0000928385-01-502035.txt : 20011018
0000928385-01-502035.hdr.sgml : 20011018
ACCESSION NUMBER: 0000928385-01-502035
CONFORMED SUBMISSION TYPE: DEF 14A
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20011113
FILED AS OF DATE: 20011010
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: 1231
FILING VALUES:
FORM TYPE: DEF 14A
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-06560
FILM NUMBER: 1755563
BUSINESS ADDRESS:
STREET 1: 45025 AVIATION DR
STREET 2: STE 400
CITY: DULLES
STATE: VA
ZIP: 20166
BUSINESS PHONE: 7034785800
MAIL ADDRESS:
STREET 1: 45025 AVIATION DRIVE
STREET 2: SUITE 400
CITY: DULLES
STATE: VA
ZIP: 20166
FORMER COMPANY:
FORMER CONFORMED NAME: BANNER INDUSTRIES INC /DE/
DATE OF NAME CHANGE: 19901118
DEF 14A
1
ddef14a.txt
DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
The Fairchild Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
The Fairchild Corporation
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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Schedule 14A.
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(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount of which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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[LOGO OF FAIRCHILD CORPORATION]
THE FAIRCHILD CORPORATION
45025 Aviation Drive
Suite 400
Dulles, VA 20166-7516
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------
Date:
Tuesday, November 13, 2001
Time:
10:00 a.m.
Place:
Dulles Airport Marriott
45020 Aviation Drive
Dulles, Virginia
Matters to be voted on:
1. Election of ten directors.
2. Approval of the issuance of 86,942 stock options to non-employee
directors.
3. Approval of one of the performance goals and incentive compensation for
the Senior Vice President, Tax.
4. Approval of one of the performance goals and incentive compensation for
the Chief Financial Officer.
5. Approval of one of the performance goals and incentive compensation for
the Executive Vice President.
6. Approval of performance goals and incentive compensation for the
President.
7. Approval of performance goals and incentive compensation for the Chief
Executive Officer.
8. Any other matters properly brought before the shareholders at the
meeting.
By Order of the Board of Directors
/s/ Donald E. Miller
Donald E. Miller
Executive Vice President & Secretary
October 10, 2001
CONTENTS
Page
General Information About Voting 1
Proposal No. 1: Election of directors 2
General Information About the Nominees 2
Information As to Executive Officers 7
Section 16(a) Beneficial Ownership Reporting Compliance 8
Executive Compensation 9
Table: Summary Compensation 9
Table: Options Granted 10
Table: Option Exercises and Year-End Value 10
Employment Agreements and Change of Control Arrangements 11
Pension and Retirement Benefits 13
Report of the Compensation Committee 15
Report of the Audit Committee 18
Stock Performance Graphs 19
Stock Ownership 20
Certain Transactions 22
Proposal No. 2: Approval of the issuance of 86,942 stock options to
Non-Employee Directors (pursuant to the 2001 NED Plan) 23
Proposal No. 3: Performance Goals and Incentive Compensation for the
Senior Vice President, Tax 26
Proposal No. 4: Performance Goals and Incentive Compensation for the
Chief Financial Officer 27
Proposal No. 5: Performance Goals and Incentive Compensation for the
Executive Vice President 28
Proposal No. 6: Performance Goals and Incentive Compensation for the
President 29
Proposal No. 7: Performance Goals and Incentive Compensation for the
Chief Executive Officer 31
Relationship with Independent Accountants 33
Shareholder Proposals 33
Annual Report 34
Appendix 1: 2001 Non-Employee Directors Stock Option Plan
i
PROXY STATEMENT
Your vote at the annual meeting is important to us. Please vote your shares
of common stock by completing the enclosed proxy card and returning it to us in
the enclosed envelope. This proxy statement has information about the annual
meeting and was prepared by the Company's management for the board of
directors. This proxy statement was first mailed to shareholders on October 10,
2001.
GENERAL INFORMATION ABOUT VOTING
Who can vote?
Only shareholders of record holding Class A common stock or Class B common
stock as of the close of business on October 1, 2001, will be entitled to
receive notice of the annual meeting and to vote at the meeting.
On October 1, 2001, there were 22,527,801 shares of Class A common stock and
2,621,502 shares of Class B common stock outstanding and eligible to vote.
Shares of common stock owned by the Company or any subsidiary are not entitled
to vote, and are not included in the number of outstanding shares.
How do I vote by proxy?
Follow the instructions on the enclosed proxy card to vote on each proposal
to be considered at the annual meeting. Sign and date the proxy card and mail
it back to us in the enclosed envelope. The proxyholders named on the proxy
card will vote your shares as you instruct. If you sign and return the proxy
card but do not vote on a proposal, the proxyholders will vote for you on that
proposal. Unless you instruct otherwise, the proxyholders will vote for each of
the ten director nominees and for each of the other proposals to be considered
at the meeting.
What if other matters come up at the annual meeting?
The matters described in this proxy statement are the only matters we know
will be voted on at the annual meeting. If other matters are properly presented
at the meeting, the proxyholders will vote your shares as they see fit.
Can I change my vote after I return my proxy card?
Yes. At any time before the vote on a proposal, you can change your vote
either by giving the Company's secretary a written notice revoking your proxy
card or by signing, dating, and returning to us a new proxy card. We will honor
the proxy card with the latest date.
Can I vote in person at the annual meeting rather than by completing the proxy
card?
Although we encourage you to complete and return the proxy card to ensure
that your vote is counted, you may attend the annual meeting and vote your
shares in person.
What do I do if my shares are held in "street name"?
If your shares are held in the name of your broker, a bank, or other nominee,
that party should give you instructions for voting your shares.
How are votes counted?
We will hold the annual meeting if holders of a majority of the shares of
Class A common stock and Class B common stock entitled to vote either sign and
return their proxy cards or attend the meeting. If you sign and return your
proxy card, your shares will be counted to determine whether we have a quorum
even if you abstain or fail to vote on any of the proposals listed in the proxy
card.
If your shares are held in the name of a nominee, and you do not tell the
nominee how to vote your shares (so-called "broker nonvotes"), the nominee can
vote them as it sees fit only on matters that the New York Stock Exchange
determines to be routine, and not on any other proposal. Broker nonvotes will
be counted as present to determine if a quorum exists but will not be counted
as present and entitled to vote on any nonroutine proposal.
Who pays for this proxy solicitation?
We do. In addition to sending you these materials, some of our employees may
contact you by phone, by mail, or in person. None of these employees will
receive any extra compensation for doing this. The Company will also reimburse
brokerage houses and others forwarding proxy materials to beneficial owners of
stock.
1
PROPOSAL NO. 1
ELECTION OF DIRECTORS
An entire board of directors, consisting of ten members, will be elected at
the annual meeting. The directors elected will hold office until their
successors are elected, which should occur at the next annual meeting. We
recommend a vote "FOR" the nominees presented below.
Vote Required. The ten nominees receiving the highest number of votes will
be elected. Votes withheld for a nominee will not be counted.
Nominations. At the annual meeting, we will nominate the persons named in
this proxy statement as directors. Although we do not know of any reason why
one of these nominees might not be able to serve, the board of directors will
propose a substitute nominee if any nominee is not available for election.
GENERAL INFORMATION ABOUT THE NOMINEES
All of the nominees are currently directors of the Company. Each has agreed
to be named in this proxy statement and to serve as a director if elected. All
nominees have been designated as "Continuing Directors" as defined in the
Company's Certificate of Incorporation.
Related party transactions between the Company and certain directors, or
their immediate family members or affiliates, are set forth in this proxy
statement under the heading "Certain Transactions." Information regarding late
filings of stock ownership forms by certain directors is set forth in this
proxy statement, under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance."
Name Age Position
---- --- --------
Melville R. Barlow 72 Director
Mortimer M. Caplin 85 Director
Philip David 70 Director
Robert E. Edwards 53 Director
Steven L. Gerard 56 Director
Harold J. Harris 72 Director
Daniel Lebard 62 Director
Herbert S. Richey 79 Director
Eric I. Steiner 39 President, Chief Operating Officer and Director
Jeffrey J. Steiner 64 Chairman of the Board and Chief Executive Officer
Melville R. Barlow. Director Since 1996. Consultant to the Company:
September 1995 to June 1996. President of Pilkington Aerospace, Inc.
(manufacturer of aircraft transparencies): July 1991 through March 1994.
Corporate Vice President of General Dynamics and General Manager of General
Dynamics Electronics Division (manufacturer of military aircraft automatic
test equipment): June 1984 to March 1991.
Mortimer M. Caplin. Director Since 1990. Senior member of Caplin & Drysdale
(attorneys): 1964 to Present. Director of Presidential Realty Corporation and
Danaher Corporation.
Philip David. Director Since 1985. Consultant to the Company: January 1988
to June 1993. Company employee: January 1988 to December 1989. Professor of
Urban Development at Massachusetts Institute of Technology: 1971 to 1988.
Director of IRI International, Inc.
2
Robert E. Edwards. Director Since 1998. Executive Vice President of
Fairchild Fasteners: March 1998 to January 2001. Chief Operating Officer of
Fairchild Fasteners U.S. Operations: January 2000 to January 2001. Chief
Executive Officer of Fairchild Fasteners Direct: March 1998 to December 1999.
President and Chief Executive Officer of Edwards and Lock Management
Corporation (predecessor of Fairchild Fasteners Direct): 1983 to 1998.
Pursuant to the merger agreement by which the Company acquired Fairchild
Fasteners Direct, Mr. Edwards is to be nominated for election as a director
every year as long as he continues to own at least 541,258 shares of Class A
common stock.
Steven L. Gerard. Director Since 1999. Chief Executive Officer and Director
of Century Business Services, Inc. (provider of integrated business services
and products): October 2000 to present. Chairman and Chief Executive Officer
of Great Point Capital, Inc. (financial and operating consultants): 1998 to
October 2000. Chairman and Chief Executive Officer of Triangle Wire & Cable,
Inc. and its successor, Ocean View Capital, Inc., a manufacturer of insulated
wire and cable: September 1992 to August 1997. Director of Lennar Corporation,
Aviation Sales Company and Joy Global, Inc.
Harold J. Harris. Director Since 1985. President of Wm. H. Harris, Inc.
(retailer): 1955 to Present. Director of Capital Properties Incorporated of
Rhode Island.
Daniel Lebard. Director Since 1996. Chairman of Supervisory Board of Daniel
Lebard Management Development SA, a consulting firm in Paris, France, which
performs management services: 1982 to Present. Chief Executive Officer of ISPG
and Executive Chairman of Albright & Wilson plc (manufacturer of added value
phosphate products): 1998 to 2000.
Herbert S. Richey. Director Since 1977. President of Richey Coal Company
(coal properties-brokerage and consulting): 1979 to December 1993.
Dr. Eric I. Steiner. Director Since 1988. President of the Company:
September 1998 to Present. Chief Operating Officer of the Company: November
1996 to Present. President of Fairchild Fasteners: August 1995 to Present.
Executive Vice President of the Company: November 1996 to September 1998.
Senior Vice President, Operations of the Company: May 1992 to November 1996.
Dr. Steiner is the son of Jeffrey J. Steiner.
Jeffrey J. Steiner. Director Since 1985. Chairman of the Board and Chief
Executive Officer of the Company: December 1985 to Present. President of the
Company: July 1991 to September 1998. Director of Communication Intelligence
Corp., Franklin Holding Corp., and Global Sources Ltd.
Articles have appeared in the French press reporting an inquiry by a French
magistrate into allegedly improper business transactions involving Elf
Acquitaine, a French petroleum company, its former chairman and various third
parties, including Maurice Bidermann. In connection with this inquiry, the
magistrate has made inquiry into allegedly improper transactions between Mr.
