The Fairchild Corporation
300 West Service Road
Chantilly, VA 22021
November 13, 1995
Cincinnati Milacron Inc.
4701 Marburg Avenue
Cincinnati, Ohio 45209
Ladies and Gentlemen:
This letter sets forth the basic terms and conditions of a
transaction (the "Transaction") between The Fairchild Corporation ("TFC")
and Cincinnati Milacron Inc. ("CM"), pursuant to which CM would acquire the
DME portion of TFC's industrial products business as described in TFC's
Form 10-K for the year ended June 30, 1995 (the "Business") in exchange for
aggregate consideration of $260 million, subject to a dollar for dollar
adjustment upward or downward based upon changes in net tangible assets as
of June 30, 1995, as reflected on the June 30, 1995 balance sheet attached
hereto as Annex A, compared to the net tangible assets as of the closing
date, as reflected on an audited closing date balance sheet. CM will not
assume any debt (short-term borrowings, cash overdrafts, long-term debt,
current and long-term deferred income taxes and capitalized lease
obligations except for up to $100,000 in the aggegate), and the net
tangible asset calculation as of the closing date will be calculated on the
same basis as is set forth on Annex A and will exclude debt (as defined
above) as well as cash and cash equivalents and goodwill.
The U.S. operations of the Business will be transferred to CM in
exchange for CM's note or notes, due not later than one year after
issuance, which note(s) will be secured by the assets of the Business, not
including assets paid for at the closing date in cash by CM (the "Secured
Note(s)"), will bear interest at the rate of 8% per annum, will be
repayable at the option of the holder thereof (upon 30 days notice to CM)
at any time on and after the 180th day after the issuance thereof and will
have such other terms and provisions as are satisfactory to TFC, CM and
their respective creditors. The non-U.S. operations of the Business will
be transferred to CM on a basis satisfactory to TFC, CM and their
respective creditors. It is anticipated that the Secured Note(s) (as well
as any related
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security interests) will be pledged to secure obligations of TFC and its
subsidiaries including, but not limited to, obligations outstanding under a
bank facility.
Consummation of the Transaction is subject to the negotiation and
execution of mutually acceptable documentation including, without
limitation, an asset purchase agreement, the Secured Note(s) and
documentation relating to the transfer of the non-U.S. operations
(collectively, the "Definitive Documentation"). It is understood that the
Definitive Documentation will include (i) representations and warranties
and indemnities by TFC and CM relating to breaches of representations and
warranties, (ii) customary conditions to closing (including receipt of
requisite governmental and third party consents and approvals) and
(iii) other customary provisions, in each case in form and substance
satisfactory to TFC and CM. The allocation of the aggregate consideration
among the various assets will be provided for in the Definitive
Documentation.
The execution of the Definitive Documentation by CM shall be
subject to reasonably satisfactory completion by CM of its due diligence
investigation, approval of its board of directors, negotiation of
satisfactory arrangements (including any necessary approvals, waivers and
consents) with its bank lenders and parties to CM's receivables purchase
program and negotiation of satisfactory permanent financing (to be based
upon the credit of CM and not solely upon DME assets) for the Transaction.
The execution of the Definitive Documentation by TFC shall be
subject to the negotiation of satisfactory arrangements (including any
necessary approvals, waivers and consents) with (i) its bank lenders,
(ii) holders of a majority of the outstanding principal amount of Fairchild
Industries Inc.'s 12<% Senior Secured Notes Due 1999 and (iii) if required
by law or the relevant indenture, the requisite holders of other
publicly-traded indebtedness of TFC and its subsidiaries and TFC
shareholders representing a majority of the total votes of all TFC
shareholders.
The parties intend to use reasonable efforts to work together on
an expedited basis to execute the Definitive Documentation (to be drafted
by counsel for CM) and to consummate the Transaction as soon as reasonably
practicable and in any case by January 15, 1996, or as soon as reasonably
practicable thereafter if TFC requires the approval of its shareholders or
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the holders of its or its subsidiaries' publicly-traded indebtedness.
