UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21818
FIELDS AIRCRAFT SPARES, INC.
(Name of Small Business Issuer as specified in its charter)
Utah 95-4218263
(State or other jurisdiction of (I.R.S. employer identification No.)
incorporation or organization)
2251-A Ward Avenue
Simi Valley, California 93065
(Address of principal executive offices)
Issuer's telephone number, including area code: (805) 583-0080
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Shares, par value $.05 per share
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|
The Issuer's revenues for the fiscal year ended December 31, 1996 were
$5,734,000.
As of December 31, 1996, 1,302,137 of the Issuer's common shares were
issued and outstanding, approximately 1,011,200 of which were held by
non-affiliates. As of March 26, 1997, the aggregate market value of shares held
by non-affiliates (based upon last cash sale of common shares) was approximately
$6,132,000. The Issuer believes that two shareholders who owned approximately
11.84% and, 8.42% respectively as of March 26, 1997, of the total shares issued
and outstanding are not affiliates of the Issuer since they do not participate
in management decisions.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format: Yes_____ No X
<PAGE>
PART I.
ITEM 1. BUSINESS
Development of the Company
The primary business of Fields Aircraft Spares, Inc. (the "Company") is
the distribution of and stocking of factory new spare parts applicable to
various commercial aircraft models and the brokerage of a wide variety of new
and reconditioned aircraft parts through its subsidiary Fields Aircraft Spares,
Incorporated ("FAS").
In 1984, the Company was organized as FEP Resources, Inc. under the
laws of the State of Utah for the purpose of acquiring business opportunities.
In 1985, the Company was renamed Fields Industrial Group, Inc. and acquired
Fields Industrial Supply, Inc., a California corporation that was engaged in the
sale of cutting tools and supplies. As of 1990, that business was discontinued
and 100% of its common stock sold to an unrelated party on February 9, 1995. In
1987, the Company began its current business of distributing aircraft parts. In
1988, the Company incorporated FAS as a wholly-owned subsidiary. In 1995,
McDonnell Douglas Corporation (together with its affiliates and/or divisions,
"MDC") acquired Series A Convertible Preferred Stock of FAS. The Company's
primary business of distribution of spare parts for commercial aircraft was
commenced and has been conducted through FAS since 1988. In 1995, the Company
changed its name to Fields Aircraft Spares, Inc.
On March 29, 1995, the Company's shareholders authorized the reverse
split of the Company's common shares on the basis of 50 old shares for one new
share. The reverse split was effective as of November 20, 1995.
All material aspects of the Company's business are conducted through
FAS. The Company has an additional wholly owned subsidiary, Fields Aero
Management, Inc., a California corporation ("FAM"). However, no significant
operations are conducted through FAM. The business of the Company as conducted
through FAS is referred to in this document as the Company's business.
References in this document to the Company, where appropriate, shall be deemed
to be references to the Company and its subsidiaries, collectively.
Business of the Company
The primary business of the Company is the distribution and stocking of
factory new spare parts applicable to various commercial aircraft models and the
brokerage of a wide variety of new and reconditioned aircraft parts through FAS.
The Company's business is concentrated in the distribution and stocking, as an
authorized factory distributor for various manufacturers, of interior
replacement parts for a wide variety of commercial aircraft models. The Company
also distributes from what it believes to be the largest inventory, outside of
McDonnell Douglas Corporation, of factory new parts for DC-8, DC-9, DC-10 and
MD-80 aircraft, and also purchases and distributes both new and used parts and
related equipment from other aircraft manufacturers for other aircraft. The
Company sells, exchanges or leases parts to commercial aircraft operators
servicing both the passenger and cargo markets, to overhaul facilities and to
brokers throughout the world.
<PAGE>
Distributorships
The Company provides distribution services for manufacturers of
aircraft spare parts. The Company has decided, at this time, to concentrate on
interior parts and is an authorized distributor for a number of manufacturers
providing replacement parts for lavatories, galleys, seats, latches, lighting
and cleaning products. The Company is in varying stages of negotiations with a
number of other manufacturers with respect to becoming their authorized
distributor.
The Company's salespersons solicit annual usage projections from
customers which are used by management to determine inventory stocking levels.
During the fourth quarter of 1996, a major US airline and a regional
carrier each appointed the Company as their exclusive source of replacement
parts for a leading manufacturer of galleys and lavatories. The Company is in
varying stages of negotiations with a number of other airlines to become their
exclusive source of various interior replacements parts. No formal agreements
have been reached with other airlines.
As of December 31, 1996, backlog of distributorship orders for shipment
in 1997, which the Company believes to be firm, was in excess of $1.6 million.
There was no backlog of distributorship orders as of December 31, 1995.
The Company believes that distributorships will represent over 50% of
the Company's gross revenue in 1997, up from 28% in 1996. Accordingly, the
majority of the Company's resources will be directed to this area of business.
McDonnell Douglas Parts
The Company believes that it has the largest factory new inventory of
DC-8, DC-9, DC-10 and MD-80 parts outside of MDC. This inventory consists of
over $80 Million, catalog value, of factory new spare parts purchased directly
from MDC. MDC inventory is generally sold at a discount to catalog value. The
total future discount to catalog value cannot be quantified at this time.
An important factor in the aircraft spare parts distribution market is
the documentation or traceability that is supplied with an aircraft spare part.
MDC has re-certified this inventory as directly traceable to their production
certificate, and is the only inventory known to the Company outside of MDC's
direct control that has been certified to allow them to repurchase and ship to
customers without having to go through their quality control department for a
source inspection.
Based upon its market research, the Company believes that in many cases
parts in this inventory are the only new material and in many cases are the only
material available in any condition.
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McDonnell Douglas Corporation Contracts
On February 7, 1995, the Company and McDonnell Douglas Corporation
("MDC") entered into a Debt Restructure Agreement and related agreements
(collectively the "Current Agreement") pursuant to which MDC canceled $7,658,500
of debt owed by the Company in exchange for 586,862 shares of Series A
Convertible Preferred Stock of FAS (the "Series A Shares") and a cash payment of
$850,000.
In connection with the Current Agreement, the Company and MDC entered
into a Securities Exchange Agreement of even date with the Current Agreement
(the "Exchange Agreement"). The Exchange Agreement provided for the mandatory
exchange of the Series A Shares for 25% of the issued and outstanding common
shares of the Company, par value $.05 per share (the "Common Shares"), on a
fully diluted basis within 10 days following the date on which the Common Shares
are approved for quotation, and are quoted for trading on, the Nasdaq Stock
Market as a Small Cap Market Security. The Exchange Agreement further provides
for the Company to register the Common Shares issued to MDC in connection with
the Exchange Agreement under certain circumstances.
On March 26, 1997, the Company's Common Shares began quotation on the
Nasdaq SmallCap Market. Accordingly, the Company exchanged the MDC Series A
Shares for 564,194 Common Shares on April 4, 1997.
Peter Frohlich, Alan Fields and Lawrence Troyna (each an officer and
director of the Company and collectively referred to as the "Fields' Group") and
the Company and MDC have entered into a Voting Agreement of even date with the
Current Agreement (the "Voting Agreement"). The Voting Agreement provides that
MDC will vote the Series A Shares and Common Shares owned by MDC (i) in favor of
directors proposed by the Fields' Group, provided MDC has the right to designate
up to 25% of the directors proposed if MDC so elects and (ii) in favor of any
matter reasonably deemed necessary by the Company to have the Common Shares
qualified and listed on the Nasdaq Stock Market.
The Current Agreement provides that where it is in the best interest of
the parties, MDC and the Company will move forward on a number of business
activities. The Company and MDC are currently exploring the following business
activities: 1) consignment of a portion of MDC's excess customer spares
inventory to the Company; 2) on a selective basis, MDC providing spare parts to
the Company at a discount; 3) MDC purchasing inventory from the Company, at
mutually agreed prices, when items that are in inventory are needed by MDC; 4)
MDC purchasing spare parts from the Company through brokerage arrangements where
items not in inventory, but which can be located by the Company, are needed by
MDC; and 5) MDC cooperating with the Company in identifying and acquiring
additional inventories of aircraft spare parts.
3
<PAGE>
The Company is currently marketing spare parts that MDC considers to be
surplus to their needs. There are no other current agreements in place with
respect to any such various activities and there is no assurance any other
agreements will result from such discussions.
Brokerage Sales
The Company receives requests from its customers for parts that are not
currently held in its inventory. The salesperson receiving this request checks
various computerized databases as well as utilizes the knowledge of the Company
and its staff to locate a suitable part. Once located, a purchase price is
agreed with the owner of the part. At that time, the sales person will contact
the customer and extend a quote. If the quote is accepted by the customer, the
part is purchased and shipment to the Company's warehouse is arranged. When
received at the warehouse, both the part and its accompanying paperwork are
inspected. After inspection and acceptance, the part is shipped to the customer.
Because of government and industry group guidelines, aircraft operators
have become increasingly more careful about from whom they buy parts. The
Company has had its quality control systems and procedures audited and evaluated
by MDC as well as by a number of major airlines and freight operators. Almost
every major U.S. airline, freight operator and overhaul facility has designated
the Company as either an approved or preferred vendor. This preferred status has
enabled the Company to act as a broker to purchase parts for airlines when the
Company does not have the parts in stock.
Because parts for brokerage are not purchased until a corresponding
sale has been made, it is less capital intensive than the purchase and sale of
inventory. Brokerage allows incremental increases in sales without corresponding
increases in overhead.
Marketing Arrangements
The Company is currently in negotiations with several parties on
exclusive and non-exclusive marketing arrangements. The basis of a marketing
arrangement is similar to a consignment agreement, except the Company does not
physically warehouse the spare parts.
Operations
The Company maintains an inventory consisting primarily of factory new
aircraft spare parts in its warehouse in Fillmore, California. The Company's
inventory is listed in two computerized data banks that are available to the
airline industry: SPEC 2000 and the Inventory Locator System. The Company pays a
fee to be listed on such systems and continually updates the systems to keep
them current. In addition, the Company provides an inventory listing in computer
readable form to many of its major customers. The Company receives orders for
spare parts from commercial aircraft operators servicing both the passenger and
cargo markets, from overhaul facilities and from brokers. The Company currently
has four full-time inside
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<PAGE>
salespersons and three full-time outside salespersons. Additionally, the Company
is represented on an international basis by a number of independent outside
general sales agents.
Orders for parts in inventory are filled and shipped, 24 hours per day,
F.O.B. from the warehouse, generally within five hours of the receipt of the
order. The Company believes that the turn-around time between the time an order
is taken and the part is delivered is a key service for which the customer is
willing to pay. Reducing the time that an aircraft is on the ground is a major
advantage the Company offers to its customers. The Company is 60 minutes from
Los Angeles International Airport and has a delivery service to the airport. In
addition, the Company utilizes commercial cargo carriers to deliver spare parts
to the Los Angeles airport and around the world. The Company emphasizes its
service, which is to respond quickly and assist customers in obtaining parts.
Consignments
On June 27, 1995 the Company entered into a 3 year consignment
arrangement to warehouse and market spare parts for Airweld of Kentucky, Inc.
Other consignment arrangements are currently under negotiation, although no
assurances can be made that the Company will be successful in completing those
negotiations. Under such consignment arrangements the consignor retains
ownership and the Company arranges the sales for the consignor.
Parts warehoused by the Company under consignment arrangements are also
listed by the Company in the SPEC 2000 and the Inventory Locator System
computerized databanks. In addition, the Company adds the consignment
inventories to the inventory listings that it provides its customers in computer
readable form.
Pricing
The price at which the Company sells parts is based upon market
competition.
Marketing
The Company currently concentrates its marketing efforts in the
following areas:
(i) commercial airlines servicing the passenger market;
(ii) commercial airlines servicing the cargo market;
(iii) aircraft leasing companies; and
(iv) overhaul facilities.
5
<PAGE>
The Company intends to continue concentrating its marketing efforts in
these areas as its business expands.
The Company has not conducted any formal market studies to determine
the actual size of each of its current and any proposed markets, and relies upon
the experience of its officers and key employees for such judgments.
The Company sells its products through three primary methods:
1. The use of computerized parts database systems.
2. The use of its own sales staff which currently
includes 7 salespersons. This staff works at the
Company's corporate office by calling on customers
and potential customers to determine the needs of
such customers as well as responding to incoming
calls. Once the need is determined, the order is then
sent to the Company's warehouse.
3. The use of exclusive and non-exclusive general sales
agency agreements.
The Company markets its products primarily as follows:
The Company has developed literature and advertising material
describing the Company's products and services. The literature is distributed by
the Company's sales staff and agents, as well as by mail, to previous customers,
persons who have responded to previous advertising and companies believed to be
engaged in the relevant market.
The Company also uses media advertising directed toward specific market
segments such as trade journals and technical publications. In addition, the
Company attends trade shows and puts on exhibitions directed to specific market
segments.
During the fiscal year ended December 31, 1996, one customer of the
Company accounted for more than 10% of sales. No other single customer accounted
for more than 10% of the Company's sales. During the prior fiscal year, two of
the Company's customers each accounted for more than 10% of sales.
In an effort to increase foreign sales, the Company intends to engage
additional independent representatives to serve foreign markets.
Competition
The Company competes with a number of large and small sellers of
aircraft spare parts in various markets. For many of the Company's competitors,
the sale of aircraft spare parts is only a part of larger sales operations. Many
of the Company's competitors are larger and more established than the Company
and have greater financial resources and larger facilities and
6
<PAGE>
marketing forces. The Company's increased emphasis during the past two years on
distributorships and foreign markets has exposed the Company to new competitors,
including foreign competitors.
Although the Company has not performed any market survey studies, it
believes that its competition is based primarily upon service, price and
reputation of the supplier. The Company believes that it is competitive and that
it enjoys a good reputation. There can be no assurance, however, that the
Company has, or can maintain, a significant competitive advantage in any of
these areas.
Government Regulation
The Company's business is regulated by the Federal Aviation
Administration ("FAA"). The FAA has numerous regulations that must be complied
with by the Company.
The Company is subject to federal governmental regulation on foreign
sales of its products. Depending on the type of product, the Company may be
subject to review by the various federal agencies for a determination of whether
the specific product is a high technology product subject to restriction. Export
licenses may be denied for certain high technology products. If such a decision
is rendered, the Company may experience substantial time delays and expense in
the application and approval of export licenses. If export licenses are not
granted, the Company would be precluded from selling such products in certain
foreign markets.
The Company's sales in foreign countries are subject to various
applicable foreign governmental regulations. To date, compliance with such
regulations has not had a material adverse effect on the Company's operations.
Employees
The Company has 26 full-time employees, including its executive
officers, and two part-time employees. Eight are engaged in sales and marketing,
four in administration and the remainder in warehouse and support services. None
of the employees are unionized and management is of the opinion that its
relationship with its employees is good. Management believes that persons with
requisite training and experience are readily available to meet Company needs if
and when necessary.
Financing Arrangements
On February 7, 1995, the Company owed $7,658,000 to MDC made up of the
original note of $3,387,000 granted at the time of the Original Agreement,
deferred interest of $1,138,000 and deferred sales commissions of $3,133,000.
Additionally, the Company's bank lender was owed approximately $5,500,000. At
that time the Company closed the Current Agreement and Exchange Agreement with
MDC described above.
7
<PAGE>
On February 9, 1995, the Company, through FAS, entered into a line of
credit arrangement (the "Credit Agreement") with Norwest Business Credit Inc.
("Norwest") providing originally for a line of credit in the amount of
$10,000,000 with interest payable monthly at 2.5% over the prime rate. Although
due on demand, it expires in February 1998. The line of credit was partially
used to repay the bank lender $5,500,000 and to pay $850,000 to MDC. All assets
of the Company and its subsidiaries are pledged as collateral.
The Norwest credit line of $10,000,000 was initially divided into two
areas: an $8,000,000 inventory line and a $2,000,000 accounts receivable line.
Commencing April 1995 the available inventory credit reduced by $100,000 per
month. The available accounts receivable credit could increase up to a maximum
of $10,000,000 depending on the amount of accounts receivable; however, the
total of the inventory line and accounts receivable line cannot exceed
$10,000,000. In August 1996, The Fourth Amendment to Credit Agreement (the
"Fourth Amendment") reduced the maximum amount outstanding at any time under the
Credit Agreement to $6,900,000 with monthly reductions of $250,000 commencing
October 1996. Subsequent to the year end, the Fifth, Sixth and Seventh
Amendments to the Credit Agreement were signed which reduced the maximum amount
permitted to be outstanding to $6,150,000, $6,100,000 and $6,081,000,
respectively. In March 1997, an Eighth Amendment was entered into which
increased the maximum amount permitted to be outstanding to $6,131,000.
In June 1996, FAS entered into a Third Amendment to Credit Agreement
with Norwest whereby, among other things, the interest rate was increased to
5.5% over the prime rate. In August 1996, the Fourth Amendment further increased
the interest rate payable to Norwest by .5% per month commencing October 1996.
As of December 31, 1996, the interest rate was 15.25%.
As of December 31, 1996, the Company was in default with Norwest. The
Credit Agreement with Norwest required that the Company, as of June 30, 1996,
achieve net earnings from operations for the six months ending on that date of
$150,000 whereas the Company had a net loss from operations for that period of
$679,000. Subsequently, on March 12, 1997, Norwest waived all and any defaults
by the Company up to that date.
On April 18, 1997, the Company's wholly-owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit Commercial Funding ("NationsCredit") at an annual interest rate of
prime plus 3%. NationsCredit advanced $6,717,000 on April 18, 1997 which was
used to repay the obligations owed to Norwest and other fees incurred in
connection with the NationsCredit loan facility. In connection with the
NationsCredit loan facility, the Company issued NationsCredit an option to
acquire 40,000 Common Shares of the Company at a price of $6.25 per share.
In connection with the Norwest and NationsCredit credit facilities, the
Company retained a financial advisor to assist the Company in obtaining and
closing the credit facilities. At the closing of each facility, the Company paid
the financial advisor a fee of $200,000. The Company also entered into a
two-year contract with the financial advisor in February 1995
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whereby the financial advisor will provide ongoing consulting to the Company.
The contract provides for the Company to pay the financial advisor a
non-refundable retainer of $150,000, which was originally payable at a rate of
$15,000 per month for the first ten months of the contract. However, the parties
subsequently agreed that the retainer would be payable at a rate of $7,500 per
month. The agreement with the financial advisor is non-exclusive and does not
provide for additional completion fees which would be negotiated on a case by
case basis.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's warehouse is located at 341 "A" Street, Fillmore,
California. The executive offices are located at 2251-A Ward Avenue, Simi
Valley, California and its telephone number is (805) 583-0080. The warehouse
building was leased by the Company in 1988. In 1991 the Company exercised an
option to purchase the building for $885,000. The executive offices located at
the warehouse were severely damaged during the January 17, 1994 earthquake and
are no longer in use. The warehouse itself was only partially damaged, while the
inventory was not damaged. The building was insured against earthquake damage.
During 1996, the Company received $1,250,000 in final settlement of its claim.
The warehouse is an older produce-packing building of wood and concrete
construction with a high-ceiling upper floor and a concrete lower/basement
floor, all clear span except for wooden pillar supports. The total storage area
for both floors is 83,600 sq. ft. Exterior open- air storage area (secured) is
approximately 18,700 sq. ft.
A modern fire-prevention system with a ceiling water pressure sprinkler
system is installed on both floors. A visual/aural monitoring security system
operates inside the building and in all the exterior property contained within
the fenced area.
As a result of the damage to the Company's executive offices in the
warehouse, the Company leased its current executive offices from a third party
at a monthly rental of $4,451.
The property is leased on a month to month basis.
On March 21, 1997 the Company signed a new lease effective August 1,
1997 for a facility to replace its current executive offices and to provide
additional warehousing capabilities. The facility consists of approximately
7,500 sq. ft. of offices and 16,500 sq. ft. of warehouse space. The monthly
rental is $12,000 and the lease expires in 2002.
The Company maintains an executive office located in London, England.
The office is leased from a third party by Belgravia Financial Services Limited,
an entity owned and controlled by certain officers of the Company, and is
sublicensed to the Company on a month to month basis at a monthly rental to the
Company of $1,900. The underlying lease expires September of 1999. See "Certain
Relationships and Related Transactions."
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The following chart provides more detailed information concerning the
Company's properties:
Approximate Size
in
Location Sq. Ft. of Facility Lease Expiration Primary Use
Fillmore, California 83,600(1) Owned Warehouse
Simi Valley, California 5,000 month to month Executive Offices
London, England 1,000(2) month to month Executive Offices
Simi Valley, California(3) 24,000 2002 Executive Offices
and Warehouse
(1) Located on two acres.
(2) Licensed from Belgravia Financial Services Limited. Belgravia Financial
Services.
Limited has a lease on the property that expires in September 1999. See
"Certain Relationships and Related Transactions."
(3) Effective August 1, 1997.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently not a party to any known litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended
December 31, 1996 to a vote of the Company's shareholders.
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PART II.
ITEM 5. MARKET FOR COMMON SHARES AND RELATED SHAREHOLDER
MATTERS
Market Information
During 1995 and until May 17, 1996, there was no market for the
Company's Common Shares. The Common Shares were quoted over-the-counter under
the symbol FASS until March 25, 1997. Commencing March 26, 1997, the Common
Shares were quoted on the Nasdaq SmallCap Market under the symbol FASI. The
following table sets forth, for the fiscal quarters indicated, the high and low
bid quotations as reported by the National Quotation Bureau and based on the
Company's records. The quotations reflect inter-dealer prices without retail
mark-up, mark-down or commission, and may not represent actual transactions.
1996 High Bid Low Bid
Second Quarter
(beginning May 17, 1996) 6 1/2 2 1/2
Third Quarter 5 4
Fourth Quarter 5 2 1/2
Shareholders.
At April 4, 1997, the number of record holders of the Company's Common
Shares was approximately 300. The Company has no outstanding preferred shares.
Dividends
The Company has utilized all available funds for working capital
purposes and has never paid a dividend. Management does not anticipate paying
dividends in the foreseeable future on Common Shares or preferred shares. In
addition, the Company's loan provisions restrict the payment of dividends by the
Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto set forth elsewhere
in this Annual Report. The following tables illustrate certain selected
financial information regarding the Company and its subsidiaries:
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<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
=============================================================================================================================
Statement of Operations Data: 1996 1995 1994
---- ---- ----
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 5,734,000 $ 5,589,000 $ 2,965,000
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (242,000) $ 4,547,000 $(1,337,000)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ (0.13) $ 3.47 $ (1.51)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Balance Sheet Date: December 31, 1996 1995 1994
---- ---- ----
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Assets $11,499,000 $10,934,000 $10,217,000
- -----------------------------------------------------------------------------------------------------------------------------
Current Liabilities $ 7,418,000 $ 8,533,000 $14,206,000
- -----------------------------------------------------------------------------------------------------------------------------
Long Term Liabilities $ 268,000 -0- $ 457,000
- -----------------------------------------------------------------------------------------------------------------------------
Minority Interest -0- $ 2,050,000 --
- -----------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity (Deficit) $ 3,813,000 $ 351,000 $(4,446,000)
=============================================================================================================================
</TABLE>
Results of Operations
To date, the Company has not achieved sustained profitable operations.
The Company may incur losses in the future. If such losses do occur, the Company
may be required to reduce its inventory and its marketing efforts and seek
additional financing.
The following table sets for the percentages which the items in the
Company's consolidated statement of operations bears to net sales for the
periods indicated:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------
------------------------------------------------------
1996 1995 1994
---- ---- ----
Statements of Operations Data:
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 51.9 44.1 37.0
---- ---- ----
Gross Profit 48.1 55.9 63.0
General and administrative expenses 45.5 43.2 70.7
Interest expense, net 23.3 20.8 34.2
---- ---- ----
Operating Profit (loss) (20.7) (8.1) (41.9)
Other income 16.6 88.4 0.0
---- ---- ---
Income (loss) before income taxes (4.1) 80.3 (41.9)
Income tax expense (credit) 0.1 (1.0) 3.2
--- ----- ---
Net income (loss) (4.2) 81.3 (45.1)
===== ==== ======
</TABLE>
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Years Ended December 31, 1996 and 1995
Sales for the year ended December 31, 1996 increased by $145,000, or
2.6%, to $5,734,000 as compared to $5,589,000 for the year ended December 31,
1995. The increase in net sales was attributable to a 71.4% increase in
distributorship and brokerage sales offset by a decrease of 36.2% in MDC
inventory gross sales. The trend of overall increasing net sales and the shift
to distributorship and brokerage sales is evidenced by 1997 sales through the
quarter ended March 31, 1997 as compared to the quarter ended March 31, 1996 as
follows: An increase in net sales of 54.0%, an increase in distributorship and
brokerage sales of 138.7% and a decrease in MDC inventory sales of 35.1%. The
increase in distributorship and brokerage sales is expected to continue and the
decrease in MDC inventory sales is expected to level off.
Cost of goods sold for 1996 increased by $513,000, or 20.8%, to
$2,975,000 from $2,462,000 in 1995. Cost of goods sold were 51.9% of sales in
1996 compared to 44.1% of net sales in 1995. The reduction in the gross margin
percentage is a result of the increasing proportion of total sales represented
by brokerage and distributorship transactions as opposed to MDC inventory where
the margins are larger.
Total operating expenses before non-recurring earthquake expense
reimbursement of $150,000 for 1996 increased by $519,000, or 14.5% to $4,096,000
as compared to $3,577,000 for 1995. Net operating expenses for 1996 after the
non-recurring earthquake expense reimbursement of $150,000 was $3,946.000. This
increase is principally attributable to additional expenses associated with the
increase in sales, the shift of sales and higher interest expense. General
administrative expenses increased $344,000 or 14.2% and interest expense
increased $175,000 or 15.0%. The major portion of the increase in general and
administrative expenses resulted from additional staffing costs incurred to
generate the increased distributorship and brokerage sales. Interest expense
increased because of an increase in the rate charged by the Company's primary
lender and because of the fees associated with several amendments to the Credit
Agreement.
Operations of the Company and its subsidiaries for 1996 generated a
loss of $1,187,000, as compared to a loss of $450,000 in the prior year. The
increase of $737,000 in the loss from operations in 1996 is attributable to an
increase in operating and interest expenses and a reduction in gross margin.
During 1996, the Company recognized a non-recurring gain of $949,000
from the recovery of a casualty insurance claim as a result of the 1994
earthquake. During 1995, the Company recognized a $4,759,000 gain on exchange of
debt as a result of the exchange of preferred stock of a subsidiary for
$6,809,000 of debt of that subsidiary. In addition, the Company recognized a
non-recurring gain of $183,000 from the sale of a subsidiary.
As a result of the foregoing, the Company had a net loss in 1996 of
$242,000, as compared to net income in 1995 of $4,547,000, a decrease of
$4,789,000.
13
<PAGE>
Years Ended December 31, 1995 and 1994
The Company had net income of $4,547,000 for the year ended December
31, 1995 compared to a net loss of $1,337,000 for the year ended December 31,
1994. The increase in net income is attributable to a decrease in operating loss
of approximately $792,000 and non-recurring gains recognized during 1995.
During 1995, the Company recognized a $4,759,000 gain on exchange of
debt as a result of the exchange of preferred stock of a subsidiary for
$6,809,000 of debt of that subsidiary. In addition, the Company recognized a
non-recurring gain of $183,000 from the sale of a subsidiary.
Operations of the Company and its subsidiaries for the year ended
December 31, 1995 generated a loss of $450,000 as compared to loss from
operations of $1,242,000 in the prior year. Sales for 1995 and 1994 were
$5,589,000 and $2,965,000, respectively. The reduction in the loss from
operations in 1995 is attributed to increased sales and a reduction in operating
expenses as a percentage of sales.
Among factors causing the increase in sales were an expansion of the
sales team, the completion of the Company's refinancing, which allowed
management to concentrate its efforts toward marketing, and the ability to
pursue brokerage transactions, which the new refinancing package allowed.
Costs of goods sold for the year ended December 31, 1995 were
$2,462,000 (approximately 44% of sales) compared to $1,096,000 (approximately
37% of sales) for the prior year. The reduction in the gross margin percentage
is a result of the increasing proportion of total sales represented by brokerage
transactions as opposed to sales of owned inventory where the margins are
larger.
Total operating expenses before non-recurring items were $3,577,000 for
the year ended December 31, 1995 compared with $3,111,000 for the prior year.
The increase is due principally to additional expenses associated with the
increase in sales, and the higher interest expense.