Steiner and that petroleum company. In response to the magistrate's request,
Mr. Steiner has submitted written statements concerning the transactions and
appeared in person, in France, before the magistrate and others. The
magistrate put Mr. Steiner under examination (mis en examen) with respect to
this matter and imposed a surety (caution) of ten million French Francs which
has been paid. Mr. Steiner has not been charged.
3
Board Meetings
The Board held five meetings during fiscal 2001, and acted three times by
unanimous written consent. No incumbent director attended less than seventy-
five percent of the aggregate number of meetings of the Board and committees
on which he served.
Board Committees
The Board has five standing committees. The following chart describes the
function and membership of each standing committee and the number of times it
met in fiscal 2001:
Audit Committee
(Held 4 meetings)
Function Members
-------- -------
. Examines and considers matters relating to the Herbert Richey (Chairman)
internal and external audits of the Company's Melville Barlow
accounts and its financial affairs. Mortimer Caplin
Steven Gerard
Harold Harris
. Selects the Company's independent auditors.
The Board of Directors has determined that all members of the Audit
Committee are "independent" as defined in the listing standards of the New
York Stock Exchange. The Board was advised that a subsidiary of the firm of
Century Business Services, Inc. (of which Mr. Gerard is the Chief Executive
Officer) has been engaged by the Company to do auditing work in connection
with Fairchild's qualified pension and 401(k) plans. However, such services
are not provided by Mr. Gerard himself, and the amount of such services is
less than $60,000 a year. Based on this, the Board has determined that Mr.
Gerard is independent of the Company and its management, and that the business
relationship with his firm does not impede on such independence.
The Board has adopted a written charter for the Audit Committee. The NYSE
requires that a copy of the charter be published at least once every three
years. A copy of the Audit Committee's charter was attached as Appendix 1 to
last year's proxy statement.
Compensation and Stock Option Committee
(Held 4 meetings and acted 1 time by written consent)
Function Members
-------- -------
. Initial responsibility for all compensation Philip David (Chairman)
actions affecting the Company's officers, Melville Barlow
including base salaries, bonus awards, stock Daniel Lebard
option awards and the terms and conditions of Herbert Richey
their employment.
. Administers the Company's stock option plan.
4
Executive Committee
(took no actions in fiscal year 2001)
Function Members
-------- -------
. May consider pertinent matters and exercise all Jeffrey Steiner (Chairman)
powers of the Board, which by law it may exercise Mortimer Caplin
when the Board is not in session. Herbert Richey
Eric Steiner
Corporate Ethics and Compliance Committee
(Held 2 meetings)
Function Members
-------- -------
. Oversees the Company's ethics programs. Mortimer Caplin (Chairman)
Melville Barlow
Herbert Richey
Nominating Committee
(Held 1 meeting)
Function Members
-------- -------
. Considers and recommends to the Board candidates Jeffrey Steiner (Chairman)
for election to the Board of Directors by the Eric Steiner
shareholders. Harold Harris
5
Directors Compensation
Board members that are not salaried employees of the Company receive
separate compensation for Board service. That compensation includes:
Annual Retainer: $20,000
Attendance Fees: $2,500 for each Board meeting.
$2,500 for each Audit Committee meeting.
$1,000 per meeting for all other Board Committee
meetings.
Expenses related to attendance.
Stock Options:
Under the 1996 Non-Employee Directors Stock Option Plan
(the "1996 NED Plan") each non-employee director is
issued stock options for 30,000 shares at the time he or
she is first elected as a director. Thereafter, each
director is issued stock options for 1,000 shares on an
annual basis (immediately after each Annual Meeting).
Under the 2000 Non-Employee Directors Stock Option Plan
(the "2000 NED Plan") each non-employee director was
issued stock options for 7,500 shares (52,500 shares in
the aggregate) immediately after the 2000 Annual Meeting.
Under the 2001 Non-Employee Directors Stock Option Plan
(the "2001 NED Plan") the non-employee directors will be
issued stock options ranging from 2,000 to 30,000 per
non-employee director. Such stock options shall be issued
immediately after the 2001 Annual Meeting. The aggregate
number of stock options to be issued under the 2001 NED
Plan is 86,942. See discussion of the 2001 NED Plan under
Proposal No. 2 of this Proxy Statement.
Nominees for Next Year's Annual Meeting
The Nominating Committee will consider written recommendations for nominees
for next year's annual meeting, submitted prior to June 12, 2002, by
shareholders to the Secretary of the Company. Biographical information and the
written consent of the potential nominee must accompany the recommendation.
6
INFORMATION AS TO EXECUTIVE OFFICERS
Set forth below is certain information about each executive officer of the
Company who is not a director of the Company. All of the executive officers of
the Company are elected by the Board to serve until the next annual meeting of
the Board or until their successors are elected and qualified. Related party
transactions between the Company and certain officers (or their immediate
family members or affiliates) are set forth in this proxy statement under the
heading "Certain Transactions."
Michael T. Alcox, 53, has served as Senior Vice President and Chief
Financial Officer of the Company since July 2000. Effective September 2001,
Mr. Alcox will work on a reduced hours schedule, with other officers assuming
some of his responsibilities. Mr. Alcox previously served as Vice President
(from September 1996 to July 2000), as Senior Vice President and Chief
Financial Officer (from December 1987 to September 1996), as Treasurer (from
September 1990 to November 1991) and as a Director (from 1988 to 1999).
John L. Flynn, 55, has served as Senior Vice President, Tax of the Company
since September 1994 and as Vice President, Tax from August 1989 to September
1994.
Donald E. Miller, 54, has served as Executive Vice President of the Company
since September 1998, as General Counsel since January 1991 and as Corporate
Secretary since January 1995. He served as Senior Vice President of the
Company from January 1991 through September 1998.
Warren D. Persavich, 48, has served as President of the Company's
Distribution Division since April 1999, and as Senior Vice President and Chief
Operating Officer of Banner Aerospace, Inc. since May 1998. Prior to that, he
served as Senior Vice President and Chief Financial Officer of Banner
Aerospace from June 1990 through May 1998, and as Vice President of Banner
Aerospace from March 1990 through June 1990.
Karen L. Schneckenburger, 52, has served as Vice President of the Company
since September 1992 and as Treasurer of the Company since November 1991.
Prior to that, she served as Director of Finance of Fairchild Industries from
1986 through 1989.
7
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and officers to file reports (on Forms 3, 4 and 5) with
the Securities and Exchange Commission, disclosing their ownership, and
changes in their ownership, of stock in the Company. Copies of these reports
must also be furnished to the Company. Based solely on a review of these
copies, the Company believes that during fiscal year 2001 all reports were
filed on a timely basis, except as follows: Dr. Eric Steiner filed a Form 5
with the SEC on August 14, 2001 (reporting the purchase of 5,000 shares of
Class A Stock by The Steiner Children's Trust) that was due to be filed on
October 10, 1998.
8
EXECUTIVE COMPENSATION
Table: Summary Compensation
Long Term
Compensation
Annual Compensation Awards
---------------------------------------- -----------------------
Securities
Other Annual Underlying All Other
Name and Fiscal Salary Bonus Compensation Options Compensation
Principal Position Year ($)(1) ($)(1) ($) (#) ($)(2)
------------------ ------ --------- ---------- ------------ ---------- ------------
Jeffrey J. Steiner, 2001 2,500,005 266,300 -- 45,000 39,843
Chairman & CEO 2000 2,061,554 3,623,314 -- -- 31,983
1999 2,007,215 11,207,617 -- 25,000 29,927
Michael T. Alcox, 2001 319,807 108,333 -- -- 4,445
Senior Vice President 2000 129,816 65,000 -- -- 3,005
And CFO 1999 125,008 25,000 -- -- 1,202
John L. Flynn, 2001 300,019 125,000 -- 15,000 14,562
Senior Vice President, 2000 285,595 217,350 -- -- 5,806
Tax 1999 269,230 875,000 -- 10,000 3,173
Donald E. Miller, 2001 375,003 125,000 -- 15,000 19,626
Executive Vice
President, 2000 352,675 449,656 -- 25,000 8,231
General Counsel &
Secretary 1999 332,345 900,000 -- 25,000 6,331
Eric I. Steiner, 2001 725,005 217,500 -- 20,000 28,405
President & COO 2000 565,386 829,850 -- 25,000 8,304
1999 510,618 4,300,000 -- 75,000 6,562
--------
(1) Bonuses shown in the table for 2000 include a bonus of Global Sources
shares, with a market value (at the time the compensation was awarded) as
follows: J. Steiner--30,000 shares ($479,100 market value); J. Flynn--
5,000 shares ($79,850 market value); D. Miller--5,000 shares ($79,850
market value); E. Steiner--5,000 shares ($79,850 market value).
(2) Includes the following for fiscal 2001:
a.Company matching contributions under 401(k) savings plan, as follows:
J. Steiner $4,133
M. Alcox 4,445
J. Flynn 4,779
D. Miller 4,136
E. Steiner 4,250
b. Income imputed for split-dollar life insurance coverage, as follows:
J. Steiner $25,927
D. Miller 2,868
E. Steiner 11,533
c. Imputed interest on loans to officers, as follows:
J. Steiner $ 9,783
J. Flynn 9,783
D. Miller 12,622
E. Steiner 12,622
9
Table: Options Granted in Fiscal 2001
Individual Grants
----------------------------------------------
Potential Realizable
Value at Assumed
% of Rates of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term
Options Employees Price Expiration ----------------------
Name Granted in Fiscal 2001 ($/Sh) Date 5% ($) (1) 10% ($) (1)
---- ---------- -------------- -------- ---------- ---------- -----------
Jeffrey J. Steiner 45,000(2) 15% 6.5625 09/18/05 81,590 180,291
Michael T. Alcox -- 0%
John L. Flynn 15,000(2) 5% 6.5625 09/18/05 27,197 60,097
Donald E. Miller 15,000(2) 5% 6.5625 09/18/05 27,197 60,097
Eric I. Steiner 20,000(2) 7% 6.5625 09/18/05 36,262 80,129
--------
(1) The potential realizable value for each named executive officer reflects
the increase in value of the shares granted, based on a beginning price
equal to the stock option exercise price and assuming rates of stock value
appreciation of 5% and 10%, respectively, over a period of five years. The
actual value, if any, an executive may realize will depend on the excess
of the stock price over the exercise price on the date the option is
exercised.
(2) These options were granted on 9/19/00; 25% became exercisable on 9/19/01;
50% are exercisable on 9/19/02; 75% are exercisable on 9/19/03; and 100%
are exercisable on 9/19/04.
Table: Option Exercises and Year-End Value
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
June 30, 2001 June 30, 2001
Shares Acquired Value ------------------------- --------------------------
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
---- --------------- -------- ----------- ------------- ----------- -------------
Jeffrey Steiner 222,700 668,100(1) 460,497 82,500 (2,406,558) (513,863)
Michael T. Alcox 25,850 84,013(1) 0 0
John L. Flynn 17,400 43,500(1) 27,500 22,500 (279,881) (74,306)
Donald Miller 11,700 38,756(1) 63,750 51,250 (602,488) (229,800)
Eric Steiner -- -- 227,261 86,250 (1,825,185) (500,075)
--------
(1) Pursuant to the Company's Stock Option Deferral Plan, officers may defer
the gain on exercise of stock options. An officer's deferred gain is
issued in the form of "Deferred Compensation Units," representing the
number of shares of common stock that the officer shall be entitled to
receive upon expiration of the deferral period.
Under the Stock Option Deferral Plan, the following named executive
officers deferred gain as follows:
J. Steiner deferred $668,100 in exchange for 100,845 Deferred Compensation
Units;
M. Alcox deferred $ 84,013 in exchange for 12,220 Deferred Compensation
Units;
J. Flynn deferred $ 43,500 in exchange for 7,102 Deferred Compensation
Units; and
D. Miller deferred $ 38,756 in exchange for 5,586 Deferred Compensation
Units.
