29
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 29, 1998
Commission File Number 1-6560
THE FAIRCHILD CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 34-0728587
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
45025 Aviation Drive, Suite 400
Dulles, VA 20166
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703)478-5800
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety (90) days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Title of Class March 31, 1998
Class A Common Stock, $0.10 Par Value 18,197,640
Class B Common Stock, $0.10 Par Value 2,624,716
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
Page
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of March 29, 1998
(Unaudited) and June 30, 1997 3
Consolidated Statements of Earnings for the Three and Nine
Months ended March 29, 1998 and March 30, 1997 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Nine
Months ended March 29, 1998 and March 30, 1997 (Unaudited) 7
Notes to Condensed Consolidated Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 15
PART II. OTHER INFORMATION
Item 1. Legal Information 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
* For purposes of Part 1 and this Form 10-Q, the term "Company" means The
Fairchild Corporation, and its subsidiaries, unless otherwise indicated.
For purposes of Part II, the term "Company" means The Fairchild
Corporation, unless otherwise indicated.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1997 and March 29, 1998 (Unaudited)
(In thousands)
ASSETS
<CAPTION>
June 30, March 29,
1997 (*) 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, $4,830 and$
$0 restricted $ 19,420 $ 61,813
Short-term investments 25,647 6,442
Accounts receivable-trade, less 151,361 128,440
allowances of $6,905 and $5,329
Inventories:
Finished goods 292,441 171,462
Work-in-process 20,357 23,038
Raw materials 10,567 10,521
323,365 205,021
Net current assets of discontinued 17,884 14,580
operations
Prepaid expenses and other current 34,490 59,390
assets
Total Current Assets 572,167 475,686
Property, plant and equipment, net of
accumulated depreciation of $126,990
and $122,747 121,918 114,308
Net assets held for sale 26,147 23,831
Net noncurrent assets of discontinued 14,495 2,496
operations
Cost in excess of net assets acquired
(Goodwill), less accumulated
amortization of $36,672 and $40,806 154,129 165,442
Investments and advances, affiliated 55,678 22,338
companies
Prepaid pension assets 59,742 59,572
Deferred loan costs 9,252 6,300
Long-term investments 4,120 215,863
Other assets 35,018 51,806
Total Assets $1,052,666 $1,137,642
*Condensed from audited financial statements
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1997 and March 29, 1998 (Unaudited)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
June 30, March 29,
1997 (*) 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Bank notes payable and current
maturities of long-term debt $ 47,322 $ 21,377
Accounts payable 75,522 61,664
Other accrued liabilities 97,318 88,495
Income taxes 5,863 38,116
Total Current Liabilities 226,025 209,652
LONG-TERM LIABILITES:
Long-term debt, less current 416,922 278,140
maturities
Other long-term liabilities 23,622 24,455
Retiree health care liabilities 43,351 42,757
Noncurrent income taxes 42,013 82,863
Minority interest in subsidiaries 68,309 66,637
TOTAL LIABILITIES 820,242 704,504
STOCKHOLDERS' EQUITY:
Class A common stock, 10 cents par
value; authorized 40,000 shares,
24,445 (20,234 in June) shares issued
and 18,197 (13,992 in June) shares
outstanding 2,023 2,444
Class B common stock, 10 cents par
value; Authorized 20,000 shares, 2,625
(2,632 in June) shares Issued and
outstanding 263 263
Paid-in capital 71,015 148,020
Retained earnings 209,949 322,528
Cumulative translation adjustment 939 (2,811)
Net unrealized holding gain (loss) on (46) 14,540
available-for-sale securities
Treasury Stock, at cost, 6,247
(6,242 in June) shares of Class A
Common Stock (51,719) (51,836)
TOTAL STOCKHOLDERS' EQUITY 232,424 433,138
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,052,666 $1,137,642
*Condensed from audited financial statements
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS (Unaudited)
For The Three (3) and Nine (9) Months Ended
March 30, 1997 and March 29, 1998
(In thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
3/30/97 3/29/98 3/30/97 3/29/98
<S> <C> <C> <C> <C>
REVENUE:
Net sales $179,436 $164,164 $470,141 $567,142
Other income (expense), net 389 847 1,168 5,451
179,825 165,011 471,309 572,593
COSTS AND EXPENSES:
Cost of goods sold 131,884 126,374 348,712 426,201
Selling, general &
administrative 38,030 28,177 101,826 107,048
Research and development 24 42 69 139
Amortization of goodwill 1,240 1,573 3,460 4,179
171,178 156,166 454,067 537,567
OPERATING INCOME 8,647 8,845 17,242 35,026
Interest expense 13,500 9,369 39,629 38,027
Interest income (762) (587) (4,516) (1,501)
Net interest expense 12,738 8,782 35,113 36,526
Investment income (loss), net 741 234 2,202 (4,946)
Equity in earnings (loss) of
affiliates 1,370 509 2,984 2,630
Minority interest (1,076) (21,905) (2,637) (23,780)
Non-recurring income - 123,991 - 123,991 -
Income (loss) from continuing (3,056) 102,892 (15,322) 96,395
operations before taxes
Income tax provision (benefit) (2,939) 52,474 (9,448) 49,353
Earnings (loss) from continuing (117) 50,418 (5,874) 47,042
operations
Earnings (loss) from discontinued
operations, net 157 (1,578) (1,681) (4,260)
Gain on disposal of discontinued
operations, net - 46,548 - 76,522
Extraordinary items, net - (3,701) - (6,725)
NET EARNINGS (LOSS) $ 40 $91,687 $(7,555) $112,579
Other Comprehensive income, net
of tax:
Foreign currency translation
adjustments (2,359) (2,178) (2,197) (3,750)
Unrealized holding gains (losses)
on securities arising during the - 14,221 - 14,540
period
Other Comprehensive income (2,359) 12,043 (2,197) 10,790
COMPREHENSIVE INCOME (LOSS) $(2,319)$103,730 $(9,752) $123,369
The accompanying notes to summarized financial information are an integral
part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF EARNINGS (Unaudited)
For The Three (3) and Nine (9) Months Ended
March 30, 1997 and March 29, 1998
(In thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
3/30/97 3/29/98 3/30/97 3/29/98
<S> <C> <C> <C> <C>
Basic Earnings Per Share:
Earnings (loss) from continuing
operations $ (0.01) $ 2.52 $ (0.36) $ 2.62
Earnings (loss) from discontinued
operations, net 0.01 (0.08) (0.10) (0.24)
Gain on disposal of discontinued
operations, net - 2.32 - 4.27
Extraordinary items, net - (0.18) - (0.37)
NET EARNINGS (LOSS) $ 0.00 $ 4.58 $ (0.46) $ 6.28
Other Comprehensive income, net
of tax:
Foreign currency translation
adjustments $(0.14) $ (0.11) $ (0.13) $(0.21)
Unrealized holding gains (losses)
on securities arising during the - 0.71 - 0.81
period
Other Comprehensive income (0.14) 0.60 (0.13) 0.60
COMPREHENSIVE INCOME (LOSS) $(0.14) $ 5.18 $ (0.59) $6.88
Diluted Earnings Per Share:
Earnings (loss) from continuing
operations $(0.01) $ 2.41 $ (0.36) $2.50
Earnings (loss) from discontinued
operations, net 0.01 (0.08) (0.10) (0.23)
Gain on disposal of discontinued
operations, net - 2.22 - 4.07
Extraordinary items, net - (0.18) - (0.36)
NET EARNINGS (LOSS) $ 0.00 $ 4.38 $ (0.46) $5.98
Other Comprehensive income, net
of tax:
Foreign currency translation
adjustments $(0.14) $(0.10) $ (0.13) $(0.20)
Unrealized holding gains (losses)
on securities arising during the - 0.68 - 0.77
period
Other Comprehensive income (0.14) 0.58 (0.13) 0.57
COMPREHENSIVE INCOME (LOSS) $(0.14) $ 4.96 $ (0.59) $6.56
Weighted average shares
outstanding:
Basic 17,284 20,036 16,518 17,938
Diluted 17,284 20,922 16,518 18,813
The accompanying notes to summarized financial information are an integral
part of these statements.
</TABLE>
<TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For The Nine (9) Months Ended March 30, 1997 and March 29, 1998
(In thousands)
<CAPTION>
For the Nine Months Ended
3/30/97 3/29/98
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (7,555) $112,579
Depreciation and amortization 15,523 16,268
Accretion of discount on long-term 3,702 2,744
liabilities
Net gain on the disposition of -- (99,766)
subsidiaries
Net gain on the disposal of -- (135,736)
discontinued operations
Extraordinary items, net of cash -- 6,725
payments
Distributed earnings of affiliates, 881 (165)
net
Minority interest 2,637 23,780
Changes in assets and liabilities (85,178) (48,466)
Non-cash changes and working capital (13,311) 17,983
changes of discontinued operations
Net cash used for operating (83,301) (104,054)
activities
Cash flows from investing activities:
Purchase of property, plant and (7,426) (23,706)
equipment
Net proceeds received from (used for) (14,009) 9,202
investments
Acquisition of subsidiaries, net of (52,555) (32,404)
cash acquired
Minority interest in subsidiaries -- (26,383)
Net proceeds from the sale of 173,719 167,987
discontinued operations
Changes in net assets held for sale (3,544) 2,239
Other, net 34 180
Investing activities of discontinued (1,418) (3,328)
operations
Net cash provided by investing 94,801 93,787
activities
Cash flows from financing activities:
Proceeds from issuance of debt 108,229 178,036
Debt repayments and repurchase of (131,737) (177,056)
debentures, net
Issuance of Class A common stock 861 54,176
Financing activities of discontinued (1,059) --
operations
Net cash provided by (used for) (23,706) 55,156
financing activities
Effect of exchange rate changes on (1,269) (2,496)
cash
Net increase in cash and cash (13,475) 42,393
equivalents
Cash and cash equivalents, beginning 39,649 19,420
of the year
Cash and cash equivalents, end of the
period $ 26,174 $ 61,813
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except per share data)
1. FINANCIAL STATEMENTS
The consolidated balance sheet as of March 29, 1998 and the
consolidated statements of earnings and cash flows for the three and Nine
months ended March 30, 1997 and March 29, 1998 have been prepared by the
Company, without audit. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at March 29,
1998, and for all periods presented, have been made. The balance sheet at
June 30, 1997 was condensed from the audited financial statements as of
that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's June 30, 1997 Form
10-K, as amended, and Banner Aerospace, Inc.'s March 31, 1997 Form 10-K.
The results of operations for the period ended March 29, 1998 are not
necessarily indicative of the operating results for the full year. Certain
amounts in prior years' quarterly financial statements have been
reclassified to conform to the current presentation. The financial
statements for the periods ended March 30, 1997 have been restated to
present the results of Shared Technologies Fairchild Inc. and Fairchild
Technologies as discontinued operations (see Note 3).
Effective March 29, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income".
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in the financial statements, which the Company is
presenting as part of its Statement of Earnings.
2. BUSINESS COMBINATIONS
On January 13, 1998, certain subsidiaries (the "Selling
Subsidiaries"), of Banner Aerospace, Inc. ("Banner", a majority-owned
subsidiary of the Registrant), completed the disposition of substantially
all of the assets and certain liabilities of the Selling Subsidiaries to
two wholly-owned subsidiaries of AlliedSignal Inc. (the "Buyers"), in
exchange for unregistered shares of AlliedSignal Inc. common stock with an
aggregate value equal to $369,000 (the "Banner Hardware Group
Disposition"). The purchase price received by the Selling Subsidiaries was
based on the consolidated net worth as reflected on an estimated closing
date balance sheet for the assets (and liabilities) conveyed by the Selling
Subsidiaries to the Buyers. Such estimated closing date balance sheet is
subject to review by the parties, and the purchase price will be adjusted
(up or down) based on the net worth as reflected on the final closing date
balance sheet. The assets transferred to the Buyers consists primarily of
Banner's hardware group, which includes the distribution of bearings, nuts,
bolts, screws, rivets and other type of fasteners, and its PacAero unit.
Approximately $196,000 of the common stock received from the Buyers was
used to repay outstanding term loans of Banner's subsidiaries and related
fees. The Company will account for its remaining investment in AlliedSignal
common stock as an available-for-sale security. Banner effected the Banner
Hardware Group Disposition to concentrate its efforts on the rotables and
jet engine businesses and because the Banner Hardware Group Disposition
presented a unique opportunity to realize a significant return on the
disposition of the hardware group. As a result of the Banner Hardware Group
Disposition and the repayment of outstanding term loans, the Company
recorded non-recurring income of $123,991 for the three and nine months
ended March 29, 1998.
The Company has accounted for following acquisitions by the using the
purchase method. The respective purchase price is assigned to the net
assets acquired based on the fair value of such assets and liabilities at
the respective acquisition dates.
On March 2, 1998, the Company consummated the acquisition of Edwards
and Lock Management Corporation, doing business as Special-T Fasteners
("Special-T"), in a business combination to be accounted for as a purchase
(the "Special-T Acquisition"). The purchase price for the acquisition was
approximately $47,600, of which $24,600 was paid in shares of Class A
Common Stock of the Company and the remainder was paid in cash. The
purchase price is subject to certain post-closing adjustments. The total
cost of the acquisition exceeded the fair value of the net assets of
Special-T by approximately $20,540, which is preliminarily being allocated
as goodwill and amortized using the straight-line method over 40 years.
Special-T manages the logistics of predominantly Company manufactured
precision fasteners worldwide as utilized primarily in the aerospace
industry, for government agencies, original equipment manufacturers
("OEM's"), and distributors.
In December 1997, the Company acquired AS+C GmbH, Aviation Supply +
Consulting ("AS&C") in a business combination accounted for as a purchase.
The total cost of the acquisition was $13,245, which exceeded the fair
value of the net assets of AS&C by approximately $7,350, which is
preliminarily being allocated as goodwill and amortized using the straight-
line method over 40 years. The Company purchased AS&C with cash borrowed.
AS&C is an aerospace parts, logistics, and distribution company primarily
servicing the European OEM market.
In February 1997, the Company completed a transaction (the "Simmonds
Acquisition") pursuant to which the Company acquired common shares and
convertible debt representing an 84.2% interest, on a fully diluted basis,
of Simmonds S.A. ("Simmonds"). The Company then initiated a tender offer to
purchase the remaining shares and convertible debt held by the public. By
June 30, 1997, the Company had purchased, or placed sufficient cash in
escrow to purchase, all the remaining shares and convertible debt of
Simmonds. The total purchase price of Simmonds, including the assumption of
debt, was approximately $62,000, which the Company funded with available
cash and borrowings. The Company recorded approximately $20,453 in
goodwill as a result of this acquisition, which will be amortized using the
straight-line method over 40 years. Simmonds is one of Europe's leading
manufacturers and distributors of aerospace and automotive fasteners.
On June 30, 1997, the Company sold all the patents of Fairchild
Scandinavian Bellyloading Company ("SBC") to Teleflex Incorporated
("Teleflex") for $5,000, and immediately thereafter sold all the stock of
SBC to a wholly owned subsidiary of Teleflex for $2,000. The Company may
also receive additional proceeds of up to $7,000 based on future net sales
of SBC's patented products and services.