Liquidity
At December 31, 1996 the Company had working capital (current assets in
excess of current liabilities) of $2,434,000 compared to working capital of
$657,000 on December 31, 1995. The increase in liquidity is attributable
principally to a decrease in short term bank debt as a result of the Company's
receipt of both the proceeds of a casualty insurance claim and the proceeds of a
sale of Common Shares and Warrants to non-United States investors by means of a
private placement memorandum under Regulation S of the Securities Act of 1933
(the "Securities Act"). The Company received the proceeds of the casualty
insurance claim after it agreed on a final settlement with its insurance company
14
<PAGE>
on its claim following the January 17, 1994 Los Angeles earthquake. This change,
coupled with an increase in distributorship inventory, was partially offset by
an increase in accounts payable and accrued liabilities.
Operating activities used $350,000 and $820,000 of the Company's cash
flow for the year ended December 31, 1996 and the prior year, respectively.
Increases in accounts payable and accruals of $467,000 and depreciation and
amortization of $120,000 generated cash. Such amounts were partially offset by
an increase of $456,000 in inventories and $272,000 of other assets and an
increase in accounts receivable of $226,000.
In June 1996, FAS entered into a Third Amendment to Credit Agreement
with Norwest whereby, among other things, the interest rate was increased to
5.5% over the prime rate. In August 1996, FAS entered into a Fourth Amendment to
Credit Agreement further increasing the interest rate payable to Norwest by .5%
per month commencing October 1996. As of December 31, 1996, the interest rate
was 15.25%.
The Credit Agreement with Norwest required that the Company, as of June
30, 1996, achieve net earnings from operations for the six months ending on that
date of $150,000 whereas the Company had a net loss from operations for that
period of $679,000. Norwest had indicated to the Company that it did not intend
to take any action as a result of the default, but reserved its right to take
appropriate action at any time. Subsequently, on March 12, 1997, Norwest waived
any and all defaults by the Company up to that date.
On April 18, 1997, the Company's wholly-owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit Commercial Funding ("NationsCredit") at an annual interest rate of
prime plus3%, NationsCredit advanced $6,717,000 on April 18, 1997 which was used
to repay the obligations owed to Norwest and other fees incurred in connection
with the NationsCredit loan facility. In connection loan facility, the Company
issued NationsCredit an option to acquire 40,000 common shares of the company at
a price of $6.25 per share.
Capital Resources
The Company's operations to date have been primarily funded through
bank loans and vendors deferred purchase notes.
15
<PAGE>
The Company had no commitments of capital resources at December 31,
1996. On February 9, 1995, the Company, through FAS, entered into a line of
credit arrangement with Norwest providing for a line of credit in the amount of
$10,000,000. At December 31, 1996, approximately $6,232,000 of credit had been
extended under the credit line of $10,000,000.
The Norwest credit line of $10,000,000 was initially divided into two
areas: an $8,000,000 inventory line and a $2,000,000 accounts receivable line.
Commencing April 1995 the available inventory credit reduces by $100,000 per
month. The available accounts receivable credit could increase up to a maximum
of $10,000,000 depending on the amount of accounts receivable; however, the
total of the inventory line and accounts receivable line cannot exceed
$10,000,000. The Fourth Amendment reduced the maximum amount outstanding at any
time to $6,900,000 with monthly reductions of $250,000 commencing October 1996.
Subsequent to the year end, the Fifth, Sixth, Seventh and Eighth
Amendments to the Credit Agreement were signed which reduced the maximum amount
permitted to be outstanding to $6,150,000, $6,100,000, $6,081,000 and
$6,131,000, respectively.
On February 7, 1995, the Company's wholly owned subsidiary, FAS, owed
MDC $7,658,000. In connection with the Norwest financing, MDC cancelled that
debt in exchange for $850,000 in cash and 586,862 Series A Shares of FAS. MDC's
investment in FAS is reflected as a minority interest in a subsidiary on the
Company's balance sheet dated December 31, 1995. The minority interest was
valued at $2,050,000. The valuation of the minority interest is based on the
estimated market value of the Common Shares of the Company into which the Series
A Shares of FAS may be converted. While the Company has valued the minority
interest on this basis for accounting purposes, the Series A Shares of FAS have
other rights and preferences in addition to their conversion rights that may
substantially increase their value.
During 1996 MDC filed with the Securities and Exchange Commission (the
"SEC") a Form 13(d) evidencing its beneficial ownership in the Company.
Accordingly, although the Series A Shares were not converted into Common Shares
of the Company prior to December 31, 1996, the December 31, 1996 financial
statements have been prepared as if such conversion had occurred and the
minority interest was reclassified as additional paid-in capital.
The Series A Shares became convertible into Common Shares of the
Company at MDC's upon the approval of the Common Shares for quotation and
commencement of trading on Nasdaq as a Small Cap Market Security. The Company's
Common Shares began quotation on the Nasdaq SmallCap Market beginning March 26,
1997. On April 4, 1997 the MDC Series A Shares were exchanged for 564,194 Common
Shares.
During 1996, the Company began a private placement transaction by means
of a private placement memorandum to non-United States persons pursuant to
Regulation S of the Securities Act. 164,283 units (the "Units") representing
328,566 Common Shares and warrants to acquire 164,283 Common Shares at $6.25 per
16
<PAGE>
share (the "Warrants") were sold for $2,135,685 between September 1996 and March
1997. The Warrants are exercisable at anytime prior to the second anniversary of
their issuance. In addition, the placement agent received Warrants to acquire
32,857 Common Shares at $6.25 per share. Etablissement Pour Le Placement Prive,
Zurich Switzerland, acted as the Company's placement agent in connection with
the offering. After brokerage and issuance costs, the sales resulted in a net
infusion of capital of approximately $1,654,000 at December 31, 1996 and
approximately $1,724,000 through March 1997.
On April 18, 1997, the Company's wholly-owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit Commercial Funding ("NationsCredit") at an annual interest rate of
prime plus 3%. NationsCredit advanced $6,717,000 on April 18, 1997 which was
used to repay the obligations owed to Norwest and other fees incurred in
connection with the NationsCredit loan facility. In connection with the
NationsCredit loan facility, the Company issued NationsCredit an option to
acquire 40,000 common shares of the Company at a price of $6.25 per share.
The Company will continue to actively seek equity capital infusions.
Unless operations of the Company generate a profit, additional capital will be
needed to continue operations in the future or operations may be reduced. There
is no assurance the Company will be successful in securing additional capital.
In addition, the Company will seek to acquire other companies in
similar or allied businesses. Any such acquisition will only be undertaken
following a careful analysis of the potential acquisition, any potential
synergism with the Company's existing business and the capital needs of the
acquired products compared to the capital needs and resources of the Company.
There is no assurance that any acquisitions will be successfully completed.
Forward-Looking Statements
Statements regarding the Company's expectations as to its capital
resources and certain other information presented in this Form 10-KSB constitute
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations. In addition to matters
affecting the economy and the Company's industry generally, factors that could
cause actual results to differ from expectations include, but are not limited
to, the following:(i) the Company's ability to obtain future debt financing may
be adversely affected by its past technical defaults on its debt financing and
its uncertainty of future profitability; (ii) the Company's ability to acquire
other businesses in similar or allied businesses may be adversely affected if
the Company is not able to raise additional capital and obtain any necessary
debt financing; (iii) the Company's ability to raise additional capital may be
adversely affected by its lack of trading volume and the Company's uncertainty
of future profitability; (iv) regulation by governmental authorities, and (v)
growth of the airline industry.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements, supplementary data and report of independent
public accountants are filed as part of this report on pages F-1 through F-13.
The following financial statements of the Company are included beginning at page
F-1.
Independent Auditors' Report F-1
Balance Sheet as of December 31, 1996 and 1995 F-2
Statement of Operations for the years ended
December 31, 1996 and 1995 F-3
Statement of Shareholders' Equity (Deficit) for the years
ended December 31, 1996 and 1995 F-4
Statement of Cash Flows for the years ended
December 31, 1996 and 1995 F-5
Notes to the Financial Statements F-6 through F-13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
18
<PAGE>
The Board of Directors
Fields Aircraft Spares, Inc.
Fillmore, California
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of Fields
Aircraft Spares, Inc., formerly known as Fields Industrial Group, Inc., as of
December 31, 1996 and 1995 and the related consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1996, 1995 and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Fields Aircraft
Spares, Inc. as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years ended December 31, 1996, 1995 and 1994 in
conformity with generally accepted accounting principles.
/s/ Moore Stevens Frazier and Torbet, LLP
Certified Public Accountants
January 23, 1997
F-1
<PAGE>
FIELDS AIRCRAFT SPARES, INC. EXHIBIT A
FORMERLY KNOWN AS
FIELDS INDUSTRIAL GROUP, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
A S S E T S
-----------
1996 1995
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash $ 88,000 $ 111,000
Accounts receivable, net of allowance for
doubtful accounts of $50,000 in 1996 and
$10,000 1995 1,507,000 1,281,000
Inventory 8,108,000 7,652,000
Prepaid expenses 149,000 146,000
-------------- -----------
Total current assets $ 9,852,000 $ 9,190,000
------------- ----------
LAND, BUILDING AND EQUIPMENT:
Land $ 210,000 $ 210,000
Building and building improvements 1,061,000 1,132,000
Furniture and equipment 548,000 536,000
-------------- -----------
Totals $ 1,819,000 $ 1,878,000
Less accumulated depreciation and amortization 734,000 635,000
-------------- -----------
Total land, building and equipment, net $ 1,085,000 $ 1,243,000
------------- ----------
OTHER ASSETS:
Debt issuance costs, net of accumulated
amortization of $388,000 in 1996 and
$177,000 in 1995 $ 300,000 $ 420,000
Other assets 262,000 81,000
-------------- -------------
Total other assets $ 562,000 $ 501,000
-------------- -----------
Total assets $ 11,499,000 $ 10,934,000
============ ==========
<CAPTION>
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
---------------------------------------------------------------- 1996 1995
------ -----
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 864,000 $ 488,000
Accrued liabilities 230,000 139,000
Income taxes payable 1,000 1,000
Current portion of notes payable 6,323,000 7,905,000
------------- ------------
Total current liabilities $ 7,418,000 $ 8,533,000
------------- -----------
LONG-TERM LIABILITIES:
Notes payable, net of current portion $ 268,000 $
-------------- ---------------
MINORITY INTEREST $ $ 2,050,000
-------------------- -----------
SHAREHOLDERS' EQUITY:
Common stock $ 312,000 $ 297,000
Additional paid-in capital 5,065,000 1,376,000
Retained deficit (1,564,000) (1,322,000)
------------- -----------
Total shareholders' equity $ 3,813,000 $ 351,000
------------- ------------
Total liabilities and shareholders' equity $ 11,499,000 $ 10,934,000
============ ===========
</TABLE>
The accompanying notes are an integral part of this statement
F-2
<PAGE>
FIELDS AIRCRAFT SPARES, INC. EXHIBIT B
FORMERLY KNOWN AS
FIELDS INDUSTRIAL GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
SALES $ 5,734,000 $ 5,589,000 $ 2,965,000
COST OF SALES $ 2,975,000 $ 2,462,000 $ 1,096,000
----------- ----------- -----------
GROSS PROFIT $ 2,759,000 $ 3,127,000 $ 1,869,000
------------- ----------- ------------
OPERATING EXPENSES:
General and administrative $ 2,608,000 $ 2,414,000 $ 2,096,000
Interest, net 1,338,000 1,163,000 1,015,000
------------- ---------- -------------
Total operating expenses $ 3,946,000 $ 3,577,000 $ 3,111,000
------------- ---------- -------------
LOSS FROM OPERATIONS $ (1,187,000) $ (450,000) $ (1,242,000)
------------- ----------- -------------
OTHER INCOME:
Casualty gain $ 949,000 $ - $ -
Gain on exchange of debt - 4,759,000 -
Gain on sale of subsidiary - 183,000 -
--------------- -------------- -------------
Total other income $ 949,000 $ 4,942,000 $ -
-------------- -------------- -------------
(LOSS) INCOME BEFORE PROVISION
(CREDIT) FOR INCOME TAXES $ (238,000) $ 4,492,000 $ (1,242,000)
PROVISION (CREDIT) FOR INCOME TAXES 4,000 (55,000) 95,000
-------------- --------------- -------------
NET (LOSS) INCOME $ (242,000) $ 4,547,000 $ (1,337,000)
============== =============== =============
NET (LOSS) INCOME PER SHARE
(fully-diluted) $ (.13) $ 3.47 $ (1.51)
================= ============== ================
NET (LOSS) INCOME PER SHARE (primary) $ (.13) $ 3.47 $ (1.51)
================= ============== ================
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
FIELDS AIRCRAFT SPARES, INC. Exhibit C
FORMERLY KNOWN AS
FIELDS INDUSTRIAL GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
COMMON STOCK
-------------
NUMBER ADDITIONAL TOTAL
OF SHARES PAID-IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
------------- -------- ---------- -------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994 883,232 $ 44,000 $ 1,376,000 $ (4,532,000) $ (3,112,000)
Common stock issued for services 61,120 3,000 3,000
Net loss (1,337,000) (1,337,000)
------------- ------------- ------------ ------------ ------------
BALANCES, December 31, 1994 944,352 $ 47,000 $ 1,376,000 $ 5,869,000) $ (4,446,000)
Sale of common stock 40,000 250,000 250,000
Net income 4,547,000 4,547,000
------------- -------------- ------------ ------------ ------------
BALANCES, December 31, 1995 984,352 $ 297,000 $ 1,376,000 $(1,322,000) $ 351,000
Additional paid-in capital 2,050,000 2,050,000
Sale of common stock 317,785 15,000 1,639,000 1,654,000
Net loss (242,000) (242,000)
--------------- -------------- ------------- ------------- ------------
BALANCES, December 31, 1996 1,302,137 $ 312,000 $ 5,065,000 $ (1,564,000) $ 3,813,000
========= ======== ========== ============= ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
FIELDS AIRCRAFT SPARES, INC. EXHIBIT D
FORMERLY KNOWN AS
FIELDS INDUSTRIAL GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net (loss) income $ (242,000) $ 4,547,000 $ (1,337,000)
Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
Depreciation and amortization 120,000 89,000 86,000
Amortization of debt issuance costs 211,000 177,000 112,000
Loss on sale of assets 51,000
Gain on exchange of debt (4,759,000)
Gain on sale of subsidiary (183,000)
Common stock issued for services 3,000
(Increase) decrease in accounts receivable (226,000) (925,000) 423,000
(Increase) decrease in inventory (456,000) 84,000 288,000
Increase in prepaid expenses (3,000) (93,000) (20,000)
Increase in other assets (272,000) (81,000)
Decrease in income tax refund receivable 711,000 95,000
Increase (decrease) in accounts payable 376,000 (225,000) 416,000
Increase in accrued interest payable 296,000
Increase (decrease) in other accrued liabilities 91,000 (127,000) (186,000)
Decrease in income taxes payable (35,000)
Increase in deferred sales commissions 71,000
Net cash (used in) provided by
operating activities $ (350,000) $ (820,000) $ 247,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, building and equipment $ (13,000) $ (156,000) $ (176,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on line of credit $ (1,195,000) $ 1,250,000 $
Principal payments on notes payable (193,000) (64,000) (76,000)
Borrowings on notes payable 74,000 64,000
Costs associated with issuance of notes payable (424,000) (170,000)
Proceeds from sale of common stock 1,654,000 250,000
Net cash provided by (used in)
financing activities $ 340,000 $ 1,076,000 $ (246,000)
NET (DECREASE) INCREASE IN CASH $ (23,000) $ 100,000 $ (175,000)
CASH, beginning of year 111,000 11,000 186,000
CASH, end of year $ 88,000 $ 111,000 $ 11,000
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
a. Principles of consolidation and company background
The consolidated Group financial statements include the
accounts of Fields Aircraft Spares, Inc., a Utah corporation, formerly known as
Fields Industrial Group, Inc., hereafter referred to as FASI, and its
wholly-owned subsidiaries Fields Aircraft Spares Incorporated (FASC), a
California corporation and Fields Aero Management, Inc. All significant
intercompany accounts and activity have been eliminated.
In 1995, Fields Industrial Group, Inc. changed its name to
Fields Aircraft Spares, Inc.
The Group distributes new aircraft parts and equipment for use
on international and domestic commercial and military aircraft and purchases and
sells parts on a brokerage basis.
b. Concentration of credit risk
Substantially all of the Group's trade accounts receivables
are due from companies in the airline industry located throughout the United
States and internationally. The Group performs periodic credit evaluations of
its customers' financial condition and does not require collateral. Credit
losses relating to customers in the airline industry have consistently been
insignificant and within management's expectations.
c. Concentration of sales
The Group had sales to foreign companies that amounted to 17%,
32% and 17% of total sales for the years ended December 31, 1996, 1995 and 1994,
respectively.
For the year ended December 31, 1996 two customers accounted
for sales of $657,000 and $351,000. For the year ended December 31, 1995, two
customers accounted for sales of $801,000 and $790,000. For the year ended
December 31, 1994, one customer accounted for $507,000 of sales.
d. Inventory
Inventory is valued at the lower of cost or market value using
the first-in, first-out method. Where a group of parts have been purchased
together as a lot, the cost of the lot is allocated to the individual parts by
management pro rata to the list selling price at the time of purchase.
Consistent with industry practice, inventory is carried as a current asset but
all inventory is not expected to be sold within one year.
F-6
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued):
e. Land, building and equipment
Land, building and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from 3 to 25 years.
The cost and related accumulated depreciation of assets sold
or otherwise retired are eliminated from the accounts and any gain or loss is
included in the statement of operations. The cost of maintenance and repairs is
charged to income as incurred, whereas significant renewals and betterments are
capitalized. Depreciation expense for the years ended December 31, 1996, 1995
and 1994 amounted to $120,000, $89,000 and $86,000, respectively.
f. Debt issuance costs
The debt issuance costs relate to the issuance of new
financing. Amortization of debt issuance costs for the years ended December 31,
1996, 1995 and 1994 amounted to $211,000, $177,000 and $112,000, respectively.
g. Revenue recognition
The Group recognizes revenue from all types of sales under
the accrual method of accounting when title transfers. Title transfers at the
Group's facility.
h. Earnings per share
In March 1995, FASI's shareholders authorized the reverse
split of its common stock on the basis of fifty old shares for one new share.
This reverse split was effective as of November 1995. All references herein to
the number of shares are after the reverse split.
Earnings per share was computed using 1,840,543, 1,312,469 and
888,325 shares for the years ended December 31, 1996, 1995 and 1994,
respectively.
i. Income taxes
The Group files consolidated income tax returns. Deferred
income taxes relate to temporary differences between financial statement and
income tax reporting of certain accrued expenses, state income taxes, bad debts,
inventory, and depreciation.
F-7
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued):
The Group adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". SFAS 109 requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between tax basis and financial reporting
basis of other assets and liabilities. The income tax effect of the temporary
differences as of December 31 consisted of the following:
1996 1995
Deferred tax liability resulting from
taxable temporary differences for
accounting for inventory $ (314,000) $ (314,000)
Deferred tax asset resulting from
deductible temporary differences
for allowance for doubtful accounts 4,000 4,000
Deferred tax asset resulting from
deductible temporary differences
for utilization of net operating loss
carryforwards for income tax
purposes 1,344,000 921,000
Valuation allowance resulting from the
potential nonutilization of net operating
loss carryforwards for income tax
purposes (1,034,000) (611,000)
---------- ---------
Total deferred income taxes $ -0- $ -0-
============= ==========
j. Employee benefit plan
FASC has a 401(k) Plan under Section 401(k) of the Internal
Revenue Code. The Plan allows all employees who are not covered by a collective
bargaining agreement to defer up to 15% of their compensation on a pre-tax basis
through contributions to the Plan. Contributions to the Plan by FASC are
discretionary and are determined by the Board of Directors. No contributions
were made to the Plan during the years ended December 31, 1996, 1995 and 1994.
k. Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimated utilized in preparing
its financial statements are reasonable and prudent. Actual results could differ
from these estimates.
F-8
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Shareholders' equity
FASI has 50,000 shares authorized of its $.001 par value
preferred stock. At December 31, 1996 and 1995, there were no shares of
preferred stock issued or outstanding. The preferred shares, if issued, may be
granted the right to convert into common shares. On liquidation, the preferred
shares may be entitled to share in the liquidation proceeds after satisfaction
of creditors and prior to any distribution to the common shareholders to the
extent of the preference determined by the Board of Directors at the time of
issuance.
FASI has the following common stock as of December 31:
1996 1995
---- ----
Authorized 2,000,000 2,000,000
Issued and outstanding 1,302,137 984,352
Par value $.05 $.05
All of the common shares have equal voting rights. The common
shares have no pre-emptive or conversion rights, no redemption or sinking
provisions, and are not liable for further call or assessment. Each common share
is entitled to share ratably in any assets available for distribution to the
common shareholders upon liquidation of the Group.
In February 1995, the Group owed $7,658,000 to McDonnell
Douglas Corporation (MDC). MDC cancelled the debt in exchange for $850,000 plus
586,862 shares of Series A convertible preferred stock of FASC. This constituted
full and complete satisfaction of the MDC debt. The agreement provided for the
mandatory exchange of the Series A preferred stock of FASC for 25% of the total
outstanding common stock of FASI within 10 days following the date the common
stock is approved for quotation on, and is quoted for trading on, the Nasdaq
Stock Market. The Series A convertible preferred stock carries a liquidation
preference of $5,000,000; which, in the event of a liquidation of FASC, should
be paid pro rata to the holders of the Series A shares.
On April 17, 1996 the Securities and Exchange Commission
("Commission") notified FASI that it had no further comments on the Form 10-SB
that had been filed with the Commission on October 30, 1995. MDC was notified of
such event and accordingly filed a Form 3 and Schedule 13-D with the Commission
claiming beneficial ownership in 514,220 common shares of FASI based on its
right to convert Series A convertible preferred stock for 25% of the common
stock of FASI on a fully-diluted basis. FASI had stated to the Commission in
writing that upon MDC's filing of the Schedule 13-D or similar filing indicated
beneficial ownership in FASI, FASI's financial statements would thereafter
reflect the acquisition of the minority interest. Accordingly, the financial
statements have reported the acquisition of the minority interest as additional
paid-in capital even though the 514,220 common shares of FASI have not, and will
not, be issued until the Series A preferred shares of FASC have been converted.
F-9
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Shareholders' equity (continued):
The exchange of the MDC debt for the preferred stock of FASC
was accounted for as a minority interest. A gain of $4,759,000 was recorded in
the financial statements in 1995 as a result of this transaction.
In 1995, FASI sold 40,000 shares of common stock for $250,000
($6.25 per share). FASI then paid $250,000 to FASC as additional paid-in
capital.
On February 9, 1995, FASC obtained new financing from Norwest
Business Credit, Inc., (Norwest). FASC obtained a line of credit in the maximum
amount of $10,000,000. As of December 31, 1996, FASC could borrow up to
$6,150,000 against eligible accounts receivable and inventory. Although due on
demand, it expires in February, 1998. The line of credit was partially used to
pay the note payable to the prior lending bank and to pay $850,000 to MDC. All
assets of the Group are pledged as collateral.
On February 9, 1995, FASI sold 100% of the outstanding common
stock of Fields Industrial Supply, Inc. to an unrelated party. A gain of
$183,000 was recorded in the financial statements in 1995 as a result of this
transaction.
In April 1996, the Group reached a final settlement with its
insurance company. Management elected to record a casualty gain as a result of
the January 1994 earthquake. A gain of $949,000 was recorded in the financial
statements in 1996 as a result of this transaction.
In 1996, FASI sold 317,785 shares of common stock for $6.25
per share and 158,000 warrants for $.50 each. Each warrant allows the holder to
purchase one share of common stock for $6.25. The net proceeds were $1,654,000
after deducting the costs of underwriting and issuance.
F-10
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Notes payable
The notes payable at December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Line of credit from Norwest, secured by all assets
of the Group, interest at prime plus 7.0% (15.25%
at December 31, 1996), payable monthly $ 6,232,000 $ 7,427,000
Notepayable to bank, secured by land and building,
payable monthly at $2,396 plus interest at prime
plus 2% (10.25% at December 31, 1996), due February 1998 331,000 457,000
Other notes payable 28,000 21,000
------------ ------------
Totals $ 6,591,000 $ 7,905,000
Less current portion 6,323,000 7,905,000
---------- -----------
Notes payable, net of current portion $ 268,000 $ -
=========== ===============
</TABLE>
Principal payment requirements on all notes payable based on
terms and rates in effect at December 31, 1996 are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
1997 $ 6,323,000
1998 268,000
Thereafter -
Total interest expense for the years ended December 31, 1996,
1995 and 1994 amounted to $1,338,000, $1,163,000 and $1,017,000, respectively.
Total interest paid for the years ended December 31, 1996, 1995 and 1994
amounted to $1,076,000, $936,000 and $761,000, respectively.
F-11
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. Provision (credit) for income taxes
-----------------------------------
The provision (credit) for income taxes for the years ended
December 31 consisted of the following:
1996 1995 1994
---- ---- ----
CURRENT:
Federal $ (55,000) $ 95,000
CURRENT:
State 4,000
Total provision (credit)
for income taxes $ 4,000 $ (55,000) $ 95,000
========== ========= =========
Total income taxes paid in 1996, 1995 and 1994 amounted to $3,000
each year. The Group has net operating loss carryovers available to offset
future taxable income. The amount and expiration date of the carryovers are as
follows:
YEAR ENDING
DECEMBER 31, FEDERAL STATE
----------- ------- -------
1997 $ $ 814,000
1998 750,000
1999 580,000
2000 126,000
2001 120,000
2008 942,000
2009 1,161,000
2010 255,000
2011 240,000
5. Commitments
-----------
The Group leases vehicles and equipment and office facilities
under operating leases. The minimum lease payments required under operating
leases as of December 31, 1996 are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------- --------
1997 $ 15,500
1998 14,200
Thereafter -
F-12
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
FORMERLY KNOWN AS FIELDS INDUSTRIAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. Commitments (continued):
-----------------------
Lease expense for the years ended December 31, 1996, 1995 and
1994 was $102,000, $84,000 and $33,000 , respectively.
The Group has a contract with a financial advisor whereby the
financial advisor will provide consulting services to the Group. The minimum
payments required under the contract as of December 31, 1996 are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------- --------
1997 $ 37,500
Thereafter -
6. Related party transactions
--------------------------
The Group leases a small overseas office facility on a month
to month basis from an entity owned by certain officers of the Group.
In November 1995 FASI issued options to 25 employees of the
Group to acquire up to 82,525 common shares of FASI at a purchase price of $3.00
per share subject to certain requirements. The options must vest by November
1998.
7. Contingency
-----------
In the event of the death of a Director or Officer of the Group,
the Group is obligated to pay up to 100% of the Director's or Officer's annual
compensation to their beneficiary within the twelve months subsequent to their
death.
F-13
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table lists all directors and executive officers of the Company
and their ages as of April 23, 1997:
NAME AGE POSITION
Peter Frohlich 55 Chairman and Chief Executive
Officer of the Company;
Chairman of FAS
Alan M. Fields 45 President and Director of the
Company; President, Director and
Chief Executive Officer of FAS
Lawrence J. Troyna 53 Chief Financial Officer and
Director of the Company; Chief
Financial Officer, Secretary and
Director of FAS
Leonard I. Fields 78 Director of the Company;
Director of FAS
Carlos Sedillo 55 General Counsel, Secretary and
Director of the Company;
Director of FAS
Neil E. O'Hara 43 Vice President of the Company
All current directors of the Company were elected at a special meeting
of the shareholders held March 29, 1995. Each director will serve until his
successor is duly elected by the shareholders and qualified. Officers serve at
the will of the Board of Directors. Except for the directors of the Company that
are presently salaried employees of the Company, the directors are not otherwise
compensated as directors. The Board of Directors may in the future determine to
pay directors' fees and reimburse directors for expenses related to their
activities. In February 1997, George Fields, brother of Leonard Fields, uncle of
Alan Fields and a director of the Company, died. The directors have not
appointed a new director to fill the vacancy created by the death of George
Fields. Instead, the directors have reduced the number of positions on the Board
of Directors to five.
