-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AeEGaHaTepZX8AEUTKEmNLqQPzZ1A03Oxt0Jp+Az2b5eSkNxZBKPHjXvAnjiQOi0 B7+DApN3+MU2UZ8kh+rkhg== 0000009779-97-000005.txt : 19970222 0000009779-97-000005.hdr.sgml : 19970222 ACCESSION NUMBER: 0000009779-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970212 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRCHILD CORP CENTRAL INDEX KEY: 0000009779 STANDARD INDUSTRIAL CLASSIFICATION: BOLTS, NUTS, SCREWS, RIVETS & WASHERS [3452] IRS NUMBER: 340728587 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06560 FILM NUMBER: 97528093 BUSINESS ADDRESS: STREET 1: 300 W SERVICE RD STREET 2: PO BOX 10803 CITY: CHANTILLY STATE: VA ZIP: 22021 BUSINESS PHONE: 7034785800 FORMER COMPANY: FORMER CONFORMED NAME: BANNER INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19901118 10-Q 1 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 December 29, 1996 Commission File Number: 1-6560 THE FAIRCHILD CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 34-0728587 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Washington Dulles International Airport 300 West Service Road, P.O. Box 10803 Chantilly, Virginia 20153 ---------------------------------------- (Address of principal executive offices) (Zip Code) (703) 478-5800 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class December 29, 1996 - ----- ----------------- Class A Common Stock, $.10 Par Value 13,938,572 Class B Common Stock, $.10 Par Value 2,632,690 ---------- 16,571,262 THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES* INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 29, 1996 (Unaudited) and June 30, 1996 3 Consolidated Statements of Earnings for the Three and Six Months Ended December 29, 1996 and December 31, 1995 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 29, 1996 and December 31, 1995 (Unaudited) 7 Notes to Condensed Consolidated Financial Statements (Unaudited) 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 23 Item 4. Submission of Matters to Vote of Secruity Holders 23 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 24 *For purposes of Part I of this Form 10-Q, the term "Company" means The Fairchild Corporation, and its subsidiaries, unless otherwise indicated. For purposes of Part II, the term "Company" means The Fairchild Corporation unless otherwise indicated. PART 1. FINANCIAL INFORMATION Item 1. Financial Statements THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
December 29, June 30, ASSETS 1996 1996 - ------ ------------- ----------- (Unaudited) (*) Current Assets: Cash and cash equivalents, $7,265 and $8,224 restricted................................. $ 98,323 $ 39,649 Short-term investments....................... 11,194 10,498 Accounts receivable-trade, less allowances of $6,623 and $6,327....................... 98,360 98,694 Notes receivable............................. -- 170,384 Inventories: Finished goods............................ 254,314 236,263 Work-in-process........................... 21,118 16,294 Raw materials............................. 15,169 18,586 --------- --------- 290,601 271,143 Prepaid expenses and other current assets.... 23,537 19,275 --------- --------- Total Current Assets......................... 522,015 609,643 Property, plant and equipment, net of accumulated depreciation of $85,411 and $79,273.................................... 86,175 87,956 Net assets held for sale..................... 46,787 45,405 Cost in excess of net assets acquired, (Goodwill) less accumulated amortization of $34,141 and $31,912......................... 137,579 140,201 Investments and advances, affiliated companies................................... 51,381 53,471 Prepaid pension assets....................... 57,774 57,660 Deferred loan costs.......................... 10,228 7,825 Other assets................................. 7,939 7,777 --------- --------- Total Assets................................. $ 919,878 $1,009,938 ========= ========= *Condensed from audited financial statements The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
December 29, June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996 - ------------------------------------- ------------- ---------- (Unaudited) (*) Current Liabilities: Bank notes payable and current maturities of long-term debt........................... $ 9,408 $ 84,892 Accounts payable............................. 52,653 65,478 Other accrued liabilities.................... 77,950 81,757 Income taxes................................. 9,753 24,635 --------- --------- Total Current Liabilities.................... 149,764 256,762 Long-term debt, less current maturities...... 390,851 368,589 Other long-term liabilities.................. 19,793 18,605 Retiree health care liabilities.............. 42,432 44,452 Noncurrent income taxes...................... 32,145 31,737 Minority interest in subsidiaries............ 60,246 58,625 --------- --------- Total Liabilities............................ 695,231 778,770 Stockholders' Equity: Class A common stock, 10 cents par value; authorized 40,000,000 shares, 20,180,168 shares issued (19,997,756 in June) and 13,938,572 shares outstanding (13,756,160 in June)................................... 2,018 2,000 Class B common stock, 10 cents par value; authorized 20,000,000 shares, 2,632,690 shares issued and outstanding (2,633,704 in June)................................... 263 263 Paid-in capital.............................. 70,208 69,366 Retained earnings............................ 201,023 208,618 Cumulative translation adjustment............ 2,974 2,760 Net unrealized holding loss on available-for- sale securities............................ (120) (120) Treasury Stock, at cost, 6,241,596 shares of Class A Common Stock....................... (51,719) (51,719) --------- --------- Total Stockholders' Equity................... 224,647 231,168 --------- --------- Total Liabilities and Stockholders' Equity... $ 919,878 $1,009,938 ========= ========= *Condensed from audited financial statements. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In thousands, except per share data)
Three Months Ended Six Months Ended December 29, December 31, December 29, December 31, 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Revenue: Net sales of products............. $159,912 $ 76,814 $306,002 $157,633 Revenues from services............ -- 26,636 -- 53,743 Other income (expense), net....... 425 (9) 648 136 ------- ------- ------- ------- 160,337 103,441 306,650 211,512 Costs and Expenses: Cost of goods sold................ 121,137 61,175 227,417 125,572 Cost of services.................. -- 19,239 -- 39,177 Selling, general & administrative. 36,406 20,279 72,252 41,274 Research and development.......... 22 23 45 44 Amortization of goodwill.......... 1,113 1,168 2,229 2,378 Restructuring..................... -- 285 -- 285 ------- ------- ------- ------- 158,678 102,169 301,943 208,730 Operating income.................... 1,659 1,272 4,707 2,782 Interest expense.................... 11,468 17,720 26,140 36,047 Interest income..................... (1,579) (401) (3,771) (1,279) ------- ------- ------- ------- Net interest expense................ 9,889 17,319 22,369 34,768 Investment income (loss), net....... 1,836 (83) 1,461 1,912 Equity in earnings of affiliates.... 398 (169) 2,709 1,889 Minority interest................... (776) (544) (1,561) (1,085) ------- ------- ------- ------- Loss from continuing operations before taxes....................... (6,772) (16,843) (15,053) (29,270) Income tax benefit.................. 3,795 7,827 7,458 10,968 ------- ------- ------- ------- Loss from continuing operations..... (2,977) (9,016) (7,595) (18,302) Earnings from discontinued operations, net.................... -- 3,420 -- 7,290 Loss on disposal of discontinued operations, net................... -- (7) -- (27) ------- ------- ------- ------- Net loss............................ $ (2,977) $ (5,603) $ (7,595) $(11,039) ======= ======= ======= ======= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In thousands, except per share data)