3. DISCONTINUED OPERATIONS
On November 20, 1997, Shared Technologies Fairchild Inc. ("STFI"), a
corporation in which the Company owned approximately 42% of the outstanding
common stock, entered into a merger agreement with Intermedia
Communications Inc. ("Intermedia") pursuant to which holders of STFI common
stock received $15.00 per share in cash (the "STFI Merger"). The Company
was paid approximately $178,000 in cash (before tax and selling expenses)
in exchange for the common and preferred stock of STFI owned by the
Company. In the nine months ended March 29, 1998, the Company recorded a
$98,817 gain, net of tax, on disposal of discontinued operations, from the
proceeds received from the STFI Merger, which was completed on March 11,
1998. Accordingly, in the quarter ended March 29, 1998, the Company
recorded a $68,843 gain, net of tax, on disposal of discontinued
operations, from the proceeds received for the common stock of STFI. The
results of STFI have been accounted for as discontinued operations.
Earnings from discontinued operations includes the Company's net
equity in earnings of $1,095 and $622 from the STFI investments during the
nine months ended March 30, 1997 and March 29, 1998, respectively.
For the Company's fiscal years 1995, 1996, and 1997, and for the first
nine months of fiscal 1998, Fairchild Technologies ("Technologies") had
operating losses of approximately $1.5 million, $1.5 million, $3.6 million,
and $13.7 million, respectively. In addition, as a result of the downturn
in the Asian markets, Technologies has experienced delivery deferrals,
reduction in new orders, lower margins and increased price competition.
In response, in February, 1998 (the "measurement date"), the Company
adopted a formal plan to enhance the opportunities for disposition of
Technologies, while improving the ability of Technologies to operate more
efficiently. The plan includes a reduction in production capacity and
headcount at Technologies, and the pursuit of potential vertical and
horizontal integration with peers and competitors of the two divisions that
constitute Technologies, or the inclusion of those divisions in a spin-off
(see discussion under Item 2, "Management's Discussion and Analysis of
Results and Financial Condition"). If the Company elects to include
Technologies in the Spin-Off, the Company believes that it would be
required to contribute substantial additional resources to allow
Technologies the liquidity necessary to sustain and grow both the Fairchild
Technologies' operating divisions.
In connection with the adoption of such plan, the Company recorded an
after-tax charge of $22,352 in discontinued operations in the third quarter
ended March 29, 1998, of which, $13,377 (net of income tax benefit of
$4,623) represents the estimated loss on the disposal of certain assets of
Technologies, $4,197 (net of an income tax benefit of $1,450) relates to
the net losses of Technologies since the measurement date, and $4,721 (net
of an income tax benefit of $2,513) relates to a provision for expected
operating losses over the next ten months at Technologies. While the
Company believes that $22,000 is a reasonable charge for the expected
losses in connection with the disposition of Technologies, there can be no
assurance that this estimate is adequate.
Earnings from discontinued operations for the nine months ended March
30, 1997 and March 29, 1998 includes net losses of $2,776 (net of a tax
benefit of $667) and $4,287 (net of a tax benefit of $3,983), respectively,
from Technologies until the adoption date of a formal plan on the
measurement date.
4. PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial information for the
nine months ended March 29, 1998 and March 30, 1997, provide the results of
the Company's operations as though the STFI Disposition, the Banner
Hardware Group Disposition, and the Special-T Acquisition had been in
effect since the beginning of each period. The pro forma information is
based on the historical financial statements of the Company, Banner, STFI
and Special-T, giving effect to the aforementioned transactions. In
preparing the pro forma data, certain assumptions and adjustments have been
made, including reduced interest expense for revised debt structures and
estimates of changes to goodwill amortization. The following unaudited pro
forma information are not necessarily indicative of the results of
operations that actually would have occurred if the transactions had been
in effect since the beginning of each period, nor are they indicative of
future results of the Company.
<TABLE>
<CAPTION>
Nine Months Ended
March 30, March 29,
1997 1998
<S> <C> <C>
Net sales $343,289 $468,975
Gross profit 80,011 105,257
Loss from continuing operations (3,593) (4,868)
Loss from continuing operations per
share $ (0.22) $ (0.27)
</TABLE>
The pro forma financial information has not been adjusted for non-
recurring income and gains from disposal of discontinued operations that
have occurred or are expected to occur from these transactions within the
ensuing year.
5. EQUITY SECURITIES
On December 19, 1997, the Company completed a secondary offering of
public securities. The offering consisted of an issuance of 3,000,000
shares of the Company's Class A Common Stock at $20.00 per share (the
"Offering").
On February 12, 1998, the Company issued 24,545 deferred compensation
units pursuant to the Company's stock option deferral plan as a result of a
cashless exercise of 30,000 stock options.
On March 2, 1998, in accordance with the terms of Special-T
Acquisition, the Company issued 1,057,515 restricted shares of Company's
Class A Common Stock. (See Note 2).
On March 13, 1998, the Company issued 47,283 restricted shares of
Company's Class A Common Stock resulting from a cashless exercise of
100,000 warrants by Dunstan Ltd.
The Company had 18,197,640 shares of Class A common stock and
2,624,716 shares of Class B common stock outstanding at March 29, 1998.
Class A common stock is traded on both the New York and Pacific Stock
Exchanges. There is no public market for the Class B common stock. Shares
of Class A common stock are entitled to one vote per share and cannot be
exchanged for shares of Class B common stock. Shares of Class B common
stock are entitled to ten votes per share and can be exchanged, at any
time, for shares of Class A common stock on a share-for-share basis. For
the nine months ended March 29, 1998, 92,759 shares of Class A Common Stock
were issued as a result of the exercise of stock options, and shareholders
converted 7,800 shares of Class B common stock into Class A common stock.
6. DEBT
On December 19, 1997, immediately following the Offering, the Company
restructured its FHC and RHI Credit Agreements by entering into a new
credit facility to provide the Company with a $300,000 senior secured
credit facility (the "Facility") consisting of (i) a $75,000 revolving loan
with a letter of credit sub-facility of $30,000 and a $10,000 swing loan
sub-facility, and (ii) a $225,000 term loan. Advances made under the
Facility will generally bear interest at a rate of, at the Company's
option, either (i) 2% over the Citibank N.A. base rate, or (ii) 3% over the
Eurodollar Rate ("LIBOR") for the first nine months following closing, and
is subject to change based upon the Company's financial performance
thereafter. The Facility is subject to a non-use commitment fee of 1/2% of
the aggregate unused availability for the first nine months post-closing
and is subject to change based upon the Company's financial performance
thereafter. Outstanding letters of credit are subject to fees equivalent
to the LIBOR margin rate. A borrowing base is calculated monthly to
determine the amounts available under the Facility. The borrowing base is
determined monthly based upon (i) the EBITDA of the Company's Aerospace
Fastener business, as adjusted, and (ii) specified percentages of various
marketable securities and cash equivalents. The Facility will mature on
June 18, 2004. The term loan is subject to mandatory prepayment
requirements and optional prepayments. The revolving loan is subject to
mandatory prepayment requirements and optional commitment reductions. On
March 29, 1998, the Company was in compliance with all the covenants under
its credit agreements.
On February 3, 1998, with the proceeds of the Offering, term loan
borrowings under the Facility, and the after tax proceeds the Company
received from the STFI Merger, the Company redeemed (collectively, the
"Public Debt Repayment") all of its existing publicly held indebtedness
(other than indebtedness of Banner), consisting of (i) $63,000 to redeem
the 11 7/8% Senior Debentures due 1999; (ii) $117,600 to redeem the 12%
Intermediate Debentures due 2001; (iii) $35,856 to redeem the 13 1/8%
Subordinated Debentures due 2006; (iv) $25,063 to redeem the 13% Junior
Subordinated Debentures due 2007; and (v) accrued interest of $10,562.
The Company recognized an extraordinary loss of $6,725, net of tax, to
write-off the remaining deferred loan fees and original issue discounts
associated with early extinguishment of the Company's indebtedness pursuant
to the Public Debt Repayment and refinancing of the FHC and RHI Credit
Agreement facilities.
In August 1997, the Company entered into a delayed-start swap interest
rate lock hedge agreement (the "FHC Hedge Agreement") to reduce its
exposure to increases in interest rates on variable rate debt. In December
1997, the Company amended the FHC Hedge Agreement. Beginning on February
17, 1998, the FHC Hedge Agreement will provide interest rate protection on
$100,000 of variable rate debt for ten years, with interest being
calculated based on a fixed LIBOR rate of 6.715%. On January 14, 1998, the
FHC Hedge Agreement was further amended to provide interest rate protection
with interest being calculated based on a fixed LIBOR rate of 6.24% from
February 17, 1998 to February 17, 2003. On February 17, 2003, the bank will
have a one-time option to either (i) elect to cancel the ten-year
agreement; or (ii) do nothing and proceed with the transaction, using a
fixed LIBOR rate of 6.715% for the period February 17, 2003 to February 19,
2008. No costs were incurred as a result of these transactions.
On November 25, 1997, Banner amended its credit agreement to increase
its revolving credit facility by $50,000. On January 13, 1998, Banner
amended its credit agreement to (i) allow for the prepayment of all term
loans and a portion of the revolving credit obligation without any
reduction of the revolving credit facility; (ii) reduce the revolving
credit facility interest rate to prime plus 0.25% or LIBOR plus 1.50%; and
(iii) reduce the nonuse fee to a per annum rate equal to 0.30%. Also on
January 13, 1998, in conjunction with the Banner Hardware Group
Disposition, the outstanding balances of the term loans were reduced to
zero.
7. RESTRICTED CASH
On March 29, 1998, the Company did not have any restricted cash. On
June 30, 1997, the Company had restricted cash of approximately $4,839, all
of which was maintained as collateral for certain debt facilities.
8. SUMMARIZED STATEMENT OF EARNINGS INFORMATION
The following table presents summarized historical financial
information, on a combined 100% basis, of the Company's principal
investments, which are accounted for using the equity method.
<TABLE>
<CAPTION>
Nine Months Ended
March 30, March 29,
1997 1998
<S> <C> <C>
Net sales $ 67,638 $ 63,615
Gross profit 25,778 23,095
Earnings from continuing operations 10,132 9,769
Net earnings 10,132 9,769
</TABLE>
The Company owns approximately 31.9% of Nacanco Paketleme common
stock. The Company recorded equity earnings of $2,975 and $3,093 from this
investment for the nine months ended March 30, 1997 and March 29, 1998,
respectively.
9. MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
On March 29, 1998, the Company had $66,637 of minority interest, of
which $66,619 represents Banner. Minority shareholders hold approximately
34% of Banner's outstanding common stock.
10. EARNINGS PER SHARE
Effective December 28, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128).
This statement replaces the previously reported primary and fully diluted
earnings (loss) per share with basic and diluted earnings (loss) per share.
Unlike primary earnings (loss) per share, basic earnings (loss) per share
excludes any diluted effects of options. Diluted earnings (loss) per share
is very similar to the previously reported fully diluted earnings (loss)
per share. All earnings (loss) per share have been restated to conform to
the requirements of SFAS 128.
The following table illustrates the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
3/30/97 3/29/98 3/30/97 3/29/98
<S> <C> <C> <C> <C>
Basic earnings per share:
Earnings from continuing
operations $ (117) $50,418 $(5,874) $47,042
Common shares outstanding 17,284 20,036 16,518 17,938
Basic earnings per share:
Basic earnings from continuing
operations per share $ (0.01) $ 2.52 $ (0.36) $ 2.62
Diluted earnings per share:
Earnings from continuing
operations $ (117) $50,418 $(5,874) $47,042
Common shares outstanding 17,284 20,036 16,518 17,938
Options antidilutive 595 antidilutive 579
Warrants antidilutive 291 antidilutive 296
Total shares outstanding 17,284 20,922 16,518 18,813
Diluted earnings from continuing
operations per share $(0.01) $ 2.41 $ (0.36) $ 2.50
</TABLE>
The computation of diluted loss per share for the three-month and nine-
month periods ended March 30, 1997 excluded the effect of incremental
common shares attributable to the potential exercise of common stock
options outstanding and warrants outstanding, because their effect was
antidilutive.
11. CONTINGENCIES
Government Claims
The Corporate Administrative Contracting Officer (the "ACO"), based
upon the advice of the United States Defense Contract Audit Agency, has
made a determination that Fairchild Industries, Inc. ("FII"), a former
subsidiary of the Company, did not comply with Federal Acquisition
Regulations and Cost Accounting Standards in accounting for (i) the 1985
reversion to FII of certain assets of terminated defined benefit pension
plans, and (ii) pension costs upon the closing of segments of FII's
business. The ACO has directed FII to prepare cost impact proposals
relating to such plan terminations and segment closings and, following
receipt of such cost impact proposals, may seek adjustments to contract
prices. The ACO alleges that substantial amounts will be due if such
adjustments are made, however, an estimate of the possible loss or range of
loss from the ACO's assertion cannot be made. The Company believes it has
properly accounted for the asset reversions in accordance with applicable
accounting standards. The Company has held discussions with the government
to attempt to resolve these pension accounting issues.
Environmental Matters
The Company's operations are subject to stringent Government imposed
environmental laws and regulations concerning, among other things, the
discharge of materials into the environment and the generation, handling,
storage, transportation and disposal of waste and hazardous materials. To
date, such laws and regulations have not had a material effect on the
financial condition, results of operations, or net cash flows of the
Company, although the Company has expended, and can be expected to expend
in the future, significant amounts for investigation of environmental
conditions and installation of environmental control facilities,
remediation of environmental conditions and other similar matters,
particularly in the Aerospace Fasteners segment.
In connection with its plans to dispose of certain real estate, the
Company must investigate environmental conditions and may be required to
take certain corrective action prior or pursuant to any such disposition.
In addition, management has identified several areas of potential
contamination at or from other facilities owned, or previously owned, by
the Company, that may require the Company either to take corrective action
or to contribute to a clean-up. The Company is also a defendant in certain
lawsuits and proceedings seeking to require the Company to pay for
investigation or remediation of environmental matters and has been alleged
to be a potentially responsible party at various "Superfund" sites.
Management of the Company believes that it has recorded adequate reserves
in its financial statements to complete such investigation and take any
necessary corrective actions or make any necessary contributions. No
amounts have been recorded as due from third parties, including insurers,
or set off against, any liability of the Company, unless such parties are
contractually obligated to contribute and are not disputing such liability.
As of March 29, 1998, the consolidated total recorded liabilities of
the Company for environmental matters approximated $7,070, which
represented the estimated probable exposures for these matters. It is
reasonably possible that the Company's total exposure for these matters
could be approximately $11,870 on an undiscounted basis.
Other Matters
The Company is involved in various other claims and lawsuits
incidental to its business, some of which involve substantial amounts. The
Company, either on its own or through its insurance carriers, is contesting
these matters. In the opinion of management, the ultimate resolution of
the legal proceedings, including those aforementioned, will not have a
material adverse effect on the financial condition, or future results of
operations or net cash flows of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Fairchild Corporation (the "Company") was incorporated in October
1969, under the laws of the State of Delaware. On November 15, 1990, the
Company changed its name from Banner Industries, Inc. to The Fairchild
Corporation. RHI Holdings, Inc. ("RHI") is a direct 100% owned subsidiary
of the Company. RHI is the 100% owner of Fairchild Holding Corp. ("FHC")
and the majority owner of Banner Aerospace, Inc. ("Banner"). The Company's
principal operations are conducted through RHI and FHC. The Company holds a
significant equity interest in Nacanco Paketleme ("Nacanco"), and, during
the period covered by this report, held a significant equity interest in
Shared Technologies Fairchild Inc. ("STFI"). (See Note 3 to Financial
Statements, Discontinued Operations, as to the disposition of the Company's
interest in STFI.)
