UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
THE FAIRCHILD CORPORATION
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(Name of Registrant as Specified In Its Charter)
THE FAIRCHILD CORPORATION
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[LOGO] Fairchild
THE FAIRCHILD CORPORATION
45025 Aviation Drive
Suite 400
Dulles, VA 20166-7516
-----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
-----------------
Date: Thursday, November 21, 2002
Time: 10:00 a.m.
Place: Dulles Airport Marriott
45020 Aviation Drive
Dulles, Virginia
Matters to be voted on:
1. Election of nine directors.
2. Approval of a performance goal for incentive compensation for the
President.
3. Approval of a performance goal for incentive compensation for the Chief
Executive Officer.
4. Any other matters properly brought before the shareholders at the
meeting.
By Order of the Board of Directors
/s/ Donald E. Miller
Donald E. Miller
Executive Vice President & Secretary
October 23, 2002
CONTENTS
Page
General Information About Voting 1
Proposal No. 1: Election of directors 3
General Information About the Nominees 3
Information As to Executive Officers 8
Section 16(a) Beneficial Ownership Reporting Compliance 9
Executive Compensation 10
Table: Summary Compensation 10
Table: Options Granted 12
Table: Option Exercises and Year-End Value 12
Employment Agreements and Change of Control Arrangements 13
Pension and Retirement Benefits 16
Report of the Compensation and Stock Option Committee 18
Report of the Audit Committee 21
Stock Performance Graph 22
Stock Ownership 23
Certain Transactions 25
Proposal No. 2: Approval of a Performance Goal for Incentive Compensation for the President 26
Proposal No. 3: Approval of a Performance Goal for Incentive Compensation for the Chief
Executive Officer 28
Relationship with Independent Accountants 30
Shareholder Proposals 31
Annual Report 31
Appendix 1: Charter Of The Audit Committee
[LOGO] Fairchild
PROXY STATEMENT
Your vote at the annual meeting is important to us. Please vote your shares
of common stock by completing the enclosed proxy card and returning it to us in
the enclosed envelope. This proxy statement has information about the annual
meeting and was prepared by the Company's management for the board of
directors. This proxy statement was first mailed to shareholders on or about
October 23, 2002.
GENERAL INFORMATION ABOUT VOTING
Who can vote?
Only shareholders of record holding Class A common stock or Class B common
stock as of the close of business on October 1, 2002, will be entitled to
receive notice of the annual meeting and to vote at the meeting.
On October 1, 2002, there were 22,541,021 shares of Class A common stock and
2,621,502 shares of Class B common stock outstanding and eligible to vote.
Shares of common stock owned by the Company or any subsidiary are not entitled
to vote, and are not included in the number of outstanding shares. Class A
shares are entitled to one vote per share; Class B shares are entitled to 10
votes per share.
How do I vote by proxy?
Follow the instructions on the enclosed proxy card to vote on each proposal
to be considered at the annual meeting. Sign and date the proxy card and mail
it back to us in the enclosed envelope. The proxyholders named on the proxy
card will vote your shares as you instruct. If you sign and return the proxy
card but do not vote on a proposal, the proxyholders will vote for you on that
proposal. Unless you instruct otherwise, the proxyholders will vote for each of
the nine director nominees and for each of the other proposals to be considered
at the meeting.
How do participants in our savings plan vote these shares?
If you are a participant in our savings plan, the proxy card also will serve
as a voting instruction for the trustee of the plan, Putnam Investments, to
vote all shares of Class A common stock which are held by the trustee for your
benefit. The shares represented by your proxy will be voted as you direct. The
trustee will hold your voting directions in strict confidence. If you do not
vote your proxy, shares held by the trustee for your benefit will be voted by
the trustee in the same proportion as the shares properly voted by other
participants in the savings plan.
What if other matters come up at the annual meeting?
The matters described in this proxy statement are the only matters we know
will be voted on at the annual meeting. If other matters are properly presented
at the meeting, the proxyholders will vote your shares as they see fit.
May I change my vote after I return my proxy card?
Yes. At any time before the vote on a proposal, you may change your vote
either by giving the Company's secretary a written notice revoking your proxy
card or by signing, dating, and returning to us a new proxy card. We will honor
the proxy card with the latest date.
May I vote in person at the annual meeting rather than by completing the proxy
card?
Although we encourage you to complete and return the proxy card, to ensure
that your
1
vote is counted, you may attend the annual meeting and vote your shares in
person.
What do I do if my shares are held in "street name"?
If your shares are held in the name of your broker, a bank, or other
nominee, that party should give you instructions for voting your shares.
How are votes counted?
We will hold the annual meeting if holders of a majority of the shares of
Class A common stock and Class B common stock entitled to vote either sign and
return their proxy cards or attend the meeting. If you sign and return your
proxy card, your shares will be counted to determine whether we have a quorum
even if you abstain or fail to vote on any of the proposals listed in the proxy
card.
If your shares are held in the name of a nominee, and you do not tell the
nominee how to vote your shares (so-called "broker nonvotes"), the nominee can
vote them as it sees fit only on matters that the New York Stock Exchange
determines to be routine, and not on any other proposal. Broker nonvotes will
be counted as present to determine if a quorum exists, but will not be counted
as present and entitled to vote on any nonroutine proposal.
Who pays for this proxy solicitation?
We do. In addition to sending you these materials, some of our employees may
contact you by phone, by mail, or in person. None of these employees will
receive any extra compensation for doing this. The Company will also reimburse
brokerage houses and others forwarding proxy materials to beneficial owners of
stock.
2
PROPOSAL NO. 1
ELECTION OF DIRECTORS
An entire board of directors, consisting of nine members, will be elected at
the annual meeting. The directors elected will hold office until their
successors are elected, which should occur at the next annual meeting. We
recommend a vote "FOR" the nominees presented below.
Vote Required. The nine nominees receiving the highest number of votes will
be elected. Votes withheld for a nominee will not be counted.
Nominations. At the annual meeting, we will nominate the persons named in
this proxy statement as directors. Although we do not know of any reason why
one of these nominees might not be able to serve, the board of directors will
propose a substitute nominee if any nominee is not available for election.
GENERAL INFORMATION ABOUT THE NOMINEES
All of the nominees are currently directors of the Company. Each has agreed
to be named in this proxy statement and to serve as a director if elected. All
nominees have been designated as "Continuing Directors" as defined in the
Company's Certificate of Incorporation.
Related party transactions between the Company and certain directors, or
their immediate family members or affiliates, are set forth in this proxy
statement under the heading "Certain Transactions." Information regarding late
filings of stock ownership forms by certain directors is set forth in this
proxy statement, under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance."
Name Age Position
---- --- --------
Melville R. Barlow 73 Director
Mortimer M. Caplin 86 Director
Robert E. Edwards 54 Director
Steven L. Gerard 57 Director
Harold J. Harris 73 Director
Daniel Lebard 63 Director
Herbert S. Richey 80 Director
Eric I. Steiner 40 President, Chief Operating Officer and Director
Jeffrey J. Steiner 65 Chairman of the Board and Chief Executive Officer
Melville R. Barlow. Director Since 1996. Consultant to the Company:
September 1995 to June 1996. President of Pilkington Aerospace, Inc.
(manufacturer of aircraft transparencies): July 1991 through March 1994.
Corporate Vice President of General Dynamics and General Manager of General
Dynamics Electronics Division (manufacturer of military aircraft automatic test
equipment): June 1984 to March 1991.
Mortimer M. Caplin. Director Since 1990. Senior member of Caplin &
Drysdale (attorneys): 1964 to Present. Director of Presidential Realty
Corporation and Danaher Corporation.
Robert E. Edwards. Director Since 1998. Executive Vice President of
Fairchild Fasteners: March 1998 to January 2001. Chief Operating Officer of
Fairchild Fasteners U.S. Operations: January 2000 to January 2001. Chief
Executive Officer of Fairchild Fasteners Direct: March 1998 to December 1999.
President and Chief Executive Officer of Edwards and Lock Management
Corporation (predecessor of Fairchild Fasteners Direct): 1983 to 1998. Pursuant
to the merger agreement by which
3
the Company acquired Fairchild Fasteners Direct, Mr. Edwards is to be nominated
for election as a director every year as long as he continues to own at least
541,258 shares of Class A common stock.
Steven L. Gerard. Director Since 1999. Chief Executive Officer and
Director of Century Business Services, Inc. (provider of integrated business
services and products): October 2000 to present. Chairman and Chief Executive
Officer of Great Point Capital, Inc. (financial and operating consultants):
1998 to October 2000. Chairman and Chief Executive Officer of Triangle Wire &
Cable, Inc. and its successor, Ocean View Capital, Inc., a manufacturer of
insulated wire and cable: September 1992 to August 1997. Director of Lennar
Corporation, Timco Aviation Sales, Inc. and Joy Global, Inc.
Harold J. Harris. Director Since 1985. President of Wm. H. Harris, Inc.
(retailer): 1955 to Present. Director of Capital Properties Incorporated of
Rhode Island.
Daniel Lebard. Director Since 1996. Chairman of Supervisory Board of
Daniel Lebard Management Development SA, a consulting firm in Paris, France,
which performs management services: 1982 to Present. Chief Executive Officer of
ISPG and Executive Chairman of Albright & Wilson plc (manufacturer of added
value phosphate products): 1998 to 2000.
Herbert S. Richey. Director Since 1977. President of Richey Coal Company
(coal properties-brokerage and consulting): 1979 to December 1993.
Dr. Eric I. Steiner. Director Since 1988. President of the Company:
September 1998 to Present. Chief Operating Officer of the Company: November
1996 to Present. President of Fairchild Fasteners: August 1995 to Present.
Executive Vice President of the Company: November 1996 to September 1998.
