AGREEMENT AND PLAN OF MERGER
AMONG
THE FAIRCHILD CORPORATION,
SPECIAL-T FASTENERS, INC.
AND
EDWARDS & LOCK MANAGEMENT CORP.
JANUARY 28, 1998
TABLE OF CONTENTS
Page
ARTICLE I
MERGER
1.1 The Merger............................................................1
1.2 Filing................................................................2
1.3 Effective Time of the Merger..........................................2
ARTICLE II
CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORSHIP
2.1 Certificate of Incorporation..........................................2
2.2 By-Laws...............................................................2
2.3 Directorship..........................................................2
ARTICLE III
CONVERSION OF SHARES
3.1 Conversion............................................................3
3.2 Conversion Procedure..................................................3
3.3 Fractional Shares.....................................................4
ARTICLE IV
CERTAIN EFFECTS OF THE MERGER
4.1 Effect of the Merger..................................................4
4.2 Further Assurances....................................................5
ARTICLE V
TRANSACTION PRICE ADJUSTMENT
5.1 Transaction Price Adjustment..........................................5
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF FASTENERS AND EDWARDS
6.1 Organization and Qualification........................................8
6.2 Capital Stock of Subsidiaries.........................................9
6.3 Capitalization........................................................9
6.4 Authority Relative to This Agreement..................................9
6.5 No Violations, etc...................................................10
6.6 Financial Statements.................................................12
6.7 Absence of Changes or Events.........................................12
6.8 Litigation...........................................................13
6.9 Insurance............................................................13
6.10 Title to and Condition of Properties.................................14
6.11 Leases...............................................................14
6.12 Contracts and Commitments............................................14
6.13 Labor Matters........................................................14
6.14 Compliance with Law..................................................15
6.15 Board Recommendation.................................................15
6.16 Employment and Labor Contracts.......................................15
6.17 Patents and Trademarks...............................................16
6.18 Taxes 16
6.19 Employee Benefit Plans; ERISA........................................17
6.20 Environmental Matters................................................18
6.21 Disclosure...........................................................20
6.22 Absence of Undisclosed Liabilities...................................20
6.23 Finders or Brokers...................................................20
6.24 Inventory............................................................21
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF FAIRCHILD SUBSIDIARY AND FAIRCHILD
7.1 Organization and Qualification.......................................21
7.2 Capital Stock of Subsidiaries........................................22
7.3 Capitalization.......................................................22
7.4 Authority Relative to This Agreement.................................22
7.5 No Violations, etc...................................................23
7.6 Commission Filings; Financial Statements.............................24
7.7 Absence of Changes or Events.........................................26
7.8 Board Recommendation.................................................27
7.9 Disclosure...........................................................27
7.10 Finders or Brokers...................................................27
7.11 Litigation...........................................................27
7.12 Fairchild Subsidiary.................................................28
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Page
ARTICLE VIII
CONDUCT OF BUSINESS OF FASTENERS PENDING THE MERGER
8.1 Conduct of Business of Fasteners Pending the Merger..................28
ARTICLE IX
COVENANTS AND AGREEMENTS
9.1 Additional Agreements; Cooperation...................................30
9.2 Publicity............................................................31
9.3 No Solicitation......................................................31
9.4 Access to Information................................................31
9.5 Bank Consent.........................................................32
9.6 Notification of Certain Matters......................................32
9.7 Fees and Expenses....................................................32
9.8 Delivery of Additional Financial Statements..........................33
9.9 Supplemental Disclosure..............................................33
9.10 Taxes................................................................33
9.11 Option on Building...................................................35
ARTICLE X
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Each Party to Effect the Merger........35
10.2 Additional Conditions to Obligations of Fairchild...................36
10.3 Additional Conditions to Obligations of Fasteners...................37
ARTICLE XI
TERMINATION
11.1 Termination.........................................................38
11.2 Effect of Termination...............................................39
ARTICLE XII
SURVIVAL AND INDEMNIFICATION
12.1 Survival of Representations and Warranties..........................39
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Page
12.2 Indemnification by Fairchild Subsidiary and Fairchild...............40
12.3 Indemnification by Edwards..........................................41
12.4 Set-Off.............................................................42
ARTICLE XIII
MISCELLANEOUS
13.1 Closing and Waiver..................................................43
13.2 Notices.............................................................43
13.3 Counterparts........................................................44
13.4 Interpretation......................................................44
13.5 Variations and Amendment............................................45
13.6 No Third Party Beneficiaries........................................45
13.7 Governing Law.......................................................45
13.8 Entire Agreement....................................................45
13.9 No Recourse Against Others..........................................45
13.10 Validity............................................................46
13.11 Schedules...........................................................46
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 28, 1998, by and among
Special-T Fasteners, Inc., a Delaware corporation ("Fairchild Subsidiary"), The
Fairchild Corporation, a Delaware corporation ("Fairchild"), Robert Edwards
("Edwards") and Edwards & Lock Management Corp., dba Special T Fasteners, a
California corporation ("Fasteners").
W I T N E S S E T H :
WHEREAS, the Boards of Directors of Fairchild Subsidiary and Fasteners have
approved the merger of Fasteners with and into Fairchild Subsidiary (the
"Merger") upon the terms and subject to the conditions set forth herein and in
accordance with the laws of the State of Delaware;
WHEREAS, Fairchild is the sole owner of all of the outstanding common stock
of Fairchild Subsidiary and has approved the Merger upon the terms and subject
to the conditions set forth herein;
WHEREAS, Edwards is the sole owner of all of the outstanding capital stock
of Fasteners and has approved the Merger upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto, intending to be
legally bound, agree as follows:
ARTICLE I
MERGER
1.1 The Merger. At the Effective Time (as hereinafter defined), Fasteners
shall be merged with and into Fairchild Subsidiary as provided herein.
Thereupon, the corporate existence of Fairchild Subsidiary, with all its
purposes, powers and objects, shall continue unaffected and unimpaired by the
Merger, and the corporate identity and existence, with all the purposes, powers
and objects, of Fasteners shall be merged with and into Fairchild Subsidiary and
Fairchild Subsidiary as the corporation surviving the Merger shall be fully
vested therewith. The separate existence and corporate organization of Fasteners
shall cease upon the Merger becoming effective as
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herein provided and thereupon Fairchild Subsidiary and Fasteners shall
be a single corporation, Fairchild Subsidiary (herein sometimes called
the "Surviving Corporation").
1.2 Filing. As soon as practicable after fulfillment or waiver of the
conditions set forth in Sections 10.1, 10.2 and 10.3 or on such later date as
may be mutually agreed to between Fairchild Subsidiary and Fasteners, the
parties hereto will (i) cause to be filed with the office of the Secretary of
State of the State of Delaware, a certificate of merger (the "Delaware
Certificate of Merger"), in such form as required by, and executed in accordance
with, the relevant provisions of the Delaware General Corporation Law (the
"DGCL"), and (ii) cause to be filed with the office of the Secretary of State of
California, a certificate of merger (the "California Certificate of Merger"), in
such form as required by, and executed in accordance with, the relevant
provision of the California General Corporation Law (the "CGCL").
1.3 Effective Time of the Merger. The Merger shall be effective at the time
of the filing of each of the Delaware Certificate of Merger and the California
Certificate of Merger, or at such later time specified in such Certificates of
Merger, which time is herein sometimes referred to as the "Effective Time" and
the date thereof is herein sometimes referred to as the "Effective Date."
ARTICLE II
CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORSHIP
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Fairchild Subsidiary shall be the Certificate of Incorporation of the Surviving
Corporation.
2.2 By-Laws. The By-Laws of Fairchild Subsidiary shall be the By-Laws of
the Surviving Corporation until the same shall thereafter be altered, amended or
repealed in accordance with law, the Certificate of Incorporation of the
Surviving Corporation or said By-Laws.
2.3 Directorship. At or prior to the Effective Time, Edwards shall be
elected to the Board of Directors of Fairchild and shall be entitled to remain
on the Board of Directors for such period of time as Edwards owns 50% or more of
the Fairchild Common Stock (as hereinafter defined) acquired by Edwards pursuant
to the Merger.
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ARTICLE III
CONVERSION OF SHARES
3.1 Conversion.
(a) At the Effective Time the issued shares of capital stock of Fasteners
shall, by virtue of the Merger and without any action on the part of the holder
thereof, become and be converted as follows: each outstanding share of common
stock, no par value, of Fasteners (the "Fasteners Common Stock") shall be
converted into and become the right to receive a Pro Rata Amount (as defined
below) of the Merger Consideration (as defined below). "Merger Consideration"
means (x) shares of Class A Common Stock, $0.10 par value per share, of
Fairchild (the "Fairchild Common Stock") having a market value of $23,500,000
based on the Closing Date Market Price (as defined in Section 3.1(b)) except as
set forth in Section 3.1(b) (the "Closing Date Market Price Shares") and (y)
$23,000,000 in cash subject to decrease as set forth in Section 3.1(b), plus
interest at the rate of 10% per annum from January 1, 1998 until the Effective
Time. With respect to any share of the Fasteners Common Stock, "Pro Rata Amount"
means the product of the Merger Consideration multiplied by a fraction, the
numerator of which is one and the denominator of which is the aggregate number
of all issued and outstanding shares of the Fasteners Common Stock on the
Effective Date.
(b) If the closing price of the Fairchild Common Stock on the day
immediately prior to the Effective Time (the "Closing Price") is less than the
Closing Date Market Price, then the number of shares to be received as part of
the Merger Consideration (the "Closing Price Shares") shall be increased such
that the total number of shares received as part of the Merger Consideration is
at least 50.1% of the total Merger Consideration based on the Closing Price;
provided, however, that in such case the amount of cash to be received as part
of the Merger Consideration shall be reduced by an amount in cash equal to the
product of the Closing Date Market Price multiplied by the difference between
the Closing Price Shares and the Closing Date Market Price Shares. "Closing Date
Market Price" means, with respect to one share of Fairchild Common Stock, the
average closing price for such share as reported on the New York Stock Exchange
for the 20 most recent trading days ending on the fifth day prior to the
Effective Time.
3.2 Conversion Procedure. At the Effective Time, each holder of Fasteners
Common Stock (a "Stockholder") shall
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deliver to Fairchild Subsidiary certificates representing all of the shares of
Fasteners Common Stock owned by such Stockholder (the "Shares"), duly endorsed
in blank for transfer or accompanied by duly executed blank stock powers
together with all necessary stock transfer stamps affixed thereto at the expense
of such Stockholder and such other instruments as shall reasonably be required
by Fairchild Subsidiary to transfer to Fairchild Subsidiary all right, title and
interest in and to the Shares, free and clear of any lien or other encumbrance,
and in exchange therefor each Stockholder shall receive its Pro Rata Amount of
the Merger Consideration.
3.3 Fractional Shares. No fraction of Fairchild Common Stock shall be
issued in the Merger. In lieu of any such fractional shares, each holder of
Fasteners Common Stock, who would otherwise have been entitled to a fraction of
Fairchild Common Stock pursuant to this Article III will be paid an amount in
cash (without interest) equal to the value of such fractional shares as
determined by this Article III, provided that in no event will the total amount
of cash paid hereunder exceed 49.9% of the aggregate consideration hereunder.
ARTICLE IV
CERTAIN EFFECTS OF THE MERGER
4.1 Effect of the Merger. On and after the Effective Time and pursuant to
the DGCL and the CGCL, the Surviving Corporation shall possess all the rights,
privileges, immunities, powers, and purposes of each of Fairchild Subsidiary and
Fasteners; all the property, real and personal, including subscriptions to
shares, causes of action and every other asset (including books and records) of
Fairchild Subsidiary and Fasteners, shall vest in the Surviving Corporation
without further act or deed; and the Surviving Corporation shall assume and be
liable for all the liabilities, obligations and penalties of Fasteners;
provided, however, that this shall in no way impair or affect the
indemnification obligations of any party pursuant to the indemnification
provisions of this Agreement. No liability or obligation due or to become due
and no claim or demand for any cause existing against either Fairchild
Subsidiary or Fasteners, or any stockholder, officer or director thereof, shall
be released or impaired by the Merger, and no action or proceeding, whether
civil or criminal, then pending by or against Fairchild Subsidiary or Fasteners,
or any stockholder, officer or director thereof, shall abate or be discontinued
by the Merger, but may be enforced, prosecuted, settled or compro-
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mised as if the Merger had not occurred, and the Surviving Corporation may be
substituted in any such action or proceeding in place of Fairchild Subsidiary or
Fasteners.