The following discussion and analysis provide information which
management believes is relevant to assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the consolidated financial
statements and notes thereto.
CAUTIONARY STATEMENT
Certain statements in the financial discussion and analysis by
management contain forward-looking information that involves risk and
uncertainty, including current trend information, projections for
deliveries, backlog, and other trend projections. Actual future results
may differ materially depending on a variety of factors, including product
demand; performance issues with key suppliers; customer satisfaction and
qualification issues; labor disputes; governmental export and import
policies; worldwide political stability and economic growth; legal
proceedings; business combinations; investment risks; and acts of nature.
RECENT DEVELOPMENTS
The Company has effected a series of transactions designed to: (i)
reduce its total indebtedness and annual interest expense; (ii) increase
the number of publicly held shares of Class A Common Stock; and (iii)
increase the Company's operating and financial flexibility.
On November 20, 1997, Shared Technologies Fairchild Inc. ("STFI"), a
corporation in which the Company owned approximately 42% of the outstanding
common stock, entered into a merger agreement with Intermedia
Communications Inc. ("Intermedia") pursuant to which holders of STFI common
stock received $15.00 per share in cash (the "STFI Merger"). The Company
was paid approximately $178.0 million in cash (before tax and selling
expenses) in exchange for the common and preferred stock of STFI owned by
the Company. In the nine months ended March 29, 1998, the Company recorded
a $98.8 million gain, net of tax, on disposal of discontinued operations,
from the proceeds received from the STFI Merger, which was completed on
March 11, 1998. Accordingly, in the quarter ended March 29, 1998, the
Company recorded a $68.8 million gain, net of tax, on disposal of
discontinued operations, from the proceeds received for the common stock of
STFI. The results of STFI have been accounted for as discontinued
operations.
On December 19, 1997, the Company completed a secondary offering of
public securities. The offering consisted of an issuance of 3,000,000
shares of the Company's Class A Common Stock at $20.00 per share (the
"Offering").
On December 19, 1997, immediately following the Offering, the Company
restructured its FHC and RHI Credit Agreements by entering into a new six-
and-a-half-year credit facility to provide the Company with a $300 million
senior secured credit facility (the "Facility") consisting of (i) a $75
million revolving loan with a letter of credit sub-facility of $30 million
and a $10 million swing loan sub-facility, and (ii) a $225 million term
loan.
On January 13, 1998, certain subsidiaries (the "Selling
Subsidiaries"), of Banner Aerospace, Inc. ("Banner", a majority-owned
subsidiary of the Registrant), completed the disposition of substantially
all of the assets and certain liabilities of the Selling Subsidiaries to
two wholly-owned subsidiaries of AlliedSignal Inc. (the "Buyers"), in
exchange for unregistered shares of AlliedSignal Inc. common stock with an
aggregate value equal to $369 million (the "Banner Hardware Group
Disposition"). The purchase price received by the Selling Subsidiaries was
based on the consolidated net worth as reflected on an estimated closing
date balance sheet for the assets (and liabilities) conveyed by the Selling
Subsidiaries to the Buyers. Such estimated closing date balance sheet is
subject to review by the parties, and the purchase price will be adjusted
(up or down) based on the net worth as reflected on the final closing date
balance sheet. The assets transferred to the Buyers consists primarily of
Banner's hardware group, which includes the distribution of bearings, nuts,
bolts, screws, rivets and other type of fasteners, and its PacAero unit.
Approximately $196 million of the common stock received from the Buyers was
used to repay outstanding term loans of Banner's subsidiaries and related
fees. The Company will account for its remaining investment in AlliedSignal
common stock as an available-for-sale security. Banner effected the Banner
Hardware Group Disposition to concentrate its efforts on the rotables and
jet engine businesses and because the Banner Hardware Group Disposition
presented a unique opportunity to realize a significant return on the
disposition of the hardware group. As a result of the Banner Hardware Group
Disposition and the repayment of outstanding term loans, the Company
recorded non-recurring income of $124 for the three and nine months ended
March 29, 1998.
On March 2, 1998, the Company consummated the acquisition of Edwards
and Lock Management Corporation, doing business as Special-T Fasteners
("Special-T"), in a business combination to be accounted for as a purchase
(the "Special-T Acquisition"). The purchase price for the acquisition was
approximately $47.6 million, of which $24.6 million was paid in shares of
Class A Common Stock of the Company and the remainder was paid in cash. The
purchase price is subject to certain post-closing adjustments. The total
cost of the acquisition exceeded the fair value of the net assets of
Special-T by approximately $20.5 million, which is preliminarily being
allocated as goodwill and amortized using the straight-line method over 40
years. Special-T manages the logistics of predominantly Company
manufactured precision fasteners worldwide as utilized primarily in the
aerospace industry, for government agencies, original equipment
manufacturers ("OEM's"), and distributors.
On February 3, 1998, with the proceeds of the Offering, term loan
borrowings under the Facility, and the after tax proceeds the Company
received from the STFI Merger, the Company redeemed (collectively, the
"Public Debt Repayment") all of its existing publicly held indebtedness
(other than indebtedness of Banner), consisting of (i) $63.0 million to
redeem the 11 7/8% Senior Debentures due 1999; (ii) $117.6 million to
redeem the 12% Intermediate Debentures due 2001; (iii) $35.9 million to
redeem the 13 1/8% Subordinated Debentures due 2006; (iv) $25.1 million to
redeem the 13% Junior Subordinated Debentures due 2007; and (vi) accrued
interest of $10.6 million.
On November 28, 1997, the Company acquired AS+C GmbH, Aviation Supply
+ Consulting ("AS&C") in a business combination accounted for as a
purchase. The total cost of the acquisition was $13.2 million, which
exceeded the fair value of the net assets of AS&C by approximately $7.4
million, which is preliminarily being allocated as goodwill and amortized
using the straight-line method over 40 years. The Company purchased AS&C
with cash borrowed. AS&C is an aerospace parts, logistics, and distribution
company primarily servicing the European OEM market.
RESULTS OF OPERATIONS
The Company currently reports in two principal business segments:
Aerospace Fasteners and Aerospace Distribution. The results of Gas Springs
and SBC (for the prior year period) are included in the Corporate and Other
classification. The following table illustrates the historical sales and
operating income of the Company's operations for the three months and Nine
ended March 29, 1998 and March 30, 1997, respectively.
<TABLE>
<CAPTION>
(In thousands) Three Months Nine Months
Ended Ended
March March March March
30, 29, 30, 29,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Sales by Segment:
Aerospace Fasteners $ 64,073 $102,857 $175,614 $270,718
Aerospace Distribution 113,743 60,865 294,835 303,393
Corporate and Other 4,738 1,442 9,385 4,166
Eliminations (a) (3,118) (1,000) (9,693) (11,135)
Total Sales $179,436 $164,164 $470,141 $567,142
Operating Income (Loss)
by Segment:
Aerospace Fasteners $ 3,563 $ 9,668 $ 7,827 $ 18,560
Aerospace Distribution 9,061 2,085 21,114 19,170
Corporate and Other (3,977) (2,999) (11,699) (2,704)
Total Operating Income $ 8,647 $ 8,845 $ 17,242 $ 35,026
(a) Represents intersegment sales from the Aerospace Fasteners segment to
the Aerospace Distribution segment.
</TABLE>
CONSOLIDATED RESULTS
Net sales of $164.2 million in the third quarter of Fiscal 1998
decreased by $15.3 million, or 8.5%, compared to sales of $179.8 million in
the third quarter of Fiscal 1997. This decrease is primarily attributable
to the loss of revenues resulting from the Banner Hardware Group
Disposition. Net Sales of $567.1 million in the Fiscal 1998 nine-month
period improved by $97.0 million, or 20.6%, compared to sales of $470.1
million in the first nine months of Fiscal 1997. Approximately 24.0%
of the current nine months sales growth was stimulated by the resurgent
commercial aerospace industry. Recent acquisitions contributed
approximately 12.4% to the sales growth, while dispositions
decreased growth by approximately 15.8%.
Gross Margin as a percentage of sales was 26.5% and 23.0% in the third
quarter of Fiscal 1997 and 1998, respectively, and 25.8% and 24.9% in the
nine-month period of Fiscal 1997 and 1998, respectively. Lower margins in
the Fiscal 1998 periods is attributable to a change in product mix in the
Aerospace Distribution segment as a result of the Banner Hardware Group
Disposition. Partially offsetting overall lower margins, were improved
margins within the Aerospace Fasteners segment resulting from efficiencies
associated with increased production, improved skills of the work force,
and reduction in the payment of overtime.
Selling, General & Administrative expense as a percentage of sales was
21.2% and 17.2% in the third quarter of Fiscal 1997 and 1998, respectively,
and 21.7% and 18.9% in the nine-month period of Fiscal 1997 and 1998,
respectively. The improvement in the Fiscal 1998 periods is attributable
primarily to administrative efficiencies relative to increasing sales.
Other income increased $4.3 million in the current nine-month period,
compared to the prior year nine-month period, due primarily to the sale of
air rights over a portion of the property the Company owns and is
developing in Farmingdale, New York.
Operating income of $8.8 million in the third quarter of Fiscal 1998
increased 2.3%, compared to operating income of $8.6 million in the third
quarter of Fiscal 1997. Operating income of $35.0 million in the nine-
month period ended March 29, 1998, improved by $17.8 million, or 103.1%,
compared to the nine-month period ended March 30, 1997. The increase in
operating income was due primarily to the improved results provided by the
Company's Aerospace Fasteners segment.
Investment income (loss), net, decreased by $7.1 million in the first
nine months of Fiscal 1998, due to recognition of unrealized losses on the
fair market adjustments of investments previously classified as trading
securities in the Fiscal 1998 periods while recording unrealized gains from
trading securities in the Fiscal 1997 periods. Unrealized holding gains
(losses) on available-for-sale investments are marked to market value
through stockholders' equity and reported separately as part of
comprehensive income (see discussion below).
Minority interest increased by $21.1 million as a result of the $124.0
million non-recurring pre-tax gain recognized from the Banner Hardware
Group Disposition.
An income tax provision of $49.4 million in the first nine months of
Fiscal 1998 represented a 42.0% effective tax rate on pre-tax earnings from
continuing operations (excluding equity in earnings of affiliates and
minority interest) of $117.5 million. The tax provision was slightly higher
than the statutory rate because of goodwill associated with the Banner
Hardware Group Disposition.
Included in earnings (loss) from discontinued operations are the
results of Fairchild Technologies ("Technologies") through January 1998,
and the Company's equity in earnings of STFI prior to the STFI Merger.
Losses increased in the fiscal 1998 periods as a result of increased losses
recorded at Technologies and lower equity earnings contributed by STFI (See
Note 3).
In the nine months ended March 29, 1998, the Company recorded a $98.8
million gain, net of tax, on disposal of discontinued operations, from the
proceeds received from the STFI Merger. In the quarter ended March 29,
1998, the Company recorded a $68.8 million gain, net of tax, on disposal of
discontinued operations, from proceeds received for the common stock of
STFI. Partially offsetting this gain was an after-tax charge of $22.4
million the Company recorded in the third quarter ended March 29, 1998 in
connection with the adoption of a formal plan to enhance the opportunities
for disposition of Technologies. Included in this charge was (i) $13.4
million (net of income tax benefit of $4.6 million) representing the
estimated loss on the disposal of certain assets of Technologies; (ii) $4.2
million (net of an income tax benefit of $1.5 million) relating to the net
losses of Technologies since the measurement date; and (iii) $4.7 million
(net of an income tax benefit of $2.5 million) relating to a provision for
additional operating losses. The Company's results are affected by the
operations of Technologies, which may fluctuate because of industry
cyclicality, the volume and timing of orders, the timing of new product
shipments, customers' capital spending, and pricing changes by Technologies
and its competition. Technologies has experienced a reduction of its
backlog, and margin compression during the past nine months, which combined
with the existing cost base, may impact future earnings from Technologies.
While the Company believes that $22.4 million is a reasonable charge for
the expected losses in connection with the disposition of Technologies,
there can be no assurance that this estimate is adequate. (See Note 3).
The Company recognized an extraordinary loss of $6.7 million, net of
tax, to write-off the remaining deferred loan fees and original issue
discounts associated with early extinguishment of the Company's
indebtedness pursuant to the Public Debt Repayment and refinancing of the
FHC and RHI Credit Agreement facilities.
Net earnings of $112.6 million in the first nine months ended March
29, 1998, improved by $120.1 million compared to the $7.6 million net loss
recorded in the nine months ended March 30, 1997. This improvement is
attributable to a $17.8 million increase in operating income, a $124.0
million non-recurring gain from Banner Hardware Group Disposition, and the
$76.5 million gain on the disposal of discontinued operations. Partially
offsetting this increase was a $58.8 million increase in the income tax
provision, a $21.1 million change in minority interest, a $7.1 decrease in
investment income, and the $6.7 million extraordinary loss.
Comprehensive income includes foreign currency translation adjustments
and unrealized holding changes in the fair market value of available-for-
sale investment securities. The fair market value of unrealized holding
securities increased $14.5 million in the nine months ended March 29, 1998,
primarily as a result of an increase in the value of AlliedSignal common
stock which was received from the Banner Hardware Group Disposition.
SEGMENT RESULTS:
AEROSPACE FASTENERS SEGMENT
Sales in the Aerospace Fasteners segment increased by $38.8 million,
or 60.5%, in the third quarter and $95.1, or 54.2%, million for the Fiscal
1998 nine-month period, compared to the Fiscal 1997 periods, reflecting
significant growth in the commercial aerospace industry combined with the
effect of acquisitions. New orders have continued to be strong. The Company
reduced backlog to $187 million at March 29, 1998, down from $196 million
at June 30, 1997. Excluding sales contributed by acquisitions, sales
increased approximately 31% and 27% for the three and nine months ended March
29, 1998,respectively, compared to the same periods in the prior year.
Operating income improved by $6.1 million, or 171%, in the third
quarter and $10.7 million, or 137%, in the Fiscal 1998 nine-month period,
compared to the Fiscal 1997 periods. Acquisitions and marketing changes
were contributors to this improvement. Excluding the results provided by
acquisitions, operating income increased by approximately 100% in the third
quarter and 88% for the nine months of Fiscal 1998, compared to the same
periods in the prior year. The Company anticipates that manufacturing and
productivity efficiencies will further improve operating income in the coming
months.
AEROSPACE DISTRIBUTION SEGMENT
Aerospace Distribution sales were lower by $52.9 million, or 46.5% in
the third quarter and up $8.6 million, or 2.9%, in the first nine months of
Fiscal 1998, compared to the corresponding periods of the prior year. The
loss of revenues as a result of the Banner Hardware Group Disposition was
primarily responsible for the decrease in the current quarter, and
partially offset sales increases in the first nine months of Fiscal 1998,
which sales otherwise reflected a robust aerospace industry. Excluding
sales contributed by dispositions, sales increased 35% and 33% for the
three and nine months ended March 29, 1998, respectively, compared to the
same periods in the prior year.