Three Months Ended Six Months Ended December 29, December 31, December 29, December 31, 1996 1995 1996 1995 ----------- ----------- ------------ ----------- Primary and Fully Diluted Earnings Per Share: Loss from continuing operations....... $ (.18) $ (.56) $ (.46) $ (1.13) Earnings from discontinued operations, net................................. -- .21 -- .45 ------- ------- ------- ------- Net loss.............................. $ (.18) $ (.35) $ (.46) $ (.68) ======= ======= ======= ======= Weighted average number of shares used in computing earnings per share..... 16,551 16,130 16,489 16,122 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Six Months Ended December 29, December 31, 1996 1995 ------------- ----------- Cash flows provided by (used for) Operations: Net loss......................................... $ (7,595) $(11,039) Depreciation and amortization................... 10,304 16,179 Accretion of discount on long-term liabilities.. 2,235 2,132 Distributed (undistributed) earnings of affiliates, net............................... 1,906 (1,106) Minority interest............................... 1,561 1,085 Changes in assets and liabilities............... (62,313) (23,845) Non-cash charges and working capital changes of discontinued operations....................... -- 3,524 ------- ------- Net cash used for operations.................... (53,902) (13,070) Investments: Collections on notes receivable from operations sold.......................................... 173,719 -- Purchase of property, plant and equipment....... (5,233) (6,873) Changes in investments.......................... (2,361) (1,297) Changes in net assets held for sale............. (936) (913) Other, net...................................... 21 9 Investing activities of discontinued operations. -- (875) ------- ------- Net cash provided by (used for) investments..... 165,210 (9,949) Financing: Proceeds from issuance of debt.................. 40,627 17,119 Debt repayments and repurchase of debentures, net........................................... (94,394) (22,118) Issuance of Class A common stock................ 859 328 ------- ------- Net cash used for financing..................... (52,908) (4,671) Effect of exchange rate changes on cash............. 274 (525) Net increase (decrease) in cash..................... 58,674 (28,215) Cash and cash equivalents, beginning of period...... 39,649 71,182 ------- ------- Cash and cash equivalents, end of period............ $ 98,323 $ 42,967 ======= ======= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE FAIRCHILD CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except per share data) Note 1 - Financial Statements The consolidated balance sheet as of December 29, 1996 and the consolidated statements of earnings and cash flows for the six months ended December 29, 1996 and December 31, 1995 have been prepared by the Company, without audit. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at December 29, 1996 and for all periods presented, have been made. The balance sheet at June 30, 1996 was also condensed from the audited financial statements as of that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 1996 Form 10-K and Banner Aerospace, Inc.'s March 31, 1996 Form 10-K. The results of operations for the period ended December 29, 1996 are not necessarily indicative of the operating results for the full year. Certain amounts in prior years' quarterly financial statements have been reclassified to conform to the current presentation. Note 2 - Merger Agreement The Company, RHI Holdings, Inc. ("RHI"), a wholly owned subsidiary of the Company, and Fairchild Industries, Inc. ("FII"), RHI's subsidiary, entered into an Agreement and Plan of Merger dated as of November 9, 1995 (as amended, the "Merger Agreement") with Shared Technologies Inc. ("STI"). On March 13, 1996, in accordance with the Merger Agreement, STI succeeded to the telecommunications systems and services business operated by the Company's Fairchild Communications Services Company ("FCSC"). The transaction was effected by a Merger of FII with and into STI (the "Merger") with the surviving company renamed Shared Technologies Fairchild Inc. ("STFI"). Prior to the Merger, FII transferred all of its assets to, and all of its liabilities were assumed by Fairchild Holding Corp. ("FHC"), a wholly owned subsidiary of RHI, except for the assets and liabilities of FCSC, and $223,500 of the FII's existing debt and preferred stock. As a result of the Merger, the Company received shares of Common Stock and Preferred Stock of STFI representing approximately a 41% ownership interest in STFI. Note 3 - Discontinued Operations On February 22, 1996, pursuant to an Asset Purchase Agreement dated January 26, 1996, the Company, through one of its subsidiaries, completed the sale of certain assets, liabilities and the business of the D-M-E Company ("DME") to Cincinnati Milacron Inc. ("CMI"), for a sales price of approximately $244,331, as adjusted. The sales price consisted of $74,000 in cash, and two 8% promissory notes in the aggregate principal amount of $170,331 (together, the "8% CMI Notes"). On July 29, 1996, CMI paid in full the 8% CMI Notes. On January 27, 1996, FII completed the sale of Fairchild Data Corporation ("Data") to SSE Telecom, Inc. ("SSE") for book value of approximately $4,400 and 100,000 shares of SSE's common stock valued at $9.06 per share, or $906, at January 26, 1996, and warrants to purchase an additional 50,000 shares of SSE's common stock at $11.09 per share. In addition, the Company has an opportunity to earn an additional 100,000 shares based on the future performance of SSE during the twelve months following the date of sale. Accordingly, DME and Data have been accounted for as discontinued operations. The combined net sales of DME and Data totaled $45,475 and $91,342 for the second quarter and first six months of Fiscal 1996, respectively. Net earnings from discontinued operations was $3,420 in the second quarter of Fiscal 1996 and $7,290 for the six months ended December 31, 1995. Note 4 - Majority Interest Business Combination Effective February 25, 1996, the Company completed a transfer of the Company's Harco Division ("Harco") to Banner Aerospace, Inc. ("Banner") in exchange for 5,386,477 shares of Banner common stock. The exchange has increased the Company's ownership of Banner common stock from approximately 47.2% to 59.3%, resulting in the Company becoming the majority shareholder of Banner. Accordingly, the Company consolidated Banner on February 25, 1996. Banner is a leading international supplier to the aerospace industry as a distributor, providing a wide range of aircraft parts and related support services. Harco is a distributor of precision fasteners to the aerospace industry. Note 5 - Pro forma Financial Statements The following unaudited pro forma information for the six months ended December 31, 1995, provides the results of the Company's operations as though (i) the disposition of DME and Data, (ii) the Merger of FCSC, and (iii) the transfer of Harco to Banner, resulting in the consolidation of Banner, had been in effect since the beginning of the period. The pro forma information is based on the historical financial statements of the Company, DME, Data, FCSC and Banner, giving effect to the aforementioned transactions. In preparing the pro forma data, certain assumptions and adjustments have been made which (i) reduce interest expense for revised debt structures, (ii) increase interest income for notes receivable, (iii) reduce minority interest to exclude Series C Preferred Stock of FII redeemed, and (iv) adjust equity in earnings of affiliates to include the estimated results of STFI. The following unaudited pro forma financial information is not necessarily indicative of the results of operations that actually would have occurred if the transactions had been in effect since the beginning of the Fiscal 1996 period, nor is it necessarily indicative of future results of the Company.
Six Months Ended December 31, 1995 ------------------ Sales................................... $ 284,860 Loss from continuing operations......... (11,331) Loss from continuing operations per share........................... (.70) Net loss................................ (11,404) Net loss per share.................... (.71)
The pro forma financial information has not been adjusted for non- recurring income or expense and gains from disposal of discontinued operations that have been or are expected to be incurred from these transactions within the ensuing year. Note 6 - Summarized Statement of Earnings Information The following table presents summarized historical financial information, on a combined 100% basis, of the Company's principal investments, which are accounted for using the equity method.