4.2 Further Assurances. If at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
either of Fairchild Subsidiary or Fasteners, the officers of such corporation
are fully authorized in the name of their corporation or otherwise to take, and
shall take, all such further action.
ARTICLE V
TRANSACTION PRICE ADJUSTMENT
5.1 Transaction Price Adjustment.
(a) As soon as practicable, but in no event later than 60 days following
the Effective Date, the Surviving Corporation shall prepare and deliver to
Edwards and Fairchild (i) a balance sheet of the Surviving Corporation as of the
close of business on December 31, 1997, and the related statements of income,
shareholders' equity and cash flows for the Surviving Corporation for the period
from April 1, 1997 to December 31, 1997, (ii) the audited balance sheets of the
Surviving Corporation as of the close of business on December 31, 1997, and the
related statements of income, shareholders' equity and cash flows (including the
footnotes thereto) for the period from April 1, 1997 to December 31, 1997, which
shall be audited by Arthur Andersen LLP, together with the related audit report
of such firm, and (iii) a calculation of the Working Capital (as defined below)
(collectively, the "Year End Statements"). The Year End Statements shall be
prepared in accordance with GAAP (as hereinafter defined). In connection with
the preparation of the Year End Statements, on a date not more than six days
prior to Effective Date, which date is a date acceptable to Fairchild and
Edwards, each of Fairchild and Edwards and their respective representatives
shall have the right to observe a physical count by Arthur Andersen LLP of all
inventory of the Surviving Corporation. For purposes of this Agreement, GAAP
shall mean accounting principles which are (a) consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors, in effect from time
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to time, and (b) applied on a basis consistent with prior periods.
(b) During the preparation of the Year End Statements and the period of any
dispute within the contemplation of this Section 5.1, the Surviving Corporation
shall (i) provide Edwards and Edwards' authorized representatives with
reasonable access to the books, records, facilities and employees of the
Surviving Corporation but without unreasonably interfering with the operations
of the Surviving Corporation, (ii) provide Edwards as soon as reasonably
practicable after the Effective Date (but in no event later than 30 days after
the Effective Date) with financial information comparable to normal month-end
closing financial information for the period ending on the Effective Date and
(iii) cooperate with Edwards' authorized representatives, including the
provision on a timely basis of all information reasonably necessary or useful in
preparing the Year End Statements.
(c) Edwards and Fairchild shall have 30 days to review the Year End
Statements after receipt thereof. Edwards and its authorized representatives
shall have reasonable access to all relevant books and records, employees and
accountants of the Surviving Corporation to the extent required to complete its
review of the Year End Statements. Unless Edwards or Fairchild delivers written
notice to the Surviving Corporation on or prior to the 30th day after receipt of
the Year End Statements of Edwards' or Fairchild's objection to the Year End
Statements and specifying in reasonable detail all disputed items and the basis
therefor, Edwards or Fairchild shall be deemed to have accepted and agreed to
the Year End Statements. If Edwards or Fairchild so notifies the Surviving
Corporation of its objection to the Year End Statements, Edwards and Fairchild
shall, within 30 days following such notice (the "Resolution Period"), attempt
to resolve their differences, and any resolution by them as to any disputed
amounts shall be final, binding and conclusive.
(d) If, at the conclusion of the Resolution Period, any amounts remain in
dispute, then all such amounts remaining in dispute shall be submitted to Ernst
& Young LLP (the "Neutral Auditors"). Each of Edwards, Fairchild and the
Surviving Corporation agrees to execute, if requested by the Neutral Auditors, a
reasonable engagement letter. In the event that Edwards, Fairchild and the
Surviving Corporation are unable to engage the Neutral Auditors within five days
after the conclusion of the Resolution Period then they shall engage Deloitte &
Touche LLP to act as alternative neutral auditors (the
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"Alternative Neutral Auditors"). All fees and expenses relating to the work, if
any, to be performed by the Neutral Auditors or the Alternative Neutral
Auditors, as the case may be, shall be borne (i) 50% by Edwards and (ii) 50% by
the Surviving Corporation. The Neutral Auditors or the Alternative Neutral
Auditors, as the case may be, shall act as an arbitrator to determine, based
solely on presentations by Edwards and Fairchild, and not by independent review,
only those issues still in dispute. Edwards and Fairchild shall use their
reasonable best efforts to cause the determination of the Neutral Auditors or
the Alternative Neutral Auditors, as the case may be, to be made within 30 days
of submission as provided above, whether or not such presentation by Edwards and
the Surviving Corporation have been made within such period, and shall be set
forth in a written statement delivered to Edwards and the Surviving Corporation
and shall be final, binding and conclusive. The term "Adjusted Year End
Statements," as hereinafter used, shall mean the definitive Year End Statements
agreed to by the Surviving Corporation and Edwards in accordance with Section
5.1(c) or the definitive Year End Statements resulting from the determinations
made by the Neutral Auditors or the Alternative Neutral Auditors' determination,
as the case may be, in accordance with this Section 5.1(d) (in addition to those
items theretofore agreed to by Edwards and Fairchild), in each case, prepared in
the manner set forth in the second sentence of Section 5.1(a) hereof.
(e) The Merger Consideration shall be increased or decreased, as the case
may be, as follows: (x) if the Working Capital reflected in the Adjusted Year
End Statements (the "Closing Working Capital") is less than the Working Capital
reflected in the March 31, 1997 audited balance sheet of Fasteners (the "Target
Working Capital"), the Merger Consideration shall be decreased one dollar for
every dollar difference between the Closing Working Capital and the Target
Working Capital or (y) if the Closing Working Capital is greater than 115% of
the Target Working Capital, the Merger Consideration shall be increased 50% for
every dollar the Closing Working Capital exceeds the Target Working Capital by
greater than 115% of the Target Working Capital. The amount of any net increase
or decrease of the Merger Consideration pursuant to this Section 5.1(e) shall
bear interest from the Effective Date through the date of payment at the rate of
30-day LIBOR plus 50 basis points. The amount of any net increase of the Merger
Consideration pursuant to this Section 5.1(e), together with interest thereon,
shall be allocated to Edwards as follows: 50.1% of such net increase shall be
paid to Edwards in Fairchild Common Stock based on (x) the Closing Date Market
Price if the Closing
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Date Market Price is used to pay the Merger Consideration or (y) the Closing
Price if the Closing Price is used to pay the Merger Consideration and the
remainder of such increase shall be paid to Edwards in cash by the Surviving
Corporation by wire transfer in immediately available funds to the account
designated by Edwards within five Business Days after the Adjusted Year End
Statements are agreed to or any remaining items are ultimately determined by the
Neutral Auditors or the Alternative Neutral Auditors, as the case may be. The
amount of any net decrease of the Merger Consideration pursuant to this Section
5.1(e), together with interest thereon, shall be allocated as follows: 50.1% of
such net decrease shall be paid to Fairchild by Edwards in Fairchild Common
Stock based on (x) the Closing Date Market Price if the Closing Date Market
Price is used to pay the Merger Consideration or (y) the Closing Price if the
Closing Price is used to pay the Merger Consideration and the remainder of such
decrease shall be paid in cash by Edwards by wire transfer in immediately
available funds to the account specified by the Surviving Corporation within
five Business Days after the Adjusted Year End Statements are agreed to or any
remaining disputed items are ultimately determined by the Neutral Auditors or
the Alternative Neutral Auditors, as the case may be. For purposes of this
Agreement, (i) "Working Capital" shall mean the amount, if any, by which the
aggregate of the Current Assets of Fasteners exceeds the aggregate of the
Current Liabilities of Fasteners; (ii) "Current Assets" shall mean all current
assets of Fasteners determined in accordance with GAAP; and (iii) "Current
Liabilities" shall mean the current liabilities of Fasteners determined in
accordance with GAAP.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF FASTENERS AND EDWARDS
Fasteners and Edwards, to the best of his knowledge, severally and jointly,
represent and warrant to Fairchild and Fairchild Subsidiary that:
6.1 Organization and Qualification. Fasteners is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Except as set forth in Schedule 6.1, Fasteners is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the charac-
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ter of its properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified or in good
standing which would not, individually or in the aggregate, have a material
adverse effect on the general affairs, management, business, operations,
condition (financial or otherwise) or prospects of Fasteners taken as a whole (a
"Fasteners Material Adverse Effect"). Fasteners is not in violation of any of
the provisions of its Certificate of Incorporation (or other applicable charter
document) or By-Laws. Fasteners has delivered to Fairchild accurate and complete
copies of the Certificate of Incorporation (or other applicable charter
document) and By-Laws, as currently in effect, of Fasteners.
6.2 Capital Stock of Subsidiaries. Fasteners has no subsidiaries. Except
for a 50% interest in Tri-Fast S.A.R.L., Fasteners does not directly or
indirectly own any interest in any corporation, partnership, joint venture or
other business association or entity.
6.3 Capitalization. The authorized capital stock of Fasteners consists of
100,000 shares of Fasteners Common Stock. As of the date hereof, 45,000 shares
of Fasteners Common Stock were issued and outstanding (all of which are owned by
Edwards). All of such issued and outstanding shares are validly issued, fully
paid and nonassessable and free of preemptive rights. There are no options,
warrants, calls or agreements of any character for the issuance of additional
shares of Fasteners Common Stock. There are no contracts for the authorization
or issuance of any other class of securities of Fasteners, and there are no
outstanding securities convertible or exchangeable into Fasteners Common Stock.
Neither Edwards nor Fasteners is a party to any agreement or understanding, oral
or written, which (a) grants an option or other right to acquire any of the
Fasteners Common Stock or any other equitable interest in Fasteners, (b) grants
a right of first refusal or other such similar right upon the sale of any of the
Fasteners Common Stock, or (c) restricts or affects the voting rights of any of
the Fasteners Common Stock.
6.4 Authority Relative to This Agreement.
(a) Fasteners has full corporate power and authority to execute and deliver
this Agreement and to consummate the Merger and other transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
Merger and other transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Fas-
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teners and no other corporate proceedings on the part of Fasteners are necessary
to authorize this Agreement or to consummate the Merger or other transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Fasteners and, assuming the due authorization, execution and
delivery hereof by Fairchild Subsidiary and Fairchild, constitutes a valid and
binding agreement of each of Fasteners and Edwards, enforceable against each of
Fasteners and Edwards in accordance with its terms, except to the extent that
its enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable or fiduciary principles.
(b) Edwards has the legal capacity to execute and deliver this Agreement
and to perform his obligations hereunder and to consummate the transactions
contemplated hereby.
6.5 No Violations, etc.
(a) Assuming that all filings, permits, authorizations, consents and
approvals or waivers thereof have been duly made or obtained as contemplated by
Section 6.5(b) hereof, except as listed in Schedule 6.5, neither the execution
and delivery of this Agreement by Fasteners nor the consummation of the Merger
or other transactions contemplated hereby nor compliance by Fasteners with any
of the provisions hereof will (i) violate, conflict with, or result in a breach
of any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or suspension of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Fasteners under, any of the terms, conditions or
provisions of (x) its charter or by-laws, (y) except as set forth in Schedule
6.5, any note, bond, mortgage, indenture or deed of trust, or (z) any license,
lease, agreement or other instrument or obligation to which Fasteners is a party
or to which it or any of its properties or assets may be subject, or (ii)
subject to compliance with the statutes and regulations referred to in the next
paragraph, violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Fasteners or any of its properties or
assets, except, in the case of clauses (i)(z) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations, suspensions,
accelerations, rights of termination or acceleration or creations of liens,
security interests, charges or en-
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cumbrances which would not, individually or in the aggregate, either have a
Fasteners Material Adverse Effect or materially impair Fasteners' ability to
consummate the Merger or other transactions contemplated hereby.
(b) No filing or registration with, notification to and no permit,
authorization, consent or approval of any governmental entity is required by
Fasteners in connection with the execution and delivery of this Agreement or the
consummation by Fasteners of the Merger or other transactions contemplated
hereby, except (i) in connection with the applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Delaware Certificate of Merger with the Secretary
of State of the State of Delaware, (iii) the filing of the California
Certificate of Merger with the Secretary of State of California and (iv) such
other filings, registrations, notifications, permits, authorizations, consents
or approvals the failure of which to be obtained, made or given would not,
individually or in the aggregate, either have a Fasteners Material Adverse
Effect or materially impair Fasteners' ability to consummate the Merger or other
transactions contemplated hereby. The execution and delivery of this Agreement
by Edwards, the performance by Edwards of his obligations hereunder and the
consummation by Edwards of the transactions contemplated hereby do not and will
not require Edwards to obtain any consent, approval or action of, or make any
filing with or give any notice to, any governmental or regulatory body or
judicial authority except (i) in connection with the applicable requirements of
the HSR Act, (ii) the filing of the Delaware Certificate of Merger with the
Secretary of State of the State of Delaware, (iii) the filing of the California
Certificate of Merger with the Secretary of State of California and (iv) such
other filings, registrations, notifications, permits, authorizations, consents
or approvals the failure of which to be obtained, made or given would not,
individually or in the aggregate, either have a Fasteners Material Adverse
Effect or materially impair Fasteners' ability to consummate the Merger or other
transactions contemplated hereby.