10
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The following summarizes employment agreements and change of control
agreements:
.Employment Agreement between the Company and Jeffrey Steiner:
Term of the Agreement: Five year term, extended annually by an
additional 12 months unless either party gives
timely notice not to extend the agreement.
Minimum Base Salary Under
the Agreement:
As determined by the Compensation Committee.
Current Base Salary: $1,700,000 per year.
Payments in Event of Death: Estate to receive an amount equal to one year's
base salary, plus bonuses for the fiscal year
in which death occurred.
Payments in Event of
Termination Due to
Disability: Fifty percent of base salary for two years,
plus bonuses for the fiscal year in which
disability occurred.
Payments in the event of a
"change in control":
2.99 times base salary and 2.99 times the
preceding year's bonus.
. Employment Agreement between Banner Aerospace (Company Subsidiary) and
Jeffrey Steiner:
Term of the Agreement: Three year term, extended annually by an
additional 12 months unless either party gives
timely notice not to extend the agreement.
Minimum Base Salary Under
the Agreement:
Not less than $250,000 per year, and an annual
bonus if certain performance targets are met.
Current Base Salary: $400,000 per year.
Payments in Event of Death: Estate to receive an amount equal to one year's
base salary, plus bonuses for the fiscal year
in which death occurred.
Payments in Event of
Termination Due to
Disability:
Fifty percent of base salary for two years,
plus bonuses for the fiscal year in which
disability occurred.
Payments in the event of a
"change in control":
2.99 times base salary and 2.99 times the
preceding year's bonus.
11
. Service Agreement between Fairchild Switzerland, Inc. (Company Subsidiary)
and Jeffrey Steiner:
Term of the Agreement: Year to year.
Minimum Base Salary Under
the Agreement:
Greater of $400,000 or 680,000 Swiss Francs per
year, but not more than $400,000.
. Letter Agreements between the Company and each of the following officers:
Donald Miller and John L. Flynn
Payments in the event of
Termination Without Cause:
2 times then current annual base salary, plus 1
times salary in lieu of bonus.
Payments in the event of a
"change in control":
2 times then current annual base salary, plus 1
times salary in lieu of bonus.
. Employment Agreement between the Company and Eric Steiner:
Term of the Agreement: Three year term, extended annually by an
additional 12 months unless either party gives
timely notice not to extend the agreement.
Minimum Base Salary Under
the Agreement:
$540,000 per year.
Current Base Salary: $725,000.
Payments in Event of Death: Same as the Company's highest compensated
officer. Currently, Jeffrey Steiner is the
highest compensated officer. (See death
benefits described above under Jeffrey
Steiner's employment agreement.)
Payments in Event of
Termination Due to
Disability:
Same as the Company's highest compensated
officer. Currently, Jeffrey Steiner is the
highest compensated officer. (See disability
and termination benefits described above under
Jeffrey Steiner's employment agreement.)
Payments in the event of a
"change in control":
2.99 times base salary and 2.99 times the
average annual bonus for the preceding five
years.
12
PENSION AND RETIREMENT BENEFITS
Fairchild Retirement Plan. The following table illustrates the amount of
estimated annual fixed retirement benefits payable under the Fairchild
Retirement Plan to an employee retiring in 2001, at age 65, at various salary
levels (average of highest five consecutive years out of last ten years of
service) and years of service. The Fairchild Retirement Plan defines salary as
total compensation, subject to the Internal Revenue Service's limit on the
amount of compensation that may be used to compute benefits under qualified
pension plans. This limit is equal to $170,000 for 2001.
Annual 10 Years 20 Years 30 Years 40 Years
Salary of Service of Service of Service of Service
------ ---------- ---------- ---------- ----------
$ 25,000 $ 2,001 $ 4,002 $ 6,004 $ 7,313
50,000 4,596 9,192 13,788 16,711
100,000 10,596 21,192 31,788 38,336
150,000 16,596 33,192 49,788 59,961
200,000 17,796 35,592 51,948 64,286
250,000 17,796 35,592 51,948 64,286
For purposes of determining benefits under the Fairchild Retirement Plan,
the following executive officers have years of credit and average salaries as
follows:
Officer Average Salary Years of Credit
------- -------------- ----------------
Jeffrey J. Steiner $164,000 10 yrs., 6 mths.
Michael T. Alcox $164,000 10 yrs., 6 mths.
John L. Flynn $164,000 13 yrs., 8 mths.
Donald E. Miller $164,000 9 yrs., 6 mths.
Eric I. Steiner $164,000 9 yrs., 3 mths.
13
Supplemental Executive Retirement Plans. The Company has two Supplemental
Executive Retirement Plans for certain key executives which provide additional
retirement benefits based on final average earnings and years of service, as
follows:
Unfunded SERP Funded SERP
------------------------------------ -----------------------
Retirement Benefits Provides a maximum retirement Same as the Unfunded
benefit (in the aggregate for both SERP.
Supplemental Executive Retirement
Plans)
equal to the difference between (i)
sixty percent (60%) of the
participant's highest base salary
for five consecutive years of the
last ten years of employment, and
(ii) the aggregate of other pension
benefits, profit sharing benefits,
stock option benefits and primary
Social Security payments to which
the participant is entitled.
Funding This is an unfunded obligation of This plan is a funded
the Company, not subject to ERISA obligation of the
regulations. The Company makes Company. Such funding
discretionary contributions to a contributions are not
Rabbi Trust to help meet its assets available to the
obligations under this plan, but the creditors of the
assets under such trust are subject Company.
to the claims of the Company's
creditors.
Pre-Retirement Subject to the approval of the None.
Distributions Compensation Committee, the plan
permits participants who are age 60
or over, to elect to receive a lump
sum retirement advance on an
actuarially reduced basis.
Participants Executive Officers. All persons Same as the unfunded
named in the Summary Compensation plan.
Table are eligible for participation
in this plan.
Special Years of Pursuant to a letter agreement with None
Service Accreditation Mr. Miller, for purposes of
determining years of service with
the Company under the Supplemental
Executive Retirement Plans, Mr.
Miller may be credited with two
years of service for each of the
first ten years he is employed by
the Company.
14
REPORT OF THE COMPENSATION COMMITTEE
The following report does not constitute solicitation material and is not
considered filed or incorporated by reference into any other Company filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934,
unless we state otherwise.
The Compensation and Stock Option Committee is composed of at least two non-
employee Directors. It has initial responsibility for all compensation actions
affecting the Company's executive officers, including base salaries, bonus
awards, stock option awards and the terms and conditions of their employment.
Compensation Philosophy
The Committee's goals are to:
. Provide compensation competitive with other similar companies.
. Reward executives consistent with the performance of the Company.
. Recognize individual performance.
. Encourage executives to increase shareholder value.
Components of Executive Officer Compensation
Cash Compensation (Base Salary and Annual Incentive Bonus)--The Company
manages the total cash compensation to provide median levels of cash
compensation at average levels of corporate, business unit, and individual
performance. Cash compensation consists of two components: (i) a base salary
that is competitive with that of other companies paying at the median level of
the market, and (ii) an annual incentive opportunity that is variable and is
reflective of the financial performance of the Company and/or the individual
performance of the executive officer. When high levels of performance are
achieved, the level of cash compensation may exceed the median of the market.
Conversely, when the Company, business unit, or the individual falls short of
the predetermined goals, the level of cash compensation may be substantially
below the market median. The objective of this mix is to deliver total annual
cash compensation competitive with compensation offered at other companies
facing similar challenges for similar positions, while simultaneously linking
the payment of the annual cash incentive to the achievement of specific
objectives in the Company's annual operating plan as approved by the Board.
Mix Between Salary and Annual Incentive Pay--The mix between salary and
annual incentive pay is related to an executive's job grade. Executives at
higher grade levels in the Company have a greater percentage of their total
cash compensation contingent on the accomplishment of assigned business
objectives, i.e. the higher the executive grade level, the greater the
proportion of annual compensation that is "at risk." The award and size of the
performance bonus are based upon: (i) the executive officer's performance
against goals determined by the Company's Chief Executive Officer; and/or (ii)
the performance of the executive officer's unit within the Company against
that unit's goals; or (iii) the performance of the Company against Company
goals. Goals vary from year to year and from unit to unit and, with regard to
individual goals of executive officers, usually include both quantitative and
qualitative factors.
15
The Committee approved salary and annual incentive pay for the Company's
named executive officers as set forth under the Summary Compensation Table of
this Proxy Statement.
Stock Option Grants--The Committee believes that stock option grants serve
as a desirable long-term method of compensation because they closely ally the
interests of management with the preservation and enhancement and realization
of shareholder value and serve as an additional incentive to promote the
success of the Company. In fiscal 2001, the Committee approved the grant of
123,665 stock options to the Company's executive officers and 172,741 stock
options to other employees. Included in these grants were 95,000 stock options
granted to the named executive officers. The CEO received 45,000 stock
options.
Total Compensation Program--The Committee believes that the total
compensation program for executives of the Company (cash compensation, bonuses
and stock option grants) is on a level with the compensation programs provided
by other companies facing similar challenges. The Committee believes that any
amounts paid under the annual incentive plan will be appropriately related to
corporate and individual performance, yielding awards that are directly linked
to the annual financial and operational results of the Company within the
framework of the challenges faced.
Compensation of CEO
Jeffrey J. Steiner has served as Chairman of the Board and Chief Executive
Officer of the Company since 1985, and as President from July 1991 through
September 1998. In fixing Mr. Steiner's salary and target bonus levels, as
well as determining the size of stock options, if any, the Committee and the
Board typically review the strategic direction and financial performance of
the Company, including enterprise value, revenue and profit levels. In
addition, the Committee reviews Mr. Steiner's performance as Chairman of the
Board and Chief Executive Officer, his importance to the Company and his
success in implementing its strategic goals both through his entrepreneurial
actions and investment banking acumen.
Mr. Steiner has developed and established initiatives aimed at improving the
operating efficiency and financial performance of the Company. These include
the disposition of non-core assets and an increased focus of the Company's
efforts on its aerospace parts business.
Base Compensation--Mr. Steiner's base compensation for fiscal 2001 was
$1,700,000 pursuant to his employment agreement with the Company and $400,000
pursuant to his employment agreement with Banner Aerospace, plus $400,000 for
services in Switzerland.
Incentive Compensation Performance Goals--The performance goals for and
maximum amount of Mr. Steiner's incentive compensation (i.e., compensation
beyond base salary) approved by the shareholders at the last Annual Meeting,
were as follows:
1. If the Company (including its consolidated subsidiaries) achieves pre-
tax profits for fiscal 2001, the Chief Executive Officer may receive up
to three percent (3%) of such pre-tax profits.
2. If the Company engages in an extraordinary transaction (e.g. purchase or
sale of assets not in the ordinary course, including, without
limitation, through a public offering or private placement of
securities) during fiscal 2001, the Chief Executive Officer may receive
up to two and one-half percent (2 1/2%) of the total value of the
transaction.
3. Notwithstanding the foregoing, the payment of incentive compensation in
connection with extraordinary transactions is restricted as follows:
. There shall be no cash incentive compensation awards on acquisitions
by the Company;
. There shall be no incentive compensation awards in connection with
the Company's issuance of any debt securities (bonds, credit
agreements, etc.); and
16
. There shall be no incentive compensation awards in connection with
raising of equity through investment bankers.
Incentive Compensation for 2001 Transactions--The Committee determined that
Mr. Steiner should receive $266,300 as incentive compensation for fiscal 2001.
The total incentive compensation paid to Mr. Steiner for fiscal 2001 is within
the performance goals approved last year by the shareholders.