Senior Vice President, Operations of the Company: May 1992 to November 1996.
Dr. Steiner is the son of Jeffrey J. Steiner.
Jeffrey J. Steiner. Director Since 1985. Chairman of the Board and Chief
Executive Officer of the Company: December 1985 to Present. President of the
Company: July 1991 to September 1998. Director of Franklin Holding Corp., and
Global Sources Ltd.
Beginning in the mid-1990's, articles have appeared in the French press
reporting an inquiry by a French magistrate into allegedly improper business
transactions involving Elf Acquitaine, a French petroleum company, its former
chairman and various third parties, including Maurice Bidermann. In connection
with this inquiry, the magistrate has made inquiry into allegedly improper
transactions between Mr. Jeffrey Steiner and that petroleum company. In
response to the magistrate's request, Mr. Steiner has submitted written
statements concerning the transactions and appeared in person, in France,
before the magistrate and others. The magistrate has put Mr. Steiner under
examination (mise en examen) with respect to these matters and imposed a surety
(caution) of ten million French Francs, approximately $1.54 million at the
time. The magistrate's principal allegations are that, in 1990, Mr. Steiner
improperly received or dealt with others with respect to funds of Elf
Acquitaine paid pursuant to a written consulting agreement with Elf Acquitaine,
and paid in connection with the sale of a real estate company. The examining
magistrate has notified Mr. Steiner that he intends to transmit the dossier to
the Republic prosecutor (procureur de la Republique) for his evaluation.
However, Mr. Steiner has not been charged; and as of the date of this proxy
statement, the Company is not aware of any developments involving Mr. Steiner
and these matters, which are adverse to him. The Company has provided the
surety for Mr. Steiner and paid his legal expenses ($4.7 million) in connection
with these matters, and will continue to do so, in accordance with Delaware
law. Mr. Steiner has undertaken to repay us the surety and expenses paid by us
on his behalf if it is ultimately detemined that Mr. Steiner was not entitled
to indemnification under Delaware law. Delaware law provides that Mr. Steiner
would be entitled to indemnification if it is determined that he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company, and had no reasonable cause to believe his
conduct was unlawful.
4
Board Meetings
The Board held four meetings during fiscal 2002, and acted three times by
unanimous written consent. No incumbent director attended less than
seventy-five percent of the aggregate number of meetings of the Board and
committees on which he served.
Board Committees
The Board has five standing committees. The following chart describes the
function and membership of each standing committee and the number of times it
met in fiscal 2002:
Audit Committee
(Held 4 meetings)
Function Members
- -------- -------
.. Is directly responsible for appointment, compensation and oversight of Herbert Richey (Chairman)
the Company's outside auditors and resolution of disagreements, if Melville Barlow
any, between outside auditors and management. Mortimer Caplin
Steven L. Gerard
.. Receives and responds to complaints (which may be submitted Harold Harris
confidentially or anonymously) regarding accounting, internal account
controls or auditing matters.
.. Examines and considers (and, where appropriate, pre-approves)
matters relating to the internal and external audits of the Company's
accounts and its financial affairs.
.. Selects the Company's independent auditors.
.. Functions and responsibilities are described in detail in the Audit
Committee's written charter, attached to this Proxy Statement.
The Board of Directors has determined that all members of the Audit
Committee are "independent" as defined in the listing standards of the New York
Stock Exchange. The Board was advised that a subsidiary of the firm of Century
Business Services, Inc., of which Mr. Gerard is the Chief Executive Officer,
has been engaged by the Company to do auditing work in connection with the
Company's qualified pension and 401(k) plans. However, such services are not
provided by Mr. Gerard himself, and charges for such services are less than
$60,000 a year. Based on this, the Board has determined that Mr. Gerard is
independent of the Company and its management, and that the business
relationship with his firm does not affect such independence.
The Board has adopted a written charter for the Audit Committee. The NYSE
requires that a copy of the charter be published at least once every three
years. A copy of the Audit Committee's charter is attached as Appendix 1 to
this Proxy Statement.
5
Compensation and Stock Option Committee
(Held 4 meetings and acted 1 time by written consent)
Function Members
- -------- -------
..Initial responsibility for all compensation actions affecting the Daniel Lebard (Chairman)
Company's officers, including base salaries, bonus awards, stock Melville Barlow
option awards and the terms and conditions of their employment Harold J. Harris
Herbert Richey
.. Administers the Company's stock option plan.
Executive Committee
(took no actions in fiscal year 2002)
Function Members
- -------- -------
.. May consider pertinent matters and exercise all powers of the Board, Jeffrey Steiner (Chairman)
which by law it may exercise when the Board is not in session. Mortimer Caplin
Herbert Richey
Eric Steiner
Corporate Ethics and Compliance Committee
(Held 1 meeting)
Function Members
-------- -------
. Oversees the Company's ethics programs. Mortimer Caplin (Chairman)
Melville Barlow
Herbert Richey
Nominating Committee
(Held 1 meeting)
Function Members
- -------- -------
..Considers and recommends to the Board candidates for election to Jeffrey Steiner (Chairman)
the Board of Directors by the shareholders. Eric Steiner
Harold Harris
6
Directors Compensation
Board members that are not salaried employees of the Company receive
separate compensation for Board service. That compensation includes:
Annual Retainer: $20,000
Attendance Fees: $2,500 for each Board meeting.
$2,500 for each Audit Committee meeting.
$1,000 per meeting for all other Board Committee meetings.
Expenses related to attendance
Stock Options: Under the 1996 Non-Employee Directors Stock Option Plan (the "1996 NED
Plan") each non-employee director is issued stock options for 30,000 shares at
the time he or she is first elected as a director. Thereafter, each director is
issued stock options for 1,000 shares on an annual basis (immediately after
each Annual Meeting).
Under the 2000 Non-Employee Directors Stock Option Plan (the "2000 NED
Plan") each non-employee director was issued stock options for 7,500 shares
(52,500 shares in the aggregate) immediately after the 2000 Annual Meeting.
Under the 2001 Non-Employee Directors Stock Option Plan (the "2001 NED
Plan") immediately after the 2001 Annual Meeting the non-employee directors
were issued stock options ranging from 2,000 to 30,000 per non-employee
director. The aggregate number of stock options issued under the 2001 NED
Plan was 86,942.
Nominees for Next Year's Annual Meeting
The Nominating Committee will consider written recommendations for nominees
for next year's annual meeting, submitted prior to June 22, 2003, by
shareholders to the Secretary of the Company. Biographical information and the
written consent of the potential nominee must accompany the recommendation.
7
INFORMATION AS TO EXECUTIVE OFFICERS
Set forth below is certain information about each executive officer of the
Company who is not a director of the Company. All of the executive officers of
the Company are elected by the Board to serve until the next annual meeting of
the Board or until their successors are elected and qualified. Related party
transactions between the Company and certain officers (or their immediate
family members or affiliates) are set forth in this proxy statement under the
heading "Certain Transactions."
Michael T. Alcox, 54, has served as Senior Vice President since July 2000.
Effective September 2001, Mr. Alcox began working on a reduced hours schedule,
with other officers assuming some of his responsibilities. Mr. Alcox previously
served as Vice President (from September 1996 to July 2000), as Senior Vice
President and Chief Financial Officer (from December 1987 to September 1996,
and July 2000 to January 2002), as Treasurer (from September 1990 to November
1991) and as a Director (from 1988 to 1999).
John L. Flynn, 56, has served as Chief Financial Officer of the Company
since January 2002, as Senior Vice President, Tax of the Company since
September 1994 and as Vice President, Tax from August 1989 to September 1994.
Donald E. Miller, 55, has served as Executive Vice President of the Company
since September 1998, as General Counsel since January 1991 and as Corporate
Secretary since January 1995. He served as Senior Vice President of the Company
from January 1991 through September 1998.
Warren D. Persavich, 49, has served as President of the Company's
Distribution Division since April 1999, and as Senior Vice President and Chief
Operating Officer of Banner Aerospace, Inc. since May 1998. Prior to that, he
served as Senior Vice President and Chief Financial Officer of Banner Aerospace
from June 1990 through May 1998, and as Vice President of Banner Aerospace from
March 1990 through June 1990.
Karen L. Schneckenburger, 53, has served as Vice President of the Company
since September 1992 and as Treasurer of the Company since November 1991. Prior
to that, she served as Director of Finance of Fairchild Industries from 1986
through 1989.
8
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and officers to file reports (on Forms 3, 4 and 5) with the
Securities and Exchange Commission, disclosing their ownership, and changes in
their ownership, of stock in the Company. Copies of these reports must also be
furnished to the Company. Based solely on a review of these copies, the Company
believes that during fiscal year 2002 all reports were filed on a timely basis.
9
EXECUTIVE COMPENSATION
Table: Summary Compensation
--------------------------
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------- -----------------------
Securities
Other Annual Underlying All Other
Name and Fiscal Salary Bonus Compensation Options Compensation
Principal Position Year ($)(1) ($)(1) ($) (#) ($) (2)
------------------ ------ --------- --------- ------------ ---------- ------------
Jeffrey Steiner, 2002 2,375,002 -- -- 250,000 34,743
Chairman & CEO(3)(4) 2001 2,500,005 266,300 -- 45,000 39,843
2000 2,061,554 3,623,314 -- -- 31,983
John Flynn, 2002 336,425 -- -- 6,668 9,776
CFO & Senior Vice 2001 300,019 125,000 -- 15,000 14,562
President, Tax 2000 285,595 217,350 -- -- 5,806
Donald Miller, 2002 423,826 -- -- 16,668 12,691
Executive Vice President, 2001 375,003 125,000 -- 15,000 19,626
General Counsel & Secretary 2000 352,675 449,656 -- 25,000 8,231
Warren Persavich, 2002 222,019 -- -- 13,140 10,601
President Distribution 2001 222,019 111,000 -- 23,665 12,131
Division 2000 224,042 337,978 -- -- 4,812
Eric Steiner, 2002 725,005 -- -- 42,888 10,965
President & COO 2001 725,005 217,500 -- 20,000 28,405
2000 565,386 829,850 -- 25,000 8,304
- --------
(1) Bonuses shown in the table for 2000 include a bonus of Global Sources
shares, with a market value in April 2000 (at the time the compensation was
awarded) as follows: J. Steiner--30,000 shares ($479,100 market value); J.