(c) As of the date hereof, Fasteners is not in violation of or default
under (x) its charter or bylaws, (y) except as set forth in Schedule 6.5, any
note, bond, mortgage, indenture or deed of trust, or (z) any license, lease,
agreement or other instrument or obligation to which Fasteners is a party or to
which it or any of its properties or assets may be subject, except, in the case
of clauses (y) and (z) above, for such violations or defaults which would not,
individually or in
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the aggregate, either have a Fasteners Material Adverse Effect or materially
impair Fasteners' ability to consummate the Merger or other transactions
contemplated hereby.
(d) The execution, delivery and performance by Edwards of this Agreement
and the consummation by Edwards of the transactions contemplated hereby in
accordance with the terms and conditions hereof will not: (i) violate, conflict
with or result in the breach of any of the provisions of any material contract
or other agreement to which Edwards is a party or to which Edwards or any of his
assets or properties may be bound or subject or violate any existing term or
provision of any material law, regulation, order, writ, judgment, injunction or
decree applicable to Edwards or any of his assets or properties.
6.6 Financial Statements. Fasteners has furnished to Fairchild (i) the
audited balance sheets of Fasteners as of March 31, 1996 and March 31, 1997, the
audited statements of earnings and cash flow for the years ended March 31, 1995,
1996 and 1997, the unaudited balance sheet of Fasteners as of December 31, 1997
(the "Balance Sheet") and the statement of earnings and cash flow for the nine
months ended December 31, 1997 (collectively, the "Fasteners Financial
Statements"). Except as set forth on Schedule 6.6, the Fasteners Financial
Statements present fairly, in all material respects, the financial position and
results of operations of Fasteners as of the dates thereof, all in conformity
with GAAP on a basis consistently applied.
6.7 Absence of Changes or Events. Except as set forth on Schedule 6.7,
since March 31, 1997:
(a) there has been no material adverse change, or any development
involving a prospective material adverse change, in the general affairs,
management, business, operations, condition (financial or otherwise) or
prospects of Fasteners other than developments affecting the general
affairs, management, business, operations, condition (financial or
otherwise) or prospects of the industry segment in which Fasteners
operates;
(b) there has not been any direct or indirect redemption, purchase or
other acquisition of any shares of capital stock of Fasteners or any
declaration, setting aside or payment of any dividend or other distribution
by Fasteners in respect of its capital stock;
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(c) except in the ordinary course of its business and consistent with
past practice Fasteners has not incurred any indebtedness for borrowed
money, or assumed, guaranteed, endorsed or otherwise as an accommodation
become responsible for the obligations of any other individual, firm or
corporation, or made any loans or advances to any other individual, firm or
corporation;
(d) there has not been any change in accounting methods, principles or
practices of Fasteners;
(e) except in the ordinary course of business and for amounts which
are not material, there has not been any revaluation by Fasteners of any of
its assets, including, without limitation, writing down the value of
inventory or writing off notes or accounts receivables;
(f) there has not been any damage, destruction or loss, whether
covered by insurance or not, except for such as would not, individually or
in the aggregate, have a Fasteners Material Adverse Effect; and
(g) there has not been any agreement by Fasteners to (i) do any of the
things described in the preceding clauses (a) through (f) other than as
expressly contemplated or provided for in this Agreement or (ii) take,
whether in writing or otherwise, any action which, if taken prior to the
date of this Agreement, would have made any representation or warranty in
this Article VI untrue or incorrect.
6.8 Litigation. Except as set forth in Schedule 6.8, there is no (i) claim,
action, suit or proceeding pending or, to the best knowledge of Fasteners,
threatened against or relating to Fasteners before any court or governmental or
regulatory authority or body or arbitration tribunal, or (ii) outstanding
judgment, order, writ, injunction or decree, or application, request or motion
therefor, of any court, governmental agency or arbitration tribunal in a
proceeding to which Fasteners or any of its assets was or is a party except, in
the case of clauses (i) and (ii) above, such as would not, individually or in
the aggregate, either have a Fasteners Material Adverse Effect or materially
impair Fasteners' ability to consummate the Merger.
6.9 Insurance. Schedule 6.9 lists all insurance policies in force on the
date hereof covering the businesses, properties and assets of Fasteners, and all
such policies are
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currently in effect. True and complete copies of all such policies have been
delivered to Fairchild. Except as set forth in Schedule 6.9, Fasteners has not
received notice of the cancellation of any such insurance policy.
6.10 Title to and Condition of Properties. Except as set forth in Schedule
6.10, Fasteners has good title to all of the real property and owns outright all
of the personal property (except for leased property or assets) which is
reflected on the Balance Sheet except for property since sold or otherwise
disposed of in the ordinary course of business and consistent with past
practices. Except as set forth in Schedule 6.10, no such real or personal
property is subject to claims, liens or encumbrances, whether by mortgage,
pledge, lien, conditional sale agreement, charge or otherwise, except for those
which would not, individually or in the aggregate, have a Fasteners Material
Adverse Effect. Schedule 6.10 contains a true and complete list of all real
properties owned by Fasteners.
6.11 Leases. There has been made available to Fairchild true and complete
copies of each lease requiring the payment of rentals aggregating at least
$35,000 per annum pursuant to which real or personal property is held under
lease by Fasteners and true and complete copies of each lease pursuant to which
Fasteners leases real or personal property to others. A true and complete list
of all such material leases is set forth in Schedule 6.11. All of such leases so
listed are valid and subsisting and in full force and effect and are subject to
no default with respect to Fasteners and, to Fasteners' knowledge, are in full
force and effect and subject to no default with respect to any other party
thereto, and the leased real property is in good and satisfactory condition.
6.12 Contracts and Commitments. Other than as disclosed in Schedule 6.12,
no existing contract or commitment contains an agreement with respect to any
change of control that would be triggered by the Merger. Other than as set forth
in Schedule 6.12, neither this Agreement, the Merger nor the other transactions
contemplated hereby will result in any outstanding loans or borrowings by
Fasteners becoming due, going into default or giving the lenders or other
holders of debt instruments the right to require Fasteners to repay all or a
portion of such loans or borrowings.
6.13 Labor Matters. Fasteners is in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of em-
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ployment and wages and hours, and Fasteners is not engaged in any unfair labor
practice. There is no labor strike, slowdown or stoppage pending (or, to the
best knowledge of Fasteners, any labor strike or stoppage threatened) against or
affecting Fasteners. No petition for certification has been filed and is pending
before the National Labor Relations Board with respect to any employees of
Fasteners who are not currently organized.
6.14 Compliance with Law. Except for matters set forth in Schedule 6.14,
Fasteners has not violated or failed to comply with any statute, law, ordinance,
regulation, rule or order of any federal, state or local government or any other
governmental department or agency, or any judgment, decree or order of any
court, applicable to its business or operations, except where any such violation
or failure to comply would not, individually or in the aggregate, have a
Fasteners Material Adverse Effect; the conduct of the business of Fasteners is
in conformity with all federal, state and local energy, public utility and
health requirements, and all other federal, state and local governmental and
regulatory requirements, except where such nonconformities would not,
individually or in the aggregate, have a Fasteners Material Adverse Effect.
Fasteners has all permits, licenses and franchises from governmental agencies
required to conduct its business as now being conducted, except for such
permits, licenses and franchises the absence of which would not, individually or
in the aggregate, have a Fasteners Material Adverse Effect.
6.15 Board Recommendation. The Board of Directors of Fasteners has, by
unanimous consent at a meeting of such Board duly held on, or by written consent
of such Board dated, January 26, 1998, approved and adopted this Agreement, the
Merger and the other transactions contemplated hereby, determined that the
Merger is fair to the holders of shares of Fasteners Common Stock and
recommended that the holders of such shares of Fasteners Common Stock approve
and adopt this Agreement, the Merger and the other transactions contemplated
hereby.
6.16 Employment and Labor Contracts. Fasteners is not a party to any
employment, management services, consultation or other similar contract (other
than sales representative, sales agent or distribution agreements) with any past
or present officer, director, employee or other person or, to the best of
Fasteners' knowledge, any entity affiliated with any past or present officer,
director or employee or other person other than those set forth in Schedule 6.16
and other than those which (x) have a term of less than one year and
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(y) involve payments of less than $30,000 per year, in each case true and
complete copies of which contracts have been delivered to Fairchild, and other
than the agreements executed by employees generally, the forms of which have
been delivered to Fairchild.
6.17 Patents and Trademarks. Fasteners owns or has the right to use all
patents, patent applications, trademarks, trademark applications, trade names,
inventions, processes, know-how and trade secrets necessary to the conduct of
its business, except for those which the failure to own or have the right to use
would not, individually or in the aggregate, have a Fasteners Material Adverse
Effect ("Proprietary Rights"). All issued patents and trademark registrations
and pending patent and trademark applications of the Proprietary Rights have
previously been delivered to Fairchild. No rights or licenses to use Proprietary
Rights have been granted by Fasteners except those listed in Schedule 6.17; and
no contrary assertion has been made in writing to Fasteners or notice of
conflict with any asserted right of others has been given by any person except
those which, even if correct, would not, individually or in the aggregate, have
a Fasteners Material Adverse Effect. Fasteners has not given notice of any
asserted claim or conflict to a third party with respect to Fasteners'
Proprietary Rights. True and complete copies of all material Proprietary Rights
license agreements under which Fasteners is a licensor or licensee have been
delivered to Fairchild.
6.18 Taxes. "Tax" or "Taxes" shall mean all federal, state, local and
foreign taxes, duties, levies, charges and assessments of any nature, including
social security payments and deductibles relating to wages, salaries and
benefits and payments to subcontractors (to the extent required under applicable
Tax law), and also including all interest, penalties and additions imposed with
respect to such amounts. Except as set forth in Schedule 6.18: (i) Fasteners has
prepared and timely filed or will timely file with the appropriate governmental
agencies all franchise, income and all other material Tax returns and reports
required to be filed for any period ending on or before the Effective Time,
taking into account any extension of time to file granted to or obtained on
behalf of Fasteners; (ii) all material Taxes of Fasteners in respect of the
pre-Merger period have been paid in full to the proper authorities, other than
such Taxes as are being contested in good faith by appropriate proceedings
and/or are adequately reserved for in accordance with generally accepted
accounting principles; (iii) all deficiencies resulting from Tax examinations of
federal, state and foreign income, sales and franchise
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and all other material Tax returns filed by Fasteners have either been paid or
are being contested in good faith by appropriate proceedings; (iv) to the best
knowledge of Fasteners, no deficiency has been asserted or assessed against
Fasteners, and no examination of Fasteners is pending or threatened for any
material amount of Tax by any taxing authority; (v) no extension of the period
for assessment or collection of any material Tax is currently in effect and no
extension of time within which to file any material Tax return has been
requested, which Tax return has not since been filed; (vi) no material Tax liens
have been filed with respect to any Taxes; (vii) Fasteners will not make any
voluntary adjustment by reason of a change in its accounting methods for any
pre-Merger period that would affect the taxable income or deductions of
Fasteners for any period ending after the Effective Date; (viii) Fasteners has
made timely payments of the Taxes required to be deducted and withheld from the
wages paid to its employees; and (ix) to the best knowledge of Fasteners, there
are no transfer pricing agreements made with any taxation authority involving
Fasteners.