Six Months Ended --------------------------- December 29, December 31, 1996 1995 ------------ ------------ Net sales................................. $147,657 $189,684 Gross profit.............................. 64,487 55,232 Earnings from continuing operations....... 3,199 7,228 Net earnings.............................. 3,199 7,228
The Company owns approximately 31.9% of Nacanco common stock. The Company recorded equity earnings of $1,571 and $2,037 from this investment for the six months ended December 29, 1996 and December 31, 1995, respectively. Since March 13, 1996, as a result of the Merger in which the Company received a 41% interest in STFI, the Company has accounted for its investment in STFI using the equity method. Prior to March 13, 1996, the Company consolidated the results of FCSC, which was merged into STFI (see Note 2). The Company recorded equity earnings of $1,095 during the six months ended December 29, 1996. On December 29, 1996, the Company's investments in STFI consisted of (i) $21,174 carrying value for the $25,000 face value 6% cumulative Convertible Preferred Stock, (ii) $10,136 carrying value for the $20,000 face value Special Preferred Stock, and (iii) $(406) carrying value for 6,200,000 shares of common stock of STFI. At the close of trading on December 27, 1996, STFI's common stock was quoted at $9.125 per share. Based on this price, the Company's investment in STFI common stock had an approximate market value of $56,575. Effective February 25, 1996, the Company increased its percentage of ownership of Banner Common Stock from 47.2% to approximately 59.3%. Since February 25, 1996, the Company has consolidated Banner's results. Prior to February 25, 1996, the Company accounted for its investment in Banner using the equity method and held its investment in Banner as part of investments and advances, affiliated companies. The Company recorded equity earnings of $375 from this investment for the six months ended December 31, 1995. In connection with the Company's December 23, 1993 sale of its interest in Rexnord Corporation to BTR Dunlop Holdings, Inc. ("BTR"), the Company placed shares of Banner, with a fair market value of $5,000, in escrow to secure the Company's remaining indemnification of BTR against a contingent liability. Once the contingent liability is resolved, the escrow will be released. Note 7 - Restricted Cash The Company had approximately $7,265 and $8,224 of restricted cash on December 29, 1996 and June 30, 1996, respectively, all of which is maintained as collateral for certain debt facilities. Note 8 - Credit Agreements Prior to July 29, 1996, the Company through RHI's subsidiary Fairchild Holding Corp. ("FHC"), borrowed under an Interim Credit Agreement (the "Interim Credit Agreement") with a consortium of banks. The Interim Credit Agreement at FHC matured on July 29, 1996, at which time the Company repaid in full the loans made under the Interim Credit Agreement. On July 26, 1996, the Company amended and restated the terms and provisions of the Interim Credit Agreement, in their entirety (the "Restated Credit Agreement"). The Restated Credit Agreement extends to July 28, 2000, the maturity of FHC's revolving credit facility (the "FHC Revolver"). The FHC Revolver has a borrowing limit of $52,000 and requires a borrowing base to determine availability under the limit. The borrowing base is determined monthly based upon specified percentages of FHC's accounts receivable, inventories and the appraised value of equipment and real property. The FHC Revolver consists of up to $40,000 available in the United States and $12,000 available in Europe. The FHC Revolver generally bears interest at a base rate of 1 1/2% over the greater of (i) Citibank New York's base rate, or (ii) the Federal Funds Rate plus 1/2% for domestic borrowings and at 2 1/2% over Citibank London's base rate for foreign borrowings. FHC's Revolver is subject to a non-use commitment fee of 1/2% on the average unused availability; and outstanding letters of credit are subject to fees of 2 3/4% per annum. The Restated Credit Agreement requires FHC to comply with certain financial and non-financial loan covenants, including maintaining a minimum net worth of $150,000 and maintaining certain interest and fixed charge coverage ratios at the end of each Fiscal Quarter. Additionally, the Restated Credit Agreement restricts the FHC's annual capital expenditures to $12,000. Substantially all of FHC's assets are pledged as collateral under the Restated Credit Agreement. At December 29, 1996, FHC was in compliance with all the covenants under the Restated Credit Agreement. FHC may transfer available cash as dividends to the Company. On July 1, 1996, Banner amended its credit agreement (the "Banner Credit Agreement") which provides Banner and its subsidiaries with funds for working capital and potential acquisitions. The Banner Credit Agreement consists of a $55,000 term loan and a $71,500 revolving credit facility, both of which initially bear interest at prime plus 1 1/4% or LIBOR plus 2 1/2%, and a $30,000 seven-year term loan ("Tranche B Loan"), and requires that loans made to Banner do not exceed a defined borrowing base, which is based upon a percentage of inventories and accounts receivable. The Tranche B Loan bears interest at Prime plus 1 3/4% or LIBOR plus 3%. Banner's term loans require certain semiannual loan payments. Interest rates on Banner's borrowings whether computed at the prime rate or LIBOR may increase by 1/4% or decrease by up to 1% based upon certain performance criteria. On December 31, 1996, Banner's performance level resulted in borrowings under the Banner Credit Agreement being at an interest rate of prime plus 1% and LIBOR plus 2 1/4% for the quarter ending March 31, 1997. Banner's revolving credit facility is subject to a non-use fee of 1/2% of the unused availability. Substantially all of Banner's assets are pledged as collateral under the Banner Credit Agreement. The Banner Credit Agreement requires quarterly compliance with various financial and non-financial loan covenants, including maintenance of minimum net worth, and minimum ratios of interest coverage, fixed charge coverage, and debt to earnings before interest, taxes, depreciation and amortization. Banner also has certain limitations on the incurrence of additional debt. As of December 29, 1996, Banner was in compliance with all covenants under the Banner Credit Agreement. Banner has several interest rate hedge agreements ("Hedge Agreements") to manage its exposure to increases in interest rates on its variable rate debt. The Hedge Agreements provide interest rate protection on $60,000 of debt through September 2000, by providing a cap of 7% if the 90-day LIBOR rate exceeds 7%. If the 90-day LIBOR rate drops below 5%, Banner will be required to pay a floor rate of approximately 6%. In November 1996, Banner entered into an additional hedge agreement ("Additional Hedge Agreement") with one of its major lenders to provide interest rate protection on $20,000 of debt for a period of three years. Effectively, the Additional Hedge Agreement provides for a cap of 7 1/4% if the 90 day LIBOR exceeds 7 1/4%. If the 90 day LIBOR drops below 5%, Banner will be required to pay interest at a floor rate of approximately 6%. No cash outlay was required to obtain the Additional Hedge Agreement as the cost of the cap was offset by the sale of the floor. Note 9 - Minority Interests in Consolidated Subsidiaries Included in the Company's $60,246 of minority interest at December 29, 1996, is $59,975 representing approximately 40.7% of Banner's common stock effectively outstanding on a consolidated basis. Note 10 - Equity Securities The Company had 13,938,572 shares of Class A Common Stock and 2,632,690 shares of Class B Common Stock outstanding at December 29, 1996. During the first six months of Fiscal 1997, 181,398 shares of Class A Common Stock were issued as a result of the exercise of stock options. Class A Common Stock is traded on both the New York and Pacific Stock Exchanges while there is no public market for the Class B Common Stock. Shares of Class A Common Stock are entitled to one vote per share and cannot be exchanged for Class B Common Stock. Shares of Class B Common Stock are entitled to ten votes per share and can be exchanged, at any time, for shares of Class A Common Stock, on a share for share basis. During the six months ended December 29, 1996, 1,014 shares of Class B Common Stock were exchanged for Class A Common Stock. Note 11 - Earnings Per Share Primary and fully diluted earnings per share are computed by dividing net income available to common stockholders by the weighted average number of shares and share equivalents outstanding during the period. To compute the incremental shares resulting from stock options and warrants for primary earnings per share, the average market price of the Company's stock during the period is used. To compute the incremental shares resulting from stock options and warrants for fully diluted earnings per share, the greater of the ending market price or the average market price of the Company's stock is used. In computing primary and fully diluted earnings per share for the six months ended December 29, 1996 and December 31, 1995, the conversion of options and warrants was not assumed, as the effect was antidilutive. Note 12 - Commitments and Contingencies CL Motor Freight ("CL") Litigation - ---------------------------------- The Workers Compensation Bureau of the State of Ohio is seeking reimbursement from