Peter Frohlich is Chairman and Chief Executive Officer of the Company
and Chairman of Fields Aircraft Spares Incorporated, a wholly owned subsidiary
of the Company ("FAS"). Mr. Frohlich is a Certified Accountant in the United
Kingdom with over 12 years experience in public accounting as a partner in a
large accounting firm. From 1972 to 1980 he was Managing Director of a public
company quoted on the London Stock Exchange. The company employed several
thousand people and had annual sales of approximately $75,000,000. From 1980
until joining the Company in 1987, Mr. Frohlich was a consultant to a number of
public and private companies advising on many aspects of corporate and fiscal
matters, and on mergers and acquisitions with specific regard to refinancing and
19
<PAGE>
restructuring. Mr. Frohlich was appointed Chairman of the Company in 1987. He
resigned as Chairman in 1989 but remained as a Director until resigning as a
Director in February 1991. Mr. Frohlich was re-appointed a Director and Chairman
of the Company in March 1992. From 1989 to 1991, Mr. Frohlich acted as an
investment advisor to a substantial private group of companies. In 1991, Mr.
Frohlich became Chairman of Tower Group plc, an unquoted United Kingdom public
company. He was retained by a number of its shareholders to attempt to
reorganize the company following multi million pound trading losses. After
several months he concluded that the group should invite the bank to appoint a
receiver and he resigned.
Alan M. Fields is President and a Director of the Company, Director and
Chief Executive Officer and President of FAS and has served in various
capacities since 1992. From 1989 until 1991 Mr. Fields was a Vice-President and
General Manager of Quantum Microsystems, Inc., a computer systems retailer. From
1985 until 1992, Mr. Fields acted as an independent sales consultant for several
direct sales companies. His efforts on behalf of those companies resulted in the
development of a combined sales force exceeding 5,000 direct salespersons, and
monthly sales averaging an estimated $350,000. From 1982 until 1984 he was the
Founder and President of Savers Tax Service. Mr. Fields was responsible for all
operations of that company, which he built to over 2,000 clients and 17 offices.
That company was sold in 1984. From 1982 until 1984 Mr. Fields was also the
President and responsible for all operations of AFA Datashare Services, a
computer data processing firm. That company was also sold in 1984. From 1980
until 1984 he was President, one of the founders, a minority shareholder and
head of marketing of an income tax preparation firm which provided services to
over 3,000 Amway distributors through 16 offices. In 1984, as a result of Amway
corporation being subjected to major negative attacks by the media, the tax
preparation firm was adversely effected resulting in a bankruptcy. Also, as an
ongoing result of that business bankruptcy, Mr. Fields filed personal bankruptcy
in 1992. Prior to entering the business world, Mr. Fields spent five years with
the Internal Revenue Service as a Tax Auditor and Revenue Agent. Alan Fields is
the son of Leonard Fields.
Lawrence J. Troyna has served since 1992 as a Director and Chief
Financial Officer of the Company and Chief Financial Officer, Secretary and
Director of FAS. Mr. Troyna has a law degree and is a chartered accountant, and
was an audit senior with Price Waterhouse before joining Greyhound Financial
Corporation. He spent 17 years with Greyhound, where he rose to the position of
Deputy Managing Director of Greyhound European Group. As the number "2" in
Europe for this approximately $350,000,000 in assets company, Mr. Troyna was
responsible for the marketing and business development of the company's
investments in real estate, aviation and general equipment. He was also
responsible for overall corporate control. From 1986 until joining the Company
in 1988, Mr. Troyna was Chairman and Chief Executive Officer of Chigwell
Properties Ltd., a United Kingdom real estate company. From 1989 to 1992 he took
a leave of absence from the Company. During his three year absence from the
Company, Mr. Troyna acted as a financial and real estate consultant to a number
of private and public companies in the United Kingdom.
20
<PAGE>
Leonard I. Fields has been a Director of the Company and a Director of
FAS since January 1992. At various times since 1985, he has served in other
capacities for the Company and its subsidiaries. Mr. Fields has a B.S. degree in
Engineering, and has over 40 years of management and sales experience in the
industrial supply field. He was a founder of Union Industrial Supply in 1953 and
for thirty years was Executive Vice President of that company responsible for
all day to day operations. Under his guidance, that company grew to yearly sales
in excess of $5,000,000. Leonard Fields is the father of Alan Fields.
Carlos Sedillo has been Secretary and a Director of the Company and a
Director of FAS since 1987. Mr. Sedillo is an attorney and has an LLM in
taxation law. He has practiced law for 31 years and specializes in business and
tax matters. From 1987 until the present, he has served as General Counsel of
the Company. From 1963 until 1974, Mr. Sedillo was President of Stewart Title
and Trust Company. This firm, which was sold in 1974, provided title insurance
services to clients in five states. From 1980 until 1984 Mr. Sedillo was
associated with Alan Fields in the operation of Savers Tax Service, AFA
Datashare Services and Alan Fields and Associates. From August 1989 to January
1992, he was the Secretary and a member of the Board of Directors of Quantum
Microsystems, a company engaged in the retail sales of computer hardware and
software. From 1989 until 1993, Mr. Sedillo was also an officer and a member of
the Board of Directors of Aerobit International, Inc., a manufacturer of oil
well drill bits, and of Graphic Arts Personnel, a personnel company specializing
in temporary help for the printing industry.
Neil E. O'Hara is a Vice-President of the Company and has concentrated
on marketing and sales of the Company. Mr. O'Hara has over 18 years of
management experience in aerospace. He graduated from Adelphi University in 1976
with a Bachelor of Science degree. Mr. O'Hara worked eight years for American
Airlines, rising to the position of Senior Manager of Purchasing and Material.
In that position he oversaw all purchases of interior class I equipment. He then
spent eight years at Weber Aircraft, where at various times he held the
positions of Manager of Marketing & Sales, Manager of New Product Development,
and finally Director of Customer Services and Program Management. While in that
position, Mr. O'Hara was responsible for all spare parts sales and pricing and
had total management control over new programs and new product development. At
the Company, he is using his experience and contacts to expand the brokerage,
distributorship and consignment programs.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the
National Association of Securities Dealers. Officers, directors and greater than
21
<PAGE>
ten-percent shareholders are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on a review of the copies of such forms furnished to the
Company between January 1, 1996 and December 31, 1996, on year-end reports
furnished to the Company after December 31, 1996 and on representations that no
other reports were required, the Company has determined that during the last
fiscal year all applicable 16(a) filing requirements were met except as follows:
McDonnell Douglas Corporation filed a Form 3 on May 31, 1996, reporting
a beneficial ownership in the Company. The Form 3 should have been filed on or
before April 27, 1996.
Alan Fields filed a Form 4 on August 12, 1996, reporting the purchase
of 100 Common Shares of the Company during July 1996. The Form 4 should have
been filed on or before August 10, 1996.
22
<PAGE>
ITEM 10. SUMMARY COMPENSATION
The following table sets forth the aggregate cash compensation paid by
the Company for services rendered during the last three full fiscal years to the
Company's Chief Executive Officer and to each of the Company's other executive
officers whose annual salary and bonus for the year 1996 exceeded $100,000 (the
"Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation Awards
Securities
Restricted Underlying
Name and Principal Other Annual Stock Stock [All Other
Position Year Salary($) Bonus($) Compensation($) Awards($) Options(#) Compensation]
<S> <C> <C> <C> <C> <C> <C>
Peter Frohlich 1996(1) $130,000 $12,500 -- --
Chairman and CEO 1995 $130,000 -- -- 19,800(2)
1994 $130,000(3) $28,000(4) $3,750(5) --
Alan M. Fields 1996(1) $130,000 $12,500 $2,800 -- --
President 1995 $130,000 -- $2,800 -- 19,800(2)
1994 $130,000(6) $28,000(4)(7) $2,800 $3,750(5)(7) --
Lawrence J. Troyna 1996(1) $130,000 $12,500 -- --
Chief Financial 1995 $130,000 -- -- 19,800(2)
Officer 1994 $130,000(3) $28,000(4) $3,750(5) --
Neil O'Hara 1996(8) $ 83,252 $24,838 $6,000 -- --
Vice President 1995 $ 78,000 $23,625 $6,000 -- 7,125(2)
1994 $ 78,000 $27,662 $6,000 $ 500(9)
</TABLE>
(1) Does not include $15,773 paid to Mr. Fields in 1996 and $2,500 paid to
each of Mr. Frohlich and Mr. Troyna in 1996 for amounts earned in 1995.
Does include salary of $7,500 earned by Mr. Fields in 1996 and $10,000
earned by each of Mr. Frohlich and Mr. Troyna in 1996, which will be
paid in 1997. In addition, $10,000 bonus to each of the Current
Executive Officers (as defined below) was earned in 1996 but will be
paid in 1997. Does not include options to acquire 30,000 Common Shares
at $6.25 per share granted in April 1997 to each of the Current
Executive Officers which are not qualified stock options for federal
tax purposes.
(2) Represents options granted pursuant to a Management Stock Option Plan,
which is not a qualified stock option plan for federal tax purposes or
purposes of Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act").
(3) Reflects fees paid under the Consulting Agreements between the Company
and certain Named Executive Officers prior to such Named Executive
Officers being employed by the Company.
(4) Represents bonus awarded in 1994, of which $20,000 was paid in 1994 and
$8,000 was paid in 1995.
(5) Represents 15,000 shares awarded (after taking into account the 50 for
1 reverse stock split approved March 29, 1995). Based on a valuation of
$.25 per share or a total value of approximately $3,750 for each award.
At December 31, 1996, based on the closing market price of $4.75 per
share, such shares had a total value of $71,250 for each award. These
stock awards are fully vested.
(6) Reflects fees paid to Brimat International, Inc. pursuant to a
Consulting Agreement prior to January 1, 1995. Alan Fields, President
of the Company, is President of Brimat International, Inc., which is
owned solely by his father, Leonard Fields.
(7) Paid or awarded to Alan Fields, individually, for services rendered in
his capacity as President of Brimat International, Inc.
(8) Includes $5,000 bonus earned in 1996 but paid in 1997. Does not include
options to acquire 4,000 Common Shares at $6.25 per share granted in
April 1997, which are not qualified stock options for federal tax
purposes.
23
<PAGE>
(9) Represents 2,000 shares awarded (after taking into account the 50 for 1
reverse stock split approved March 29, 1995). Based on a valuation of
$.25 per share or a total value of approximately $500. At December 31,
1996, based on the closing market price of $4.75 per share, such shares
had a total value of $9,500. These stock awards are fully vested.
The Company through FAS has a 401(k) plan and a retirement trust but no
other retirement, pension or profit sharing plans for the benefit of the
Company's officers, directors and employees. Each of the 401(k) plan and the
retirement trust are defined contribution plans. The Company may, at its
discretion, make matching contributions to the 401(k) plan. However, to date, no
matching contributions have been made and the Company does not anticipate making
any matching contributions until the Company achieves profitability. The Company
does provide health insurance and life and disability insurance for its
employees. The board of directors may recommend and adopt additional programs in
the future for the benefit of officers, directors and employees.
Long-Term Incentive Plan Awards and Option Grants in Fiscal Year 1996
The Company has no long-term incentive plan. No options were granted in
fiscal year 1996.
Aggregated Option Exercises and Year-End Option Values in 1996
The following table summarizes for the Named Executive Officers of the
Company the number of stock options, if any, exercised during Fiscal Year 1996,
the aggregate dollar value realized upon exercise, the total number of
unexercised options held at December 31, 1996 and the aggregate dollar value of
in-the-money unexercised options, if any, held at December 31, 1995. Value
realized upon exercise is the difference between the fair market value of the
underlying stock on the exercise date and the exercise price of the option. The
value of unexercised, in-the-money options at December 31, 1996 is the
difference between its exercise price and the fair market value of the
underlying stock on December 31, 1996. The underlying options have not been and,
may never be exercised; and actual gains, if any, on exercise will depend on the
value of the Common Shares on the actual date of exercise. There can be no
assurance that these values will be realized. See "-Stock Option Plan" below for
a description of the terms of the options.
24
<PAGE>
<TABLE>
<CAPTION>
Aggregate Option Exercises in Fiscal Year 1996
and Year-End Option Values
Number of Unexercised Options at Value of Unexercised In-The-Money
12/31/96 Options at 12/31/96(1)
Shares Value
Name Acquired Realized($) # Exercisable Unexercisable Exercisable Unexercisable
on Exercise(#)
<S> <C> <C> <C> <C> <C> <C>
Peter Frohlich None N/A None 19,800 N/A $34,650
Lawrence J. Troyna None N/A None 19,800 N/A 34,650
Alan M. Fields None N/A None 19,800 N/A 34,650
Neil O'Hara None N/A None 7,125 N/A 12,469
</TABLE>
(1) The closing bid price of the Common Shares on December 31, 1996 was $4.75.
The exercise price of the options is $3.00.
Director Compensation
Except as specifically provided herein, board members receive no fees
for serving as members of the board of directors. However, board members may be
reimbursed their expenses incurred in attending board meetings and the board of
directors may in the future decide to pay directors' fees.
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements.
Effective January 1, 1995, the Board of Directors authorized the
Company to enter into one-year Employment Agreements with each of Peter
Frohlich, Lawrence Troyna and Alan Fields (the "Current Executive Officers"),
which are automatically renewable for additional one-year periods unless
terminated by the executive officer or the Company at the end of the then
current term. The terms of employment provide for a base salary to each of the
Current Executive Officers of $143,000, which includes $13,000 payable only out
of and to the extent of profits of the Company and not paid in 1995. In
addition, the Current Executive Officers were entitled to bonuses in calendar
25
<PAGE>
year 1995 of $41,800 payable only in the event that the Company achieved the
minimum financial covenants established by the Company's principal lender. Since
the minimum financial covenants were not achieved, these bonuses were not earned
in 1995. In May, 1995, each of the Current Executive Officers, in an effort to
assist the Company with its financial condition, agreed to waive their salary
for that month. The waived salary was paid later in the form of a bonus for
1995. The Current Executive Officers have been employed on these terms since
January 1, 1995. However, formal employment agreements have not been executed by
either the Company or any of its Current Executive Officers. The parties have
agreed that the written consulting agreements between each Current Executive
Officer and the Company, to the extent not inconsistent with the terms described
in this paragraph, will document the terms of employment. The Company employed
the Current Executive Officers on the same terms for 1996, except that the
annual base salary was set at $157,300 with $27,300 payable only out of and to
the extent of profits of the Company for 1996. Since the Company did not have
profits in 1996, the $27,300 was not earned. However, a bonus equal to
one-week's base salary was paid. In addition, the Current Executive Officers
were entitled to bonuses in 1996 of $41,800 payable only in the event the
Company achieves the minimum financial covenants established by the Company's
principal lender. Since the minimum financial covenants were not achieved, these
bonuses were not earned in 1996. However, the Current Executive Officers were
awarded a bonus of $10,000 for their services in 1996, which will be paid in
1997. Effective November 29, 1995, the Current Executive Officers were each
awarded an option to acquire 19,800 common shares of the Company at a purchase
price of $3.00 per share pursuant to the Management Plan described above. The
Company has employed the Current Executive Officers on the same terms as set
forth above, except that the annual base salary will be set at $157,000, with
$17,000 payable only out of and to the extent of profits of the Company for 1997
and a one week bonus equal to one-week's base salary. To the extent that the
Company has pretax net income in 1997, each of the Current Executive Officers
will be entitled to a bonus equal to 6.67% of pretax net income, up to a maximum
of $41,800 each. Each Current Executive Officer is also entitled to one-year's
base salary if he is terminated for any reason other than cause. In April 1997,
each of the Current Executive Officers was granted an option to acquire up to
30,000 Common Shares at $6.25 per share.
The Company has not entered into any currently effective employment
agreements other than the employment agreements described above.
Insider Participation in Compensation Decisions
The Company has no compensation committee. Compensation decisions are
made by the Board of Directors. Each of the Current Executive Officers is a
member of the Board of Directors and participates in compensation decisions.
Stock Options Plan
Effective November 29, 1995, the Company adopted a Management Stock
Option Plan ("Management Plan") and an Employee Stock Option Plan ("Employee
Plan"). Pursuant to the Management Plan, the Company has issued options to five
26
<PAGE>
individuals involved in the management of the Company to acquire up to 69,025
Common Shares of the Company at a purchase price of $3.00 per share subject to
vesting requirements, which includes the Company obtaining sales during a
12-month period of $7,500,000 and an average closing price for the Company's
Common Shares for a three-month period of $6.00, $9.00 and $12.00, respectively,
for each one-third of the options to vest. The options must vest by November
1998 and must be exercised within three years of vesting. None of the options
have vested. Pursuant to the Employee Plan, the Company has issued options to
acquire 13,500 Common Shares of the Company to 20 employees of the Company at a
purchase price of $3.00 per share subject to vesting requirements, which include
the Company obtaining sales during a 12-month period of $7,500,000 and at least
one year continued employment after the grant of the option. The options must
vest by November 1998 and must be exercised within two years of vesting. None of
the options have vested. Neither the Management Plan or the Employee Plan
provide for any further options to be issued. In addition, neither the
Management Plan or the Employee Plan is qualified for federal tax purposes or
for purposes of Section 16 of the Securities Exchange Act of 1934.
Other than the 1997 Stock Option Plan described below, the Company has
not adopted any other incentive stock option or stock award plan. No options
were granted by the Company to any of its officers, directors or employees
during fiscal years 1994 and 1996. However, the Company has in the past paid
bonuses to certain key employees through grants of Common Shares. During
calendar year 1994, the Company granted approximately 61,120 Common Shares to
key employees of or consultants to the Company as bonus compensation. (3,056,002
shares prior to the 50 to 1 reverse stock split approved March 29, 1995.)
On April 2, 1997, the Board of Directors cancelled the 1997 Stock
Option Plan that was previously approved by the board subject to shareholder
approval. On that same date, the Board of Directors authorized and granted stock
options to key executives (including the Current Executive Officers) and
directors providing for options to acquire an aggregate of 100,000 Common Shares
at a price of $6.25 per share.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the ownership of the Company's Common
Shares by each person who owned of record, or was known to own beneficially,
more than 5% as of April 23, 1997. As of April 23, 1997, there were 1,877,112
Common Shares and no preferred shares outstanding. There are options and
warrants to acquire 419,665 Common Shares from the Company currently
outstanding. The table also sets forth the present holdings of Common Shares by
all officers and directors, individually and as a group.
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Names and Addresses Number of Common Percent of
Principal Shareholders Shares Owned* Class**
McDonnell Douglas Corporation 564,194 30.06%
P.O. Box 516
McDonnell Blvd. at Airport Road
St. Louis, MO 63166-0516
Keusch & Merlo Invest A.G. 155,400 8.28
Bahnhofplatz 2
CH-8023 Zurich
Switzerland
James A., Jr. and Jeanette Duffield 110,500 5.89
2640 West 10th Place
Tempe, AZ 85281
Peter Frohlich (1),(2) 54,927 2.93
128 Mount Street
London W1Y5HA, U.K.
Alan M. Fields (1),(3) 68,052 3.62
341 "A" Street
Fillmore, CA 93015-1931
Lawrence J. Troyna (1),(4) 56,926 3.03
128 Mount Street
London W1Y5HA, U.K.
Leonard I. Fields (5) 30,745 1.64
341 "A" Street
Fillmore, CA 93015-1931
Carlos Sedillo (1),(6) 13,722 ***
341 "A" Street
Fillmore, CA 93015-1931
Neil E. O'Hara (7) 8,001 ***
341 "A" Street
Fillmore, CA 93015-1931
All officers and directors as a group 232,373 12.37
(6 persons)
* All shares are held beneficially and of record and each shareholder has
sole voting and investment power unless otherwise noted. A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days from the record date upon the exercise of
options.
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** Each beneficial owner's percentage ownership is determined by assuming
that options that are held by such person (but not those held by any
other person) and exercisable in such period have been exercised.
*** Less than 1%.
(1) Officer and Director of the Company
(2) Includes 9,927 shares held by Mr. Frohlich's spouse, Sylvia Frohlich
and 10,000 shares held in the name of a nominee for Mr. Frohlich's
benefit. In addition, Mr. Frohlich has an option to acquire 19,800
shares subject to vesting requirements, which includes the Company
obtaining sales during a 12-month period of $7,500,000 and an average
closing price for the Company's Common Shares for a three-month period
of $6.00, $9.00 and $12.00, respectively, for each one-third of the
options to vest. Vesting of the options may be accelerated in the event
of certain changes of control of the Company. The option must vest by
November 1998 and must be exercised within three years of vesting.
Mr. Frohlich was also granted in April 1997 an option to acquire 30,000
Common Shares at a price of $6.25 per share.
(3) Includes 12,000 shares owned by Alan Fields' spouse, Nancy Fields. Does
not include (a) 13,488 shares owned by Alan Fields's children through a
trust created and funded by Leonard Fields and (b) approximately 47,154
shares owned by relatives of Alan Fields, including his father Leonard
Fields, a director of the company, and the estate of his uncle George
Fields, who was a former director of the Company. In addition, Alan
Fields has an option to acquire 19,800 shares subject to vesting
requirements, which includes the Company obtaining sales during a
12-month period of $7,500,000 and an average closing price for the
Company's Common Shares for a three-month period of $6.00, $9.00 and
$12.00, respectively, for each one-third of the options to vest.
Vesting of the options may be accelerated in the event of certain
changes of control of the Company. The option must vest by November
1998 and must be exercised within three years of vesting. Mr. Fields
was also granted in April 1997 an option to acquire 30,000 Common
Shares at a price of $6.25 per share.
(4) Includes 10,000 share owned by Mr. Troyna's spouse, Susan Troyna, and
10,000 shares held in the name of a nominee for Mr. Troyna's benefit.
In addition, Mr. Troyna has an option to acquire 19,800 shares subject
to vesting requirements, which includes the Company obtaining sales
during a 12-month period of $7,500,000 and an average closing price for
the Company's Common Shares for a three-month period of $6.00, $9.00
and $12.00, respectively, for each one-third of the options to vest.
Vesting of the options may be accelerated in the event of certain
changes of control of the Company. The option must vest by November
1998 and must be exercised within three years of vesting. Mr. Troyna
was also granted in April 1997 an option to acquire 30,000 Common
Shares at a price of $6.25 per share.
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(5) Leonard Fields is a director of the Company. Includes 13,488 shares
owned by Alan Fields's children through a trust created and funded by
Leonard Fields. Mr. Fields disclaims beneficial ownership of such
shares. Does not include approximately 155,817 shares owned by
relatives of Leonard Fields, including his son Alan Fields, an officer
and director of the Company, and the estate of his brother George
Fields, who was a former director of the Company.
(6) Includes 11,722 shares owned by an affiliated entity.
(7) In addition, Mr. O'Hara has an option to acquire 7,125 shares subject
to vesting requirements, which includes the Company obtaining sales
during a 12-month period of $7,500,000 and an average closing price for
the Company's Common Shares for a three-month period of $6.00, $9.00
and $12.00, respectively, for each one-third of the options to vest.
Vesting of the options may be accelerated in the event of certain
changes of control of the Company. The option must vest by November
1998 and must be exercised within three years of vesting. Mr. O'Hara
was also granted in April 1997 an option to acquire 4,000 Common Shares
at a price of $6.25 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Except as set forth below, the Company has not entered into any
transactions with officers and directors of the Company or their affiliates that
may involve conflicts of interest or were other than arms' length transactions.
During 1994, the Company was a party to a Consulting Agreement with
Brimat International, Inc., Lawrence Troyna and Peter Frohlich. Pursuant to the
agreement, an annual amount of approximately $130,000 was paid in consulting
fees by the Company to each of Brimat International, Inc., Lawrence Troyna and
Peter Frohlich during that fiscal year. Alan Fields, the President of the
Company is also President of Brimat International, Inc., which is owned by his
father, Leonard Fields. The Consulting Agreements between the Company and
Lawrence Troyna, Peter Frohlich and Brimat, Inc. were terminated effective
January 1, 1995 at which time the Company authorized employment agreements with
each of Lawrence Troyna, Peter Frohlich and Alan Fields. In addition, Alan
Fields, Lawrence Troyna and Peter Frohlich received stock and cash bonuses in
connection with the Consulting Agreements. See "Management Compensation."
The Company paid approximately $27,700, $40,650 and $32,533(based on an
estimated average conversion rate of $1.60 to each British Pound) during
calendar years 1994, 1995 and 1996, respectively to Belgravia Financial Services
Limited for rent, telephone and medical insurance expenses in connection with
a sales office in London, England during 1994, 1995 and 1996. Amounts paid to
Belgravia Financial Services Limited represent its actual costs, except that
Belgravia Financial Services Limited pays a portion of rent expenses in London
without reimbursement from the Company. Peter Frohlich and Lawrence Troyna are
officers, directors and shareholders of Belgravia Financial Services Limited.
30
<PAGE>
During the three most recent full fiscal years, the Company has paid
legal fees in the aggregate of approximately $64,000 to Carlos Sedillo. An
additional $8,000 is owed to Mr. Sedillo for 1996 services but has not yet been
paid. Mr. Sedillo serves as General Counsel and Secretary of the Company is also
is a director of the Company. In April 1997, the Company granted Mr. Sedillo an
option to acquire 2,000 Common Shares of the Company.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) Index to Exhibits
The following documents are included as exhibits.
SEC Exhibit Sequential
Number Number Description Page Number
3 3.1 Articles of Incorporation, as amended *
3 3.2 By-laws, as amended *
4 4.1 Form of Warrant Agreement (Regulation S
Private Placement)
4 4.2 Form of Option Agreement to NationsCredit
Commercial Funding
9 9.1 Voting Agreement dated February 7, 1995 *
among McDonnell Douglas Corporation,
the Registrant, Peter Frohlich, Alan Fields,
and Lawrence Troyna
10 10.1 Debt Restructure Agreement dated February 7, 1995 *
between McDonnell Douglas Corporation and
the Registrant
10 10.2 Securities Exchange Agreement dated February 7, *
1995 between McDonnell Douglas Corporation
and the Registrant
10 10.3 Discretionary Revolving Credit Facility and *
Credit and Security Agreement dated February 9,
1995 between Fields Aircraft Spares, Inc.,
a California corporation and Norwest Business
Credit, Inc. *
10 10.4 First Amendment to Credit Agreement, dated
November 20, 1995 **
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10 10.5 Second Amendment to Credit Agreement, dated ****
February 19, 1996
10 10.6 Third Amendment to Credit Agreement, dated ****
June 30, 1996.
10 10.7 Fourth Amendment to Credit Agreement, dated ****
August 1996
10 10.8 Fifth Amendment to Credit Agreement, dated ****
January 1, 1997
10 10.9 Sixth Amendment to Credit Agreement, dated ****
February 1, 1997
10 10.10 Seventh Amendment to Credit Agreement, dated ****
March 1, 1997
10 10.11 Eighth Amendment to Credit Agreement, dated
March 1997
10 10.12 Management Stock Option Plan ***
10 10.13 Employee Stock Option Plan ***
10 10.14 Loan Agreement between Fields Aircraft Spares
Incorporated and NationsCredit Commercial Funding,
dated April 18, 1997
10 10.15 Loan Agreement between Fields Aero Management, Inc.
and NationsCredit Commercial Funding, dated
April 18, 1997
11 11.1 Statement re: Computation of Per Share Earnings ****
21 21.1 Subsidiaries of Registrant ****
27 27.1 Financial Data Schedule ****
* This exhibit is incorporated herein by reference to the exhibits filed
with the Company's Registration Statement on Form 10-SB, filed October
30, 1995.
** This exhibit is incorporated herein by reference to the exhibits filed
with the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995, filed April 11, 1996.
*** This exhibit is incorporated herein by reference to the exhibits filed
with the Company's Registration Statement on Form 10-SB/A, Amendment
No. 1, filed January 29, 1996.
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<PAGE>
**** This exhibit is incorporated herein by reference to the exhibits filed
with the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996, filed on March 31, 1997.
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K, dated April 17, 1996, covering
Item 5, Other Events, with respect to the filing of certain documents by
McDonnell Douglas Corporation with the Securities and Exchange Commission.
The Company filed a Report on Form 8-K, dated December 27, 1996,
covering Item 9, Sales of Equity Securities Pursuant to Regulation S.
The Company filed a Report on Form 8-K, dated February 11, 1997,
covering item 9, Sales of Equity Securities Pursuant to Regulation S.
33
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: April 29, 1997
FIELDS AIRCRAFT SPARES, INC.
By /s/ Alan M. Fields
--------------------
Alan M. Fields
President
Warrant Certificate No. S-___
_______ Shares
NEITHER THESE WARRANTS NOR THE COMMON SHARES ISSUABLE UPON EXERCISE OF THESE
WARRANTS HAVE BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THESE WARRANTS AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THESE WARRANTS ARE RESTRICTED AND MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES OR TO ANY U.S. PERSON (AS SUCH TERMS ARE DEFINED IN REGULATION S) EXCEPT
PURSUANT TO REGULATION S UNDER THE ACT, AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR PURSUANT TO AN APPLICABLE EXEMPTION THEREFROM.