6.19 Employee Benefit Plans; ERISA. (a) All employee benefit plans (as
defined in Employee Retirement Income Security Act of 1974 ("ERISA") Section
3(3)), stock option and other stock-based plans, and deferred compensation and
other employee benefit plans, which are maintained by Fasteners or as to which
Fasteners has any direct or indirect, actual or contingent liability ("Benefit
Plans") are in compliance in all material respects with the presently applicable
provision of ERISA and the Internal Revenue Code of 1986, as amended the
("Code"); (b) all Benefit Plans are listed on Schedule 6.19 and copies of such
plans have been provided to Fairchild; (c) there have been no prohibited
transactions under the Code or ERISA with respect to any Benefit Plans; (d) with
respect to each Benefit Plan intended to be qualified under Code Section 401(a),
the Internal Revenue Service has issued a favorable determination letter that
such plan is qualified; (e) with respect to each Benefit Plan covered by Title
IV of ERISA ("Pension Plan"), there was no accumulated funding deficiency (as
defined in Code Section 412) as of the last day of the plan year most recently
ended, there has been no minimum funding waiver, all contributions have been
made when due, and the projected benefit obligation (as defined in FAS No. 87)
does not exceed the fair market value of its assets; (f) Fasteners has no
present intention to terminate any Pension Plan, the PBGC has not instituted
proceedings to terminate any Pension Plan and Fasteners has no knowledge of any
intent of the PBGC to institute such proceedings; (g) no Benefit Plan is a
multiemployer plan within the meaning of ERISA Section 4001(a)(3) or a
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multiple employer plan within the meaning of Code Section 413; (h) Fasteners has
no liability with respect to any plans providing benefits on a voluntary basis
with respect to employees employed outside the U.S. ("Foreign Plans"); (i) with
respect to all Benefit Plans that are welfare plans (as defined in ERISA Section
3(1)), no such plan provides for retiree welfare benefits other than COBRA
coverage, and all such plans have complied with the COBRA continuation coverage
requirements of Code Section 4980B; (j) with respect to all Benefit Plans, there
are no investigations or claims pending (other than routine claims for
benefits); (k) the consummation of the transactions contemplated by this
Agreement will not entitle any individual to severance pay, or increase or
accelerate compensation due to any individual; and (l) Fasteners has not
incurred any liability or obligation under the Worker Adjustment and Retraining
Notification Act.
6.20 Environmental Matters.
(a) Except as set forth in Schedule 6.20 and as would not be reasonably
expected to have a Fasteners Material Adverse Effect:
(i) to the best of Fasteners' knowledge, Fasteners, and the properties
and assets owned, operated and leased by Fasteners, are in compliance with,
and not subject to liability under, applicable Environmental Laws;
(ii) to the best of Fasteners' knowledge, there is no Environmental
Claim that is pending or threatened against Fasteners;
(iii) to the best of Fasteners' knowledge, Fasteners has not assumed
by contract or otherwise any liabilities or obligations arising under any
Environmental Laws;
(iv) to the best of Fasteners' knowledge, there are no past or present
actions, activities, conditions or events, including, without limitation,
the Release of any Hazardous Materials, which would reasonably be expected
to prevent compliance by Fasteners with any Environmental Law, or to result
in any liability of Fasteners under any Environmental Law;
(v) no lien has been recorded under any Environmental Law with respect
to any property, facility or asset currently owned by Fasteners;
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(vi) Fasteners has not received any notification that any Hazardous
Materials that it or any of its predecessors in interest has used,
generated, stored, treated, handled, transported or disposed of has been
found at any site at which any person is conducting or plans to conduct any
response or other action pursuant to any Environmental Law;
(vii) to the best of Fasteners' knowledge, there is no friable
asbestos or asbestos containing material in, on or at any property,
facility or equipment currently owned or operated by Fasteners;
(viii) no property owned, operated or leased by Fasteners, and to the
actual knowledge of Fasteners no property used by Fasteners, is (i) listed
or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation & Liability Act of 1980,
as amended ("CERCLA") or (ii) listed in the Comprehensive Environmental
Response, Compensation, Liability Information System List promulgated
pursuant to CERCLA, or on any comparable list published by any governmental
authority;
(ix) to the best of Fasteners' knowledge, no underground storage tank
or related piping or surface impoundment, lagoon or landfill is located at,
under or on any property currently owned or operated by Fasteners, nor has
any such tank or piping been removed or decommissioned from or at such
property;
(x) Fasteners has delivered or otherwise made available for inspection
to Fairchild copies of any material investigations, studies, reports,
assessments, evaluations and audits in its possession, custody or control
of Hazardous Materials at, in, beneath or adjacent to any properties or
facilities now or formerly owned, leased, operated or used by Fasteners, or
of compliance by it with, or liability of it under, applicable
Environmental Laws.
(b) For purposes of Section 6.20(a):
(i) "Environment" means any surface water, ground water, drinking
water supply, land surface or subsurface strata, ambient air, indoor air
and any indoor location;
(ii) "Environmental Claim" means any notice, claim, demand, complaint,
suit or other communication by any person alleging potential liability
(including, without limi-
-20-
tation, potential liability for response or corrective action or damages to
any person, property or natural resources, and any fines or penalties)
arising out of or relating to (1) the Release or threatened Release of any
Hazardous Materials or (2) any violation, or alleged violation, of any
applicable Environmental Law;
(iii) "Environmental Laws" means all federal, state, and local laws,
statutes, codes, rules, ordinances, regulations, judgments, orders, decrees
and the common law relating to pollution or protection of human health or
the Environment, including, without limitation, those relating to the
Release or threatened Release of Hazardous Materials;
(iv) "Hazardous Materials" means pollutants, contaminants, hazardous
or toxic substances, constituents, materials or wastes, and any other
waste, substance, material, chemical or constituent subject to regulation
under Environmental Laws; and
(v) "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
into the Environment.
6.21 Disclosure. No representation or warranty by Fasteners herein, or in
any certificate furnished by or on behalf of Fasteners to Fairchild in
connection herewith, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements herein or therein, in light of the circumstances under which they
were made, not misleading.
6.22 Absence of Undisclosed Liabilities. Except as set forth in Schedule
6.22, to the best of Fasteners' knowledge, Fasteners has no liabilities or
obligations of any nature, whether absolute, accrued, unmatured, contingent or
otherwise, and no unsatisfied judgments or any leases of personalty or realty or
unusual or extraordinary commitments, except the liabilities recorded on the
Balance Sheet and the notes thereto, and except for liabilities or obligations
incurred in the ordinary course of business and consistent with past practice
since March 31, 1997, or that would not individually or in the aggregate have a
Fasteners Material Adverse Effect.
6.23 Finders or Brokers. Except as set forth in Schedule 6.23, none of
Fasteners, Edwards, the Board of Directors or any member of the Board of
Direc-
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tors has employed any investment banker, broker, finder or intermediary in
connection with the transactions contemplated hereby who might be entitled to a
fee or any commission in connection with the Merger, and Schedule 6.23 sets
forth the maximum consideration (present and future) agreed to be paid to each
such party.
6.24 Inventory. Except as disclosed in Schedule 6.24, all inventory
reflected on the Fasteners Financial Statements and all inventory acquired since
March 31, 1997, in either instance, other than inventory sold in the ordinary
course of business consistent with past practice is, as of the date hereof, the
property of Fasteners, free and clear of any lien, has not been pledged as
collateral, and is not held on consignment from others.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF FAIRCHILD SUBSIDIARY AND FAIRCHILD
Each of Fairchild Subsidiary and Fairchild, jointly and severally,
represents and warrants to Fasteners and Edwards that:
7.1 Organization and Qualification. Each of Fairchild and its subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of Fairchild and its subsidiaries is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except for failures
to be so qualified or in good standing which would not, individually or in the
aggregate, have a material adverse effect on the general affairs, management,
business, operations, condition (financial or otherwise) or prospects of
Fairchild and its subsidiaries taken as a whole (a "Fairchild Material Adverse
Effect"). Neither Fairchild nor any of its subsidiaries is in violation of any
of the provisions of its Certificate of Incorporation (or other applicable
charter document) or By-Laws. Fairchild has delivered to Fasteners accurate and
complete copies of the Certificate of Incorporation (or other applicable charter
document) and By-Laws,
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as currently in effect, of each of Fairchild and its material subsidiaries.
7.2 Capital Stock of Subsidiaries. The only material subsidiaries of
Fairchild are those listed in Schedule 7.2. Except as set forth in Schedule 7.2,
Fairchild is directly or indirectly the record and beneficial owner of all of
the outstanding shares of capital stock of each of its material subsidiaries,
there are no proxies with respect to such shares, and no equity securities of
any of such subsidiaries are or may be required to be issued by reason of any
options, warrants, scrip, rights to subscribe for, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of any capital stock of any such subsidiary, and there
are no contracts, commitments, understandings or arrangements by which any such
subsidiary is bound to issue additional shares of its capital stock or
securities convertible into or exchangeable for such shares. Other than as set
forth in Schedule 7.2, all of such shares so owned by Fairchild are validly
issued, fully paid and nonassessable and are owned by it free and clear of any
claim, lien or encumbrance of any kind with respect thereto.
7.3 Capitalization. The authorized capital stock of Fairchild consists of
40,000,000 shares of Fairchild Common Stock, 20,000,000 shares of Class B Common
Stock, par value $0.10 per share (the "Class B Common Stock"), and 10,000,000
shares of Preferred Stock, par value $0.10 per share. As of December 31, 1997,
17,047,167 shares of Fairchild Class A Common Stock and 2,624,716 shares of
Class B Common Stock are issued and outstanding (excluding 2,951,903 shares of
Fairchild Common Stock reserved for issuance pursuant to stock options and
warrants). All of such issued and outstanding shares are validly issued, fully
paid and nonassessable and free of preemptive rights. Except as set forth above
there are not now any shares of capital stock of Fairchild issued or outstanding
or any subscriptions, options, warrants, calls, claims, rights (including
without limitation any stock appreciation or similar rights), convertible
securities or other agreements or commitments of any character obligating
Fairchild to issue, transfer or sell any of its securities.
7.4 Authority Relative to This Agreement. Each of Fairchild Subsidiary and
Fairchild is a corporation duly organized, validly existing and in good standing
under the laws of Delaware. Each of Fairchild Subsidiary and Fairchild has full
corporate power and authority to execute and deliver this Agreement and to
consummate the Merger and other transactions
-23-
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the Merger and other transactions contemplated hereby have been
duly and validly authorized by the Board of Directors of each of Fairchild
Subsidiary and Fairchild and no other corporate proceedings on the part of
Fairchild Subsidiary and Fairchild are necessary to authorize this Agreement or
to consummate the Merger or other transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by each of Fairchild
Subsidiary and Fairchild and, assuming the due authorization, execution and
delivery hereof by Fasteners and Edwards, constitutes a valid and binding
agreement of each of Fairchild Subsidiary and Fairchild, enforceable against
each of Fairchild Subsidiary and Fairchild in accordance with its terms, except
to the extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally or by general equitable or fiduciary principles.
7.5 No Violations, etc.
(a) Assuming that all filings, permits, authorizations, consents and
approvals or waivers thereof have been duly made or obtained as contemplated by
Section 7.5(b) hereof, neither the execution and delivery of this Agreement by
Fairchild Subsidiary and Fairchild nor the consummation of the Merger or other
transactions contemplated hereby nor compliance by Fairchild Subsidiary and
Fairchild with any of the provisions hereof will (i) violate, conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination or suspension of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of Fairchild Subsidiary and Fairchild or
any of their respective subsidiaries under, any of the terms, conditions or
provisions of (x) their respective charters or by-laws, (y) except as set forth
in Schedule 7.5, any note, bond, mortgage, indenture or deed of trust, or (z)
any license, lease, agreement or other instrument or obligation, to which
Fairchild Subsidiary and Fairchild or any such subsidiary is a party or to which
they or any of their respective properties or assets may be subject, or (ii)
subject to compliance with the statutes and regulations referred to in the next
paragraph, violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Fairchild or any of its subsidiaries
or any of their respective
-24-
properties or assets, except, in the case of clauses (i)(z) and (ii) above, for
such violations, conflicts, breaches, defaults, terminations, suspensions,
accelerations, rights of termination or acceleration or creations of liens,
security interests, charges or encumbrances which would not, individually or in
the aggregate, either have a Fairchild Material Adverse Effect or materially
impair Fairchild's or Fairchild Subsidiary's ability to consummate the Merger or
other transactions contemplated hereby.
(b) No filing or registration with, notification to and no permit,
authorization, consent or approval of any governmental entity is required by
Fairchild Subsidiary or Fairchild or any of their respective subsidiaries in
connection with the execution and delivery of this Agreement or the consummation
by Fairchild Subsidiary of the Merger or other transactions contemplated hereby,
except (i) in connection with the applicable requirements of the HSR Act, (ii)
the filing of the Delaware Certificate of Merger, (iii) the filings of the
California Certificate of Merger and (iv) such other filings, registrations,
notifications, permits, authorizations, consents or approvals the failure of
which to be obtained, made or given would not, individually or in the aggregate,
either have a Fairchild Material Adverse Effect or materially impair Fairchild
Subsidiary's ability to consummate the Merger or other transactions contemplated
hereby.