the Company for up to $5,400,000 for CL workers compensation claims which were insured under a self-insured program of CL. The Company has contested a significant portion of this claim. Government Claims - ----------------- The Corporate Administrative Contracting Officer (the "ACO"), based upon the advice of the United States Defense Contract Audit Agency, has made a determination that FII did not comply with Federal Acquisition Regulations and Cost Accounting Standards in accounting for (i) the 1985 reversion to FII of certain assets of terminated defined benefit pension plans, and (ii) pension costs upon the closing of segments of FII's business. The ACO has directed FII to prepare cost impact proposals relating to such plan terminations and segment closings and, following receipt of such cost impact proposals, may seek adjustments to contract prices. The ACO alleges that substantial amounts will be due if such adjustments are made. The Company believes it has properly accounted for the asset reversions in accordance with applicable accounting standards. The Company has held discussions with the government to attempt to resolve these pension accounting issues. Environmental Matters - --------------------- The Company and other aerospace fastener and industrial product manufacturers are subject to stringent Federal, state and local environmental laws and regulations concerning, among other things, the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials. To date, such laws and regulations have not had a material effect on the financial condition, results of operations, or net cash flows of the Company, although the Company has expended, and can be expected to expend in the future, significant amounts for investigation of environmental conditions and installation of environmental control facilities, remediation of environmental conditions and other similar matters, particularly in the Aerospace Fasteners segment. In connection with its plans to dispose of certain real estate, the Company must investigate environmental conditions and may be required to take certain corrective action prior or pursuant to any such disposition. In addition, management has identified several areas of potential contamination at or from other facilities owned, or previously owned, by the Company, that may require the Company either to take corrective action or to contribute to a cleanup. The Company is also a defendant in certain lawsuits and proceedings seeking to require the Company to pay for investigation or remediation of environmental matters and has been alleged to be a potentially responsible party at various "Superfund" sites. Management of the Company believes that it has recorded adequate reserves in its financial statements to complete such investigation and take any necessary corrective actions or make any necessary contributions. No amounts have been recorded as due from third parties, including insurers, or set off against, any liability of the Company, unless such parties are contractually obligated to contribute and are not disputing such liability. As of December 29, 1996, the consolidated total recorded liabilities of the Company for environmental matters approximated $9,655, which represented the estimated probable exposures for these matters. It is reasonably possible that the Company's total exposure for these matters could be approximately $17,486. Other Matters - ------------- The Company is involved in various other claims and lawsuits incidental to its business, some of which involve substantial amounts. The Company, either on its own or through its insurance carriers, is contesting these matters. In the opinion of management, the ultimate resolution of the legal proceedings, including those discussed above, will not have a material adverse effect on the financial condition, or future results of operations or net cash flows of the Company. Note 13 - Subsequent Events On January 16, 1997, Banner, through its subsidiary, Dallas Aerospace, Inc., consummated the acquisition of 100% of the outstanding stock of PB Herndon Company ("PB Herndon") for approximately $14,700. In addition, Banner paid approximately $1,300 to repay certain loans of PB Herndon. Banner recorded approximately $3,451 of goodwill as a result of this acquisition. Banner financed this transaction by borrowing $16,000 from RHI. PB Herndon is a distributor of a specialty fastener lines and other aerospace related components. On January 23, 1997, the Company's Aerospace Fasteners Segment acquired an exclusive call option to purchase a majority interest in Simmonds, SA ("Simmonds") for approximately $21,000 and the assumption of approximately $35,500 in debt. The transaction, which is contingent upon receipt of necessary approvals, gives the Company the right to purchase common shares and convertible notes representing approximately 84.2% of Simmonds on a fully diluted basis. The Company is in the process of completing due dilligence prior to exercise of its call option. Simmonds is one of Europe's leading manufacturers and distributors of aerospace and automotive fasteners. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF - ------------------------------------------------- RESULTS OF OPERATIONS AND FINANCIAL CONDITION --------------------------------------------- The Fairchild Corporation (the "Company") was incorporated in October 1969, under the laws of the State of Delaware. On November, 15, 1990, the Company changed its name from Banner Industries, Inc. to The Fairchild Corporation. RHI Holdings, Inc. ("RHI") is a direct subsidiary of the Company. RHI is the 100% owner of Fairchild Holding Corp. ("FHC") and the majority owner of Banner Aerospace, Inc. ("Banner"). The Company's principal operations are conducted through RHI and FHC. The Company also holds significant equity interests in Shared Technologies Fairchild Inc. ("STFI") and Nacanco Paketleme ("Nacanco"). FISCAL 1996 SIGNIFICANT TRANSACTIONS The Company, RHI and Fairchild Industries, Inc. ("FII") the Company's former subsidiary, entered into an Agreement and Plan of Merger dated as of November 9, 1995 (as amended, the "Merger Agreement") with Shared Technologies Inc. ("STI"). On March 13, 1996, in accordance with the Merger Agreement, STI succeeded to the telecommunications systems and services business operated by the Company's Fairchild Communications Services Company ("FCSC"). The transaction was effected by a Merger of FII with and into STI (the "Merger") with the surviving company renamed STFI. Prior to the Merger, FII transferred all of its assets to, and all of its liabilities were assumed by FHC, except for the assets and liabilities of FCSC, and $223.5 million of the FII's existing debt and preferred stock. As a result of the Merger, the Company received shares of Common Stock and Preferred Stock of STFI, representing approximately a 41% ownership interest in STFI. On February 22, 1996, pursuant to the Asset Purchase Agreement dated January 26, 1996, the Company, through its subsidiaries, completed the sale of certain assets, liabilities and the business of the D-M-E Company ("DME") to Cincinnati Milacron Inc. ("CMI"), for a sales price of approximately $244.3 million, as adjusted. The sales price consists of $74.0 million in cash, and two 8% promissory notes in the aggregate principal amount of $170.3 million (together, the "8% CMI Notes"). On July 29, 1996, CMI paid in full the 8% CMI Notes. On January 27, 1996, FII completed the sale of Fairchild Data Corporation ("Data") to SSE Telecom, Inc. ("SSE") for book value of approximately $4.4 million and 100,000 shares of SSE's common stock valued at $9.06 per share, or $.9 million, at January 26, 1996, and warrants to purchase an additional 50,000 shares of SSE's common stock at $11.09 per share. In addition, the Company has an opportunity to earn an additional 100,000 shares based on the future performance of SSE during the twelve months following the date of sale. Accordingly, DME and Data have been accounted for as discontinued operations. The combined net sales of DME and Data totaled $45.5 million and $91.3 million for the second quarter and first six months of Fiscal 1996, respectively. Net earnings from discontinued operations was $3.4 million in the second quarter of Fiscal 1996 and $7.3 million for the six months ended December 31, 1995. Effective February 25, 1996, the Company completed the transfer of Harco to Banner in exchange for 5,386,477 shares of Banner common stock. The exchange has increased the Company's ownership of Banner common stock from approximately 47.2% to 59.3%, resulting in the Company becoming the majority shareholder of Banner. Accordingly, the Company consolidated Banner on February 25, 1996. Banner is a leading international supplier to the aerospace industry as a distributor, providing a wide range of aircraft parts and related support services. Harco is a distributor of precision fasteners to the aerospace industry. RESULTS OF OPERATIONS The Company currently operates in three principal business segments: Aerospace Fasteners, Aerospace Distribution (Banner) and Technology Products (formerly Industrial Products). For the six months ended December 31, 1995, the Company consolidated operations in the Communications Services segment and did not consolidate operations in the Aerospace Distribution segment. The following table illustrates the historical sales and operating income of the Company's continuing operations for the three and six month periods ended December 29, 1996 and December 31, 1995.
