votes.
The Board does not know of any matter, other than those specified herein,
which will be presented for action at the Annual Meeting. In the event that
any other matters should properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote the proxy in
accordance with their best judgment on such matters.
Any proxy may be revoked at any time prior to its exercise by notifying the
Company's Secretary in writing at the above address, by delivering a duly
executed proxy bearing a later date or by attending the Annual Meeting and
voting in person.
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ITEM 1--ELECTION OF DIRECTORS
Fourteen directors are to be elected for the ensuing year to hold office
until the next annual meeting of stockholders and until their successors are
elected and qualified. In fiscal 1997, the Board consisted of thirteen
members. In the last quarter of fiscal 1998, the Board was increased to
fourteen. All nominees were elected to the Board at the 1997 annual meeting of
stockholders, other than Robert E. Edwards (who was elected to the Board
effective March 2, 1998). All nominees have been designated as "Continuing
Directors" as defined in the Company's Certificate of Incorporation, as
amended.
INFORMATION AS TO NOMINEES (1)
Set forth below is information about each nominee for election as a
director, based on information supplied by him, including his name, age and
principal occupations during the past five years, and certain directorships
held by him. Related party transactions between the Company and certain
directors (or their immediate family members or affiliates) are set forth
elsewhere in this Proxy Statement, under the heading "Certain Transactions."
Information regarding late filings of stock ownership forms by certain
directors is set forth elsewhere in this Proxy Statement, under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance."
MICHAEL T. ALCOX, 50, served as Senior Vice President and Chief Financial
Officer of the Company from December 1987 through September 1996. He also
served as Treasurer of the Company from September 1990 until November 1991.
Mr. Alcox served as Vice President and Chief Financial Officer of RHI Holdings
and as Vice President and Chief Financial Officer of Fairchild Industries from
1990 through March 1996. Since September 30, 1996, Mr. Alcox has served as a
Vice President of the Company, not employed on a full time basis. Mr. Alcox is
a director of Banner Aerospace. Mr. Alcox also owns and operates travel and
real estate businesses. He became a director of the Company in 1988. (2)
MELVILLE R. BARLOW, 69, was a consultant to the Company from September 1995
through June 1996. From July 1991 through March 1994 he was President of
Pilkington Aerospace, Inc. (manufacturer of aircraft transparencies). From
June 1984 through March 1991, he was a Corporate Vice President of General
Dynamics and General Manager of General Dynamics Electronics Division
(manufacturer of military aircraft automatic test equipment). He became a
director of the Company in 1996. (4) (6) (7)
MORTIMER M. CAPLIN, 82, has been a senior member of Caplin & Drysdale
(attorneys) since 1964. Mr. Caplin serves as a director of Presidential Realty
Corporation and Danaher Corporation. He became a director of the Company in
1990. (2) (3) (6)
COLIN M. COHEN, 47, was Managing Director of Citicorp Securities, Inc.
(Chicago) until September 1996. He served in such capacity for more than five
years. Mr. Cohen became a director of the Company in September 1996, and the
Company's Senior Vice President--Business Development and Finance, and Chief
Financial Officer effective October 1, 1996. He became Controller of the
Company effective March 31, 1997. Pursuant to his employment agreement with
the Company, Mr. Cohen is to be nominated for election as a director every
fiscal year during his term of employment.
PHILIP DAVID, 67, was a consultant to the Company from January 1988 to June
1993. He was also an employee of the Company from January 1988 to December
1989. He was a Professor of Urban Development at Massachusetts Institute of
Technology until June 1988. Dr. David is also a director of IRI International,
Inc. He became a director of the Company in 1985. (4)
ROBERT E. EDWARDS, 50, serves as an Executive Vice President of Fairchild
Fasteners and as Chief Executive Officer of Special-T Fasteners, Inc., a
wholly-owned subsidiary of the Company. Mr. Edwards has held these positions
since the Company's acquisition of the Edwards and Lock Management Corporation
(d/b/a Special-T Fasteners) in March 1998. Mr. Edwards was a co-founder
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of Special-T Fasteners and served as such company's President and Chief
Executive Officer since 1983. Mr. Edwards became a director of the Company in
March 1998. Pursuant to the merger agreement (dated January 28, 1998) by which
the Company acquired Special-T Fasteners, Mr. Edwards is to be nominated for
election as a director every fiscal year during such period of time as he
continues to own at least 50% of the shares of Company Class A Common Stock
issued to Mr. Edwards pursuant to such merger agreement.
HAROLD J. HARRIS, 69, is President of Wm. H. Harris, Inc. (retailer). He is
a director of Capital Properties Incorporated of Rhode Island. He became a
director of the Company in 1985. (3) (5)
DANIEL LEBARD, 59, is Chairman of the Board of Daniel Lebard Management
Development SA, a consulting firm in Paris, France, which performs management
services. He has served in such capacity for more than the last five years.
Since 1995, he also serves as Chief Executive Officer of Groupe Sofrecid SA
and Kvaerner-Clecim SA, engineering companies whose headquarters are in Paris.
He became a director of the Company in 1996. (4)
JACQUES S. MOSKOVIC, 61, has served as Senior Vice President of the Company
since October 1996, as President and Chief Executive Officer of Fairchild
Technologies since September 1994, and as Chairman of Fairchild Technologies
since August 1997. Prior to that, he served as Chairman and President of
Compagnie Pour Le Developpement Industriel, a French based company
specializing in the production, sales and service of equipment to the
electronics industry, which was acquired by the Company in 1995. Mr. Moskovic
held such position for more than five years. He became a director of the
Company in 1997.
HERBERT S. RICHEY, 76, served as President of Richey Coal Company (coal
properties-brokerage and consulting) until December 1993. He became a director
of the Company in 1977. (2) (3) (4) (6) (7)
MOSHE SANBAR, 72, has served as President of the Israel National Committee
of the International Chamber of Commerce since 1992, and as a member of the
executive board of the International Chamber of Commerce, at the Paris
headquarters since 1997. He served as a Senior Vice President and Financial
Adviser for the Eisenberg Group of Companies (an international import-export
firm) from 1996 to February 1997. From 1988 through 1995 he was Chairman of
the Board of Bank Leumi (Israel). He became a director of the Company in 1997.
(5)
ROBERT A. SHARPE II, 40, has served as Senior Vice President, Operations of
the Company since September 1998. He also serves as Executive Vice President
and Chief Financial Officer of Fairchild Fasteners, positions he has held
since July 1996. He served as a consultant for Fairchild Fasteners from
October 1995 through July 1996. Mr. Sharpe served as Vice President, Corporate
Development of Smithfield Foods, Inc. (a pork-products company) from July 1994
through July 1996, where he was responsible for corporate development as well
as three of Smithfield's operating subsidiaries. Prior to that time,
Mr. Sharpe served as Senior Vice President of NationsBank Corporation (a
national bank) and held other management positions with NationsBank. Mr. Sharpe
is a director of Capital Associates, Inc. and Capital Associates International,
Inc. He became a director of the Company in 1995.
DR. ERIC I. STEINER, 36, has served as President of the Company since
September 1998, as Chief Operating Officer of the Company since November,
1996, and as President and Chief Executive Officer of Fairchild Fasteners
since August 1995. Prior thereto, he served as Executive Vice President of the
Company from November 1996 to September 1998, as Senior Vice President,
Operations of the Company from May 1992 through November 1996, and as
President of Camloc/RAM Products, one of the Company's operating units, from
September 1993 to February 1995. He served as Vice President, Business
Planning of the Company from March 1991 until May 1992. He also served as Vice
President of Fairchild Industries from May 1992 through March 1996. He has
been a director of Banner Aerospace since September, 1992, and a Senior Vice
President of Banner Aerospace since May, 1997. Dr. Steiner became a director
of the Company in 1988. He is the son of Jeffrey J. Steiner. (2) (5)
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JEFFREY J. STEINER, 61, has served as Chairman of the Board and Chief
Executive Officer of the Company since December 1985, and as President of the
Company from July 1991 through September 1998. He has served as Chairman of
the Board, Chief Executive Officer and President of Banner Aerospace since
September 1993. He has served as Chairman, President, and Chief Executive
Officer of RHI Holdings since 1988. He served as Vice Chairman of the Board of
Rexnord Corporation from July 1992 to December 1993, and as Chairman,
President and Chief Executive Officer of Fairchild Industries from July 1991
through March 1996. Mr. Steiner is and for the past five years has been
President of Cedco Holdings Ltd., a Bermuda corporation (a securities
investor). He serves as a director of The Franklin Corporation, The Copley
Fund and Communication Intelligence Corporation. He became a director of the
Company in 1985. He is the father of Dr. Eric I. Steiner and Natalia Hercot.
(2) (5)
Articles have appeared in the French press reporting an inquiry by a French
magistrate into certain allegedly improper business transactions involving Elf
Acquitaine, a French petroleum company, its former chairman and various third
parties, including Maurice Bidermann. In connection with this inquiry, the
magistrate has made inquiry into allegedly improper transactions between
Mr. Steiner and that petroleum company. In response to the magistrate's request
that Mr. Steiner appear in France as a witness, Mr. Steiner submitted written
statements concerning the transactions and appeared in person before the
magistrate and others. Mr. Steiner, who has been put under examination (mis en
examen), by the magistrate, with respect to this matter, has not been charged.
Mr. Steiner has been cited by a French prosecutor to appear on November 7,
1998, before the Tribunal de Grande Instance de Paris, to answer a charge of
knowingly benefiting in 1990, from a misuse by Mr. Bidermann of corporate
assets of Societe Generale Mobiliere et Immobiliere, a French corporation in
which Mr. Bidermann is believed to have been the sole shareholder.
- --------
(1) The following companies are mentioned in the biographical information of
various directors and elsewhere in this Proxy Statement:
BANNER AEROSPACE, INC. ("BANNER AEROSPACE"): The Company has a significant
equity position (approximately 85.43% beneficial ownership as of June 30,
1998) in Banner Aerospace. Effective as of February 25, 1996, Banner
Aerospace became a consolidated subsidiary of the Company.
FAIRCHILD FASTENERS: A division of Fairchild Holding Corp.
FAIRCHILD HOLDING CORP.: Fairchild Holding Corp. is a wholly-owned
subsidiary of RHI Holdings.
FAIRCHILD INDUSTRIES, INC. ("FAIRCHILD INDUSTRIES"): Until March 1996, the
Company indirectly owned all of the common stock of Fairchild Industries,
which (until such time) was a registered company.
FAIRCHILD TECHNOLOGIES: Fairchild Technologies is a business unit of the
Company that plans long term strategy and control functions of Fairchild
Technologies GmbH, Fairchild Technologies USA, Inc. and other Company
subsidiaries in the semiconductor, CD and LCD industries.
RHI HOLDINGS, INC. ("RHI HOLDINGS"): RHI Holdings is a wholly-owned
subsidiary of the Company. RHI Holdings was a registered company until
1997.
REXNORD CORPORATION: Until December 1993, the Company had a significant
equity position in Rexnord Corporation.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee.
(4) Member of the Compensation and Stock Option Committee.
(5) Member of the Nominating Committee.
(6) Member of the Corporate Ethics and Compliance Committee.
(7) Member of the Special Committee.
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BOARD OF DIRECTORS AND CERTAIN COMMITTEE MATTERS
BOARD MEETINGS
The Board held five meetings during fiscal 1998, and acted nine times by
unanimous written consent. No incumbent director attended less than
seventy-five percent of the aggregate number of meetings of the Board and
committees on which he served.
BOARD COMMITTEES
The Board has (i) an Audit Committee whose primary functions are to examine
and consider matters relating to the internal and external audits of the
Company's accounts and its financial affairs and to select the Company's
independent auditor; (ii) a Compensation and Stock Option Committee which has
initial responsibility for all compensation actions affecting the Company's
executive officers, including base salaries, bonus awards, stock option awards
and the terms and conditions of their employment, and which administers the
Company's stock option plan; (iii) an Executive Committee whose functions
include considering pertinent matters and exercising all the powers of the
Board, which by law it may exercise when the Board is not in session; (iv) a
Corporate Ethics and Compliance Committee to oversee the Company's ethics
programs; and (v) a Nominating Committee to consider and recommend to the
Board candidates for election to the Board of Directors by the stockholders.
During fiscal 1998, the Audit Committee held two meetings, the Compensation
and Stock Option Committee held three meetings and acted four times by
unanimous written consent, the Executive Committee held no meetings but acted
twice by unanimous written consent, the Corporate Ethics and Compliance
Committee held three meetings and the Nominating Committee held one meeting.
The Board appointed a special committee (the "Special Committee") which is
comprised of two Directors of the Company who are neither officers nor
employees of the Company. The purpose of the Special Committee is to look into
allegations raised in articles that have appeared in the French press
reporting an inquiry by a French magistrate. This matter is discussed above
under the biographical information for Mr. Jeffrey Steiner. The Special
Committee held one meeting during fiscal 1998.
DIRECTORS COMPENSATION
Fees. During fiscal 1998, directors who were not employed by the Company or
its subsidiaries received a quarterly retainer of $5,000, a $2,500 stipend for
each regular Board meeting attended, a $1,000 stipend for any committee
meetings attended, and reimbursement for travel expenses. (The Company has
four regular Board meetings each year.)
Stock Options. Pursuant to the 1996 Non-Employee Director Stock Option Plan
("1996 NED Plan"), commencing with the 1996 Annual Meeting, outside directors
receive stock options for 30,000 shares of Class A Stock at the time they are
first elected to serve on the Board and, thereafter, they receive stock
options for 1,000 shares of Class A Stock for each additional year in which
they are elected to serve on the Board (provided they have served on the Board
for at least six months). Of the nominees for election at the 1998 Annual
Meeting, Messrs. Barlow, Caplin, David, Harris, Lebard, Richey and Sanbar
qualify as outside directors under the 1996 NED Plan. Pursuant to the 1996 NED
Plan: (i) on the date of the 1997 Annual Meeting, the Company granted options
for 6,000 shares of Class A Stock in the aggregate to outside directors; (ii)
on September 11, 1997 (the day he first became an outside director), the
Company granted options for 30,000 shares of Class A Stock to Mr. Sanbar; and
(ii) on the date of the 1998 Annual Meeting, the Company will grant options
for 7,000 shares of Class A Stock in the aggregate to the outside directors.
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Compensation for Special Committee. In fiscal 1998, Messrs. Barlow and
Richey served as members of the Special Committee. The purpose of the Special
Committee is described above under "Board Committees." The Special Committee
met one time during fiscal 1998. As compensation for his services, each member
received $1,000 for each meeting. Total fees paid to members of the Special
Committee for meetings during fiscal 1998 were $2,000 in the aggregate.
Consulting Services. In fiscal 1998, Mr. Alcox provided certain consulting
services to Banner Aerospace, for which he was paid an aggregate of $21,000,
plus expenses.
Management Directors. Management directors receive no fees or stock options
for their services as directors.