These Warrants shall cease to be exercisable and shall be void after
5:00 p.m., Simi Valley, California time, on ______________, 1998
COMMON SHARE PURCHASE WARRANTS
OF
FIELDS AIRCRAFT SPARES, INC.
FOR VALUE RECEIVED, Fields Aircraft Spares, Inc. (the "Company"), a Utah
corporation, hereby certifies that ____________, whose address is
_________________________________, or his permitted assigns, is entitled to
purchase from the Company, subject to the conditions and upon the terms of this
Warrant, at any time or from time to time after the date hereof and prior to
5:00 p.m. Simi Valley, California Utah time, on __________, 1998, an aggregate
of _______ fully paid and nonassessable Common Shares $.05 per share, of the
Company at a per share exercise price of $6.25 per share (subject to adjustment
as provided herein). Hereinafter (i) said common shares, together with any other
equity securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as "Common Stock," (ii) the shares of
Common Stock purchasable hereunder are referred to as the "Warrant Shares,"
(iii) the aggregate purchase price payable hereunder for the Warrant Shares
calculated as set forth in Paragraph 1 is referred to as the "Aggregate Warrant
Price," (iv) the price payable hereunder for each of the Warrant Shares is
referred to as the "Per Share Warrant Price," (v) this Warrant, and all warrants
hereafter issued in exchange or substitution for this Warrant are referred to as
the "Warrant" and (vi) the holder of this Warrant is referred to as the
"Holder."
<PAGE>
The Per Share Warrant Price is subject to adjustment pursuant to the
anti-dilution provisions of Paragraph hereof. In the event of any such
adjustment, the number of Warrant Shares shall be adjusted by dividing the
Aggregate Warrant Price by the Per Share Warrant Price in effect immediately
after such adjustment.
1. Exercise of Warrant. This Warrant may be exercised, in whole at any
time or in part from time to time during the period (the "Exercise Period")
commencing on the date hereof, and ending on 5:00 p.m. Simi Valley, California
time then current on __________, 1998, by the Holder of this Warrant by the
surrender of this Warrant (with the exercise form at the end hereof duly
executed) at the address set forth in Subsection (a) hereof, together with
payment of the Aggregate Warrant Price, or the proportionate part thereof if
this Warrant is exercised in part. Payment for Warrant Shares shall be made by
certified or official bank check or wire transfer of immediately available funds
payable to the order of "Fields Aircraft Spares, Inc." The Warrant shall expire,
and exercise shall no longer be allowed, to the extent the Warrant has not been
exercised by the expiration of the Exercise Period.
2. Partial Exercise of Warrant. If this Warrant is exercised in part,
this Warrant must be exercised for a minimum of 1,000 shares of Common Stock and
if the Exercise Period has not expired the Holder is entitled to receive a new
Warrant covering the number of Warrant Shares in respect of which this Warrant
has not been exercised and setting forth the proportionate part of the Aggregate
Warrant Price applicable to such Warrant Shares. Upon such surrender of this
Warrant, the Company will (a) issue a certificate or certificates in the name of
the Holder for the largest number of whole shares of Common Stock to which the
Holder shall be entitled and, if this Warrant is exercised in whole, in lieu of
any fractional share of the Common Stock to which the Holder shall be entitled,
cash equal to the fair value of such fractional share (determined in such
reasonable manner as the Board of Directors of the Company shall determine), and
(b) deliver the proportionate part thereof if this Warrant is exercised in part,
pursuant to the provisions of this Warrant. The Warrant shall expire, and
exercise shall no longer be allowed, to the extent the Warrant has not been
exercised by the expiration of the Exercise Period.
3. Redemptions of Warrants. The Warrants are redeemable by the Company,
in whole or in part, on not less than thirty (30) days' prior written notice at
a redemption price of $.01 per Warrant at any time, provided that the closing
price of the Common Stock on all twenty (20) trading days ending on the third
day prior to the day on which the Company gives notice of redemption has been at
least $6.25 per share. The redemption notice shall be mailed to the holders of
the Warrants at their addresses set forth in Subsection 10(b) hereof. Holders of
the Warrants will have exercise rights until the close of business on the date
fixed for redemption.
2
<PAGE>
4. Reservation of Warrant Shares. The Company will at all times
during the Exercise Period have authorized and reserved, and will keep
available, solely for issuance or delivery upon the exercise of this Warrant,
the Warrant Shares.
5. Anti-Dilution Provisions.
(a) If, at any time or from time to time after the date of
this Warrant, the Company shall distribute property or assets to all holders of
Common Stock (excluding (x) dividends paid in, or distributions of, the
Company's capital stock for which the number of Warrant Shares receivable
hereunder shall have been adjusted pursuant to Subsection (b), and (y) dividends
or distributions paid in cash) (any of the foregoing being hereinafter in this
Subsection (a) called the "Property"), then, in each such case, the Company
shall reserve sufficient Property for distribution to the Holder upon exercise
of the Warrant so that, in addition to the shares of Common Stock to which the
Holder is entitled, the Holder will receive upon such exercise the amount and
kind of such Property which such Holder would have received if the Holder had,
immediately prior to the record date for the distribution of the Property,
exercised the Warrant. Notice of each such distribution shall be given to the
Holder concurrently with any notice given to the holders of Common Stock
regarding such distribution.
(b) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its Common Stock payable in shares of capital stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, then, in any such event, the Holder
shall be entitled to receive the aggregate number and kind of shares which, if
the Warrant had been exercised immediately prior to the record date with respect
to the dividend or distribution or the effective date of the subdivision,
combination or reclassification, he would have been entitled to receive by
virtue of such dividend, distribution, subdivision, combination or
reclassification, and the Per Share Warrant Price shall be appropriately
adjusted. Such adjustment shall be made successively whenever any event listed
above shall occur. An adjustment made pursuant to this subsection (b) shall
become effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this subsection (b), the Holder of this Warrant
shall become entitled to receive shares of two or more classes of capital stock
or shares of Common Stock and other capital stock of the Company, then this
Warrant may thereafter be exercised for units consisting of whole number
multiples of each such securities, as designated by the Board of Directors.
(c) In case of any of the following events (each of which
shall be deemed a "Reorganization Event"): (i) any consolidation or merger to
which the Company is a party, other than a merger or consolidation in which the
3
<PAGE>
Company is the continuing corporation, (ii) any sale or conveyance to another
entity of all or substantially all of the assets of the Company (including a
sale of all or substantially all of the assets of the Company for a
consideration consisting primarily of securities) or (iii) any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third party into the Company), the Holder shall
have the right thereafter to receive upon exercise of this Warrant the kind and
amount of securities, cash or other property which he would have owned or have
been entitled to receive immediately after such Reorganization Event had such
Warrant been converted immediately prior to the effective date of such
Reorganization Event and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth in this Section
with respect to the rights and interests thereafter of the Holder to the end
that the provisions set forth in this Section shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The foregoing provisions of this Subsection (c) shall similarly
apply to successive Reorganization Events. Notice of any Reorganization Event
and of said provisions so proposed to be made shall be mailed to the Holder not
less than 30 days prior to the effective date of such event.
(d) Notwithstanding any other provision of this Section , no
adjustment in the Per Share Warrant Price shall be required unless such
adjustment would require an increase or decrease of at least $0.05 per share of
Common Stock and no adjustment in the number of Warrant Shares issuable upon
exercise of this Warrant shall be required if such adjustment would represent
less than one percent of the number of Warrant Shares to be so delivered;
provided, however, that any adjustments which by reason of this Subsection (d)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment, and provided further, however, that adjustments shall
be required and made in accordance with the provisions of this Section (other
than this Subsection (d)) not later than such time as may be required in order
to preserve the tax-free nature of a distribution to the Holder. All
calculations under this Section shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be. Anything in this Section to the
contrary notwithstanding, the Company shall be entitled to make such reductions
in the Per Share Warrant Price, in addition to those required by this Section ,
as it in its discretion shall deem to be advisable in order that any stock
dividend, subdivision of shares, or distribution of rights to purchase stock or
securities convertible or exchangeable for stock hereafter made by the Company
to its shareholders shall not be taxable.
(e) Whenever the Per Share Warrant Price is adjusted as
provided in this Section and upon any modification of the rights of the Holder
of this Warrant in accordance with this Section , the Company shall promptly
prepare a certificate of the Company's Chief Financial Officer, setting forth
the Per Share Warrant Price and the number of Warrant Shares after such
adjustment or the effect or such modification, a brief statement of the facts
requiring such adjustment or modification and the manner of computing the same
and cause a copy of such certificate to be mailed to the Holder.
4
<PAGE>
(f) If the Board of Directors of the Company shall declare any
dividend or other distribution in cash with respect to the Common Stock, other
than out of earned surplus, the Company shall mail notice thereof to the Holder
not less than 15 days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution.
6. Fully Paid Stock; Taxes. The shares of the Common Stock represented
by each and every certificate for Warrant Shares delivered on the exercise of
this Warrant shall, at the time of such delivery, be validly issued and
outstanding, fully paid and non-assessable, and not subject to any pre-emptive
rights, and the Company will take all such actions as may be necessary to assure
that the par value or stated value, if any, per share of the Common Stock is at
all times equal to or less than the then Per Share Warrant Price. The Company
shall pay, when due and payable, any and all Federal and state stamp, original
issue or similar taxes which may be payable in respect of the issue of any
Warrant Share or certificate therefor.
7. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered in reliance on
Regulation S promulgated under the Securities Act of 1933, as amended (the "Act"
or the "Securities Act") or under any state securities laws and unless so
registered may not be transferred, sold, pledged, hypothecated or otherwise
disposed of except pursuant to Regulation S under the Act unless an exemption
from such registration is available. Except as provided in subsection (b) of
this Section , this Warrant shall bear the following legend:
NEITHER THESE WARRANTS NOR THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THESE WARRANTS HAVE BEEN REGISTERED WITH THE U.S. SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION S
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
THESE WARRANTS AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THESE
WARRANTS ARE RESTRICTED AND MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES OR TO ANY U.S. PERSON (AS SUCH TERMS ARE DEFINED IN REGULATION
S) EXCEPT PURSUANT TO REGULATION S UNDER THE ACT, AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN APPLICABLE
EXEMPTION THEREFROM.
(b) Conditions to Transfer. In the event Holder desires to
transfer this Warrant or (in the absence of registration under the Securities
Act) any of the Warrant Shares issued, the Holder must give the Company prior
5
<PAGE>
written notice of such proposed transfer including the name and address of the
proposed transferee. Such transfer may be made only either (i) upon publication
by the Securities and Exchange Commission (the "Commission") of a ruling,
interpretation, opinion or "no action letter" based upon facts presented to said
Commission, or (ii) upon receipt by the Company of an opinion of Holder's
counsel acceptable to the Company, in either case to the effect that the
proposed transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended, or the rules and regulations
promulgated under either such act (collectively, the "Securities Laws"). Prior
to any such proposed transfer, and as a condition thereto, if such transfer is
not made pursuant to an effective registration statement under the Securities
Act, the Holder will, if requested by the Company, deliver to the Company any
representation or agreement reasonably requested to determine compliance with
the Securities Laws.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section , and the Holder
hereby shall indemnify and hold harmless the Company, its representatives and
each officer, director and control person thereof from and against any and all
loss, damage or liability (including all attorneys' fees and costs incurred in
enforcing this indemnity provision) due to or arising out of (i) the inaccuracy
of any representation or the breach of any warranty of the Holder contained in,
or any other breach of, this Warrant, (ii) any transfer of the Warrant or any of
the Warrant Shares in violation of the Securities Act, the Securities Exchange
Act of 1934, as amended, or the rules and regulations promulgated under either
of such acts, (iii) any transfer of the Warrant or any of the Warrant Shares not
in accordance with this Warrant or (iv) any untrue statement or omission to
state any material fact in connection with the investment representations or
with respect to the facts and representations supplied by the Holder or its
agents to the Company or its counsel in connection with any transfer or proposed
transfer of the Warrant or any Warrant Shares.
(d) Transfer. Except as provided in this Section , this
Warrant and the Warrant Shares issued may be transferred by the Holder in whole
or in part at any time or from time to time. Upon surrender of this Warrant to
the Company or at the office of its stock transfer agent, if any, with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, and upon compliance with the foregoing provisions, the Company
shall, without charge, execute and deliver a new Warrant or Warrants in the name
of the assignee or assignees named in such Assignment Form (and if the entire
amount of the Warrant is not being transferred, in the name of the Holder), and
this Warrant shall promptly be cancelled. Any assignment, transfer, pledge,
hypothecation or other disposition of this Warrant attempted contrary to the
provisions of this Warrant, or any levy of execution, attachment or other
process attempted upon the Warrant, shall be null and void and without effect.
8. Loss, etc. of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen or
6
<PAGE>
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.
9. Warrant Holder Not Shareholder. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder of the
Company, either at law or in equity, and the rights of the Holder are limited to
those expressed in this Warrant.
10. Communication. No notice or other communication under this Warrant
shall be effective unless the same is in writing and is either (i) mailed by
first-class mail, postage prepaid, in which event the notice shall be deemed
effective three days after deposit in the mails, or (ii) delivered by
established delivery service which guarantees three business days or less
delivery, in which event the notice is deemed effective on the date of
guaranteed delivery. Regardless of the method of delivery, the notice or
communication shall be addressed to:
(a) the Company at 2251-A Ward Avenue, Simi Valley,
California 93065, Attention: Chief Executive Officer or such other address as
the Company has designated in writing to the Holder, or
(b) the Holder at the address indicated in the opening
paragraph hereof, or such other address as the Holder has designated in writing
to the Company.
11. Headings. The headings of this Warrant have been inserted as
a matter of convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the State of Utah without giving effect
to the principles of conflicts of law thereof.
13. Warrant Register. The Company will register this Warrant in the
Warrant Register in the name of the record holder to whom it has been
distributed or assigned in accordance with the terms hereof. The Company may
deem and treat the registered Holder of this Warrant as the absolute owner
hereof (notwithstanding any notation of ownership or other writing hereon made
by anyone) for the purpose of any exercise hereof or any distribution to the
Holder and for all other purposes, and the Company shall not be affected by any
notice to the contrary.
14. Successors. All of the provisions of this Warrant by or for
the benefit of the Company or the Holder shall bind and inure to the benefit
of their respective successors and assigns.
7
<PAGE>
IN WITNESS WHEREOF, Fields Aircraft Spares, Inc. has caused this
Warrant Certificate to be signed by its President and its corporate seal to be
hereunto affixed and attested by its Secretary this ___ day of July, 1996.
ATTEST: FIELDS AIRCRAFT SPARES, INC.
_________________________ By: ________________________________
President
[Corporate Seal]
8
<PAGE>
EXERCISE FORM
To be executed by the Holder
in Order to Exercise Warrants
The undersigned Holder hereby irrevocably elects to exercise __________
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the Holder's name and be delivered to
========================================
========================================
[please print or type address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Agreement, that a new Warrant Agreement for the balance of such Warrants
be registered in the name of, and delivered to, the Holder at the address stated
above.
The undersigned certifies that it is not a U.S. person as defined in
Regulation S of the Securities Act and that the Warrant is not being exercised
on behalf of a U.S. person.
The undersigned acknowledges that, if this Exercise Form is submitted
prior to the Company having given notice that the issuance of the Warrant Shares
has been registered under the Securities Act, the Warrant Shares issued on
exercise will be "restricted securities" and will bear appropriate restrictive
legends.
Dated: _________________________ ______________________________
Signature of Holder
------------------------------
------------------------------
Signature Guaranteed
------------------------------
9
<PAGE>
ASSIGNMENT
To Be Executed by the Holder
in Order to Assign Warrants
THE WARRANTS REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER FEDERAL
OR STATE SECURITIES LAWS AND TRANSFER THEREOF HAS BEEN RESTRICTED. ANY
TRANSFER OR PURPORTED TRANSFER DESCRIBED IN THIS FORM OF ASSIGNMENT
SHALL NOT BE EFFECTIVE UNTIL AND UNLESS THE PROPOSED TRANSFEREE
COMPLIES WITH THE RESTRICTIONS ON TRANSFER DESCRIBED IN THE WARRANT
CERTIFICATE.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
Name: __________________________________________
[please print or type]
Address: __________________________________________
------------------------------------------
Social Security :__________________________________________
or Taxpayer
I.D. No.
the undersigned's right to purchase up to _____ Common Shares represented by
these Warrants, and hereby irrevocably constitutes and appoints attorney to
transfer the same on the books of the Company, with full power of substitution
in the premises.
Dated: ____________________ ______________________________
Signature Guaranteed
------------------------------
10
Option Certificate No. N-01
40,000 Shares
Date of Issue: April 18, 1997
NEITHER THESE OPTIONS NOR THE COMMON SHARES ISSUABLE UPON EXERCISE OF THESE
OPTIONS HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE
OPTIONS AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THESE OPTIONS ARE
RESTRICTED AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN APPLICABLE EXEMPTION
THEREFROM.
These Options shall cease to be exercisable and shall be void after 5:00 p.m.,
Simi Valley, California time, on April 18, 2001
COMMON SHARE PURCHASE OPTIONS
OF
FIELDS AIRCRAFT SPARES, INC.
FOR VALUE RECEIVED, Fields Aircraft Spares, Inc. (the "Company"), a Utah
corporation, hereby certifies that NATIONSCREDIT COMMERCIAL FUNDING, a Division
of NationsCredit Commercial Corporation, with an address at 1177 Avenue of the
Americas, 36th Floor, New York, New York 10036, or its permitted assigns, is
entitled to purchase from the Company, subject to the conditions and upon the
terms of this Option, at any time or from time to time after the date hereof and
prior to 5:00 p.m. Simi Valley, California time, on April 18, 2001, an aggregate
of 40,000 fully paid and nonassessable Common Shares $.05 per share, of the
Company at a per share exercise price of $6.25 per share (subject to adjustment
as provided herein). Hereinafter (i) said common shares, together with any other
equity securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as "Common Stock," (ii) the shares of
Common Stock purchasable hereunder are referred to as the "Option Shares," (iii)
the aggregate purchase price payable hereunder for the Option Shares calculated
as set forth in Paragraph 1 is referred to as the "Aggregate Option Price," (iv)
the price payable hereunder for each of the Option Shares is referred to as the
"Per Share Option Price," (v) this Option, and all options hereafter issued in
exchange or substitution for this Option are referred to as the "Option" and
(vi) the holder of this Option is referred to as the "Holder."
<PAGE>
The Per Share Option Price is subject to adjustment pursuant to the
anti-dilution provisions of Paragraph hereof. In the event of any such
adjustment, the number of Option Shares shall be adjusted by dividing the
Aggregate Option Price by the Per Share Option Price in effect immediately after
such adjustment.
13. Exercise of Option. This Option may be exercised in whole at any
time during the period (the "Exercise Period") commencing on the date four (4)
months after the Date of Issue, and ending on 5:00 p.m. Simi Valley, California
time then current on April 18, 2001 (the "Termination Date"), by the Holder of
this Option by the surrender of this Option (with the exercise form at the end
hereof duly executed) at the address set forth in Subsection (a) hereof,
together with payment of the Aggregate Option Price, or the proportionate part
thereof if this Option is exercised in part. Payment for Option Shares shall be
made by certified or official bank check or wire transfer of immediately
available funds payable to the order of "Fields Aircraft Spares, Inc." The
Option shall expire, and exercise shall no longer be allowed, to the extent the
Option has not been exercised by the expiration of the Exercise Period.
14. Redemptions of Options. At any time after the first to occur of (i)
the third anniversary of this Option or (ii) the effectiveness of a Registration
Statement filed with the Securities and Exchange Commission registering the
Option Shares under the Act, the Option is redeemable by the Company, in whole
or in part, on not less than thirty (30) days' prior written notice at a
redemption price of $.01 per Option at any time, provided that the closing price
of the Common Stock on all five (5) trading days ending on the third day prior
to the day on which the Company gives notice of redemption has been at least
$12.50 per share. The redemption notice shall be mailed to the holders of the
Options at their addresses set forth in Subsection 10(b) hereof. Holders of the
Options will have exercise rights until the close of business on the date fixed
for redemption.
15. Reservation of Option Shares. Subject to obtaining shareholder
approval to increase its authorized capital to provide for additional common
shares, the Company will at all times during the Exercise Period have authorized
and reserved, and will keep available, solely for issuance or delivery upon the
exercise of this Option, the Option Shares. The Company will use its best
efforts to obtain the necessary shareholder approval to increase its authorized
common shares.
16. Anti-Dilution Provisions.
(a) If, at any time or from time to time after the date of
this Option, the Company shall distribute property or assets to all holders of
Common Stock (excluding (x) dividends paid in, or distributions of, the
Company's capital stock for which the number of Option Shares receivable
hereunder shall have been adjusted pursuant to Subsection (b), and (y) dividends
or distributions paid in cash) (any of the foregoing being hereinafter in this
Subsection (a) called the "Property"), then, in each such case, the Company
2
<PAGE>
shall reserve sufficient Property for distribution to the Holder upon exercise
of the Option so that, in addition to the shares of Common Stock to which the
Holder is entitled, the Holder will receive upon such exercise the amount and
kind of such Property which such Holder would have received if the Holder had,
immediately prior to the record date for the distribution of the Property,
exercised the Option. Notice of each such distribution shall be given to the
Holder concurrently with any notice given to the holders of Common Stock
regarding such distribution.
(b) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its Common Stock payable in shares of capital stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, then, in any such event, the Holder
shall be entitled to receive the aggregate number and kind of shares which, if
the Option had been exercised immediately prior to the record date with respect
to the dividend or distribution or the effective date of the subdivision,
combination or reclassification, he would have been entitled to receive by
virtue of such dividend, distribution, subdivision, combination or
reclassification, and the Per Share Option Price shall be appropriately
adjusted. Such adjustment shall be made successively whenever any event listed
above shall occur. An adjustment made pursuant to this subsection (b) shall
become effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this subsection (b), the Holder of this Option
shall become entitled to receive shares of two or more classes of capital stock
or shares of Common Stock and other capital stock of the Company, then this
Option may thereafter be exercised for units consisting of whole number
multiples of each such securities, as designated by the Board of Directors.
(c) In case of any of the following events (each of which
shall be deemed a "Reorganization Event"): (i) any consolidation or merger to
which the Company is a party, other than a merger or consolidation in which the
Company is the continuing corporation, (ii) any sale or conveyance to another
entity of all or substantially all of the assets of the Company (including a
sale of all or substantially all of the assets of the Company for a
consideration consisting primarily of securities) or (iii) any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third party into the Company), the Holder shall
have the right to receive notice of any Reorganization Event and of said
provisions so proposed to be made, which shall be mailed to the Holder not less
than 30 days prior to the effective date of such event.
(d) Notwithstanding any other provision of this Section , no
adjustment in the Per Share Option Price shall be required unless such
adjustment would require an increase or decrease of at least $0.05 per share of
Common Stock and no adjustment in the number of Option Shares issuable upon
exercise of this Option shall be required if such adjustment would represent
less than one percent of the number of Option Shares to be so delivered;
3
<PAGE>
provided, however, that any adjustments which by reason of this Subsection (d)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment, and provided further, however, that adjustments shall
be required and made in accordance with the provisions of this Section (other
than this Subsection (d)) not later than such time as may be required in order
to preserve the tax-free nature of a distribution to the Holder. All
calculations under this Section shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be. Anything in this Section to the
contrary notwithstanding, the Company shall be entitled to make such reductions
in the Per Share Option Price, in addition to those required by this Section ,
as it in its discretion shall deem to be advisable in order that any stock
dividend, subdivision of shares, or distribution of rights to purchase stock or
securities convertible or exchangeable for stock hereafter made by the Company
to its shareholders shall not be taxable.
(e) Whenever the Per Share Option Price is adjusted as
provided in this Section and upon any modification of the rights of the Holder
of this Option in accordance with this Section , the Company shall promptly
prepare a certificate of the Company's Chief Financial Officer, setting forth
the Per Share Option Price and the number of Option Shares after such adjustment
or the effect or such modification, a brief statement of the facts requiring
such adjustment or modification and the manner of computing the same and cause a
copy of such certificate to be mailed to the Holder.
(f) If the Board of Directors of the Company shall declare any
dividend or other distribution in cash with respect to the Common Stock, other
than out of earned surplus, the Company shall mail notice thereof to the Holder
not less than 15 days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution.
17. Fully Paid Stock; Taxes. The shares of the Common Stock represented
by each and every certificate for Option Shares delivered on the exercise of
this Option shall, at the time of such delivery, be validly issued and
outstanding, fully paid and non-assessable, and not subject to any pre-emptive
rights, and the Company will take all such actions as may be necessary to assure
that the par value or stated value, if any, per share of the Common Stock is at
all times equal to or less than the then Per Share Option Price. The Company
shall pay, when due and payable, any and all Federal and state stamp, original
issue or similar taxes which may be payable in respect of the issue of any
Option Share or certificate therefor.
18. Transfer.
(a) Securities Laws. Neither this Option nor the Option Shares
issuable upon the exercise hereof have been registered under the Securities Act
of 1933, as amended (the "Act" or the "Securities Act") or under any state
securities laws and unless so registered may not be transferred, sold, pledged,
4
<PAGE>
hypothecated or otherwise disposed of except pursuant to an exemption from such
registration under the Act. Except as provided in subsection (b) of this
Section, this Option shall bear the following legend:
NEITHER THESE OPTIONS NOR THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THESE OPTIONS HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THESE OPTIONS AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THESE OPTIONS ARE RESTRICTED AND MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
PURSUANT TO AN APPLICABLE EXEMPTION THEREFROM.
(b) Conditions to Transfer. This Option shall not be
transferred except for Permitted Transfers. "Permitted Transfers" shall be
limited to transfers of the Options to (i) an Affiliate (as defined in the Loan
Agreements identified below) of Holder, (ii) a purchaser of the loan evidenced
by the Loan and Security Agreements, dated April 18, 1997 by and between
NationsCredit Commercial Funding and each of Fields Aircraft Spares Incorporated
and Fields Aero Management, Inc., whether such purchaser purchases the entire
loan or a portion thereof, provided that if only a portion of such loan is
purchased only a proportionate share of the Option may be transferred to such
purchaser, and (iii) a transfer that is required to permit Holder to comply with
any governmental regulations applicable to it. In the event Holder desires to
transfer (in the absence of registration under the Securities Act) any of the
Option Shares issued, the Holder must give the Company prior written notice of
such proposed transfer including the name and address of the proposed
transferee. Such transfer may be made only either (i) upon publication by the
Securities and Exchange Commission (the "Commission") of a ruling,
interpretation, opinion or "no action letter" based upon facts presented to said
Commission, or (ii) upon receipt by the Company of an opinion of Holder's
counsel acceptable to the Company, in either case to the effect that the
proposed transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended, or the rules and regulations
promulgated under either such act (collectively, the "Securities Laws"). Prior
to any such proposed transfer of Option Shares, and as a condition thereto, if
such transfer is not made pursuant to an effective registration statement under
the Securities Act, the Holder will, if requested by the Company, deliver to the
Company any representation or agreement reasonably requested to determine
compliance with the Securities Laws.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section , and the Holder
hereby shall indemnify and hold harmless the Company, its representatives and
each officer, director and control person thereof from and against any and all
loss, damage or liability (including all attorneys' fees and costs incurred in
enforcing this indemnity provision) due to or arising out of (i) the inaccuracy
5
<PAGE>
of any representation or the breach of any warranty of the Holder contained in,
or any other breach of, this Option, (ii) any transfer of the Option or any of
the Option Shares in violation of the Securities Act, the Securities Exchange
Act of 1934, as amended, or the rules and regulations promulgated under either
of such acts, (iii) any transfer of the Option or any of the Option Shares not
in accordance with this Option or (iv) any untrue statement or omission to state
any material fact in connection with the investment representations or with
respect to the facts and representations supplied by the Holder or its agents to
the Company or its counsel in connection with any transfer or proposed transfer
of the Option or any Option Shares.
(d) Transfer. This Option shall not be transferred except for
Permitted Transfers. Any assignment, transfer, pledge, hypothecation or other
disposition of this Option, or any levy of execution, attachment or other
process attempted upon the Option, shall be null and void and without effect.