(In thousands) Three Months Ended Six Months Ended December 29, December 31, December 29, December 31, 1996 1995 1996 1995 -------- -------- -------- -------- Sales by Business Segment: Aerospace Fasteners................... $ 56,494 $ 55,794 $111,541 $107,990 Aerospace Distribution (a)............ 96,985 -- 181,092 -- Technology Products................... 10,290 15,625 19,944 38,358 Communications Services (b)........... -- 32,031 -- 65,028 Eliminations (c)...................... (3,857) -- (6,575) -- ------- ------- ------- ------- Total.................................... $159,912 $103,450 $306,002 $211,376 ======= ======= ======= ======= Operating Income (Loss) by Business Segment: Aerospace Fasteners................... $ 2,156 $ 639 $ 4,264 $ (916) Aerospace Distribution (a)............ 6,072 -- 12,053 -- Technology Products................... (2,272) (527) (4,434) 1,643 Communications Services (b)........... -- 4,862 -- 9,771 ------- ------- ------- ------- Total.................................... 5,956 4,974 11,883 10,498 Corporate administrative expense...... (4,067) (3,395) (6,997) (7,252) Other corporate expense............... (230) (307) (179) (464) ------- ------- ------- ------- Operating income......................... 1,659 1,272 4,707 2,782 Net interest expense..................... (9,889) (17,319) (22,369) (34,768) Investment income (loss), net............ 1,836 (83) 1,461 1,912 Equity in earnings (loss) of affiliates.. 398 (169) 2,709 1,889 Minority interest........................ (776) (544) (1,561) (1,085) ------- ------- ------- ------- Loss from continuing operations before income taxes.......................... (6,772) (16,843) (15,053) (29,270) Income tax benefit....................... 3,795 7,827 7,458 10,968 ------- ------- ------- ------- Loss from continuing operations.......... $ (2,977) $ (9,016) $ (7,595) $(18,302) ======= ======= ======= ======= (a) The Company became the majority shareholder of Banner Aerospace, Inc. in February 1996 and accordingly, began consolidating their results as of then. (b) Effective March 13, 1996, the Company's investment in the Communications Services segment was recorded using the equity method. (c) Intersegment eliminations includes $6.5 million of sales from the Aerospace Fasteners segment to the Aerospace Distribution segment for the six months ended December 29, 1996.
General - ------- Overall sales increased by $56.5 million in the second quarter and $94.6 million for the Fiscal 1997 six month period, which reflected strong sales performances from the Aerospace Fasteners and Aerospace Distribution business segments compared to sales for the same periods in Fiscal 1996. Operating income increased $.4 million in the second quarter and $1.9 million in the Fiscal 1997 six month period, compared to operating income for the same periods in Fiscal 1996. The first six months of Fiscal 1997 includes sales and operating income from the Aerospace Distribution segment, offset partially by the exclusion of sales and operating income from the Communications Services segment which was unconsolidated effective March 13, 1996, as a result of the Merger into STI. (See discussion above). Aerospace Fasteners - ------------------- Sales in the Aerospace Fasteners segment increased $.7 million in the second quarter and $3.6 million in the Fiscal 1997 six month period, compared to the corresponding Fiscal 1996 periods, reflecting the continued growth that was anticipated in this industry. New orders have been strong in recent months. The Harco division was transferred to the Aerospace Distribution segment on February 25, 1996. Excluding Harco's sales of $14.7 million in the prior year six months, sales actually increased 19.5% in the Fiscal 1997 six month period. Operating income in the Aerospace Fasteners segment increased $1.5 million in the second quarter and $5.2 million in the Fiscal 1997 six month period, compared to the Fiscal 1996 periods. Excluding Harco's operating income in the prior year six month period, operating income increased $7.1 million. Management intends to continue to implement productivity improvements and reduce costs. Aerospace Distribution - ---------------------- The Aerospace Distribution segment reported sales of $97.0 million in the second quarter and $181.1 million for the six month period ended December 29, 1996. Operating income was $6.1 million in the second quarter and $12.1 million for the six month period ended December 29, 1996. As a result of the transfer of Harco to Banner, effective February 25, 1996, Harco's sales and operating income for the three and six months ended December 29, 1996, are now being reported as part of the Aerospace Distribution segment. Technology Products - ------------------- Sales in the Technology Products segment, which primarily includes Fairchild Technologies, decreased $5.3 million in the second quarter and $18.4 million in the first six months of Fiscal 1997, compared to the Fiscal 1996 periods. This differential resulted primarily from a lower level of shipments during the first six months of Fiscal 1997, while sales during the first six months of the prior year benefitted from the shipment of a major order. During the first six months of Fiscal 1997, Fairchild Technologies received new orders totaling approximately $55.1 million, including several multimillion dollar orders recently received which are scheduled to be shipped during the second half of Fiscal 1997. An operating loss of $2.1 million in the second quarter and $3.9 million for the six months ended December 29, 1996, was recorded at Fairchild Technologies in the Technology Products segment in the current periods, partially due to the low level of sales, but also due to expansion of the sales staff into the Far East. The Scandinavian Bellyloading Company ("SBC") had a six month operating loss of $.5 million, consistent with the prior year loss while SBC continues to be in a start up mode. SBC recently announced $15 million of orders which are scheduled to be shipped over the next twelve months, at which time the operation should become profitable. The Technology Products segment reported an operating loss of $.5 million in the Fiscal 1996 second quarter and operating income of $1.6 million in the Fiscal 1996 first six months. Communications Services - ----------------------- As a result of the Merger of the Communications Services segment into STI on March 13, 1996, the Company is accounting for its current investment in STFI, the merged company, using the equity method. For the three and six months ended December 31, 1995, this segment reported sales of $32.0 million and $65.0 million, respectively, and operating profit of $4.9 million and $9.8 million, respectively. Other Expenses/Income - --------------------- Corporate administrative expense decreased 3.5% in the first six month period of Fiscal 1997, compared to the same periods in Fiscal 1996. The decrease in the current six months period was due primarily to a reduction in staff. Net interest expense decreased 42.9% in the second quarter and 35.7% in the six month period ended December 29, 1996, compared to the prior year periods, due primarily to lower debt, as a result of the sale of DME and the Merger, and higher interest income earned on higher cash and notes receivable balances during the Fiscal 1997 first six months. Investment income, net decreased $.5 million in the first six months of Fiscal 1997, principally as a result of recording lower unrealized gains on the fair market value adjustments of trading securities in the Fiscal 1997 period, compared to the Fiscal 1996 period. Income taxes - The tax benefit from the continuing operations loss was $7.5 million for the first six months of Fiscal 1997. Earnings from discontinued operations, net, of $3.4 million in the Fiscal 1996 second quarter and $7.3 million for the six months ended December 31, 1995, includes the earnings, net of tax, from DME and Data. The net loss of $7.6 million in the first six months of Fiscal 1997, decreased by $3.4 million, compared to the first six months of Fiscal 1996, after recognizing: (i) a $1.9 million increase in operating income, (ii) a $12.4 million decrease in net interest expense, offset by (iii) a $3.5 million decrease in the tax benefit, and (iv) $7.3 million in earnings from discontinued operations recorded in the prior period. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Working capital at December 29, 1996, was $372.3 million, which was $19.4 million higher than at June 30, 1996. The principal reasons for this increase included an increase in cash of $58.7 million and a $75.5 million reduction in short-term notes payable. Other contributions to the increase in working capital included a $19.5 million increase in inventories and decreases in accounts payable of $12.8 million and other accrued liabilities, including taxes, of $18.7 million. Partially offsetting the increase in working capital was a $170.4 million decrease in notes receivable. The Company's principal sources of liquidity are cash on hand, cash generated from operations and borrowings under its credit agreement. The Company also expects to generate cash from the sale of certain assets and liquidation of investments. Net assets held for sale at December 29, 1996, had a book value of $46.8 million and included two parcels of real estate in California, a 68-acre parcel of real estate located in Farmingdale, New York, two landfills in Pennsylvania, a real estate joint venture in California, and several other parcels elsewhere, which the Company plans to sell, lease or develop, subject to market conditions or, with respect to certain of the parcels, the resolution of environmental matters. The Company's principal cash requirements include debt service, capital expenditures, acquisitions, and payment of other liabilities. Other liabilities that require the use of cash include post-employment benefits for retirees, environmental investigation and remediation obligations, litigation settlements and related costs. The Company maintains credit agreements (the "Credit Agreements") with a consortium of banks, which provides revolving credit facilities to RHI, FHC and Banner and term loans to Banner (collectively the "Credit Facilities"). Prior to July 29, 1996, the Company through FHC, borrowed under an Interim Credit Agreement (the "Interim Credit Agreement") with a consortium of banks. The Interim Credit Agreement at FHC matured on July 29, 1996, at which time the Company repaid in full the loans made under the Interim Credit Agreement. On July 26, 1996, the Company amended and restated the terms and provisions of the Interim Credit Agreement in their entirety (the "Restated Credit Agreement"). The Restated Credit Agreement extends to July 28, 2000, the maturity of FHC's revolving credit facility (the "FHC Revolver"). The FHC Revolver has a borrowing limit of $52.0 million and requires a borrowing base to determine availability under the limit. The borrowing base is determined monthly based upon specified percentages of FHC's accounts receivable, inventories and the appraised value of equipment and real property. The FHC Revolver consists of up to $40.0 million available in the United States and $12.0 million available in Europe. The FHC Revolver generally bears interest at a base rate of 1 1/2% over the greater of (i) Citibank New York's base rate, or (ii) the Federal Funds Rate plus 1/2% for domestic borrowings and at 2 1/2% over Citibank London's base rate for foreign borrowings. FHC's Revolver is subject to a non-use commitment fee of 1/2% on the average unused availability; and outstanding letters of credit are subject to fees of 2 3/4% per annum. The Restated Credit Agreement requires FHC to comply with certain financial and non-financial loan covenants, including maintaining a minimum net worth of $150.0 million and maintaining certain interest and fixed charge coverage ratios at the end of each Fiscal Quarter. Additionally, the Restated Credit Agreement restricts the FHC's annual capital expenditures to $12.0 million. Substantially all of FHC's assets are pledged as collateral under the Restated Credit Agreement. At December 29, 1996, FHC was in compliance with all the covenants under the Restated Credit Agreement. FHC may transfer available cash as dividends to the Company. RHI's Credit Agreement provides a $4.3 million revolving credit facility (the "RHI Credit Agreement") which generally bears a base interest rate of 1/2% over the prime rate, requires a commitment fee of 1/2%, and matures on May 26, 1998. RHI's Credit Agreement requires RHI to comply with specified covenants and maintain a consolidated net worth of $175.0 million. Additionally, RHI's capital expenditures are restricted, except for certain leasehold improvements, to $2.0 million per Fiscal Year plus the selling price of fixed assets for such Fiscal Year. At December 29, 1996, the Company was in compliance with all the covenants under RHI's Credit Agreement. Banner has a credit agreement (the "Banner Credit Agreement") which provides Banner and its subsidiaries with funds for working capital and potential acquisitions. The Banner Credit Agreement consists of a $55.0 million term loan and a $71.5 million revolving credit facility, both of which initially bear interest at prime plus 1 1/4% or LIBOR plus 2 1/2%, and a $30.0 million seven-year term loan ("Tranche B Loan"), and requires that loans made to Banner do not exceed a defined borrowing base, which is based upon a percentage of inventories and accounts receivable. The Tranche B Loan bears interest at Prime plus 1 3/4% or LIBOR plus 3%. Banner's term loans require certain semiannual loan payments. Interest rates on Banner's borrowings whether computed at the prime rate or LIBOR may increase by 1/4% or decrease by up to 1% based upon certain performance criteria. On December 31, 1996, Banner's performance level resulted in borrowings under the Banner Credit Agreement being at an interest rate of prime plus 1% and LIBOR plus 2 1/4% for the quarter ending March 31, 1997. Banner's revolving credit facility is subject to a non-use fee of 1/2% of the unused availability. Substantially all of Banner's assets are pledged as collateral under the Banner Credit Agreement. The Banner Credit Agreement matures August 2001. The Banner Credit Agreement requires quarterly compliance with various financial and non-financial loan covenants, including maintenance of minimum net worth, and minimum ratios of interest coverage, fixed charge coverage, and debt to earnings before interest, taxes, depreciation and amortization. Banner also has certain limitations on the incurrence of additional debt. As of December 29, 1996, Banner was in compliance with all covenants under the Banner Credit Agreement. Banner has several interest rate hedge agreements ("Hedge Agreements") to manage its exposure to increases in interest rates on its variable rate debt. The Hedge Agreements provide interest rate protection on $60.0 million of debt through September 2000, by providing a cap of 7% if the 90-day LIBOR rate exceeds 7%. If the 90-day LIBOR rate drops below 5%, Banner will be required to pay a floor rate of approximately 6%. In November 1996, Banner entered into an additional hedge agreement ("Additional Hedge Agreement") with one of its major lenders to provide interest rate protection on $20.0 million of debt for a period of three years. Effectively, the Additional Hedge Agreement provides for a cap of 7 1/4% if the 90 day LIBOR exceeds 7 1/4%. If the 90 day LIBOR drops below 5%, Banner will be required to pay interest at a floor rate of approximately 6%. No cash outlay was required to obtain the Additional Hedge Agreement as the cost of the cap was offset by the sale of the floor. PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Note 12 of Notes to Consolidated Financial Statements. Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of the Company was held on November 21, 1996. Six matters of business were held to vote for the following purposes: (1) the election of twelve directors of the Company for the ensuing year("Proposal 1"); (2) the amendment of the 1986 Non-Qualified and Incentive Stock Option Plan("Proposal 2"); (3) the approval of the grant of options under the 1986 Non-Qualified and Incentive Stock Option Plan ("Proposal 3"); (4) the approval of the 1996 Non-Employee Directors Stock Option Plan ("Proposal 4"); (5) the approval of the material terms of the performance goals for the fiscal 1997 incentive compensation award for the Company's Chief Executive Officer ("Proposal 5"); and (6)the approval of material terms of the performance goals for the fiscal years 1997, 1999, 2000 and 2001 incentive compensation award for the President and General Manager of Fairchild Technologies, GmbH ("Proposal 6"). The following tables provides the shareholder election results in number of shares:
Proposal 1 Directors For Withheld - -------------------- ---------- -------- Michael T. Alcox 37,970,823 835,089 Melville R. Barlow 37,967,823 838,089 Mortimer M. Caplin 37,969,889 836,023 Colin M. Cohen 37,969,613 836,299 Philip David 37,967,923 837,989 Harold J. Harris 37,970,323 835,589 Daniel Lebard 37,969,823 836,089 Samuel J. Krasney 37,970,481 835,431 Herbert S. Richey 37,968,391 837,521 Robert A. Sharpe II 37,968,826 837,089 Eric I. Steiner 37,963,298 842,614 Jeffrey J. Steiner 37,964,169 841,743
For Against Abstain Non-Vote ---------- ---------- --------- --------- Proposal 2 36,059,782 1,204,356 48,892 1,492,882 Proposal 3 36,231,251 1,042,250 39,529 1,492,882 Proposal 4 36,123,796 1,178,553 10,681 1,492,882 Proposal 5 36,763,006 322,703 227,321 1,492,882 Proposal 6 8,208,036 29,088,250 16,744 1,492,882
Item 5. Other Information Articles have appeared in the French press reporting an investigation by a French magistrate into certain allegedly improper business transactions involving Elf Acquitaine, its former chairman and various third parties, including Maurice Bidermann. In connection with this investigation, the magistrate has made inquiry into allegedly improper transactions between Jeffrey Steiner and that petroleum company. In response to the magistrate's request that Mr. Steiner appear in France as a witness, Mr. Steiner submitted a written statement concerning the transactions and has offered to appear in person if certain arrangements were made. According to the French press, the magistrate has also requested permission to investigate other allegedly improper transactions involving another French petrolelum company and, if granted, inquiry into transactions between Mr. Steiner and such company could ensue. The Board of Directors of the Company has formed a special committee of outside directors to advise it with respect to these matters, and the special committee has retained counsel. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- (i) Registrant's Amended and Restated Bylaws(as amended as of November 21, 1996). (ii) Financial Data Schedules (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. For THE FAIRCHILD CORPORATION (Registrant) and as its Chief Financial Officer: By: Colin M. Cohen Senior Vice President and Chief Financial Officer By: William B. Hamilton Controller Date: February 12, 1996 EX-27 2