NOMINEES FOR NEXT YEAR'S ANNUAL MEETING
The Nominating Committee will consider written recommendations for nominees
for next year's annual meeting, submitted prior to June 11, 1999, by
stockholders to the Secretary of the Company. Biographical information and the
written consent of the potential nominee must accompany the recommendation.
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INFORMATION AS TO EXECUTIVE OFFICERS
Set forth below is certain information about each executive officer of the
Company who is not a director of the Company or a nominee, based on
information supplied by the officer, including the officer's name, age and
principal occupations during the past five years. All of the executive
officers of the Company are elected by the Board to serve until the next
annual meeting of the Board or until their successors are elected and
qualified. Related party transactions between the Company and certain officers
(or their immediate family members or affiliates) are set forth elsewhere in
this Proxy Statement, under the heading "Certain Transactions".
ROBERT D. BUSEY, 55, has served as Vice President of the Company since
September 1992. Mr. Busey also served as Vice President of Fairchild
Industries from November 1993 through March 1996. Prior to September 1992,
Mr.Busey was Assistant Vice President of the Company and held other management
positions with Fairchild Industries.
JOHN L. FLYNN, 52, has served as Senior Vice President, Tax of the Company
since September 1994 and as Vice President, Tax from August 1989 to September
1994. Mr. Flynn also served as Vice President, Tax of Fairchild Industries
from November 1986 through March 1996.
NATALIA HERCOT, 32, has served as Vice President, Business Development, of
the Company since November 1997. Ms. Hercot was a director of Fairchild
Industries from 1989 until March 1996. Since 1991, she has served in various
capacities at the Company and Fairchild Industries, including International
Coordinator and Translator. She is the daughter of Jeffrey J. Steiner.
HAROLD R. JOHNSON, 75, Brig. Gen., USAF (Ret.), has served as Senior Vice
President, Business Development of the Company since November 1990. General
Johnson also served as Vice President of Fairchild Industries from February
1988 through March 1996.
ROBERT H. KELLEY, 50, has served as Vice President, Employee Benefits of the
Company since November 1993. He also served as Vice President of Fairchild
Industries from November 1993 through March 1996. Prior thereto, he held other
management positions with Fairchild Industries.
JEFFREY P. KENYON, 37, has served as Vice President of the Company since
November 1996. Prior to that, he served as Vice President of Citicorp
Securities, Inc., engaged in the structuring and syndication of senior debt.
He was employed by Citicorp for more than five years, serving in various other
capacities, including equipment leasing and relationship management.
DONALD E. MILLER, 51, has served as Executive Vice President of the Company
since September, 1998, as General Counsel since January 1991 and as Corporate
Secretary since January 1995. He served as Senior Vice President of the
Company from January 1991 through September 1998. Mr. Miller also served as
Vice President and General Counsel of Fairchild Industries from November 1991
through March 1996. Prior to 1991, Mr. Miller was a principal of the law firm
of Temkin & Miller, Ltd. in Providence, Rhode Island. Mr. Miller also serves
as General Counsel of Banner Aerospace.
KAREN L. SCHNECKENBURGER, 49, has served as Vice President of the Company
since September 1992 and as Treasurer of the Company since November 1991.
Ms.Schneckenburger also served as Treasurer of Fairchild Industries from August
1989 through March 1996. Prior thereto, she served as Director of Finance of
Fairchild Industries from 1986 through 1989.
DAVID WYNNE-MORGAN, 67, has served as Senior Vice President, Corporate
Communications of the Company since September 1997. Since 1996, he also serves
as Chairman of WMC Communications, Ltd. (communications consultants). From
1994 through 1996 he was Director of Corporate Communications of Barrick Gold
(a NYSE listed company, gold mining and processing enterprises) and Horsham
Corporation (a Canadian publicly held property company, now known as
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TrizecHan Corporation). Prior to that, he served as President and Chief
Executive Officer (Europe, Middle East and Africa), of Hill and Knowlton, an
international public relations firm, since 1991, and as Chairman and Chief
Executive Officer for Hill & Knowlton's London office from 1984 to 1991.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and officers to file reports (on Forms 3, 4 and 5) with
the Securities and Exchange Commission, disclosing their ownership, and
changes in their ownership, of stock in the Company. Copies of these reports
must also be furnished to the Company. Based solely on a review of these
copies, the Company believes that during fiscal year 1998 all reports were
filed on a timely basis, except as follows: Mr. Jeffrey Steiner filed a Form 4
with the SEC on February 19, 1998 (reporting the purchase of 30,000 shares of
Class A Stock) that was due to be filed on February 10, 1998. Dr. Eric Steiner
filed a Form 4 with the SEC on March 5, 1998 (reporting the purchase of 2,000
shares of Class A Stock) that was due to be filed on November 10, 1996.
Mr.Mortimer Caplin filed a Form 4 with the SEC on July 10, 1998 (reporting the
exercise of stock options for 8,750 shares of Class A Stock) that was due to
be filed on December 10, 1997.
9
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth compensation information
for the Company's Chairman and Chief Executive Officer and the other four most
highly compensated executive officers of the Company whose salary and bonus
exceeded $100,000 for the fiscal year ended June 30, 1998 (the "named
executive officers").
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
-------------------------- -----------------------
Securities
Other Annual Underlying All Other
Name and Fiscal Salary Bonus Compensation Options Compensation
Principal Position Year ($)(1) ($)(1) ($) (#) ($)(2)
------------------ ------ --------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey J. Steiner, 1998 1,644,627 7,854,684 -- 100,000 29,927
Chairman & CEO 1997 1,800,000 4,705,000 -- 30,000 29,168
1996 1,754,011 3,750,000 -- 222,700 23,037
John L. Flynn 1998 239,980 351,000 -- 10,000 4,000
Sr. Vice President 1997 201,560 150,000 -- 15,000 6,993
1996 186,164 309,850 -- 17,400 5,375
Donald E. Miller, 1998 283,287 501,000 -- 20,000 5,354
Executive Vice
President, 1997 221,554 150,000 -- 30,000 9,293
General Counsel &
Secretary 1996 205,210 319,825 -- 26,700 8,009
Jacques S. Moskovic, 1998 445,908 200,000 -- 10,000 327
Senior Vice President 1997 337,956 100,000 -- 10,000 112
1996 334,831 125,000 -- 26,700 --
Eric I. Steiner, 1998 377,700 601,000 -- 40,000 6,662
President & COO 1997 265,403 370,000 155,306(3) 120,000 8,026
1996 206,170 94,825 39,270(4) 25,000 8,792
</TABLE>
- --------
(1) Salary and bonuses shown in the table do not include compensation paid to
the named executive officers by Banner Aerospace, a more than 50%
subsidiary of the Company as of fiscal 1996. Such compensation is as
follows, based on Banner Aerospace's fiscal years 1998, 1997 and 1996.
(Jacques Moskovic received no compensation from Banner Aerospace.):
<TABLE>
<S> <C> <C> <C> <C>
Banner Stock Options
Aerospace For Banner
Fiscal Year Individual Salary Bonus Common Stock
----------- ---------- -------- -------- -------------
1998 J. Steiner $400,000 $180,000 130,000
J. Flynn 0 0 0
D. Miller 9,600 0 0
E. Steiner 45,667 0 30,000
1997 J. Steiner 300,000 273,375 80,000
J. Flynn 0 0 0
D. Miller 9,600 0 0
E. Steiner 16,000 0 5,000
1996 J. Steiner 262,500 157,500 150,000
J. Flynn 0 0 0
D. Miller 9,600 0 0
E. Steiner 16,000 0 0
</TABLE>
In addition, officers received deferred bonuses from Banner Aerospace, as
discussed below under caption "Deferred Banner Bonuses." Such Deferred
Banner Bonuses are not included in the above table.
10
<PAGE>
(2) Includes the following for fiscal 1998:
a. Company matching contributions under 401(k) savings plan, as follows:
<TABLE>
<S> <C>
J. Steiner $4,000
J. Flynn 4,000
D. Miller 2,692
J. Moskovic 327
E. Steiner 4,000
</TABLE>
b. Premiums paid by the Company for split-dollar life insurance coverage,
as follows:
<TABLE>
<S> <C>
J. Steiner $25,927
</TABLE>
c. Imputed interest on loans to officers, as follows:
<TABLE>
<S> <C>
D. Miller $2,662
E. Steiner 2,662
</TABLE>
(3) Includes the following: $82,155 temporary living expenses; and $60,319 tax
gross up of temporary living expenses.
(4) Includes the following: $11,545 personal use of company car; and $25,225
tuition reimbursement (including tax gross up) paid for children as part
of temporary living expenses.
DEFERRED BANNER BONUSES
In connection with the disposition by Banner Aerospace of its Hardware Group
to AlliedSignal Inc., certain Company officers received bonuses from Banner
Aerospace, paid in shares of stock of AlliedSignal Inc. Such shares of stock
are valued at the closing price of such stock ($36.25 per share) on
January 13, 1998, which is the date of the disposition by Banner Aerospace of
its Hardware Group. Pursuant to Banner's 1998 Deferred Bonus Plan, such bonus
recipients have elected to defer receipt of such shares. In addition to
receiving such shares, each recipient will receive compounded interest (based on
a value of $36.25 per share) at the rate of 8% per annum until such time as the
deferred compensation is received. Payment of such deferred compensation (shares
of stock plus compounded interest) is an unsecured, general obligation of Banner
Aerospace. The amount of shares received by the named executive officers as
bonuses from Banner Aerospace for the disposition of the Hardware Group, the
receipt of which has been deferred by such officers, is as follows:
<TABLE>
<CAPTION>
Number of Shares of Value of
Officer AlliedSignal Stock Shares
------- ------------------- --------
<S> <C> <C>
J. Flynn 8,276 $300,000
D. Miller 9,655 $350,000
E. Steiner 5,517 $200,000
</TABLE>
11
<PAGE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made to each of the named executive officers during the fiscal
year ended June 30, 1998.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Potential
% of Realizable Value
Total at Assumed Rates
Options of Stock Price
Granted Appreciation for
Securities to Option Term
Underlying Employees Exercise -----------------
Options in Fiscal Price Expiration 5% 10% ($)
Name Granted 1998 ($/Sh) Date ($)(1) (1)
---- ---------- --------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey J. Steiner 100,000(2) 32.1% 24.6875 09/10/02 682,071 1,507,197
John Flynn 10,000(2) 3.2% 24.6875 09/10/02 68,207 150,720
Donald E. Miller 20,000(2) 6.4% 24.6875 09/10/02 136,414 301,439
Jacques S. Moskovic 10,000(2) 3.2% 24.6875 09/10/02 68,207 150,720
Eric I. Steiner 40,000(2) 12.9% 24.6875 09/10/02 272,828 602,879
</TABLE>
- --------
(1) The potential realizable value for each named executive officer reflects
the increase in value of the shares granted, based on a beginning price
equal to the stock option exercise price and assuming rates of stock value
appreciation of 5% and 10%, respectively, over a period of five years. The
actual value, if any, an executive may realize will depend on the excess
of the stock price over the exercise price on the date the option is
exercised.
(2) These options were granted on 9/11/97; 25% became exercisable on 9/11/98;
50% are exercisable on 9/12/99; 75% are exercisable on 9/11/00; and 100%
are exercisable on 9/11/01.
OPTION EXERCISES AND YEAR-END VALUES
The following table shows exercises and values of options held by the named
executive officers as of June 30, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised in-the-Money Options
Acquired Options at FY-End at FY-End
on Value ------------------------- -------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey Steiner -- -- 163,850 248,850 2,619,078 2,211,266
John Flynn 5,000 85,313(1) 26,700 33,700 392,344 270,656
Donald Miller 5,000 85,313(1) 60,850 60,850 854,547 429,234
Jacques Moskovic -- -- 34,600 37,100 556,969 369,312
Eric Steiner 35,000 659,062(1) 65,550 142,550 728,703 748,953
</TABLE>
- --------
(1) Pursuant to the Company's Stock Option Deferral Plan, officers may defer
payment of the Compensation in a particular year or years from the
exercise of stock options. "Compensation" means the excess value of a
stock option, determined by the difference between the fair market value
of shares issuable upon exercise of a stock option, and the option price
payable upon exercise of the stock option. An officer's deferred
Compensation shall be in the form of "Deferred Compensation Units,"
representing the number of shares of Common Stock that the officer shall
be entitled to receive upon expiration of the deferral period. (The number
of Deferred Compensation Units issuable to an officer is determined by
dividing the amount of the deferred Compensation by the fair market value
of the Company's stock as of the date of deferral.) Under the Stock Option
Deferral Plan, the following named executive officers deferred
Compensation as follows: J. Flynn, deferred $85,313 in exchange for 4,027
Deferred Compensation Units; D. Miller, deferred $85,313 in exchange for
4,027 Deferred Compensation Units; E. Steiner, deferred $573,750 in
exchange for 24,545 Deferred Compensation Units.
12
<PAGE>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
Mr. Jeffrey Steiner has an amended and restated employment agreement with
the Company dated September 10, 1992. The term of the current agreement is for
one year, and is extended annually for additional one-year periods unless
either party gives notice not to extend the agreement. Under such agreement,
Mr. Steiner is entitled to receive a base salary determined by the
Compensation and Stock Option Committee of the Company's Board. His current
base salary is $1,200,000 per year. If Mr. Steiner dies during the term or any
extended term of the agreement, his estate will receive an amount equal to one
year's base salary, plus bonus (if any) for the fiscal year during which death
has occurred. If the Company terminates the agreement because of Mr. Steiner's
disability for more than nine consecutive months (or shorter periods
aggregating nine months during any twelve month period), he will receive fifty
percent of his base salary for two years, plus bonus (if any) for the fiscal
year during which termination of his employment has occurred. In the event of
a "change in control" of the Company or a "trigger event" such as a merger in
which the Company is not the surviving corporation, or a sale of substantially
all of the Company's assets, the term of employment will terminate upon
payment to Mr. Steiner of severance compensation in an amount equal to the sum
of 2.99 times his base salary and 2.99 times the preceding year's bonus paid
to him. Mr. Steiner has a service agreement with Banner Investments (U.K.)
PLC, a subsidiary of the Company, pursuant to which he is entitled to receive
annual compensation at the greater of $400,000 or pound sterling 204,000, for
the term of the agreement.
Mr. Steiner also has an employment agreement with Banner Aerospace, which
establishes Mr. Steiner's compensation by Banner Aerospace at not less than
$250,000 per year, and an annual bonus if certain performance targets are met.
Mr. Steiner's current salary with Banner Aerospace, Inc. is disclosed in
footnote (1) to the Executive Compensation table in this Proxy Statement. The
employment agreement with Banner Aerospace also has certain change in control
provisions. Upon the occurrence of a change in control or trigger event
(including (i) the acquisition by any person other than J. Steiner or his
affiliates of more than 20% of Banner Aerospace's stock, (ii) the sale of
substantially all assets of Banner Aerospace, (iii) the liquidation of Banner
Aerospace, (iv) the issuance of Banner Aerospace Stock representing a majority
of the voting power of Banner Aerospace, or (v) Banner Aerospace becoming the
subsidiary of a company other than The Fairchild Corporation), Mr. Steiner is
entitled to a cash payment from Banner Aerospace equal to 2.99 times the total
of his then base salary and bonuses paid by Banner Aerospace in the
immediately preceding fiscal year, less the portion of payments under stock
options vested solely due to a change in control or trigger event. The Company
beneficially owns approximately 85.43% of the outstanding common stock of
Banner Aerospace. Mr. Steiner's compensation by Banner Aerospace is set by the
board of directors of Banner Aerospace.