Flynn--5,000 shares ($79,850 market value); D. Miller--5,000 shares
($79,850 market value); E. Steiner--5,000 shares ($79,850 market value).
(2) Includes the following for fiscal 2002:
(a) Company matching contributions under 401(k) savings plan, as follows:
J. Steiner $ 117
J. Flynn 1,077
D. Miller 1,726
W. Persavich 1,902
(b) Income imputed for split-dollar life insurance coverage, as follows:
J. Steiner $25,927
New loans to executive officers relating to split dollar life insurance
are no longer permitted as of July 30, 2002.
10
(c) Imputed interest on loans to officers, as follows:
J. Steiner $ 8,699
J. Flynn 8,699
D. Miller 10,965
W. Persavich 8,699
E. Steiner 10,965
New loans to executive officers are no longer permitted as of July 30,
2002.
(3) During fiscal 2002, J. Steiner received $2,750,000 under our supplemental
executive retirement plan and $200,000 under the supplemental executive
retirement plan of Banner Aerospace in respect of vested benefits. Mr.
Steiner also received $1,272,000 from our pension plan in fiscal 2002 in
respect of vested benefits. None of these amounts are included in the table
above.
(4) J. Steiner deferred 10% of his base salary beginning January 1, 2002.
11
Table: Options Granted in Fiscal 2002
------------------------------------
Individual Grants Potential Realizable
--------------------------------------------- Value at Assumed
% of Rates of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term
Options Employees Price Expiration ----------------------
Name Granted in Fiscal 2002 ($/Sh) Date 5% ($) (1) 10% ($) (1)
---- ---------- -------------- -------- ---------- ---------- -----------
Jeffrey Steiner 250,000(2) 53.4% 3.100 09/20/06 214,119 473,145
John Flynn 6,668(2) 1.4% 3.100 09/20/06 5,711 12,620
Donald Miller 16,668(2) 3.6% 3.100 09/20/06 14,276 31,546
Warren Persavich 13,140(2) 2.8% 3.100 09/20/06 11,254 24,869
Eric Steiner 42,888(2) 9.2% 3.100 09/20/06 36,732 81,169
- --------
(1) The potential realizable value for each named executive officer reflects
the increase in value of the shares granted, based on a beginning price
equal to the stock option exercise price and assuming rates of stock value
appreciation of 5% and 10%, respectively, over a period of five years. The
actual value, if any, an executive may realize will depend on the excess of
the stock price over the exercise price on the date the option is exercised.
(2) These options were granted on 9/21/01; 25% are exercisable on 9/21/02; 50%
are exercisable on 9/21/03; 75% are exercisable on 9/21/04; and 100% are
exercisable on 9/21/05.
Table: Option Exercises and Year-End Value
------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
June 30, 2002 June 30, 2002
Shares Acquired Value ------------------------- -------------------------
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
---- --------------- -------- ----------- ------------- ----------- -------------
Jeffrey Steiner 0 0 472,997 290,000 0 12,500
John Flynn 0 0 21,250 20,418 0 333
Donald Miller 0 0 55,000 46,668 0 833
Warren Persavich 0 0 113,151 30,889 0 657
Eric Steiner 0 0 147,261 89,138 0 2,144
12
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
The following summarizes employment agreements and change of control
agreements:
.. Employment Agreement between the Company and Jeffrey Steiner:
Term of the Agreement: Five year term, extended annually by an additional 12 months
unless either party gives timely notice not to extend the
agreement.
Minimum Base Salary Under the
Agreement:
As determined by the Compensation and Stock Option
Committee.
Current Base Salary:
$1,700,000 per year.
Payments in Event of Death:
Estate to receive an amount equal to one year's base salary,
plus bonuses for the fiscal year in which death occurred.
Payments in Event of Termination
Due to Disability:
Fifty percent of base salary for two years, plus bonuses for the
fiscal year in which disability occurred.
Payments in the event of a "change in
control" or "trigger event":
2.99 times base salary and 2.99 times the preceding year's
bonus subject to the right to defer such payment for up to two
years. If payment is deferred, Mr. Steiner may elect to receive
the payment at any time within such two year period,
computed at the greater of the amount due at the time of the
"change in control" or "trigger event" or the amount due at the
date of Mr. Steiner's election to accept the payment.
.. Employment Agreement between Banner Aerospace (a Company Subsidiary) and
Jeffrey Steiner:
Term of the Agreement: Three year term, extended annually by an additional 12
months unless either party gives timely notice not to extend
the agreement.
Minimum Base Salary Under the
Agreement:
Not less than $250,000 per year, and an annual bonus if
certain performance targets are met.
Current Base Salary:
$400,000 per year.
Payments in Event of Death:
Estate to receive an amount equal to one year's base salary,
plus bonuses for the fiscal year in which death occurred.
Payments in Event of Termination
Due to Disability:
Fifty percent of base salary for two years, plus bonuses for the
fiscal year in which disability occurred.
Payments in the event of a "change in
control":
2.99 times base salary and 2.99 times the preceding year's
bonus subject to the right to defer such payment for up to two
years. If payment is deferred, Mr. Steiner may elect to receive
the payment at any time within such two year period,
computed at the greater of the amount due at the time of the
"change in control" or "trigger event" or the amount due at the
date of Mr. Steiner's election to accept the payment.
13
.. Service Agreement between Fairchild Switzerland, Inc. (Company Subsidiary)
and Jeffrey Steiner:
Term of the Agreement:
Year to year.
Minimum Base Salary Under the
Agreement:
Greater of $400,000 or 680,000 Swiss Francs per year, but
not more than $400,000.
.. Employment Agreement between the Company and Eric Steiner:
Term of the Agreement: Three year term, extended annually by an additional 12
months unless either party gives timely notice not to extend
the agreement.
Minimum Base Salary Under the
Agreement:
$540,000 per year.
Current Base Salary:
$725,000.
Payments in Event of Death:
Same as the Company's highest compensated officer.
Currently, Jeffrey Steiner is the highest compensated officer.
(See death benefits described above under Jeffrey Steiner's
employment agreement.)
Payments in Event of Termination
Due to Disability:
Same as the Company's highest compensated officer.
Currently, Jeffrey Steiner is the highest compensated officer.
(See disability and termination benefits described above
under Jeffrey Steiner's employment agreement.)
Payments in the event of a "change in
control":
2.99 times base salary and 2.99 times the average annual
bonus for the preceding five years.
.. Letter Agreements between the Company and each of the following officers:
Donald Miller and John Flynn
Payments in the event of Termination
Without Cause: 2 times then current annual base salary, plus 1 times current
annual base salary in lieu of bonus.
Payments in the event of a "change in
control":
2 times then current annual base salary, plus 1 times current
annual base salary in lieu of bonus.
14
.. Employment Agreement between the Company and Warren Persavich:
Term of the Agreement: Two year term, continuously extended unless either party
gives 24 months notice not to extend the agreement.
Minimum Base Salary Under the
Agreement:
$155,000 per year.
Current Base Salary:
$222,000.
Minimum Annual Bonus Under the
Agreement:
50% of base salary if certain performance goals are met.
Payments in Event of Death:
Estate to receive payments accrued through the date of
death, plus six months base salary and bonuses for the fiscal
year in which employment is terminated.
Payments in the Event of Termination
Due to Disability:
Base salary continued through the date of employment
termination. Employee to receive bonuses for the fiscal year in
which employment is terminated.
Payments in the Event of Termination
without Cause:
Lump sum payment equal to salary through remainder of the
term, plus severance bonus of 50% of base salary. In
addition, employee to receive an extra bonus equal to the
bonus that would have been earned for a period of two years
after the termination date, reduced by the amount of the
severance bonus.
15
PENSION AND RETIREMENT BENEFITS
Fairchild Retirement Plan. The following table illustrates the amount of
estimated annual fixed retirement benefits payable under the Fairchild
Retirement Plan to an employee retiring in 2002, at age 65, at various salary
levels (average of highest five consecutive years out of last ten years of
service) and years of service. The Fairchild Retirement Plan defines salary as
total compensation, subject to the Internal Revenue Service's limit on the
amount of compensation that may be used to compute benefits under qualified
pension plans. This limit is equal to $200,000 for 2002.
Annual 10 Years 20 Years 30 Years 40 Years
Salary of Service of Service of Service of Service
------- ---------- ---------- ---------- ----------
$25,000 $ 2,000 $ 4,000 $ 6,000 $ 7,313
50,000 4,422 8,844 13,267 16,103
100,000 10,422 20,844 31,267 37,728
150,000 16,422 32,844 49,267 59,353
200,000 22,422 44,844 67,267 80,978
250,000 22,422 44,844 67,267 80,978
For purposes of determining benefits under the Fairchild Retirement Plan,
the following executive officers have years of credit and average salaries as
follows:
Average
Officer Salary Years of Credit
------- -------- ---------------
Jeffrey Steiner $172,000 12 years
John Flynn $172,000 15 years
Donald Miller $172,000 11 years
Warren Persavich $172,000 25 years
Eric Steiner $172,000 11 years
During fiscal 2002, Jeffrey Steiner received $1,272,000, representing a
partial distribution of his vested benefit under our retirement plan.