Stock Option Compensation--In fiscal 2001, the Committee approved the grant
of 45,000 stock options to Mr. Jeffrey Steiner under the Stock Option Plan.
Internal Revenue Code Section 162(m)
The Committee has considered the impact of Section 162(m) Internal Revenue
Code of 1986, as amended (the "Code"), which in certain circumstances
disallows income tax deductions for compensation in excess of $1,000,000. This
disallowance provision does not apply to performance-based compensation and
certain other forms of compensation. The Committee currently intends to
structure the Company's incentive compensation awards to the Company's Chief
Executive Officer and other executive officers in a manner that complies with
the Code's requirements for performance-based compensation to ensure that the
Company is entitled to deduct such compensation. One of these requirements is
that the shareholders approve the material terms of performance goals for such
awards. To satisfy this requirement, the shareholders are being asked in this
proxy statement to approve the material terms of the performance goals for the
fiscal 2002 incentive compensation award for the following officers: the
Senior Vice President, Tax, the Chief Financial Officer, the Executive Vice
President, the President and the Chief Executive Officer.
Respectfully submitted by the members of the Compensation and Stock Option
Committee of the Board of Directors:
Philip David, Chairman
Melville R. Barlow
Daniel Lebard
Herbert S. Richey
17
REPORT OF THE AUDIT COMMITTEE
The following report does not constitute solicitation material and is not
considered filed or incorporated by reference into any other Company filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934,
unless we state otherwise.
The Audit Committee reviews the Company's financial reporting process on
behalf of the Board of Directors. Management is responsible for the financial
statements and the reporting process, including the system of internal
controls. The independent auditors are responsible for expressing an opinion
on the conformity of the audited financial statements with accounting
principles generally accepted in the United States.
In fulfilling its responsibilities:
. The Audit Committee reviewed and discussed with the Company's management
and the independent auditors, the audited financial statements contained
in the 2001 Annual Report on SEC Form 10-K.
. The Audit Committee discussed with the independent auditors, the matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
. The Audit Committee received from the independent auditors written
disclosures regarding the auditor's independence, as required by
Independence Standards Board Standard No. 1 (Independence Discussions
with Audit Committees), and discussed with the auditors their
independence from the Company and its management.
In reliance on the reviews and discussions noted above, the Audit Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Company's Annual Report on SEC
Form 10-K for the year ended June 30, 2001, for filing with the Securities and
Exchange Commission.
Respectfully submitted by the members of the Audit Committee of the Board of
Directors:
Herbert S. Richey (Chairman)
Melville R. Barlow
Mortimer M. Caplin
Steven L. Gerard
Harold J. Harris
18
STOCK PERFORMANCE GRAPHS
The following stock performance graph does not constitute solicitation
material and is not considered filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, unless we state otherwise.
COMPARISON TO S&P 600 SMALLCAP INDEX/S&P 600 SMALLCAP AEROSPACE/DEFENSE INDEX:
The following graph compares the performance of the Company's Class A Stock
with that of the S&P 600 Smallcap Index and the S&P Smallcap Aerospace/Defense
Index (consisting of five aerospace/defense manufacturers). The graph plots the
growth in value of an initial $100 investment over the indicated five year
period with all dividends reinvested.
Research Data Group Peer Group Total Return Worksheet
FAIRCHILD CORP
Cumulative Total Return
-------------------------------
---------------
6/96 6/97 6/98 6/99 6/00 6/01
FAIRCHILD CORPORATION 100.00 123.08 138.03 87.18 33.33 47.93
S & P SMALLCAP 600 100.00 121.69 145.37 147.81 169.08 187.87
S & P SMALLCAP 600 AEROSPACE/DEFENSE COMPANIES 100.00 138.17 191.76 158.58 91.82 137.20
[End of file]
19
STOCK OWNERSHIP
The following table shows the number of shares beneficially owned (as of
August 31, 2001) by:
. each person who we know beneficially owns more than 5% of the common
stock;
. each director;
. each executive officer named in the Summary Compensation Table; and
. the directors and executive officers as a group.
Number of Shares Percent Number of Shares Percent
Name of Class A Stock (1) of Class of Class B Stock (1) of Class
---- -------------------- -------- -------------------- --------
Michael T. Alcox 40,470 * 600 *
Melville R. Barlow 34,000(2) * -- --
Mortimer M. Caplin 126,364(2) * -- --
Philip David 43,856(2) * -- --
Dimensional Fund
Advisors Inc. 1,894,829(3) 8.41% -- --
Robert E. Edwards 1,126,595 5.00% -- --
John L. Flynn 66,496(2)(4) * -- --
Gabelli Funds, LLC 2,444,029(3) 10.85% -- --
Steven L. Gerard 32,818(2) * -- --
Harold J. Harris 81,230(2) (4) * -- --
Daniel Lebard 49,356(2) * -- --
Donald E. Miller 136,793(2) (4) * -- --
Herbert S. Richey 35,730(2) * -- --
Eric I. Steiner 433,396(2) (4) 1.90% 15,000 *
Jeffrey J. Steiner 7,116,479(2) (6) 27.40% 2,938,996(6) 98.08%
The Steiner Group LLC 6,102,684(3) (5) 23.99% 2,908,996(5) 97.08%
All directors and
executive officers as a
group (15 persons) 9,482,482(2) (7) 35.67% 2,954,596(7) 98.60%
--------
* Represents less than one percent.
(1) The Class A Stock Column includes shares of Class B Stock, which are
immediately convertible into Class A Stock on a share-for-share basis.
Options that are exercisable immediately or within sixty days after August
31, 2001 appear in the Class A Stock column. Outstanding warrants are
exercisable into shares of either Class A Stock or Class B Stock and
appear in both the Class A Stock and Class B Stock columns.
(2) Includes exercisable stock options to purchase Class A Stock, as follows:
M. Barlow, 34,000 shares; M. Caplin, 6,000 shares; P. David, 6,000 shares;
J. Flynn, 36,250 shares; H. Harris, 6,000 shares; D. Lebard, 34,000
shares; D. Miller, 78,750 shares; H. Richey, 6,000 shares; S. Gerard,
14,018 shares; E. Steiner, 261,011 shares; J. Steiner, 502,997 shares;
Directors and Executive Officers as a group, 1,104,302 shares.
(3) Based on the following information:
Dimensional Fund Advisors Inc., 1299 Ocean Avenue, 11th Floor, Santa
Monica, CA 90401. Information as of December 31, 2000, contained in a
Schedule 13G filed on February 2, 2001 with the SEC by Dimensional Fund
Advisors, Inc.
Gabelli Funds, LLC, One Corporate Center, Rye, NY 10580-1434. Information
contained in a Schedule 13D/A-9, filed on June 5, 2001 with the SEC by
Gabelli Funds, Inc.
The Steiner Group LLC, c/o Faust Rabbach Oppenheim LLP, 488 Madison Avenue,
New York, NY 10022. Information provided to the Company by the shareholder.
20
(4) Includes shares beneficially owned, as follows: H. Harris--24,768 shares
of Class A Stock owned by the Boston Private Profit-Sharing Plan and 7,500
shares held by his wife. D. Miller--300 shares of Class A Stock owned by
Mr. Miller as custodian for his child; Mr. Miller disclaims any beneficial
interest therein. E. Steiner--30,000 shares of Class A Stock held in The
Steiner Children's Trust; 12,115 shares held in 401k Savings Plan; and
10,000 shares held in the E&P Steiner Family Investment LLC. J. Flynn--
5,878 shares held in 401k Savings Plan.
(5) The Steiner Group LLC is a Delaware limited liability company. Jeffrey J.
Steiner is its sole manager. The members are Jeffrey J. Steiner (with a
20% membership interest), and The Jeffrey Steiner Family Trust (with an
80% membership interest). The Jeffrey Steiner Family Trust is a trust
created for the benefit of the issue of Jeffrey J. Steiner. The Steiner
Group LLC holds 3,193,688 shares of Class A Stock, 2,533,996 shares of
Class B Stock, and 375,000 Warrants. 1,100,000 shares of Class B Stock
owned by The Steiner Group LLC have been pledged to banks as collateral
for loans to Jeffrey Steiner. All 3,193,688 shares of Class A Stock owned
by The Steiner Group LLC have been pledged to Bank of America together
with other personal property as collateral for a line of credit and
personal loans to Mr. Steiner.
(6) Mr. Jeffrey Steiner, c/o The Fairchild Corporation, 45025 Aviation Drive,
Suite 400, Dulles, VA 20166. Mr. Steiner is the sole manager of The
Steiner Group LLC, and as such may be deemed to beneficially own the same
shares of Class A Stock and Class B Stock owned directly or beneficially
by The Steiner Group LLC, as discussed in footnote (5) to this table.
Class A Stock shown in the table as owned by Mr. Steiner includes: (i)
6,102,684 shares owned by The Steiner Group LLC (see footnote (5)); (ii)
437,254 shares owned of record by Mr. Steiner; (iii) exercisable stock
options to purchase 502,997 shares of Class A Stock (see footnote (2));
(iv) 38,500 shares of Class A Stock owned by Mr. Steiner as custodian for
his children; (v) 30,000 shares of Class B Stock (convertible on a one-to-
one basis to Class A Stock) owned by Mr. Steiner as custodian for his
children; (vi) 2,400 shares of Class A Stock owned by the Jeffrey Steiner
Family Foundation; and (vii) 2,644 shares of Class A Stock held in his 401k
Savings Plan.
71,700 shares of Class A Stock owned by Mr. Steiner have been pledged as
collateral to Bank of America.
Class B Stock shown in the table as owned by Mr. Jeffrey Steiner include:
(i) 2,533,996 shares and 375,000 Warrants owned by The Steiner Group LLC
(see footnote (5)); and (ii) 30,000 shares of Class B Stock owned by Mr.
Steiner as custodian for his children.
Mr. Steiner disclaims beneficial ownership of shares owned by The Steiner
Group LLC, the Jeffrey Steiner Family Foundation, and shares owned by him
as custodian for his children.
(7) Includes warrants as described in footnotes (1), (5) and (6) above.
21
CERTAIN TRANSACTIONS
. The Company occasionally uses a chartered helicopter owned by an affiliate
of Mr. Jeffrey Steiner. Cost for such flights charged to the Company for
business related travel are comparable to those charged in arm's length
transactions between unaffiliated third parties. Total amount paid by the
Company in fiscal 2001 for such helicopter was approximately $200,000.
. Jeffrey Steiner has a minority ownership interest in Mulberry Phosphates,
Inc. Mulberry subleased from Fairchild approximately 1,650 square feet in
Fairchild's New York office, at a rental equal to the rent paid by
Fairchild to the prime landlord for such space. Due to financial
difficulties, Mulberry failed to make rental payments to Fairchild under
the sublease and has been evicted.
. Pursuant to the Company's officer and director loan program, the Company
has made loans to certain key employees and directors, to be used by such
employees to purchase Fairchild Class A Common Stock. The amount of such
loans to officers and directors in fiscal 2001, and the outstanding balance
(as of June 30, 2001) of all loans to officers and directors under the
stock purchase loan program, are as follows:
Stock Purchase Outstanding Balance
Loans Made in of all Stock Purchase
Fiscal 2001 Loans as of 6/30/01
-------------- ---------------------
Mortimer Caplin....................... $ 0 $ 105,971
Philip David.......................... 0 105,898
John Flynn............................ 0 174,678
Steven Gerard......................... 99,377 99,377
Harold Harris......................... 0 105,898
Natalia Hercot (daughter of J.
Steiner)............................. 0 167,398
Daniel Lebard......................... 0 105,898
Donald Miller......................... 0 220,178
Warren Persavich...................... 0 174,678
Herbert Richey........................ 0 105,963
Eric Steiner.......................... 0 220,178
Jeffrey Steiner....................... 0 174,678
------- ----------
Total................................. $99,377 $1,760,793
======= ==========
All such loans are non-interest bearing, have maturity dates ranging from 1
1/2 to 4 years, and become due and payable immediately upon the termination
of employment (for senior management) or director affiliation (for a
director).