Operating income decreased $7.0 million, in the third quarter and $1.9
million for the first nine months of Fiscal 1998, compared to the same
period of the prior year, due to the Banner Hardware Group Disposition.
Excluding the results from dispositions, operating income increased by 61%
for the nine months of Fiscal 1998,compared to the same periods in the prior
year.
CORPORATE AND OTHER
The Corporate and Other classification includes the Gas Springs
Division and corporate activities. The results of SBC, which was sold at
Fiscal 1997 year-end, are included in the prior period results. The group
reported a decrease in sales of $3.3 million, in the third quarter and $5.2
million, in the first nine months of Fiscal 1998, as compared to the same
periods in Fiscal 1997, due to the exclusion of SBC's results in the
current periods. The operating loss decreased by $1.8 million in the third
quarter and $9.2 million in the first nine months of Fiscal 1998, compared
to the Fiscal 1997 periods, as a result of an increase in other income and
a decrease in legal expenses.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $42.4 million from $19.4
million at June 30, 1997 to $61.8 million at March 29, 1998. Cash received
of $178.0 from the STFI Merger and $54.2 from the Offering was partially
offset by cash of $104.1 million used for operations, capital expenditures,
including acquisitions of $56.1 million, and minority interest purchases of
$26.4 million. The increase in cash used for operations was primarily
attributable to increases in working capital (net of the Banner Hardware
Group Disposition). The Company's principal cash requirements include debt
service, capital expenditures, acquisitions, and payment of other
liabilities. Other liabilities that require the use of cash include post-
employment benefits for retirees, environmental investigation and
remediation obligations, and litigation settlements and related costs. The
Company maintains credit agreements with a consortium of banks, which
provide a term loan and revolving credit facilities to the Company, and a
separate revolving credit facility is made available to Banner. The Company
anticipates that existing capital resources, cash generated from
operations, and cash from borrowings and asset sales will be adequate to
maintain the Company's current level of operations.
For the Company's fiscal years ended June 30, 1995, 1996 and 1997, and
for the first nine months of fiscal 1998, the Company had negative cash
flows from operations of $25.0 million, $49.0 million, $100.1 million and
$104.1 million, respectively. The Company believes that recent proceeds
from dispositions and the recent equity offering, along with a refinancing
of the Company's debt, will provide the Company with the necessary capital
to overcome these negative cash flows. The Company plans to focus on its
core businesses and capitalize on the resurgent aerospace industry in order
to improve operating cash flows.
With the proceeds of the Offering, borrowings under the Facility and
the after tax proceeds received from the STFI Merger, the Company
refinanced substantially all of its existing indebtedness (other than
indebtedness at Banner), consisting of the 11 7/8% Senior Debentures due
1999, the 12% Intermediate Debentures due 2001, the 13 1/8% Subordinated
Debentures due 2006, the 13% Junior Subordinated debentures due 2007 and
its existing bank indebtedness. The Public Debt Repayment reduced the
Company's total net indebtedness by approximately $132 million and reduced
the Company's annual interest expense, on a pro forma basis, by
approximately $21 million, and the STFI Merger reduced the Company's annual
interest expense by approximately an additional $3 million. A portion of
the proceeds from the Banner Hardware Group Disposition were used to repay
all of Banner's outstanding term loan indebtedness, which will further
reduce the Company's annual interest expense by approximately an additional
$14 million. The operating income of the subsidiaries included in the
Banner Hardware Group Disposition was $14.1 million for the nine months
ended March 29, 1998, respectively. Whereas the Company will no longer
benefit from the operations of the disposed Banner subsidiaries it expects
to benefit from lower interest expense and dividends paid on the
AlliedSignal stock.
The Company has made an offer to exchange (the "Exchange Offer") its
Class A common stock for up to a maximum of 4 million shares of Banner
common stock. The purpose of the Exchange Offer is for the Company to
increase its ownership of Banner to at least 80.1% such that the Company
can include Banner in its United States consolidated corporate income tax
return. Pending a successful Exchange Offer, the Company contemplates
issuing approximately .6046 of a share of its Class A common stock for each
validly tendered share of Banner common stock.
For the Company's fiscal years 1995, 1996, and 1997, and for the first
nine months of fiscal 1998, Technologies had operating losses of
approximately $1.5 million, $1.5 million, $3.6 million, and $13.7 million,
respectively. In addition, as a result of the downturn in the Asian
markets, Technologies has experienced delivery deferrals, reduction in new
orders, lower margins and increased price competition. In response, in
February 1998, the Company adopted a formal plan to enhance the
opportunities for disposition of Technologies, while improving the ability
of Technologies to operate more efficiently. The plan includes a reduction
in production capacity and headcount, and the pursuit of potential vertical
and horizontal integration with peers and competitors of the two divisions
that constitute Technologies, or the inclusion of those divisions in the
Spin-Off. If the Company elects to include Technologies in the Spin-Off,
the Company believes that it would be required to contribute substantial
additional resources to allow Technologies the liquidity necessary to
sustain and grow both the Fairchild Technologies' operating divisions.
In order to focus its operations on the aerospace industry, the
Company is considering distributing (the "Spin-Off") to its shareholders
all of the stock of a subsidiary to be formed ("Spin-Co"), which may own
substantially all of the Company's non-aerospace assets. Although the
Company's ability to effect the Spin-Off is uncertain, the Company may
effect a spin-off of certain non-aerospace assets as soon as it is
reasonably practicable following receipt of a solvency opinion relating to
Spin-Co and all necessary governmental and third party approvals. In order
to effect the Spin-Off, approval is required from the board of directors of
the Company, however, shareholder approval is not required. The composition
of the assets and liabilities to be included in Spin-Co, and accordingly
the ability of the Company to consummate the Spin-Off, is contingent, among
other things, on obtaining consents and waivers under the Company's New
Credit Facility. In addition, the Company may encounter unexpected delays
in effecting the Spin-Off, and the Company can make no assurance as to the
timing thereof. In addition, prior to the consummation of the Spin-Off, the
Company may sell, restructure or otherwise change the assets and
liabilities that will be in Spin-Co, or for other reasons elect not to
consummate the Spin-Off. Consequently, there can be no assurance that the
Spin-Off will occur.
In connection with the possible Spin-Off, it is anticipated that the
Company will enter into an indemnification agreement pursuant to which Spin-
Co will assume and be solely responsible for all known and unknown past,
present and future claims and liabilities of any nature relating to the
pension matter described under "Legal Proceedings"; certain environmental
liabilities currently recorded as $7.1 million, but for which it is
reasonably possible the total expense could be $11.9 million on an
undiscounted basis; certain retiree medical cost and liabilities related to
discontinued operations for which the Company has accrued approximately
$42.8 million as of March 29, 1998 (see Note 11 to the Company's
Consolidated Financial Statements); and certain tax liabilities. In
addition, the Spin-Co would also be responsible for all liabilities
relating to the Technologies business and an allocation of corporate
expenses. Responsibility for such liabilities would require significant
commitments.
Should the Spin-Off, as presently contemplated, occur prior to June of
1999, the Spin-Off may be a taxable transaction to shareholders of the
Company and could result in a material tax liability to the Company and its
shareholders. The amount of the tax to the Company and its shareholders is
uncertain, and if the tax is material to the Company, the Company may elect
not to consummate the Spin-Off. Because circumstances may change and
because provisions of the Internal Revenue Code of 1986, as amended, may be
further amended from time to time, the Company may, depending on various
factors, restructure or delay the timing of the Spin-Off to minimize the
tax consequences thereof to the Company and its shareholders.
With the year 2000 approaching, the Company is preparing all of its
computer systems to be Year 2000 compliant. Substantially all of the
systems within the Aerospace Fasteners segment are currently Year 2000
compliant. The Company expects to replace and upgrade some systems, which
are not Year 2000 compliant, within the Aerospace Distribution segment and
at Fairchild Technologies. The Company expects all of its systems will be
Year 2000 compliant on a timely basis. However, there can be no assurance
that the systems of other companies, on which the Company's systems rely,
will also be timely converted. Management is currently evaluating the cost
of ensuring that all of its systems are Year 2000 compliant.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131 ("SFAS 131")
"Disclosures about Segments of an Enterprise and Related Information". SFAS
131 supersedes Statement of Financial Accounting Standards No. 14
"Financial Reporting for Segments of a Business Enterprise" and requires
that a public company report certain information about its operating
segments in annual and interim financial reports. The Company will adopt
SFAS 131 in Fiscal 1999.
In February 1998, FASB issued Statement of Financial Accounting
Standards No. 132 ("SFAS 132") "Employers' Disclosures about Pensions and
Other Postretirement Benefits". SFAS 132 revises and improves the
effectiveness of current note disclosure requirements for employers'
pensions and other retiree benefits by requiring additional information to
facilitate financial analysis and eliminating certain disclosures which are
no longer useful. SFAS 132 does not address recognition or measurement
issues. The Company will adopt SFAS 132 in Fiscal 1999.
PART II. OTHER INFORMATION
Item 5. Other Information
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 statements concerning the transactions and has
offered to appear in person if certain arrangements were made. According
to the French press, the magistrate also requested permission to commence
an inquiry into transactions involving another French petroleum company,
but her request was not granted. If the magistrate were to renew her
request, and if it were granted, inquiry into transactions between such
company and Mr. Steiner, could ensue.
Mr. Steiner has recently been cited by a French prosecutor to appear
on May 18, 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (* filed herewith):
*10.1 Amendment No. 2 dated as of January 14, 1997, to the
Interest Rate Hedge Agreement between
Registrant and Citibank, N.A. dated as of August 19,
1997.
*10.2 Letter Agreement dated February 27, 1998, between Registrant and John
L. Flynn.
*10.3 Letter Agreement dated February 27, 1998, between Registrant and
Donald E. Miller.
*10.4 Stock Option Deferral Plan dated February 9, 1998.
*10.5 Amendment of Warrant Agreement dated February 9, 1998, between the
Registrant and Stinbes Limited.
10.6 Stock Option Agreement dated November 20, 1997 between RHI Holdings,
Inc. and Intermedia Communciations Inc. (Incorporated by reference to Scheduled
13D/A (Amendment No. 4) dated as of November 25, 1997 filed by the Company on
December 1, 1997).
10.7 Stock Purchase Agreement dated November 25, 1997 between RHI
Holdings, Inc. and Intermedia Communications Inc. (Incorporated by reference to
Schedule 13D/A (Amendment No. 4) dated as of November 25, 1997 filed by the
Company on December 1, 1997).
10.8 Asset Purchase Agreement dated as of December 8, 1997, among Banner
Aerospace, Inc. and seven of its subsidiaries (Adams Industries, Inc.,
Aerospace Bearing Support, Inc., Aircraft Bearing Corporation, Banner
Distribution, Inc., Burbank Aircraft Supply, Inc., Harco, Inc. and PacAero),
AlliedSignal Inc. and AS BAR LLC (incorporated by reference to Banner
Aerospace, Inc.'s Report on Form 8-K dated January 28, 1998).
10.9 Asset Purchase Agreement dated as of December 8, 1997, among Banner
Aerospace, Inc. and two of its subsidiaries (PB Herndon Aerospace, Inc. and
Banner Aerospace Services, Inc.), AlliedSignal Inc. and AS BAR PBH LLC
(incorporated by reference to Banner Aerospace, Inc.'s Report on Form 8-K dated
January 28, 1998).
10.10 Agreement and plan of Merger dated January 28, 1998, as amended on
February 20, 1998, and March 2, 1998, between the Company and the shareholders'
of Special-T Fasteners (Incorporated by reference to Form 8-K dated as of March
2, 1998 filed by the Company on March 12, 1998).
*10.11 Employment Agreement between Robert Edwards and Fairchild Holding
Corp., dated March 2, 1998.
*27 Financial Data Schedules.
(b) Reports on Form 8-K:
On January 28, 1998, the Company filed a Form 8-K to report on Item 2
and Item 7 regarding the completion of the Banner Hardware Group
Disposition. On March 12, 1998 the Company filed a Form 8-K to report on
Item 2 and Item 7 regarding the March 2, 1998 consummation of the Special-T
Acquisition. On March 25, 1998, the Company filed a Form 8-K to report on
Item 2 and Item 7 regarding the completion of the STFI Merger.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to the signed on
its behalf by the undersigned hereunto duly authorized.
For THE FAIRCHILD CORPORATION
(Registrant) and as its Chief
Financial Officer:
By: Colin M. Cohen
Senior Vice President and
Chief Financial Officer
Date: May 13, 1998
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<PERIOD-END> MAR-29-1998
<CASH> 61,813
<SECURITIES> 6,442
<RECEIVABLES> 133,769
<ALLOWANCES> 5,329
<INVENTORY> 205,021
<CURRENT-ASSETS> 475,686
<PP&E> 237,055
<DEPRECIATION> 122,747
<TOTAL-ASSETS> 1,137,642
<CURRENT-LIABILITIES> 209,652
<BONDS> 278,140
0
0
<COMMON> 2,707
<OTHER-SE> 430,431
<TOTAL-LIABILITY-AND-EQUITY> 1,137,642
<SALES> 567,142
<TOTAL-REVENUES> 572,593
<CGS> 426,201
<TOTAL-COSTS> 537,567
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,526
<INCOME-PRETAX> 96,395
<INCOME-TAX> 49,353
<INCOME-CONTINUING> 47,042
<DISCONTINUED> 72,262
<EXTRAORDINARY> (6,725)
<CHANGES> 0
<NET-INCOME> 112,579
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</TABLE>
Citibank, N.A.
399 Merit Avenue
New York, NY 10043
CITIBANK
SAMPLE CONFIRMATION
Date: January
14,1998
To: Fairchild
Holding Corporation ("Fairchild")
Attention:Colin Cohen / Jeff Kenyon
Fax No. 703-478-5915
From: Citibank, N.A. New York ("Citibank")
Fax No: 416 - 941 - 7432
Transaction Reference Number: 50970148
The purpose of this letter agreement is to set forth
the terms and conditions of the Transaction entered into between
us on the Trade Date referred to below. This letter constitutes a
"Confirmation" as referred to in the Master Agreement specified
below. This Confirmation amends, restates and supersedes any
prior Confirmation for this Transaction.
This Confirmation evidences a complete binding
agreement between you and us as to the terms of the Transaction
to which this Confirmation relates. In addition, you and we agree
to use our best efforts promptly to negotiate, execute and
deliver a Master Agreement (Multicurrency-Cross Border) in the
form published by the International Swaps and Derivatives
Association, Inc. ("ISDA"), with such modifications as you and we
shall in good faith agree. Upon the execution by you and us of
such Master Agreement (the "Agreement"), this Confirmation will
supplement, form a part of, and be subject to the Agreement. A
copy of the Agreement has been, or promptly after the date hereof
will be, delivered to you.
If Fairchild Holding Corporation fails to execute and
deliver or to negotiate in good faith the Agreement within 180
days of the Trade Date, Citibank may give Fairchild Holding
Corporation notice that an Additional Termination Event has
occurred and is continuing with respect to Fairchild Holding
Corporation, in which event Fairchild Holding Corporation will be
the only Affected Party.