16
Supplemental Executive Retirement Plans. We have two supplemental executive
retirement plans for key executives which provide additional retirement
benefits based on final average earnings and years of service, as follows:
Unfunded SERP Funded SERP
------------------------- --------------------------
Retirement Benefits Provides a maximum Same as the Unfunded SERP.
retirement benefit (in
the aggregate for both
Supplemental Executive
Retirement Plans) equal
to the difference between
(i) sixty percent (60%)
of the participant's
highest base salary for
five consecutive years of
the last ten years of
employment, and (ii) the
aggregate of other
pension benefits, profit
sharing benefits, stock
option benefits and
primary Social Security
payments to which the
participant is entitled.
Funding This is an unfunded This plan is a funded
obligation of the obligation of the
Company, not subject to Company. Such funding
ERISA regulations. The contributions are not
Company makes assets available to the
discretionary creditors of the Company.
contributions to a Rabbi
Trust to help meet its
obligations under this
plan, but the assets
under such trust are
subject to the claims of
the Company's creditors.
Pre-Retirement Subject to the approval At the participant's
Distributions of the Compensation request upon attainment
Committee, the plan of Normal Retirement Age
permits participants who as defined in the Plan.
are age 60 or over, to
elect to receive a lump
sum retirement advance on
an actuarially reduced
basis.
Participants Executive Officers. All Same as the unfunded plan.
persons named in the
Summary Compensation
Table are eligible for
participation, in this
plan.
Special Years of Service Pursuant to a letter None.
Accreditation agreement with Mr.
Miller, for purposes of
determining years of
service with the Company
under the Supplemental
Executive Retirement
Plans, Mr. Miller may be
credited with two years
of service for each of
the first ten years he is
employed by the Company.
Pursuant to a letter None.
agreement with Mr. Flynn,
for purposes of
determining years of
service with the Company
under the Supplemental
Executive Retirement
Plans, Mr. Flynn may be
credited with two years
of service for each of
the first ten years he is
employed by the Company.
During fiscal 2002 Jeffrey Steiner received $2,950,000 from our two
supplemental executive retirement plans representing a partial distribution of
his vested benefit under such plans.
17
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The following report does not constitute solicitation material and is not
considered filed or incorporated by reference into any other Company filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, unless
we state otherwise.
The Compensation and Stock Option Committee is composed of at least two
nonemployee Directors. It has initial responsibility for all compensation
actions affecting the Company's executive officers, including base salaries,
bonus awards, stock option awards and the terms and conditions of their
employment.
Compensation Philosophy
The Committee's goals are to:
. Provide compensation competitive with other similar companies.
. Reward executives consistent with the performance of the Company.
. Recognize individual performance.
. Encourage executives to increase shareholder value.
Components of Executive Officer Compensation
Cash Compensation (Base Salary and Annual Incentive Bonus)--The Company
manages the total cash compensation to provide median levels of cash
compensation at average levels of corporate, business unit, and individual
performance. Cash compensation consists of two components: (i) a base salary
that is competitive with that of other companies paying at the median level of
the market, and (ii) an annual incentive opportunity that is variable and is
reflective of the financial performance of the Company and/or the individual
performance of the executive officer. When high levels of performance are
achieved, the level of cash compensation may exceed the median of the market.
Conversely, when the Company, business unit, or the individual falls short of
the predetermined goals, the level of cash compensation may be substantially
below the market median. The objective of this mix is to deliver total annual
cash compensation competitive with compensation offered at other companies
facing similar challenges for similar positions, while simultaneously linking
the payment of the annual cash incentive to the achievement of specific
objectives in the Company's annual operating plan as approved by the Board.
Mix Between Salary and Annual Incentive Pay--The mix between salary and
annual incentive pay is related to an executive's job grade. Executives at
higher grade levels in the Company have a greater percentage of their total
cash compensation contingent on the accomplishment of assigned business
objectives, i.e. the higher the executive grade level, the greater the
proportion of annual compensation that is "at risk." The award and size of the
performance bonus are based upon: (i) the executive officer's performance
against goals determined by the Company's Chief Executive Officer; and/or (ii)
the performance of the executive officer's unit within the Company against that
unit's goals; or (iii) the performance of the Company against Company goals.
Goals vary from year to year and from unit to unit and, with regard to
individual goals of executive officers, usually include both quantitative and
qualitative factors.
The Committee approved salary and annual incentive pay for the Company's
named executive officers as set forth under the Summary Compensation Table of
this Proxy Statement.
18
Stock Option Grants--The Committee believes that stock option grants serve
as a desirable long-term method of compensation because they closely ally the
interests of management with the preservation and enhancement and realization
of shareholder value and serve as an additional incentive to promote the
success of the Company. In fiscal 2002, the Committee approved the grant of
331,864 stock options to the Company's executive officers and 135,958 stock
options to other employees. Included in these grants were 329,364 stock options
granted to the named executive officers. The CEO received 250,000 stock options.
Total Compensation Program--The Committee believes that the total
compensation program for executives of the Company (cash compensation, bonuses
and stock option grants) is on a level with the compensation programs provided
by other companies facing similar challenges. The Committee believes that any
amounts paid under the annual incentive plan will be appropriately related to
corporate and individual performance, yielding awards that are directly linked
to the annual financial and operational results of the Company within the
framework of the challenges faced.
Compensation of CEO
Jeffrey Steiner has served as Chairman of the Board and Chief Executive
Officer of the Company since 1985, and as President from July 1991 through
September 1998. In fixing Mr. Steiner's salary and target bonus levels, as well
as determining the size of stock options, if any, the Committee and the Board
typically review the strategic direction and financial performance of the
Company, including enterprise value, revenue and profit levels. In addition,
the Committee reviews Mr. Steiner's performance as Chairman of the Board and
Chief Executive Officer, his importance to the Company and his success in
implementing its strategic goals both through his entrepreneurial actions and
investment banking acumen.
Mr. Steiner has developed and established initiatives aimed at improving the
operating efficiency and financial performance of the Company. These include an
increased focus of the Company's efforts to reduce debt.
Base Compensation--Mr. Steiner's base compensation for fiscal 2002 was
$1,700,000 pursuant to his employment agreement with the Company and $400,000,
pursuant to his employment agreement with Banner Aerospace, plus $400,000 for
services in Switzerland. Effective January 1, 2002, Mr. Steiner has agreed to
defer 10% of his base salary.
Incentive Compensation Performance Goals--The performance goals for and
maximum amount of Mr. Steiner's incentive compensation (i.e., compensation
beyond base salary) approved by the shareholders at the last Annual Meeting,
were as follows:
1. If the Company (including its consolidated subsidiaries) achieves pretax
profits for fiscal 2002, the Chief Executive Officer may receive up to
three percent (3%) of such pre-tax profits.
2. If the Company engages in an extraordinary transaction (e.g. purchase or
sale of assets not in the ordinary course, including, without
limitation, through a public offering or private placement of
securities) during fiscal 2002, the Chief Executive Officer may receive
up to two and one-half percent (2 1/2%) of the total value of the
transaction.
3. Notwithstanding the foregoing, the payment of incentive compensation in
connection with extraordinary transactions is restricted as follows:
. There shall be no cash incentive compensation awards on acquisitions
by the Company;
. There shall be no incentive compensation awards in connection with
the Company's issuance of any debt securities (bonds, credit
agreements, etc.); and
19
. There shall be no incentive compensation awards in connection with
raising of equity through investment bankers.
Incentive compensation for 2002 Transactions--The Committee determined that
Mr. Steiner would receive no incentive compensation for fiscal 2002.
Stock Option Compensation--In fiscal 2002, the Committee approved the grant
of 250,000 stock options to Mr. Jeffrey Steiner under the Stock Option Plan.
Internal Revenue Code Section 162(m)
The Committee has considered the impact of Section 162(m) Internal Revenue
Code of 1986, as amended (the "Code"), which in certain circumstances disallows
income tax deductions for compensation in excess of $1,000,000. This
disallowance provision does not apply to performance-based compensation and
certain other forms of compensation. The Committee currently intends to
structure our incentive compensation awards to our Chief Executive Officer and
other executive officers in a manner that complies with the Code's requirements
for performance-based compensation to ensure that we are entitled to deduct
such compensation. One of these requirements is that the shareholders approve
the material terms of performance goals for such awards. To satisfy this
requirement, the shareholders are being asked in this proxy statement to
approve the material terms of certain performance goals for the following
officers: the President and the Chief Executive Officer.
Respectfully submitted by the members of the Compensation and Stock Option
Committee of the Board of Directors:
Daniel Lebard, Chairman
Melville R. Barlow
Harold J. Harris
Herbert S. Richey
20
REPORT OF THE AUDIT COMMITTEE
The following report does not constitute solicitation material and is not
considered filed or incorporated by reference into any other Company filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, unless
we state otherwise.
In accordance with a written charter adopted by the Company's Board of
Directors, the Audit Committee of the Company's Board of Director's (the
"Committee") assists the Board of Directors in fulfilling its responsibility
for oversight of the quality and integrity of the Company's financial reporting
processes. Management has the primary responsibility for the financial
statements and the reporting process, including the system of internal
controls. The independent auditors are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with generally accepted audited standards and for issuing a report
thereon.
In this context, the Committee has reviewed, and has met with management and
the independent auditors to discuss, the audited financial statements contained
in the 2002 Annual Report on SEC Form 10-K.
Management represented to the Committee that the Company's consolidated
financial statements were prepared in accordance with generally accepted
accounting principles, and the Committee has reviewed and discussed the
consolidated financial statements with management and the independent auditors.
The Committee discussed with the independent auditors matters required to be
discussed by Statement on Auditing Standards No. 61 (Communications with Audit
Committees), as amended, including the quality and acceptability of the
Company's financial reporting process and controls.