. Eric Steiner (son of Jeffrey Steiner) is an executive officer of the
Company. His compensation is set forth in the compensation table of the
proxy statement. Natalia Hercot (daughter of Jeffrey Steiner) is a Vice
President of the Company, for which she was compensated $193,000 in fiscal
2001. Thierry Steiner (son of Jeffrey Steiner) is an employee of the
Company, for which he was compensated $67,000 in fiscal 2001.
22
PROPOSAL NO. 2
APPROVAL OF THE ISSUANCE OF
86,942 STOCK OPTIONS TO
NON-EMPLOYEE DIRECTORS
(Pursuant to the 2001 NED Plan)
At the annual meeting, you will be asked to approve the Company's 2001 Non-
Employee Directors Stock Option Plan (the "2001 NED Plan"). The purpose of the
2001 NED Plan is to issue an aggregate of 86,942 option shares to the
Company's non-employee directors. We recommend that you vote "FOR" this
proposal.
Vote Required. To be approved, this matter must receive the affirmative vote
of a majority of the shares present (in person or by proxy) at the meeting and
entitled to vote on such matter. In addition, under New York Stock Exchange
rules, all votes cast for or against such proposal must (in the aggregate)
represent at least 50% of the outstanding shares of the Company entitled to
vote on such matter.
Because the pool of shares available under the 2001 NED Plan does not exceed
5% of the outstanding common stock of the Company, brokers have discretion to
vote in favor of this proposal. Therefore, broker nonvotes will be counted as
present (for quorum purposes) and entitled to vote on this proposal.
Summary of the Plan
Shares Available for The Company has seven non-employee directors.
Stock Options: On the date of the 2001 Annual Meeting
(assuming this proposal is adopted) each non-
employee director will be issued stock options
as follows:
Number of Stock Options
Name for Class A Stock
---- -----------------------
Melville R.
Barlow: 30,000
Mortimer M.
Caplin: 2,000
Philip David: 2,000
Steven L.
Gerard: 3,942
Harold J.
Harris: 17,000
Daniel Lebard: 30,000
Herbert S.
Richey: 2,000
The aggregate of all such options is 86,942,
which represents approximately 0.39% of the
Company's issued and outstanding Class A stock
as of October 1, 2001.
All stock options will be granted on the date
of the 2001 Annual Meeting (after obtaining
shareholder approval). No stock options will
be issued under the 2001 NED Plan after such
date.
Exercise Price for The exercise price for the Stock Options shall
Stock Options: be 100% of the fair market value of the shares
on the date of the 2001 Annual Meeting.
23
Payment of Stock
Option Exercise Price:
The holder of an option can choose to pay the
exercise price in cash, with the Company's
common stock (valued at the closing price of
the common stock on the date of exercise), or
by cashless exercise. In a cashless exercise,
the option holder irrevocably instructs his or
her broker to sell the shares to be acquired
upon exercise of the option and pay the
exercise price to the Company.
Eligibility: All non-employee directors of the company are
eligible to receive stock options under the
2001 NED Plan. There are seven such directors.
The amount of stock options issued to each
non-employee director is different. (See
caption above, "Shares Available for Stock
Options.")
Administration of the The 2001 NED Plan will be administered by the
Plan: Board (excluding, non-employee directors). The
Board will be authorized to interpret the 2001
NED Plan but will have no discretion with
respect to the selection of directors to
receive options, the date on which stock
options will be issued, the number of shares
subject to the 2001 NED Plan, or the purchase
price for the shares subject to options.
Amendments to the The Board may terminate, amend or modify the
Plan: 2001 NED Plan at any time. However, any
amendment or modification that increases the
total amount of stock on which options may be
granted under the 2001 NED Plan, changes the
manner of determining the option price,
changes the classes of individuals eligible to
receive options, changes the number of options
which may be granted to each director, changes
the times when such options are granted, or
materially increases the benefits under the
2001 NED Plan will require the consent of the
Company's stockholders.
Exercise of Stock All stock options under the 2001 NED Plan will
Options: contain the following vesting schedule: (i)
after one year from the date of grant, the
holder may exercise up to 25% of the stock
options covered by the award; (ii) after two
years from the date of grant, the holder may
exercise up to 50% of the stock options
covered by the award; (iii) after three years
from the date of grant, the holder may
exercise up to 75% of the stock options
covered by the award; and (iv) after four
years from the date of grant, the holder may
exercise up to 100% of the stock options
covered by the award. All options will expire
ten years after the date of grant of the
award.
If a non-employee director ceases to serve as
a member of the Board (other than due to death
or disability), all options granted to such
director under the 2001 NED Plan shall expire
three months thereafter, or on their stated
expiration date, whichever occurs first.
24
If a non-employee director ceases to serve as
a member of the Board due to death or
disability, all options granted to such
director under the 2001 NED Plan shall expire
one year thereafter, or on their stated
expiration date, whichever occurs first.
Deferment of Gain: Pursuant to the Company's stock option
deferral plan, directors may elect to defer
the gain upon exercise of any stock options
granted under the 2001 NED Plan. The "gain" is
the difference between the exercise price of a
stock option and the value of the shares on
the date the option is exercised. If a
director elects to defer the gain, he will
receive deferred compensation units from the
Company, equal to the dollar amount of the
gain divided by the fair market value of the
Company's common stock. At the end of the
deferral period, the director will receive the
number of shares of Class A Common Stock equal
to the number of deferred compensation units
previously issued to the director.
Tax Consequences. The following discussion addresses certain U.S. federal
income tax consequences in connection with the 2001 NED Plan. State tax
treatment is subject to individual state laws and is not reviewed in this
discussion. Stock Options under the 2001 NED Plan shall be "Non-Qualified
Stock Options." A Non-Qualified Stock Option results in no taxable income to
the optionee or deduction to the Company at the time it is granted. Except for
any director who elects to defer gain as described above under "Deferment of
Gain," an optionee exercising a Non-Qualified Stock Option will, at that time,
realize taxable compensation in the amount of the difference between the
option price and the then market value of the shares. Subject to the
applicable provisions of the Internal Revenue Code, a deduction for federal
income tax purposes will be allowable to the Company in the year of exercise
in an amount equal to the taxable compensation realized by the optionee.
Beneficiaries of Plan. If the 2001 NED Plan is approved at the Annual
Meeting, the non-employee directors will immediately receive stock options in
the amounts set forth above (under the caption "Shares Available for Stock
Options") next to each director's name. Such stock options shall be
exercisable at the fair market value of the Company's Class A Stock as of the
date of the Annual Meeting. As of September 25, 2001, the closing price on the
New York Stock Exchange for the Company's Class A Stock was $3.90 per share.
The stock options issued to the non-employee directors under the 2001 NED
Plan are in addition to (and not in lieu of) stock options issued yearly to
non-employee directors under the 1996 NED Plan. The 1996 NED Plan is described
in this Proxy Statement under the caption "Directors Compensation."
A copy of the 2001 NED Plan is attached hereto as Appendix 1.
25
PROPOSAL NO. 3
APPROVAL OF PERFORMANCE GOALS AND
INCENTIVE COMPENSATION FOR THE SENIOR VICE PRESIDENT, TAX
At the annual meeting, you will be asked to approve one of the performance
goals established by the Compensation and Stock Option Committee with respect
to fiscal 2002 incentive compensation awards for the Company's Senior Vice
President, Tax (Mr. John Flynn).
Section 162(m) of the Internal Revenue Code disallows deductions for
publicly-held corporations with respect to compensation in excess of
$1,000,000 paid to certain executive officers. However, compensation payable
solely on account of attainment of one or more performance goals is not
subject to this deduction limitation if:
. the performance goals are objective, pre-established and determined by a
compensation committee comprised solely of two or more outside
directors,
. the material terms of the performance goals under which the compensation
is to be paid are disclosed to the shareholders and approved by a
majority vote, and
. the compensation committee certifies that the performance goals and
other material terms were in fact satisfied before the compensation is
paid.
The purpose of seeking shareholder approval of the incentive compensation
award for the Senior Vice President, Tax, is to meet the requirements of
Section 162(m). We recommend that you vote "FOR" this proposal.
Vote Required. To be approved, this matter must receive the affirmative vote
of a majority of the shares present (in person or by proxy) at the meeting and
entitled to vote on such matter. Broker nonvotes will not be counted as
present and shall not be entitled to vote on this proposal.
Performance Goals. On September 20, 2001, the Company's Compensation and
Stock Option Committee established performance goals for the Senior Vice
President, Tax's, fiscal 2002 incentive compensation award and the maximum
amount payable to the Senior Vice President, Tax, if the goal is achieved. The
performance goals and maximum amount payable for fiscal 2002 are as follows:
1. If the Company engages in an extraordinary transaction (e.g., purchase
or sale of assets not in the ordinary course, including, without
limitation, through a public offering or private placement of
securities) during fiscal 2002, the Senior Vice President, Tax, may
receive up to 1 percent of the total value of the transaction.
2. Notwithstanding the foregoing, the payment of incentive compensation in
connection with extraordinary transactions is restricted as follows:
. There shall be no cash incentive compensation awards on acquisitions
by the Company;
. There shall be no incentive compensation awards in connection with
the Company's issuance of any debt securities (bonds, credit
agreements, etc.); and
. There shall be no incentive compensation awards in connection with
raising of equity through investment bankers.
The Compensation and Stock Option Committee retains the right to determine
the actual amount of incentive compensation to be awarded to the Senior Vice
President, Tax, in fiscal 2002 based on his individual contribution,
consistent with the foregoing goal and in an amount no greater than the
maximum amount set forth above.
Assuming the shareholders approve the material terms of the performance goal
as described herein, the Company believes that any such incentive compensation
award to the Senior Vice President, Tax, will qualify as performance-based
compensation that will be deductible from the Company's gross income for
federal income tax purposes.
26
PROPOSAL NO. 4
APPROVAL OF PERFORMANCE GOALS AND
INCENTIVE COMPENSATION FOR THE CHIEF FINANCIAL OFFICER
At the annual meeting, you will be asked to approve one of the performance
goals established by the Compensation and Stock Option Committee with respect
to fiscal 2002 incentive compensation awards for the Company's Chief Financial
Officer (Mr. Michael Alcox).
Section 162(m) of the Internal Revenue Code disallows deductions for
publicly-held corporations with respect to compensation in excess of
$1,000,000 paid to certain executive officers. However, compensation payable
solely on account of attainment of one or more performance goals is not
subject to this deduction limitation if:
. the performance goals are objective, pre-established and determined by a
compensation committee comprised solely of two or more outside
directors,
. the material terms of the performance goals under which the compensation
is to be paid are disclosed to the shareholders and approved by a
majority vote, and
. the compensation committee certifies that the performance goals and
other material terms were in fact satisfied before the compensation is
paid.
The purpose of seeking shareholder approval of the incentive compensation
award for the Chief Financial Officer is to meet the requirements of Section
162(m). We recommend that you vote "FOR" this proposal.
Vote Required. To be approved, this matter must receive the affirmative vote
of a majority of the shares present (in person or by proxy) at the meeting and
entitled to vote on such matter. Broker nonvotes will not be counted as
present and shall not be entitled to vote on this proposal.
Performance Goals. On September 20, 2001, the Company's Compensation and
Stock Option Committee established performance goals for the Chief Financial
Officer's fiscal 2002 incentive compensation award and the maximum amount
payable to the Chief Financial Officer if the goal is achieved. The
performance goals and maximum amount payable for fiscal 2002 are as follows:
1. If the Company engages in an extraordinary transaction (e.g., purchase
or sale of assets not in the ordinary course, including, without
limitation, through a public offering or private placement of
securities) during fiscal 2002, the Chief Financial Officer may receive
up to 1/2 of 1 percent of the total value of the transaction.