Prior to execution of the Agreement the provisions of
the Master Agreement (Multicurrency-Cross Border), in the form
published by ISDA, are incorporated by reference herein and form
a par. of this Confirmation and, further, this Confirmation
(together with all other Confirmations of Transactions previously
entered into between us, notwithstanding anything to the contrary
therein) shall be deemed to be subject to the terms of the
Agreement, as if, on the Trade Date of the first such Transaction
between us, you and we had executed the Agreement (without any
Schedule thereto).
The definitions and provisions contained in the 1991 ISDA
Definitions (as published by ISDA) are incorporated by reference
into this Confirmation.
This Confirmation and ISDA Agreement will be governed by the laws
of the State of New York.
1. In the event of any inconsistency between this
Confirmation and the 1991 ISDA Definitions or the ISDA Agreement,
this Confirmation will control for the purpose of the Transaction
to which this Confirmation relates.
2. Each party will make each payment specified in this
Confirmation as being payable by it, not later than the due date
for value on that date in the place of the account specified
below or otherwise specified in writing, in freely transferable
funds and in a manner customary for payments in the required
currency.
3. The terms of the particular Transaction to which this
Confirmation relates are as follows:
Notional Amount: USD 100,000,000
Trade Date: January 14, 1998
Effective Date: February 17, 198
Termination Date: February 19, 2008;
provided, however, Citibank
may elect to cancel this
Transaction on February 17,
2003 by providing notice to
Fairchild two Business Days
prior to February 17. 2003,
with such date subject to
adjustment in accordance with
Modified Following Business
Day Convention.
Fixed Amounts:
Fixed Rate Payer: Fairchild
Fixed Rate Payer Payment Dates: Quarterly on each February 17,
May 17, August 17 and November
17 commencing May 17, 1998 to
and including the Termination
Date.
Modified Following Business
Day Convention applies
Fixed Rate: 6.26 percent from February 17,
1998 to February 17. 2003
provided, however, that if
Citibank elects not to cancel
the transaction on February
17, 2003 as described above,
the Fixed Rate for the
Calculation Periods from
February 17, 2003 to February
19, 2008 will be 6.715
percent.
Fixed Rate Day Count Fraction Actuall360
Floating Amounts:
Floating Rate Payer: Citibank
Floating Rate Payer Payment Dates: Payment Dates: Quarterly on
each February 17, May 17,
August 17 and November 17
commencing May 17, 1998 to and
including the Termination
Date.
Modified Following Business
Day Convention applies
Floating Rate Option: Either (1) a Floating Rate
determined pursuant to the
USD-LIBOR-BBA Floating Rate
option With a Reset Date
corresponding to the first day
of the subject Calculation
Period, or (2) a Floating Rate
determined pursuant to the
USD-LIBOR-BBA Floating Rate
option with a Reset Date
corresponding to the last day
of the subject Calculation
Period, whichever is lower.
Designated Maturity 3 month
Compounding: Inapplicable
Floating Rate Payer Day Count Fraction: Actual/360
Floating Fate Reset Dates Either the first day of each
Calculation Period or the last
day of each Calculation
Period, as provided above.
3. Other
Business Days: New York and London
Calculation Agent: Citibank, N.A. New York
4. Cash Settlement Provisions:
Provided that no Early Termination Date has occurred or been
designated with respect to this Transaction, each party may
require this Transaction to be terminated and the remaining
payment obligations under this Transaction to be settled and
discharged on February 27, 2003 (the "Cash Settlement Date") by
written or telephonic notice to the other party at approximately
11:00 a.m. New York time, on the day that is two Business Days
prior to the Cash Settlement date (the "Cash Settlement
Determination Date"). If such notice Is given, an amount (the
"Cash Settlement Amount") shall be calculated as provided below
on the Cash Settlement Determination Date, and the remaining
payment obligations of each party under this Transaction shall be
settled and discharged by payment of the Cash Settlement Amount
on the Cash Settlement Date.
The Cash Settlement Amount, as determined by Citibank in good
faith on the Cash Settlement Determination Date, will be an
amount equal to the amount which Citibank would be required to
pay to the Counterparty or the Counterparty would be required to
pay to Citibank in consideration for the termination as of the
Cash Settlement Date of the outstanding rights and obligations of
the parties under this Transaction.
Upon payment of the Cash Settlement Amount and settlement of the
Fixed Amount and Floating Amount (if any) payable on the Cash
Settlement Date, this Transaction shall terminate and neither
party shall have any further rights or obligations hereunder.
5.Account Details:
Payments to Citibank: Account for payments:
Citibank, N A. New York
ABA # 021000089
Account No. 00167679
Financial Futures
Reference Swap 50970148
Payments to Fairchild: Account for payments:
To be provided.
Fairchild hereby agrees (a) 1O check this Confirmation
(Reference No.: 50970148) carefully and immediately upon receipt
so that errors or discrepancies can be promptly identified and
rectified and (b) to confirm that the foregoing correctly sets
forth the terms of the agreement between Citibank and Fairchild
Holding Corporation with respect to the particular Transaction to
which this Confirmation relates, by manually signing this
Confirmation and providing the other information requested herein
and immediately returning an executed copy to Facsimile No. 416 -
941 - 7432.
Very truly yours,
CITIBANK, N.A. New York
By: Susan Kellner
Mgr., Global Markets
Derivatives & Structured Products
Operations and Technology
399 Park Ave./11th/Floor/Zn. 3
Agreed and Accepted By:
FAIRCHILD HOLDING; CORPORATION
By: Karen L. Schneckenburger
Vice President & Treasurer
-2-
AMENDMENT OF WARRANT AGREEMENT
BETWEEN THE FAIRCHILD CORPORATION AND
STINBES LIMITED
FOR 375,000 SHARES OF CLASS A OR CLASS B COMMON STOCK
This Amendment of Warrant Agreement (the "Amendment") is
made as of February 9, 1998, for the purpose of modifying (as
provided below) the Warrant Agreement dated as of March 13, 1986
(the "Warrant Agreement"), between The Fairchild Corporation,
p/k/a Banner Industries, Inc., a Delaware corporation (the
"Company"), and Stinbes Limited. Capitalized terms used but not
otherwise defined herein shall have the meaning ascribed to them
in the Warrant Agreement.
RECITALS
A. On March 13, 1986, the Company entered into the Warrant
Agreement with Drexel Burnham Lambert ("DBL"), and (pursuant
to the terms of the Warrant Agreement) issued to DBL
warrants to purchase up to an aggregate of 200,000 shares of
either Class A or Class B common stock of the Company (the
"Warrants"). The Warrants were issued in conjunction with
DBL acting as the underwriter for the public offering of
certain of the Company's debentures.
B. Pursuant to a Purchase and Sale Agreement dated as of
January 4, 1989, Jeffrey J. Steiner ("Steiner"), DBL and the
Company, Steiner purchased 187,500 Warrants from DBL
(subject to all the benefits and obligations under the
Warrant Agreement).
C. Section 5.1 of the Warrant Agreement provides that the
Warrant Price and the number of Warrant Shares are subject
to adjustment upon the occurrence of certain events pursuant
to the terms of Section 9 of the Warrant Agreement. In
June, 1989, as a result of a two-for-one stock split (an
adjustable event as defined in Section 9 of the Warrant
Agreement) the number of Warrant Shares in favor of Steiner
was increased to 375,000, and the Warrant Price was
decreased to $7.67 per share.
D. On September 12, 1991, the Board of Directors of the Company
voted to renew the Warrants issued in favor of Steiner,
which had expired on March 13, 1991, for an extended term to
expire on March 13, 1993. On March 8, 1993, the Board of
Directors of the Company voted to extend the Expiration Date
of the Warrants to March 13, 1995. On February 16, 1995,
the Board of Directors of the Company voted to extend the
Expiration Date of the Warrants to March 13, 1997.
E. On March 22, 1993, Steiner assigned the Warrants to Bestin
Ltd. On May 31, 1993, Bestin Ltd. assigned the Warrants to
Stinbes Limited. Stinbes Limited is an affiliate of
Steiner.
F. By Board action taken on February 21, 1997, and again on
September 11, 1997, and September 26, 1997, the Board of
Directors of the Company voted to extend the Expiration Date
of the Warrants to March 13, 2002, subject to the following
modifications: (i) effective as of February 21, 1997, the
Expiration Date of any issued Warrants, outstanding and
unexpired on that date, shall be March 13, 2002; (ii)
effective as of February 21, 1997, the Warrant Price shall
be $7.67 per share, increased by two tenths of one cent
($.002) for each day subsequent to March 13, 1997, but fixed
at $7.80 per share after June 30, 1997.
G. On February 9, 1997, the Board voted to modify the Warrant
Agreement to: (i) revise the window periods during which the
Warrants may be exercised; and (ii) to provide that the
payment of the Warrant Price may be made in shares of the
Company's Class A or Class B Common Stock.
H. Section 17 of the Warrant Agreement provides that the
Company and the Holder may, from time to time, supplement or
amend the Warrant Agreement in any manner which "the Company
may deem necessary or desirable and which shall not be
inconsistent with the provisions of the Warrants and which
shall not adversely affect the interest of the Holders."
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein, and for other good and valuable consideration
(the receipt and adequacy of which are hereby acknowledged), the
parties hereto agree as follows:
1. Effective as of February 9, 1998, the Warrants may not be
exercised except within the following window periods: (a)
within 365 days after the merger of Shared Technologies
Fairchild Inc. with AT&T Corporation, MCI Communications,
Worldcom Inc., Teleport Communications Group, Inc., or
Intermedia Communications Inc.; (b) within 365 days after a
change of control of the Company, as defined in the
Fairchild Holding Corp. Credit Agreement with Citicorp et.
al.; or (c) within 365 days after a change of control of
Banner Aerospace, Inc., as defined in the Banner Aerospace,
Inc. Credit Agreement with Citicorp. et. al. In no event
may the Warrants be exercised after March 13, 2002.
2. Effective as of February 9, 1998, the payment of the Warrant
Price may be made in cash or in shares of the Company's
Class A or Class B Common Stock valued at Fair Market Value
at the time of exercise, or combination thereof. For
purposes hereof, "Fair Market Value" shall mean, in respect
of any share of the Company's Common Stock, the closing
price of the Company's Common Stock as reported on the New
York Stock Exchange Composite Tape on the last trading day
immediately preceding the day of exercise of the Warrant.
3. Effective as of February 9, 1998, each reference in the
Warrant Agreement to "this Agreement" "hereunder", "hereof",
"herein", or words of like import shall mean and be a
reference to the Warrant Agreement, as amended, extended or
modified previously or hereby, and each reference to the
Warrant Agreement and any other document, instrument or
agreement executed and/or delivered in connection with the
Warrant Agreement shall mean and be a reference to the
Warrant Agreement as amended, extended, or modified
previously or hereby.
4. Except as specifically modified herein, the Warrant
Agreement shall remain in full force and effect and is
hereby ratified and confirmed.
5. This Amendment may be executed in multiple counterparts.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly
authorized as of the date first written above.
THE FAIRCHILD CORPORATION
By: Donald E. Miller
Senior Vice President and Corporate Secretary
STINBES LIMITED
By: David Faust
Vice President
February 27, 1998
John L. Flynn, Esquire
The Fairchild Corporation
300 West Service Road
P.O. Box 10803
Chantilly, VA 20153
Dear John:
This letter agreement between The Fairchild
Corporation ("Fairchild") and you, relates to
severance and change of control payments.
Severance Payments. In exchange for your
continued services as an executive of Fairchild or
its successors, and subject to your having been,
on the date of termination, an employee of
Fairchild or its successors, for at least five
years (and for purposes of determining duration of
service, service for Fairchild and its successors
shall be aggregated) and an officer of Fairchild
or its successors, for at least three years (and
for purposes of determining duration of service as
an officer, service as an officer for Fairchild
and its successors shall be aggregated), Fairchild
for itself and its successors hereby agrees that
if your employment shall be terminated either by
Fairchild or its successors for any reason other
than cause, or by you for Good Reason, you or your
estate shall be entitled to receive from Fairchild
or its successors as severance, an amount equal to
the sum of: (i) two times your then current
annual base salary, plus (ii) an amount in lieu of
incentive bonus, irrespective of whether such
incentive bonus would or could have been earned,
equal to your then current annual base salary,
which amount, i.e., the sum of (i) and (ii) above,
shall be payable in a lump sum within ten days
after the effective date of termination of your
employment. In addition to the foregoing, you
will be entitled to the immediate vesting of all
stock options which you hold in the shares of
Fairchild or its successor.
Change of Control Payments. In addition, and
notwithstanding whether the conditions for
severance pay have been met, if a "Change of
Control" (as defined in the attached Exhibit A) of
Fairchild occurs while you are still an employee
of Fairchild, you shall be entitled to receive
from Fairchild or its successors an amount equal
to the sum of: (i) two times
your then current annual base salary, plus (ii) an
amount in lieu of incentive bonus, irrespective of
whether such incentive bonus would or could have
been earned, equal to your then current annual
base salary, which amount, i.e., the sum of (i)
and (ii) above, shall be payable: (a) one-half in
a lump sum on the date of Change of Control (the
"First Change Payment") and, (b) as long as your
employment continues, one-half over a one year
period in four quarterly installments, commencing
three months after the date of Change of Control
(the "Second Change Payments"). During said one
year period, if your employment shall be
terminated either by Fairchild (or its successors)
for any reason other than cause, or by you for
Good Reason, you shall be entitled to receive
immediately: (i) the First Change Payment (if not
already paid), (ii) any Second Change Payments
not yet paid, and (iii) the full severance
payment, if you qualify for such severance payment
by dint of duration of service, as referred to in
the preceding paragraph of this letter.
Termination by Fairchild of your employment (other
than for cause) within one hundred and eighty days
prior to a Change of Control shall be deemed to
have been a termination in contemplation of such
Change of Control, entitling you to the First
Change Payment hereunder.
Enforcement. If you are the prevailing party
in a suit or proceeding against Fairchild, or its
successors, to enforce or defend your rights under
this agreement, you shall be entitled to recover
from Fairchild, or its successors, your reasonable
attorneys' fees and other costs and expenses in
connection with such suit or proceeding.
Definition of Good Reason: "Good Reason" (as
used in the preceding paragraph) includes any
action by Fairchild (or its successors) which (i)
results in a reduction in your compensation,
position, authority, duties or responsibilities
whether or not your senior management
opportunities are substantially lessened, or (ii)
results in your primary place of employment being
relocated more than 35 miles from the current
Dulles Airport location, or (iii) would be deemed
a constructive termination under applicable law.
Supplementary Executive Retirement Plan. You
shall be entitled to participate in Fairchild's
Supplementary Executive Retirement Plan (the
"SERP"). Notwithstanding the provisions of the
SERP, for purposes of determining years of service
with Fairchild, or its successors, you shall be
credited with two years of service for each of the
first ten years you remain an active employee of
Fairchild or its successors, but the foregoing
shall not affect vesting requirements which shall
remain in accordance with the SERP.