The Committee discussed with the Company's internal and independent auditors
the overall scope and plans for their respective audits. The Committee meets
regularly with the internal and independent auditors, with and without
management present, to discuss the results of their examinations, the
evaluations of the Company's internal controls and the overall quality of the
Company's accounting principles.
In addition, the Committee has discussed with the independent auditors the
auditors' independence from the Company and its management, including the
matters in the written disclosures required by the Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees).
In performing all of these functions, the Committee acts only in an
oversight capacity and necessarily relies on the work and assurances of the
Company's management and independent auditors, which, in their report, express
an opinion on the conformity of the Company's annual financial statements to
generally accepted accounting principles.
In reliance on the reviews and discussions noted above the Committee
recommended to the Board of Directors, and the Board has approved, that the
audited financial statements of the Company for the year ended June 30, 2002 be
included in the 2002 Annual Report on SEC Form 10-K for filing with the
Securities and Exchange Commission.
Respectfully submitted by the members of the Audit Committee of the Board of
Directors:
Herbert S. Richey (Chairman)
Melville R. Barlow
Mortimer M. Caplin
Steven L. Gerard
Harold J. Harris
21
STOCK PERFORMANCE GRAPH
The following stock performance graph does not constitute solicitation
material and is not considered filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, unless we state otherwise.
COMPARISON TO S&P 600 SMALLCAP INDEX/S&P 600 SMALLCAP AEROSPACE/DEFENSE INDEX:
The following graph compares the performance of the Company's Class A Stock
with that of the S&P 600 Smallcap Index and the S&P Smallcap Aerospace/Defense
index (consisting of five aerospace/defense manufacturers). The graph plots the
growth in value of an initial $100 investment over the indicated five-year
period with all dividends reinvested.
[CHART]
THE FAIRCHILD S & P SMALLCAP 600
CORPORATION S & P SMALLCAP 600 AEROSPACE/DEFENSE
------------- ------------------ ------------------
6/97 $100.00 $100.00 $100.00
6/98 112.15 119.46 141.28
6/99 70.83 121.47 110.86
6/00 27.08 138.94 61.62
6/01 38.94 154.39 87.27
6/02 17.50 174.93 99.54
-----------------------------------------
Cumulative Total Return
-----------------------------------------
6/97 6/98 6/99 6/00 6/01 6/02
---------------------------------------------------------------------
FAIRCHILD CORPORATION 100.00 112.15 70.83 27.08 38.94 17.50
---------------------------------------------------------------------
S & P SMALLCAP 600 100.00 119.46 121.47 138.94 154.39 174.93
---------------------------------------------------------------------
S & P SMALLCAP 600
AEROSPACE/DEFENSE COMPANIES 100.00 141.28 110.86 61.62 87.27 99.54
---------------------------------------------------------------------
22
STOCK OWNERSHIP
The following table shows the number of shares beneficially owned (as of August
31, 2002) by: each person who we know beneficially owns more than 5% of the
common stock;
. each director;
. each executive officer named in the Summary Compensation Table; and
. the directors and executive officers as a group.
Number of Shares Percentage Number of Shares Percentage
Name of Class A Stock (1) of Class of Class B Stock (1) of Class
---- -------------------- ---------- -------------------- ----------
Melville R. Barlow 6,875(2) * -- --
Mortimer M. Caplin 127,239(2) * -- --
Dimensional Fund Advisors Inc. 1,939,229(3) 8.60% -- --
Robert E. Edwards 1,026,595 4.55% -- --
John L. Flynn 60,316(2)(4) * -- --
Gabelli Funds, LLC 2,415,819(3) 10.72% -- --
Steven L. Gerard 39,251(2) * -- --
Harold J. Harris 87,105(2)(4) * -- --
Daniel Lebard 22,231(2) * -- --
Donald E. Miller 133,460(2)(4) * -- --
Warren Persavich 155,925(2) *
Herbert S. Richey 36,875(2) * -- --
Eric I. Steiner 412,564(2)(4) 1.81% 15,000 *
Jeffrey J. Steiner 6,796,979(2)(6) 26.49% 2,563,996(6) 97.81%
The Steiner Group LLC 5,727,684(3)(5) 22.84% 2,533,996(5) 96.66%
All directors and executive officers as a
group (14 persons) 8,972,780(2) 34.31% 2,579,596 98.40%
- --------
*Represents less than one percent.
Footnotes to Stock Ownership Chart:
(1) The Class A Stock Column includes shares of Class B Stock, which are
immediately convertible into Class A Stock on a share-for-share basis.
Options that are exercisable immediately or within sixty days after
August 31, 2002 appear in the Class A Stock column.
(2) Includes exercisable stock options to purchase Class A Stock, as follows:
M. Barlow, 6,875 shares; M. Caplin, 6,875 shares; J. Flynn, 29,167 shares;
H. Harris, 6,875 shares; D. Lebard, 6,875 shares; D. Miller, 75,417 shares;
H. Richey, 6,875 shares; S. Gerard, 20,451 shares; W. Persavich, 122,352
shares; E. Steiner, 187,983 shares; J. Steiner, 552,997 shares; Directors
and Executive Officers as a group, 1,031,367 shares.
(3) Based on the following information:
Dimensional Fund Advisors Inc., 1299 Ocean Avenue, 11th Floor, Santa Monica,
CA 90401. Information as of December 31, 2001 contained in a Schedule 13G/A
filed on February 12, 2002 with the SEC by Dimensional Fund Advisors, Inc.
Gabelli Funds, LLC, One Corporate Center, Rye, NY 10580-1434. Information
contained in a Schedule 13D/A-10, filed on November 5, 2001 with the SEC by
Gabelli Funds, Inc.
23
The Steiner Group LLC, c/o Faust Rabbach Oppenheim LLP, 488 Madison Avenue,
New York, NY 10022. Information contained in a Schedule 13D/A-23 filed on
July 29, 2002 with the SEC by The Steiner Group LLC.
(4) Includes shares beneficially owned, as follows: H. Harris--27,268 shares of
Class A Stock owned by the William H. Harris 401K and Private
Profit-Sharing Plan and 7,500 shares held by his wife. D. Miller -- 300
shares of Class A Stock owned by Mr. Miller as custodian for his child; Mr.
Miller disclaims any beneficial interest therein. E. Steiner--80,000 shares
of Class A Stock held in The Steiner Children's Trust; 14,311 shares held
in 401k Savings Plan; and 10,000 shares held in the E&P Steiner Family
Investment LLC. J. Flynn -- 6,754 shares held in 401k Savings Plan.
(5) The Steiner Group LLC is a Delaware limited liability company. Jeffrey
Steiner is its sole manager. The members are Jeffrey Steiner (with a 20%
membership interest), and The Jeffrey Steiner Family Trust (with an 80%
membership interest). The Jeffrey Steiner Family Trust is a trust created
for the benefit of the issue of Jeffrey Steiner. The Steiner Group LLC
holds 3,193,688 shares of Class A Stock and 2,533,996 shares of Class B
Stock.
(6) Mr. Jeffrey Steiner, c/o The Fairchild Corporation, 45025 Aviation Drive,
Suite 400, Dulles, VA 20166. Mr. Steiner is the sole manager of The Steiner
Group LLC, and as such may be deemed to beneficially own the same shares of
Class A Stock and Class B Stock owned directly or beneficially by The
Steiner Group LLC, as discussed in footnote (5) to this table.
Class A Stock shown in the table as owned by Mr. Steiner includes:
(i) 5,727,684 shares owned by The Steiner Group LLC (see footnote (5));
(ii) 442,754 shares owned of record by Mr. Steiner; (iii) exercisable stock
options to purchase 552,997 shares of Class A Stock (see footnote (2));
(iv) 38,500 shares of Class A Stock owned by Mr. Steiner as custodian for
his children; (v) 30,000 shares of Class B Stock (convertible on a
one-to-one basis to Class A Stock) owned by Mr. Steiner as custodian for his
children; (vi) 2,400 shares of Class A Stock owned by the Jeffrey Steiner
Family Foundation; and (vii) 2,644 shares of Class A Stock held in his 401k
Savings Plan.
Class B Stock shown in the table as owned by Mr. Jeffrey Steiner include:
(i) 2,533,996 shares owned by The Steiner Group LLC (see footnote (5)); and
(ii) 30,000 shares of Class B Stock owned by Mr. Steiner as custodian for
his children.
Mr. Steiner disclaims beneficial ownership of shares owned by The Steiner
Group LLC, the Jeffrey Steiner Family Foundation, and shares owned by him as
custodian for his children.
24
CERTAIN TRANSACTIONS
.. Pursuant to the Company's officer and director loan program, the Company has
made loans to certain key employees and directors, to be used by such
employees to purchase Fairchild Class A Common Stock. The amount of such
loans to executive officers and directors in fiscal 2002, and the
outstanding balance (as of June 30, 2002) of all loans to officers and
directors under the stock purchase loan program, are as follows:
Stock Purchase Outstanding Balance
Loans Made in of all Stock Purchase
Fiscal 2002 Loans as of 6/30/02
-------------- ---------------------
Mortimer Caplin........................ $0 $ 105,971
John Flynn............................. 0 174,678
Steven Gerard.......................... 0 99,377
Harold Harris.......................... 0 105,898
Natalia Hercot (daughter of J. Steiner) 0 167,398
Daniel Lebard.......................... 0 105,898
Donald Miller.......................... 0 220,178
Warren Persavich....................... 0 174,678
Herbert Richey......................... 0 105,963
Eric Steiner........................... 0 220,178
Jeffrey Steiner........................ 0 174,678
-- ----------
Total.................................. 0 $1,654,896
== ==========
All such loans are non-interest bearing, have maturity dates ranging from
11/2 to 4 years, and become due and payable immediately upon the termination
of employment (for senior management) or director affiliation (for a
director).