2. Notwithstanding the foregoing, the payment of incentive compensation in
connection with extraordinary transactions is restricted as follows:
. There shall be no cash incentive compensation awards on acquisitions
by the Company;
. There shall be no incentive compensation awards in connection with
the Company's issuance of any debt securities (bonds, credit
agreements, etc.); and
. There shall be no incentive compensation awards in connection with
raising of equity through investment bankers.
The Compensation and Stock Option Committee retains the right to determine
the actual amount of incentive compensation to be awarded to the Chief
Financial Officer in fiscal 2002 based on his individual contribution,
consistent with the foregoing goal and in an amount no greater than the
maximum amount set forth above.
Assuming the shareholders approve the material terms of the performance goal
as described herein, the Company believes that any such incentive compensation
award to the Chief Financial Officer will qualify as performance-based
compensation that will be deductible from the Company's gross income for
federal income tax purposes.
27
PROPOSAL NO. 5
APPROVAL OF PERFORMANCE GOALS AND INCENTIVE COMPENSATION
FOR THE EXECUTIVE VICE PRESIDENT
At the annual meeting, you will be asked to approve one of the performance
goals established by the Compensation and Stock Option Committee with respect
to fiscal 2002 incentive compensation awards for the Company's Executive Vice
President (Mr. Donald Miller).
Section 162(m) of the Internal Revenue Code disallows deductions for
publicly-held corporations with respect to compensation in excess of
$1,000,000 paid to certain executive officers. However, compensation payable
solely on account of attainment of one or more performance goals is not
subject to this deduction limitation if:
. the performance goals are objective, pre-established and determined by a
compensation committee comprised solely of two or more outside
directors,
. the material terms of the performance goals under which the compensation
is to be paid are disclosed to the shareholders and approved by a
majority vote, and
. the compensation committee certifies that the performance goals and
other material terms were in fact satisfied before the compensation is
paid.
The purpose of seeking shareholder approval of the incentive compensation
award for the Executive Vice President is to meet the requirements of Section
162(m). We recommend that you vote "FOR" this proposal.
Vote Required. To be approved, this matter must receive the affirmative vote
of a majority of the shares present (in person or by proxy) at the meeting and
entitled to vote on such matter. Broker nonvotes will not be counted as
present and shall not be entitled to vote on this proposal.
Performance Goals. On September 20, 2001, the Company's Compensation and
Stock Option Committee established performance goals for the Executive Vice
President's fiscal 2002 incentive compensation award and the maximum amount
payable to the Executive Vice President if the goal is achieved. The
performance goals and maximum amount payable for fiscal 2002 are as follows:
1. If the Company engages in an extraordinary transaction (e.g., purchase
or sale of assets not in the ordinary course, including, without
limitation, through a public offering or private placement of
securities) during fiscal 2002, the Executive Vice President may receive
up to 1 percent of the total value of the transaction.
2. Notwithstanding the foregoing, the payment of incentive compensation in
connection with extraordinary transactions is restricted as follows:
. There shall be no cash incentive compensation awards on acquisitions
by the Company;
. There shall be no incentive compensation awards in connection with
the Company's issuance of any debt securities (bonds, credit
agreements, etc.); and
. There shall be no incentive compensation awards in connection with
raising of equity through investment bankers.
The Compensation and Stock Option Committee retains the right to determine
the actual amount of incentive compensation to be awarded to the Executive
Vice President in fiscal 2002 based on his individual contribution, consistent
with the foregoing goal and in an amount no greater than the maximum amount
set forth above.
Assuming the shareholders approve the material terms of the performance goal
as described herein, the Company believes that any such incentive compensation
award to the Executive Vice President will qualify as performance-based
compensation that will be deductible from the Company's gross income for
federal income tax purposes.
28
PROPOSAL NO. 6
APPROVAL OF
PERFORMANCE GOALS AND
INCENTIVE COMPENSATION FOR
THE PRESIDENT
At the annual meeting, you will be asked to approve the material terms of
the performance goals established by the Compensation and Stock Option
Committee with respect to fiscal 2002 incentive compensation awards for the
Company's President (Dr. Eric Steiner).
Section 162(m) of the Internal Revenue Code disallows deductions for
publicly-held corporations with respect to compensation in excess of
$1,000,000 paid to certain executive officers. However, compensation payable
solely on account of attainment of one or more performance goals is not
subject to this deduction limitation if:
. the performance goals are objective, pre-established and determined by a
compensation committee comprised solely of two or more outside
directors,
. the material terms of the performance goals under which the compensation
is to be paid are disclosed to the shareholders and approved by a
majority vote, and
. the compensation committee certifies that the performance goals and
other material terms were in fact satisfied before the compensation is
paid.
The purpose of seeking shareholder approval of the President's incentive
compensation award is to meet the requirements of Section 162(m). We recommend
that you vote "FOR" this proposal.
Vote Required. To be approved, this matter must receive the affirmative vote
of a majority of the shares present (in person or by proxy) at the meeting and
entitled to vote on such matter. Broker nonvotes will not be counted as
present and shall not be entitled to vote on this proposal.
Performance Goals. On September 20, 2001, the Company's Compensation and
Stock Option Committee established performance goals for the President's
fiscal 2002 incentive compensation award and the maximum amount payable to the
President if the goal is achieved. The performance goals and maximum amount
payable for fiscal 2002 are as follows:
1. If the Earnings before Interest, Taxes, Depreciation and Amortization
(EBITDA) of Fairchild Fasteners in Fiscal 2002, as computed in the same
manner as under the Company's Credit Agreement in effect as of July 1,
2001, is more or less than Fairchild Fasteners planned EBITDA
("Fairchild Fasteners Target EBITDA") as submitted to the Board of
Directors of the Company on September 20, 2001, then the President may
receive an incentive compensation award in accordance with the following
table:
Percentage of
Fairchild Fasteners
Target EBITDA Percentage of Base Salary
------------------- -------------------------
Less than 80% 0%
80% or more, but less
than 90% 35%
90% or more, but less
than 95% 50%
95% or more, but less
than 100% 65%
100% or more, but less
than 105% 80%
105% or more, but less
than 110% 100%
110% or more 125%
2. If the Company engages in an extraordinary transaction (e.g., purchase
or sale of assets not in the ordinary course, including, without
limitation, through a public offering or private placement of
securities) during fiscal 2002, the President may receive up to two
percent (2%) of the total value of the transaction.
29
3. Notwithstanding the foregoing, the payment of incentive compensation in
connection with extraordinary transactions is restricted as follows:
. There shall be no cash incentive compensation awards on acquisitions
by the Company;
. There shall be no incentive compensation awards in connection with
the Company's issuance of any debt securities (bonds, credit
agreements, etc.); and
. There shall be no incentive compensation awards in connection with
raising of equity through investment bankers.
All of the foregoing will be computed in such a manner as to avoid
duplication.
The Compensation and Stock Option Committee retains the right to determine
the actual amount of incentive compensation to be awarded to the President in
fiscal 2002 based on his individual contribution, consistent with the
foregoing goal and in an amount no greater than the maximum amount set forth
above.
Assuming the shareholders approve the material terms of the performance goal
as described herein, the Company believes that any such incentive compensation
award to the President will qualify as performance-based compensation that
will be deductible from the Company's gross income for federal income tax
purposes.
30
PROPOSAL NO. 7
APPROVAL OF
PERFORMANCE GOALS AND
INCENTIVE COMPENSATION FOR
THE CHIEF EXECUTIVE OFFICER
At the annual meeting, you will be asked to approve the material terms of
the performance goals established by the Compensation and Stock Option
Committee with respect to fiscal 2002 incentive compensation awards for the
Company's Chief Executive Officer (Mr. Jeffrey Steiner).
Section 162(m) of the Internal Revenue Code disallows deductions for
publicly-held corporations with respect to compensation in excess of
$1,000,000 paid to certain executive officers. However, compensation payable
solely on account of attainment of one or more performance goals is not
subject to this deduction limitation if:
. the performance goals are objective, pre-established and determined by a
compensation committee comprised solely of two or more outside
directors,
. the material terms of the performance goals under which the compensation
is to be paid are disclosed to the shareholders and approved by a
majority vote, and
. the compensation committee certifies that the performance goals and
other material terms were in fact satisfied before the compensation is
paid.
The purpose of seeking shareholder approval of the Chief Executive Officer's
incentive compensation award is to meet the requirements of Section 162(m). We
recommend that you vote "FOR" this proposal.
Vote Required. To be approved, this matter must receive the affirmative vote
of a majority of the shares present (in person or by proxy) at the meeting and
entitled to vote on such matter. Broker nonvotes will not be counted as
present and shall not be entitled to vote on this proposal.
Performance Goals. On September 20, 2001, the Company's Compensation and
Stock Option Committee established performance goals for the Chief Executive
Officer's fiscal 2002 incentive compensation award and the maximum amount
payable to the Chief Executive Officer if the goals are achieved. The
performance goals and maximum amounts payable for fiscal 2002 are as follows:
1. If the Earnings before Interest, Taxes, Depreciation and Amortization
(EBITDA) of The Fairchild Corporation in Fiscal 2002, as computed in the
same manner as under the Company's Credit Agreement in effect as of July
1, 2001, is more or less than the Company's EBITDA ("Fairchild Target
EBITDA") as submitted to the Board of Directors of the Company on
September 20, 2001, then the Chief Executive Officer may receive an
incentive compensation award based on a percentage of aggregate base
salary in accordance with the following table:
Percentage of Fairchild Target Percentage of Aggregate
EBITDA Base Salary
------------------------------ -----------------------
Less than 80% 0%
80% or more, but less than 90% 35%
90% or more, but less than 95% 50%
95% or more, but less than 100% 75%
100% or more, but less than 105% 110%
105% or more, but less than 110% 130%
110% or more 175%
2. If the Company engages in an extraordinary transaction (e.g., purchase
or sale of assets not in the ordinary course, including, without
limitation, through a public offering or private placement of
securities) during fiscal 2002, the Chief Executive Officer may receive
up to two and one-half percent (2 1/2) of the total value of the
transaction.
31
3. Notwithstanding the foregoing, the payment of incentive compensation in
connection with extraordinary transactions is restricted as follows:
. There shall be no cash incentive compensation awards on acquisitions
by the Company;
. There shall be no incentive compensation awards in connection with
the Company's issuance of any debt securities (bonds, credit
agreements, etc.); and
. There shall be no incentive compensation awards in connection with
raising of equity through investment bankers.
All of the foregoing will be computed in such a manner as to avoid
duplication.
The Compensation and Stock Option Committee retains the right to determine
the actual amount of incentive compensation to be awarded to the Chief
Executive Officer in fiscal 2002 based on his individual contribution,
consistent with the foregoing goals and in an amount no greater than the
maximum amounts set forth above.
Assuming the shareholders approve the material terms of the performance
goals as described herein, the Company believes that any such incentive
compensation award to the Chief Executive Officer will qualify as performance-
based compensation that will be deductible from the Company's gross income for
federal income tax purposes.
32
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP has served as the Company's independent auditor since
1968. No change is contemplated. Representatives of Arthur Andersen will be
available at the annual meeting to make a statement, if they so desire, and to
respond to appropriate questions.
Audit Fees
The aggregate fees billed by Arthur Andersen LLP, for professional services
rendered for the audit of the Company's annual financial statements for the
fiscal year ended June 30, 2001 and for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-Q for that
fiscal year were $610,000. More than 50% of the Fiscal 2001 audit work was
performed by full-time employees of Arthur Andersen.