The parties agree that upon the execution of this letter a press
release in the form of Annex B attached hereto will be issued and any other
press release or other communication with the public relating to the
Transaction shall be subject to the prior approval of each of TFC and CM,
except as may be required by law or applicable stock exchange rules and
regulations. A party so required to make a public announcement will afford
the other party an opportunity to comment on the text of the announcement.
Subject to the terms of confidentiality agreed upon by the
parties in a separate confidentiality agreement, TFC will provide CM with
reasonable access to the assets, premises, employees, books, records and
technology of the Business so that CM can conduct its due diligence
commencing upon the execution of this letter.
As promptly as possible following the execution of this letter
both TFC and CM will file premerger notification forms in accordance with
U.S. antitrust requirements, and comparable requirements in other
jurisdictions, and will cooperate with each other in connection with such
filings and any requests for additional information.
TFC will not negotiate with, provide information to or solicit or
accept offers from any other person regarding the sale of the Business or
any material portion thereof (and will notify CM of any solicitation
received by it) prior to January 15, 1996, or such later date as provided
above if TFC requires the approval of its shareholders or the holders of
its or its subsidiaries' publicly-traded indebtedness. Until such date TFC
will cause the Business to be conducted only in the ordinary course and
will consult with CM before taking any major decisions affecting the
Business.
Each party will pay its own expenses in connection with the
Transaction, whether or not it is consummated or Definitive Documentation
is executed.
This letter shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflicts
of law.
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Please confirm that this letter reflects our mutual
understandings by signing a counterpart and returning it to us.
Very truly yours,
THE FAIRCHILD CORPORATION
By: /s/ Jeffrey J. Steiner
Name: Jeffrey J. Steiner
Title: Chief Executive
Officer
Accepted:
November 13, 1995
CINCINNATI MILACRON, INC.
By: /s/ Daniel J. Meyer
Name: Daniel J. Meyer
Title: Chief Executive
Officer
ANNEX A
D-M-E COMPANY
COMBINED BALANCE SHEETS
(in thousands of dollars)
NET
____June 30,____ TANGIBLE
ASSETS 1994 1995 ADJ ASSETS__
CURRENT ASSETS:
Cash and equivalents............... $ 1,614 $ 2,253 (2,253) ---
Trade accounts receivable,
less allowance for doubtful
accounts of $1,116 and $1,348.... 24,672 25,499 25,499
Inventories........................ 20,603 24,056 24,056
Prepaid expenses and other......... 708 835 _______ 835
Total Current Assets 47,597 52,643 (2,253) 50,390
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment...... 56,604 60,184 60,184
Less accumulated depreciation...... (18,287) (22,998) (22,998)
Total Propery, Plant
and Equipment 38,317 37,186 37,186
GOODWILL, less amortization
of $8,023 and $9,660............... 57,301 55,664 (55,664) ---
OTHER ASSETS......................... 14,069 14,079 _______ 14,079
$157,284 $159,572 (57,917) 101,655
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term borrowings.............. $ 232 $ 2,259 (2,259) ---
Cash overdrafts.................... 3,431 3,357 (3,357) ---
Trade accounts payable............. 8,977 7,965 7,965
Accrued salaries, wages and
commissions...................... 4,409 4,844 4,844
Accrued employee benefit
plan costs....................... 2,471 1,965 1,965
Other accrued liabilities.......... 4,132 5,497 (120) 5,377
Deferred income taxes.............. 1,430 870 (870) ____---
Total Current Liabilities 25,082 26,757 (6,606) 20,151
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NET
____June 30,____ TANGIBLE
1994 1995 ADJ ASSETS__
LONG-TERM LIABILITIES:
Retiree health care liabilities.... 7,982 7,718 7,718
Deferred income taxes.............. 8,325 8,091 (8,091) ---
Minority interest in
subsidiaries..................... 260 416 416
Other.............................. 121 - ________ ________
Total Long-Term Liabilities 16,688 16,225 (8,091) 8,134
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Fairchild investment............... 113,040 111,727
Cumulative translation adjustment.. 2,474 4,863 ________ ________
Total Stockholder's Equity 115,514 116,590 (43,220) 73,370
$157,284 $159,572 (57,917) 101,655
The accompanying notes are an integral part of these statements.