5 1,000 6-MOS JUN-30-1997 DEC-29-1996 98,323 11,194 104,983 (6,623) 290,601 522,015 86,175 85,411 919,878 149,764 390,851 0 0 2,281 222,366 919,878 306,002 306,650 227,417 301,943 0 0 22,369 (15,053) (7,458) (7,595) 0 0 0 (7,595) (0.46) (0.46)
EX-3 3 AMENDED AND RESTATED BYLAWS OF THE FAIRCHILD CORPORATION (As Amended and Restated on November 21, 1996) ARTICLE I Offices Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II Meetings of Stockholders Section 1. All meetings of the stockholders for the election of directors shall be held in the City of Cleveland, State of Ohio, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meeting of stockholders, commencing with the year 1972, shall be held on the third Thursday of November, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 2:00 P.M., EST, or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which the stockholders shall elect, by a plurality vote and by written ballot, a board of directors, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten or more than sixty days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the chairman of the board or president, and shall be called by the chairman of the board, president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning shares representing a majority of the votes entitled to be cast at such meeting. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of issued and outstanding stock present in person or represented by proxy constituting a majority of the votes entitled to be cast at a meeting of stockholders shall constitute a quorum and the votes that are necessary for the transaction of any business, except as otherwise required by statute or the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall by a majority of votes cast have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. The affirmative vote of a majority of votes entitled to be cast at a meeting of stockholders by holders of shares present in person or represented by proxy at the meeting shall be the act of the stockholders, except as otherwise required by statute or the certificate of incorporation. Where a separate vote by class or series of a class is required, the affirmative vote of a majority of votes entitled to be cast on such matter at a meeting of stockholders by holders of shares present in person or represented by proxy at the meeting shall be the act of the stockholders of such class or series, except as otherwise required by statute or the certificate of incorporation. Section 10. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III Directors Section 1. The number of directors which shall constitute the whole board shall be not less than three nor more than fifteen. The first board shall consist of seven directors. Thereafter, within the limits above specified, the number of directors shall be determined by resolution of the board of directors or by the stockholders at the annual meeting. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The business of the corporation shall be managed by its board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these By- laws directed or required to be exercised or done by the stockholders. Meetings of the Board of Directors Section 4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. Section 7. Special meetings of the board may be called by the chairman of the board or the president on at least 24 hours' notice to each director, either personally or by mail, by telegram or by telephone; special meetings shall be called by the chairman of the board, president or secretary in like manner and on like notice on the written request of two directors. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting before or at its commencement the lack of notice to him. A notice or waiver of notice of any regular or special meeting of the board need not state the purpose of or the business to be transacted at such meeting. Section 8. At all meetings of the board, one-third of the total number of directors then serving shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Unless otherwise restricted by the certificate of incorporation or these By-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Executive Committee Section 10. The corporation shall have an executive committee (the "Executive Committee") consisting of not less than three members of the board of directors of the corporation. The members of the Executive Committee shall be designated by the Board of Directors. The Executive Committee shall have authority to exercise, by a meeting or by the unanimous written consent of its members, during intervals between meetings of the board of directors, all the powers and authority of such board in the management and business and affairs of the corporation, however conferred. The chairman of the board of the corporation shall call, and cause to be held, at least six meetings of the Executive Committee during each full fiscal year of the corporation. Audit Committee Section 11. The corporation shall have an audit committee (the "Audit Committee") consisting of not less than three non- management members of the board of directors whose association with the corporation, in the opinion of the board of directors, will not be inconsistent with the exercise of judgment independent of management. The members of the Audit Committee shall be designated by the board of directors. Section 12. The purpose of the Audit Committee shall be to assist the board of directors in discharging its duties relating to the internal control, accounting and reporting practices of the corporation and to establish and maintain communication between the board of directors and the independent auditors of the corporation. Without limiting the generality of the foregoing, the Audit Committee shall have the responsibility of securing and reviewing such financial information as it may deem necessary to enable the board of directors to confirm that the corporation has devised and is maintaining a system of internal accounting controls sufficient to provide reasonable assurances that (1) transactions are being executed in accordance with management's authorizations, (2) transactions are being recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles, (3) access to assets is being permitted only when authorized and (4) recorded accountability for assets is being compared with existing assets at reasonable intervals and appropriate action is being taken with respect to any differences. Section 13. In carrying out its duties, the Audit Committee shall have the authority (which authority may be exercised by a meeting or by the unanimous written consent of all of the members of the Committee) to: a. make recommendations to the board of directors with respect to the engagement or discharge of the independent auditors of the corporation; b. review the corporation's internal auditing procedures, and coordinate the efforts of the internal and independent auditors of the corporation; c. review with the independent auditors of the corporation the scope of their examination; d. upon the completion of the annual audit, review the audit process with the corporation's independent auditors to ascertain that they (1) received the full cooperation of management, (2) were fully satisfied with the disclosure and content of the financial statements and (3) are not certifying the statements under management pressure, it being the responsibility of the Audit Committee to review the audit process and not the financial statements themselves; e. review any recommendations of the corporation's independent auditors regarding internal controls and other management matters; f. consider the possible effect of any non-audit services performed by the corporation's independent auditors on the independence of such auditors; g. approve the audit and all non-audit services performed by the corporation's independent auditors and make recommendations to the board of directors with respect to the compensation for such services; and h. receive copies of internal audit reports from the internal auditing staff and, if deemed appropriate, meet with the internal auditing staff and review with them any such reports. Other Committees of Directors Section 14. In addition to the Executive Committee and the Audit Committee, the board of directors may designate one or more other committees, each such other committee to consist of one or more of the directors of the corporation. Any such other committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. Such other committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. General Provisions and Restrictions Applicable to All Committees of Directors Section 15. With respect to any committee of the board of directors (including, but not by way of limitation, the Executive Committee and the Audit Committee), the board of directors may designate one or more directors meeting the qualifications, if any, specified for membership on such committee as alternative members of such committee, who may replace any absent or disqualified member at a meeting of such committee. In the event of the absence or disqualification of a member of a committee, and in the event no director has been designated as an alternative member thereof, the member or members of such committee present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors meeting the qualifications, if any, specified for membership on such committee to act at the meeting in the place of any such absent or disqualified member. Section 16. Notwithstanding anything contained in these By- laws to the contrary, neither the Executive Committee, the Audit Committee nor any other committee of the board of directors shall have any power or authority to (i) approve or adopt or recommend to