Financial Information Systems Design and Implementation Fees
For the fiscal year ended June 30, 2001, there were no fees billed by Arthur
Andersen LLP for professional services relating to information technology or
financial information systems design and implementation.
All Other Fees
The aggregate fees billed by Arthur Andersen LLP, for services rendered to
the Company for the fiscal year ended June 31, 2001, other than for services
described above under "Audit Fees," were $150,000.
The Audit Committee has considered whether the provision of non-audit
services is compatible with maintaining the principal accountant's
independence.
SHAREHOLDER PROPOSALS
If you want to include a shareholder proposal in the proxy statement for the
2002 annual meeting, it must be delivered to the Company before June 12, 2002.
If you want to submit a shareholder proposal for the 2002 annual meeting but
you do not require that such proposal be included in the Company's proxy
materials, you must notify the Company of such proposal before August 26,
2002. If such notice is not received by August 26, 2002, the proposal shall be
considered untimely and shall not be presented at the 2002 annual meeting.
All shareholder proposals must conform to the requirements set forth in
Regulation 14A under the Securities Exchange Act of 1934, and should be
submitted to the Company's headquarters, 45025 Aviation Drive, Suite 400,
Dulles, VA 20166-7516, Attention: Secretary.
33
ANNUAL REPORT
The Company's Annual Report to Shareholders for the fiscal year ended June
30, 2001, was mailed to shareholders with or prior to mailing of this proxy
statement. The Company will provide free of charge to any shareholder as of
the record date who so requests in writing, a copy of the Company's annual
report on Form 10-K for fiscal 2001. Requests for such copies should be
directed to Donald E. Miller, Executive Vice President & Secretary, The
Fairchild Corporation, 45025 Aviation Drive, Suite 400, Dulles, VA 20166-7516.
By Order of the Board of Directors
Donald E. Miller
Executive Vice President & Secretary
34
Appendix 1
2001 NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN OF
THE FAIRCHILD CORPORATION
1.Purpose.
The purpose of this 2001 Non-Employee Directors Stock Option Plan (the
"Plan") is to retain qualified and competent persons to serve as members of
the board of directors (the "Board") of The Fairchild Corporation (the
"Company") by providing a means whereby such persons acquire an equity
interest in the Company thereby securing for the Company and its stockholders
the benefits inherent in such equity ownership by persons whose advice and
counsel are important to the Company's future growth and continued success.
2.Administration.
(a) The Board (excluding participation by Non-Employee Directors) shall (i)
administer the Plan, (ii) establish such rules and regulations as it
may deem appropriate for the proper administration of the Plan, and
(iii) take such actions, make such determinations and issue such
interpretations in connection with the Plan (or the Options issued
thereunder) as it may deem necessary or advisable.
(b) The Board may from time to time appoint a Committee (the "Committee"),
comprised of at least two members of the Board who are not Non-Employee
Directors, and may delegate to the Committee full power and authority
to take any and all action required or permitted to be taken by the
Board under the Plan. The Board or the Committee, as applicable, shall
hereinafter be referred to as the "Administrator."
(c) The Administrator shall have no discretion with respect to the
selection of directors to receive Awards under the Plan, the number of
shares subject to the Plan or to each Award, or the purchase price for
shares subject to Awards. The Administrator shall have no authority to
materially increase benefits under the Plan.
(d) The Administrator may establish from time to time such regulations,
provisions, and procedures within the terms of the Plan as, in its
opinion, may be advisable in the administration of the Plan.
(e) The Administrator may designate the Secretary of the Company or other
employees of the Company to assist the Administrator in the
administration of the Plan and may grant authority to such persons to
execute documents on behalf of the Administrator.
3. Stock.
The common stock (the "Common Stock") to be made the subject of Awards under
the Plan shall be the shares of Class A Common Stock of the Company, $.10 par
value per share. The total amount of Common Stock for which Awards may be
granted under the Plan shall not exceed, in the aggregate, 86,942 shares,
subject to adjustment in accordance with the provisions of Section 12 hereof.
A-1
4.Award of Options.
(a) Awards shall be granted only to the following persons ("Non-Employee
Directors"), in the amounts noted next to each person's name:
Number of Stock Options for
Name Class A Common Stock
---- ---------------------------
Melville R. Barlow: 30,000
Mortimer M. Caplin: 2,000
Philip David: 2,000
Steven L. Gerard: 3,942
Harold J. Harris: 17,000
Daniel Lebard: 30,000
Herbert S. Richey: 2,000
Such persons (at the time of Award): (i) are not employees of the Company,
and (ii) have not been employees of the Company for the past three (3) years
("Non-Employee Directors").
(b) All Awards granted under the Plan shall be non-qualified options not
entitled to special tax treatment under Section 422 of the Internal
Revenue Code of 1986, as amended (the "IRC").
(c) All Awards under this Plan shall be granted immediately after
shareholder approval of the Plan, at rates set forth in Section 5
below.
(d) Every recipient of Awards pursuant to this Plan shall be bound by the
terms and provisions of this Plan (including the restriction on
assignability of options set forth in Section 8 below); and, the
acceptance of options pursuant to this Plan shall constitute a binding
agreement between the recipient and the Company.
5.Number of Shares to Be Granted.
Each person who is a Non-Employee Director of the Company at the time of
adoption of the Plan by the stockholders shall be granted stock options (the
"Awards" or "Options") at the rates set forth in Section 4 above (next to each
person's name).
6.Price.
The exercise price of each Option shall be the closing price of the Common
Stock on the New York Stock Exchange (the "NYSE") on the date the stockholders
approve the Plan.
The closing price of the Common Stock, as of any particular day, shall be as
reported by the NYSE; provided, however, that if the Common Stock is not
listed on the NYSE on the date the option price is to be determined, the
option price shall be the last price reported by the NYSE prior to the option
date.
7. Vesting Schedule.
Each Award under the Plan will contain the following vesting schedule: (i)
after one year from the date of grant, the holder may exercise up to 25% of
the Options covered by the Award; (ii) after two years from the date of grant,
the holder may exercise up to 50% of the Options covered by the Award; (iii)
after three years from the date of grant, the holder may exercise up to 75% of
the Options covered by the award; and (iv) after four years from the date of
grant, the holder may exercise up to 100% of the Options covered by the Award.
All Options will expire ten years after the date of grant of the Award.
A-2
8. Transferability.
No Option may be transferable by a holder other than by will or the laws of
descent and distribution. During the lifetime of a holder, the Option may be
exercisable only by such holder. A holder who acquires Common Stock hereunder
may only transfer such Common Stock in compliance with applicable federal and
state securities laws.
9. Termination of Directorship.
If, on or after the date the Awards are granted, a holder ceases to serve as
a director of the Company for any reason other than death or disability
(including: (i) resignation, (ii) removal as a director of the Company by the
stockholders of the Company, with or without cause, or (iii) a holder's
decision not to stand for reelection at the next shareholders meeting), the
holder shall have the right to exercise any remaining Options under the
holder's Award (to the extent such Options shall have vested prior to
resignation, removal or other termination) on the earlier of: (a) three months
after such resignation, removal or other termination, or (b) the expiration
date of the Award. Thereafter, the Award and all Options thereunder shall be
deemed to have expired.
10.Death or Disability.
If, on or after the date the Awards are granted, a holder ceases to serve as
a director of the Company due to death or disability, the holder (or the
personal representative of the holder or the person or persons to whom the
Options shall have been transferred by will or by the laws of decent and
distribution), shall have the right to exercise any remaining Options under
the holder's Award (to the extent such Options shall have vested prior to
death or disability) on the earlier of: (a) one year after termination due to
death or disability, or (b) the expiration date of the Award. Thereafter, the
Award and all Options thereunder shall be deemed to have expired.
11.Payment for Stock.
(a) The purchase price of Common Stock issued upon exercise of options
granted hereunder shall be paid in full on the date of purchase.
Payment shall be made either in cash or such other consideration as the
Administrator deems appropriate, including, without limitation, Common
Stock already owned by the holder or Common Stock to be acquired by the
holder upon exercise of the option having a total fair market value, as
determined by the Administrator, equal to the purchase price, or a
combination of cash and Common Stock having a total fair market value,
as so determined, equal to the purchase price.
(b) Common Stock shall not be issued upon the exercise of options unless
and until the aggregate amount of federal, state or local taxes of any
kind required by law to be withheld, if any, with respect to the
exercise of such options have been paid or satisfied or provision for
their payment and satisfaction has been made upon such terms as the
Administrator may prescribe, including, without limitation, payment of
any such taxes by exchanging shares of Common Stock previously owned by
the holder or acquired upon the exercise of an option.
12.Stock Adjustments.
(a) The total amount of Common Stock for which options shall be granted
under the Plan and option terms (both as to the number of shares of
Common Stock and the price of the option) shall be appropriately
adjusted for any increase or decrease in the number of outstanding
shares of Common Stock resulting from payment of a Common Stock
dividend on the Common Stock, a subdivision or combination of the
Common Stock, or a reclassification of the Common Stock, and (in
accordance with the provisions contained in the following paragraph) in
the event of a consolidation or a merger in which the Company will be
the surviving corporation.
A-3
(b) After the merger of one or more corporations into the Company in which
the Company shall be the surviving corporation, or after any
consolidation of the Company and one or more other corporations, each
holder shall, at no additional cost, be entitled, upon any exercise of
his option, to receive, in lieu of the number of shares of Common Stock
as to which such option shall then be so exercised, the number and
class of shares of Common Stock or other securities to which such
holder would have been entitled pursuant to the terms of the applicable
agreement of merger or consolidation if at the time of such merger or
consolidation such holder had been a holder of record of a number of
shares of Common Stock equal to the number of shares for which such
option may then be so exercised. Comparable rights shall accrue to each
holder in the event of successive mergers or consolidations of the
character described above.
(c) In the event of any sale of all or substantially all of the assets of
the Company, or any merger of the Company into another corporation, or
any dissolution or liquidation of the Company or, in the discretion of
the Board, any consolidation or other reorganization in which it is
impossible or impracticable to continue in effect any options, all
options granted under the Plan (and not previously exercised) shall
immediately vest and shall terminate unless exercised at least one
business day before the scheduled closing of such event; provided that
any such vesting, exercise or termination shall be conditioned on the
closing of such transaction; and provided further that the Board may in
its discretion, require instead that all options granted under the Plan
and not previously exercised shall be assumed by such other corporation
on the basis provided in the preceding paragraph to the extent possible
or practical.
(d) The adjustments described in this Section 12 and the manner of
application of the foregoing provisions shall be determined by the
Board in its sole discretion. Any such adjustment may provide for the
elimination of any fractional share which might otherwise become
subject to an option.
13.Rights as a Stockholder.
A holder or a transferee of an Option shall have no rights as a stockholder
with respect to any share of Common Stock covered by such holder's Option
until such holder has become the holder of record of such share of Common
Stock, and, except for stock dividends as provided in Section 12 hereof, no
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights in
respect of such share for which the record date is prior to the date on which
he or she shall become the holder of record thereof.
14.Amendment and Termination.
The Board may at any time terminate, amend or modify the Plan in any respect
it deems suitable; provided, however, that no such action of the Board,
without the approval of the stockholders of the Company, may: (i) increase the
total amount of Common Stock on which Options may be granted under the Plan,
(ii) change the manner of determining the option price, (iii) change the class
of individuals eligible to receive Awards, (iv) change the number of Options
which may be granted to each director, (v) change the times when such Options
are granted, or (vi) materially increase the benefits under the Plan; provided
further that no amendment, modification or termination of the Plan may in any
manner affect any Option theretofore granted under the Plan without the
consent of the then holder. Notwithstanding the foregoing, the Plan may not be
amended more than once in any six-month period except to comply with changes
in the IRC, the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any rules or regulations promulgated under either the IRC or
ERISA.