For Release: Immediately (Monday, November 13, 1995)
Contact: Albert Beaupre Donald E. Miller
Cincinnati Milacron The Fairchild Corporation
(513) 841-7241 (703) 478-5945
Cincinnati Milacron to Buy Fairchild's D-M-E Business
_______________________
Mold Equipment Maker Complements Plastics Machinery
Operation
CINCINNATI, OH, November 13, 1995 -- Cincinnati Milacron Inc. (NYSE: CMZ)
and The Fairchild Corporation (NYSE: FA) today jointly announced a
preliminary agreement under which Milacron will purchase the assets of
Fairchild's D-M-E business, the largest U.S. mold equipment supplier, for
approximately $260 million. The transaction, subject to definitive
documentation, due diligence and certain other conditions, is expected to
close in early 1996.
With annual sales of about $175 million, D-M-E is one of the world's
leading producers of standard components and supplies for the plastics
injection mold-making industry and it serves the compression molding and
metal die-cast industries as well. D-M-E has seven major manufacturing
facilities in the U.S., two in Europe, and joint-venture operations in
Canada, Mexico, India and Japan. The company has 20,000 customers in 70
countries and employs 1,000 people worldwide.
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"Additive To Earnings"
"We're paying a fair price for a highly profitable operation with a strong
management team," said Daniel J. Meyer, Milacron's chairman and chief
executive officer. "D-M-E complements our current businesses very well and
we expect it to be additive to earnings right from the start."
"With this acquisition, our plastics machinery group sales should approach
$800 million in 1996, while Milacron's consolidated revenues are expected
to reach $1.9 billion," Meyer said. "And D-M-E is a business that -- in
contrast to machinery -- has less severe cycles, faces limited import
competition, and historically has excellent cash flow," he added.
Jeffrey J. Steiner, Fairchild's chairman, chief executive officer and
president, stated: "This sale of D-M-E's assets -- combined with the $275
million-plus agreement to merge Fairchild's telecommunications services
unit into Shared Technologies Inc. announced last Thursday -- brings
tremendous near-term and long-term value to The Fairchild Corporation and
our shareholders. These transactions very substantially strengthen The
Fairchild Corporation's liquidity, allowing the company full flexibility to
pursue significant debt reduction, major new investment opportunities, or
both."
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Financing
Initial financing of the acquisition will come from a combination of a
Cincinnati Milacron short-term note to Fairchild and cash on hand.
Eventually, Milacron anticipates structuring longer-term financing, which
might include some form of equity. "The long-term financing options we are
considering would all retain the accretive nature of the acquisition,"
Meyer said. "Furthermore, we're confident we will have more than adequate
funding to continue our aggressive R&D, new-product design and capital
improvement programs in all areas."
Synergies
"With the addition of D-M-E, Cincinnati Milacron becomes the broadest line
equipment supplier to the plastics molding industry in the world," said
Harold J. Faig, Milacron's group vice president of plastics machinery, to
whom D-M-E will report. "We can now provide our customers with the most
advanced technology in processing machinery, auxiliary equipment, mold
bases, process controls and other supplies, as well as comprehensive
technical expertise and support in each of these areas.
"While we intend to operate D-M-E as an independent, stand-alone unit, its
wide array of mold equipment and
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components will complement our injection molding machine business in many
ways," Faig added. "And we see good synergies on several key levels
including manufacturing process, technology, geography, marketing and
distribution."
With 1995 revenues expected to exceed $1.6 billion, Cincinnati Milacron is
a world leader in industrial processes, products and services including
plastics machinery, machine tools, composites processing systems, software,
flexible manufacturing cells, metalcutting tools, metalworking fluids,
precision grinding wheels and industrial magnets. Its shares are traded on
the New York Stock Exchange under the symbol: CMZ.
The Fairchild Corporation, headquartered in Chantilly, VA, is a major
multinational manufacturer and supplier of products, process equipment and
systems for aerospace and other industrial applications. It also has a
significant equity interest in Banner Aerospace, Inc., a leading worldwide
distributor of aircraft replacement parts. Excluding the D-M-E division,
Fairchild has operating divisions in the U.S., England, Germany and Sweden.
Fairchild's shares are traded on the New York Stock Exchange under the
symbol: FA.
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