Payments Pursuant to Base Salary or Incentive
Compensation During Term of Employment. No sum
payable to you upon a Change of Control shall
limit or affect your entitlement to base salary or
incentive compensation for all periods during
which you are employed by Fairchild or its
successors.
Limitation on Payments Pursuant to IRC
280G. In no event shall any amounts payable
pursuant to this letter agreement which are deemed
to constitute "parachute payments" (as defined in
Section 280G of the Internal Revenue Code, as
amended by the Tax Reform Act of 1986, and as
thereafter amended (the "Code")), when added to
any other payments which are deemed to constitute
"parachute payments" as defined in the Code,
exceed 2.99 times your "base amount" (as defined
in the Code).
Please acknowledge your agreement with the
terms of this letter agreement by signing the
attached copy and returning same to The Fairchild
Corporation (Attention, Mary Shaw). This letter
agreement shall be effective as of the date of
your acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: Jeffrey J. Steiner
Chairman of the Board,
Chief Executive Officer
and President
ACCEPTED AND AGREED
John L. Flynn
EXHIBIT A
"Change of Control" means the occurrence of any of
the following events:
(i) Any "Person", other than one or more
"Permitted Holders", is or becomes the "Beneficial
Owner", directly or indirectly, of more than 20%
of the total voting power (the "Vote") of the
"Voting Stock" of the Company, and the Permitted
Holders "beneficially own", directly or
indirectly, in the aggregate a lesser percentage
of the Vote of all the Voting Stock of the Company
than such other Person; provided, however, such
other Person shall be deemed to beneficially own
all Voting Stock of a corporation held by any
other corporation (the "Parent Corporation"), if
such other Person "beneficially owns", directly or
indirectly, more than 20% of the Vote of the
Voting Stock of such Parent Corporation, and the
Permitted Holders "beneficially own", directly or
indirectly, in the aggregate a lesser percentage
of the Vote of the Voting Stock of such Parent
Corporation;
(ii) During any period of two consecutive
years, individuals who at the beginning of any
such period constituted the Board of Directors of
the Company (together with any new directors whose
election by such Board or whose nomination for
election by the shareholders of the Company was
approved by a vote of a majority of the directors
of the Company then still in office who were
either directors at the beginning of such period
or whose election or nomination for election was
previously so approved) cease for any reason to
constitute a majority of the Board of Directors of
the Company then in office;
(iii) The Company consolidates with or
merges with or into another Person, pursuant to a
transaction (a) in which the outstanding Voting
Stock of the Company is changed into or exchanged
for cash, securities or other property (other than
any such transaction where the outstanding Voting
Stock of the Company is changed into or exchanged
for Voting Stock of the surviving corporation),
and (b) in which the holders of the Vote of the
Voting Stock of the Company immediately prior to
such transaction own, directly or indirectly, less
than a majority of the Vote of the Voting Stock of
the surviving Person immediately after such
transaction, and (c) by which an event described
in Section (i) shall have occurred; or
(iv) The Company is liquidated or dissolved,
or all or substantially all of its directly or
indirectly held assets are sold or otherwise
conveyed to a third party other than one or more
Permitted Holders.
"Beneficial Owner" has the meaning set forth
in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to be the
Beneficial owner of all shares that any such
person has the right to acquire, whether such
right is exercisable immediately or only after the
passage of time; and the terms "beneficial
ownership" and "beneficially owns" have meaning
correlative to the foregoing;
"Permitted Holders" means Jeffrey J. Steiner
and his "associates" (as defined in Rule 12b-2
under the Exchange Act) or any other person
directly or indirectly controlled by Jeffrey J.
Steiner.
"Person" shall be as defined in Section 13(d)
and 14(d) of the Exchange Act.
"Voting Stock" means, with respect to a
corporation, (i) all classes of capital stock then
outstanding of such corporation entitled to vote
in elections of directors, and (ii) any security
which may, at the option of the holder, be
converted into or exchanged for Voting Stock.
February 27, 1998
Donald E. Miller, Esquire
The Fairchild Corporation
300 West Service Road
P.O. Box 10803
Chantilly, VA 20153
Dear John:
This letter agreement between The Fairchild
Corporation ("Fairchild") and you, relates to
severance and change of control payments.
Severance Payments. In exchange for your
continued services as an executive of Fairchild or
its successors, and subject to your having been,
on the date of termination, an employee of
Fairchild or its successors, for at least five
years (and for purposes of determining duration of
service, service for Fairchild and its successors
shall be aggregated) and an officer of Fairchild
or its successors, for at least three years (and
for purposes of determining duration of service as
an officer, service as an officer for Fairchild
and its successors shall be aggregated), Fairchild
for itself and its successors hereby agrees that
if your employment shall be terminated either by
Fairchild or its successors for any reason other
than cause, or by you for Good Reason, you or your
estate shall be entitled to receive from Fairchild
or its successors as severance, an amount equal to
the sum of: (i) two times your then current
annual base salary, plus (ii) an amount in lieu of
incentive bonus, irrespective of whether such
incentive bonus would or could have been earned,
equal to your then current annual base salary,
which amount, i.e., the sum of (i) and (ii) above,
shall be payable in a lump sum within ten days
after the effective date of termination of your
employment. In addition to the foregoing, you
will be entitled to the immediate vesting of all
stock options which you hold in the shares of
Fairchild or its successor.
Change of Control Payments. In addition, and
notwithstanding whether the conditions for
severance pay have been met, if a "Change of
Control" (as defined in the attached Exhibit A) of
Fairchild occurs while you are still an employee
of Fairchild, you shall be entitled to receive
from Fairchild or its successors an amount equal
to the sum of: (i) two times
your then current annual base salary, plus (ii) an
amount in lieu of incentive bonus, irrespective of
whether such incentive bonus would or could have
been earned, equal to your then current annual
base salary, which amount, i.e., the sum of (i)
and (ii) above, shall be payable: (a) one-half in
a lump sum on the date of Change of Control (the
"First Change Payment") and, (b) as long as your
employment continues, one-half over a one year
period in four quarterly installments, commencing
three months after the date of Change of Control
(the "Second Change Payments"). During said one
year period, if your employment shall be
terminated either by Fairchild (or its successors)
for any reason other than cause, or by you for
Good Reason, you shall be entitled to receive
immediately: (i) the First Change Payment (if not
already paid), (ii) any Second Change Payments
not yet paid, and (iii) the full severance
payment, if you qualify for such severance payment
by dint of duration of service, as referred to in
the preceding paragraph of this letter.
Termination by Fairchild of your employment (other
than for cause) within one hundred and eighty days
prior to a Change of Control shall be deemed to
have been a termination in contemplation of such
Change of Control, entitling you to the First
Change Payment hereunder.
Enforcement. If you are the prevailing party
in a suit or proceeding against Fairchild, or its
successors, to enforce or defend your rights under
this agreement, you shall be entitled to recover
from Fairchild, or its successors, your reasonable
attorneys' fees and other costs and expenses in
connection with such suit or proceeding.
Definition of Good Reason: "Good Reason" (as
used in the preceding paragraph) includes any
action by Fairchild (or its successors) which (i)
results in a reduction in your compensation,
position, authority, duties or responsibilities
whether or not your senior management
opportunities are substantially lessened, or (ii)
results in your primary place of employment being
relocated more than 35 miles from the current
Dulles Airport location, or (iii) would be deemed
a constructive termination under applicable law.
Supplementary Executive Retirement Plan. You
shall be entitled to participate in Fairchild's
Supplementary Executive Retirement Plan (the
"SERP"). Notwithstanding the provisions of the
SERP, for purposes of determining years of service
with Fairchild, or its successors, you shall be
credited with two years of service for each of the
first ten years you remain an active employee of
Fairchild or its successors, but the foregoing
shall not affect vesting requirements which shall
remain in accordance with the SERP.
Payments Pursuant to Base Salary or Incentive
Compensation During Term of Employment. No sum
payable to you upon a Change of Control shall
limit or affect your entitlement to base salary or
incentive compensation for all periods during
which you are employed by Fairchild or its
successors.
Limitation on Payments Pursuant to IRC
280G. In no event shall any amounts payable
pursuant to this letter agreement which are deemed
to constitute "parachute payments" (as defined in
Section 280G of the Internal Revenue Code, as
amended by the Tax Reform Act of 1986, and as
thereafter amended (the "Code")), when added to
any other payments which are deemed to constitute
"parachute payments" as defined in the Code,
exceed 2.99 times your "base amount" (as defined
in the Code).
Please acknowledge your agreement with the
terms of this letter agreement by signing the
attached copy and returning same to The Fairchild
Corporation (Attention, Mary Shaw). This letter
agreement shall be effective as of the date of
your acceptance.
Very truly yours,
THE FAIRCHILD CORPORATION
By: Jeffrey J. Steiner
Chairman of the Board,
Chief Executive Officer
and President
ACCEPTED AND AGREED
Donald E. Miller
EXHIBIT A
"Change of Control" means the occurrence of any of
the following events:
(i) Any "Person", other than one or more
"Permitted Holders", is or becomes the "Beneficial
Owner", directly or indirectly, of more than 20%
of the total voting power (the "Vote") of the
"Voting Stock" of the Company, and the Permitted
Holders "beneficially own", directly or
indirectly, in the aggregate a lesser percentage
of the Vote of all the Voting Stock of the Company
than such other Person; provided, however, such
other Person shall be deemed to beneficially own
all Voting Stock of a corporation held by any
other corporation (the "Parent Corporation"), if
such other Person "beneficially owns", directly or
indirectly, more than 20% of the Vote of the
Voting Stock of such Parent Corporation, and the
Permitted Holders "beneficially own", directly or
indirectly, in the aggregate a lesser percentage
of the Vote of the Voting Stock of such Parent
Corporation;
(ii) During any period of two consecutive
years, individuals who at the beginning of any
such period constituted the Board of Directors of
the Company (together with any new directors whose
election by such Board or whose nomination for
election by the shareholders of the Company was
approved by a vote of a majority of the directors
of the Company then still in office who were
either directors at the beginning of such period
or whose election or nomination for election was
previously so approved) cease for any reason to
constitute a majority of the Board of Directors of
the Company then in office;
(iii) The Company consolidates with or
merges with or into another Person, pursuant to a
transaction (a) in which the outstanding Voting
Stock of the Company is changed into or exchanged
for cash, securities or other property (other than
any such transaction where the outstanding Voting
Stock of the Company is changed into or exchanged
for Voting Stock of the surviving corporation),
and (b) in which the holders of the Vote of the
Voting Stock of the Company immediately prior to
such transaction own, directly or indirectly, less
than a majority of the Vote of the Voting Stock of
the surviving Person immediately after such
transaction, and (c) by which an event described
in Section (i) shall have occurred; or
(iv) The Company is liquidated or dissolved,
or all or substantially all of its directly or
indirectly held assets are sold or otherwise
conveyed to a third party other than one or more
Permitted Holders.
"Beneficial Owner" has the meaning set forth
in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to be the
Beneficial owner of all shares that any such
person has the right to acquire, whether such
right is exercisable immediately or only after the
passage of time; and the terms "beneficial
ownership" and "beneficially owns" have meaning
correlative to the foregoing;
"Permitted Holders" means Jeffrey J. Steiner
and his "associates" (as defined in Rule 12b-2
under the Exchange Act) or any other person
directly or indirectly controlled by Jeffrey J.
Steiner.
"Person" shall be as defined in Section 13(d)
and 14(d) of the Exchange Act.
"Voting Stock" means, with respect to a
corporation, (i) all classes of capital stock then
outstanding of such corporation entitled to vote
in elections of directors, and (ii) any security
which may, at the option of the holder, be
converted into or exchanged for Voting Stock.
3
THE FAIRCHILD CORPORATION
STOCK OPTION DEFERRAL PLAN
FEBRUARY 9, 1998
ARTICLE I
BACKGROUND, PURPOSE, AND EFFECTIVE DATE
The Fairchild Corporation, a Delaware corporation (the
"Corporation"), by resolution of its Board of Directors,
adopted The Fairchild Corporation Stock Option Deferral Plan
(the "Plan"), effective as of February 9, 1998.
1.1 BACKGROUND AND PURPOSE OF THE PLAN. The Corporation
wishes to provide certain Participants with the
opportunity to defer payment of all of the compensation
they receive in a particular year or years from the
exercise of options to purchase stock in the
Corporation.
1.2 EFFECTIVE DATE AND TERM. The Plan shall become
effective as of February 9, 1998, and shall continue
until such time as it is terminated by resolution of
the Board of Directors in accordance with Article V.
ARTICLE II
DEFINITIONS
The following terms have the following meanings unless the
context clearly indicates otherwise:
2.1 "Beneficiary" is defined in Section 6.1.
2.2 "Benefit" is defined in Section 5.1.
2.3 "Board" means the Board of Directors of the
Corporation.
2.4 "Compensation" means the excess value of a Stock Option
(determined by the Fair Market Value of the shares of
Stock issuable to a Participant upon exercise of a
Stock Option, less the Option Price payable by the
Participant pursuant to such Stock Option), where such
excess value has been deferred pursuant to the terms of
this Plan.
2.5 "Committee" means the Compensation and Stock Option
Committee of the Board, which Committee shall
administer the Plan.
2.6 "Corporation" means The Fairchild Corporation and its
corporate successors.
2.7 "Deferral Date" means the date on which any deferred
Compensation with respect to a Stock Option would have
been received by a Participant if no Stock Option
Deferral Election had been made.
2.8 "Deferred Compensation Account," "Account," or
"Subaccount" means the accounts maintained on the books
of the Corporation for each Participant pursuant to
this Plan.
2.9 "Deferred Compensation Unit" is defined in Section 4.2.
2.10 "Deferred Stock Option Election Form" means the form by
which an eligible person elects to become a Stock
Option Deferral Participant, in the form attached
hereto or as adopted by the Corporation from time to
time.
2.11 "Designation of Beneficiary Form" means the form by
which a Participant designates a beneficiary or
beneficiaries or modifies a prior designation of a
beneficiary or beneficiaries, in the form attached
hereto or as adopted by the Corporation from time to
time.
2.12 "Distribution Date" means the date designated by a
Participant for the commencement of payment of amounts
credited to his Account.
2.13 "Dividend Equivalents" is defined in Section 4.3.
2.14 "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time.
2.15 "Fair Market Value" is defined in Section 4.2.
2.16 "Option Price" is the price at which Stock Options may
be exercised, as per the terms of each Stock Option.
2.17 "Participant" means a person who (i) has been
designated by the Committee to be entitled to
participate in this Plan and (ii) is deemed to be an
"Accredited Investor" (as defined under Federal
Securities Laws). A Participant need not be an
employee of the Corporation. Participants
participating in the Plan shall provide such
certifications and other evidence as the Corporation
may reasonably require to establish that they are
Accredited Investors.
2.18 "Plan" means this Stock Option Deferral Plan and any
amendments thereto.
2.19 "Rule 16b-3" means Rule 16b-3 of the General Rules and
Regulations under the Exchange Act as promulgated by
the Securities Exchange Commission or its successor, as
amended and in effect from time to time.
2.20 "Stock" means the Corporation's Class A Common Stock,
$.10 par value.
2.21 "Stock Option" means options to purchase stock in the
Corporation, approved by the Corporation's Board, a
committee of non-employee directors, or stockholders of
the Corporation in compliance with Rule 16b-3.