Each of John Flynn and Donald Miller has a letter agreement with the Company
dated February 27, 1998, which provides that if the Company terminates such
individual's employment (at any time) for reasons other than for cause, he
will receive: (i) a severance payment equal to two times his then current
annual base salary, and (ii) an amount in lieu of incentive bonus for such
year, equal to his then current annual base salary. Such amounts are to be
paid within ten days after termination of employment. In addition, in the
event of a change of control of the Company occurring while Mr. Flynn or
Mr. Miller is still an employee of the Company, such individual will receive:
(i)a change of control payment equal to two times his then current annual base
salary, and (ii) an amount in lieu of incentive bonus for such year, equal to
his then current annual base salary. Such amounts are to be paid one-half on
the date of change of control and the balance over a one year period. If a
change of control is followed by a termination of Mr. Flynn's or Mr. Miller's
employment without cause, such individual shall be entitled to receive both
the change of control payment, and the severance payment. Any amounts payable
pursuant to said letter agreements which are deemed to constitute "parachute
payments" under the Internal Revenue Code, together with any other payments to
such individuals which are deemed to constitute "parachute payments," shall
not exceed 2.99 times the individual's "base amount" (as defined in the
Internal Revenue Code).
13
<PAGE>
Mr. Moskovic has certain employment agreements with Company subsidiaries,
which provide that he will serve as the Chairman and President of Fairchild
Technologies from September 1, 1994, until his employment is terminated.
Mr. Moskovic is entitled to receive a base salary of not less than $190,000 per
year for the remainder of the term, plus eligibility to earn an annual
incentive bonus of 50% of his then current base salary or $80,000 (whichever
is greater). Mr. Moskovic's current base salary under his employment
agreements (aggregate) is approximately $420,0000.
If Mr. Moskovic's employment is terminated at any time, for reasons other
than cause, he will receive a severance payment equal to the standard package
paid by the Company to senior officers employed for a similar time period as
Mr. Moskovic. In the event of a change of control of the Company, Mr. Moskovic
will receive a sum equal to two times his then current annual base salary,
payable one-half on the date of change of control and the balance over a one
year period, provided and so long as he remains or endeavors to remain an
employee of the Company and his employment is not terminated for cause. In
addition, pursuant to an Appreciation Rights Agreement, upon a change of
control occurring during Mr. Moskovic's term of employment (or after his
employment termination, if he is dismissed without cause), Mr. Moskovic is
entitled to receive 10% of the appreciation in value of the companies
supervised by Fairchild Technologies. The appreciation in value (as further
described in the Appreciation Rights Agreement) is a multiple of cash flow for
the Fairchild Technologies companies (4 times cash flow) or a multiple of EBIT
for the Fairchild Technologies companies (5 times EBIT), whichever is greater,
less the Company's investments in Fairchild Technologies. Fairchild
Technologies is a business unit of the Company that plans long term strategy
and control functions of Fairchild Technologies, GmbH, Fairchild Technologies
USA and other Company subsidiaries in the semiconductor, CD and LCD
industries.
PENSION AND RETIREMENT BENEFITS
Fairchild Retirement Plan. The Company and its subsidiaries have a number of
defined benefit pension plans covering substantially all U.S. employees.
Effective January 1, 1991, the Company adopted the Retirement Plan for
Employees of Fairchild Industries, Inc. ("Fairchild Retirement Plan"). The
following table illustrates the amount of estimated annual fixed retirement
benefits payable under the Fairchild Retirement Plan to an employee retiring
in 1998, at age 65, at various salary levels (average of highest five
consecutive years out of last ten years of service) and years of service. The
Fairchild Retirement Plan defines salary as total compensation, subject to the
Internal Revenue Service's limit on the amount of compensation that may be
used to compute benefits under qualified pension plans. This limit is equal to
$160,000 for 1998. The benefit amounts listed in the following table are not
subject to any deduction for Social Security benefits or other offset amounts.
<TABLE>
<S> <C> <C> <C> <C>
Annual 10 Years 20 Years 30 Years 40 Years
Salary of Service of Service of Service of Service
------- ---------- ---------- ---------- ----------
$ 25,000 $ 2,490 $ 4,980 $ 7,471 $ 9,028
50,000 4,755 9,510 14,265 17,267
100,000 10,755 21,510 32,265 38,892
150,000 16,755 33,510 50,265 60,517
200,000 22,755 45,510 68,265 82,142
250,000 28,755 57,510 86,265 103,767
</TABLE>
The named executive officers participate in the Fairchild Retirement Plan.
For purposes of determining benefits under the Fairchild Retirement Plan,
Mr. J. Steiner's average salary is $160,000 with seven years and six months of
credited service. Mr. Flynn's average salary is $160,000 with ten years and
nine months of credited service. Mr. Miller's average salary is $160,000 with
six years and five months of credited service. Mr. Moskovic's average salary
is $160,000 with two years and nine months of credited service. Dr. Eric
Steiner's average salary is $160,000 with six years and three months of
credited service.
14
<PAGE>
Supplemental Executive Retirement Plan. The Company has a Supplemental
Executive Retirement Plan ("SERP") for certain key executives which provides
additional retirement benefits based on final average earnings and years of
service. Benefits which may be payable under this plan are not included in the
Summary Compensation Table. This plan provides a maximum retirement benefit
equal to the difference between sixty percent of the participant's average
base salary for the last five years of employment and the aggregate of the
participant's (i) other Company defined pension benefits, (ii) profit
sharing/ESOP benefits, and (iii) primary Social Security payment. This plan is
unfunded (except to the extent of assets in the Rabbi Trust, discussed below),
unqualified and not subject to the Employee Retirement Income Security Act of
1974, as amended. The plan was amended in June 1988 to provide for lump sum
pre-retirement advances on an actuarially reduced basis, at the election of
participants age sixty or over, contingent upon approval of the Compensation
and Stock Option Committee. All persons named in the Summary Compensation
Table are eligible for participation in this plan. Pursuant to letter
agreements with Messrs. J. Flynn and D. Miller (dated February 27, 1998), for
purposes of determining years of service with the Company under the SERP, such
individuals shall be credited with two years of service for each of the first
ten years. However, the foregoing shall not affect vesting requirements which
shall remain in accordance with the SERP.
The annual contributions under the Retirement Plan and the Supplemental
Executive Retirement Plan attributable to persons named in the Summary
Compensation Table are not shown since they cannot be readily determined by
the regular actuaries of said plans. Directors who are not employees of the
Company or one of its subsidiaries are not eligible to participate in these
retirement plans.
Rabbi Trust. Effective August 31, 1995, the Company established a grantor
trust, of which the Company is the grantor. The Company intends to make
contributions to such trust to provide a source of funds to assist the Company
in meeting its liabilities under the Supplemental Executive Retirement Plan.
Assets for such trust are considered general assets of the Company and are
subject to claims of the Company's creditors in the event of insolvency.
15
<PAGE>
COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee of the Board of Directors (the
"Committee"), which is composed of at least two non-employee Directors, has
initial responsibility for all compensation actions affecting the Company's
executive officers, including base salaries, bonus awards, stock option awards
and the terms and conditions of their employment. The Committee administers
the Company's 1986 Non-Qualified and Incentive Stock Option Plan (the "Stock
Option Plan").
COMPENSATION PHILOSOPHY
The Committee makes appropriate recommendations concerning executive
compensation, and reports to the Board. Under the supervision, approval and
review of the Committee, the Company's compensation policies and programs are
designed to motivate, retain and attract management with incentives linked to
financial performance of the Company and the value that is delivered to its
stockholders. Specifically, the Company's policies and programs endeavor to:
(i) link executive compensation to sustainable increases in the financial
performance of the Company and preservation or realization of stockholder
value; (ii) provide rewards contingent upon Company or business unit
performance; (iii) differentiate compensation based upon individual
contribution; (iv) promote teamwork among executives and other Company
employees; and (v) encourage the retention of a sound management team. During
each fiscal year, the Committee reviews and recommends to the Board, with any
modification it deems appropriate, base salary levels for the Company's
executive officers, including the named executive officers and certain other
senior managers.
COMPONENTS OF EXECUTIVE OFFICER COMPENSATION
Cash Compensation (Base Salary, Annual Incentive Bonus and Special
Bonuses)--The Company manages the total cash compensation to provide median
levels of cash compensation at average levels of corporate, business unit, and
individual performance. Cash compensation consists of two components: (i) a
base salary that is competitive with that of other companies paying at the
median level of the market, and (ii) an annual incentive opportunity that is
variable and is reflective of the financial performance of the Company and the
individual performance of the executive officer. When high levels of
performance are achieved, the level of cash compensation may exceed the median
of the market. Conversely, when the Company, business unit, or the individual
falls short of the predetermined goals, the level of cash compensation may be
substantially below the market median. The objective of this mix is to deliver
total annual cash compensation competitive with compensation offered at other
companies facing similar challenges for similar positions, while
simultaneously linking the payment of the annual cash incentive to the
achievement of specific objectives in the Company's annual operating plan as
approved by the Board.
Mix Between Salary and Annual Incentive Pay--The mix between salary and
annual incentive pay is related to an executive's job grade. Executives at
higher grade levels in the Company have a greater percentage of their total
cash compensation contingent on the accomplishment of business objectives,
i.e. the higher the executive grade level, the greater the proportion of
annual compensation that is "at risk". The yearly performance bonus, when
awarded, is generally paid in September with respect to the preceding fiscal
year. The award and size of the performance bonus are based upon: (i) the
executive officer's performance against goals determined by the Company's
Chief Executive Officer; and (ii) the performance of the executive officer's
unit within the Company against that unit's goals; or (iii) the performance of
the Company against Company goals. Goals vary from year to year and from unit
to unit and, with regard to individual goals of executive officers, usually
include both quantitative and qualitative factors.
Bonuses for Extraordinary Transactions--In addition to annual bonuses, the
Committee also occasionally awards special bonuses in connection with
extraordinary transactions by the Company. The bonuses generally are awarded
to individuals who make significant contributions towards the initiation,
structuring and consummation of the transactions.
16
<PAGE>
In fiscal 1998, management continued to effectively implement its long-term
strategies, which included the disposition of non-core assets, the refinancing
of indebtedness, an equity offering, and an increased focus of its efforts on
its aerospace parts businesses. The Committee believes that the success of
these strategies is evidenced by an increase of $15.3 million in the fiscal
1998 operating profits of Fairchild Fasteners, negotiations leading to the
acquisition of AS&C GmbH and Special-T Fasteners, Inc. (which are aerospace
fastener distributors) and the sale of the Company's 42% interest in Shared
Technologies Fairchild, Inc. for $178 million during fiscal 1998. Based on the
foregoing, the Committee approved salary, annual incentive pay and bonuses for
extraordinary transactions for the Company's named executive officers as set
forth under the Summary Compensation Table of this Proxy Statement.
Stock Option Grants--The Committee believes that stock option grants serve
as a desirable long-term method of compensation because they closely ally the
interests of management with the preservation and enhancement and realization
of stockholder value and serve as an additional incentive to promote the
success of the Company. In fiscal 1998, the Committee approved the grant of
244,000 stock options to the Company's senior management and 67,250 stock
options to other employees. Included in these grants were 80,000 options
granted to the named executive officers (other than the CEO), and 100,000
options granted to the CEO.
Total Compensation Program--The Committee believes that the total
compensation program for executives of the Company (cash compensation, bonuses
and stock option grants) is on a level with the compensation programs provided
by other companies facing similar challenges. The Committee believes that any
amounts paid under the annual incentive plan will be appropriately related to
corporate and individual performance, yielding awards that are directly linked
to the annual financial and operational results of the Company within the
framework of the challenges faced. The Committee also believes that the Stock
Option Plan provides opportunities to participants that are consistent with
the returns that are generated on behalf of the Company's stockholders.
COMPENSATION OF CEO
Jeffrey J. Steiner has served as Chairman of the Board and Chief Executive
Officer of the Company since 1985, and as President from July 1991 through
September 1998. In fixing Mr. Steiner's salary and target bonus levels, as
well as determining the size of stock options, if any, the Committee and the
Board typically review the strategic direction and financial performance of
the Company, including revenue and profit levels. In addition, the Committee
reviews Mr. Steiner's performance as Chairman of the Board, Chief Executive
Officer and President (through September 1998), his importance to the Company
and his success in implementing its strategic goals both through his
entrepreneurial actions and investment banking acumen.
Mr. Steiner has developed and established initiatives aimed at improving the
operating efficiency and financial performance of the Company. Following
several years of record earnings, the Company's earnings from operations
declined sharply in fiscal 1991, as a result of the global industrial
recession and an unusual combination of circumstances affecting those
businesses of the Company that serve the aerospace and aviation industry,
including, but not limited to, reductions in commercial air travel and defense
spending, as well as the deregulation of the airline industry. These events
required major changes in the way the Company conducts its business, as well
as new and innovative business strategies. During fiscal 1998, under the
direction of Mr. Steiner, the Company (i) increased operating profits of
Fairchild Fasteners by $15.3 million; (ii) acquired AS&C and Special-T
Fasteners, which are both aerospace fastener distributors; (iii) sold 42% of
Shared Technologies Fairchild Inc., (iv) raised $60 million from the issuance
of additional equity; (v) redeemed all of the Company's public debt and
refinanced its bank debt; and (vi) implemented further aggressive cost
reduction and cost control programs at all organizational and divisional
levels.
Base Compensation--Mr. Steiner's base compensation for fiscal 1998 was
$1,200,000 pursuant to his employment agreement, plus $400,000 for services in
the United Kingdom.
17
<PAGE>
Incentive Compensation Performance Goals--The performance goals for and
maximum amount of Mr. Steiner's incentive compensation (i.e., compensation
beyond base salary) were approved by the stockholders at the last Annual
Meeting, as follows:
1. If the Company (including its consolidated subsidiaries) achieves pre-
tax profits for fiscal 1998, the Chief Executive Officer may receive up
to three percent (3%) of such pre-tax profits.
2. If the Company engages in an extraordinary transaction (e.g., purchase
or sale of assets not in the ordinary course, including, without
limitation, through a public offering or private placement of
securities) during fiscal 1998, the Chief Executive Officer may receive
up to two and one-half percent (2 1/2%) of the total value of the
transaction.
Incentive Compensation for 1998 Transactions--Based on such performance
goals being achieved, the Committee determined that Mr. Steiner should receive
$7,854,684 in incentive compensation for fiscal 1998. The total incentive
compensation paid to Mr. Steiner for fiscal 1998 is within the performance
goals approved last year by the stockholders.
Contingent Incentive Compensation Paid in Fiscal 1998 for Fiscal 1997
Transactions--A contingent compensation bonus of $450,000 was awarded to Mr.