Except as provided in this Section , the Option Shares issued may be transferred
by the Holder in whole or in part at any time or from time to time.
19. Loss, etc. of Option. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Option, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Option, if mutilated, the Company
shall execute and deliver to the Holder a new Option of like date, tenor and
denomination.
20. Option Holder Not Shareholder. Except as otherwise provided herein,
this Option does not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder of the
Company, either at law or in equity, and the rights of the Holder are limited to
those expressed in this Option.
21. Communication. No notice or other communication under this Option
shall be effective unless the same is in writing and is either (i) mailed by
first-class mail, postage prepaid, in which event the notice shall be deemed
effective three days after deposit in the mails, or (ii) delivered by
established delivery service which guarantees three business days or less
delivery, in which event the notice is deemed effective on the date of
guaranteed delivery. Regardless of the method of delivery, the notice or
communication shall be addressed to:
(a) the Company at 341 "A" Street, Fillmore, California
93015, Attention: Chief Executive Officer or such other address as the Company
has designated in writing to the Holder, or
(b) the Holder at the address indicated in the opening
paragraph hereof, or such other address as the Holder has designated in writing
to the Company.
6
<PAGE>
22. Headings. The headings of this Option have been inserted as a
matter of convenience and shall not affect the construction hereof.
23. Piggy-Back and Demand Registration Rights Under Securities Act
of 1933.
(a) The Company agrees that if, at any time and from time to
time during the period commencing on the date hereof and ending on the
Termination Date, the Board of Directors of the Company shall authorize the
filing of a registration statement under the Act (other than a registration
statement on Form S-8, S-4 or other form which does not include substantially
the same information as would be required in a form for the general registration
of securities) in connection with the proposed offer of any of its common stock
by it or any of its stockholders, the Company will (i) promptly notify Holder
and each holder of Option Shares that such registration statement will be filed
and that the Option Shares which are then held, and/or may be acquired upon
exercise of the Option by the Holder, may be included in such registration
statement if the Holder provides written notice to the Company within five (5)
business days of its election to exercise piggy-back registration rights, (ii)
cause such registration statement to cover all of such Common Stock which it has
been so requested to include, (iii) use its best efforts to cause such
registration statement to become effective as soon as practicable provided that
the Company may at any time decide to withdraw the registration statement in its
discretion, and (iv) use its best efforts to take all other action reasonably
necessary under any Federal or state law or regulation of any governmental
authority to permit all such Common Stock which it has been so requested to
include in such registration statement to be sold or otherwise disposed of, and
will use its best efforts to maintain such compliance with each such Federal and
state law and regulation of any governmental authority for the period necessary
for the Holder and such Holders to effect the proposed sale or other
disposition; provided, however, that such period and the period during which the
Company is required to keep the registration statement effective in connection
with this Section shall not exceed the earlier of (A) 120 days from the date of
effectiveness of such registration statement under the Act and (B) the date upon
which the Holders have completed the sale or other disposition of the Option
Shares; provided, further, however that such period shall be extended for a
period of time, not to exceed 120 days, equal to the period the Holders refrain
from selling or disposing of any Option Shares in such registration at the
request of the underwriter.
(b) The Company shall hereby grant to the Holder of the Option
Shares the right (exercisable in writing on one occasion) to have the Company,
on a best efforts basis, prepare and file within 120 days from such written
demand, a registration statement on the appropriate form and such other
documents as may be necessary in the opinion of Company's counsel in order to
comply with the Securities Laws and any applicable law so as to permit a public
offering and sale of the Option Shares, all at the Holder's expense; provided,
however, that such right shall terminate on the Termination Date, as extended.
7
<PAGE>
(c) Whenever the Company is required pursuant to the
provisions of this Section to include in a registration statement Option Shares,
the Company shall (i) furnish each Holder of any such Option Shares and each
underwriter of such Common Stock with such copies of the prospectus, including
the preliminary prospectus, conforming to the Act (and such other documents as
each such Holder or each such underwriter may reasonably request) in order to
facilitate the sale or distribution of such Common Stock, (ii) use its best
efforts to register or qualify such Common Stock under the blue sky laws (to the
extent applicable) of such jurisdiction or laws (to the extent applicable) of
such jurisdiction or jurisdictions as the Holders of any Common Stock and each
underwriter of such Common Stock being sold by such Holders shall reasonably
request and (iii) take such other actions as may be reasonably necessary or
advisable to enable such Holders and such underwriters to consummate the sale or
distribution in such jurisdiction or jurisdictions in which such Holders shall
have reasonably requested that such Common Stock be sold. The Company shall bear
all costs of a registration under Section 11(a) above except for underwriting
costs or commissions attributable to the Option Shares and any fees or expenses
of counsel to any Holder. Holder shall bear all costs of registration under
subsection (b), including fees and expenses of the Company's counsel in
preparing, filing and pursuing the effectiveness of the registration statement.
(d) If the registration of the Option Shares pursuant to
Section 11(a) above is in connection with a registered public offering involving
an underwriting, the Holder shall, together with the Company and the other
holders enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected by the Company. If
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may exclude all Option Shares from, or limit
the number of Option Shares to be included in, the registration and
underwriting. The Company shall so advise all holders of securities requesting
registration and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated first to the
Company for securities being sold for its own account and thereafter the number
of Option Shares and shares of other holders that may be so included shall be
allocated among the Holder and other holders requesting inclusion of securities
pro rata on the basis of the number of shares of Option Shares and the number of
shares of other holders.
(e) In the event that the Option Shares have not been
registered for sale under the Act by the Termination Date, the Termination Date
shall be automatically extended until the earlier of (i) April 18, 2003 or (ii)
120 days after the effective date of a registration statement registering for
sale under the Act all of the Option Shares.
12. Applicable Law. This Option shall be governed by and construed
in accordance with the law of the State of Utah without giving effect to the
principles of conflicts of law thereof.
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<PAGE>
13. Option Register. The Company will register this Option in the
Option Register in the name of the record holder to whom it has been distributed
or assigned in accordance with the terms hereof. The Company may deem and treat
the registered Holder of this Option as the absolute owner hereof
(notwithstanding any notation of ownership or other writing hereon made by
anyone) for the purpose of any exercise hereof or any distribution to the Holder
and for all other purposes, and the Company shall not be affected by any notice
to the contrary.
14. Successors. All of the provisions of this Option by or for the
benefit of the Company or the Holder shall bind and inure to the benefit of
their respective successors and assigns.
IN WITNESS WHEREOF, Fields Aircraft Spares, Inc. has caused this Option
Certificate to be signed by its President this 18th day of April, 1997.
FIELDS AIRCRAFT SPARES, INC.
By: ______________________________________
Alan M. Fields
President
9
<PAGE>
EXERCISE FORM
To be executed by the Holder
in Order to Exercise Options
The undersigned Holder hereby irrevocably elects to exercise __________
Options represented by this Option Certificate, and to purchase the securities
issuable upon the exercise of such Options, and requests that certificates for
such securities shall be issued in the Holder's name and be delivered to
========================================
========================================
[please print or type address]
and if such number of Options shall not be all the Options evidenced by this
Option Agreement, that a new Option Agreement for the balance of such Options be
registered in the name of, and delivered to, the Holder at the address stated
above.
The undersigned acknowledges that, if this Exercise Form is submitted
prior to the Company having given notice that the issuance of the Option Shares
has been registered under the Securities Act, the Option Shares issued on
exercise will be "restricted securities" and will bear appropriate restrictive
legends.
Dated: _________________________ ______________________________
Signature of Holder
------------------------------
------------------------------
Signature Guaranteed
------------------------------
10
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (as it may be amended, this
"Agreement") is entered into on April 18, 1997 between NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"),
having an address at 1177 Avenue of the Americas, 36th Floor, New York, New York
10036 and FIELDS AIRCRAFT SPARES INCORPORATED ("Borrower"), whose chief
executive office is located at 341 "A" Street, Fillmore, California 93015
("Borrower's Address"). The Schedules to this Agreement are an integral part of
this Agreement and are incorporated herein by reference. Terms used, but not
defined elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1. Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) Revolving Loans and Credit Accommodations. From time
to time during the Term at Borrower's request, make revolving loans to Borrower
("Revolving Loans"), and make letters of credit, bankers acceptances and other
credit accommodations ("Credit Accommodations") available to Borrower, in each
case to the extent that there is sufficient Availability at the time of such
request to cover, dollar for dollar, the requested Revolving Loan or Credit
Accommodation; provided, that after giving effect to such Revolving Loan or
Credit Accommodation, (x) the outstanding balance of all monetary Obligations
(including the principal balance of any Term Loan and, solely for the purpose of
determining compliance with this provision, the Credit Accommodation Balance)
will not exceed the Maximum Fields Facility Amount set forth in Section 1 of
Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "Availability" means:
(i) the aggregate amount of Eligible Accounts (less
maximum existing or asserted taxes, discounts, credits and allowances)
multiplied by the Accounts Advance Rate set forth in Section 1(b)(i) of
Schedule A but not to exceed the Accounts Sublimit set forth in Section
1(c) of Schedule A;
plus
(ii) the lower of cost or market value of Eligible
Ordinary Inventory multiplied by the applicable Inventory Advance
Rate(s) set forth in Section 1(b)(ii) of Schedule A, but not to exceed
the applicable Inventory Sublimit(s) set forth in Section 1(d) of
Schedule A;
plus
<PAGE>
(iii) the orderly liquidation value of Eligible MDC
Inventory (as determined pursuant to a certain appraisal dated
__________ conducted by Morten Beyer Associates, based on a 24-36 month
orderly liquidation) multiplied by the applicable Inventory Advance
Rate set forth in Section 1(b)(ii) of Schedule A, but not to exceed the
applicable Inventory Sublimit set forth in Section 1(d) of Schedule A;
minus
(iv) all Reserves which Lender has established
pursuant to Section 1.2 (including those to be established in
connection with the requested Revolving Loan or Credit Accommodation);
and
minus
(v) the outstanding balance of all of the monetary
Obligations (excluding the Credit Accommodation Balance and the
principal balance of the Term Loan).
(b) Term Loan. On the date of this Agreement, make a term
loan to Borrower (the "Term Loan") in the principal amount, if any, set forth in
Section 2(a) of Schedule A.
1.2. Reserves. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion ("Reserves") to
reflect (i) events, conditions, contingencies or risks which affect or may
affect (A) the Collateral or its value, or the security interests and other
rights of Lender in the Collateral or (B) the assets, business or prospects of
Borrower or any Obligor, (ii) Lender's good faith concern that any Collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines in
good faith constitutes, or could constitute, a Default or Event of Default or
(iv) any other events or circumstances which Lender determines in good faith
make the establishment or revision of a Reserve prudent. Without limiting the
foregoing, Lender shall (x) in the case of each Credit Accommodation issued for
the purchase of Inventory (a) which meets the criteria for Eligible Ordinary
Inventory set forth in clauses (i), (ii), (iii), (v) and (vi) of Eligible
Ordinary Inventory, (b) which is or will be in transit to one of the locations
set forth in Section 10(d), (c) which is fully insured in a manner satisfactory
to Lender and (d) with respect to which Lender is in possession of all bills of
lading and all other documentation which Lender has requested, all in form and
substance satisfactory to Lender in its sole discretion, establish a Reserve
equal to the cost of such Inventory (plus all duties, freight, taxes, insurance,
costs and other charges and expenses relating to such Credit Accommodation or
such Eligible Ordinary Inventory) multiplied by a percentage equal to 100% minus
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the Inventory Advance Rate applicable to such Eligible Ordinary Inventory and
(y) in the case of any other Credit Accommodation issued for any purpose,
establish a Reserve equal to the full amount of such Credit Accommodation plus
all costs and other charges and expenses relating to such Credit Accommodation.
In addition, (x) Lender shall establish a permanent Reserve in the amount set
forth in Section 1(f) of Schedule A, and (y) if the outstanding principal
balance of the Term Loan advance with respect to Eligible Equipment exceeds the
percentage of the appraised value of such Eligible Equipment set forth in
Section 2(a) of Schedule A, Lender may establish an additional Reserve in the
amount of such excess (and, for this purpose, payments of principal of the Term
Loan made by Borrower shall be deemed to apply to the Term Loan advance with
respect to Eligible Equipment and Real Property, respectively, in proportion to
the original principal amounts of such advances). Lender may, in its discretion,
establish and revise Reserves by deducting them in determining Availability or
by reclassifying Eligible Accounts or Eligible Inventory as ineligible.
1.3. Other Provisions Applicable to Credit Accommodations. Lender may,
in its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
1.4. Repayment. Accrued interest on all monetary Obligations shall be
payable on the first day of each month. Principal of the Term Loan shall be
repaid as set forth in Section 2(b) of Schedule A. If at any time any of the
Loan Limits are exceeded, Borrower will immediately pay to Lender such amounts
and/or provide cash collateral to Lender with respect to the Credit
Accommodation Balance in the manner set forth in Section 7.3, as shall cause
Borrower to be in full compliance with all of the Loan Limits. Notwithstanding
the foregoing, Lender may, in its sole discretion, make or permit Revolving
Loans, the Term Loan, any Credit Accommodations or any other monetary
Obligations to be in excess of any of the Loan Limits; provided, that Borrower
shall, upon Lender's demand, pay to Lender such amounts as shall cause Borrower
to be in full compliance with all of the Loan Limits. All unpaid monetary
Obligations shall be payable in full on the Maturity Date set forth in Section
7.1 or, if earlier, the date of any early termination pursuant to Section 7.2.
1.5. Minimum Borrowing. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to equal or exceed, at all times
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<PAGE>
prior to the Maturity Date, the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) maintain Availability sufficient to enable Borrower to do
so. However, Lender shall not be obligated to loan Borrower the Minimum Loan
Amount other than in accordance with all of the terms and conditions of this
Agreement.
2. INTEREST AND FEES.
2.1. Interest. All Loans and other monetary Obligations shall bear
interest at the Interest Rate(s) set forth in Section 3 of Schedule A, except
where expressly set forth to the contrary in this Agreement or another Loan
Document; provided, that after the occurrence of an Event of Default, all Loans
and other monetary Obligations shall, at Lender's option, bear interest at a
rate per annum equal to two percent (2%) in excess of the rate otherwise
applicable thereto (the "Default Rate") until paid in full (notwithstanding the
entry of any judgment against Borrower or the exercise of any other right or
remedy by Lender), and all such interest shall be payable on demand. Changes in
the Interest Rate shall be effective as of the date of any change in the Prime
Rate. Notwithstanding anything to the contrary contained in this Agreement, the
aggregate of all amounts deemed to be interest hereunder and charged or
collected by Lender is not intended to exceed the highest rate permissible under
any applicable law, but if it should, such interest shall automatically be
reduced to the extent necessary to comply with applicable law and Lender will
refund to Borrower any such excess interest received by Lender.
2.2. Fees and Warrants. Borrower shall pay Lender the following fees,
and issue Lender the following warrants, which are in addition to all interest
and other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
(a) Closing Fee. A closing fee in the amount set forth in
Section 6(a) of Schedule A, one-half of which was fully earned and paid upon
issuance of the commitment letter dated March 21, 1997 and one-half of which
shall be deemed to be fully earned as of, and payable on, the date hereof.
(b) Facility Fees. A facility fee for the Initial Term in the
amount set forth in Section 6(b)(i) of Schedule A (which shall be fully earned
as of the date of this Agreement and shall be payable in equal installments due,
respectively, on each anniversary thereof during the Initial Term), and a
facility fee for each Renewal Term in the amount set forth in Section 6(b)(ii)
of Schedule A (which shall be fully earned as of the first day of such Renewal
Term and shall be payable in equal installments due, respectively, on the first
day of such Renewal Term and on each anniversary thereof during such Renewal
Term).
(c) Servicing Fee. A monthly servicing fee in the amount
set forth in Section 6(c) of Schedule A, in consideration of Lender's
administration and other services for each month (or part thereof), which shall
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<PAGE>
be fully earned as of, and payable in advance on, the date of this Agreement and
on the first day of each month thereafter so long as any of the Obligations are
outstanding.
(d) Unused Line Fee. An unused line fee at a rate equal to the
percentage per annum set forth in Section 6(d) of Schedule A of the amount by
which $10,000,000 exceeds the sum of (i) the average daily outstanding principal
balance of the Loans and the Credit Accommodation Balance and (ii) the average
daily Aero Management Loan Balance, in each case during the immediately
preceding month (or part thereof), which fee shall be payable, in arrears, on
the first day of each month so long as any of the Obligations are outstanding
and on the Maturity Date.
(e) Minimum Borrowing Fee. A minimum borrowing fee equal to
the excess, if any, of (i) interest which would have been payable in respect of
each period set forth in Section 6(e) of Schedule A if, at all times during such
period, the principal balance of the Loans was equal to the Minimum Loan Amount
over (ii) the actual interest payable in respect of such period, which fee shall
be fully earned as of the first day of such period and payable on the date set
forth in Section 6(e)(ii) of Schedule A and on the Maturity Date.
(f) Success Fee. A success fee in the amount set forth in
Section 6(e)(i) of Schedule A, which shall be fully earned as of the date of
this Agreement and payable as set forth in Section 6(f) of Schedule A.
(g) Warrants. Warrants to acquire the capital stock of Spares,
as summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Borrower contemporaneously with this
Agreement.
(h) Credit Accommodation Fees. All of the fees relating to
Credit Accommodations set forth in Section 6(i) and 6(j) of Schedule A.
2.3. Computation of Interest and Fees. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
2.4. Loan Account; Monthly Accountings. Lender shall maintain a loan
account for Borrower reflecting all advances, charges, expenses and payments
made pursuant to this Agreement (the "Loan Account"), and shall provide Borrower
with a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
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<PAGE>
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or admissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations. Interest, fees
and other monetary Obligations due and owing under this Agreement (including
fees and other amounts paid by Lender to issuers of Credit Accommodations) may,
in Lender's discretion, be charged to the Loan Account, and will thereafter be
deemed to be Revolving Loans and will bear interest at the same rate as other
Revolving Loans.
3.SECURITY INTEREST.
3.1. To secure the full payment and performance of all of the
Obligations when due, Borrower hereby grants to Lender a continuing security
interest in all of Borrower's property and interests in property, whether
tangible or intangible, now owned or in existence or hereafter acquired or
arising, wherever located, including Borrower's interest in all of the
following, whether or not eligible for lending purposes: (i) all Accounts,
Chattel Paper, Instruments, Documents, Goods (including Inventory, Equipment,
farm products and consumer goods), Investment Property, General Intangibles,
Deposit Accounts and money, (ii) all proceeds and products of all of the
foregoing (including proceeds of any insurance policies, proceeds of proceeds
and claims against third parties for loss or any destruction of any of the
foregoing) and (iii) all books and records relating to any of the foregoing.
4. ADMINISTRATION.
4.1. Lock Boxes and Blocked Accounts. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("Account Proceeds"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or in the name of Lender
(a "Lock Box") or (ii) depositing all Account Proceeds received by Borrower into
one or more bank accounts maintained in Lender's name (each, a "Blocked
Account"), under an arrangement acceptable to Lender with a depository bank
acceptable to Lender, pursuant to which all funds deposited into each Blocked
Account are to be transferred to Lender in such manner, and with such frequency,
as Lender shall specify or (iii) a combination of the foregoing. Borrower agrees
to execute, and to cause its depository banks to execute, such Lock Box and
Blocked Account agreements and other documentation as Lender shall require from
time to time in connection with the foregoing.
4.2. Remittance of Proceeds. Except as provided in Section 4.1, all
proceeds arising from the sale or other disposition of any Collateral shall be
delivered, in kind, by Borrower to Lender in the original form in which received
by Borrower not later than the second Business Day after receipt by Borrower.
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<PAGE>
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3. Application of Payments. Lender may, in its sole discretion,
apply, reverse and re-apply all cash and non-cash proceeds of Collateral or
other payments received with respect to the Obligations, in such order and
manner as Lender shall determine, whether or not the Obligations are due, and
whether before or after the occurrence of a Default or an Event of Default. For
purposes of determining Availability, such amounts will be credited to the Loan
Account and the Collateral balances to which they relate upon Lender's receipt
of advice from Lender's Bank (set forth in Section 11 of Schedule A) that such
items have been credited to Lender's account at Lender's Bank (or upon Lender's
deposit thereof at Lender's Bank in the case of payments received by Lender in
kind), in each case subject to final payment and collection. However, for
purposes of computing interest on the Obligations, such items shall be deemed
applied by Lender one and one-half Business Days after Lender's receipt of
advice of deposit thereof at Lender's Bank.
4.4. Notification; Verification. Lender or its designee may, from time
to time, whether or not a Default or Event of Default has occurred: (i) verify
directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
otherwise, either in the name of Borrower or Lender or such other name as Lender
may choose; (ii) notify Account Debtors that Lender has a security interest in
the Accounts and that payment thereof is to be made directly to Lender; and
(iii) demand, collect or enforce payment of any Accounts and Chattel Paper (but
without any duty to do so).
4.5. Power of Attorney. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting Lender
(acting through any of its officers, employees, attorneys or agents), at any
time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise: (i) execute on
behalf of Borrower any documents that Lender may, in its sole discretion, deem
advisable in order to perfect and maintain Lender's security interests in the
Collateral, to exercise a right of Borrower or Lender, or to fully consummate
all the transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or lease (as lessor or lessee) any real or personal property which is part of
the Collateral or in which Lender has an interest; (iii) execute on behalf of
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<PAGE>
Borrower any invoices relating to any Accounts, any draft against any Account
Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy,
any notice of Lien or claim, assignment or satisfaction of mechanic's,
materialman's or other Lien; (iv) receive and otherwise take control in any
manner of any cash or non-cash items of payment or proceeds of Collateral; (v)
endorse Borrower's name on all checks and other forms of remittances received by
Lender; (vi) pay, contest or settle any Lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (vii)
after the occurrence of a Default or Event of Default, grant extensions of time
to pay, compromise claims relating to, and settle Accounts, Chattel Paper and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (viii) pay any sums required on account of
Borrower's taxes or to secure the release of any Liens therefor; (ix) pay any
amounts necessary to obtain, or maintain in effect, any of the insurance
described in Section 5.13; (x) settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (xi) instruct any third party having custody or control of any
Collateral or books or records belonging to, or relating to, Borrower to give
Lender the same rights of access and other rights with respect thereto as Lender
has under this Agreement; and (xii) after the occurrence of a Default or Event
of Default, change the address for delivery of Borrower's mail in respect of
payments from Account Debtors and receive and open all mail addressed to
Borrower; provided, that Lender shall promptly forward all other mail of
Borrower to Borrower at its address set forth in Section 9.1. Any and all sums
paid, and any and all costs, expenses, liabilities, obligations and reasonable
attorneys' fees incurred, by Lender with respect to the foregoing shall be added
to and become part of the Obligations, shall be payable on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any of
the Obligations. Borrower agrees that Lender's rights under the foregoing power
of attorney or any of Lender's other rights under this Agreement or the other
Loan Documents shall not be construed to indicate that Lender is in control of
the business, management or properties of Borrower.
4.6. Disputes. Borrower shall promptly notify Lender of all disputes or
claims relating to Accounts and Chattel Paper. Borrower will not, without
Lender's prior written consent, compromise or settle any Account or Chattel
Paper for less than the full amount thereof, grant any extension of time of
payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that prior to an Event of Default Borrower may do such things in the ordinary
course of business. Borrower will promptly report any such permitted settlement
or forgiveness to Lender.
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<PAGE>
4.7. Invoices. At Lender's request, Borrower will cause all invoices
and statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
4.8. Inventory.
(a) Returns. Provided that no Event of Default has occurred
and is continuing, if any Account Debtor returns any Inventory to Borrower in
the ordinary course of its business, Borrower will promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor in
the appropriate amount (sending a copy to Lender). After the occurrence of an
Event of Default, Borrower will not accept any return without Lender's prior
written consent. Regardless of whether an Event of Default has occurred,
Borrower will, until such time as Borrower has issued a credit memorandum to the
Account Debtor, (i) hold the returned Inventory in trust for Lender; (ii)
segregate all returned Inventory from all of Borrower's other property; (iii)
conspicuously label the returned Inventory as Lender's property; and (iv)
immediately notify Lender of the return of such Inventory, specifying the reason
for such return, the location and condition of the returned Inventory and, at
Lender's request, deliver such returned Inventory to Lender at an address
specified by Lender.
(b) Other Covenants. Borrower will not, without Lender's prior
written consent, (i) store any Inventory or other Collateral with any
warehouseman or other third party other than as set forth in Section 9(d) of
Schedule A or (ii) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis. Borrower will produce Inventory only in
accordance with the Fair Labor Standards Act of 1938 as amended, and all rules,
regulations and orders promulgated thereunder.
4.9. Access to Collateral, Books and Records. At reasonable times, and
on one Business Day's notice, prior to the occurrence of a Default or an Event
of Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy Borrower's books and
records. Lender shall take reasonable steps to keep confidential all information
obtained in any such inspection or examination, but Lender shall have the right
to disclose any such information to its auditors, regulatory agencies, attorneys
and participants, and pursuant to any subpoena or other legal process; provided,
however, that if Lender is required to disclose any such information pursuant to
any subpoena or other legal process, Lender shall notify Borrower of such
required disclosure and Lender shall refrain from making such disclosure until
the earlier of Borrower's consent thereto and the date immediately prior to the
expiration of the period in which Lender must comply with such subpoena or other
legal process, during which time Borrower shall be entitled to pursue all
remedies available to Borrower to delay or prevent such disclosure; provided,
further, that Lender shall not be liable for any damages or other costs or
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expenses resulting from any action of Borrower under this Section 4.9, and
Borrower agrees to indemnify Lender for any losses incurred by Lender as a
result of any such actions by Borrower under this Section 4.9. Borrower agrees
to give Lender access to any or all of Borrower's premises to enable Lender to
conduct such inspections and examinations. Such inspections and examinations
shall be at Borrower's expense and the charge therefor shall be $650 per person
per day (or such higher amount as shall represent Lender's then current standard
charge), plus reasonable out-of-pockets expenses. Lender may, at Borrower's
expense, use Borrower's personnel, computer and other equipment, programs,
printed output and computer readable media, supplies and premises for the
collection, sale or other disposition of Collateral to the extent Lender, in its
sole discretion, deems appropriate. Borrower hereby irrevocably authorizes all
accountants and third parties to disclose and deliver to Lender, at Borrower's
expense, all financial information, books and records, work papers, management
reports and other information in their possession regarding Borrower and not
subject to professional privilege, such as attorney-client privilege. Borrower
will not enter into any agreement with any accounting firm, service bureau or
third party to store Borrower's books or records at any location other than
Borrower's Address without first obtaining Lender's written consent (which
consent may be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Lender the same rights with respect to access to
books and records and related rights as Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) compliance with
each such covenant will be a condition to each Loan and Credit Accommodation:
5.1. Existence and Authority. Borrower is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation. Borrower is qualified and licensed to do business in
all jurisdictions in which any failure to do so would have a material adverse
effect on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
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Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A sets forth the ownership
of Borrower and its Subsidiaries as of the date of this Agreement.
5.2. Name; Trade Names and Styles. The name of Borrower set forth in
the heading to this Agreement is its correct and complete legal name. Listed in
Section 9 of Schedule A are all prior names of Borrower and all of Borrower's
present and prior trade names. Borrower shall give Lender at least 30 days'
prior written notice before changing its name or doing business under any other
name. Borrower has complied with all laws relating to the conduct of business
under a fictitious business name. Borrower represents and warrants that (i) to
the best of its knowledge, each trade name does not refer to another corporation
or other legal entity; (ii) all Accounts invoiced under any such trade names are
owned exclusively by Borrower and are subject to the security interest of Lender
and the other terms of this Agreement and (iii) all schedules of Accounts,
including any sales made or services rendered using the trade name shall show
Borrower's name as assignor.
5.3. Title to Collateral; Permitted Liens. Borrower has good and
marketable title to the Collateral. The Collateral now is and will remain free
and clear of any and all liens, charges, security interests, encumbrances and
adverse claims, except for Permitted Liens. Lender now has, and will continue to
have, a first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend Lender and the Collateral against all claims of others. None of the
Collateral which is Equipment is or will be affixed to any real property in such
a manner, or with such intent, as to become a fixture. Borrower is not a lessee
under any real property lease pursuant to which the lessor may obtain any rights
in any of the Collateral, and no such lease now prohibits, restrains, impairs or
conditions, or will prohibit, restrain, impair or condition, Borrower's right to
remove any Collateral from the leased premises. Whenever any Collateral is
located upon premises in which any third party has an interest (whether as
owner, mortgagee, beneficiary under a deed of trust, lien or otherwise),
Borrower shall, whenever requested by Lender, cause each such third party to
execute and deliver to Lender, in form acceptable to Lender, such waivers and
subordinations as Lender shall specify, so as to ensure that Lender's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.