(c) As of the date hereof, Fairchild and its subsidiaries are not in
violation of or default under (x) their respective charter or bylaws, and (y)
except as set forth in Schedule 7.5, any note, bond, mortgage, indenture or deed
of trust, or (z) any license, lease, agreement or other instrument or obligation
to which Fairchild or any such subsidiary is a party or to which they or any of
their respective properties or assets may be subject, except, in the case of
clauses (y) and (z) above, for such violations or defaults which would not,
individually or in the aggregate, either have a Fairchild Material Adverse
Effect or materially impair Fairchild Subsidiary's ability to consummate the
Merger or other transactions contemplated hereby.
7.6 Commission Filings; Financial Statements.
(a) Fairchild has filed all required forms, reports and documents during
the past three years (collectively, the "SEC Reports") with the Securities and
Exchange Commission (the "SEC"), all of which complied when filed in all
material respects with all applicable requirements of the Securities Act
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of 1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act") and the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder (the "Exchange Act"). As of their
respective dates the SEC Reports (including all exhibits and schedules thereto
and documents incorporated by reference therein) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited consolidated interim financial
statements of Fairchild (the "Fairchild Financial Statements") and its
subsidiaries included or incorporated by reference in such SEC Reports were
prepared in accordance with GAAP during the periods involved (except as may be
indicated in the notes thereto), and fairly presented the consolidated financial
position of Fairchild and its subsidiaries as of the dates thereof and the
consolidated results of operations and consolidated cash flows for the periods
then ended (subject, in the case of any unaudited interim financial statements,
to normal year-end adjustments and to the extent they may not include footnotes
or may be condensed or summary statements).
(b) Fairchild will deliver to Fasteners as soon as they become available
true and complete copies of any report or statement mailed by it to its
securityholders generally or filed by it with the SEC, in each case subsequent
to the date hereof and prior to the Effective Time. As of their respective
dates, such reports and statements (excluding any information therein provided
by Fasteners, as to which Fairchild makes no representation) will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading and will
comply in all material respects with all applicable requirements of law. The
audited consolidated financial statements and unaudited consolidated interim
financial statements of Fairchild and its subsidiaries to be included or
incorporated by reference in such reports and statements (excluding any
information therein provided by Fasteners, as to which Fairchild makes no
representation) will be prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and will fairly
present the consolidated financial position of Fairchild and its subsidiaries as
of the dates thereof and the consolidated results of operations and consolidated
cash flows for the
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periods then ended (subject, in the case of any unaudited interim financial
statements, to normal year-end adjustments and to the extent they may not
include footnotes or may be condensed or summary statements).
(c) Fairchild will deliver to Fasteners within 45 days of the end of each
fiscal quarter subsequent to the date hereof and prior to the Effective Time
unaudited consolidated interim financial statements for such quarter prepared in
accordance with generally accepted accounting principles on the same basis as
the Fairchild Financial Statements were prepared.
7.7 Absence of Changes or Events. Except as set forth in Fairchild's Form
10-K for the fiscal year ended June 30, 1997, as amended, as filed with the SEC,
or in Fairchild's Form 8-K as filed with the SEC on January 28, 1998, or in
Fairchild's Form 13-D as filed with the SEC on January 21, 1998, since June 30,
1997:
(a) there has been no material adverse change, or any development
involving a prospective material adverse change, in the general affairs,
management, business, operations, condition (financial or otherwise) or
prospects of Fairchild and its subsidiaries taken as a whole;
(b) there has not been any direct or indirect redemption, purchase or
other acquisition of any shares of capital stock of Fairchild or any of its
subsidiaries, or any declaration, setting aside or payment of any dividend
or other distribution by Fairchild or any of its subsidiaries in respect of
their capital stock;
(c) except in the ordinary course of its business and consistent with
past practices neither Fairchild nor any of its subsidiaries has incurred
any indebtedness for borrowed money, or assumed, guaranteed, endorsed or
otherwise as an accommodation become responsible for the obligations of any
other individual, firm or corporation, or made any loans or advances to any
other individual, firm or corporation;
(d) there has not been any change in accounting methods, principles or
practices of Fairchild or its subsidiaries;
(e) except in the ordinary course of business and for amounts which
are not material, there has not been any revaluation by Fairchild or any of
its subsidiaries of any
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of their respective assets, including, without limitation, writing down the
value of inventory or writing off notes or accounts receivables;
(f) there has not been any damage, destruction or loss, whether
covered by insurance or not, except for such as would not, individually or
in the aggregate, have a Fairchild Material Adverse Effect; and
(g) there has not been any agreement by Fairchild or any of its
subsidiaries to (i) do any of the things described in the preceding clauses
(a) through (f) other than as expressly contemplated or provided for in
this Agreement or (ii) take, whether in writing or otherwise, any action
which, if taken prior to the date of this Agreement, would have made any
representation or warranty in this Article VII untrue or incorrect.
7.8 Board Recommendation. The Board of Directors of Fairchild Subsidiary
has, by a unanimous vote at a meeting of such Board duly held on, or by
unanimous written consent of such Board dated January 27, 1998, approved and
adopted this Agreement, the Merger and the other transactions contemplated
hereby.
7.9 Disclosure. No representation or warranty by Fairchild herein, or in
any certificate furnished by or on behalf of Fairchild to Fasteners in
connection herewith, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements herein or therein, in light of the circumstances under which they
were made, not misleading.
7.10 Finders or Brokers. None of Fairchild, the subsidiaries of Fairchild,
the Board of Directors or any member of the Board of Directors has employed any
investment banker, broker, finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to a fee or any
commission in connection with the Merger.
7.11 Litigation. Except as set forth in the SEC Reports, there is no (i)
claim, action, suit or proceeding pending or, to the best knowledge of
Fairchild, threatened against or relating to Fairchild or any of its
subsidiaries before any court or governmental or regulatory authority or body or
arbitration tribunal, or (ii) outstanding judgment, order, writ, injunction or
decree, or application request or motion therefor, of any court, governmental
agency or arbitration tribunal
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in a proceeding to which Fairchild, any subsidiary of Fairchild, or any of their
respective assets was or is a party except, in the case of clauses (i) or (ii)
above, such as would not, individually or in the aggregate, either have a
Fairchild Material Adverse Effect or materially impair Fairchild's ability to
consummate the Merger.
7.12 Fairchild Subsidiary. Fairchild Subsidiary has no business operations
and as of the Effective Date will not have incurred any liabilities other than
liabilities which arise by operation of law under the CGCL and DGCL as a result
of the Merger.
ARTICLE VIII
CONDUCT OF BUSINESS OF
FASTENERS PENDING THE MERGER
8.1 Conduct of Business of Fasteners Pending the Merger. Except as
contemplated by this Agreement or as expressly agreed to in writing by
Fairchild, during the period from the date of this Agreement to the Effective
Time, Fasteners will conduct its operations according to its ordinary course of
business consistent with past practices, and will use all commercially
reasonable efforts to preserve intact its business organization, to keep
available the services of its officers and employees and to maintain
satisfactory relationships with suppliers, distributors, customers and others
having business relationships with it and will take no action which would
materially adversely affect the ability of the parties to consummate the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Effective Time, Fasteners will not, without the prior written
consent of Fairchild:
(a) amend its certificate of incorporation or by-laws;
(b) authorize for issuance, issue, sell, deliver, grant any options
for, or otherwise agree or commit to issue, sell or deliver any shares of
any class of its capital stock or any securities convertible into shares of
any class of its capital stock;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or
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other distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock or purchase, redeem or otherwise
acquire any shares of its own capital stock;
(d) except in the ordinary course of business, consistent with past
practices (i) create, incur, assume, maintain or permit to exist any
long-term debt or any short-term debt for borrowed money other than under
existing lines of credit; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person; or (iii) make any loans, advances
or capital contributions to, or investments in, any other person;
(e) except as otherwise expressly contemplated by this Agreement or in
the ordinary course of business, consistent with past practices, (i)
increase in any manner the compensation of any of its directors, officers
or other employees; (ii) pay or agree to pay any pension, retirement
allowance or other employee benefit not required, or enter into or agree to
enter into any agreement or arrangement with such director, officer or
employee, whether past or present, relating to any such pension, retirement
allowance or other employee benefit, except as required under currently
existing agreements, plans or arrangements; (iii) grant any severance or
termination pay to, or enter into any employment or severance agreement
with, any of its directors, officers or other employees; or (iv) except as
may be required to comply with applicable law, become obligated under any
new pension plan, welfare plan, multiemployer plan, employee benefit plan,
benefit arrangement, or similar plan or arrangement, which was not in
existence on the date hereof, including any bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other benefit plan, agreement or
arrangement, or employment or consulting agreement with or for the benefit
of any person, or amend any of such plans or any of such agreements in
existence on the date hereof;
(f) except as otherwise expressly contemplated by this Agreement,
enter into any other agreements, commitments or contracts, except
agreements, commitments or contracts for the purchase, sale or lease of
goods or services in the ordinary course of business, consistent with past
practices;
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(g) except in the ordinary course of business, consistent with past
practices, or as contemplated by this Agreement, authorize, recommend,
propose or announce an intention to authorize, recommend or propose, or
enter into any agreement in principle or an agreement with respect to, any
plan of liquidation or dissolution, any acquisition of a material amount of
assets or securities, any sale, transfer, lease, license, pledge, mortgage,
or other disposition or encumbrance of a material amount of assets or
securities or any material change in its capitalization, or any entry into
a material contract or any amendment or modification of any material
contract or any release or relinquishment of any material contract rights;
or
(h) agree to do any of the foregoing, except in the ordinary course of
business, consistent with past practices, or as contemplated by this
Agreement.
ARTICLE IX
COVENANTS AND AGREEMENTS
9.1 Additional Agreements; Cooperation.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its best efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or advisable
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, and to cooperate with each other in connection
with the foregoing, including using its best efforts (i) to obtain all necessary
waivers, consents and approvals from other parties to loan agreements, leases
and other contracts that are specified on Schedule 6.12, (ii) to obtain all
necessary consents, approvals and authorizations as are required to be obtained
under any federal, state or foreign law or regulations, (iii) to defend all
lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby, (iv) to lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby, (v)
to effect all necessary registrations and filings, including, but not limited
to, filings under the HSR Act, if any, and submissions of information requested
by governmental authorities, and (vi) to fulfill all conditions to this
Agreement.
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(b) Each of the parties hereto agrees to furnish to the other party hereto
such necessary information and reasonable assistance as such other party may
request in connection with its preparation of necessary filings or submissions
to any regulatory or governmental agency or authority, including, without
limitation, any filing necessary under the provisions of the HSR Act or any
other applicable Federal or state statute.
9.2 Publicity. Fasteners, Fairchild Subsidiary and Fairchild agree to
consult with each other in issuing any press release and with respect to the
general content of other public statements with respect to the transactions
contemplated hereby, and shall not issue any such press release prior to such
consultation, except as may be required by law.
9.3 No Solicitation.
(a) Fasteners agrees that, prior to the Effective Time or unless this
Agreement is terminated, it shall not, and shall not authorize or permit any of
its directors, officers, employees, agents or representatives to, directly or
indirectly, solicit, initiate, facilitate or encourage (including by way of
furnishing or disclosing non-public information) any inquiries or the making of
any proposal with respect to any merger, consolidation or other business
combination involving Fasteners or acquisition of any kind of all or
substantially all of the assets or capital stock of Fasteners (an "Acquisition
Transaction") or negotiate, explore or otherwise communicate in any way with any
third party (other than Fairchild) with respect to any Acquisition Transaction
or enter into any agreement, arrangement or understanding requiring it to
abandon, terminate or fail to consummate the Merger or any other transactions
contemplated by this Agreement.
(b) Fasteners shall immediately advise Fairchild in writing of the receipt
of any inquiries or proposals relating to an Acquisition Transaction.
9.4 Access to Information.
(a) From the date of this Agreement until the Effective Time, each of
Fasteners and Fairchild will give the other party and its authorized
representatives (including counsel, environmental and other consultants,
accountants and auditors) full access during normal business hours to all
facilities, personnel and operations and to all books and records of it and its
subsidiaries, will permit the other party to make such in-
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spections as it may reasonably require and will cause its officers and those of
its subsidiaries to furnish the other party with such financial and operating
data and other information with respect to its business and properties as the
other party may from time to time reasonably request.