In addition, on November 16, 1999, Mr. Richey borrowed $46,000 from the
Company to exercise stock options for Class A common stock. The loan matures
on November 16, 2002 and bears interest at 5.5%. The loan balance was
$53,000 at June 30, 2002.
New loans to executive officers are no longer permitted as of July 30, 2002.
.. Eric Steiner (son of Jeffrey Steiner) is an executive officer of the
Company. His compensation is set forth in the compensation table of the
proxy statement. Natalia Hercot (daughter of Jeffrey Steiner) is a Vice
President of the Company, for which she was compensated $155,000 in fiscal
2002. Thierry Steiner (son of Jeffrey Steiner) is an employee of the
Company, for which he was compensated $105,000 in fiscal 2002.
.. On July 16, 2002, Jeffrey Steiner and Eric Steiner entered into a
Non-Competition and Consulting Agreement with Alcoa Inc. pursuant to which:
(1) Alcoa has agreed to pay Jeffrey Steiner and Eric Steiner fees totaling
$5 million (in the aggregate) over a four-year period; and (2) Jeffrey
Steiner and Eric Steiner have agreed to refrain from competing with
Fairchild Fasteners, and to provide consulting services to Alcoa with
respect to operations of Fairchild Fasteners. The agreement would be
effective upon consummation of the sale of Fairchild Fasteners to Alcoa Inc.
One-half of the fees will be paid in the first year as follows: (1) on the
closing date, $800,000; (2) 90 days following the closing date, $700,000;
(3) 180 days following the closing date, $400,000; (4) 270 days following
the closing date, $300,000; and (5) one year following the closing date,
$300,000. The remaining fees will be paid quarterly in arrears and will be
$1.25 million, $750,000 and $500,000 per year with respect to each of the
second, third and fourth years, respectively.
.. On July 16, 2002, Jeffrey Steiner and Eric Steiner, and certain entities and
trusts affiliated with Jeffrey Steiner and Eric Steiner, entered into voting
agreements with Alcoa Inc., by which they have agreed to vote all shares of
The Fairchild Corporation Class A common stock and Class B common stock
beneficially owned by them in favor of the Alcoa-Fairchild Fasteners
acquisition agreement and the sale of Fairchild Fasteners, and against any
proposals that are inconsistent with the sale of Fairchild Fasteners to
Alcoa.
25
PROPOSAL NO. 2
APPROVAL OF
A PERFORMANCE GOAL FOR
INCENTIVE COMPENSATION FOR
THE PRESIDENT
At the annual meeting, you will be asked to approve the material terms of a
performance goal established by the Compensation and Stock Option Committee
with respect to fiscal 2003 incentive compensation awards for the Company's
President (Dr. Eric Steiner).
Section 162(m) of the Internal Revenue Code disallows deductions for
publicly-held corporations with respect to compensation in excess of $1,000,000
paid to certain executive officers. However, compensation payable solely on
account of attainment of one or more performance goals is not subject to this
deduction limitation if:
. the performance goals are objective, pre-established and determined by a
compensation committee comprised solely of two or more outside directors,
. the material terms of the performance goals under which the compensation
is to be paid are disclosed to the shareholders and approved by a
majority vote, and
. the compensation committee certifies that the performance goals and
other material terms were in fact satisfied before the compensation is
paid.
The purpose of seeking shareholder approval of the President's incentive
compensation award is to meet the requirements of Section 162(m). We recommend
that you vote "FOR" this proposal.
Vote Required. To be approved, this matter must receive the affirmative
vote of a majority of the shares present (in person or by proxy) at the meeting
and entitled to vote on such matter. Broker nonvotes will not be counted as
present and shall not be entitled to vote on this proposal.
Performance Goals. On September 20, 2002, the Company's Compensation and
Stock Option Committee established a performance goal for the President's
fiscal 2003 incentive compensation award and the maximum amount payable to the
President if such goal is achieved. The performance goal and maximum amount
payable for fiscal 2003 are as follows:
1. If the Earnings before Interest, Taxes, Depreciation and Amortization
(EBITDA) of The Fairchild Corporation in Fiscal 2003, as computed in the
same manner as under the Company's Credit Agreement in effect as of July
1, 2002, is more or less than the Company's planned EBITDA ("Target
EBITDA") as submitted to the Board of Directors of the Company on
September 20, 2002, then the President may receive an incentive
compensation award based on a percentage of aggregate base salary in
accordance with the following table:
Percentage of Target EBITDA Percentage of Base Salary
--------------------------- -------------------------
Less than 80% 0%
80% or more, but less than 90% 35%
90% or more, but less than 95% 50%
95% or more, but less than 100% 65%
100% or more, but less than 105% 80%
105% or more, but less than 110% 100%
110% or more 125%
26
The Compensation and Stock Option Committee retains the right to determine
the actual amount of incentive compensation to be awarded to the President in
fiscal 2003 based on his individual contribution, consistent with the foregoing
goal and in an amount no greater than the maximum amount set forth above.
Assuming the shareholders approve the material terms of the performance goal
as described herein, the Company believes that any such incentive compensation
award to the President will qualify as performance-based compensation that will
be deductible from the Company's gross income for federal income tax purposes.
The performance goals to be approved at the Annual Meeting of Shareholders
are in addition to the performance goals being presented at the Special Meeting
of Shareholders for approval of the sale of Fairchild Fasteners to Alcoa. All
performance goals (the ones to be approved at the Annual Meeting and the ones
to be approved at the Special Meeting) will be computed in such a manner as to
avoid duplication.
27
PROPOSAL NO. 3
APPROVAL OF
A PERFORMANCE GOAL FOR
INCENTIVE COMPENSATION FOR
THE CHIEF EXECUTIVE OFFICER
At the annual meeting, you will be asked to approve the material terms of
the performance goals established by the Compensation and Stock Option
Committee with respect to fiscal 2003 incentive compensation awards for the
Company's Chief Executive Officer (Mr. Jeffrey Steiner).
Section 162(m) of the Internal Revenue Code disallows deductions for
publicly-held corporations with respect to compensation in excess of $1,000,000
paid to certain executive officers. However, compensation payable solely on
account of attainment of one or more performance goals is not subject to this
deduction limitation if:
. the performance goals are objective, pre-established and determined by a
compensation committee comprised solely of two or more outside directors,
. the material terms of the performance goals under which the compensation
is to be paid are disclosed to the shareholders and approved by a
majority vote, and
. the compensation committee certifies that the performance goals and
other material terms were in fact satisfied before the compensation is
paid.
The purpose of seeking shareholder approval of the Chief Executive Officer's
incentive compensation award is to meet the requirements of Section 162(m). We
recommend that you vote "FOR" this proposal.
Vote Required. To be approved, this matter must receive the affirmative
vote of a majority of the shares present (in person or by proxy) at the meeting
and entitled to vote on such matter. Broker nonvotes will not be counted as
present and shall not be entitled to vote on this proposal.
Performance Goals. On September 20, 2002, the Company's Compensation and
Stock Option Committee established a performance goal for the President's
fiscal 2003 incentive compensation award and the maximum amount payable to the
President if such goal is achieved. The performance goal and maximum amount
payable for fiscal 2003 are as follows:
1. If the Earnings before Interest, Taxes, Depreciation and Amortization
(EBITDA) of The Fairchild Corporation in Fiscal 2003, as computed in the
same manner as under the Company's Credit Agreement in effect as of July
1, 2002, is more or less than the Company's EBITDA ("Target EBITDA") as
submitted to the Board of Directors of the Company on September 20,
2002, then the Chief Executive Officer may receive an incentive
compensation award based on a percentage of aggregate base salary in
accordance with the following table:
Percentage of Target EBITDA Percentage of Base Salary
--------------------------- -------------------------
Less than 80% 0%
80% or more, but less than 90% 35%
90% or more, but less than 95% 50%
95% or more, but less than 100% 75%
100% or more, but less than 105% 110%
105% or more, but less than 110% 130%
110% or more 175%
28
The Compensation and Stock Option Committee retains the right to determine
the actual amount of incentive compensation to be awarded to the Chief
Executive Officer in fiscal 2003 based on his individual contribution,
consistent with the foregoing goals and in an amount no greater than the
maximum amounts set forth above.
Assuming the shareholders approve the material terms of the performance
goals as described herein, the Company believes that any such incentive
compensation award to the Chief Executive Officer will qualify as
performance-based compensation that will be deductible from the Company's gross
income for federal income tax purposes.
The performance goals to be approved at the Annual Meeting of Shareholders
are in addition to the performance goals being presented at the Special Meeting
of Shareholders for approval of the sale of Fairchild Fasteners to Alcoa. All
performance goals (the ones to be approved at the Annual Meeting and the ones
to be approved at the Special Meeting) will be computed in such a manner as to
avoid duplication.
29
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
On May 9, 2002, upon the recommendation of the Audit Committee, the Board of
Directors dismissed Arthur Andersen LLP as the Company's independent auditors
and appointed Ernst & Young LLP to serve as The Fairchild Corporation's
independent auditors for the fiscal year ending June 30, 2002. Arthur
Andersen's reports on The Fairchild Corporation's consolidated financial
statements for each of the past two fiscal years did not contain an adverse
opinion or disclaimer of opinion, nor were such reports qualified or modified
as to uncertainty, audit scope or accounting principles. This was reported by
the Company on a Form 8-K filed with the Securities and Exchange Commission on
May 14, 2002. During each of the Company's two most recent fiscal years and
through the date of the Form 8-K report (May 14, 2002), there were: (i) no
disagreements with Arthur Andersen on any matter of accounting principle or
practice, financial statement disclosure, or auditing scope or procedure which,
if not resolved to Arthur Andersen's satisfaction, would have caused them to
make reference to the subject matter in connection with their report on our
consolidated financial statements for such years; and (ii) there were no
reportable events as defined in Item 304(a)(1)(v) of Regulation S-K. The
Company provided Arthur Andersen with a copy of the foregoing disclosures. A
copy of Arthur Andersen's letter, dated May 13, 2002, stating its agreement
with such statements, was attached as Exhibit 16 to the Form 8-K report filed
on May 14, 2002. During each of the Company's two most recent fiscal years and
through the date of Form 8-K report (May 14, 2002), The Fairchild Corporation
did not consult Ernst & Young with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on our consolidated financial
statements, or any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K.