5.4. Accounts and Chattel Paper. As of each date reported by Borrower,
all Accounts which Borrower has reported to Lender as being Eligible Accounts
comply in all respects with the criteria for eligibility established by Lender
and in effect at such time. Should an Account that has been reported in good
faith as an Eligible Account subsequently be determined to be ineligible,
Borrower will have 15 days to fix the error by providing a new report not
including that Account and no Event of Default shall have occurred provided that
the amount advanced to Borrower does not exceed Availability. All Accounts and
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Chattel Paper are genuine and in all respects what they purport to be, arise out
of a completed, bona fide and unconditional and non-contingent sale and delivery
of goods or rendition of services by Borrower in the ordinary course of its
business and in accordance with the terms and conditions of all purchase orders,
contracts or other documents relating thereto, each Account Debtor thereunder
had the capacity to contract at the time any contract or other document giving
rise to such Accounts and Chattel Paper were executed, and the transactions
giving rise to such Accounts and Chattel Paper comply with all applicable laws
and governmental rules and regulations.
5.5. Investment Property. Borrower will take any and all actions
required or requested by Lender, from time to time, to (i) cause Lender to
obtain exclusive control of any Investment Property in a manner acceptable to
Lender and (ii) obtain from any issuers of Investment Property and such other
Persons as Lender shall specify, for the benefit of Lender, written confirmation
of Lender's exclusive control over such Investment Property. For purposes of
this Section 5.5, Lender shall have exclusive control of Investment Property if
(A) such Investment Property consists of certificated securities and Borrower
delivers such certificated securities to Lender (with appropriate endorsements
if such certificated securities are in registered form); (B) such Investment
Property consists of uncertificated securities and either (x) Borrower delivers
such uncertificated securities to Lender or (y) the issuer thereof agrees,
pursuant to documentation in form and substance satisfactory to Lender, that it
will comply with instructions originated by Lender without further consent by
Borrower, and (C) such Investment Property consists of security entitlements and
either (x) Lender becomes the entitlement holder thereof or (y) the appropriate
securities intermediary agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with entitlement orders originated
by Lender without further consent by Borrower.
5.6. Place of Business; Location of Collateral. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least 30
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
5.7. Financial Condition, Statements and Reports. All financial
statements delivered to Lender by or on behalf of Borrower have been prepared in
conformity with GAAP and completely and fairly reflect the financial condition
of Borrower in all material respects, at the times and for the periods therein
stated (subject to year-end adjustments). Between the last date covered by any
such financial statement provided to Lender and the date hereof, there has been
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no material adverse change in the financial condition or business of Borrower.
Borrower is solvent and able to pay its debts as they come due, and has
sufficient capital to carry on its business as now conducted and as proposed to
be conducted. All schedules, reports and other information and documentation
delivered by Borrower to Lender with respect to the Collateral are, or will be,
when delivered, true, correct and complete as of the date delivered or the date
specified therein in all material respects.
5.8. Tax Returns and Payments; Pension Contributions. Borrower has
timely filed all tax returns and reports required by applicable law, and
Borrower has timely paid all applicable taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes; provided, that Borrower (i) in good faith
contests Borrower's obligation to pay such taxes by appropriate proceedings
promptly and diligently instituted and conducted; (ii) notifies Lender in
writing of the commencement of, and any material development in, the
proceedings; (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a Lien upon any of the Collateral and (iv)
maintains adequate reserves therefor in conformity with GAAP. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay, all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency. Borrower shall, at all
times, utilize the services of an outside payroll service providing for the
automatic deposit of all payroll taxes payable by Borrower.
5.9. Compliance with Laws. Borrower has complied in all material
respects with all provisions of all applicable laws and regulations, including
those relating to Borrower's ownership of real or personal property, the conduct
and licensing of Borrower's business, the payment and withholding of taxes,
ERISA and other employee matters, safety and environmental matters.
5.10. Litigation. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower. There is no claim, suit, litigation,
proceeding or investigation pending or (to the best of Borrower's knowledge)
threatened by or against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Lender in
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writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower.
5.11. Use of Proceeds. All proceeds of all Loans will be used solely
for lawful business purposes.
5.12. Insurance. Borrower will at all times carry property, liability
and other insurance, with insurers acceptable to Lender, in such form and
amounts, and with such deductibles and other provisions, as Lender shall
require, and Borrower will provide evidence of such insurance to Lender, so that
Lender is satisfied that such insurance is, at all times, in full force and
effect. Each property insurance policy shall name Lender as loss payee and shall
contain a lender's loss payable endorsement in form acceptable to Lender, each
liability insurance policy shall name Lender as an additional insured, and each
business interruption insurance policy shall be collaterally assigned to Lender,
all in form and substance satisfactory to Lender. All policies of insurance
shall provide that they may not be cancelled or changed without at least thirty
(30) days' prior written notice to Lender, shall contain breach of warranty
coverage, and shall otherwise be in form and substance satisfactory to Lender.
Upon receipt of the proceeds of any such insurance, Lender shall apply such
proceeds in reduction of the Obligations as Lender shall determine in its sole
discretion. Borrower will promptly deliver to Lender copies of all reports made
to insurance companies.
5.13. Financial and Collateral Reports. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender and is consistent with GAAP):
(a) Collateral Reports. On or before the fifteenth (15th) day
of each month, an aging of Borrower's Accounts, Chattel Paper and notes
receivable, and weekly inventory reports, all in such form, and together with
such additional certificates, schedules and other information with respect to
the Collateral or the business of Borrower or any Obligor, as Lender shall
request, in each case, with respect to any items that exceed dollar limits
established by Lender either orally or in writing from time to time; provided,
that Borrower's failure to execute and deliver the same shall not affect or
limit Lender's security interests and other rights in any of the Accounts, nor
shall Lender's failure to advance or lend against a specific Account affect or
limit Lender's security interest and other rights therein. Together with each
such schedule, Borrower shall furnish Lender, upon its request, with copies (or,
at Lender's request, originals) of all contracts, orders, invoices, and other
similar documents, and all original shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
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disposition of which gave rise to such Accounts, and Borrower warrants the
genuineness of all of the foregoing. In addition, Borrower shall deliver to
Lender, upon its request, the originals of all Instruments, Chattel Paper,
security agreements, guaranties and other documents and property evidencing or
securing any Accounts, immediately upon receipt thereof and in the same form as
received, with all necessary endorsements. Lender may destroy or otherwise
dispose of all documents, schedules and other papers delivered to Lender
pursuant to this Agreement (other than originals of Instruments, Chattel Paper,
security agreements, guaranties and other documents and property evidencing or
securing any Accounts) six months after Lender receives them, unless Borrower
requests their return in writing in advance and arranges for their return to
Borrower at Borrower's expense.
(b) Annual Statements. Not later than one hundred twenty (120)
days after the close of each fiscal year of Borrower, unqualified (except for a
qualification for a change in accounting principles with which the accountant
concurs) audited financial statements of Borrower and its Subsidiaries as of the
end of such year, on a consolidated and consolidating basis, certified by a firm
of independent certified public accountants of recognized standing selected by
Borrower but acceptable to Lender, together with a copy of any management letter
issued in connection therewith;
(c) Interim Statements. Not later than twenty-five (25) days
after the end of each month hereafter which is not the last month of a calendar
quarter, and forty-five (45) days after the last day of a calendar quarter,
including the last month of Borrower's fiscal year, unaudited interim financial
statements of Borrower and its Subsidiaries as of the end of such month and of
the portion of Borrower's fiscal year then elapsed, on a consolidated and
consolidating basis, certified by the principal financial officer of Borrower as
prepared in accordance with GAAP and fairly presenting the consolidated
financial position and results of operations of Borrower and its Subsidiaries
for such month and period subject only to changes from audit and year-end
adjustments and except that such statements need not contain notes;
(d) Projections. No later than the end of each fiscal year
of Borrower, such projections of the business of Borrower and its Subsidiaries
as Lender shall request from time to time;
(e) Shareholder Reports, Etc. Promptly after the sending or
filing thereof, as the case may be, copies of any proxy statements, financial
statements or reports which Borrower has made available to its shareholders and
copies of any regular, periodic and special reports or registration statements
which Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
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(f) ERISA Reports. Upon request by Lender, copies of any
annual report to be filed pursuant to the requirements of ERISA in connection
with each plan subject thereto; and
(g) Other Information. Such other data and information
(financial and otherwise) as Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral or Borrower's and each of its
Subsidiary's financial condition or results of operations.
Concurrently with the delivery of the financial statements described in
clause (b) above, Borrower shall forward to Lender a copy of the accountants'
letter to Borrower's management that is prepared in connection with such
financial statements.
5.14. Litigation Cooperation. Should any third-party suit or proceeding
be instituted by or against Lender with respect to any Collateral or in any
manner relating to Borrower, Borrower shall, without expense to Lender, make
available Borrower and its officers, employees and agents, and Borrower's books
and records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.15. Maintenance of Collateral, Etc. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
5.16. Notification of Changes. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, or any material adverse change in the business
or financial affairs of Borrower or the existence of any circumstance which
would make any representation or warranty of Borrower untrue in any material
respect or constitute a material breach of any covenant of Borrower.
5.17. Further Assurances. Borrower agrees, at its expense to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
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5.18. Negative Covenants. Borrower will not, without Lender's prior
written consent which consent will not be unreasonably withheld or delayed, (i)
merge or consolidate with another Person, form any new Subsidiary or acquire any
interest in any Person; (ii) acquire any assets except in the ordinary course of
business and as otherwise permitted by this Agreement and the other Loan
Documents; (iii) enter into any transaction outside the ordinary course of
business; (iv) sell or transfer any Collateral or other assets, except that
Borrower may sell finished goods Inventory in the ordinary course of its
business; (v) make any loans to, or investments in, any other Person (including
without limitation Aero Management) in the form of money or other assets except
(a) that so long as no Event of Default is then in existence or would be caused
thereby, Borrower may make loans of up to $200,000 per fiscal year to Fields
Aircraft Spares, Inc. ("Spares") to permit Spares to pay filing fees and other
expenses incurred with respect to its status as a public company, and (b) for
the loans existing on the date hereof and set forth in Section 9(i) of Schedule
A; (vi) incur any debt outside the ordinary course of business; (vii) guaranty
or otherwise become liable with respect to the obligations of another party or
entity; (viii) pay or declare any dividends or other distributions on Borrower's
stock, if Borrower is a corporation (except for dividends payable solely in
capital stock of Borrower) or with respect to any equity interests, if Borrower
is not a corporation; (ix) redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of Borrower's capital stock or other equity
interests; (x) make any change in Borrower's capital structure; (xi) dissolve or
elect to dissolve; (xii) pay any principal or interest on any indebtedness owing
to an Affiliate, (xiii) enter into any transaction with an Affiliate other than
on arms-length terms; or (xiv) agree to do any of the foregoing.
5.19. Financial Covenants.
(a) Capital Expenditures. Borrower will not expend or commit
to expend, directly or indirectly, for capital expenditures (including capital
lease obligations) in excess of the amount set forth in Section 8(a) of Schedule
A as the Capital Expenditure Limitation in any fiscal year.
(b) Net Worth. Borrower will at all times maintain a net
worth of at least the amount set forth in Section 8(b) of Schedule A as the
Minimum Net Worth Requirement.
(c) Working Capital. Borrower will at all times maintain
working capital of at least the amount set forth in Section 8(c) of Schedule A
as the Minimum Working Capital Requirement.
(d) Other Financial Covenants. Borrower will comply with
any additional financial covenants set forth in Section 8(f) of Schedule A.
6. RELEASE AND INDEMNITY.
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6.1. Release. Borrower hereby releases Lender and its Affiliates and
their respective directors, officers, employees, attorneys and agents and any
other Person affiliated with or representing Lender (the "Released Parties")
from any and all liability arising from acts or omissions under or pursuant to
this Agreement, whether based on errors of judgment or mistake of law or fact,
except for those arising from gross negligence or willful misconduct. However,
in no circumstance will any of the Released Parties be liable for lost profits
or other special or consequential damages. Such release is made on the date
hereof and remade upon each request for a Loan or Credit Accommodation by
Borrower. Without limiting the foregoing:
(a) Lender shall not be liable for (i) any shortage or
discrepancy in, damage to, or loss or destruction of, any goods, the sale or
other disposition of which gave rise to an Account; (ii) any error, act,
omission, or delay of any kind occurring in the settlement, failure to settle,
collection or failure to collect any Account; (iii) settling any Account in good
faith for less than the full amount thereof; or (iv) any of Borrower's
obligations under any contract or agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by Borrower, shippers and/or any other Person. Borrower agrees
that any action taken by Lender, if taken in good faith, or any action taken by
an issuer of any Credit Accommodation, under or in connection with any Credit
Accommodation, shall be binding on Borrower and shall not create any resulting
liability to Lender. In furtherance thereof, Lender shall have the full right
and authority to clear and resolve any questions of non-compliance of documents,
to give any instructions as to acceptance or rejection of any documents or
goods, to execute for Borrower's account any and all applications for steamship
or airway guaranties, indemnities or delivery orders, to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
6.2. Indemnity. Borrower hereby agrees to indemnify the Released
Parties and hold them harmless from and against any and all claims, debts,
liabilities, demands, obligations, actions, causes of action, penalties, costs
and expenses (including attorneys' fees), of every nature, character and
description, which the Released Parties may sustain or incur based upon or
arising out of any of the transactions contemplated by this Agreement or the
other Loan Documents or any of the Obligations, including any transactions or
occurrences relating to the issuance of any Credit Accommodation, the Collateral
relating thereto, any drafts thereunder and any errors or omissions relating
thereto (including any loss or claim due to any action or inaction taken by the
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issuer of any Credit Accommodation) (and for this purpose any charges to Lender
by any issuer of Credit Accommodations shall be conclusive as to their
appropriateness and may be charged to the Loan Account), or any other matter,
cause or thing whatsoever occurred, done, omitted or suffered to be done by
Lender relating to Borrower or the Obligations (except any such amounts
sustained or incurred as the result of the willful misconduct of the Released
Parties). Notwithstanding any provision in this Agreement to the contrary, the
indemnity agreement set forth in this Section shall survive any termination of
this Agreement.
7. TERM.
7.1. Maturity Date. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement shall initially continue in effect
until the Initial Maturity Date set forth in Section 7 of Schedule A (the
"Initial Term"); provided, that such date shall automatically be extended (the
Initial Maturity Date, as it may be so extended, being referred to as the
"Maturity Date") for successive additional terms of three years each (each a
"Renewal Term"), unless one party gives written notice to the other, not less
than sixty (60) days prior to the Maturity Date, that such party elects not to
extend the Maturity Date. This Agreement and the other Loan Documents and
Lender's security interests in and Liens upon the Collateral, and all
representations, warranties and covenants of Borrower contained herein and
therein, shall remain in full force and effect after the Maturity Date until all
of the monetary Obligations are indefeasibly paid in full.
7.2. Early Termination. Lender's obligation to make Loans and to
provide Credit Accommodations under this Agreement may be terminated prior to
the Maturity Date as follows: (i) by Borrower, effective thirty (30) business
days after written notice of termination is given to Lender or (ii) by Lender at
any time after the occurrence of an Event of Default, without notice, effective
immediately. Notwithstanding the foregoing, no such early termination shall be
effective unless Aero Management simultaneously terminates the Aero Management
Loan Agreement. If so terminated by Borrower under this Section 7.2, Borrower
shall pay to Lender (i) an early termination fee (the "Early Termination Fee")
in the amount set forth in Section 6(h) of Schedule A plus (ii) any earned but
unpaid Facility Fee. Such fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations. In addition, if Borrower so
terminates and repays the Obligations without having provided Lender with at
least thirty (30) days' prior written notice thereof, an additional amount equal
to thirty (30) days of interest at the applicable Interest Rate(s), based on the
average outstanding amount of the Obligations for the six month period
immediately preceding the date of termination.
7.3. Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether or not all or any part of such Obligations are otherwise
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then due and payable. Without limiting the generality of the foregoing, if, on
the Maturity Date or on any earlier effective date of termination, there are any
outstanding Credit Accommodations, then on such date Borrower shall provide to
Lender cash collateral in an amount equal to 110% of the Credit Accommodation
Balance to secure all of the Obligations (including estimated attorneys' fees
and other expenses) relating to said Credit Accommodations or such greater
percentage or amount as Lender reasonably deems appropriate, pursuant to a cash
pledge agreement in form and substance satisfactory to Lender.
7.4. Effect of Termination. No termination shall affect or impair any
right or remedy of Lender or relieve Borrower of any of the Obligations until
all of the monetary Obligations have been indefeasibly paid in full. Upon
indefeasible payment and performance in full of all of the monetary Obligations
(or the provision of cash collateral with respect to the Credit Accommodation
Balance as set forth in Section 7.3) and termination of this Agreement, Lender
shall promptly deliver to Borrower termination statements, requests for
reconveyances and such other documents as may be reasonably required to
terminate Lender's security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1. Events of Default. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Lender immediate written notice thereof: (i) if any warranty,
representation, statement, report or certificate made or delivered to Lender by
Borrower or any of Borrower's officers, employees or agents is untrue or
misleading; (ii) if Borrower fails to pay when due any principal or interest on
any Loan or any other monetary Obligation; (iii) if Borrower breaches any
covenant or obligation contained in this Agreement or any other Loan Document or
fails to perform any other non-monetary Obligation; (iv) if any levy,
assessment, attachment, seizure, lien or encumbrance (other than a Permitted
Lien) is made or permitted to exist on all or any part of the Collateral; (v) if
one or more judgments aggregating in excess of $25,000, or any injunction or
attachment, is obtained against Borrower or any Obligor or which remains
unstayed for more than ten (10) days or is enforced; (vi) the occurrence of any
default under any financing agreement, security agreement or other agreement,
instrument or document executed and delivered by (A) Borrower with, or in favor
of, any Person other than Lender or (B) Borrower or any Affiliate of Borrower
with, or in favor of, Lender or any Affiliate of Lender; (vii) the dissolution,
death, termination of existence in good standing, insolvency or business failure
or suspension or cessation of business as usual of Borrower or any Obligor (or
of any general partner of Borrower or any Obligor if it is a partnership) or the
appointment of a receiver, trustee or custodian for all or any part of the
property of, or an assignment for the benefit of creditors by Borrower or any
Obligor, or the commencement of any proceeding by Borrower or any Obligor under
any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if Borrower makes or sends a notice of a bulk transfer or
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calls a meeting of its creditors; (viii) the commencement of any proceeding
against Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; (ix) the actual or
attempted revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations or any security document by any Obligor;
(x) if Borrower makes any payment on account of any indebtedness or obligation
which has been subordinated to the Obligations other than as permitted in the
applicable subordination agreement, or if any Person who has subordinated such
indebtedness or obligations attempts to limit or terminate its subordination
agreement; (xi) if there is any actual or threatened indictment of Borrower or
any Obligor under any criminal statute or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any Obligor,
pursuant to which the potential penalties or remedies sought or available
include forfeiture of any property of Borrower or such Obligor; (xii) if there
is a change in the record or beneficial ownership of an aggregate of more than
20% of the outstanding shares of stock of Borrower (or partnership or membership
interests if it is a partnership or limited liability company), in one or more
transactions, compared to the ownership of outstanding shares of stock (or
partnership or membership interests) of Borrower as of the date hereof, without
the prior written consent of Lender; (xiii) if there is any change in the chief
executive officer, chairman or chief financial officer of Borrower; (xiv) if an
event of default occurs under the Aero Management Loan Agreement; or (xv) if
Lender determines in good faith that the Collateral is insufficient to fully
secure the Obligations or that the prospect of payment of performance of the
Obligations is impaired.
8.2. Remedies. Upon the occurrence of any Event of Default, and at any
time thereafter, Lender, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following: (i) cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other Loan Document; (ii) accelerate and
declare all or any part of the Obligations to be immediately due, payable and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any of the Obligations; (iii) take
possession of any or all of the Collateral wherever it may be found, and for
that purpose Borrower hereby authorizes Lender, without judicial process, to
enter onto any of Borrower's premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain (or
cause a custodian to remain) on the premises in exclusive control thereof,
without charge for so long as Lender deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, that if Lender seeks to take possession of any of the
Collateral by court process, Borrower hereby irrevocably waives (A) any bond and
any surety or security relating thereto required by law as an incident to such
possession, (B) any demand for possession prior to the commencement of any suit
or action to recover possession thereof and (C) any requirement that Lender
retain possession of, and not dispose of, any such Collateral until after trial
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or final judgment; (iv) require Borrower to assemble any or all of the
Collateral and make it available to Lender at one or more places designated by
Lender which are reasonably convenient to Lender and Borrower, and to remove the
Collateral to such locations as Lender may deem advisable; (v) complete the
processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, Lender shall have
the right to use Borrower's premises, vehicles and other Equipment and all other
property without charge; (vi) sell, lease or otherwise dispose of any of the
Collateral, in its condition at the time Lender obtains possession of it or
after further manufacturing, processing or repair, at one or more public or
private sales, in lots or in bulk, for cash, exchange or other property, or on
credit (a "Sale"), and to adjourn any such Sale from time to time without notice
other than oral announcement at the time scheduled for Sale (and, in connection
therewith, (A) Lender shall have the right to conduct such Sale on Borrower's
premises without charge, for such times as Lender deems reasonable, on Lender's
premises, or elsewhere, and the Collateral need not be located at the place of
Sale; (B) Lender may directly or through any of its Affiliates purchase or lease
any of the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title, physical condition or otherwise at the time of sale);
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value; and (viii)
demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
relating thereto. In addition to the rights and remedies set forth above, Lender
shall have all the other rights and remedies accorded a secured party after
default under the UCC and under all other applicable laws, and under any other
Loan Document, and all of such rights and remedies are cumulative and
non-exclusive. Exercise or partial exercise by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations have been fully paid and performed. If notice of
any sale or other disposition of Collateral is required by law, notice at least
seven (7) days prior to the sale designating the time and place of sale in the
case of a public sale or the time after which any private sale or other
disposition is to be made shall be deemed to be reasonable notice, and Borrower
waives any other notice. If any Collateral is sold or leased by Lender on credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment is collected by Lender.
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<PAGE>
8.3. Application of Proceeds. Subject to any application required by
law, all proceeds realized as the result of any Sale shall be applied by Lender
to the Obligations in such order as Lender shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; but Borrower shall remain liable to Lender for any deficiency.
If Lender, in its sole discretion, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any Sale, Lender shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Lender of
the cash therefor.
9. GENERAL PROVISIONS.
9.1. Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, by regular first-class mail or certified mail return receipt requested,
addressed to Lender at the address shown in the heading to this Agreement or
Borrower at 2251-A Ward Avenue, Simi Valley, California 93065, or by facsimile
to the facsimile number shown in Section 9(j) of Schedule A, or at any other
address (or to any other facsimile number) designated in writing by one party to
the other party in the manner prescribed in this Section 9.1. All notices shall
be deemed to have been given when received or when delivery is refused by the
recipient.
9.2. Severability. If any provision of this Agreement, or the
application thereof to any party or circumstance, is held to be void or
unenforceable by any court of competent jurisdiction, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.3. Integration. This Agreement and the other Loan Documents
represent the final, entire and complete agreement between Borrower and Lender
and supersede all prior and contemporaneous negotiations, oral representations
and agreements, all of which are merged and integrated into this Agreement.
THERE ARE NO ORAL UNDER- STANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE
PARTIES WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4. Waivers. The failure of Lender at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Documents shall not waive or diminish any right of Lender later to
demand and receive strict compliance therewith. Any waiver of any default shall
not waive or affect any other default, whether prior or subsequent, and whether
or not similar. None of the provisions of this Agreement or any other Loan
Document shall be deemed to have been waived by any act or knowledge of Lender
or its agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
23
<PAGE>
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
9.5. Amendment. The terms and provisions of this Agreement may not
be amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6. Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement and the other Loan
Documents.
9.7. Attorneys Fees and Costs. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents or Borrower or any Obligor; to administer
this Agreement and the other Loan Documents (including the cost of periodic
financing statement, tax lien and other searches conducted by Lender); to
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; to commence, intervene in, or defend any
action or proceeding; to initiate any complaint to be relieved of the automatic
stay in bankruptcy; to file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; to examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; to protect, obtain
possession of, lease, dispose of, or otherwise enforce Lender's security
interests in, the Collateral; and to otherwise represent Lender in any
litigation relating to Borrower. If either Lender or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Lender may be entitled pursuant to this
Section shall immediately become part of the Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
9.8. Benefit of Agreement; Assignability. The provisions of this
Agreement shall be binding upon and inure to the benefit of the respective
successors, assigns, heirs, beneficiaries and representatives of Borrower and
Lender; provided, that Borrower may not assign or transfer any of its rights
24
<PAGE>
under this Agreement without the prior written consent of Lender, and any
prohibited assignment shall be void. No consent by Lender to any assignment
shall release Borrower from its liability for any of the Obligations. Lender
shall have the right to assign all or any of its rights and obligations under
the Loan Documents, and to sell participating interests therein, to one or more
other Persons, and Borrower agrees to execute all agreements, instruments and
documents requested by Lender in connection with each such assignment and
participation.
9.9. Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower or any other Obligor.
9.10. Headings; Construction. Section and subsection headings are used
in this Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
9.11. GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL IS
LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT ANY CLAIM OR
DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL COURTS OF NEW
YORK. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
25
<PAGE>
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER AND SHALL BE
DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE EXTENT PERMITTED
BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT
OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO
PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH
FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN
ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
9.12. WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL
BY JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
26
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as
of the date set forth in the heading.
Borrower: Lender:
FIELDS AIRCRAFT SPARES NATIONSCREDIT COMMERCIAL
INCORPORATED CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By___________________________________
Its__________________________________ By__________________________________
Its Authorized Signatory
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<PAGE>
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement
between FIELDS AIRCRAFT SPARES INCORPORATED and NationsCredit Commercial
Corporation, through its NationsCredit Commercial Funding Division (the
"Agreement").
1. Loan Limits for Revolving Loans:
(a) Maximum $10,000,000
Facility Amount:
(b) Advance Rates:
(i) Accounts 80%; provided, that if the Dilution
Advance Percentage exceeds 5%, such advance rate
Rate: will be reduced by the number of full or
partial percentage points of such excess
(ii) Inventory
Advance
Rate(s):
(A) Finished
goods
consisting
of
Ordinary
Inventory: 50%
(B) Finished
goods
consisting
of MDC
Inventory: 67%
(C) Raw
materials: not applicable
(D) Work in
process: not applicable
(c) Accounts At any time of determination, the
Sublimit: Maximum Fields Facility Amount less the
aggregate advances against Inventory
outstanding at such time
A-1
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(d) Inventory
Sublimit(s):
(i) Overall $10,000,000, minus the portion of the
sublimit Aero Management Loan Balance at such
on time that is predicated on eligible
advances inventory of Aero Management
against
Eligible
Inventory
(ii) Sublimit $4,000,000, minus the portion of the Aero
on Management Loan Balance at such time
advances that is predicated on finished goods
against Inventory of Aero Management
finished
goods
consisting
of
Ordinary
Inventory
(iii) Sublimit $6,500,000, reducing on the first day of
on each month commencing June 1, 1997 by
advances the greater of $100,000 or 50% of net
against sales of MDC Inventory during the prior
finished month
goods
consisting
of MDC
Inventory
(iv) Sublimit on
advances
against not applicable
raw
materials
(v) Sublimit
on
advances
against not applicable
work in
process
(e) Credit Accommodation
Limit: not applicable
A-2
<PAGE>
(f) Permanent
Reserve Amount: not applicable
(g) Maximum Fields $10,000,000, minus the Aero Management
Facility Amount Loan Balance at such time
2. Loan Limits for Term Loan:
(a) Principal not applicable
Amount:
(b) Repayment not applicable
Schedule:
3. Interest Rates:
(a) Revolving Loans: 3.00% per annum in excess of the
Prime Rate
(b) Term Loan: not applicable
4. Minimum Loan not applicable
Amount:
5. Maximum days after
invoice date for Eligible
Accounts: 90
6. Fees:
(a) Closing Fee: $100,000
(b) Facility Fee:
(i) Initial $150,000
Term:
(ii) Renewal
Term(s): $225,000
(c) Servicing Fee: not applicable
(d) Unused Line 0.50% per annum
Fee:
(e) Minimum
Borrowing Fee: not applicable
(i) Applicable
period: not applicable
(ii) Date not applicable
payable:
(f) Success Fee: not applicable
(g) Warrants: Warrant Certificate dated the date hereof
issued to Lender for 40,000 shares of
common stock of Fields Aircraft Spares,
Inc.