Jeffrey Steiner as incentive compensation for extraordinary transactions
completed in fiscal 1997 conditioned however on the Company's receipt of
payment for the sale of air-rights related to the Company's property in
Farmingdale, NY. Such contingent compensation bonus was not considered as part
of fiscal 1997 compensation but is, instead, considered part of fiscal 1998
compensation.
Stock Option Compensation--In addition, in fiscal 1998, the Committee
approved the grant of 100,000 stock options to Mr. Jeffrey Steiner under the
Stock Option Plan.
Compensation by Banner Aerospace--Mr. Jeffrey Steiner is the Chairman,
President and Chief Executive Officer of Banner Aerospace, a New York Stock
Exchange listed company of which the Company beneficially owns approximately
85.43%. Mr. Steiner's compensation for his services to Banner Aerospace is
determined by the Banner Aerospace compensation committee and the Banner
Aerospace board of directors. Such compensation is not reviewed by the
Committee or the Company's Board.
INTERNAL REVENUE CODE SECTION 162(M)
The Committee has considered the impact of Section 162(m) Internal Revenue
Code of 1986, as amended (the "Code"), which in certain circumstances
disallows income tax deductions for compensation in excess of $1,000,000. This
disallowance provision does not apply to performance-based compensation and
certain other forms of compensation. The Committee currently intends to
structure the Company's incentive compensation awards to the Company's Chief
Executive Officer and other executive officers in a manner that complies with
the Code's requirements for performance-based compensation to ensure that the
Company is entitled to full deductibility of such compensation. One of these
requirements is that the stockholders approve the material terms of
performance goals for such awards. To satisfy this requirement, the
stockholders are being asked elsewhere in this Proxy Statement to approve the
material terms of the performance goals for the fiscal 1999 incentive
compensation award for the Company's President and Chief Operating Officer
(Item 5 of this Proxy Statement) and the Company's Chief Executive Officer
(Item 6 of this Proxy Statement) and the amendments to a warrant issued to an
affiliate of the Company's Chief Executive Officer (Item 7 of this Proxy
Statement).
Compensation and Stock Option
Committee of the Board of Directors
Philip David, Chairman
Herbert S. Richey
Melville R. Barlow
Daniel Lebard
18
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the performance of the Company's Class A Stock
with that of the S & P 500 Stock Index and the S & P Manufacturing (Diversified
Industrials) Index (consisting of 12 industrial manufacturers). The graph plots
the growth in value of an initial $100 investment over the indicated five year
period with all dividends reinvested.
Total Shareholder Return
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
The Fairchild Corporation-Class A 100.00 106.90 93.10 403.45 496.55 556.90
S&P 500 Index 100.00 101.41 127.77 160.91 216.64 281.82
S&P Manuf.-Diversified Index 100.00 111.71 147.55 188.19 271.30 341.87
</TABLE>
Fiscal Year Ending June 30
19
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
THE FAIRCHILD CORPORATION
The table below sets forth as of August 31, 1998, the number of shares and
percent of Class A Stock and Class B Stock beneficially owned by (i) each
person known by the Company to own beneficially more than five percent of any
class of Stock, (ii) each director and nominee for director, (iii) each named
executive officer, and (iv) the directors, nominees and executive officers of
the Company as a group. Except as otherwise indicated in the footnotes to the
table, the persons named possess sole voting power and investment power with
respect to all shares shown as beneficially owed by them. As of August 31,
1998, there were 19,536,345 shares of Class A Stock and 2,624,662 shares of
Class B Stock outstanding and eligible to vote. The number of outstanding
shares does not include shares that are owned by Banner Aerospace, Inc (a
subsidiary of the Company). Such shares are not eligible to vote. As of
August 31, 1998, there were 894,800 shares of Class A Stock owned by Banner
Aerospace, Inc.
<TABLE>
<CAPTION>
Number of
Shares of Percent Number of Shares Percent
Name Class A Stock (1) of Class of Class B Stock (1) of Class
- ---- ---------------- -------- ------------------- --------
<S> <C> <C> <C> <C>
Michael T. Alcox 46,062(2) * 600 *
Melville R. Barlow 8,500(2) * -- --
Mortimer M. Caplin 98,000(2) * -- --
Colin M. Cohen 57,058(2) * -- --
J.J. Cramer & Co. 1,951,000(4) 9.99% -- --
Philip David 55,500(2) * -- --
Robert E. Edwards 1,072,605 5.49% -- --
John L. Flynn 45,069(2) * -- --
Harold J. Harris 102,606(2)(3) * -- --
Gabelli Funds, Inc. 1,194,500(4) 6.11%
Daniel Lebard 8,500(2) * -- --
Donald E. Miller 99,575(2)(3) * -- --
Jacques S. Moskovic 46,278(2) * -- --
Paske Investments, Ltd. 6,102,684(4)(5) 27.19% 2,908,996(5) 96.98%
Herbert S. Richey 44,000(2) * -- --
Moshe Sanbar 7,500(2) * -- --
Robert A. Sharpe II 37,450(2)(3) * -- --
Eric I. Steiner 169,415(2)(3) * 15,000 *
Jeffrey J. Steiner 6,585,509(2)(6) 28.96% 2,938,996(6) 97.98%
All directors and
executive officers as a
group (23 persons) 8,546,535(2)(7) 36.58% 2,969,596(7) 99.00%
</TABLE>
- --------
* Represents less than one percent.
(1) The Class A Stock Column includes shares of Class B Stock, which are
immediately convertible into Class A Stock on a share-for-share basis.
Options that are exercisable immediately or within sixty days after
August 31, 1998 appear in the Class A Stock column. Outstanding warrants are
exercisable into shares of either Class A Stock or Class B Stock and appear
in both the Class A Stock and Class B Stock columns.
20
<PAGE>
(2) Includes exercisable stock options to purchase Class A Stock, as follows:
M. Alcox, 17,925 shares; M. Barlow, 8,500 shares; M. Caplin, 10,500
shares; C. Cohen, 56,250 shares; P. David, 33,000 shares; J. Flynn, 39,800
shares; H. Harris, 40,500 shares; D. Lebard, 8,500 shares; D. Miller,
83,775 shares; J. Moskovic, 46,275 shares; H. Richey, 38,000 shares;
M. Sanbar, 7,500 shares; R. Sharpe, 37,250 shares; E. Steiner, 93,075
shares; J. Steiner, 267,025 shares; Directors and Executive Officers as a
group, 856,750 shares.
(3) Includes shares beneficially owned, as follows: H. Harris -- 27,000 shares
of Class A Stock owned by the Wm. H. Harris, Inc. Profit-Sharing Plan.
D. Miller -- 300 shares of Class A Stock owned by Mr. Donald Miller as
custodian for his child; Mr. Miller disclaims any beneficial interest
therein. E. Steiner -- 5,000 shares of Class A Stock owned by Dr. Eric
Steiner as custodian for his children; Dr. Steiner disclaims any
beneficial interest therein. R. Sharpe -- 200 shares of Class A Stock
owned by Mr. Sharpe as custodian for his children; Mr. Sharpe disclaims
beneficial interest therein.
(4) Based on the following information:
J.J. Cramer & Co., 100 Wall Street, New York, NY 10005. Information as of
September 4, 1998, contained in a Form 4 (for August 1998), filed with the
SEC by J.J. Cramer & Co., Cramer Capital Corporation, Cramer Partners, L.P.,
James J. Cramer and Karen L. Cramer.
Gabelli Funds, Inc., One Corporate Center, Rye NY 10580-1434. Information as
of January 30, 1998, contained in a Schedule 13D/A dated February 3, 1998,
filed with the SEC by Gabelli Funds, Inc.
Paske Investments, Ltd. and it's affiliates, including. The Friday Trust,
Stinbes Limited and Bestin Ltd. Address: c/o Lloyds Private Banking (Channel
Islands) Ltd., P.O. Box 63, 7 Bond Street, St. Helier, Jersey JE4 8PH,
Channel Islands, British Isles. Information provided to the Company by the
stockholder.
(5) Paske Investments, Ltd. owns no shares of record. It is the beneficial
owner of shares of Class A Stock and Class B Stock owned of record or
beneficially by its indirect wholly owned subsidiaries, as follows:
(A) Stinbes Limited: (i) 47,300 shares of Class A Stock, (ii) 2,533,996
shares of Class B Stock convertible on a one-to-one basis to Class A Stock,
and (iii) warrants to purchase 375,000 shares of Class A Stock or Class B
Stock; and
(B) Bestin Ltd.: 3,146,388 shares of Class A Stock.
Of the foregoing shares, 1,000,000 shares of Class B Stock and 3,146,388 of
Class A Stock have been pledged to NationsBank N.A., to secure guarantees of
loans to Mr. Jeffrey Steiner; and 20,000 shares of Class A Stock and 100,000
shares of Class B Stock have been pledged to Banque de Camondo (Suisse)
S.A., to secure a line of credit to Bestin Worldwide Limited. The warrants
to purchase 375,000 shares of Class A Stock or Class B Stock may be
exercised only within specified periods after the occurrence of certain
events, as provided in the warrant certificates.
Paske Investments, Ltd. is a wholly-owned subsidiary of The Friday Trust, a
trust organized under the laws of Jersey, Channel Islands, of which the sole
trustee is Lloyds Bank Trust Company (Channel Islands) Limited. The Friday
Trust is deemed the beneficial owner of the same shares of Class A Stock
owned directly or beneficially by Paske Investments, Ltd.
21
<PAGE>
(6) Mr. Jeffrey Steiner, 110 East 59th Street, New York, NY 10022. Mr. Steiner
is the settlor and a beneficiary of The Friday Trust (the sole stockholder
of Paske Investments, Ltd.), and as such may be deemed to beneficially own
the same shares of Class A Stock and Class B Stock owned directly or
beneficially by Paske Investments, Ltd., as discussed in footnote (5) to
this table.
Class A Shares shown in the table as owned by Mr. Steiner include: (i)
6,102,684 shares owned directly or beneficially by Paske Investments and
subsidiaries (see footnote (5)); (ii) 145,900 shares owned of record by
Mr. Steiner; (iii) exercisable stock options to purchase 267,025 shares of
Class A Stock (see footnote (2)); (iv) 37,500 shares of Class A Stock owned
by Mr. Steiner as custodian for his children; (v) 30,000 shares of Class B
Stock (convertible on a one-to-one basis to Class A Stock) owned by
Mr. Steiner as custodian for his children; and (vi) 2,400 shares of Class A
Stock owned by the Jeffrey Steiner Family Foundation .
Class B Shares shown in the table as owned by Mr. Jeffrey Steiner include:
(i) 2,908,996 shares owned directly or beneficially by Paske Investments and
subsidiaries (see footnote (5)); and (ii) 30,000 shares of Class B Stock
owned by Mr. Steiner as custodian for his children.
Mr. Steiner disclaims beneficial ownership of shares owned by the Jeffrey
Steiner Family Foundation and shares owned by him as custodian for his
children.
(7) Includes warrants as described in footnotes (5) and (6) above.
22
<PAGE>
BANNER AEROSPACE
Effective as of February 25, 1996, Banner Aerospace became a consolidated
subsidiary of the Company. The common stock of Banner Aerospace is publicly
traded on the New York Stock Exchange, under the symbol BAR. The following
table sets forth as of June 30, 1998, the number of shares (and percent of
class) of common stock of Banner Aerospace beneficially owned by (i) the
Company, (ii) each director and nominee for director, (ii) each named
executive officer, and (iv) the directors, nominees and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
Number of Shares of Common
Name Stock Of Banner Aerospace (1) Percent of Class (2)
---- ---------------------------- -------------------
<S> <C> <C>
The Fairchild
Corporation 21,129,719 85.43%
Michael T. Alcox 16,000 *
Melville R. Barlow -- --
Mortimer M. Caplin 50,000 *
Colin M. Cohen -- --
Philip David -- --
Robert E. Edwards -- --
John L. Flynn -- --
Harold J. Harris 1,500 *
Daniel Lebard -- --
Donald E. Miller 2,500 *
Jacques S. Moskovic -- --
Herbert S. Richey -- --
Moshe Sanbar -- --
Robert A. Sharpe II -- --
Eric I. Steiner -- --
Jeffrey J. Steiner 21,528,619(3) 86.03%
All directors and
executive officers
as a group (23
persons) 21,614,619 86.27%
</TABLE>
- --------
*Represents less than one percent.
(1) Includes shares of Banner Aerospace Preferred Stock that are convertible
into shares of Banner Aerospace Common Stock (on a share-for-share basis),
as follows: The Fairchild Corporation, 3,289,745 shares; J. Steiner,
18,999 shares. Also includes vested stock options for Banner Aerospace
Common Stock, as follows: M. Alcox, 13,000 shares; J. Steiner, 271,667
shares; all officers and directors of the Company as a group, 300,667.
(2) Assumes 21,445,002 shares of Banner Aerospace Common Stock issued and
outstanding as of June 30, 1998.
(3) Includes 21,129,719 shares of Banner Aerospace Common Stock beneficially
owned by The Fairchild Corporation; Mr. Jeffrey Steiner disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
23
<PAGE>
CERTAIN TRANSACTIONS
Stinbes Limited, an affiliate of Jeffrey Steiner, holds a warrant to
purchase 375,000 shares of Class A or Class B Stock, at $7.80 per share.
Effective as of February 9, 1998, the Company approved the following
modifications to the warrant: (i) the warrant may be exercised within 365 days
after the merger of Shared Technologies Fairchild Inc. with Intermedia
Communications, Inc. (which occurred on March 10, 1998), or 365 after a change
of control of the Company, or 365 days after a change of control of Banner
Aerospace, and (ii) the exercise price may be paid either in cash, or in stock
of the Company. The warrant was further amended in September 1998, subject to
shareholder approval, as provided in Item 7 of this Proxy Statement.
The Company and Banner Aerospace prepaid hours in exchange for a discount
for use of a chartered helicopter used from time to time for business-related
travel. The owner of the chartered helicopter is a company controlled by
Mr. Jeffrey Steiner. Cost for such flights charged to the Company and Banner
Aerospace are comparable to those charged in arm's length transactions between
unaffiliated third parties. Prepaid hours by the Company in fiscal 1998 were
approximately $225,000; and prepaid hours by Banner Aerospace in its 1998
fiscal year were approximately $225,000.
The Company constructed and furnished an office in Mr. Jeffrey Steiner's
residence for the purpose of transacting Company business, at a cost of
approximately $218,000. Mr. Steiner is required to buy back such office and
furnishings in the event of his employment termination, at the Company's then
book value for such assets.