A-4
15.Investment Purpose.
At the time of exercise of any option, the Company may, if it shall deem it
necessary or desirable for any reason, require the holder to (i) in the
absence of an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), represent in writing to the Company
that it is such holder's then intention to acquire the Common Stock for
investment and not with a view to the distribution thereof, or (ii) postpone
the date of exercise until such time as the Company has available for delivery
to the holder a prospectus meeting the requirements of all applicable
securities laws.
16.Right to Remove Director.
Nothing contained herein or in any Award shall restrict the right of the
stockholders of the Company to remove any holder as director at any time, with
or without cause, or shall constitute or be evidence of any agreement or
understanding, express or implied, that the Company shall retain a director
for any period of time, or at any particular rate of compensation.
17.Finality of Determinations.
Each determination, interpretation, or other action made or taken pursuant
to the provisions of the Plan by the Administrator shall be final and be
binding and conclusive for all purposes.
18.Indemnification of Directors.
Each director of the Company, solely in his or her capacity as a director,
shall be indemnified by the Company against all costs and expenses reasonably
incurred by such director in connection with any action, suit or proceeding to
which he or she or any of the other directors may be a party by reason of any
action taken or failure to act under or in connection with the Plan, or any
Award thereunder, and against all amounts paid in settlement thereof (provided
such settlement shall be approved by independent legal counsel) or paid in
satisfaction of a judgment in any such action, suit or proceeding, to the
extent permitted by Delaware law. Upon the institution of any such action,
suit or proceeding, a director of the Company shall notify the Company in
writing, giving the Company an opportunity, at its own expense, to handle and
defend the same before such director undertakes to handle it on his or her own
behalf.
19.Governing Law.
The Plan shall be governed by the laws of the State of Delaware.
20.Effective Date.
The Plan shall become effective upon the date of its adoption by the Board
(September 20, 2001), subject to approval by the stockholders of the Company
at the Annual Meeting to be held on November 13, 2001. If the Plan is approved
by the stockholders at such Annual Meeting, Initial Stock Awards (as defined
in Section 5 of the Plan) shall be issued as of such Annual Meeting date, with
the exercise price determined as of such date and the expiration date for such
options being ten years from such date. If the Plan is not approved by the
stockholders at such Annual Meeting, the Plan shall be null and void.
21.Override.
All transactions under the Plan are intended to comply with applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of the Plan or any action by the Administrator fails to
so comply, it shall be deemed null and void, to the extent permitted by law
and as deemed advisable by the Administrator.
A-5
22.DEFERRAL OF COMPENSATION
22.1Defined Terms.
22.1.1 "Award" means an award of stock options to a Non-Employee
Director under this Plan.
22.1.2 "Committee" means the full Board of Directors (excluding the
participation of Non-Employee Directors) or a committee of two
or more Directors (excluding Non-Employee Directors).
22.1.3 "Deferral Date" means, in connection with any Deferred
Compensation Unit, the date on which any deferred compensation
with respect thereto would have been paid if no deferral
election had been made.
22.1.4 "Deferred Compensation Plan" means the Company's Stock Option
Deferral Plan dated February 9, 1998 (as amended from time to
time). Generally, participation in the Deferred Compensation
Plan is limited to Executive Officers and Directors who are
deemed "Accredited Investors" for purposes of Federal Securities
Laws.
22.1.5 "Deferred Compensation Units" means the right of a Non-Employee
Director to receive distributions of deferred compensation
pursuant to the Deferred Compensation Plan in the form of
Shares, determined in accordance with the terms of this Plan and
the Deferred Compensation Plan, and based on the Fair Market
Value of Shares on the Deferral Date.
22.1.6 "Dividend Equivalents" means the right of a Non-Employee
Director to receive Shares equal to:
(i) the per Share cash dividends declared by the Company from
time to time,
(ii) multiplied by the number of Deferred Compensation Units
credited to the account of the Non-Employee Director as of
each applicable dividend record date,
(iii) divided by the Fair Market Value on the related dividend
payment date.
22.1.7 "Fair Market Value" means with respect to the Company's Shares
the closing price of the Shares as of the date on which the
value is to be determined, as reported on the New York Stock
Exchange or such other source of quotation for, or reports of,
trading activity in Shares as the Committee may from time to
time select.
22.1.8 "Shares" means shares of the Company's Class A Common Stock.
22.2Deferred Compensation Units
22.2.1 Granting of Deferred Compensation Units: To the extent elected
by any Non-Employee Director and permitted by the Deferred
Compensation Plan, the Committee may award Deferred Compensation
Units to any Non-Employee Director in lieu of all or any portion
of the gain that would otherwise be recognized by such Non-
Employee Director upon exercise of a stock option. All Deferred
Compensation Units shall be subject to the terms of this Plan
and the Deferred Compensation Plan.
22.2.2 Effect of Grants: The number of Shares distributable to Non-
Employee Directors pursuant to each Deferred Compensation Unit
shall be charged against the maximum number of Shares of Common
Stock that may be issued under this Plan
A-6
at any time. The number of Shares distributable to Non-Employee
Directors pursuant to Dividend Equivalents shall not be charged
against the number of Shares issuable under this Plan.
22.2.3 Accounting; Fractional Units:
(a) The number of Deferred Compensation Units credited to the
account of any Non-Employee Director shall be rounded to the
nearest one-thousandth of a Unit. The account to which
Deferred Compensation Units are credited shall be an
unsecured general obligation of the Company. The Company will
maintain records of the number of Deferred Compensation Units
for the account of each Non-Employee Director, in part, to
prevent an issuance of shares of Common Stock in excess of
the authorized shares.
(b) Notwithstanding paragraph (a) above, upon distribution of any
Shares represented by Deferred Compensation Units, the number
of shares shall be rounded downward to the nearest whole share
and no fractional shares shall be issued. Fractional Units
remaining after the final distribution to any Non-Employee
Director shall be cancelled without obligation to the Non-
Employee Director.
22.2.4 Exercise of Rights Under Awards: Shares used to pay the purchase
price on the exercise of Awards subject to the Deferred
Compensation Plan, shall have been held by the Non-Employee
Director for a period of not less than six months (or such
longer period as may be required under the terms of the Award).
A-7
The Fairchild Corporation
This proxy is solicited on behalf of the Board of Directors of The
Fairchild Corporation.
The undersigned hereby appoints Jeffrey J. Steiner, John L. Flynn and
Donald E. Miller as proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of Class A Common Stock, par value $.10 per share, and Class B Common
Stock, par value $.10 per share, of The Fairchild Corporation held of record by
the undersigned on October 1, 2001, at the Annual Meeting of Stockholders to be
held on Tuesday, November 13, 2001, at 10:00 a.m. (local time) and at any
adjournments or postponements thereof.
"Please Mark Inside Boxes so that Data Processing Equipment will Record Your
Votes."
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY.
(Continued and to be signed on the reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ALL LISTED NOMINEES, AND FOR APPROVAL OF THE OTHER PROPOSALS:
1. ELECTION OF DIRECTORS
// FOR all listed nominees // WITHHELD for all.
(except as marked to the contrary
below).
Melville R. Barlow, Mortimer M. Caplin, Philip David, Robert E. Edwards, Steven
L. Gerard, Harold J. Harris, Daniel Lebard, Herbert S. Richey, Eric I. Steiner,
and Jeffrey J. Steiner.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
-----------------------------
2. TO APPROVE THE ISSUANCE OF 86,942 STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS;
//FOR //AGAINST //ABSTAIN
3. TO APPROVE ONE OF THE PERFORMANCE GOALS AND INCENTIVE COMPENSATION FOR THE
SENIOR VICE PRESIDENT, TAX;
//FOR //AGAINST //ABSTAIN
4. TO APPROVE ONE OF THE PERFORMANCE GOALS AND INCENTIVE COMPENSATION FOR THE
CHIEF FINANCIAL OFFICER;
//FOR //AGAINST //ABSTAIN
5. TO APPROVE ONE OF THE PERFORMANCE GOALS AND INCENTIVE COMPENSATION FOR THE
EXECUTIVE VICE PRESIDENT;
//FOR //AGAINST //ABSTAIN
6. TO APPROVE THE PERFORMANCE GOALS AND INCENTIVE COMPENSATION FOR THE
PRESIDENT;
//FOR //AGAINST //ABSTAIN
7. TO APPROVE THE PERFORMANCE GOALS AND INCENTIVE COMPENSATION FOR THE CHIEF
EXECUTIVE OFFICER;
//FOR //AGAINST //ABSTAIN
8. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Please sign exactly as name(s) appear hereon.
When signing as attorney, executor, administrator,
trustee, guardian or corporate officer, please give
full title as such.
Date _________________________
_________________________
Signature(s)
THE FAIRCHILD CORPORATION
SAVINGS PLAN FOR EMPLOYEES OF
THE FAIRCHILD CORPORATION
VOTING INSTRUCTIONS TO TRUSTEE
These voting instructions are solicited on behalf of the Board of Directors of
The Fairchild Corporation.
To the Trustee:
In accordance with the provisions of the Savings Plan for Employees of The
Fairchild Corporation, I hereby instruct you, as Trustee, to vote or cause to be
voted at the Annual Meeting of Stockholders of The Fairchild Corporation to be
held on November 13, 2001, and any adjournments thereof, all shares of The
Fairchild Corporation standing to my credit in the Master Trust covering the
foregoing Plan in which I may be a participant and which I am entitled to vote
at such meeting as follows:
The shares represented by this proxy will be voted as directed by the
stockholder. If no direction is given by 10:00 a.m. (EST) November 6, 2001,
this proxy will be voted in the same percentage as shares held by participants
for which the Trustee has received timely voting instructions. The Trustee will
hold your voting directions in strict confidence. The Proxy may vote in its
discretion upon any other matters properly coming before the Annual Meeting and
any adjournments thereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY
(Continued on the reverse side)
Please sign exactly as name(s) appear hereon.
When signing as attorney, executor, administrator,
trustee, guardian or corporate officer, please give
full title as such.
Date ______________________, 2001
____________________________
____________________________
Signature(s)
"Please Mark Inside Boxes so that Data Processing Equipment will Record Your
Votes."
1. ELECTION OF DIRECTORS
// FOR all listed nominees // WITHHELD for all.
(except as marked to the contrary
below).
Melville R. Barlow, Mortimer M. Caplin, Philip David, Robert E. Edwards, Steven
L. Gerard, Harold J. Harris, Daniel Lebard, Herbert S. Richey, Eric I. Steiner,
and Jeffrey J. Steiner.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
-------------------------------
2. TO APPROVE THE ISSUANCE OF 86,942 STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS;
//FOR //AGAINST //ABSTAIN
3. TO APPROVE ONE OF THE PERFORMANCE GOALS AND INCENTIVE COMPENSATION FOR THE
SENIOR VICE PRESIDENT, TAX;
//FOR //AGAINST //ABSTAIN
4. TO APPROVE ONE OF THE PERFORMANCE GOALS AND INCENTIVE COMPENSATION FOR THE
CHIEF FINANCIAL OFFICER;
//FOR //AGAINST //ABSTAIN
5. TO APPROVE ONE OF THE PERFORMANCE GOALS AND INCENTIVE COMPENSATION FOR THE
EXECUTIVE VICE PRESIDENT;
//FOR //AGAINST //ABSTAIN
6. TO APPROVE THE PERFORMANCE GOALS AND INCENTIVE COMPENSATION FOR THE
PRESIDENT;
//FOR //AGAINST //ABSTAIN
7. TO APPROVE THE PERFORMANCE GOALS AND INCENTIVE COMPENSATION FOR THE CHIEF
EXECUTIVE OFFICER;
//FOR //AGAINST //ABSTAIN
8. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.