(b) Each of the parties hereto will hold and will cause its consultants and
advisors to hold in strict confidence all documents and information furnished by
the other in connection with the transactions contemplated by this Agreement as
if each such consultant or advisor was a party hereto, and the provisions of
this Section 9.4(b) shall survive any termination of this Agreement.
9.5 Bank Consent. Fasteners will reasonably cooperate with Fairchild to
assist Fairchild in obtaining any consent required from Fairchild's bank lenders
for Fairchild Subsidiary to effect the Merger.
9.6 Notification of Certain Matters. Fasteners or Fairchild, as the case
may be, shall promptly notify the other of (i) its obtaining of actual knowledge
as to the matters set forth in clauses (x) and (y) below, or (ii) the
occurrence, or failure to occur, of any event which occurrence or failure to
occur would be likely to cause (x) any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Effective Time, or (y) any material failure of
Fasteners, Fairchild or Fairchild Subsidiary, as the case may be, or of any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that no such notification shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder.
9.7 Fees and Expenses. In the event this Agreement is terminated,
Fasteners, Edwards, Fairchild, and Fairchild Subsidiary shall bear their
respective expenses incurred in connection with the Merger, including, without
limitation, the preparation, execution and performance of this Agreement and the
transactions contemplated hereby, and all fees and expenses of investment
bankers, finders, brokers, agents, representatives, counsel and accountants.
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9.8 Delivery of Additional Financial Statements.
(a) Until the Effective Time, Fasteners shall deliver to Fairchild interim
consolidated financial statements of Fasteners as soon as practicable, but in no
event later than forty-five (45) days after the end of each fiscal quarter,
consisting of a balance sheet dated as of the last day of such fiscal quarter
and related statements of income and cash flow for such current and comparative
prior year and fiscal quarter, prepared in a manner consistent with prior
practices, and thereafter such statements shall be considered Fasteners
Financial Statements hereunder.
(b) To the extent not included within the Fasteners Financial Statements,
Fasteners shall deliver to Fairchild within twenty (20) days after the period to
which they relate unaudited monthly financial statements, including a
consolidated balance sheet and consolidated statements of earnings and cash flow
for the period then ended.
9.9 Supplemental Disclosure. Until the Effective Time, Fasteners, Edwards,
Fairchild Subsidiary and Fairchild shall have the continuing obligation to
promptly supplement the information contained in the Schedules attached hereto
with respect to any matter hereafter discovered which was in existence on the
date hereof and, if known at the date of this Agreement, would have been
required to be set forth or described in the Schedules.
9.10 Taxes.
(a) Fasteners hereby acknowledges that, for FICA, FUTA, and income tax
withholding purposes, Fairchild Subsidiary is regarded as the same employer as
Fasteners with respect to the retained employees. Fasteners and Fairchild
Subsidiary understand that Fairchild Subsidiary shall assume Fasteners' entire
obligation to furnish a Form W-2, Wage and Tax Statement to the employees of
Fasteners' business for the calendar year ending December 31, 1998.
(b) In addition to all personnel files and records relating to employees of
Fasteners' business that Fasteners shall deliver to Fairchild Subsidiary when
those employees' employment commences with Fairchild Subsidiary as otherwise
required by this Agreement, Fasteners shall timely provide Fairchild Subsidiary
with any and all other information it needs to comply properly with the
requirements of the last sentence of Section 9.10(a).
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(c) Fasteners shall deliver to Fairchild Subsidiary within a reasonable
time after a request therefor, with respect to Fasteners' business, copies of
Fasteners' (i) Form 940, Employer's Annual Federal Unemployment Tax Returns
filed for the two calendar years prior to the Effective Date, (ii) state
unemployment tax rate notices for the two calendar years prior to the Effective
Date, and (iii) benefit change statements that itemize claims charged against
the state account of Fasteners in each state in which its business has operated
for the four most recent calendar quarters prior to the Effective Date.
(d) Fasteners and Edwards, on the one hand, and Fairchild and Fairchild
Subsidiary, on the other hand, will (i) provide the other with such assistance
as may reasonably be requested in connection with the preparation of any Tax
return, any audit or other examination by any taxing authority or any judicial
or administrative proceeding with respect to Taxes, (ii) each retain and provide
to the other any records or other information that may be relevant to such Tax
return, audit examination or proceeding, and (iii) each provide to the other any
final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any Tax return of
the other for any period (which shall be maintained confidentially). Without
limiting the generality of the foregoing, the parties shall retain, until the
applicable statutes of limitations (including all extensions) have expired,
copies of all Tax returns, supporting workpapers, and other books and records or
information which may be relevant to such Tax returns for all Tax periods or
portions thereof ending before or including the Effective Date, and shall not
destroy or dispose of such records or information without first providing the
other party with a reasonable opportunity to review and copy the same.
(e) The parties intend that the Merger shall qualify as and constitute a
reorganization under Section 368(a)(2)(D) of the Code. Each of the parties
agrees to treat the Merger in such a manner for all Tax purposes including,
without limitation, for all purposes of any Federal or state income or franchise
tax return filed by any party after the Effective Date.
(f) Fasteners shall not make a new or change any existing Tax election,
change a method of accounting or inventory method, file any amended Tax return,
enter into any closing agreement, settle any Tax claim or assessment, or take or
omit to take any other action not consistent with past practice, if any such
action or omission would have the effect of increasing the Tax liability of
Fairchild or Fairchild Subsidiary with re-
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spect to Fasteners' business for any period after the Effective Date.
(g) Fasteners and Fairchild Subsidiary shall bear equally all transfer
Taxes as a result of the Merger. The parties shall cooperate in the timely
filing of all Tax returns as may be required to comply with the provisions of
any transfer Tax laws.
(h) The parties acknowledge that no affirmative election under Code Section
338 may be made with respect to the transaction contemplated by this Agreement.
9.11 Option on Building. Fasteners and Edwards covenant to assign to
Fairchild Subsidiary or its designee all rights as an optionee under that
certain Option to Purchase Agreement dated October 1, 1994, as amended between
Fasteners and/or Edwards and Linda Edwards, and Angelo Adams and Elizabeth
Adams, with respect to the premises described therein.
ARTICLE X
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver by the Board of Directors of the waiving party
(subject to applicable law) at or prior to the Effective Date of each of the
following conditions:
(a) any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated;
(b) no order, statute, rule, regulation, executive order, injunction,
stay, decree or restraining order shall have been enacted, entered,
promulgated or enforced by any court of competent jurisdiction or
governmental or regulatory authority or instrumentality that prohibits the
consummation of the Merger or the transactions contemplated hereby;
(c) all necessary consents and approvals of any United States or any
other governmental authority or any other third party required for the
consummation of the transactions contemplated by this Agreement shall have
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been obtained except for such consents and approvals the failure to obtain
which individually or in the aggregate would not have a material adverse
effect on the Surviving Corporation and any waiting period applicable to
the consummation of the Merger under the HSR Act shall have expired or been
terminated;
(d) Edwards shall have executed and delivered an employment agreement
in the form of Exhibit B hereto; and
(e) Fairchild shall have adopted a Stock Award Plan substantially in
the form set forth in Exhibit D hereto, granting awards in an aggregate
amount not to exceed $1,000,000 valued at the Closing Date Market Price.
10.2 Additional Conditions to Obligations of Fairchild. The obligations of
Fairchild to effect the Merger shall be subject to the fulfillment or waiver
(subject to applicable law), at or prior to the Effective Date, of each of the
following conditions:
(a) Fasteners shall have furnished Fairchild with copies of
resolutions duly adopted by its Board of Directors approving the execution
and delivery of this Agreement and the Merger and all other necessary
corporate action to enable Fasteners to comply with the terms of this
Agreement duly certified by the Secretary of Fasteners;
(b) Fairchild shall have been furnished with a resolution by the sole
stockholder of Fasteners approving the execution and delivery of this
Agreement and the Merger and all other necessary corporate action to enable
Fasteners to comply with the terms of this Agreement;
(c) Fasteners shall have performed or complied in all material
respects with all its agreements, obligations and covenants required by
this Agreement to be performed by it on or prior to the Effective Date, and
Fasteners shall have delivered to Fairchild a certificate, dated the
Effective Date, of its President and its Secretary to such effect;
(d) the representations and warranties of Fasteners contained herein
shall be true and correct in all material respects on the date of this
Agreement and the Effective Date as though such representations and
warranties were made at and on such date, and Fasteners shall have
deliv-
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ered to Fairchild a certificate, dated the Effective Date, of its President
and its Secretary to such effect;
(e) there shall not have occurred since March 31, 1997 any material
adverse change in the business, operations, assets, financial condition or
results of operations of Fasteners;
(f) Fairchild shall have obtained consent from its banks to permit
Fairchild Subsidiary to consummate the Merger;
(g) Edwards and Linda Edwards shall have assigned to Fairchild or its
designee all rights as an optionee under that certain Option to Purchase
Agreement dated October 1, 1994, between Fasteners and/or Edwards and Linda
Edwards, and Angelo Adams and Elizabeth Adams, as amended (the "Option"),
with respect to premises described therein;
(h) Angelo Adams and Elizabth Adams as owners of that property
commonly known as 20660 Nordoff Street, Chatsworth, California 91311 shall
have consented in writing to (i) the transfer by Edwards and Linda Edwards
of their rights under the Option to Fairchild Subsidiary or a designee of
Fairchild Subsidiary; (ii) the transfer by operation of law of the
Fasteners' rights under the Option to Fairchild Subsidiary; and (iii) the
transfer by operation of law of the Fasteners' rights under the lease for
the real property located at 20660 Nordoff Street, Chatsworth, California
91311 to Fairchild Subsidiary; and
(i) Edwards and Fasteners shall have executed and delivered to
Fairchild the tax representation letters set forth as Exhibit C hereto
dated the Effective Date.
10.3 Additional Conditions to Obligations of Fasteners. The obligations of
Fasteners to effect the Merger shall be subject to the fulfillment or waiver
(subject to applicable law), at or prior to the Effective Date, of each of the
following conditions:
(a) Each of Fairchild Subsidiary and Fairchild shall have furnished
Fasteners with certified copies of resolutions duly adopted by its Board of
Directors approving the execution and delivery of this Agreement and the
Merger and all other necessary corporate action to enable Fairchild
Subsidiary and Fairchild to comply with the terms of this Agreement;
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(b) Fasteners shall have been furnished with a resolution by the sole
stockholder of Fairchild Subsidiary approving the execution and delivery of
this Agreement and the Merger and all other necessary corporate action to
enable Fairchild Subsidiary to comply with the terms of this Agreement;
(c) Fairchild Subsidiary and Fairchild shall have performed or
complied in all material respects with all its agreements, obligations and
covenants required by this Agreement to be performed by it on or prior to
the Effective Date and Fairchild shall have delivered to Fasteners a
certificate, dated the Effective Date, of its President and its Secretary
to such effect;
(d) the representations and warranties of Fairchild Subsidiary and
Fairchild contained herein shall be true and correct in all material
respects on the date of this Agreement and the Effective Date as though
such representations and warranties were made at and on such date and
Fairchild shall have delivered to Fasteners a certificate, dated the
Effective Date, of its President and its Secretary to such effect;
(e) there shall not have occurred since June 30, 1997 any material
adverse change in the business, operations, assets, financial condition or
results of operations of Fairchild and its subsidiaries; and
(f) Fairchild shall have delivered to Edwards an executed Registration
Rights Agreement in the form of Exhibit A hereto.
(g) Fairchild and Fairchild Subsidiary shall have executed and
delivered to Edwards and Fasteners the tax representation letters set forth
as Exhibit E hereto dated the Effective Date.
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time:
(a) by mutual written consent of Fairchild Subsidiary and Fasteners;
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(b) by either Fairchild Subsidiary or Fasteners if the Effective Time
has not occurred on or prior to May 29, 1998;
(c) by Fairchild Subsidiary if Fasteners or Edwards fails to perform
in any material respect any of its obligations under this Agreement within
five days after receipt of notice that it has breached an obligation to
perform under this Agreement;
(d) by Fasteners if Fairchild Subsidiary or Fairchild fails to perform
in any material respect any of its obligations under this Agreement within
five days after receipt of notice that it breached an obligation to perform
under this Agreement; or
(e) by Fairchild Subsidiary or Fasteners if a court of competent
jurisdiction or a governmental, regulatory or administrative agency or
commission shall have issued an order, decree, or ruling or taken any other
action, in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and nonappealable.