On March 2, 1998, the Company consummated the acquisition (by merger) of
Special-T Fasteners from Robert E. Edwards, pursuant to an Agreement and Plan
of Merger dated as of January 28, 1998 (amended on February 20, 1998, and
March 2, 1998). The merger consideration paid to Mr. Edwards was approximately
$47.3 million, of which approximately $23.8 million was paid in shares of
Class A Common Stock of the Company and the remainder was paid in cash. As
additional merger consideration, Mr. Edwards is entitled to receive (for a
period of two years) a sum equal to the amount (if any) by which 10% of the
aggregate EBITD of Special-T Fasteners exceeds $520,000 per year. Such
additional merger consideration shall be paid 50.1% in Class A Common Stock of
the Company, and the balance in cash. Mr. Edwards has an employment agreement
with the Company, pursuant to which he is compensated at the rate of $520,000
per year. Mr. Edwards was not an officer, director or employee of the Company
at the time of the merger.
Fairchild CDI, S.A. (a Company subsidiary and part of Fairchild
Technologies) leases office space in Nanterre, France from a company
controlled by Jacques S. Moskovic. Current rent under the lease is $9,807 per
month. The lease expires on June 30, 2000.
The Company made two loans in the aggregate amount of $300,000 to Robert
Sharpe in order to assist him in relocating from California to Virginia. Such
loans bear interest at 5.48% per annum. The first loan, for $100,000, is due
in full on October 1, 1998. The second loan, for $200,000, requires annual
interest payments, and is due in full on June 30, 2001.
Pursuant to an Exchange Offer commenced on May 11, 1998 and expired on
June 9, 1998, the Company exchanged, for each properly tendered share of Banner
Aerospace common stock, a number of shares of the Company's Class A Common
Stock equal to the quotient of $12.50 divided by $20.675. Messrs. M. Alcox, H.
Harris, J. Flynn and E. Steiner exchanged an aggregate of 46,800 shares of
Banner Aerospace common stock for an aggregate of 28,292 shares of the
Company's Class A Common Stock pursuant to the Exchange Offer.
24
<PAGE>
Eric Steiner (son of Jeffrey Steiner) is an officer of the Company and an
officer and director of Banner Aerospace. His compensation is set forth in the
compensation table of this proxy statement. Natalia Hercot (daughter of
Jeffrey Steiner) is an officer of the Company, for which she was compensated
$54,976 in fiscal 1998. Philippe Hercot (son-in-law of Jeffrey Steiner) is a
director of Banner Aerospace, for which he was compensated $12,000 plus stock
options for 1,000 shares of Banner Aerospace common stock in Banner
Aerospace's fiscal 1998. A brother of Robert Sharpe is an employee of
Fairchild Fasteners, for which he was compensated approximately $166,00 in
fiscal 1998.
Mortimer M. Caplin is a senior member of the law firm of Caplin & Drysdale,
which rendered legal services to the Company during fiscal 1998. The Company
intends to use the services of this firm during fiscal 1999.
Ms. Linda Edwards, the wife of Robert Edwards, is a partner of the law firm
of Paul, Hastings, Janosfky & Walker LLP, which rendered legal services to the
Company during fiscal 1998. The Company intends to use the services of this
firm during fiscal 1999.
The Company engages the services of WMC Communications, Ltd. (communications
consultants), of which David Wynne-Morgan is the Chairman and principal
stockholder. Compensation by the company for such services is at the rate of
$40,000 per month.
* * *
25
<PAGE>
ITEM 2--APPROVAL OF AMENDMENT TO
INCREASE SHARES ISSUABLE UNDER THE COMPANY'S STOCK OPTION PLAN
INTRODUCTION
The Company's stockholders will be asked to approve certain amendments
adopted in fiscal 1998, to the Company's 1986 Non-Qualified and Incentive
Stock Option Plan (the "Stock Option Plan"). These Amendments are described in
Item 2 of this Proxy Statement (Amendment 98-1) and in Item 3 of this Proxy
Statement (Amendment 98-2).
On May 7, 1998, the Board adopted amendments to the Stock Option Plan
("Amendment 98-1"), to be effective as of May 7, 1998, subject to approval by
the Company's stockholders. The purpose of Amendment 98-1, as more fully set
forth below, is to increase (by 600,000 shares) the number of shares of Class
A Stock authorized to be issued under the Stock Option Plan.
DESCRIPTION OF THE PLAN AND AMENDMENT 98-1
Set forth below is a summary of certain important features of the Stock
Option Plan and Amendment 98-1. This description is qualified in its entirety
by reference to the complete text of the Stock Option Plan and Amendment 98-1,
which appear as Exhibits A and B to this Proxy Statement.
Shares Issuable Under the Plan. Prior to Amendment 98-1, 4,541,000 shares of
Class A Stock were authorized for issuance under the Stock Option Plan.
Pursuant to Amendment 98-1, the number of shares available for issuance under
the Stock Option Plan shall be increased to 5,141,000 shares of Class A Stock.
Adjustments are to be made in the number and kind of shares subject to the
Stock Option Plan, and in the exercise price of stock options under the Stock
Option Plan, to reflect changes in the Company's Class A Stock as a result of
corporate restructure, reclassification, merger, stock split or similar
events.
As of August 31, 1998: (i) an aggregate of 3,010,772 shares of Class A Stock
were issued pursuant to stock options awarded and exercised under the Stock
Option Plan; (ii) there remained 1,450,281 shares of Class A Stock for
issuance pursuant to stock options awarded but not yet exercised under the
Stock Option Plan; and (iii) there remained 79,947 shares of Class A Stock for
future stock option awards under the Stock Option Plan. Amendment 98-1
increases the number of shares available for future stock option awards by
600,000 shares.
Stock Options. The Stock Option Plan provides for the granting of options
intended to meet the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended ("Incentive Stock Options"), as well as the granting of
options that do not meet those requirements ("Non-Qualified Stock Options"),
or a combination of the foregoing. Under the Stock Option Plan, options must
be granted at not less than fair market value; however, Incentive Stock
Options granted to participants owning more than 10% of the total combined
voting power of all classes of stock of the Company or, if applicable, a
subsidiary or parent of the Company, must be granted at not less than 110% of
the fair market value. The exercise price is payable in cash or, with the
approval of the Compensation and Stock Option Committee, in shares of Class A
Stock (valued at their fair market value at the date of exercise) or a
combination of such Class A Stock and cash.
Eligibility. Officers (including officers who are members of the Board) and
key employees of the Company or its subsidiaries are eligible to receive
Incentive Stock Options and/or Non-Qualified Stock Options under the Stock
Option Plan. Non-employee consultants of the Company or its subsidiaries are
eligible to receive Non-Qualified Stock Options under the Stock Option Plan.
As of August 31, 1998, 14 executive officers (including directors who are
officers) and approximately 3,525 employees
26
<PAGE>
were eligible to participate in the Stock Option Plan, including officers and
employees of Company subsidiaries (excluding Banner Aerospace, Inc.). Per the
terms of the Company's Stock Option Plan, Banner's officers and employees are
eligible to participate in the Stock Option Plan since Banner is more than a
50% subsidiary of the Company. However, in the past, the Company has not
issued stock options to Banner officers and employees since Banner has it's
own stock option plan. The Company reserves the right to issue stock options
to Banner officers and employees from time to time, as may be determined by
the Compensation and Stock Option Committee.
Administration. The Stock Option Plan is administered by a committee (the
"Compensation and Stock Option Committee") of members of the Board of
Directors who are "Non-Employee Directors" within the meaning of Rule 16b-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Stock Option Plan
provides that the Compensation and Stock Option Committee will select those
employees to whom options under the Stock Option Plan will be granted and will
otherwise administer the Stock Option Plan, taking into account the duties of
the employees, their present and potential contributions to the success of the
Company and such other factors as the Compensation and Stock Option Committee
deems relevant in connection with accomplishing the purposes of the Stock
Option Plan. No stock options may be granted under the Stock Option Plan after
April 9, 2006. All stock options outstanding as of April 9, 2006 shall
continue to be exercisable pursuant to their terms. The Board may amend the
Stock Option Plan from time to time, provided, however, that no amendments
shall be made without stockholder approval if required under Section 422 of
the Internal Revenue Code or Rule 16b-3 of the Exchange Act.
Exercise. Stock options under the Stock Option Plan may be exercisable for a
term of not more than ten years from the date of grant. Each stock option
award granted after November 21, 1996, must contain a vesting schedule
pursuant to which stock options covered by each award are exercisable within
the following time periods: (i) after one year from the date of grant, the
grantee may exercise up to 25% of the stock options covered by such award;
(ii) after two years from the date of grant, the grantee may exercise up to
50% of the stock options covered by such award; (iii) after three years from
the date of grant, the grantee may exercise up to 75% of the stock options
covered by such award; and (iv) after four years from the date of grant, the
grantee may exercise up to 100% of the stock options covered by such award.
Typically, a stock option granted under the Stock Option Plan is exercisable
only during the term of its holder's employment with the Company and for a
prescribed period thereafter. In the event of an unusual corporate event such
as liquidation, merger, other business combination, or acquisition or change
in control of the Company, (a) the Board (in its sole discretion, and on a
case-by-case basis), may accelerate the termination date of some or all
options effective 90 days after the occurrence of such unusual corporate
event, and (b) the holders of such options may exercise the option in full
(prior to the accelerated termination date), without regard to any vesting
limitations.
TAX CONSEQUENCES
The following discussion addresses certain U.S. federal income tax
consequences in connection with the Stock Option Plan. State tax treatment is
subject to individual state laws and is not reviewed in this discussion.
Incentive Stock Options. An Incentive Stock Option results in no taxable
income to the optionee or a deduction to the Company at the time it is
granted. On exercise of an Incentive Stock Option, the holder will generally
not recognize any income and the Company will generally not be entitled to a
deduction. However, the difference between the stock option exercise price and
the fair market value of the shares received on the date of exercise will be
treated as a positive adjustment in determining alternative minimum taxable
income, which may subject the holder to the alternative minimum tax. If
27
<PAGE>
the optionee retains the shares of stock received as a result of exercise of
an Incentive Stock Option for the applicable holding period (as defined
below), then the gain is treated as long-term capital gain. If the shares are
disposed of during the applicable holding period, the optionee will have
taxable income as in the case of a Non-Qualified Stock Option (as discussed
below), and the Company will be entitled to a tax deduction equal to the
amount of taxable income to the optionee. Currently, the "applicable holding
period" for Incentive Stock Options is a period of at least two years from the
date of grant of the Incentive Stock Option or twelve months from the date of
exercise of the Incentive Stock Option.
Non-Qualified Stock Options. A Non-Qualified Stock Option results in no
taxable income to the optionee or deduction to the Company at the time it is
granted. An optionee exercising such an option will, at that time, realize
taxable compensation in the amount of the difference between the option price
and the then market value of the shares. Subject to the applicable provisions
of the Internal Revenue Code, a deduction for federal income tax purposes will
be allowable to the Company in the year of exercise in an amount equal to the
taxable compensation realized by the optionee.
BENEFICIARIES OF PLAN
The table in this Proxy Statement under "Executive Compensation--Option Year
End Values" summarizes the outstanding options held by the named executive
officers under the Stock Option Plan. Since future awards under the Stock
Option Plan (as amended) are subject to approval by the Compensation and Stock
Option Committee, it is not possible to determine how many stock options will
be awarded in the future to the named executive officers, to executive
officers as a group, or to other employees as a group, nor the dollar value of
such future stock options. On September 28, 1998, the closing price on the New
York Stock Exchange for the Company's Class A Stock was $13.44 per share, as
reported in the Wall Street Journal.
THE BOARD RECOMMENDS A VOTE "FOR" AMENDMENT 98-1 TO
THE STOCK OPTION PLAN
* * *
28
<PAGE>
ITEM 3--APPROVAL OF AMENDMENT TO THE
COMPANY'S STOCK OPTION PLAN TO
PERMIT DEFERRAL OF GAIN UPON EXERCISE OF STOCK OPTIONS
The Company's stockholders will be asked to approve certain amendments
adopted in fiscal 1998, to the Company's Stock Option Plan. These Amendments
are described in Item 2 of this Proxy Statement (Amendment 98-1) and in Item 3
of this Proxy Statement (Amendment 98-2).
On February 9, 1998, the Board adopted amendments to the Stock Option Plan
("Amendment 98-2"), to be effective as of February 9, 1998, subject to
approval by the Company's stockholders. The purpose of Amendment 98-2, as more
fully set forth below, is to facilitate a Stock Option Deferral Plan
(discussed below) which defers the gain upon exercise of employee stock
options.
DESCRIPTION OF THE STOCK OPTION PLAN AND AMENDMENT 98-2
A summary of certain important features of the Stock Option Plan is set
forth in Item 2 of this Proxy Statement. Set forth below is a summary of
certain important features of Amendment 98-2. This description is qualified in
its entirety by reference to the complete text of the Stock Option Plan and
Amendment 98-2, which appear as Exhibit B to this Proxy Statement.
DESCRIPTION OF THE STOCK OPTION DEFERRAL PLAN
On February 9, 1998, the Board adopted a Stock Option Deferral Plan (the
"Stock Option Deferral Plan"), pursuant to which certain recipients (at their
election) may defer payment of the "Compensation" they receive in a particular
year or years from the exercise of Company stock options. "Compensation" means
the excess value of a stock option, determined by the difference between the
fair market value of shares issuable upon exercise of a stock option, and the
option price payable upon exercise of the stock option.
Under the Stock Option Deferral Plan, an officer's deferred Compensation
shall be in the form of "Deferred Compensation Units," representing the number
of shares of Common Stock that the officer shall be entitled to receive upon
expiration of the deferral period. (The number of Deferred Compensation Units
issuable to an officer is determined by dividing the amount of the deferred
Compensation by the fair market value of the Company's stock as of the date of
deferral.)
In the event any cash dividends are declared on the stock underlying
Deferred Compensation Units, the employee shall be entitled to receive
Dividend Equivalents. "Dividend Equivalents" means the right of an employee to
receive shares of Company stock equal to: (i) the per share cash dividends
declared by the Company from time to time, multiplied by (ii) the number of
Deferred Compensation Units credited to the account of the employee as of each
applicable dividend record date, divided by (iii) the fair market value of the
Company's stock on the related dividend payment date.
PURPOSE OF AMENDMENT 98-2
In order to facilitate the Stock Option Deferral Plan, the Board amended the
Company's Stock Option Plan to provide that, to the extent elected by any
employee and permitted by the Stock Option Deferral Plan, the stock option
committee may award Deferred Compensation Units to such employee in lieu of
all or any portion of the Compensation deferred by the employee.
The number of Common Stock shares distributable to employees pursuant to
each Deferred Compensation Unit shall be charged against the maximum number of
shares of common stock that may be issued under the Stock Option Plan at any
time.
29
<PAGE>
BENEFICIARIES OF STOCK OPTION DEFERRAL PLAN
The Stock Option Deferral Plan is restricted to Accredited Investors (as
defined under Federal Securities Laws). This means that the participant must
either be an executive officer of the Company, or meet a net worth test of
$1,000,000 (or individual income of $200,000 for the last two years, or joint
income of $300,000 for the last two years). It is anticipated that only
executive officers will meet the Accredited Investor test. The table in this
Proxy Statement under "Executive Compensation--Option Year-End Values"
(footnote (1) of said table) summarizes the number of Deferred Compensation
Units received to date by the named executive officers. Such Deferred
Compensation Units are contingent on shareholder approval of Amendment 98-2 to
the Stock Option Plan.