Ernst & Young LLP has served as the Company's independent auditor since May,
2002. Prior to that, the Company's independent auditors were Arthur Andersen
LLP. No change is contemplated. Representatives of Ernst & Young LLP will be
available at the annual meeting to make a statement, if they so desire, and to
respond to appropriate questions. Representatives of Arhtur Andersen LLP are
not expected to be available at the annual meeting.
Audit Fees
The aggregate fees billed by Ernst & Young LLP, for professional services
rendered for the audit of the Company's annual financial statements for the
fiscal year ended June 30, 2002 was $370,000. The aggregate fees billed by
Arthur Andersen LLP for the review of the financial statements included in the
Company's Quarterly Reports on Form 10-Q for the periods ended September 30,
2001, December 30, 2001 and March 31, 2002 were $52,500. More than 50% of the
Fiscal 2002 audit work was performed by full-time employees of Ernst & Young
LLP.
Financial Information Systems Design and Implementation Fees
For the fiscal year ended June 30, 2002, there were no fees billed by either
Ernst & Young LLP or Arthur Andersen LLP for professional services relating to
information technology or financial information systems design and
implementation.
All Other Fees
The aggregate fees billed by Ernst & Young LLP and Arthur Andersen LLP, for
services rendered to the Company for the fiscal year ended June 30, 2002, other
than for services described above under "Audit Fees," were (respectively)
$350,900 and $64,300. The fees paid to Ernst & Young LLP were for serves
provided prior to being appointed as the Company's independent auditor on May
9, 2002.
The Audit Committee has considered whether the provision of non-audit
services is compatible with maintaining the principal accountant's independence.
30
SHAREHOLDER PROPOSALS
If you want to include a shareholder proposal in the proxy statement for the
2003 annual meeting, it must be delivered to the Company before June 22, 2003.
If you want to submit a shareholder proposal for the 2003 annual meeting but
you do not require that such proposal be included in the Company's proxy
materials, you must notify the Company of such proposal before September 10,
2003. If such notice is not received by September 10, 2003, the proposal shall
be considered untimely and shall not be presented at the 2003 annual meeting.
All shareholder proposals must conform to the requirements set forth in
Regulation 14A under the Securities Exchange Act of 1934, and should be
submitted to the Company's headquarters, 45025 Aviation Drive, Suite 400,
Dulles, VA 20166-7516, Attention: Secretary.
ANNUAL REPORT
The Company's Annual Report to Shareholders for the fiscal year ended June
30, 2002, was mailed to shareholders with or prior to mailing of this proxy
statement. The Company will provide free of charge to any shareholder as of the
record date who so requests in writing, a copy of the Company's annual report
on Form 10-K for fiscal 2002. Requests for such copies should be directed to
Donald E. Miller, Executive Vice President & Secretary, The Fairchild
Corporation, 45025 Aviation Drive, Suite 400, Dulles, VA 20166-7516.
By Order of the Board of Directors
/s/ Donald E. Miller
Donald E. Miller
Executive Vice President & Secretary
31
APPENDIX 1
CHARTER OF THE AUDIT COMMITTEE
Adopted by Board of Directors on February 17, 2000
Amended by Board of Directors on May 10, 2001
1. General (Structure, Process, and Membership Requirements).
(a) Membership. The Fairchild Corporation (the "Corporation") shall have an
audit committee (the "Audit Committee") comprised of at least three
members ("Members") of the Corporation's Board of Directors. Each Member
of the Audit Committee shall be independent of the Corporation's
management and shall be free from any relationship that would interfere
with the exercise of judgment independent of the Corporation's
management.
Members of the Audit Committee shall meet the following criteria:
(i) Independence of Audit Committee Members: Each Member must be
independent. "Independent" is defined as having no relationship with
the Corporation that may interfere with the Member's exercise of his
independence from management of the Corporation.
(ii) Financial Literacy: Each Member must be financially literate (as
interpreted by the Corporation's Board of Directors in its business
judgment).
(iii) Accounting or Related Financial Management Expertise: At least one
Member of the Audit Committee must have accounting or related
financial management expertise (as interpreted by the Corporation's
Board of Directors in its business judgment).
(iv) No Employment of Audit Committee Members: Neither the Member nor
anyone in his immediate family may be an officer or employee of the
Corporation (or any of its affiliates) or have been an officer or
employee of the Corporation (or any of its affiliates) in the last
three years.
(v) No Business Relationship Between Audit Committee Members and the
Corporation: If a Member (or any organization in which such Member
is a partner, controlling shareholder or executive officer) has (or
in the last three years, has had) a business relationship with the
Corporation (including a commercial, industrial, banking, consulting,
legal, accounting, or other relationship), the Board of Directors
must specifically determine that (in the Board of Directors' business
judgment) such business relationship does not interfere with the
Member's exercise of his independent judgment. In making this
determination, the Board shall consider, among other things, the
materiality of the relation to the Corporation, to the Member, and,
if applicable, to the organization with which the director is
affiliated.
(vi) No Cross Compensation Links: If any executive officer of the
Corporation is a member of the audit committee of another
organization, then no executive officer of such other organization
may serve as a Member of the Corporation's Audit Committee.
(b) Purpose. The purpose of the Audit Committee shall be to assist the
Corporation's Board of Directors in discharging its responsibilities
with respect to (i) the Corporation's internal accounting, auditing, and
financial reporting controls, policies, procedures, and practices
(collectively, "Internal Controls"), and (ii) the Corporation's outside
auditors.
(c) Appointment and Term. The Chairman and each other Member of the Audit
Committee shall be appointed by the Corporation's Board of Directors to
serve a term of one year or until their successors have been duly
appointed and assume office.
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(d) Committee Meetings. The Audit Committee shall hold at least four
regular meetings each year, and such additional meetings as the Chairman
or a majority of the Members of the Audit Committee may deem necessary
or advisable. The Audit Committee may require the presence and
participation of any officer or employee of the Corporation, the
Corporation's internal auditors, or the Corporation's outside auditors
at any meeting of the Audit Committee.
(e) Minutes. The Audit Committee shall prepare and approve minutes of its
meetings, and such minutes shall be submitted to the Corporation's Board
of Directors for review and to the Corporation's Secretary for inclusion
in the Corporation's minute books.
(f) Reports of Actions. The Audit Committee shall promptly report all
actions it has taken to the Corporation's Board of Directors for
ratification.
2. Responsibilities of the Audit Committee (Scope of Audit Committee's
Responsibilities and How It Carries Out These Responsibilities).
(a) Internal Controls. The Audit Committee shall review the actions taken
by the Corporation's management to ensure that the Corporation adopts,
maintains and adheres to a system of internal controls that provides
reasonable assurances that (1) all transactions of the Corporation are
properly authorized and are reflected in the books and records of the
Corporation, (2) the risk of financial misconduct is minimized and any
such misconduct is promptly detected and reported, (3) the Corporation
is able to prepare and publish financial statements that are fairly
presented, have been prepared in accordance with generally accepted
accounting principles, and comply with all Securities and Exchange
Commission ("SEC"), New York Stock Exchange ("NYSE"), and Financial
Accounting Standards Board ("FASB") requirements, and (4) the internal
and external audits of the Corporation are adequate and comply with all
SEC, NYSE, and FASB requirements. The Audit Committee shall review with
the Corporation's Chief Financial Officer and outside auditors at least
annually the adequacy and effectiveness of the Corporation's internal
controls.
(b) Financial Statements. The Audit Committee shall review the
Corporation's published financial statements, including without
limitation (1) any unusual or non-recurring items therein, (2) the
accounting principles applied therein, (3) any changes in previously
applied accounting principles, and (4) management's report accompanying
the Corporation's annual financial statements included in the
Corporation's Annual Report to Shareholders.
(c) Internal Audit. The Audit Committee shall review (1) the Corporation's
internal audit plans with management and the Corporation's outside
auditors (which review shall be conducted at least annually), (2)
management's appointment, replacement, reassignment, or dismissal of the
Corporation's internal auditors, (3) the progress and key findings of
the Corporation's internal audits, (4) the compensation paid by the
Corporation to its internal auditors for all services rendered (which
review shall be conducted at least annually), (5) all reports,
criticisms, problems, issues, recommendations, or other matters
submitted or raised by the Corporation's internal auditors, and
management's responses, actions, and follow-up with respect thereto, and
(6) all disagreements between management and the Corporation's internal
auditors.
(d) Independent Outside Auditors. The Audit Committee shall annually review
(1) management's recommendation with respect to the selection of the
Corporation's outside auditors, and provide to the Corporation's Board
of Directors a recommendation with respect to such selection, (2) the
scope of the Corporation's annual examination and audit with the
Corporation's outside auditors, (3) management's evaluation of the
independence of the
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Corporation's outside auditors, (4) the letter from the Corporation's
outside auditors with respect to their independence from the
Corporation's management and their unrestricted access to the Audit
Committee, (5) the report from the Corporation's outside auditors with
respect to the services that they have provided to the Corporation and
other related matters (including the percentage hours worked on the
Corporation's audit engagement by persons other than the outside
auditors' full time employees), (6) the compensation paid by the
Corporation to its outside auditors for all services rendered, (7) all
reports, criticisms, problems, issues, recommendations, or other matters
submitted or raised by the Corporation's outside auditors, and
management's responses, actions, and follow-up with respect thereto, and
(8) all disagreements between management and the Corporation's outside
auditors.