11.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to the foregoing provisions of this Article XI, this
Agreement shall become void and have no effect, with no liability on the part of
any party or its stockholders or directors or officers in respect thereof except
for agreements which survive the termination of this Agreement and except for
liability that Fairchild Subsidiary, Fairchild, Fasteners or Edwards might have
arising from a breach of this Agreement.
ARTICLE XII
SURVIVAL AND INDEMNIFICATION
12.1 Survival of Representations and Warranties. All representations and
warranties made in this Agreement shall survive from the Effective Time until
the date that is two years after the Effective Time and shall not be
extinguished by the Merger or any investigation made by or on behalf of any
party hereto; provided that (x) the representations and warranties set forth in
Section 6.18 shall survive until 60 days after the expiration of the period of
the statute of limitations
-40-
for the Taxes for which a claim is being made and (y) the representations and
warranties set forth in Section 6.20 shall survive for a period of 7 years after
the Effective Time.
12.2 Indemnification by Fairchild Subsidiary and Fairchild. Each of
Fairchild Subsidiary and Fairchild hereby agrees, jointly and severally, to
indemnify and hold harmless Edwards against any and all losses, liabilities and
damages or actions (or actions or proceedings, whether commenced or threatened)
or claims (including, without limitation, counsel fees and expenses of Edwards
in the event that Fairchild Subsidiary or Fairchild fails to assume the defense
thereof) in respect thereof (hereinafter referred to collectively as "Losses")
resulting from any breach of the representations and warranties made by
Fairchild Subsidiary or Fairchild in this Agreement; provided, however, that
Fairchild Subsidiary's and Fairchild's obligations under this Section 12.2 is to
the extent that the Losses exceed $500,000 in the aggregate, in which event,
Edwards shall be entitled to claim indemnity for the full amount of Losses
equaling $500,000 and all Losses in excess of $500,000 and that the maximum
amount of any indemnity pursuant to this Section shall be limited to
$23,500,000. Notwithstanding the foregoing, in no event shall Edwards be
entitled to indemnification for, and the term "Losses" shall not include (i) any
consequential damages or damages which are speculative, remote or conjectural
(except to the extent represented by a successful claim by a third party); or
(ii) Losses which, individually, are less than $10,000.
If any action, proceeding or claim shall be brought or asserted against
Edwards by any third party, which action, proceeding or claim, if determined
adversely to the interests of Edwards would entitle Edwards to indemnity
pursuant to this Agreement, Edwards shall promptly but in no event later than 10
days from the date Edwards receives written notice of such action, proceeding or
claim, notify Fairchild Subsidiary and Fairchild of the same in writing
specifying in detail the basis of such claim and the facts pertaining thereto
(but the failure to give such notice in a timely fashion shall not affect
Fairchild Subsidiary's and Fairchild's obligations under this Section 12.2
except to the extent it prejudiced or damaged their ability to defend, settle or
compromise such claim or to pay any Losses resulting therefrom), and Fairchild
Subsidiary and Fairchild shall be entitled (but not obligated) to assume the
defense thereof by giving written notice thereof within 10 days after Fairchild
Subsidiary and Fairchild received notice of the claim from Edwards and have the
sole control of defense and settlement thereof (but only, with respect to any
settle-
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ment, if such settlement involves an unconditional release of Edwards and its
subsidiaries in respect of such claim), including the employment of counsel and
the payment of all expenses.
To the extent that Edwards receives (i) any Tax benefit in respect of a
Loss for which he has been indemnified by Fairchild or Fairchild Subsidiary or
(ii) insurance proceeds in respect of a Loss for which he has been indemnified
by Fairchild or Fairchild Subsidiary, Edwards will reimburse Fairchild or
Fairchild Subsidiary, as the case may be, for the full amount of such Tax
benefit or insurance proceeds; provided, however, that he will not reimburse
Fairchild or Fairchild Subsidiary, as the case may be, for an amount greater
than that which he received as indemnity from Fairchild or Fairchild Subsidiary,
as the case may be, in respect of such Loss. In computing the amount of any Tax
benefit, Edwards shall be deemed to recognize all other items of income, gain,
loss, deduction or credit before recognizing any item arising from the
incurrence of such Loss. Edwards agrees to use his reasonable efforts to secure
an insurance recovery in respect of any and all Losses.
12.3 Indemnification by Edwards. Edwards hereby agrees to indemnify and
hold harmless Fairchild Subsidiary and Fairchild against any and all losses,
liabilities including all Taxes and damages or actions (or actions or
proceedings, whether commenced or threatened) or claims (including, without
limitation, counsel fees and expenses of Fairchild Subsidiary and Fairchild in
the event that Edwards fails to assume the defense thereof) in respect thereof
hereinafter referred to as the "Fasteners' Losses") resulting from the breach of
the representations and warranties made by Fasteners and Edwards in this
Agreement; provided, however, that Edwards' obligation under this Section 12.3
is to the extent that the Fasteners' Losses exceed $500,000 in the aggregate, in
which event, Fairchild and Fairchild Subsidiary shall be entitled to claim
indemnity for the full amount of Fasteners' Losses equaling $500,000 and all
Fasteners' Losses in excess of $500,000 and that the maximum amount of any
indemnity pursuant to this Section shall be limited to $23,500,000.
Notwithstanding the foregoing, in no event shall Fairchild Subsidiary or
Fairchild be entitled to indemnification for, and the term "Fasteners' Losses"
shall not include (i) any consequential damages or damages which are
speculative, remote or conjectural (except to the extent represented by a
successful claim by a third party); or (ii) Fasteners' Losses which,
individually, are less than $10,000.
-42-
If any action, proceeding or claim shall be brought or asserted against
Fairchild Subsidiary or Fairchild by any third party, which action, proceeding
or claim, if determined adversely to the interests of Fairchild Subsidiary or
Fairchild would entitle Fairchild Subsidiary or Fairchild to indemnity pursuant
to this Agreement, Fairchild Subsidiary or Fairchild shall, promptly but in no
event later than 10 days from the date Fairchild Subsidiary or Fairchild
receives written notice of such action, proceeding or claim, notify Edwards of
the same in writing specifying in detail the basis of such claim and the facts
pertaining thereto (but the failure to give such notice in a timely fashion
shall not affect Edwards' obligations under this Section 12.3 except to the
extent it prejudiced or damaged Edwards' ability to defend, settle or compromise
such claim or to pay any Fasteners' Losses resulting therefrom), and Edwards
shall be entitled (but not obligated) to assume the defense thereof by giving
written notice thereof within 10 days after Edwards received notice of the claim
from Fairchild Subsidiary or Fairchild and have the sole control of defense and
settlement thereof (but only, with respect to any settlement, if such settlement
involves an unconditional release of Fairchild Subsidiary and Fairchild and
their respective subsidiaries in respect of such claim), including the
employment of counsel and the payment of all expenses. Fairchild and Fairchild
Subsidiary agree to use their reasonable efforts to secure an insurance recovery
in respect of any and all Fasteners' Losses.
To the extent that Fairchild or Fairchild Subsidiary receives (i) any Tax
benefit in respect of a Fasteners' Loss for which they have been indemnified by
Edwards or (ii) insurance proceeds in respect of a Fasteners' Loss for which
they have been indemnified by Edwards, Fairchild or Fairchild Subsidiary, as the
case may be, will reimburse Edwards for the full amount of such Tax benefit or
insurance proceeds; provided, however, that they will not reimburse Edwards for
an amount greater than that which they received as indemnity from Edwards in
respect of such Fasteners' Loss. In computing the amount of any Tax benefit,
Fairchild or Fairchild Subsidiary, as the case may be, shall be deemed to
recognize all other items of income, gain, loss, deduction or credit before
recognizing any item arising from the incurrence of such Fasteners' Loss.
12.4 Set-Off. In the event that either Fairchild Subsidiary, Fairchild or
Edwards fails to make any payment required by Section 12.2 or 12.3 hereof, the
party entitled to receive such payment may set off the amount thereof against
any other payments owed by it to the party failing to make such
-43-
payment; provided that prior to making such set-off, the party entitled to make
such set-off must notify the other party and inform it of its intent to make
such set-off, and if the other party fails to make the payment required by
Section 12.2 or 12.3 hereof within five business days after having received
notice of the impending set-off, the party entitled to make such set-off can
make such set-off.
ARTICLE XIII
MISCELLANEOUS
13.1 Closing and Waiver.
(a) Unless this Agreement shall have been terminated in accordance with the
provisions of Section 11.1 hereof, a closing (the "Closing" and the date and
time thereof being the "Closing Date") will be held as soon as practicable after
the conditions set forth in Sections 10.1, 10.2 and 10.3 shall have been
satisfied or waived. The Closing will be held at the offices of Paul, Hastings,
Janofsky & Walker LLP, 555 South Flower Street, Los Angeles, California, or at
such other places as the parties may agree. Immediately thereafter, each of the
Delaware Certificate of Merger and the California Certificate of Merger will be
filed.
(b) At any time prior to the Effective Date, any party hereto may (i)
extend the time for the performance of any of the obligations or other acts of
any other party hereto, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any of the agreements of any
other party or with any conditions to its own obligations contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing duly authorized by and
signed on behalf of such party.
13.2 Notices.
(a) Any notice or communication to any party hereto shall be duly given if
in writing and delivered in person or mailed by first class mail (registered or
certified, return receipt requested), facsimile or overnight air courier
advertising guaranteed next day delivery, to such other party's address.
-44-
If to Fairchild or Fairchild Subsidiary:
300 West Service Road
Chantilly, VA 20153
Facsimile No.: (703) 478-5775
Attention: Donald Miller, Esq.
with a copy to:
James J. Clark, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Facsimile No.: (212) 269-5420
If to Fasteners or Edwards:
20660 Nordhoff St.
Chatsworth, CA 91311
Facsimile No.: (818) 998-1412
Attention: Mr. Robert Edwards
with a copy to:
Michael K. Lindsey, Esq.
Paul, Hastings, Janofsky
& Walker LLP
555 South Flower Street
Los Angeles, CA 90071
Facsimile No.: (213) 627-0705
(b) All notices and communications will be deemed to have been duly given:
at the time delivered by hand, if personally delivered; five business days after
being deposited in the mail, if mailed; when sent, if sent by facsimile; and the
next business day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
13.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.4 Interpretation. The headings of articles and sections herein are for
convenience of reference, do not constitute a part of this Agreement, and shall
not be deemed to limit or affect any of the provisions hereof. As used in this
Agreement, "person" means any individual, corporation, limited
-45-
or general partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof; "subsidiary" of any person means (i) a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by such
person or by one or more other subsidiaries of such person or by such person and
one or more subsidiaries thereof or (ii) any other person (other than a
corporation) in which such person, or one or more other subsidiaries of such
person or such person and one or more other subsidiaries thereof, directly or
indirectly, have more than a majority ownership and voting power relating to the
policies, management and affairs thereof; and "voting stock" of any person means
capital stock of such person which ordinarily has voting power for the election
of directors (or persons performing similar functions) of such person, whether
at all times or only so long as no senior class of securities has such voting
power by reason of any contingency.
13.5 Variations and Amendment. This Agreement may be varied or amended only
by written action of Fasteners and Fairchild, before or after the Special
Meeting at any time prior to the Effective Time.
13.6 No Third Party Beneficiaries. Nothing in this Agreement shall confer
any rights upon any person or entity which is not a party or permitted assignee
of a party to this Agreement.
13.7 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to principles
of conflicts of laws.
13.8 Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
13.9 No Recourse Against Others. No director, officer or employee, as such,
of Fasteners, Fairchild Subsidiary or Fairchild or any of their respective
subsidiaries shall have any liability for any obligations of Fasteners,
Fairchild Subsidiary or Fairchild, respectively, under this Agreement for any
claim based on, in respect of or by reason of such obligations or their
creation.
-46-
13.10 Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
13.11 Schedules. Any fact, item or matter disclosed on any Schedule to this
Agreement shall be deemed disclosed on all other Schedules to this Agreement to
which such fact, item or matter may apply. Any agreement or arrangement entered
into by Fairchild, or any subsidiary or affiliate of Fairchild, and Fasteners
shall be deemed disclosed on all Schedules to this Agreement. Any fact, item,
matter or contract disclosed on any Schedule hereto shall not by reason of such
inclusion (1) be deemed to be material and shall not be employed as a point of
reference in determining any standard of materiality under this Agreement, (2)
represent a determination that such item, matter or contract did not arise in
the ordinary course of business, or (3) be deemed an admission of liability
concerning such item or matter.