2.22 "Stock Option Deferral Election" means an election to
defer payment of Compensation on the exercise of a
Stock Option until a date specified by the Participant.
2.23 "Stock Option Deferral Participant" means a Participant
who has made a Stock Option Deferral Election and who
has been designated by the Committee as eligible to
participate in the Plan.
ARTICLE III
CONTRIBUTIONS
3.1 ELIGIBILITY. Participation in the Plan shall be
limited to eligible Participants (as defined in Section
2.17 hereof). The Committee shall have full discretion
in determining such eligibility.
3.2 DEFERRED COMPENSATION.
During the period in which this Plan remains in effect,
each Participant may elect to defer Compensation from
the exercise of Stock Options by completing a Deferred
Stock Option Election Form and providing same to the
Corporation prior to the exercise of such Stock Option.
Upon a Participant's election to defer Compensation,
the Corporation shall (in lieu of issuing Stock to such
Participant upon exercise of the applicable Stock
Option) credit the Participant's Deferred Compensation
Account with Deferred Compensation Units, as further
provided in Article IV.
ARTICLE IV
ACCOUNTS AND INVESTMENT
4.1 DEFERRED COMPENSATION ACCOUNTS. The Corporation shall
establish on its books the necessary accounts to
reflect accurately the Corporation's liability to each
Participant who has deferred Compensation under the
Plan. To each Deferred Compensation Account shall be
credited, as applicable, Deferred Compensation Units
(as provided in Section 4.2 below) and Dividend
Equivalents (as provided in Section 4.3 below).
Payments to the Participant under the Plan shall be
debited to the appropriate Accounts.
4.2 DEFERRED COMPENSATION UNITS.
A Participant who has elected to defer Compensation on
the exercise of a Stock Option shall have the amount of
such Compensation credited to his or her Deferred
Compensation Account in the form of Deferred
Compensation Units.
As used herein, "Deferred Compensation Units" means the
right to receive a specified number of shares of Stock,
determined by dividing the deferred Compensation by the
Fair Market Value of the Corporation's Stock as of the
Deferral Date.
For purposes of the Plan, "Fair Market Value" shall
mean the fair market value of a share of the Stock as
of a given date measured as (i) the closing price of a
share of the Stock on the principal exchange on which
shares of Stock are then trading, if any, on such date,
or, if shares were not traded on such date, then on the
next preceding trading day during which a sale
occurred; or (ii) if such Stock is not publicly traded
on an exchange or a successor quotation system, the
mean between the closing bid and asked prices for the
Stock on the trading date closest to the Deferral Date
as determined in good faith by the Committee; or (iii)
if the Stock is not publicly traded, the fair market
value established by the Committee acting in good
faith.
4.3 DIVIDEND EQUIVALENTS.
If Deferred Compensation Units exist in a Participant's
Deferred Compensation Account on a dividend record date
for the Stock, Dividend Equivalents shall be credited
to the Participant's Account on the corresponding
dividend payment date.
As used herein, "Dividend Equivalents" means the right
of a Participant to receive a specified number of
shares of Stock, equal to (i) (a) the per share cash
dividends declared by the Corporation from time to
time, multiplied by (b) the number of Deferred
Compensation Units credited to the Account of the
Participant as of each applicable dividend record date,
divided by (ii) the Fair Market Value on the related
dividend payment date.
4.4 RECAPITALIZATION. In the event of any change in the
Corporation's Stock outstanding, by reason of any stock
split or dividend, recapitalization, merger,
consolidation, combination, or exchange of stock or
similar corporate change, such equitable adjustments,
if any, by reason of any such change, shall be made in
the number of Deferred Compensation Units credited to
each Participant's Deferred Compensation Account.
4.5 VESTING. At all times a Participant shall have a 100%
nonforfeitable right to the amounts credited to his or
her accounts, irrespective of any continuing
relationship between the Participant and the
Corporation.
4.6 STOCK OWNERSHIP. Until such time as shares of Stock
which a Participant is entitled to receive pursuant to
Deferred Compensation Units and Dividend Equivalents
are distributed to the Participant as per Article V
hereof, the Participant shall not be entitled to vote
such shares, receive dividend with respect to such
shares (except in the form of Dividend Equivalents, as
provided in Section 4.3), or have other ownership
interest in such shares.
ARTICLE V
DISTRIBUTION OF BENEFITS
5.1 DISTRIBUTION PURSUANT TO DEFERRED STOCK OPTION ELECTION
FORM. The number of shares of Stock equal to the
number of Deferred Compensation Units and Dividend
Equivalents (in each case, rounded down to the nearest
whole unit) credited to each Participant's Deferred
Compensation Account (collectively, the "Benefit"),
shall be distributed to the Participant on the date(s)
selected by the Participant pursuant to his or her
Deferred Stock Option Election Form. The date of
distribution selected by the Participant must be no
earlier than seven (7) months from the Deferral Date.
5.2 DISTRIBUTION UPON DEATH. In the event of a
Participant's death, the Corporation shall pay the
entire remaining Benefit, in a lump sum (or, in the
event of a Participant's death after commencement of
the payment of the Benefit under Section 5.1, the
remaining balance of the Benefit, in a lump sum) to the
Participant's Beneficiary as selected by the
Participant pursuant to his or her Designation of
Beneficiary Form.
5.3 DISTRIBUTION IN THE EVENT OF CHANGE OF CONTROL.
In the event of a Change of Control (as defined below),
the Corporation shall pay the Benefit to the
Participant in one lump sum. If the transaction giving
rise to a Change of Control was approved in advance by
a majority of the Board, payment of the Benefit shall
be made at the closing of such transaction. If the
transaction giving rise to a Change of Control was not
approved in advance by a majority of the Board, payment
of the Benefit shall be made immediately upon the
occurrence of the event or transaction giving rise to
the Change of Control.
For purpose of this Section, a "Change of Control"
means the occurrence of any of the following events:
(i) Any Person (as defined below), other than one or
more Permitted Holders (as defined below), is or
becomes the Beneficial Owner (as defined below),
directly or indirectly, of more than 20% of the
total voting power (the "Vote") of the Voting
Stock (as defined below) of the Corporation, and
the Permitted Holders "beneficially own", directly
or indirectly, in the aggregate a lesser
percentage of the Vote of all the Voting Stock of
the Corporation than such other Person; provided,
however, such other Person shall be deemed to
beneficially own all Voting Stock of a corporation
held by any other corporation (the "parent
corporation"), if such other Person "beneficially
owns", directly or indirectly, more than 20% of
the Vote of the Voting Stock of such parent
corporation, and the Permitted Holders
"beneficially own", directly or indirectly, in the
aggregate a lesser percentage of the Vote of the
Voting Stock of such parent corporation;
(ii) During any period of two consecutive years,
individuals who at the beginning of any such
period constituted the Board of Directors of the
Corporation (together with any new directors whose
election by such Board or whose nomination for
election by the shareholders of the Corporation
was approved by a vote of a majority of the
directors of the Corporation then still in office
who were either directors at the beginning of such
period or whose election or nomination for
election was previously so approved) cease for any
reason to constitute a majority of the Board of
Directors of the Corporation then in office;
(iii) The Corporation consolidates with or merges
with or into another Person, pursuant to a
transaction (a) in which the outstanding Voting
Stock of the Corporation is changed into or
exchanged for cash, securities or other property
(other than any such transaction where the
outstanding Voting Stock of the Corporation is
changed into or exchanged for Voting Stock of the
surviving corporation), and (b) in which the
holders of the Vote of the Voting Stock of the
Corporation immediately prior to such transaction
own, directly or indirectly, less than a majority
of the Vote of the Voting Stock of the surviving
Person immediately after such transaction, and (c)
by which an event described in Section 5.3(i)
shall have occurred; or
(iv) The Corporation is liquidated or dissolved, or all
or substantially all of its directly or indirectly
held assets are sold or otherwise conveyed to a
third party other than one or more Permitted
Holders.
"Beneficial Owner" has the meaning set forth in Rules
13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to be the Beneficial Owner of
all shares that any such Person has the right to
acquire, whether such right is exercisable immediately
or only after the passage of time; and the terms
"beneficial ownership" and "beneficially owns" have
meanings correlative to the foregoing;
"Permitted Holders" means Jeffrey J. Steiner and his
"associates" (as defined in Rule 12b-2 under the
Exchange Act) or any other person directly or
indirectly controlled by Jeffrey J. Steiner.
"Person" shall be as defined in Section 13(d) and 14(d)
of the Exchange Act.
"Voting Stock" means, with respect to a corporation,
(i) all classes of capital stock then outstanding of
such corporation entitled to vote in elections of
directors, and (ii) any security which may, at the
option of the holder, be converted into or exchanged
for Voting Stock.
5.4 DISTRIBUTION IN THE EVENT OF EMPLOYMENT TERMINATION
In the event a Participant's employment with the
Corporation (or any of its subsidiaries) is terminated
other than by the Participant's own election, the
Corporation shall pay the entire remaining Benefit to
the Participant in one lump sum, within thirty days
after such employment termination.
ARTICLE VI
AMENDMENT, SUSPENSION, OR TERMINATION
6.1 BENEFICIARY. "Beneficiary" shall mean any one or more
persons, corporations, trusts, estates, or any
combination thereof, last designated by a Participant
to receive the Benefit provided under this Plan. Any
designation made hereunder shall be revocable, shall be
in writing, either on a facsimile of the form annexed
hereto and shall be effective when delivered to the
Committee at its principal office. If the Committee,
in its sole discretion, determines that there is not a
valid designation, the Beneficiary shall be the
executor or administrator of the Participant's estate.
6.2 NON-ASSIGNABILITY. The interest of any Participant and
Beneficiary under this Plan (other than the
Corporation) shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment,
pledge, attachment or encumbrance, or to the claims of
creditors of such person, and any attempt to effectuate
any such actions shall be void; nor shall any such
amount be in any manner subject to the debts,
contracts, liabilities, engagements, or torts of the
Participant.
6.3 INTEREST OF PARTICIPANT. The Participant and any
Beneficiary shall, in respect to Accounts and any
Benefit to be paid, be and remain simply a general
unsecured creditor of the Corporation in the same
manner as any other creditor having a general claim
against the Corporation. At no time shall the
Participant be deemed to have any right, title or
interest, legal or equitable, in any asset of the
Corporation, including, but not limited to, any Stock.
6.4 WITHHOLDING. The participants and their Beneficiaries,
distributees, and personal representatives, will bear
all Federal, foreign, state, local, or other income or
other taxes imposed on amounts paid under this Plan.
All such taxes shall be computed by, and remitted to,
the Corporation at each Payment Date, for deposit by
the Corporation with the appropriate taxing
jurisdiction.
6.5 CONSENT. By electing to become a Participant, each
Participant shall be deemed conclusively to have
accepted and consented to all the terms of this Plan
and all actions or decisions made by the Corporation or
the Committee with regard to the Plan. Such terms and
consent shall also apply to and be binding upon the
Beneficiaries, distributees, and personal
representatives and other successors in interest of
each Participant.
6.6 SEVERABILITY. In the event any provision of this Plan
would serve to invalidate the Plan, that provision
shall be deemed to be null and void, and the Plan shall
be construed as if it did not contain the particular
provision that would make it invalid.
6.7 FUNDING. This Plan shall not be a funded plan. The
Corporation shall not set aside any funds, or make any
investments or set aside stock, for the specific
purpose of making payments under the Plan. All
Benefits paid under the Plan shall be paid from the
general assets of the Corporation. Benefits payable
under the Plan may be reflected on the accounting
records of the Corporation, but such accounting shall
not be construed to create or require the creation of a
trust, custodial or escrow account. Notwithstanding
the foregoing, the Corporation shall at all times
maintain a sufficient number of shares of authorized
Stock to distribute in satisfaction of all Deferred
Compensation Units.
6.8 EXCLUSIVITY OF PLAN. This Plan is intended solely for
the purpose of deferring compensation to the
Participants to the mutual advantage of the parties.
Nothing contained in this Plan shall in any way affect
or interfere with the right of a Participant to
participate in any other benefit plan in which he or
she may be entitled to participate.
6.9 NO RIGHT TO CONTINUED SERVICE. This Plan shall not
confer any right to continued service of a Participant
with the Corporation.
6.10 NOTICE. Each notice and other communication to be
given pursuant to this Plan shall be in writing and
shall be deemed given only when (a) delivered by hand,
(b) transmitted by telex or telecopier (provided that a
copy is sent at approximately the same time by
registered or certified mail, return receipt
requested), (c) received by the addressee, if sent by
registered or certified mail, return receipt requested,
or by Express Mail, Federal Express, or other overnight
delivery service, to the Corporation at its principal
office and to a Participant at the last known address
of such Participant (or to such other address or
telecopier number as a party may specify by notice
given to the other party pursuant to this Section).
6.11 CLAIMS PROCEDURES. If a Participant or a Participant's
Beneficiary does not receive benefits to which he or
she believes he or she is entitled, such person may
file a claim in writing with the Committee. The
Committee shall establish a claims procedure under
which:
(a) the Committee shall be required to provide
adequate notice in writing to the Participant or
the Beneficiary whose claim for benefits has been
denied, setting forth specific reasons for such
denial, written in a manner calculated to be
understood by the Participant or the Beneficiary;
and
(b) the Committee shall afford a reasonable
opportunity to the Participant or the Beneficiary
whose claim for Benefits has been denied for a
full and fair review by the Committee of the
decision denying the claim.
6.12 DELAWARE LAW CONTROLLING. This Plan shall be construed
in accordance with the laws of the State of Delaware.
6.13 BINDING ON SUCCESSORS. This Plan shall be binding upon
the Participant and the Corporation, their heirs,
successors, legal representatives, and assigns.
ARTICLE VII
ADMINISTRATION
7.1 The Plan shall be administered by the Committee. The
Committee shall act by vote of a majority of its
members or by unanimous written consent. The Plan may
be amended, modified, or terminated by the Committee,
except that no such action shall (without the consent
of the Participant, or, if the Participant has
deceased, any Beneficiary or Beneficiaries,
distributees, or personal representative) alter the
rights of a Participant with respect to the Deferred
Account established pursuant to this Plan prior to the
date of such amendment, modification, or termination.
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
between
ROBERT EDWARDS
and
FAIRCHILD HOLDING CORP.
Dated March 2, 1998
EMPLOYMENT AGREEMENT dated as of March 2, 1998, between
Fairchild Holding Corp., a Delaware corporation (the "Company")
and Robert Edwards, a California resident ("Edwards").
W I T N E S S E T H :
WHEREAS, Edwards has executed an Agreement and Plan of
Merger dated January 28, 1998, as amended by Amendment No. 1
dated February 20, 1998 (the "Merger Agreement") among The
Fairchild Corporation ("Fairchild"), Special-T Fasteners, Inc.
("Special T"), Edwards Lock & Management Company and Edwards; and
WHEREAS, in connection with the transactions
contemplated by the Merger Agreement, the parties desire Edwards
to serve in certain capacities with the Company.
NOW, THEREFORE, in consideration of the mutual
covenants set forth herein, the parties agree as follows:
1. Definitions. Capitalized terms not otherwise
defined herein shall have the meaning ascribed to them in the
Merger Agreement. As used herein, the following capitalized
terms have the following meanings:
"Agreement" shall mean this Agreement and any
amendments hereto.