THE BOARD RECOMMENDS A VOTE "FOR"
THE AMENDMENT 98-2 TO THE STOCK OPTION PLAN
* * *
30
<PAGE>
ITEM 4--APPROVAL OF GRANTS OF STOCK OPTIONS TO CERTAIN EXECUTIVE OFFICERS AND
EMPLOYEES UNDER THE STOCK OPTION PLAN
At the Annual Meeting, the stockholders will be asked to approve the grant
of stock options for certain executive officers and other employees.
On February 9, 1998, subject to approval by the Company's stockholders, the
Board amended the Stock Option Plan to increase by 600,000 the number of
shares of Class A Stock issuable under the Stock Option Plan. See discussion
under Item 2 above (Approval of Amendment to Increase Shares Issuable under
the Company's Stock Option Plan).
The effective date of such amendment is February 9, 1998. Any awards granted
to Executive Officers and other employees under the Stock Option Plan from the
period of February 9, 1998, through the date of the Annual Meeting which are
covered by the increased number of shares are contingent on the following
action: (i) approval by the Company's stockholders of the amendment increasing
by 600,000 the number of shares issuable under the Stock Option Plan (as
discussed in Item 2 above), and (ii) approval of such awards by the Company's
stockholders at the Annual Meeting.
The following awards made to Executive Officers and employees on or after
February 9, 1998 are submitted for approval by the Company's stockholders:
<TABLE>
<CAPTION>
Number of
Shares
Underlying Per Share
Stock Exercise Expiration
Employee Date Options Price Date
-------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Eric Steiner............ 9/17/98 75,000 $14.375 9/16/2003
Jeffrey Steiner......... 9/17/98 25,000 same same
Donald Miller........... 9/17/98 25,000 same same
Robert Edwards.......... 9/17/98 20,000 same same
Robert Sharpe........... 9/17/98 20,000 same same
John Flynn.............. 9/17/98 10,000 same same
Natalia Hercot.......... 9/17/98 10,000 same same
Karen Schneckenburger... 9/17/98 2,500 same same
All other employees..... 9/17/98 114,500 $14.375 same
Total Awards Subject to Shareholder Approval: 302,000 Shares
</TABLE>
The exercise price for such stock options is the fair market value of the
Company's Class A Stock at the time of the original award by the Compensation
and Stock Option Committee (date of grant noted in the table above). Such
stock options are subject to all of the terms and conditions of the Stock
Option Plan. On September 28, 1998, the closing price on the New York Stock
Exchange for the Company's Class A Stock was $13.44 per share, as reported in
the Wall Street Journal.
Tax Consequences. For federal income tax purposes, such stock options
constitute Non-Qualified Stock Options. Please see discussion under Item 2
above (Approval of Amendment to Increase Shares Issuable under the 1986
Non-Qualified and Incentive Stock Option Plan), under caption "Tax Consequences
Non-Qualified Stock Options" for a discussion of the tax consequences of
Non-Qualified Stock Options.
Effect of Contingency. If the amendments to the Stock Option Plan described
in Item 2 of this Proxy Statement are not approved by the Company's
stockholders, or if the stock options under this Item 4 are not approved by
the Company's stockholders, such stock options shall be null and void. If both
contingencies are satisfied, such stock options shall be deemed awarded as of
the date the Compensation and Stock Option Committee made each such award.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE GRANT OF STOCK OPTIONS
TO CERTAIN EXECUTIVE OFFICERS AND EMPLOYEES
* * *
31
<PAGE>
ITEM 5--APPROVAL OF MATERIAL TERMS OF PERFORMANCE
GOAL FOR FISCAL 1999 INCENTIVE COMPENSATION
AWARD FOR THE COMPANY'S PRESIDENT
AND CHIEF OPERATING OFFICER
At the Annual Meeting, the stockholders will be asked to approve the
material terms of the performance goal for the fiscal 1999 incentive
compensation award for the Company's President and Chief Operating Officer.
Effective for tax years beginning in 1994, the Code disallows deductions for
publicly-held corporations with respect to compensation in excess of
$1,000,000 paid to certain executive officers. However, compensation payable
solely on account of attainment of one or more performance goals is not
subject to this deduction limitation if the performance goals are objective,
pre-established and determined by a compensation committee comprised solely of
two or more outside directors, the material terms of the performance goals
under which the compensation is to be paid are disclosed to the stockholders
and approved by a majority vote, and the compensation committee certifies that
the performance goals and other material terms were in fact satisfied before
the compensation is paid.
On September 17, 1998, the Company's Compensation and Stock Option Committee
established a performance goal for the President and Chief Operating Officer's
fiscal 1999 incentive compensation award and the maximum amount payable to the
President and Chief Operating Officer if the goal is achieved. The performance
goal and maximum amount payable for fiscal 1999 are as follows:
. If the Company engages in an extraordinary transaction (e.g., purchase
or sale of assets not in the ordinary course, including, without
limitation, through a public offering or private placement of
securities) during fiscal 1999, involving the Company's Fairchild
Fasteners unit, the President and Chief Operating Officer may receive up
to two percent (2%) of the total value of the transaction.
The Compensation and Stock Option Committee retains the right to determine
the actual amount of incentive compensation to be awarded to the President and
Chief Operating Officer in fiscal 1999 based on his individual contribution,
consistent with the foregoing goal and in an amount no greater than the
maximum amount set forth above.
Assuming the stockholders approve the material terms of the performance goal
as described herein, the Company believes that any such incentive compensation
award to the President and Chief Operating Officer will qualify as
performance-based compensation that will be deductible from the Company's
gross income for federal income tax purposes.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THIS PROPOSAL
* * *
32
<PAGE>
ITEM 6--APPROVAL OF MATERIAL TERMS OF PERFORMANCE
GOALS FOR FISCAL 1999 INCENTIVE
COMPENSATION AWARD FOR THE COMPANY'S
CHIEF EXECUTIVE OFFICER
At the Annual Meeting, the stockholders will be asked to approve the
material terms of the performance goals for the fiscal 1999 incentive
compensation award for the Company's Chief Executive Officer. Effective for
tax years beginning in 1994, the Code disallows deductions for publicly-held
corporations with respect to compensation in excess of $1,000,000 paid to
certain executive officers. However, compensation payable solely on account of
attainment of one or more performance goals is not subject to this deduction
limitation if the performance goals are objective, pre-established and
determined by a compensation committee comprised solely of two or more outside
directors, the material terms of the performance goals under which the
compensation is to be paid are disclosed to the stockholders and approved by a
majority vote, and the compensation committee certifies that the performance
goals and other material terms were in fact satisfied before the compensation
is paid.
On September 17, 1998, the Company's Compensation and Stock Option Committee
established performance goals for the Chief Executive Officer's fiscal 1999
incentive compensation award and the maximum amount payable to the Chief
Executive Officer if the goals are achieved. The performance goals and maximum
amounts payable for fiscal 1999 are as follows:
1. If the Company (including its consolidated subsidiaries) achieves
pre-tax profits for fiscal 1999, the Chief Executive Officer may receive up
to three percent (3%) of such pre-tax profits.
2. If the Company engages in an extraordinary transaction (e.g., purchase
or sale of assets not in the ordinary course, including, without
limitation, through a public offering or private placement of
securities) during fiscal 1999, the Chief Executive Officer may receive
up to two and one-half percent (2 1/2%) of the total value of the
transaction.
All of the foregoing will be computed in such a manner as to avoid
duplication.
The Compensation and Stock Option Committee retains the right to determine
the actual amount of incentive compensation to be awarded to the Chief
Executive Officer in fiscal 1999 based on his individual contribution,
consistent with the foregoing goals and in an amount no greater than the
maximum amounts set forth above.
Assuming the stockholders approve the material terms of the performance
goals as described herein, the Company believes that any such incentive
compensation award to the Chief Executive Officer will qualify as
performance-based compensation that will be deductible from the Company's gross
income for federal income tax purposes.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THIS PROPOSAL
* * *
33
<PAGE>
ITEM 7--APPROVAL OF AMENDMENT TO WARRANT ISSUED TO
AN AFFILIATE OF THE COMPANY'S CHIEF EXECUTIVE OFFICER
Stinbes Limited, an affiliate of Mr. Jeffrey Steiner (the Company's Chief
Executive Officer), holds a warrant to purchase 375,000 shares of Class A or
Class B Stock, at $7.80 per share. The shareholders are being asked to approve
amendments to the exercise price and the exercise period for such warrant (as
described below). Such amendments to the warrant shall be deemed additional
compensation to the Chief Executive Officer.
BACKGROUND
Such warrant was originally issued by the Company in 1986 to Drexel Burnham
Lambert in conjunction with such firm acting as underwriter for the pubic
offering of certain of the Company's debentures. The warrant was purchased in
1989 by Mr. Jeffrey Steiner. In 1993, the warrant was assigned to Stinbes
Limited, an affiliate of Mr. Jeffrey Steiner.
The warrant was originally due to expire in March, 1993. The Company amended
the warrant, from time to time, to extend the expiration date. Currently, the
warrant provides that it may be exercised within any of the following window
periods:
. Window Period One: Within one year after the merger of Shared
Technologies Fairchild, Inc. with another telecommunications company.
Since Shared Technologies Fairchild, Inc. merged with Intermedia
Communications on March 10, 1998, Window Period One expires on March 9,
1999.
. Window Period Two: Within one year after a change of control of the
Company.
. Window Period Three: Within one year after a change of control of Banner
Aerospace.
The exercise price of the warrant was increased in 1997 to $7.80 per share.
The warrant was further amended to provide that the exercise price could be
paid either in cash or shares of the Company's Stock.
PROPOSED AMENDMENTS
On September 17, 1998, subject to shareholder approval, the Compensation
Committee and the Board voted to further amend the warrant to provide as
follows:
. The exercise periods for the warrant (Window Periods One, Two and Three)
were revised as follows:
Window Period One: The warrant may be exercised at any time on or prior
to March 9, 2000 (two years from the date of the merger of Shared
Technologies Fairchild, Inc. with Intermedia Communications, Inc.).
(Prior to the amendment, the date by which the warrant could be
exercised during Window Period One was March 9, 1999.).
Window Periods Two and Three remain the same (one year from a change of
control of the Company, and one year from a change of control of Banner
Aerospace).
. The price at which the warrant may be exercised during Window Period One
shall be $7.80 per share, plus two tenths of one cent ($.002) for each
day subsequent to March 9, 1999. Prior to the amendment, the exercise
price during Window Period One was fixed at $7.80 per share.
The price at which the warrant may be exercised during Window Periods
Two and Three remains the same ($7.80 per share).
. The amendments to the warrant (outlined above) are made in recognition
of the services performed by Mr. Jeffrey Steiner in connection with the
extraordinary transactions during fiscal 1998 which are described in the
Compensation Committee report of this Proxy Statement.
34
<PAGE>
TAX CONSEQUENCES
There are no tax impacts to the Company or the holder of the warrant until
the warrant is exercised. When the warrant is exercised, the holder shall
recognize income equal to the excess of the fair market value of the Company's
Common Stock on the date of exercise less the warrant exercise price. It is
expected that the Company shall be entitled to deduct the excess of the fair
market value of the Common Stock on the date of exercise less the warrant
exercise price, for the following reasons: (i) as per this amendment, the
warrant was issued for services rendered by Mr. Jeffrey Steiner; and
(ii) Section 162(m) of the Code, which limits deductions for compensation of the
CEO to $1 million per year, does not apply if the Company's compensation
committee and the Company's shareholders approve such compensation. The
amendment to the warrant is submitted for shareholder approval in order to
comply with Section 162(m) of the Code. (Section 162(m) of the Code is further
described in Items 5 and 6 of this Proxy Statement.)
BENEFICIARY
If the amendments are approved, Mr. Jeffrey Steiner shall have the right to
exercise the warrant at the price of $7.80 per share (plus two tenths on one
cent ($.002) for each day subsequent to March 9, 1999), at any time prior to
March 10, 2000. As of September 17, 1998, the market value of the Class A
Stock was $14.375 per share. Had Mr. Steiner exercised the warrant to purchase
shares of Class A Stock on September 17, 1998, he would have recognized income
of $6.575 per share, or $2,465,625 in the aggregate.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THIS PROPOSAL
* * *
35
<PAGE>
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP has served as the Company's independent auditor since
1968. No change is contemplated. A representative of Arthur Andersen LLP will
be present at the Annual Meeting, will have an opportunity to make a statement
if he or she desires to do so, and will be available to respond to any
appropriate questions.
EXPENSES OF SOLICITATION
The cost of soliciting these proxies will be borne by the Company. In
addition to the use of the mail, proxies may be solicited by directors,
officers or employees of the Company, in person, or by telephone or fax. The
Company will also reimburse brokerage houses and others forwarding proxy
materials to beneficial owners of stock.
STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal to be included in the
Company's proxy materials for its 1999 annual meeting, must notify the Company
of such proposal no later than June 11, 1999.
Any stockholder who wishes to submit a proposal for the 1999 annual meeting
but does not require such proposal to be included in the Company's proxy
materials, must notify the Company of such proposal by no later than August
26, 1999. If such notice is not received by August 26, 1999, the proposal
shall be considered untimely.
All stockholder proposals must conform to the requirements set forth in
Regulation 14A under the Securities Exchange Act of 1934, and should be
submitted to the Company's headquarters, 45025 Aviation Drive, Suite 400,
Dulles, VA 20166-7516, Attention: Secretary.
ANNUAL REPORT
THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED JUNE
30, 1998, WAS MAILED TO STOCKHOLDERS WITH OR PRIOR TO MAILING OF THIS PROXY
STATEMENT. THE COMPANY WILL PROVIDE FREE OF CHARGE TO ANY STOCKHOLDER AS OF
THE RECORD DATE WHO SO REQUESTS IN WRITING, A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR FISCAL 1998. REQUESTS FOR SUCH COPIES SHOULD BE
DIRECTED TO DONALD E. MILLER, EXECUTIVE VICE PRESIDENT & SECRETARY, THE
FAIRCHILD CORPORATION, 45025 AVIATION DRIVE, SUITE 400, DULLES, VA 20166-7516.
By Order of the Board of Directors
Donald E. Miller
Executive Vice President & Secretary
36
<PAGE>
EXHIBIT A
AMENDMENT DATED AS OF MAY 7, 1998 TO
1986 NON-QUALIFIED AND INCENTIVE STOCK OPTION PLAN
OF THE FAIRCHILD CORPORATION
The 1986 Non-Qualified and Incentive Stock Option Plan of The Fairchild
Corporation (the "Plan") is hereby amended, effective as of the date set forth
below, as follows:
1. This Amendment shall be effective if and only if it is approved by the
stockholders of The Fairchild Corporation (the "Company") at their annual
meeting in 1998, and if so approved, this Amendment shall be effective as
May 7, 1998. Any Awards made by the Committee to officers and employees
prior to the 1998 annual meeting, and in excess of the number of shares
otherwise available for issuance under the Plan prior to this Amendment,
shall be made contingent on stockholder ratification and (if such
ratification is obtained) shall be effective as of the date the Committee
made such awards.