The outside auditors of the Corporation are ultimately accountable to
the Board of Directors and the Audit Committee. The Audit Committee and
the Board of Directors have the ultimate authority and responsibility to
select, evaluate and, where appropriate, replace the outside auditors
(or to nominate the outside auditors to be proposed for shareholder
approval in any proxy statement).
The Audit Committee is responsible for:
(i) Obtaining annually from the Corporation's outside auditors a formal
written statement to the Audit Committee delineating (A) all
relationships between the auditors and the Corporation and its
officers, directors, and substantial shareholders, and (B) all
services furnished by the auditors to the Corporation and its
officers, directors, and substantial shareholders, in each case
during the audit and engagement period and bearing upon the auditors'
independence for purposes of SEC and Independence Standards Board
("ISB") requirements and rules;
(ii) Actively engaging in a dialogue with the outside auditors with
respect to any disclosed relationships or services that may impact
the objectivity and independence of the outside auditors;
(iii) Recommending that the Board of Directors take appropriate action in
response to the outside auditors' report to satisfy itself of the
outside auditors' independence;
(iv) Reviewing copies of annual disclosure statements from the
Corporation's officers, directors, ten percent (10%) or more
shareholders, employees employed by us in an accounting or financial
oversight role, and, if relevant, employees known formerly to have
been partners, principals, shareholders, or professional employees of
the Corporation's outside auditors or known to be close family
relatives of such persons (or the relevant portions of such
statements) regarding any relationships between the auditors and the
Corporation or its officers, directors, ten percent (10%) or more
shareholders, or such employees and any services furnished by the
Corporation's outside auditors to the Corporation or its officers,
directors, or ten percent (10%) or more shareholders bearing upon the
auditors' independence from the Corporation for purposes of SEC and
ISB requirements and rules; and
(v) Actively engaging in a dialogue with the Corporation's officers,
directors, ten percent (10%) or more shareholders, employees employed
by the Corporation in an accounting or financial oversight role, and,
if relevant, employees formerly partners, principals, shareholders,
or professional employees of the Corporation's outside auditors with
respect to any relationships or services disclosed by them or the
Corporation's outside auditors that may impact on the objectivity and
independence of the Corporation's outside auditors.
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(e) Second Opinions. The Audit Committee shall review decisions by
management to obtain second opinions on significant accounting issues
and any actions taken by management in reliance on such opinions.
(f) Meetings. The Audit Committee shall meet at least annually with (1)
appropriate officers and employees of the Corporation to discuss tax
matters affecting the Corporation, and (2) in-house counsel to discuss
legal matters affecting the Corporation.
3. Annual Consultation with Outside Auditors. In order to ensure that the
Audit Committee receives all the information necessary to carry out its
responsibilities, the Audit Committee shall request, at least annually,
confirmation from the Corporation's outside auditors that they have informed
the Audit Committee as to (a) the initial selection of and changes in
significant accounting policies and their application, (b) the process used
in formulating sensitive accounting estimates, (c) adjustments proposed by
the auditor but not recorded by the Corporation that could cause future
financial statements to be materially misstated, (d) disagreements with
management and whether or not they have been satisfactorily resolved, (e)
cases when management consulted with other accountants about auditing and
accounting matters, (f) difficulties encountered in performing the annual
audit, and (g) any other significant internal control or financial reporting
matter.
4. Preparation of Annual Financial Statements. Each year, prior to releasing
the Corporation's audited financial statements, the Audit Committee shall
take the following actions:
(a) The Audit Committee shall review and discuss the audited financial
statements with management;
(b) The Audit Committee shall discuss with the Corporation's outside
auditors the matters required to be discussed by SAS 61, as may be
modified or supplemented;
(c) The Audit Committee shall receive and review the written disclosures and
the letter from the Corporation's outside auditors required by ISB
Standard No. 1, as may be modified or supplemented, and the reports and
statements it is to obtain pursuant to Section 2(d) above, and shall
discuss the auditors' independence with the auditors and the
Corporation's officers, directors, ten percent (10%) or more
shareholders, and relevant employees;
(d) Based on the review and discussions referred to in sub-paragraphs (a)
through (c) above, the Audit Committee shall determine (and shall report
in the Corporation's Annual Proxy Statement) if it recommends to the
Board of Directors that the financial statements be included in the
Annual Report on Form 10-K. In connection therewith, the Audit Committee
shall consider whether any non-audit services rendered by the
Corporation's outside auditors to the Corporation during the audit or
engagement period are consistent with the auditors' independence from
the Corporation and shall report the fact of such consideration in the
Corporation's Annual Proxy Statement;
(e) Each Member of the Audit Committee shall provide such information as may
be reasonably requested by the Corporation in order to enable the Board
to review whether the Members of the Audit Committee are independent, as
defined in NYSE listing standards and Section 1 hereof;
(f) The Audit Committee shall review its own compliance with the policies
and procedures of this Charter, including, without limitation,
compliance with the following Sections:
Section 2(a) (review with the Corporation's Chief Financial Officer and
outside auditors the adequacy and effectiveness of the Corporation's
internal controls);
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Section 2(b) (review the Corporation's financial statements);
Section 2(c) (review with the Corporation's management and outside
auditors the Corporation's internal audit plans);
Section 2(d) (review the recommendation and selection of the
Corporation's outside auditors; determine that the outside auditors are
independent);
Section 2(e) (review any decisions by the Corporation's management to
obtain second opinions on significant accounting issues);
Section 2(f) (meet with the Corporation's officers and employees to
discuss tax and legal matters); and
Section 3 (annual consultation with the Corporation's outside auditors).
(g) The Corporation shall provide to the NYSE written confirmation regarding:
(i) The Board's annual determination regarding the independence of
Members of the Audit Committee;
(ii) The financial literacy of the Audit Committee Members;
(iii) The determination that at least one Audit Committee Member has
accounting or related financial management expertise; and
(iv) The Audit Committee's annual review and reassessment of the adequacy
of this Charter.
5. Compliance with NYSE Requirements. Sections 1(a), 2(d), and 4(g) of this
Charter are intended to comply with Rules 303.01 and 303.02 of the NYSE
Listed Company Manual (as last modified on 12/20/99). In the event of any
amendments to such Rules, the Board shall consider parallel amendments to
this Charter.
This Charter was approved by the Corporation's Board of Directors on
February 17, 2000. It was amended by the Corporation's Board of Directors on
May 10, 2001.
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The Fairchild Corporation
This proxy is solicited on behalf of the Board of Directors of The
Fairchild Corporation.
The undersigned hereby appoints Jeffrey J. Steiner, John L. Flynn and
Donald E. Miller as proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of Class A Common Stock, par value $.10 per share, and Class B Common
Stock, par value $.10 per share, of The Fairchild Corporation held of record by
the undersigned on October 1, 2002, at the Annual Meeting of Stockholders
("Annual Meeting") to be held on Thursday, November 21, 2002, at 10:00 a.m.
(local time) and at any adjournments or postponements thereof. If no direction
is made, this proxy will be voted for all listed nominees and FOR approval of
all proposals.
If the undersigned is a participant in the Savings Plan for Employees
of The Fairchild Corporation ("Savings Plan"), then the undersigned hereby
directs the trustee of the Savings Plan, Putnam Investments, (the "Trustee") to
vote or cause to be voted at the Annual Meeting and at any adjournments thereof,
all shares of Class A Common Stock which are held by the Trustee in the
undersigned's Savings Plan account and which the undersigned is entitled to vote
at such meeting as follows: The shares represented by this proxy will be voted
as directed by the undersigned. If no direction is given by 10:00 a.m. (EST)
November 14, 2002, the Trustee will vote the Savings Plan shares represented by
this proxy in the same percentage as shares held by participants for which the
Trustee has received timely voting instructions. The Trustee will hold the
undersigned's voting directions in strict confidence.
"Please Mark Inside Boxes so that Data Processing Equipment Will Record Your
Votes."
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY.
(Continued and to be signed on the reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ALL LISTED NOMINEES, AND FOR APPROVAL OF ALL PROPOSALS, EXCEPT THAT, WITH
RESPECT TO SAVINGS PLAN SHARES, IF NO DIRECTION IS MADE, THE TRUSTEE WILL VOTE
THE SHARES REPRESENTED BY THIS PROXY IN THE SAME PROPORTION AS THE SHARES
PROPERLY VOTED BY OTHER SAVINGS PLAN PARTICIPANTS.
1. ELECTION OF DIRECTORS
/ / FOR all listed nominees / / WITHHELD for all.
(except as marked to the contrary
below).
Melville R. Barlow, Mortimer M. Caplin, Robert E. Edwards, Steven L. Gerard,
Harold J. Harris, Daniel Lebard, Herbert S. Richey, Eric I. Steiner, and
Jeffrey J. Steiner.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- ----------------------------
2. TO APPROVE A PERFORMANCE GOAL FOR INCENTIVE COMPENSATION FOR THE PRESIDENT:
/ / FOR / / AGAINST / / ABSTAIN
3. TO APPROVE A PERFORMANCE GOAL FOR INCENTIVE COMPENSATION FOR THE CHIEF
EXECUTIVE OFFICER:
/ / FOR / / AGAINST / / ABSTAIN
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Please sign exactly as name(s) appear hereon.
When signing as attorney, executor,
administrator, trustee, guardian or corporate
officer, please give full title as such.
Date
Signature(s)