"Agreement Term" shall have the meaning ascribed to it
in Section 2(a).
"Board of Directors" shall mean the members of the
board of directors of the Company, excluding Edwards.
"Business" shall mean the manufacture, sale,
distribution or other involvement in the aerospace and industrial
hardware business, including, without limitation, the
manufacture, sale, or distribution of fasteners.
"Cause" shall have the meaning ascribed to it in
Section 10.
"Compensation" shall mean the compensation to which
Edwards is entitled under Section 5, paid in the manner provided
in Section 5.
"Effective Time" has the meaning ascribed to such term
in the Merger Agreement.
"Salary" has the meaning ascribed to such term in
Section 5.
2. Agreement Term. The Company will employ Edwards
and Edwards will work for the Company for the period commencing
on the date of this Agreement and ending on the second
anniversary thereof, unless extended or sooner terminated as
provided in Section 10.
3. Duties. During the Agreement Term, Edwards shall
serve as Vice President of the Company and as Chief Executive
Officer of Special T, and as such shall be in charge of worldwide
logistics for the Company. In addition, Edwards shall have such
other responsibilities and duties that the Company may, from time
to time, reasonably require.
4. Non-Competition; Non-Solicitation; Confidentiality.
(a) During the Agreement Term and for a period of two years
commencing on the date of termination or expiration of this
Agreement, Edwards will not engage in any capacity in a business
(x) competitive with the Business and (y) located anywhere in the
world, except as an officer, director, shareholder or employee of
the Company or its affiliates and subsidiaries.
(b) During the Agreement Term and for a period of two
years commencing on the date of termination or expiration of this
Agreement, Edwards will not, unless acting with the express
written consent of the Board of Directors of the Company,
directly or indirectly, solicit or interfere with, or endeavor to
entice away:
(i) any person who was employed by the Company in the
Business during the twelve month period immediately
preceding the date of termination or expiration of this
Agreement;
(ii) any person who otherwise performed services on a
regular basis for the Company in the Business during the
twelve month period immediately preceding the date of
termination or expiration of this Agreement; or
(iii) with respect to the Business, any person or
entity who was a customer or client of the Company (with
whom Edwards or the Company has had substantial business
contact) or any person or entity who requested or received a
proposal from the Company (if Edwards or the Company has had
substantial business contact with such person or entity or
has expended substantial efforts in the preparation of any
such proposal).
(c) During the Agreement Term and at all times
thereafter Edwards agrees to hold in confidence all matters and
things related to the business of the Company or any of its
affiliates and subsidiaries of a confidential or secret nature as
to which Edwards may now have knowledge or acquire knowledge
during the Agreement Term and will not, without the consent of
the Board of Directors, use any such matter or thing or disclose
to others any such matter or thing related to the business of the
Company or any of its affiliates and subsidiaries, provided,
however, that in each case, Edwards does not agree to hold in
confidence information (i) otherwise publicly available (other
than as a result of a breach of the terms of this Agreement by
Edwards), (ii) required to be disclosed by applicable law or
court order, or (iii) disclosed to him by a party who to his
knowledge has no duty of confidence to the Company or any of its
affiliates and subsidiaries.
(d) It is expressly understood by and between the
Company and Edwards that the covenants contained in this Section
4 shall be deemed to be a series of independent covenants. The
Company and Edwards expressly agree that the character, duration
and geographical scope of these covenants are reasonable in light
of the circumstances as they exist at the date upon which this
Agreement has been executed. However, should a determination
nonetheless be made by any tribunal of competent jurisdiction
that the character, duration or geographical scope of these
covenants are unreasonable in light of the circumstances as they
then exist, then it is the intention and agreement of the Company
and Edwards that these covenants shall be construed by such
tribunal in such a manner as to impose only those restrictions on
the conduct of Edwards which are reasonable in light of the
circumstances as they then exist and necessary to insure the
Company of the intended benefit of these covenants. If, in any
proceeding, such tribunal shall refuse to enforce all of the
separate covenants deemed included herein because, taken
together, they are more extensive than necessary to assure the
Company of the intended benefit, it is expressly understood and
agreed between the parties that those of such covenants which, if
eliminated, would permit the remaining separate covenants to be
enforced in such proceeding shall, for the purposes of such
proceeding, be deemed eliminated herefrom.
5. Compensation. In consideration for his services to
the Company, the Company shall pay to Edwards a salary equal to
$520,000 per year, payable in equal installments, less tax
withholding, in accordance with the Company's payroll practices
(the "Salary").
It is hereby understood that Special T will change its
fiscal year to June 30.
6. Vacation. Edwards shall be entitled to vacation
periods annually during Edwards' employment under this Agreement
consistent with the Company's vacation policy for employees
generally (which shall be no less favorable to Edwards than under
the Company's policy for senior management of Fairchild).
7. Reimbursement for Expenses. The Company shall
reimburse Edwards for all reasonable and necessary expenses and
other disbursements actually incurred by Edwards for and on
behalf of the Company in the performance of Edwards' duties upon
submission of adequate documentation of such expenses.
8. Automobile Expenses. Edwards shall be entitled to
reimbursement of out of pocket expenses for business use of an
automobile during the Agreement Term in an amount equal to that
which senior management of Fairchild is reimbursed.
9. Benefits. Edwards shall be entitled to participate
in any employee benefit plan, program or policy of Fairchild
(including, but not limited to, any pension plan), whether funded
or unfunded, now existing or established hereafter, for the
benefit of its employees generally and/or its employees and key
personnel to the extent that Edwards is eligible under the
general provisions thereof.
10. Extension and Termination
(a) Automatic Extension. Unless the Agreement Term
and Edwards' employment hereunder is terminated as provided in
this Section 10, the Agreement Term shall be subject to
automatic, one-year extensions.
(b) Termination Upon Notice. Either party may at any
time during the Agreement Term, upon six months prior written
notice to the other party, terminate the Agreement Term and
Edwards' employment hereunder, without Cause, in which event
Edwards shall be entitled to his Compensation, benefits and
reimbursable expenses accrued through the effective date of such
termination. Edwards shall have no right to receive any other
compensation or benefit hereunder after the effective date of
such termination.
(c) Termination Upon Death. If Edwards shall die
during the Agreement Term, this Agreement shall terminate, except
that Edwards' legal representatives shall be entitled to receive
his Compensation, benefits and reimbursable expenses accrued
through the effective date of such termination.
(d) Termination Upon Disability. If, during the
Agreement Term, Edwards shall become physically or mentally
disabled, whether totally or partially, so that he is unable
substantially to perform his services hereunder for a period of
three consecutive months, or for shorter periods aggregating six
months during any twelve month period, the Company may, at any
time after the last day of the three consecutive months of
disability, or the day on which the shorter periods of disability
shall have equaled in the aggregate six months, by written notice
to Edwards, but before Edwards has recovered from such
disability, terminate the Agreement Term and Edwards' employment
hereunder, and upon such termination no further sums shall be due
to Edwards as a result of such termination. Prior to the
effective date of such termination, notwithstanding such
disability, Edwards shall be entitled to receive a disability
benefit payment, after a seven (7) day elimination period, of
sixty percent (60%) of his Compensation, which shall increase
after a ninety (90) day elimination period to seventy-five
percent (75%) of his Compensation, commencing on the date of
disability and continuing up to and including the date of such
termination, such payment to be Edwards' sole and exclusive
entitlement to compensation (except as may be available under
applicable disability plans).
(e) Termination by the Company for Cause. The Company
may at any time during the Agreement Term, by written notice to
Edwards, immediately terminate the Agreement Term and Edwards'
employment hereunder for Cause, in which event Edwards shall be
entitled to receive his Compensation, benefits and reimbursable
expenses accrued through the effective date of such termination.
Edwards shall have no right to receive any other compensation or
benefit hereunder after the effective date of such termination.
As used herein, the term for "Cause" shall be deemed to
mean (i) the willful and continued failure by Edwards after
written notice from the Board of Directors, to substantially
perform his duties hereunder, (ii) any act of intentional
dishonesty by Edwards involving or affecting the Company or any
of its affiliates and subsidiaries, (iii) any misappropriation by
Edwards of any asset of the Company or any of its affiliates and
subsidiaries, (iv) the intentional engaging by Edwards in conduct
which is materially injurious, monetarily or otherwise, to the
Business or the reputation of the Company or any of its
affiliates and subsidiaries, (v) gross negligence or recklessness
by Edwards in the performance of his duties hereunder, (vi)
conviction of Edwards of a felony or crime involving moral
turpitude, (vii) any breach by Edwards of his material
obligations under this Agreement, (viii) abuse of alcohol or
other substances so as to interfere with the performance of
Edwards' duties hereunder or (ix) intoxication or use of illegal
substances "on the job."
11. Certain Remedies. If Edwards commits a breach, or
threatens to commit a breach, of any of the provisions of this
Agreement, the Company shall have the following rights and
remedies:
(a) The right and remedy to seek to have the
provisions of Section 4 of this Agreement specifically enforced,
it being acknowledged and agreed that any such breach or
threatened breach may cause irreparable injury to the Company and
that money damages may not provide an adequate remedy to the
Company; and
(b) The right and remedy to require Edwards to account
for and pay over to the Company all compensation, profits,
monies, accruals, increments or other benefits (collectively,
"Benefits") derived or received by Edwards as the result of any
breach of Section 4 hereof or as a result of any transaction
constituting "Cause" under clause (ii) or (iii) of the definition
of such term set forth in Section 10 hereof and Edwards hereby
agrees to account for and pay over such Benefits to the Company.
Each of the rights and remedies enumerated above shall
be independent of the other, and shall be severally enforceable,
and all of such rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the
Company under the law or in equity.
12. Notice. (a) Any notice or communication to any
party hereto shall be duly given if in writing and delivered in
person or mailed by first class mail (registered or certified,
return receipt requested), facsimile or overnight air courier
advertising guarantied next day delivery, to such other party's
address.
(i) If to Edwards:
Robert Edwards
20660 Nordhoff Street
Chatsworth, CA 91311
Facsimile: (818) 998-1412
with a copy to:
Michael K. Lindsey
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, CA 90071-2371
Facsimile: (213) 627-0705.
(ii) If to the Company:
c/o The Fairchild Corporation
300 West Service Road
Chantilly, VA 20153
Facsimile: (703) 478-5775
Attention: Donald E. Miller, Esq.
with a copy to:
James J. Clark, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Facsimile: (212) 269-5420.
(b) All notices and communications will be deemed to
have been duly given (i) at the time delivered by hand, if
personally delivered, (ii) five business days after being
deposited in the mail, if mailed, (iii) when receipt
acknowledged, if sent by facsimile and (iv) the next business day
after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
13. Successors and Assigns. This Agreement is
personal in its nature and, except as expressly permitted
pursuant to Section 10(c), neither of the parties hereto shall,
without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder, except that the
Company may assign this Agreement to any affiliate or subsidiary;
provided that such assignment will not alter in any fashion the
definition of the "Business" set forth in Section 1 hereof.
14. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the
State of New York without regard to the principles of conflict of
laws thereof. Each of the parties to this Agreement irrevocably
and unconditionally submits to the exclusive jurisdiction of any
state or federal court sitting in the City of New York over any
claims for injunctive or other equitable relief arising out of or
relating to this Agreement.
15. No Recourse Against Others. No director, officer
or employee, as such, of the Company or any of its affiliates and
subsidiaries shall have any liability for any obligations of the
Company under this Agreement for any claim based on, in respect
of or by reason of such obligations or their creation.
16. Attorneys' Fees. In any action or proceeding
brought to enforce any provision of this Agreement by any party
hereto, or where any provision hereof is validly asserted as a
defense by such party, such party, if successful, shall be
entitled to recover reasonably attorneys' fees in addition to any
other available remedy.
17. Entire Agreement. This Agreement constitutes the
entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and
understandings, both written and oral, between the parties with
respect to the subject matter hereof.
18. Modification; Waiver. This Agreement may be
modified or amended only with the written consent of each party
hereto. No party hereto shall be released from its obligations
hereunder without the written consent of the other party. The
observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively) by the party entitled to enforce such term, but
any such waiver shall be effective only if in a writing signed by
the party against which such waiver is to be asserted. Except as
otherwise specifically provided herein, no delay on the part of
any party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver
on the part of any party hereto of any right, power or privilege
hereunder operate as a waiver of any other right, power or
privilege hereunder nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right,
power or privilege hereunder.
19. Headings. The headings in this Agreement are for
convenience of reference only and shall not control or affect the
meaning or construction of this Agreement.
20. Severability. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity
or enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
21. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the
same instrument. This Agreement shall become effective when one
or more counterparts have been signed by each party hereto and
delivered to the other party.
22. Interpretation. As used in this Agreement:
(i) "person" means any natural person, corporation,
limited or general partnership, joint venture, association,
joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof;
(ii) "subsidiary" of any person means (x) a corporation
more than fifty percent of the outstanding voting stock of
which is owned, directly or indirectly, by such person or by
one or more other subsidiaries of such person or by such
person and one or more subsidiaries thereof or (y) any other
person (other than a corporation) in which such person, or
one or more other subsidiaries of such person or such person
and one or more other subsidiaries thereof, directly or
indirectly, have at least a majority ownership and voting
power relating to the policies, management and affairs
thereof;
(iii) "affiliate" of any person means (x) any other
person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under
common control with, such person (including any subsidiaries
of such person) and (y) if such person is a natural person,
includes (1) any member of the immediate family (including
parents, spouse and children) of such natural person and (2)
any trust whose principal beneficiary is such natural person
or one or more members of such immediate family and any
person who is controlled by any such member or trust;
provided, however, that any limited partner of a partnership
shall not be an affiliate of such partnership solely by
virtue of its status as a limited partner.
(iv) "control" (including, with its correlative
meanings, "controlled by" and "under common control with")
means possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether
through ownership of securities or partnership or other
ownership interests, by contract or otherwise); provided,
however, that any person which owns directly or indirectly
ten percent or more of the securities having ordinary voting
power for the election of directors or other governing body
of a corporation or ten percent or more of the partnership
or other ownership interests of any other person (other than
as a limited partner or non-managing member of such other
person) will be deemed to control such corporation or other
person.
23. Arbitration. All claims, other than claims for
injunctive or other equitable relief, arising out of or relating
to this Agreement shall be settled by arbitration, conducted
before a panel of three arbitrators in New York, New York, in
accordance with the applicable rules and procedures of the
American Arbitration Association then in effect. Arbitration
shall be the exclusive remedy for any such claim except only as
to the failure to abide by an arbitration award rendered
hereunder. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction. Such
arbitration shall be final and binding on the parties. The costs
and expenses of arbitration shall be borne equally by the
parties, except as provided in Section 16 hereof.
24. Adjustment. In the event the Company or Special T
makes any material acquisition or disposition, the Company and
Edwards agree to negotiate in good faith to make any necessary
adjustments to this Agreement to reflect such acquisition or
disposition.
IN WITNESS WHEREOF, the Company and Edwards have
executed this Agreement as of the date first above written.
FAIRCHILD HOLDING CORP.
By
Name:
Title:
Robert Edwards