2.Section 3 of the Plan is amended in its entirety to read as follows:
"3. Stock Subject to the Plan. There shall be reserved for use, upon the
exercise of Awards granted from time to time under the Plan, an aggregate
of 5,141,000 Shares, which Shares may be, in whole or in part, as the Board
shall from time to time determine, authorized but unissued Shares, or
issued Shares which shall have been reacquired by the Company. Any shares
subject to issuance upon exercise of Options but which are not issued
because of a surrender, lapse, expiration or termination of any such Option
prior to issuance of the Shares shall once again be available for issuance
in satisfaction of Awards."
3. Except as amended hereby, the Plan shall remain in full force and effect.
A-1
<PAGE>
EXHIBIT B
1986 NON-QUALIFIED AND INCENTIVE
STOCK OPTION PLAN OF
THE FAIRCHILD CORPORATION
(AMENDED AND RESTATED AS OF FEBRUARY 9, 1998)
1. PURPOSE OF THE PLAN.
This 1986 Non-Qualified and Incentive Stock Option Plan of The Fairchild
Corporation (previously known as Banner Industries, Inc.) adopted on April 9,
1986, amended and restated as of May 23, 1996, further amended as of
--------------------------------------------------------------
September 11, 1997, and amended and restated as of February 9, 1998, is intended
- -------------------------------------------------------------------
to encourage officers, key employees, and non-employee consultants of the
Company to acquire or increase their ownership of Class A Common Stock of the
Company on reasonable terms. The opportunity so provided is intended to foster
in participants a strong incentive to put forth maximum effort for the continued
success and growth of the Company and its Subsidiaries, to aid in retaining
individuals who put forth such efforts, and to assist in attracting the best
available individuals to the Company and its Subsidiaries in the future. [NOTE:
THE PLAN WAS FURTHER AMENDED AS OF MAY 7, 1998.]
2. DEFINITIONS.
When used herein the following terms shall have the meaning set forth
below:
2.1 "Affiliate" means, with respect to any specified person or entity, a
person or entity that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common
control with, the person or entity specified.
2.2 "Award" means an Option.
2.3 "Award Agreement" means a written agreement in such form as may be,
from time to time, hereafter approved by the Committee, which shall be
duly executed by the Company and which shall set forth the terms and
conditions of an Award under the Plan.
2.4 "Board" means the Board of Directors of The Fairchild Corporation
(previously known as Banner Industries, Inc.).
2.5 "Code" means the Internal Revenue Code of 1986, as in effect at the
time of reference, or any successor revenue code which may hereafter
be adopted in lieu thereof, and reference to any specific provisions
of the Code shall refer to the corresponding provisions of the Code as
it may hereafter be amended or replaced.
2.6 "Committee" means the Stock Option Committee of the Board or any other
committee appointed by the Board whose members meet the requirements
for eligibility to serve set forth in Section 4 which is invested by
the Board with responsibility for the administration of the Plan.
2.7 "Company" means The Fairchild Corporation (previously known as Banner
Industries, Inc.).
2.8 "Deferral Date" means, in connection with any Deferred Compensation
-----------------------------------------------------------------------
Unit, the date on which any deferred compensation with respect thereto
----------------------------------------------------------------------
would have been paid if no deferral election had been made.
----------------------------------------------------------
2.9 "Deferred Compensation Plan" means the Company's Stock Option Deferral
--------------------------------------------------------------------------
Plan dated February 9, 1998 (as amended from time to time). Generally,
----------------------------------------------------------------------
participation in the Deferred Compensation Plan shall be limited to
-------------------------------------------------------------------
Executive Officers who are deemed "Accredited Investors" for purposes
---------------------------------------------------------------------
of Federal Securities Laws.
--------------------------
B-1
<PAGE>
2.10 "Deferred Compensation Units" means the right of an Employee to
--------------------------------------------------------------------
receive distributions of deferred compensation pursuant to the
--------------------------------------------------------------
Deferred Compensation Plan in the form of Shares, determined in
---------------------------------------------------------------
accordance with the terms of the Deferred Compensation Plan and
---------------------------------------------------------------
Section 23 of this Plan, and based on the Fair Market Value of Shares
---------------------------------------------------------------------
on the Deferral Date.
--------------------
2.11 "Dividend Equivalents" means the right of an Employee to receive
---------------------------------------------------------------------
Shares equal to (i) (a) the per Share cash dividends declared by the
--------------------------------------------------------------------
Company from time to time, multiplied by (b) the number of Deferred
-------------------------------------------------------------------
Compensation Units credited to the account of the Employee as of each
---------------------------------------------------------------------
applicable dividend record date, divided by (ii) the Fair Market Value
----------------------------------------------------------------------
on the related dividend payment date.
------------------------------------
2.12 "Employees" means officers (including officers who are members of the
Board), key employees and non-employee consultants of the Company or
any of its Subsidiaries.
2.13 "Fair Market Value" means with respect to the Company's Shares the
closing price of the Shares as of the date on which the value is to be
determined, as reported on the New York Stock Exchange Composite Tape
or such other source of quotation for, or reports of, trading activity
in Shares as the Committee may from time to time select.
2.14 "Incentive Stock Option" means an Option meeting the requirements and
containing the limitations and restrictions set forth in Section 422
of the Code.
2.15 "Non-Qualified Stock Option" means an Option other than an Incentive
Stock Option.
2.16 "Option" means the right to purchase, at a price and for a term fixed
by the Committee in accordance with the Plan, subject to such other
limitations and restrictions as the Plan and the Committee impose, the
number of Shares specified by the Committee.
2.17 "Parent" means any corporation, other than the Company, in an unbroken
chain of corporations ending with the Company if, at the time of the
granting of the Option, each of the corporations other than the
Company owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in the chain.
2.18 "Plan" means the Company's 1986 Non-Qualified and Incentive Stock
Option Plan, as amended from time to time.
2.19 "Shares" means shares of the Company's $.10 par value Class A Common
Stock or, if by reason of the adjustment provisions hereof any rights
under an Award under the Plan pertain to any other security, such
other security.
2.20 "Subsidiary" means any corporation other than the Company in an
unbroken chain of corporations beginning with the Company if each of
the corporations other than the last corporation in the unbroken chain
owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
2.21 "Successor" means the legal representative of the estate of a deceased
Employee of the person or persons who shall acquire the right to
exercise an Award by bequest or inheritance or by reason of the death
of the Employee.
2.22 "Term" means the period during which a particular Award may be
exercised.
3. STOCK SUBJECT TO THE PLAN.
There shall be reserved for use, upon the exercise of Awards granted from
time to time under the Plan, an aggregate of 4,541,000 Shares, which Shares
may be, in whole or in part, as the Board shall from time to time determine,
authorized but unissued Shares, or issued Shares which shall have been
reacquired by the Company. Any shares subject to issuance upon exercise of
Options but which are not issued because of a surrender, lapse, expiration or
termination of any such Option prior to issuance of the Shares shall once
again be available for issuance in satisfaction of Awards. [NOTE: PURSUANT TO
AMENDMENT ADOPTED MAY 7, 1998, AN AGGREGATE OF 5,141,000 SHARES MAY BE ISSUED
UPON EXERCISE OF OPTIONS.]
B-2
<PAGE>
4. ADMINISTRATION OF THE PLAN.
The Board shall appoint the Committee, which shall consist of not less than
two (2) disinterested members of the Board as defined in Rule 16b-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934.
Subject to the requirements of Rule 16b-3, participation in a stock option
plan exclusively for non-employee directors (where such stock option plan is
administered by the full Board or is administered pursuant to a formula),
shall not disqualify a member of the Board as being eligible to serve on the
Committee under this Plan.
Subject to the provisions of the Plan, the Committee shall have full
authority, in its discretion, to determine the Employees to whom Awards shall
be granted, the number of Shares to be covered by each of the Awards, and the
terms of any such Award; to amend or cancel Awards (subject to Section 18 of
the Plan); to accelerate the vesting of Awards; to require the cancellation or
surrender of any previously granted options under this Plan or any other plans
of the Company as a condition to the granting of an Award; to interpret the
Plan; and to prescribe, amend, and rescind rules and regulations relating to
it, and generally to interpret and determine any and all matters whatsoever
relating to the administration of the Plan and the granting of Awards
hereunder.
The Board may, from time to time, appoint members to the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its Chairman and shall hold its meetings at such times and
places as it shall deem advisable. A majority of its members shall constitute
a quorum. Any action of the Committee may be taken by a written instrument
signed by all of the members, and any action so taken shall be fully as
effective as if it had been taken by a vote of a majority of the members at a
meeting duly called and held. The Committee shall make such rules and
regulations for the conduct of its business as it shall deem advisable and
shall appoint a Secretary who shall keep minutes of its meetings and records
of all action taken in writing without a meeting. No member of the Committee
shall be liable, in the absence of bad faith, for any act or omission with
respect to his service on the Committee.
5. EMPLOYEES TO WHOM AWARDS MAY BE GRANTED.
Awards may be granted in each calendar year or portion thereof while the
Plan is in effect to such of the Employees as the Committee, in its
discretion, shall determine.
In determining the Employees to whom Awards shall be granted and the number
of Shares to be subject to purchase under such Awards, the Committee shall
take into account the duties of the respective Employees, their present and
potential contributions to the success of the Company, and such other factors
as the Committee shall deem relevant in connection with accomplishing the
purposes of the Plan.
No Award shall be granted to any member of the Committee so long as his
membership on the Committee continues or to any member of the Board who is not
also an officer, key employee, or non-employee consultant of the Company or
any Subsidiary.
6. STOCK OPTIONS.
6.1 Types of Stock Options. Options granted under this Plan may be (i)
Incentive Stock Options, (ii) Non-Qualified Stock Options, or (iii) a
combination of the foregoing, except that only Non-Qualified Stock Options may
be granted to non-employee consultants. The Award Agreement shall designate
whether an Option is an Incentive Stock Option or a Non-Qualified Stock
Option.
B-3
<PAGE>
6.2 Option Price. The option price per share of any Option granted under the
Plan shall not be less than the Fair Market Value of the Shares covered by the
Option on the date the Option is granted.
Notwithstanding anything herein to the contrary, in the event an Incentive
Stock Option is granted to an employee who, at the time such Incentive Stock
Option is granted, owns, as defined in Section 422 of the Code, stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of:
(i)the Corporation; or
(ii)if applicable, a Subsidiary; or
(iii)if applicable, a Parent,
then the option price per share of any Incentive Stock Option granted to such
Employee shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares covered by the Option on the date the Option is
granted.
6.3. Terms of Options. Options granted hereunder shall be exercisable for a
Term of not more than ten (10) years from the date of grant thereof, but shall
be subject to earlier termination as hereinafter provided. Each Award
Agreement issued hereunder shall specify the Term of the Option, which Term
shall be determined by the Committee in accordance with its discretionary
authority hereunder. Each Award Agreement issued after November 21, 1996,
shall provide that Options thereunder may be exercised within the following
time limitations: (i) After one (1) year from the date of the Award, it may be
exercised as to not more than 25% of the Shares originally subject to the
Option; (ii) After two years from the date of the Award, it may be exercised
as to not more than an aggregate of fifty percent (50%) of the Shares
originally subject to the Option; (iii) After three years from the date of the
Award, it may be exercised as to not more than an aggregate of seventy five
percent (75%) of the Shares originally subject to the Option; and (iv) After
four years from the date of the Award, it may be exercised as to any part or
all of the Shares originally subject to the Option.
Notwithstanding anything herein to the contrary, in the event an Incentive
Stock Option granted to an Employee who, at the time such Incentive Stock
Option is granted, owns, as defined in Section 422 of the Code, stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of:
(i)the corporation; or
(ii)if applicable, a Subsidiary; or
(iii)if applicable, a Parent,
then such Incentive Stock Option shall not be exercisable more than five (5)
years from the date of grant thereof, but shall be subject to earlier
termination as hereinafter provided.
6.4. Limit on Grant of Options. From and after May 23, 1996, the number of
shares of Class A Common Stock subject to Awards granted under the Plan to
Jeffrey Steiner (Chairman and Chief Executive Officer), for the period of May
23, 1996, through April 9, 2006, shall not exceed a total of 1,200,000 shares.
From and after September 11, 1997, the number of shares of Class A Common
Stock subject to Awards granted to any other Executive Officer (as defined
below), for the period of September 11, 1997, through April 9, 2006, shall not
exceed a total of 1,200,000 shares per person. As used herein, the term
"Executive Officer" means the following Company officers: the Chairman of the
Board, the Chief Executive Officer, the Chief Financial Officer, the President
and Chief Operating Officer, any Executive Vice President, the President, any
Senior Vice President, any Vice President, and any executive officer as
defined in Rule 3b-7 promulgated under the Securities Exchange Act of 1934.
Determinations under this Section shall be made in a manner consistent with
Section 162(m) of the Code.
B-4
<PAGE>
7. LIMIT ON FAIR MARKET VALUE OF INCENTIVE STOCK OPTIONS GRANTED AFTER
DECEMBER 31, 1986.
In any calendar year ending after December 31, 1986, no Employee may be
granted an Incentive Stock Option hereunder to the extent that the aggregate
Fair Market Value (determined at the time the option is granted) of the stock
with respect to which incentive stock options are exercisable for the first
time by such Employee during any calendar year (under all such plans of the
Employee's employer corporation and, if any, its Parent and Subsidiary
corporations) exceeds the sum of One Hundred Thousand Dollars ($100,000.00).
For purposes of the preceding sentence, options shall be taken into account in
the order in which they were granted. Any option granted under the Plan which
is intended to be an Incentive Stock Option but which exceeds the limitation
set forth in this Section 7 of the Plan shall be a Non-Qualified Stock Option.
8. DATE OF GRANT.
The date of grant of an Award granted hereunder shall be the date on which
the Committee acts in granting the Award.
9. EXERCISE OF RIGHTS UNDER AWARDS.
An Employee entitled to exercise an Award may do so by delivery of a written
notice to that effect specifying the number of Shares with respect to which
the Award is being exercised and any other information the Committee may
prescribe. The notice shall be accompanied by payment in full of the purchase
price of any Shares to be purchased, which payment may be made in cash or,
with the Committee's approval, in Shares (or shares of the Company's Class B
Common Stock) valued at Fair Market Value at the time of exercise or
combination thereof. No Shares shall be issued upon exercise of an Option
until full payment has been made therefor. All notices or requests provided
for herein shall be delivered to the Vice President-Finance of the Company.
Shares used to pay the purchase price on the exercise of Awards subject to the
- ------------------------------------------------------------------------------
Deferred Compensation Plan, shall have been held by the Employee for a period
- -----------------------------------------------------------------------------
of not less than six months (or such longer period as may be required under
- ---------------------------------------------------------------------------
the terms of the Award).
- -----------------------
10. AWARD TERMS AND CONDITIONS.
Each Award or each agreement setting forth an Award shall contain such other
terms and conditions not inconsistent herewith as shall be approved by the
Board or by the Committee.