-47-
IN WITNESS WHEREOF, the parties hereto have caused this Merger Agreement to
be executed by their duly authorized officers all as of the day and year first
above written.
EDWARDS & LOCK MANAGEMENT CORP.
By:/s/ Robert Edwards
------------------------------
Name: Robert Edwards
Title: President
SPECIAL-T FASTENERS, INC.
By:/s/ Donald E. Miller
-----------------------------
Name: Donald E. Miller
Title: Vice President
THE FAIRCHILD CORPORATION
By:/s/ Donald E. Miller
-----------------------------
Name: Donald E. Miller
Title: Senior Vice President
/s/ Robert Edwards
--------------------------
Robert Edwards
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER dated as of February
20, 1998 ("First Amendment") is made by and among The Fairchild Corporation, a
Delaware corporation ("Fairchild"), Special-T Fasteners, Inc., a Delaware
corporation ("Fairchild Subsidiary"), Edwards & Lock Management Corp., dba
Special T Fasteners, a California corporation ("Fasteners") and Robert Edwards,
a California resident ("Edwards"), amending certain provisions of the Agreement
and Plan of Merger dated as of January 28, 1998 (including the exhibits and
schedules thereto, the "Merger Agreement") by and among Fairchild, Fairchild
Subsidiary, Fasteners and Edwards. Terms used but not otherwise defined herein
shall have the respective meanings ascribed thereto in the Merger Agreement.
WHEREAS, Fairchild, Fairchild Subsidiary, Fasteners and Edwards have agreed
to modify certain terms and conditions as specifically set forth in this First
Amendment.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
AMENDMENTS TO THE MERGER AGREEEMNT
1.1 The second sentence of Section 3.1(a) of the Merger Agreement is
revised in its entirety to read as follows:
"Merger Consideration" means (x) shares of Class A Common Stock, $0.10 par
value per share, of Fairchild (the "Fairchild Common Stock") having a market
value of $23,500,000 based on the Closing Date Market Price (as defined in
Section 3.1(b)) except as set forth in Section 3.1(b) (the "Closing Date Market
Price Shares") and (y) $23,000,000 in cash subject to decrease as set forth in
Section 3.1(b), plus interest at the rate of 10% per annum from January 1, 1998
until the Effective Time and (z) the Additional Merger Consideration (as defined
in Section 3.3.)
-2-
1.2 The existing Section 3.3 is renumbered 3.4 and a new Section 3.3 is
hereby added to the Merger Agreement to read as follows:
"3.3. Additional Merger Consideration
(a) During the period commencing on the Effective Date and ending upon the
earlier of (a) the second anniversary of the Effective Date or (b) the
date of termination for any reason of Edwards' employment, Edwards
will be paid the amount, if any, (the "Additional Merger
Consideration") by which (i) 10% of the aggregate EBITD (as defined
below) of the Surviving Corporation (the "Earnings Share") for the
period commencing on the Effective Date and ending June 30, 1998 and
thereafter for all completed fiscal quarters (for which Edwards was
employed for such entire fiscal quarter pursuant to the employment
agreement (the "Employment Agreement") attached hereto as Exhibit B)
exceeds (ii) $520,000 per year (the "Amount") (pro rated on a per diem
basis for any period less than 12 calendar months); provided, however,
that if during the period commencing on the Effective Date and ending
one year later the Earnings Share accrued for such period is less than
the Amount, then the difference between the Amount and the Earnings
Share accrued for such period shall be subtracted from any Additional
Merger Consideration accruable for the next fiscal quarter and
thereafter from each subsequent fiscal quarter until such difference
shall be consumed. "EBITD" means the consolidated net income of a
person for any period plus, to the extent deducted in determining
consolidated net income, the consolidated interest expense, federal,
state, local and foreign income tax expense and depreciation expense
of such person for such period, in each case as determined in
accordance with generally accepted accounting principles in the United
States as in effect from time to time.
(b) The Additional Merger Consideration will be paid to Edwards within 75
days of the Adjustment Date (as defined below) as follows: (i) 50.1%
of the Additional Merger Consideration shall be paid to Edwards in
Fairchild Common Stock (the
-3-
"Adjustment Date Market Price Shares") based on the Adjustment Date
Market Price (as defined below); and (ii) the remainder of the
Additional Merger Consideration shall be paid to Edwards in cash by
the Surviving Corporation; provided, however, that if the closing
price of the Fairchild Common Stock on the day immediately prior to
the Adjustment Date (the "Closing Adjustment Date Price") is less than
the Adjustment Date Market Price, then the number of shares to be
received as part of the Additional Merger Consideration shall be
increased such that the total number of shares received (the "Closing
Shares") as part of the Merger Consideration is at least 50.1% of the
total Additional Merger Consideration based on the Closing Adjustment
Date Price; provided, further, however, that in such case the amount
of cash to be received as part of the Additional Merger Consideration
shall be reduced by an amount in cash equal to the product of the
Adjustment Date Market Price multiplied by the difference between the
Closing Shares and the Adjustment Date Market Price Shares. The
"Adjustment Date" shall be the last day of each fiscal year of the
Surviving Corporation; provided that if the Employment Agreement is
terminated prior to the end of a fiscal year, the Adjustment Date
shall be the effective date of such termination. The "Adjustment Date
Market Price" means, with respect to one share of Fairchild Common
Stock, the average closing price for such share as reported on the New
York Stock Exchange for the 20 most recent trading days ending on the
fifth day prior to the Adjustment Date.
(c) The parties agree that a portion of the Additional Merger
Consideration described in Section 3.3(a), if any, shall be treated as
unstated interest as defined in Section 483(b) of the Code.
(d) In the event the Surviving Corporation makes any material acquisition
or disposition, Fairchild and Edwards agree to negotiate in good faith
to make any necessary adjustments to this Section 3.3 to reflect such
acquisition or disposition."
-4-
ARTICLE II
AMENDMENTS TO THE EMPLOYMENT AGREEMENT
(EXHIBIT B)
2.1 Section 1 of Exhibit B to the Merger Agreement shall be amended by
deleting the definitions of the terms "Adjustment Date", "Difference", "Draw"
and "EBITD".
2.2 Section 1 of Exhibit B to the Merger Agreement shall be amended by
adding the following definition:
"'Salary' shall have the meaning ascribed to such term in Section 5."
2.3 Section 5 of Exhibit B to the Merger Agreement shall be amended in its
entirety to read as follows:
"5. Compensation. In consideration for his services to the Company,
the Company shall pay to Edwards a salary equal to $520,000 per year,
payable in equal installments, less tax withholding, in accordance
with the Company's payroll practices (the "Salary").
It is hereby understood that Special T will change its fiscal year to
June 30."
ARTICLE III
PROVISIONS OF GENERAL APPLICATION
3.1 Except as otherwise expressly provided by this First Amendment, all of
the terms, conditions and provisions to the Merger Agreement remain unaltered.
The Merger Agreement and this First Amendment shall be read and construed as one
agreement.
3.2 If any of the terms of this First Amendment shall conflict in any
respect with any of the terms of the Merger Agreement, the terms of this First
Amendment shall be controlling.
-5-
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed by their duly authorized officers, all as of the day and year first
above written.
THE FAIRCHILD CORPORATION
By:/s/ Donald E. Miller
-------------------------------
Name: Donald E. Miller
Title: Senior Vice President
SPECIAL-T FASTENERS, INC.
By:/s/ Donald E. Miller
-------------------------------
Name: Donald E. Miller
Title: Vice President
EDWARDS & LOCK MANAGEMENT CORP.
By:/s/ Robert Edwards
------------------------------
Name: Robert Edwards
Title: President
/s/ Robert Edwards
----------------------------
Robert Edwards
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER dated as of March 2,
1998 ("Second Amendment") is made by and among the Fairchild Corporation, a
Delaware corporation ("Fairchild"), Special-T Fasteners, Inc., a Delaware
corporation ("Fairchild Subsidiary"), Edwards & Lock Management Corp., dba
Special T Fasteners, a California corporation ("Fasteners") and Robert Edwards,
a California resident ("Edwards"), amending certain provisions of the Agreement
and Plan of Merger dated as of January 28, 1998 (including the exhibits and
schedules thereto, the "Merger Agreement"), as amended to date, by and among
Fairchild, Fairchild Subsidiary, Fasteners and Edwards. Terms used but not
otherwise defined shall have the respective meanings ascribed thereto in the
Merger Agreement.
WHEREAS, Fairchild, Fairchild Subsidiary, Fasteners and Edwards have agreed
to modify certain terms and conditions as specifically set forth in this Second
Amendment.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
AMENDMENTS TO THE MERGER AGREEMENT
1. Merger Consideration. The parties acknowledge that, as a result of an
arithmetic error in determining the Closing Date Market Price, the number of
shares of Fairchild Common Stock delivered on the Effective Date as part of the
Merger Consideration exceeds the number of such shares required to be delivered
pursuant to Section 3.1 of the Merger Agreement. Specifically, the parties
acknowledge and agree that (a) the Closing Date Market Price used to determine
the number of Closing Date Market Price Shares is $22.2219 per share, (b) the
correct Closing Date Market Price is $22.2719 per share, (c) the number of
Closing Date Market Price Shares delivered is 1,057,515 shares, (d) the correct
number of Closing Date Market Price Shares required to be delivered is 1,055,141
shares and (e) as a result of such arithmetic error, the Merger
-2-
Consideration delivered at the Effective Time includes 2,374 shares of Fairchild
Common Stock (the "Excess Shares") in excess of the number of shares required to
be delivered.
2. Transaction Price Adjustment. In determining any adjustment in the
Merger Consideration otherwise required pursuant to Section 5.1 Merger
Agreement, (a) Fairchild shall be deemed to have advanced Edwards a number of
shares of Fairchild Common Stock equal to the Excess Shares and (b) the number
of shares of Fairchild Common Stock to which Edwards would otherwise be entitled
pursuant to Section 5.1(e) of the Merger Agreement shall be reduced by the
Excess Shares so advanced by Fairchild. In the event no adjustment in the Merger
Consideration is required pursuant to Section 5.1(e) of the Merger Agreement,
Edwards shall promptly deliver the Excess Shares to Fairchild.
3. Consent to Assignment. Edwards shall use his best efforts to deliver to
Fairchild Subsidiary, promptly after the Effective Date, a fully executed
Consent to Assignment in form and substance attached hereto as Exhibit A (the
"Consent"). Edwards shall indemnify and defend Fairchild Subsidiary from and
against all claims, causes of action and liabilities of whatsoever nature which
may arise in connection with the failure of delivery of the fully executed
Consent as of the Effective Date.
4. Restricted Stock Award Plan. Within forty-five (45) days after the
Effective Date, Fairchild Subsidiary shall deliver to Edwards (a) copies of
resolutions duly adopted by the Board of Directors of Fairchild Subsidiary
approving the Stock Award Plan provided for in Section 10.1(e) of the Merger
Agreement, such resolutions to be duly certified by the Secretary of Fairchild
Subsidiary, and (b) executed Restricted Stock Award Agreements, in form and
substance reasonably acceptable to Edwards, (i) awarding an aggregate of 44,900
shares of Fairchild Common Stock to such employees of Fairchild Subsidiary as
Edwards shall designate and (ii) containing releases by such employees of
Fasteners and Edwards with respect to claims, causes of action and liabilities
of whatsoever nature which may have arisen on or before the Effective Date.
-3-
ARTICLE II
PROVISIONS OF GENERAL APPLICATION
2.1. Except as otherwise expressly provided by this Second Amendment, all
of the terms, conditions and provisions to the Merger Agreement, as amended to
date, remain unaltered. The Merger Agreement and this Second Amendment shall be
read and construed as one agreement.
2.2. If any of the terms of this Second Amendment shall conflict in any
respect with any of the terms of the Merger Agreement, as amended to date, the
terms of this Second Amendment shall be controlling.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be executed by their duly authorized officers, all as of the day and year first
above written.
THE FAIRCHILD CORPORATION
By: /s/ Donald E. Miller
-----------------------------
Donald E. Miller
Secretary
SPECIAL-T FASTENERS, INC.
By: /s/ Donald E. Miller
-----------------------------
Donald E. Miller
Secretary
EDWARDS & LOCK MANAGEMENT CORP.
By: /s/ Robert E. Edwards
Robert E. Edwards
President
/s/ Robert E. Edwards
------------------------------
Robert E. Edwards