A-3
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(h) Early 3% of Maximum Facility Amount if
Termination Fee: terminated during the first year of the
Term, 2% of Maximum
Facility Amount if
terminated during the
second year of the Term,
and 1% of Maximum
Facility Amount if
terminated thereafter and
prior to the Maturity Date
(i) Fees for letters of
credit (or
guaranties by not applicable
Lender):
(j) Fees for other
Credit not applicable
Accommodations:
7. Initial Maturity Date: April 18, 2000
8. Financial Covenants:
(a) Capital
Expenditure not applicable
Limitation:
(b) Minimum Net
Worth not applicable
Requirement:
(c) Minimum
Working Capital not applicable
Requirement:
(d) Limitation on
Purchase Money
Security not applicable
Interests:
(e) Limitation on
Equipment not applicable
Leases:
(f) Additional
Financial not applicable
Covenants:
9. Borrower Information:
(a) Prior Names of
Borrower: None
(b) Prior Trade
Names of None
Borrower:
(c) Existing Trade
Names of None
Borrower:
A-4
<PAGE>
(d) Inventory 341 "A" Street
Locations: Fillmore, California 93015
(e) Other Locations: 2251-A Ward Avenue
Simi Valley, California 93065
(f) Litigation: Ferguson labor matter
(g) Ownership of 100% owned by Fields Aircraft Spares,
Borrower: Inc., a Utah corporation
(h) Subsidiaries (and
ownership None
thereof):
(i) Existing Loans: $8,000 principal balance owed by Aero
Management and $203,000
principal balance owed by
Fields Aircraft Spares, Inc.
(j) Facsimile
Numbers:
Borrower: (805) 583-0825
Lender: (212) 597-1666
10. Description of Real See attached Exhibit A
Property:
11. Lender's Bank: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
A-5
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of
the date set forth in the heading to the Agreement.
Borrower: Lender:
FIELDS AIRCRAFT SPARES NATIONSCREDIT COMMERCIAL
INCORPORATED CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By___________________________________
Its__________________________________ By__________________________________
Its Authorized Signatory
A-6
<PAGE>
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security Agreement
between FIELDS AIRCRAFT SPARES INCORPORATED and NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING (the
"Agreement").
As used in the Agreement, the following terms have the following
meanings:
"Account" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the obligor on an Account or Chattel Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Aero Management" means Fields Aero Management, Inc., a California
corporation and an Affiliate of Borrower.
"Aero Management Loan Agreement" means the Loan and Security Agreement
of even date herewith between Aero Management and Lender, as it may be amended
from time to time.
"Aero Management Loan Balance" means the outstanding balance of all
monetary obligations (including without limitation the aggregate undrawn face
amount of all outstanding letters of credit, bankers acceptances and other
credit accommodations and all interest, fees and costs due or, in Lender's
estimation, likely to become due in connection therewith) of Aero Management
under the Aero Management Loan Agreement.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership, management or
otherwise other than McDonnell Douglas Corporation or any of its affiliates.
"Agreement" and "this Agreement" mean the Loan and Security Agreement
of which this Schedule B is a part and the Schedules thereto.
B-1
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"Availability" has the meaning set forth in Section 1.1(a)
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.ss.
101 et seq.).
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the Agreement.
"Borrower's Address" has the meaning set forth in the heading to the
Agreement.
"Borrower Guaranty" means the Guaranty of even date herewith executed
by Borrower, pursuant to which Borrower has guaranteed repayment in full of the
Aero Management Loan Balance.
"Business Day" means a day other than a Saturday or Sunday or any other
day on which Lender or banks in New York are authorized to close.
"Chattel Paper" has the meaning set forth in the UCC.
"Collateral" means all property and interests in property in or upon
which a security interest or other Lien is granted pursuant to this Agreement or
the other Loan Documents.
"Credit Accommodation" has the meaning set forth in Section 1.1(a).
"Credit Accommodation Balance" means the sum of (i) the aggregate
undrawn face amount of all outstanding Credit Accommodations and (ii) all
interest, fees and costs due or, in Lender's estimation, likely to become due in
connection therewith.
"Default" means any event which with notice or passage of time, or
both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts as a percentage of Borrower's gross sales, calculated on a
ninety (90) day rolling average.
"Document" has the meaning set forth in the UCC.
B-2
<PAGE>
"Early Termination Fee" has the meaning set forth in Section 7.2.
"Eligible Account" means, at any time of determination, an Account
which satisfies the general criteria set forth below and which is otherwise
acceptable to Lender (provided, that Lender may, in its sole discretion, change
the general criteria for acceptability of Eligible Accounts upon at least
fifteen (15) days' prior notice to Borrower). An Account shall be deemed to meet
the current general criteria if (i) neither the Account Debtor nor any of its
Affiliates is an Affiliate, creditor or supplier of Borrower (provided, that
Accounts deemed to be ineligible solely by reason of this clause (i) because the
Account Debtor is a creditor or supplier of Borrower shall be considered
Eligible Accounts to the extent the amount of such Accounts exceeds the amount
owing by Borrower to such Account Debtor); (ii) it does not remain unpaid more
than the number of days after the original invoice date set forth in Section 5
of Schedule A; (iii) the Account Debtor or its Affiliates are not past due on
other Accounts owing to Borrower comprising more than 50% of all of the Accounts
owing to Borrower by such Account Debtor or its Affiliates; (iv) all Accounts
owing by the Account Debtor or its Affiliates do not represent more than 25% of
all otherwise Eligible Accounts unless otherwise approved by Lender (provided,
that Accounts which are deemed to be ineligible solely by this clause (iv) shall
be considered Eligible Accounts to the extent of the amount thereof which does
not exceed 20% of all otherwise Eligible Accounts); (v) no covenant,
representation or warranty contained in this Agreement with respect to such
Account (including any of the representations set forth in Section 5.4) has been
breached; (vi) the Account is not subject to any contra relationship,
counterclaim, dispute or set-off; (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States or
Provinces of Canada which have adopted the Personal Property Security Act or a
similar act, unless (A) the sale is fully backed by a letter of credit, guaranty
or acceptance acceptable to Lender in its sole discretion, and if backed by a
letter of credit, such letter of credit has been issued or confirmed by a bank
satisfactory to Lender, is sufficient to cover such Account, and if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of such letter of credit to Lender, or (B) such Account is subject to credit
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender; provided, that an aggregate amount of up to $75,000 of
foreign Accounts in excess of the existing credit insurance limits shall be
deemed to be subject to credit insurance so long as Borrower has applied for
acceptable credit insurance relating to such Accounts or credit insurance in any
amount is already in effect for such Account Debtor; (viii) it is absolutely
owing to Borrower and does not arise from a sale on a bill-and-hold, guarantied
sale, sale-or-return, sale-on-approval, consignment, retainage or any other
repurchase or return basis or consist of progress billings; (ix) Lender shall
have verified the Account in a manner satisfactory to Lender; (x) the Account
Debtor is not the United States of America or any state or political subdivision
(or any department, agency or instrumentality thereof), unless Borrower has
complied with the Assignment of Claims Act of 1940 (31 U.S.C. ss.203 et seq.) or
other applicable similar state or local law in a manner satisfactory to Lender;
B-3
<PAGE>
(xi) it is at all times subject to Lender's duly perfected, first priority
security interest and to no other Lien that is not a Permitted Lien, and the
goods giving rise to such Account (A) were not, at the time of sale, subject to
any Lien except Permitted Liens and (B) have been delivered to and accepted by
the Account Debtor, or the services giving rise to such Account have been
performed by Borrower and accepted by the Account Debtor; (xii) the Account is
not evidenced by Chattel Paper or an Instrument of any kind and has not been
reduced to judgment; (xiii) the Account Debtor's total indebtedness to Borrower
does not exceed the amount of any credit limit established by Borrower or Lender
and the Account Debtor is otherwise deemed to be creditworthy by Lender
(provided, that Accounts deemed to be ineligible solely by reason of this clause
(xiii) shall be considered Eligible Accounts to the extent the amount of such
Accounts does not exceed the lower of such credit limits); (xiv) there are no
facts or circumstances existing, or which could reasonably be anticipated to
occur, which might result in any adverse change in the Account Debtor's
financial condition or impair or delay the collectibility of all or any portion
of such Account; (xv) Lender has been furnished with all documents and other
information pertaining to such Account which Lender has requested, or which
Borrower is obligated to deliver to Lender, pursuant to this Agreement; and
(xvi) Borrower has not made an agreement with the Account Debtor to extend the
time of payment thereof beyond the time periods set forth in clause (ii) above.
"Eligible Equipment" means, at any time of determination, Equipment
owned by Borrower which Lender, in its sole discretion, deems to be eligible for
borrowing purposes.
"Eligible Inventory" means, at any time of determination, Inventory
(other than packaging materials and supplies) which satisfies the general
criteria set forth below and which is otherwise acceptable to Lender (provided,
that Lender may, in its sole discretion, change the general criteria for
acceptability of Eligible Inventory upon at least fifteen (15) days' prior
written notice to Borrower). Inventory shall be deemed to meet the current
general criteria if (i) it consists of finished goods; (ii) it is in good, new
and saleable condition; (iii) it is not slow-moving, obsolete, unmerchantable,
returned due to defects or repossessed; (iv) it is not in the possession of a
processor, consignee or bailee, or located on premises leased or subleased to
Borrower, or subject to a mortgage in favor of a Person other than Lender,
unless such processor, consignee, bailee or mortgagee or the lessor or sublessor
of such premises, as the case may be, has executed and delivered all
documentation which Lender shall require to evidence the subordination or other
limitation or extinguishment of such Person's rights with respect to such
Inventory and Lender's right to gain access thereto; (v) it meets all standards
imposed by any governmental agency or authority, and if required to be
registered with the Federal Aviation Administration, it has been so registered;
(vi) it conforms in all respects to any covenants, warranties and
representations set forth in the Agreement; (vii) it is at all times subject to
Lender's duly perfected, first priority security interest and no other Lien
except a Permitted Lien; (viii) it has not been consigned to Borrower; and (ix)
B-4
<PAGE>
it is situated at an Inventory Location listed in Section 9(d) of Schedule A or
other location of which Lender has been notified as required by Section 5.6.
"Eligible MDC Inventory" means, at any time of determination, Eligible
Inventory consisting of MDC Inventory.
"Eligible Ordinary Inventory" means, at any time of determination,
Eligible Inventory consisting of Ordinary Inventory.
"Equipment" means all Goods which are used or bought for use primarily
in business (including farming or a profession) or by a Person who is a
non-profit organization or governmental subdivision or agency and which are not
Inventory, farm products or consumer goods, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
all rules, regulations and orders promulgated thereunder.
"Event of Default" has the meaning set forth in Section 8.1.
"GAAP" means generally accepted accounting principles as in effect from
time to time, consistently applied.
"General Intangibles" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of Borrower or any other Person,
inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, internet
addresses, proprietary information, purchase orders, and all insurance policies
and claims (including life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, letters of credit, banker's acceptances and guaranties, computer
programs, discs, tapes and tape files in the possession of Borrower or any other
Person, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemnification and all other intangible
property of every kind and nature.
B-5
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"Goods" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"Initial Term" has the meaning set forth in Section 7.1.
"Instrument" has the meaning set forth in the UCC.
"Inventory" means all Goods held for sale or lease or furnished or to
be furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"Investment Property" shall mean all of Borrower's securities, whether
certificated or uncertificated, securities entitlements, securities accounts,
commodity contracts and commodity accounts.
"Lender" has the meaning set forth in the heading to the Agreement.
"Lien" means any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be deemed
to be the owner of any property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"Loan Account" has the meaning set forth in Section 2.4.
"Loan Documents" means the Agreement and all notes, guaranties
(including without limitation the Borrower Guaranty), security agreements,
certificates, landlord's agreements, Lock Box and Blocked Account agreements and
all other agreements, documents and instruments now or hereafter executed or
delivered by Borrower or any Obligor in connection with, or to evidence the
transactions contemplated by, this Agreement.
B-6
<PAGE>
"Loan Limits" means, collectively, the Availability limits and all
other limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
"Loans" means, collectively, the Revolving Loans and any Term Loan.
"Lock Box" has the meaning set forth in Section 4.1.
"Maturity Date" has the meaning set forth in Section 7.1.
"MDC Inventory" means Inventory of spare parts purchased from Douglas
Aircraft Corporation prior to the date hereof pursuant to contract numbers DAC
88-28-D, DAC 91-03-P and DAC 91-04-P.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties (including without limitation the Borrower
Guaranty), covenants, duties and indebtedness at any time owing by Borrower to
Lender, whether evidenced by this Agreement or any note or other instrument or
document, whether arising from an extension of credit, opening of a Credit
Accommodation, guaranty, indemnification or otherwise (including all fees, costs
and other amounts which may be owing to issuers of Credit Accommodations and all
taxes, duties, freight, insurance, costs and other expenses, costs or amounts
payable in connection with Credit Accommodations or the underlying goods),
whether direct or indirect (including those acquired by assignment and any
participation by Lender in Borrower's indebtedness owing to others), whether
absolute or contingent, whether due or to become due, and whether arising before
or after the commencement of a proceeding under the Bankruptcy Code or any
similar statute, including all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, loan fees, Early
Termination Fees, minimum borrowing fees and any other sums chargeable to
Borrower under this Agreement or under any other Loan Document.
"Obligor" means any guarantor, endorser, acceptor, surety or other
person liable on, or with respect to, the Obligations or who is the owner of any
property which is security for the Obligations, other than Borrower.
"Ordinary Inventory" means Inventory other than MDC Inventory.
"Permitted Liens" means: (i) purchase money security interests in
specific items of Equipment in an aggregate amount not to exceed the limit set
forth in Section 8(d) of Schedule A; (ii) leases of specific items of Equipment
in an aggregate amount not to exceed the limit set forth in Section 8(e) of
Schedule A; (iii) Liens for taxes not yet due and payable; (iv) additional Liens
which are fully subordinate to the security interests of Lender and are
consented to in writing by Lender; (v) security interests being terminated
concurrently with the execution of this Agreement; (vi) Liens of materialmen,
mechanics, warehousemen or carriers arising in the ordinary course of business
B-7
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and securing obligations which are not delinquent; (vii) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (i) or (ii) above; provided,
that any extension, renewal or replacement Lien is limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase; (viii) Liens in favor
of customs and revenue authorities which secure payment of customs duties in
connection with the importation of goods; and (ix) Liens in favor of City
National Bank pursuant to the Deed of Trust dated October 31, 1991 in favor of
Ventura County National Bank with respect to the real estate located at 341 "A"
Street, Fillmore, California 93015. Lender will have the right to require, as a
condition to its consent under clause (iv) above, that the holder of the
additional Lien sign an intercreditor agreement in form and substance
satisfactory to Lender, in its sole discretion, acknowledging that the Lien is
subordinate to the security interests of Lender, and agreeing not to take any
action to enforce its subordinate Lien so long as any Obligations remain
outstanding, and that Borrower agree that any uncured default in any obligation
secured by the subordinate Lien shall also constitute an Event of Default under
this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as quoted in The
Wall Street Journal as the base rate on corporate loans posted as of such time
by at least 75% of the nation's 30 largest banks (which rate is not necessarily
the lowest rate offered by such banks).
"Real Property" means the real property described in Section 10 of
Schedule A.
"Released Parties" has the meaning set forth in Section 6.1.
"Renewal Term" has the meaning set forth in Section 7.1.
"Reserves" has the meaning set forth in Section 1.2.
"Revolving Loans" has the meaning set forth in Section 1.1(b).
"Sale" has the meaning set forth in Section 8.2.
"Spares" has the meaning set forth in Section 5.18.
"Subsidiary" means any corporation or other entity of which a Person
owns, directly or indirectly, through one or more intermediaries, more than 50%
of the capital stock or other equity interest at the time of determination.
B-8
<PAGE>
"Term" means the period commencing on the date of this Agreement and
ending on the Maturity Date.
"Term Loan" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as adopted
and in effect at such time in the State of New York. All accounting terms used
in this Agreement, unless otherwise indicated, shall have the meanings given to
such terms in accordance with GAAP. All other terms contained in this Agreement,
unless otherwise indicated, shall have the meanings provided by the UCC, to the
extent such terms are defined therein. The term "including," whenever used in
this Agreement, shall mean "including but not limited to." The singular form of
any term shall include the plural form, and vice versa, when the context so
requires. References to Sections, subsections and Schedules are to Sections and
subsections of, and Schedules to, this Agreement. All references to agreements
and statutes shall include all amendments thereto and successor statutes in the
case of statutes.
B-9
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as
of the date set forth in the heading to the Agreement.
Borrower: Lender:
FIELDS AIRCRAFT SPARES NATIONSCREDIT COMMERCIAL
INCORPORATED CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By__________________________________
Its_________________________________ By________________________________
Its Authorized Signatory
B-10
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (as it may be amended, this
"Agreement") is entered into on April 18, 1997 between NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"),
having an address at 1177 Avenue of the Americas, 36th Floor, New York, New York
10036 and FIELDS AERO MANAGEMENT, INC. ("Borrower"), whose chief executive
office is located at 341 "A" Street, Fillmore, California 93015 ("Borrower's
Address"). The Schedules to this Agreement are an integral part of this
Agreement and are incorporated herein by reference. Terms used, but not defined
elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1. Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) Revolving Loans and Credit Accommodations. From time to time during
the Term at Borrower's request, make revolving loans to Borrower ("Revolving
Loans"), and make letters of credit, bankers acceptances and other credit
accommodations ("Credit Accommodations") available to Borrower, in each case to
the extent that there is sufficient Availability at the time of such request to
cover, dollar for dollar, the requested Revolving Loan or Credit Accommodation;
provided, that after giving effect to such Revolving Loan or Credit
Accommodation, (x) the outstanding balance of all monetary Obligations
(including the principal balance of any Term Loan and, solely for the purpose of
determining compliance with this provision, the Credit Accommodation Balance)
will not exceed the Maximum Aero Facility Amount set forth in Section 1 of
Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "Availability" means:
(b) the aggregate amount of Eligible Accounts (less maximum
existing or asserted taxes, discounts, credits and allowances) multiplied by the
Accounts Advance Rate set forth in Section 1(b)(i) of Schedule A but not to
exceed the Accounts Sublimit set forth in Section 1(c) of Schedule A;
plus
(c) the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section 1(b)(ii) of
Schedule A, but not to exceed the Inventory Sublimit(s) set forth in Section
1(d) of Schedule A;
minus
<PAGE>
(d) all Reserves which Lender has established pursuant to
Section 1.2 (including those to be established in connection with the requested
Revolving Loan or Credit Accommodation); and
minus
(e) the outstanding balance of all of the monetary
Obligations (excluding the Credit Accommodation Balance and the principal
balance of the Term Loan). (i)Term Loan. On the date of this Agreement, make a
term loan to Borrower (the "Term Loan") in the principal amount, if any, set
forth in Section 2(a) of Schedule A. 1.2.Reserves. Lender may from time to time
establish and revise such reserves as Lender deems appropriate in its sole
discretion ("Reserves") to reflect (i) events, conditions, contingencies or
risks which affect or may affect (A) the Collateral or its value, or the
security interests and other rights of Lender in the Collateral or (B) the
assets, business or prospects of Borrower or any Obligor, (ii) Lender's good
faith concern that any Collateral report or financial information furnished by
or on behalf of Borrower or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect, (iii) any fact or
circumstance which Lender determines in good faith constitutes, or could
constitute, a Default or Event of Default or (iv) any other events or
circumstances which Lender determines in good faith make the establishment or
revision of a Reserve prudent. Without limiting the foregoing, Lender shall (x)
in the case of each Credit Accommodation issued for the purchase of Inventory
(a) which meets the criteria for Eligible Inventory set forth in clauses (i),
(ii), (iii), (v) and (vi) of Eligible Inventory, (b) which is or will be in
transit to one of the locations set forth in Section 10(d), (c) which is fully
insured in a manner satisfactory to Lender and (d) with respect to which Lender
is in possession of all bills of lading and all other documentation which Lender
has requested, all in form and substance satisfactory to Lender in its sole
discretion, establish a Reserve equal to the cost of such Inventory (plus all
duties, freight, taxes, insurance, costs and other charges and expenses relating
to such Credit Accommodation or such Eligible Inventory) multiplied by a
percentage equal to 100% minus the Inventory Advance Rate applicable to Eligible
Inventory and (y) in the case of any other Credit Accommodation issued for any
purpose, establish a Reserve equal to the full amount of such Credit
Accommodation plus all costs and other charges and expenses relating to such
Credit Accommodation. In addition, (x) Lender shall establish a permanent
Reserve in the amount set forth in Section 1(f) of Schedule A, and (y) if the
outstanding principal balance of the Term Loan advance with respect to Eligible
Equipment exceeds the percentage of the appraised value of such Eligible
Equipment set forth in Section 2(a) of Schedule A, Lender may establish an
additional Reserve in the amount of such excess (and, for this purpose, payments
of principal of the Term Loan made by Borrower shall be deemed to apply to the
Term Loan advance with respect to Eligible Equipment and Real Property,
respectively, in proportion to the original principal amounts of such advances).
Lender may, in its discretion, establish and revise Reserves by deducting them
in determining Availability or by reclassifying Eligible Accounts or Eligible
Inventory as ineligible.
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<PAGE>
1.3. Other Provisions Applicable to Credit Accommodations. Lender may,
in its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
1.4. Repayment. Accrued interest on all monetary Obligations shall be
payable on the first day of each month. Principal of the Term Loan shall be
repaid as set forth in Section 2(b) of Schedule A. If at any time any of the
Loan Limits are exceeded, Borrower will immediately pay to Lender such amounts
and/or provide cash collateral to Lender with respect to the Credit
Accommodation Balance in the manner set forth in Section 7.3, as shall cause
Borrower to be in full compliance with all of the Loan Limits. Notwithstanding
the foregoing, Lender may, in its sole discretion, make or permit Revolving
Loans, the Term Loan, any Credit Accommodations or any other monetary
Obligations to be in excess of any of the Loan Limits; provided, that Borrower
shall, upon Lender's demand, pay to Lender such amounts as shall cause Borrower
to be in full compliance with all of the Loan Limits. All unpaid monetary
Obligations shall be payable in full on the Maturity Date set forth in Section
7.1 or, if earlier, the date of any early termination pursuant to Section 7.2.
1.5. Minimum Borrowing. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to equal or exceed, at all times
prior to the Maturity Date, the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) maintain Availability sufficient to enable Borrower to do
so. However, Lender shall not be obligated to loan Borrower the Minimum Loan
Amount other than in accordance with all of the terms and conditions of this
Agreement.
2. INTEREST AND FEES.
2.1. Interest. All Loans and other monetary Obligations shall bear
interest at the Interest Rate(s) set forth in Section 3 of Schedule A, except
where expressly set forth to the contrary in this Agreement or another Loan
Document; provided, that after the occurrence of an Event of Default, all Loans
and other monetary Obligations shall, at Lender's option, bear interest at a
rate per annum equal to two percent (2%) in excess of the rate otherwise
applicable thereto (the "Default Rate") until paid in full (notwithstanding the
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<PAGE>
entry of any judgment against Borrower or the exercise of any other right or
remedy by Lender), and all such interest shall be payable on demand. Changes in
the Interest Rate shall be effective as of the date of any change in the Prime
Rate. Notwithstanding anything to the contrary contained in this Agreement, the
aggregate of all amounts deemed to be interest hereunder and charged or
collected by Lender is not intended to exceed the highest rate permissible under
any applicable law, but if it should, such interest shall automatically be
reduced to the extent necessary to comply with applicable law and Lender will
refund to Borrower any such excess interest received by Lender.
2.2. Fees and Warrants. Borrower shall pay Lender the following fees,
and issue Lender the following warrants, which are in addition to all interest
and other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
(a) Closing Fee. A closing fee in the amount set forth in
Section 6(a) of Schedule A.
(b) Facility Fees. A facility fee for the Initial Term in the
amount set forth in Section 6(b)(i) of Schedule A (which shall be fully earned
as of the date of this Agreement and shall be payable in equal installments due,
respectively, on each anniversary thereof during the Initial Term), and a
facility fee for each Renewal Term in the amount set forth in Section 6(b)(ii)
of Schedule A (which shall be fully earned as of the first day of such Renewal
Term and shall be payable in equal installments due, respectively, on the first
day of such Renewal Term and on each anniversary thereof during such Renewal
Term).
(c) Servicing Fee. A monthly servicing fee in the amount set
forth in Section 6(c) of Schedule A, in consideration of Lender's administration
and other services for each month (or part thereof), which shall be fully earned
as of, and payable in advance on, the date of this Agreement and on the first
day of each month thereafter so long as any of the Obligations are outstanding.
(d) Unused Line Fee. An unused line fee set forth in Section
6(d) of Schedule A.
(e) Minimum Borrowing Fee. A minimum borrowing fee equal to
the excess, if any, of (i) interest which would have been payable in respect of
each period set forth in Section 6(e) of Schedule A if, at all times during such
period, the principal balance of the Loans was equal to the Minimum Loan Amount
over (ii) the actual interest payable in respect of such period, which fee shall
be fully earned as of the first day of such period and payable on the date set
forth in Section 6(e)(ii) of Schedule A and on the Maturity Date.
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<PAGE>
(f) Success Fee. A success fee in the amount set forth in
Section 6(e)(i) of Schedule A, which shall be fully earned as of the date of
this Agreement and payable as set forth in Section 6(f) of Schedule A.
(g) Warrants. Warrants to acquire the capital stock of Spares,
as summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Spares contemporaneously with this
Agreement.
(h) Credit Accommodation Fees. All of the fees relating to
Credit Accommodations set forth in Section 6(i) and 6(j) of Schedule A.
2.3.Computation of Interest and Fees. All interest and fees shall be calculated
daily on the closing balances in the Loan Account based on the actual number of
days elapsed in a year of 360 days. For purposes of calculating interest and
fees, if the outstanding daily principal balance of the Revolving Loans is a
credit balance, such balance shall be deemed to be zero.
2.4. Loan Account; Monthly Accountings. Lender shall maintain a loan
account for Borrower reflecting all advances, charges, expenses and payments
made pursuant to this Agreement (the "Loan Account"), and shall provide Borrower
with a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or admissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations. Interest, fees
and other monetary Obligations due and owing under this Agreement (including
fees and other amounts paid by Lender to issuers of Credit Accommodations) may,
in Lender's discretion, be charged to the Loan Account, and will thereafter be
deemed to be Revolving Loans and will bear interest at the same rate as other
Revolving Loans.
3. SECURITY INTEREST.
3.1. To secure the full payment and performance of all of the
Obligations when due, Borrower hereby grants to Lender a continuing security
interest in all of Borrower's property and interests in property, whether
tangible or intangible, now owned or in existence or hereafter acquired or
arising, wherever located, including Borrower's interest in all of the
following, whether or not eligible for lending purposes: (i) all Accounts,
Chattel Paper, Instruments, Documents, Goods (including Inventory, Equipment,
farm products and consumer goods), Investment Property, General Intangibles,
Deposit Accounts and money, (ii) all proceeds and products of all of the
foregoing (including proceeds of any insurance policies, proceeds of proceeds
and claims against third parties for loss or any destruction of any of the
foregoing) and (iii) all books and records relating to any of the foregoing.
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<PAGE>
4. ADMINISTRATION.
4.1. Lock Boxes and Blocked Accounts. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("Account Proceeds"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or in the name of Lender
(a "Lock Box") or (ii) depositing all Account Proceeds received by Borrower into
one or more bank accounts maintained in Lender's name (each, a "Blocked
Account"), under an arrangement acceptable to Lender with a depository bank
acceptable to Lender, pursuant to which all funds deposited into each Blocked
Account are to be transferred to Lender in such manner, and with such frequency,
as Lender shall specify or (iii) a combination of the foregoing. Borrower agrees
to execute, and to cause its depository banks to execute, such Lock Box and
Blocked Account agreements and other documentation as Lender shall require from
time to time in connection with the foregoing.