the stockholders any action or matter expressly required by the Delaware General Corporate Law to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any by-law of the corporation. If the resolution establishing a particular committee so provides, such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. The board of directors may (but shall not be obligated to) designate one member of any committee (including the Executive Committee and the Audit Committee) as its chairman. The duties and responsibilities of the members of any committee of the board of directors shall be in addition to those duties set forth for a member of the board of directors of the corporation. Compensation of Directors Section 17. Unless otherwise restricted by the certificate of incorporation, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV Notices Section 1. Whenever, under the provisions of the statutes, of the certificate of incorporation, of any certificate duly filed in the State of Delaware pursuant to Section 151 of the Delaware General Corporation Law or of these By-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram or telephone. Section 2. Whenever any notice is required to be given under the provisions of the statutes, of the certificate of incorporation, of any certificate duly filed in the State of Delaware pursuant to Section 151 of the Delaware General Corporation Law or of these By- laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V Officers Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a chairman of the board, a president, one or more vice-presidents (one or more of whom may be designated Executive Vice-President or Senior Vice-President), a secretary and a treasurer. The board of directors may also choose a controller and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these By-laws otherwise provide. Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a chairman of the board, a president, one or more vice-presidents, a secretary and a treasurer. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors, provided that the board may delegate to the chairman of the board or the president the power to fix from time to time the compensation of such officers and agents as the board shall designate. No officer shall be prevented from receiving such salary because he is also a director. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. The Chairman of the Board Section 6. The chairman of the board shall be the chief executive officer of the corporation, shall preside at all meetings of the stockholders and the board of directors, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. The President Section 7. The president shall be the chief operating officer of the corporation, and shall have the duties and responsibilities as assigned by the chairman and chief executive officer or the board of directors. He shall preside at any meetings of the stockholders and of the board of directors if the chairman of the board is unavailable. He may sign, with the secretary or treasurer or any other proper officer thereunto authorized by the board of directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts or other instruments which the board of directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these By-laws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general, shall perform all duties incident to the office of the president and such other duties as may be prescribed by the board of directors from time to time. The Vice-Presidents Section 8. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. The Secretary and Assistant Secretary Section 9. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors, chairman of the board or president, under whose supervision he shall be. He shall have custody of the corporate seal and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the corporate seal and to attest the affixing by his signature. Section 10. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. The Treasurer and Assistant Treasurers Section 11. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. Section 12. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 13. If required by the board of directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 14. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. The Controller Section 15. The controller shall be the chief accounting officer of the corporation and shall perform the duties and exercise the powers generally incident to such position and such other duties and powers as the board of directors may from time to time prescribe. ARTICLE VI Certificates of Stock Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of the issue. Lost Certificates Section 3. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Transfer of Stock Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Fixing Record Date Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Registered Stockholders Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII General Provisions Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Indemnification Section 3.1. Right to Indemnification. The corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The corporation shall be required to indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the corporation. Section 3.2. Prepayment of Expenses. The corporation shall pay the expenses (including, without limitation, reasonable attorneys' fees) incurred in defending any proceeding in advance of its final disposition, as they become due; provided, however, that the payment of expenses incurred by a claimant in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the claimant to repay all amounts advanced if it should be ultimately determined that the claimant is not entitled to be indemnified under this Article VII, Section 3 or otherwise. Section 3.3. Claims. Any claim for indemnification must be made pursuant to a written request, including documentation and information which is available to the claimant and is reasonably necessary for the corporation to determine whether and to what extent the claimant is entitled to indemnification. If a claim for indemnification or payment of expenses under this Article VII, Section 3 is not paid in full within sixty days after a written claim therefor has been received by the corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. Section 3.4. Non-Exclusivity of Rights. The rights conferred on any person by this Article VII, Section 3 shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the stockholders or disinterested directors or otherwise. Section 3.5. No Offsets. A claimant's right to indemnification and prepayment of expenses pursuant to this Article VII, Section 3 shall not be subject to any offset or reduction for amounts due or claimed to be due to the corporation from the claimant. The corporation may stop paying expenses and otherwise stop indemnifying a claimant with respect to any claim in which it has been ultimately determined that the claimant is not entitled to be indemnified under this Article VII, Section 3 or under applicable law; and the claimant shall reimburse all amounts advanced by the corporation on such claim, as per the undertaking executed by the claimant under Section 3.2 above. Section 3.6. Other Indemnification. The corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or non- profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise. Section 3.7. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article VII, Section 3 shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. Contracts and Loans Section 4. Except as otherwise required by statute, the certificate of incorporation or these Bylaws, any contracts or other instruments may be executed and delivered in the name and on behalf of the corporation by such officer or officers (including any assistant officer) of the corporation as the board may from time to time direct. Such authority may be general or confined to specific instances. No loans shall be contracted on behalf of the corporation, no pledge of its credit shall be made and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. Securities of Other Corporations Section 5. Any shares or other securities of another corporation owned by this corporation may be voted on behalf of this corporation by the chairman of the board, the president or any vice- president in accordance with proper authorization of the board of directors. Unless otherwise provided by resolution adopted by the board of directors, any such officer may from time to time appoint an attorney or attorneys or agent or agents of the corporation, in the name and on behalf of the corporation, to cast the votes which the corporation may be entitled to cast as the holder of stock or other securities in any other corporation held by the corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing, in the name of the corporation as such holder, to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as he may deem necessary or proper. Banking Section 6. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the board of directors may select. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. Fiscal Year Section 7. The fiscal year of the corporation shall be fixed by resolution of the board of directors. Annual Statement Section 8. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. Seal Section 9. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII Amendments Section 1. These Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the stockholders or by the board of directors at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new Bylaws be contained in the notice of such special meeting. -----END PRIVACY-ENHANCED MESSAGE-----