Fairchild Corp. and its chief executive, Jeffrey J. Steiner, have agreed to eliminate company credit cards, trim executive pay and accept tighter supervision by outside directors to settle a shareholder lawsuit alleging Steiner received excessive and improper pay.
The McLean-based distributor of aircraft parts and motorcycle gear made the concessions after a judge rejected an earlier settlement proposal as inadequate. In May, the judge told lawyers in the case to "get something real."
The new settlement proposal, detailed in a document Fairchild filed yesterday with the Securities and Exchange Commission, is scheduled for a hearing on Nov. 23 at the Delaware Chancery Court, which must decide whether the deal does enough to compensate shareholders for the alleged excesses and protect them going forward.
Over the years, Steiner's salary -- $2.5 million in 2004 -- has ranked among the highest of Washington area executives, even when the company was losing money.
The company paid for use of Steiner-affiliated aircraft, apartments in London and Paris, and hundreds of thousands of dollars of business-entertainment expenses. The company employed members of the Steiner family and extended interest-free loans to insiders before the practice was banned.
If shareholders' allegations were true, Chancery Court Vice Chancellor Leo H. Strine Jr. said from the bench in May, Steiner incurred hundreds of thousands of dollars of personal expenses using Fairchild's money and later reimbursed the company, which "suggests a grotesque lack of control."
Under the newly proposed settlement, executives would have to pay business expenses out of pocket and then seek reimbursement. An oversight committee of outside directors would review the expenses.
The board "will adopt a policy that restricts the practice of company employees using company funds or assets for personal purposes," the Fairchild filing said.
Fairchild spokesman Howard Paster said the company and its executives would not comment while the settlement was pending before the judge.
One of the issues in the case was the more than $5.6 million the company spent defending Steiner and posting a bond on his behalf in a French court case in which he was accused of benefiting from the misuse of a French oil company's funds.
Steiner received a suspended sentence and a fine of 500,000 euros, worth about $598,000 at the current exchange rate.
The settlement calls for Steiner to reimburse $833,333 of the more than $5.6 million; $2.9 million would be covered by the company's insurance carrier.
Steiner's $833,333 personal contribution to defraying the legal expenses apparently would be less than the $1.5 million reimbursement he agreed to make in the rejected version of the settlement.
However, under the new agreement, the company would save $933,000 in contributions to Steiner's retirement plan this year and would discontinue two life insurance policies for Steiner, saving $150,000 in annual premiums.
The settlement calls for Steiner to negotiate a new employment agreement.
If that doesn't happen, his salary would be reduced by 50 percent, which would be deeper than the 20 percent cut proposed in the earlier agreement.
Lawyers for shareholders are seeking a total of more than $2 million in fees and expenses, according to Fairchild's SEC filing.