11. RIGHTS OF THE AWARD HOLDER.
The holder of an Award shall not have any of the rights of a stockholder
with respect to the Shares subject to purchase under his Award, except to the
extent that one or more certificates for such Shares shall be delivered to him
upon the due exercise of the Award.
12. NONTRANSFERABILITY OF AWARDS.
An Award shall not be transferable, other than by will or the laws of
descent and distribution, and an Award may be exercised, during the lifetime
of the holder of the Award, only by him.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of changes in all of the outstanding Shares by reason of stock
dividends, stock splits, recapitalization, mergers, consolidations,
combinations, or exchange of shares, separations, reorganizations or
liquidations, the number and class of Shares available under the Plan in the
aggregate, the number and class of Shares subject to Awards theretofore
granted, applicable purchase
B-5
<PAGE>
prices and all other applicable provisions, shall, subject to the provisions
of the Plan, be equitably adjusted by the Committee (which adjustment may, but
need not, include payment to a holder of an Award in cash or Shares in an
amount equal to the difference between the price at which such Award may be
exercised and the then current fair market value of the Shares subject to such
Award as equitably determined by the Committee). The foregoing adjustment and
the manner of application of the foregoing provisions shall be determined by
the Committee in its sole discretion. Any such adjustment may provide for the
elimination of any fractional Share which might otherwise become subject to an
Award.
14. UNUSUAL CORPORATE EVENTS.
Notwithstanding anything to the contrary, in the case of an unusual
corporate event such as liquidation, merger, reorganization (other than a
reorganization as defined by Section 368(a)(1)(F) of the Code), or other
business combination, acquisition or change in the control of the Company
through a tender offer or otherwise, the Board may, in its sole discretion,
determine, on a case by case basis, that each Award granted under the Plan
shall terminate ninety (90) days after the occurrence of such unusual
corporate event, but, in the event of any such termination the Award holder
shall have the right, commencing at least five (5) days prior to such unusual
corporate event and subject to any other limitation on the exercise of such
Award in effect on the date of the exercise to immediately exercise any
Options in full, without regard to any vesting limitations, to the extent they
shall not have been exercised.
15. FORMS OF OPTIONS.
Nothing contained in the Plan nor any resolution adopted or to be adopted by
the Board or the stockholders of the Company shall constitute the granting of
any Award. An Award shall be granted hereunder only by action taken by the
Committee in granting an Award. Whenever the Committee shall designate an
Employee for the receipt of an Award, the Secretary or the President of the
Company, or such other person as the Committee shall appoint, shall forthwith
send notice thereof to the Employee, in such form as the Committee shall
approve, stating the number of Shares subject to Award, its Term, and the
other terms and conditions thereof. The notice shall be accompanied by a
written Award Agreement in such form as may from time to time hereafter be
approved by the Committee, which shall have been duly executed by or on behalf
of the Company. If the surrender of previously issued Awards is made a
condition of the grant, the notice shall set forth the pertinent details of
such condition, and the written Award Agreement executed by or on behalf of
the Company shall be delivered to the Employee on the day such surrender is
made, but shall be dated as of the date on which the Committee designated the
employee to receive an Award hereunder. Execution by the Employee to whom such
Award is granted of said Award Agreement in accordance with the provisions set
forth in this Plan shall be a condition precedent to the exercise of any
Award.
16. TAXES.
The Company shall have the right to require a person entitled to receive
Shares pursuant to the exercise of an Award under the Plan to pay the Company
the amount of any taxes which the Company is or will be required to withhold
with respect to such Shares before the certificate for such Shares is
delivered pursuant to the Award. Furthermore, the Company may elect to deduct
such taxes from any other amounts payable then or any time thereafter in cash
to the Employee. If the Employee disposes of Shares acquired pursuant to an
Incentive Stock Option in any transaction considered to be a disqualifying
transaction under Sections 421 and 422 of the Code, the Company shall have the
right to deduct any taxes required by law to be withheld from any amounts
otherwise payable to the Employee.
B-6
<PAGE>
17. TERMINATION OF PLAN.
The Plan shall terminate ten (10) years from April 9, 1996 (i.e., on
April 9, 2006), and an Award shall not be granted under the Plan after that date
although the terms of any Awards may be amended in accordance with the Plan at
any time prior to the end of its Term. Any Awards outstanding at the time of
termination of the Plan shall continue in full force and effect according to
the terms and conditions of the Award and the Plan. It is noted that the Plan
(prior to the amendment and restatement on May 23, 1996) originally expired on
April 9, 1996 and (as a result of the amendment and restatement on May 23,
1996), the Plan terminates ten years from April 9, 1996.
18. AMENDMENT OF THE PLAN. The Plan may be amended at any time and from time
to time by the Board, but no amendment without the approval of the
stockholders of the Company shall:
(a) increase the maximum number of Shares as to which Options may be
granted under the Plan;
(b) expand or change the class of persons eligible to receive Awards;
(c) permit the purchase price of Shares subject to an Option granted under
the Plan to be less than the fair market value of such Shares at the
time the Option is granted;
(d) extend the term of the Plan; or
(e) materially increase the benefits to Employees under the Plan.
Notwithstanding the discretionary authority granted to the Committee in
Section 4 of the Plan, no amendment or cancellation of the Plan or any Award
granted under the Plan shall alter or impair any of the rights or obligations
of any person, without his consent, under any Award theretofore granted under
the Plan.
19. DELIVERY OF SHARES ON EXERCISE.
Delivery of certificates for Shares pursuant to an Award may be postponed by
the Company for such period as may be required for it with reasonable
diligence to comply with any applicable requirements of any federal, state or
local law or regulation or any administrative or quasi-administrative
requirement applicable to the sale, issuance, distribution or delivery of such
Shares.
20. FEES AND COSTS.
The Company shall pay all original issue taxes (not including income taxes)
on the exercise of any Award granted under the Plan and all other fees and
expenses necessarily incurred by the Company in connection therewith.
21. EFFECTIVENESS OF THE PLAN.
The Plan first became effective when approved by the Board on April 9, 1986.
22. OTHER PROVISIONS.
As used in the Plan, and in Awards and other documents prepared in
implementation of the Plan, references to the masculine pronoun shall be
deemed to refer to the feminine or neuter, and references in the singular or
plural shall refer to the plural or singular, as the identity of the person or
persons or entity or entities being referred to may require. The captions used
in the Plan and in such Awards and other documents prepared in implementation
of the Plan are for convenience only and shall not affect the meaning of any
provision hereof or thereof.
B-7
<PAGE>
23. DEFERRED COMPENSATION UNITS
- -------------------------------
23.1 Granting of Deferred Compensation Units: To the extent elected by any
--------------------------------------------------------------------------
Employee and permitted by the Deferred Compensation Plan, the Committee may
- ---------------------------------------------------------------------------
award Deferred Compensation Units to any Employee in lieu of all or any
- -----------------------------------------------------------------------
portion of the gain that would otherwise be recognized by such Employee upon
- ----------------------------------------------------------------------------
exercise of a stock option. All Deferred Compensation Units shall be subject
- ----------------------------------------------------------------------------
to the terms of this Plan and the Deferred Compensation Plan.
- ------------------------------------------------------------
23.2 Effect of Grants: The number of Shares distributable to Employees
- ------------------------------------------------------------------------
pursuant to each Deferred Compensation Unit shall be charged against the
- ------------------------------------------------------------------------
maximum number of Shares of Common Stock that may be issued under this Plan at
- ------------------------------------------------------------------------------
any time. The number of Shares distributable to Employees pursuant to Dividend
- ------------------------------------------------------------------------------
Equivalents shall not be charged against the number of Shares issuable under
- ----------------------------------------------------------------------------
this Plan.
- ---------
23.3 Accounting; Fractional Units:
---------------------------------
(a) The number of Deferred Compensation Units credited to the account of
------------------------------------------------------------------------
any Employee shall be rounded to the nearest one-thousandth of a Unit. The
--------------------------------------------------------------------------
account to which Deferred Compensation Units are credited shall be an
---------------------------------------------------------------------
unsecured general obligation of the Company. The Company will maintain
----------------------------------------------------------------------
records of the number of Deferred Compensation Units for the account of
----------------------------------------------------------------------
each Employee, in part, to prevent an issuance of shares of Common Stock in
---------------------------------------------------------------------------
excess of the authorized shares.
-------------------------------
(b) Notwithstanding paragraph (a) above, upon distribution of any Shares
------------------------------------------------------------------------
represented by Deferred Compensation Units, the number of shares shall be
-------------------------------------------------------------------------
rounded downward to the nearest whole share and no fractional shares shall
--------------------------------------------------------------------------
be issued. Fractional Units remaining after the final distribution to any
-------------------------------------------------------------------------
Employee shall be cancelled without obligation to the Employee.
--------------------------------------------------------------
B-8
<PAGE>
The Fairchild Corporation
This proxy is solicited on behalf of the Board of Directors of The
Fairchild Corporation.
The undersigned hereby appoints Jeffrey J. Steiner, John L. Flynn and
Donald E. Miller as proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of Class A Common Stock, par value $.10 per share, and Class B Common
Stock, par value $.10 per share, of The Fairchild Corporation held of record by
the undersigned on September 28, 1998 at the Annual Meeting of Stockholders to
be held on Thursday, November 19, 1998 at 10:00 a.m. (local time) and at any
adjournments or postponements thereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY.
(Continued and to be signed on the reverse side)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ALL LISTED NOMINEES, AND FOR APPROVAL OF THE OTHER PROPOSALS.
1. ELECTION OF DIRECTORS
[ ] FOR all listed nominees [ ] WITHHELD for all.
(except as marked to the contrary
below).
Michael T. Alcox, Melville R. Barlow, Mortimer M. Caplin, Colin M. Cohen, Philip
David, Robert E. Edwards, Harold J. Harris, Daniel Lebard, Jacques S. Moskovic,
Herbert S. Richey, Moshe Sanbar, Robert A. Sharpe II, Eric I. Steiner, and
Jeffrey J. Steiner.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
- - - - - - - - - - - - - - - -- - - - - - -- - - - - - - -
2. TO AMEND THE COMPANY'S STOCK OPTION PLAN BY INCREASING THE NUMBER OF SHARES
ISSUABLE THEREUNDER;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. TO AMEND THE COMPANY'S STOCK OPTION PLAN TO PERMIT PLAN PARTICIPANTS TO
DEFER THE GAIN THAT WOULD OTHERWISE BE RECEIVED BY SUCH PLAN PARTICIPANTS
UPON EXERCISE OF A STOCK OPTION;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. TO APPROVE THE GRANT OF OPTIONS TO CERTAIN EXECUTIVE OFFICERS AND EMPLOYEES
UNDER THE COMPANY'S STOCK OPTION PLAN;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. TO APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOAL FOR THE FISCAL 1999
INCENTIVE COMPENSATION AWARD FOR THE COMPANY'S PRESIDENT AND CHIEF
OPERATING OFFICER;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. TO APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS FOR THE FISCAL 1999
INCENTIVE COMPENSATION AWARD FOR THE COMPANY'S CHIEF EXECUTIVE OFFICER;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. TO APPROVE AN AMENDMENT TO A WARRANT ISSUED TO AN AFFILIATE OF THE
COMPANY'S CHIEF EXECUTIVE OFFICER.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
" Please Mark Inside Boxes so that Data Processing Equipment will
Record Your Votes."
Please sign exactly as name(s)
appear hereon. When signing as
attorney, executor, administrator,
trustee, guardian or corporate
officer, please give full title as
such.
Date _____________________________________________
________________________________________________
________________________________________________
Signature(s)
Please Mark, Sign, Date and Return This Proxy Card Promptly.
<PAGE>
THE FAIRCHILD CORPORATION
SAVINGS PLAN FOR EMPLOYEES OF
THE FAIRCHILD CORPORATION
VOTING INSTRUCTIONS TO TRUSTEE
These voting instructions are solicited on behalf of the Board of Directors of
The Fairchild Corporation.
To the Trustee:
In accordance with the provisions of the Savings Plan for Employees of The
Fairchild Corporation, I hereby instruct you, as Trustee, to vote or cause to be
voted at the Annual Meeting of Stockholders of The Fairchild Corporation to be
held on November 19, 1998, and any adjournments thereof, all shares of The
Fairchild Corporation standing to my credit in the Master Trust covering the
foregoing Plan in which I may be a participant and which I am entitled to vote
at such meeting as follows:
The shares represented by this proxy will be voted as directed by the
stockholder. If no direction is given by 10:00 a.m. (EST) November 17, 1998,
this proxy will be voted in the same percentage as shares held by participants
for which the Trustee has received timely voting instructions. The Trustee will
hold your voting directions in strict confidence. The Proxy may vote in its
discretion upon any other matters properly coming before the Annual Meeting and
any adjournments thereof.
(CONTINUED, AND TO BE SIGNED ON OTHER SIDE)
<PAGE>
1. ELECTION OF DIRECTORS
[ ] FOR all listed nominees [ ] WITHHELD for all.
(except as marked to the contrary
below).
Michael T. Alcox, Melville R. Barlow, Mortimer M. Caplin, Colin M. Cohen, Philip
David, Robert E. Edwards, Harold J. Harris, Daniel Lebard, Jacques S. Moskovic,
Herbert S. Richey, Moshe Sanbar, Robert A. Sharpe II, Eric I. Steiner, and
Jeffrey J. Steiner.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
- - - - - - - - - - - - - - - -- - - - - - -- - - - - - - -
2. TO AMEND THE COMPANY'S STOCK OPTION PLAN BY INCREASING THE NUMBER OF SHARES
ISSUABLE THEREUNDER;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. TO AMEND THE COMPANY'S STOCK OPTION PLAN TO PERMIT PLAN PARTICIPANTS TO
DEFER THE GAIN THAT WOULD OTHERWISE BE RECEIVED BY SUCH PLAN PARTICIPANTS
UPON EXERCISE OF A STOCK OPTION;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. TO APPROVE THE GRANT OF OPTIONS TO CERTAIN EXECUTIVE OFFICERS AND EMPLOYEES
UNDER THE COMPANY'S STOCK OPTION PLAN;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. TO APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOAL FOR THE FISCAL 1999
INCENTIVE COMPENSATION AWARD FOR THE COMPANY'S PRESIDENT AND CHIEF
OPERATING OFFICER;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. TO APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS FOR THE FISCAL 1999
INCENTIVE COMPENSATION AWARD FOR THE COMPANY'S CHIEF EXECUTIVE OFFICER;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. TO APPROVE AN AMENDMENT TO A WARRANT ISSUED TO AN AFFILIATE OF THE
COMPANY'S CHIEF EXECUTIVE OFFICER.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
" Please Mark Inside Boxes so that Data Processing Equipment will
Record Your Votes."
Please sign exactly as name(s)
appear hereon. When signing as
attorney, executor, administrator,
trustee, guardian or corporate
officer, please give full title as
such.
Date
----------------------------------------------
------------------------------------------------
------------------------------------------------
Signature(s)
Please Mark, Sign, Date and Return This Proxy Card Promptly.