4.2. Remittance of Proceeds. Except as provided in Section 4.1, all
proceeds arising from the sale or other disposition of any Collateral shall be
delivered, in kind, by Borrower to Lender in the original form in which received
by Borrower not later than the second Business Day after receipt by Borrower.
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3. Application of Payments. Lender may, in its sole discretion,
apply, reverse and re-apply all cash and non-cash proceeds of Collateral or
other payments received with respect to the Obligations, in such order and
manner as Lender shall determine, whether or not the Obligations are due, and
whether before or after the occurrence of a Default or an Event of Default. For
purposes of determining Availability, such amounts will be credited to the Loan
Account and the Collateral balances to which they relate upon Lender's receipt
of advice from Lender's Bank (set forth in Section 11 of Schedule A) that such
items have been credited to Lender's account at Lender's Bank (or upon Lender's
deposit thereof at Lender's Bank in the case of payments received by Lender in
kind), in each case subject to final payment and collection. However, for
purposes of computing interest on the Obligations, such items shall be deemed
applied by Lender one and one-half Business Days after Lender's receipt of
advice of deposit thereof at Lender's Bank.
4.4. Notification; Verification. Lender or its designee may, from
time to time, whether or not a Default or Event of Default has occurred: (i)
verify directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
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<PAGE>
otherwise, either in the name of Borrower or Lender or such other name as Lender
may choose; (ii) notify Account Debtors that Lender has a security interest in
the Accounts and that payment thereof is to be made directly to Lender; and
(iii) demand, collect or enforce payment of any Accounts and Chattel Paper (but
without any duty to do so).
4.5. Power of Attorney. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting Lender
(acting through any of its officers, employees, attorneys or agents), at any
time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise: (i) execute on
behalf of Borrower any documents that Lender may, in its sole discretion, deem
advisable in order to perfect and maintain Lender's security interests in the
Collateral, to exercise a right of Borrower or Lender, or to fully consummate
all the transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or lease (as lessor or lessee) any real or personal property which is part of
the Collateral or in which Lender has an interest; (iii) execute on behalf of
Borrower any invoices relating to any Accounts, any draft against any Account
Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy,
any notice of Lien or claim, assignment or satisfaction of mechanic's,
materialman's or other Lien; (iv) receive and otherwise take control in any
manner of any cash or non-cash items of payment or proceeds of Collateral; (v)
endorse Borrower's name on all checks and other forms of remittances received by
Lender; (vi) pay, contest or settle any Lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (vii)
after the occurrence of a Default or Event of Default, grant extensions of time
to pay, compromise claims relating to, and settle Accounts, Chattel Paper and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (viii) pay any sums required on account of
Borrower's taxes or to secure the release of any Liens therefor; (ix) pay any
amounts necessary to obtain, or maintain in effect, any of the insurance
described in Section 5.13; (x) settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (xi) instruct any third party having custody or control of any
Collateral or books or records belonging to, or relating to, Borrower to give
Lender the same rights of access and other rights with respect thereto as Lender
has under this Agreement; and (xii) after the occurrence of a Default or Event
of Default, change the address for delivery of Borrower's mail in respect of
payments from Account Debtors and receive and open all mail addressed to
Borrower; provided, that Lender shall promptly forward all other mail of
Borrower to Borrower at its address set forth in Section 9.1. Any and all sums
paid, and any and all costs, expenses, liabilities, obligations and reasonable
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attorneys' fees incurred, by Lender with respect to the foregoing shall be added
to and become part of the Obligations, shall be payable on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any of
the Obligations. Borrower agrees that Lender's rights under the foregoing power
of attorney or any of Lender's other rights under this Agreement or the other
Loan Documents shall not be construed to indicate that Lender is in control of
the business, management or properties of Borrower.
4.6. Disputes. Borrower shall promptly notify Lender of all disputes or
claims relating to Accounts and Chattel Paper. Borrower will not, without
Lender's prior written consent, compromise or settle any Account or Chattel
Paper for less than the full amount thereof, grant any extension of time of
payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that prior to an Event of Default Borrower may do such things in the ordinary
course of business. Borrower will promptly report any such permitted settlement
or forgiveness to Lender.
4.7. Invoices. At Lender's request, Borrower will cause all invoices
and statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
4.8. Inventory.
(a) Returns. Provided that no Event of Default has occurred
and is continuing, if any Account Debtor returns any Inventory to Borrower in
the ordinary course of its business, Borrower will promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor in
the appropriate amount (sending a copy to Lender). After the occurrence of an
Event of Default, Borrower will not accept any return without Lender's prior
written consent. Regardless of whether an Event of Default has occurred,
Borrower will, until such time as Borrower has issued a credit memorandum to the
Account Debtor, (i) hold the returned Inventory in trust for Lender; (ii)
segregate all returned Inventory from all of Borrower's other property; (iii)
conspicuously label the returned Inventory as Lender's property; and (iv)
immediately notify Lender of the return of such Inventory, specifying the reason
for such return, the location and condition of the returned Inventory and, at
Lender's request, deliver such returned Inventory to Lender at an address
specified by Lender.
(b) Other Covenants. Borrower will not, without Lender's prior
written consent, (i) store any Inventory or other Collateral with any
warehouseman or other third party other than as set forth in Section 9(d) of
Schedule A or (ii) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis. Borrower will produce Inventory only in
accordance with the Fair Labor Standards Act of 1938 as amended, and all rules,
regulations and orders promulgated thereunder.
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4.9. Access to Collateral, Books and Records. At reasonable times, and
on one Business Day's notice, prior to the occurrence of a Default or an Event
of Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy Borrower's books and
records. Lender shall take reasonable steps to keep confidential all information
obtained in any such inspection or examination, but Lender shall have the right
to disclose any such information to its auditors, regulatory agencies, attorneys
and participants, and pursuant to any subpoena or other legal process; provided,
however, that if Lender is required to disclose any such information pursuant to
any subpoena or other legal process, Lender shall notify Borrower of such
required disclosure and Lender shall refrain from making such disclosure until
the earlier of Borrower's consent thereto and the date immediately prior to the
expiration of the period in which Lender must comply with such subpoena or other
legal process, during which time Borrower shall be entitled to pursue all
remedies available to Borrower to delay or prevent such disclosure; provided,
further, that Lender shall not be liable for any damages or other costs or
expenses resulting from any action of Borrower under this Section 4.9, and
Borrower agrees to indemnify Lender for any losses incurred by Lender as a
result of any such actions by Borrower under this Section 4.9. Borrower agrees
to give Lender access to any or all of Borrower's premises to enable Lender to
conduct such inspections and examinations. Such inspections and examinations
shall be at Borrower's expense and the charge therefor shall be $650 per person
per day (or such higher amount as shall represent Lender's then current standard
charge), plus reasonable out-of-pockets expenses. Lender may, at Borrower's
expense, use Borrower's personnel, computer and other equipment, programs,
printed output and computer readable media, supplies and premises for the
collection, sale or other disposition of Collateral to the extent Lender, in its
sole discretion, deems appropriate. Borrower hereby irrevocably authorizes all
accountants and third parties to disclose and deliver to Lender, at Borrower's
expense, all financial information, books and records, work papers, management
reports and other information in their possession regarding Borrower and not
subject to professional privilege, such as attorney-client privilege. Borrower
will not enter into any agreement with any accounting firm, service bureau or
third party to store Borrower's books or records at any location other than
Borrower's Address without first obtaining Lender's written consent (which
consent may be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Lender the same rights with respect to access to
books and records and related rights as Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) compliance with
each such covenant will be a condition to each Loan and Credit Accommodation:
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5.1. Existence and Authority. Borrower is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation. Borrower is qualified and licensed to do business in
all jurisdictions in which any failure to do so would have a material adverse
effect on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A sets forth the ownership
of Borrower and its Subsidiaries as of the date of this Agreement.
5.2. Name; Trade Names and Styles. The name of Borrower set forth in
the heading to this Agreement is its correct and complete legal name. Listed in
Section 9 of Schedule A are all prior names of Borrower and all of Borrower's
present and prior trade names. Borrower shall give Lender at least 30 days'
prior written notice before changing its name or doing business under any other
name. Borrower has complied with all laws relating to the conduct of business
under a fictitious business name. Borrower represents and warrants that (i) to
the best of its knowledge, each trade name does not refer to another corporation
or other legal entity; (ii) all Accounts invoiced under any such trade names are
owned exclusively by Borrower and are subject to the security interest of Lender
and the other terms of this Agreement and (iii) all schedules of Accounts,
including any sales made or services rendered using the trade name shall show
Borrower's name as assignor.
5.3. Title to Collateral; Permitted Liens. Borrower has good and
marketable title to the Collateral. The Collateral now is and will remain free
and clear of any and all liens, charges, security interests, encumbrances and
adverse claims, except for Permitted Liens. Lender now has, and will continue to
have, a first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend Lender and the Collateral against all claims of others. None of the
Collateral which is Equipment is or will be affixed to any real property in such
a manner, or with such intent, as to become a fixture. Borrower is not a lessee
under any real property lease pursuant to which the lessor may obtain any rights
in any of the Collateral, and no such lease now prohibits, restrains, impairs or
conditions, or will prohibit, restrain, impair or condition, Borrower's right to
remove any Collateral from the leased premises. Whenever any Collateral is
located upon premises in which any third party has an interest (whether as
owner, mortgagee, beneficiary under a deed of trust, lien or otherwise),
Borrower shall, whenever requested by Lender, cause each such third party to
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execute and deliver to Lender, in form acceptable to Lender, such waivers and
subordinations as Lender shall specify, so as to ensure that Lender's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.
5.4. Accounts and Chattel Paper. As of each date reported by Borrower,
all Accounts which Borrower has reported to Lender as being Eligible Accounts
comply in all respects with the criteria for eligibility established by Lender
and in effect at such time. Should an Account that has been reported in good
faith as an Eligible Account subsequently be determined to be ineligible,
Borrower will have 15 days to fix the error by providing a new report not
including that Account and no Event of Default shall have occurred provided that
the amount advanced to Borrower does not exceed Availability. All Accounts and
Chattel Paper are genuine and in all respects what they purport to be, arise out
of a completed, bona fide and unconditional and non-contingent sale and delivery
of goods or rendition of services by Borrower in the ordinary course of its
business and in accordance with the terms and conditions of all purchase orders,
contracts or other documents relating thereto, each Account Debtor thereunder
had the capacity to contract at the time any contract or other document giving
rise to such Accounts and Chattel Paper were executed, and the transactions
giving rise to such Accounts and Chattel Paper comply with all applicable laws
and governmental rules and regulations.
5.5. Investment Property. Borrower will take any and all actions
required or requested by Lender, from time to time, to (i) cause Lender to
obtain exclusive control of any Investment Property in a manner acceptable to
Lender and (ii) obtain from any issuers of Investment Property and such other
Persons as Lender shall specify, for the benefit of Lender, written confirmation
of Lender's exclusive control over such Investment Property. For purposes of
this Section 5.5, Lender shall have exclusive control of Investment Property if
(A) such Investment Property consists of certificated securities and Borrower
delivers such certificated securities to Lender (with appropriate endorsements
if such certificated securities are in registered form); (B) such Investment
Property consists of uncertificated securities and either (x) Borrower delivers
such uncertificated securities to Lender or (y) the issuer thereof agrees,
pursuant to documentation in form and substance satisfactory to Lender, that it
will comply with instructions originated by Lender without further consent by
Borrower, and (C) such Investment Property consists of security entitlements and
either (x) Lender becomes the entitlement holder thereof or (y) the appropriate
securities intermediary agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with entitlement orders originated
by Lender without further consent by Borrower.
5.6. Place of Business; Location of Collateral. Borrower's Address
is Borrower's chief executive office and the location of its books and records.
In addition, except as provided in the immediately following sentence, Borrower
has places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least 30
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days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
5.7. Financial Condition, Statements and Reports. All financial
statements delivered to Lender by or on behalf of Borrower have been prepared in
conformity with GAAP and completely and fairly reflect the financial condition
of Borrower in all material respects, at the times and for the periods therein
stated (subject to year-end adjustments). Between the last date covered by any
such financial statement provided to Lender and the date hereof, there has been
no material adverse change in the financial condition or business of Borrower.
Borrower is solvent and able to pay its debts as they come due, and has
sufficient capital to carry on its business as now conducted and as proposed to
be conducted. All schedules, reports and other information and documentation
delivered by Borrower to Lender with respect to the Collateral are, or will be,
when delivered, true, correct and complete as of the date delivered or the date
specified therein in all material respects.
5.8. Tax Returns and Payments; Pension Contributions. Borrower has
timely filed all tax returns and reports required by applicable law, and
Borrower has timely paid all applicable taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes; provided, that Borrower (i) in good faith
contests Borrower's obligation to pay such taxes by appropriate proceedings
promptly and diligently instituted and conducted; (ii) notifies Lender in
writing of the commencement of, and any material development in, the
proceedings; (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a Lien upon any of the Collateral and (iv)
maintains adequate reserves therefor in conformity with GAAP. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay, all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency. Borrower shall, at all
times, utilize the services of an outside payroll service providing for the
automatic deposit of all payroll taxes payable by Borrower.
5.9. Compliance with Laws. Borrower has complied in all material
respects with all provisions of all applicable laws and regulations, including
those relating to Borrower's ownership of real or personal property, the conduct
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and licensing of Borrower's business, the payment and withholding of taxes,
ERISA and other employee matters, safety and environmental matters.
5.10. Litigation. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower. There is no claim, suit, litigation,
proceeding or investigation pending or (to the best of Borrower's knowledge)
threatened by or against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Lender in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower.
5.11. Use of Proceeds. All proceeds of all Loans will be used solely
for lawful business purposes.
5.12. Insurance. Borrower will at all times carry property, liability
and other insurance, with insurers acceptable to Lender, in such form and
amounts, and with such deductibles and other provisions, as Lender shall
require, and Borrower will provide evidence of such insurance to Lender, so that
Lender is satisfied that such insurance is, at all times, in full force and
effect. Each property insurance policy shall name Lender as loss payee and shall
contain a lender's loss payable endorsement in form acceptable to Lender, each
liability insurance policy shall name Lender as an additional insured, and each
business interruption insurance policy shall be collaterally assigned to Lender,
all in form and substance satisfactory to Lender. All policies of insurance
shall provide that they may not be cancelled or changed without at least thirty
(30) days' prior written notice to Lender, shall contain breach of warranty
coverage, and shall otherwise be in form and substance satisfactory to Lender.
Upon receipt of the proceeds of any such insurance, Lender shall apply such
proceeds in reduction of the Obligations as Lender shall determine in its sole
discretion. Borrower will promptly deliver to Lender copies of all reports made
to insurance companies.
5.13. Financial and Collateral Reports. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender and is consistent with GAAP):
(a) Collateral Reports. On or before the fifteenth (15th) day
of each month, an aging of Borrower's Accounts, Chattel Paper and notes
receivable, and weekly inventory reports, if any, all in such form, and together
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with such additional certificates, schedules and other information with respect
to the Collateral or the business of Borrower or any Obligor, as Lender shall
request, in each case, with respect to any items that exceed dollar limits
established by Lender either orally or in writing from time to time; provided,
that Borrower's failure to execute and deliver the same shall not affect or
limit Lender's security interests and other rights in any of the Accounts, nor
shall Lender's failure to advance or lend against a specific Account affect or
limit Lender's security interest and other rights therein. Together with each
such schedule, Borrower shall furnish Lender, upon its request, with copies (or,
at Lender's request, originals) of all contracts, orders, invoices, and other
similar documents, and all original shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Accounts, and Borrower warrants the
genuineness of all of the foregoing. In addition, Borrower shall deliver to
Lender, upon its request, the originals of all Instruments, Chattel Paper,
security agreements, guaranties and other documents and property evidencing or
securing any Accounts, immediately upon receipt thereof and in the same form as
received, with all necessary endorsements. Lender may destroy or otherwise
dispose of all documents, schedules and other papers delivered to Lender
pursuant to this Agreement (other than originals of Instruments, Chattel Paper,
security agreements, guaranties and other documents and property evidencing or
securing any Accounts) six months after Lender receives them, unless Borrower
requests their return in writing in advance and arranges for their return to
Borrower at Borrower's expense.
(b) Annual Statements. Not later than one hundred twenty (120)
days after the close of each fiscal year of Borrower, unqualified (except for a
qualification for a change in accounting principles with which the accountant
concurs) audited financial statements of Borrower and its Subsidiaries as of the
end of such year, on a consolidated and consolidating basis, certified by a firm
of independent certified public accountants of recognized standing selected by
Borrower but acceptable to Lender, together with a copy of any management letter
issued in connection therewith;
(c) Interim Statements. Not later than twenty-five (25) days
after the end of each month hereafter which is not the last month of a calendar
quarter, and forty-five (45) days after the last day of a calendar quarter,
including the last month of Borrower's fiscal year, unaudited interim financial
statements of Borrower and its Subsidiaries as of the end of such month and of
the portion of Borrower's fiscal year then elapsed, on a consolidated and
consolidating basis, certified by the principal financial officer of Borrower as
prepared in accordance with GAAP and fairly presenting the consolidated
financial position and results of operations of Borrower and its Subsidiaries
for such month and period subject only to changes from audit and year-end
adjustments and except that such statements need not contain notes;
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(d) Projections. No later than the end of each fiscal year
of Borrower, such projections of the business of Borrower and its Subsidiaries
as Lender shall request from time to time;
(e) Shareholder Reports, Etc. Promptly after the sending or
filing thereof, as the case may be, copies of any proxy statements, financial
statements or reports which Borrower has made available to its shareholders and
copies of any regular, periodic and special reports or registration statements
which Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
(f) ERISA Reports. Upon request by Lender, copies of any
annual report to be filed pursuant to the requirements of ERISA in connection
with each plan subject thereto; and
(g) Other Information. Such other data and information
(financial and otherwise) as Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral or Borrower's and each of its
Subsidiary's financial condition or results of operations.
Concurrently with the delivery of the financial statements described in
clause (b) above, Borrower shall forward to Lender a copy of the accountants'
letter to Borrower's management that is prepared in connection with such
financial statements. 5.14.Litigation Cooperation. Should any third-party suit
or proceeding be instituted by or against Lender with respect to any Collateral
or in any manner relating to Borrower, Borrower shall, without expense to
Lender, make available Borrower and its officers, employees and agents, and
Borrower's books and records, without charge, to the extent that Lender may deem
them reasonably necessary in order to prosecute or defend any such suit or
proceeding.
5.15. Maintenance of Collateral, Etc. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
5.16. Notification of Changes. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, or any material adverse change in the business
or financial affairs of Borrower or the existence of any circumstance which
would make any representation or warranty of Borrower untrue in any material
respect or constitute a material breach of any covenant of Borrower.
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5.17. Further Assurances. Borrower agrees, at its expense to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
5.18. Negative Covenants. Borrower will not, without Lender's prior
written consent which consent will not be unreasonably withheld or delayed, (i)
merge or consolidate with another Person, form any new Subsidiary or acquire any
interest in any Person; (ii) acquire any assets except in the ordinary course of
business and as otherwise permitted by this Agreement and the other Loan
Documents; (iii) enter into any transaction outside the ordinary course of
business; (iv) sell or transfer any Collateral or other assets, except that
Borrower may sell finished goods Inventory in the ordinary course of its
business; (v) make any loans to, or investments in, any other Person (including
without limitation Fields) in the form of money or other assets except for the
loan existing on the date hereof and set forth in Section 9(i) of Schedule A;
(vi) incur any debt outside the ordinary course of business except the debt
existing on the date hereof and set forth in Section 9(j) of Schedule A; (vii)
guaranty or otherwise become liable with respect to the obligations of another
party or entity; (viii) pay or declare any dividends or other distributions on
Borrower's stock, if Borrower is a corporation (except for dividends payable
solely in capital stock of Borrower) or with respect to any equity interests, if
Borrower is not a corporation; (ix) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Borrower's capital stock or other equity
interests; (x) make any change in Borrower's capital structure; (xi) dissolve or
elect to dissolve; (xii) pay any principal or interest on any indebtedness owing
to an Affiliate, (xiii) enter into any transaction with an Affiliate other than
on arms-length terms; or (xiv) agree to do any of the foregoing.
5.19. Financial Covenants.
(a) Capital Expenditures. Borrower will not expend or commit
to expend, directly or indirectly, for capital expenditures (including capital
lease obligations) in excess of the amount set forth in Section 8(a) of Schedule
A as the Capital Expenditure Limitation in any fiscal year.
(b) Net Worth. Borrower will at all times maintain a net
worth of at least the amount set forth in Section 8(b) of Schedule A as the
Minimum Net Worth Requirement.
(c) Working Capital. Borrower will at all times maintain
working capital of at least the amount set forth in Section 8(c) of Schedule A
as the Minimum Working Capital Requirement.
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(d) Other Financial Covenants. Borrower will comply with
any additional financial covenants set forth in Section 8(f) of Schedule A.
6. RELEASE AND INDEMNITY.
6.1. Release. Borrower hereby releases Lender and its Affiliates and
their respective directors, officers, employees, attorneys and agents and any
other Person affiliated with or representing Lender (the "Released Parties")
from any and all liability arising from acts or omissions under or pursuant to
this Agreement, whether based on errors of judgment or mistake of law or fact,
except for those arising from gross negligence or willful misconduct. However,
in no circumstance will any of the Released Parties be liable for lost profits
or other special or consequential damages. Such release is made on the date
hereof and remade upon each request for a Loan or Credit Accommodation by
Borrower. Without limiting the foregoing:
(a) Lender shall not be liable for (i) any shortage or
discrepancy in, damage to, or loss or destruction of, any goods, the sale or
other disposition of which gave rise to an Account; (ii) any error, act,
omission, or delay of any kind occurring in the settlement, failure to settle,
collection or failure to collect any Account; (iii) settling any Account in good
faith for less than the full amount thereof; or (iv) any of Borrower's
obligations under any contract or agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by Borrower, shippers and/or any other Person. Borrower agrees
that any action taken by Lender, if taken in good faith, or any action taken by
an issuer of any Credit Accommodation, under or in connection with any Credit
Accommodation, shall be binding on Borrower and shall not create any resulting
liability to Lender. In furtherance thereof, Lender shall have the full right
and authority to clear and resolve any questions of non-compliance of documents,
to give any instructions as to acceptance or rejection of any documents or
goods, to execute for Borrower's account any and all applications for steamship
or airway guaranties, indemnities or delivery orders, to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto. 6.2.Indemnity. Borrower hereby agrees to indemnify the Released Parties
and hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every nature, character and description, which
the Released Parties may sustain or incur based upon or arising out of any of
the transactions contemplated by this Agreement or the other Loan Documents or
any of the Obligations, including any transactions or occurrences relating to
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the issuance of any Credit Accommodation, the Collateral relating thereto, any
drafts thereunder and any errors or omissions relating thereto (including any
loss or claim due to any action or inaction taken by the issuer of any Credit
Accommodation) (and for this purpose any charges to Lender by any issuer of
Credit Accommodations shall be conclusive as to their appropriateness and may be
charged to the Loan Account), or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Lender relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the willful misconduct of the Released Parties). Notwithstanding any provision
in this Agreement to the contrary, the indemnity agreement set forth in this
Section shall survive any termination of this Agreement.
7. TERM.
7.1. Maturity Date. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement shall initially continue in effect
until the Initial Maturity Date set forth in Section 7 of Schedule A (the
"Initial Term"); provided, that such date shall automatically be extended (the
Initial Maturity Date, as it may be so extended, being referred to as the
"Maturity Date") for successive additional terms of three years each (each a
"Renewal Term"), unless one party gives written notice to the other, not less
than sixty (60) days prior to the Maturity Date, that such party elects not to
extend the Maturity Date. This Agreement and the other Loan Documents and
Lender's security interests in and Liens upon the Collateral, and all
representations, warranties and covenants of Borrower contained herein and
therein, shall remain in full force and effect after the Maturity Date until all
of the monetary Obligations are indefeasibly paid in full.
7.2. Early Termination. Lender's obligation to make Loans and to
provide Credit Accommodations under this Agreement may be terminated prior to
the Maturity Date as follows: (i) by Borrower, effective thirty (30) business
days after written notice of termination is given to Lender or (ii) by Lender at
any time after the occurrence of an Event of Default, without notice, effective
immediately. Notwithstanding the foregoing, no such early termination shall be
effective unless Fields simultaneously terminates the Fields Loan Agreement. If
so terminated by Borrower under this Section 7.2, Borrower shall pay to Lender
(i) an early termination fee (the "Early Termination Fee") in the amount set
forth in Section 6(h) of Schedule A plus (ii) any earned but unpaid Facility
Fee. Such fee shall be due and payable on the effective date of termination and
thereafter shall bear interest at a rate equal to the highest rate applicable to
any of the Obligations. In addition, if Borrower so terminates and repays the
Obligations without having provided Lender with at least thirty (30) days' prior
written notice thereof, an additional amount equal to thirty (30) days of
interest at the applicable Interest Rate(s), based on the average outstanding
amount of the Obligations for the six month period immediately preceding the
date of termination.
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<PAGE>
7.3. Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether or not all or any part of such Obligations are otherwise
then due and payable. Without limiting the generality of the foregoing, if, on
the Maturity Date or on any earlier effective date of termination, there are any
outstanding Credit Accommodations, then on such date Borrower shall provide to
Lender cash collateral in an amount equal to 110% of the Credit Accommodation
Balance to secure all of the Obligations (including estimated attorneys' fees
and other expenses) relating to said Credit Accommodations or such greater
percentage or amount as Lender reasonably deems appropriate, pursuant to a cash
pledge agreement in form and substance satisfactory to Lender.
7.4. Effect of Termination. No termination shall affect or impair any
right or remedy of Lender or relieve Borrower of any of the Obligations until
all of the monetary Obligations have been indefeasibly paid in full. Upon
indefeasible payment and performance in full of all of the monetary Obligations
(or the provision of cash collateral with respect to the Credit Accommodation
Balance as set forth in Section 7.3) and termination of this Agreement, Lender
shall promptly deliver to Borrower termination statements, requests for
reconveyances and such other documents as may be reasonably required to
terminate Lender's security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1. Events of Default. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Lender immediate written notice thereof: (i) if any warranty,
representation, statement, report or certificate made or delivered to Lender by
Borrower or any of Borrower's officers, employees or agents is untrue or
misleading; (ii) if Borrower fails to pay when due any principal or interest on
any Loan or any other monetary Obligation; (iii) if Borrower breaches any
covenant or obligation contained in this Agreement or any other Loan Document or
fails to perform any other non-monetary Obligation; (iv) if any levy,
assessment, attachment, seizure, lien or encumbrance (other than a Permitted
Lien) is made or permitted to exist on all or any part of the Collateral; (v) if
one or more judgments aggregating in excess of $25,000, or any injunction or
attachment, is obtained against Borrower or any Obligor or which remains
unstayed for more than ten (10) days or is enforced; (vi) the occurrence of any
default under any financing agreement, security agreement or other agreement,
instrument or document executed and delivered by (A) Borrower with, or in favor
of, any Person other than Lender or (B) Borrower or any Affiliate of Borrower
with, or in favor of, Lender or any Affiliate of Lender; (vii) the dissolution,
death, termination of existence in good standing, insolvency or business failure
or suspension or cessation of business as usual of Borrower or any Obligor (or
of any general partner of Borrower or any Obligor if it is a partnership) or the
appointment of a receiver, trustee or custodian for all or any part of the
property of, or an assignment for the benefit of creditors by Borrower or any
Obligor, or the commencement of any proceeding by Borrower or any Obligor under
19
<PAGE>
any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if Borrower makes or sends a notice of a bulk transfer or
calls a meeting of its creditors; (viii) the commencement of any proceeding
against Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; (ix) the actual or
attempted revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations or any security document by any Obligor;
(x) if Borrower makes any payment on account of any indebtedness or obligation
which has been subordinated to the Obligations other than as permitted in the
applicable subordination agreement, or if any Person who has subordinated such
indebtedness or obligations attempts to limit or terminate its subordination
agreement; (xi) if there is any actual or threatened indictment of Borrower or
any Obligor under any criminal statute or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any Obligor,
pursuant to which the potential penalties or remedies sought or available
include forfeiture of any property of Borrower or such Obligor; (xii) if there
is a change in the record or beneficial ownership of an aggregate of more than
20% of the outstanding shares of stock of Borrower (or partnership or membership
interests if it is a partnership or limited liability company), in one or more
transactions, compared to the ownership of outstanding shares of stock (or
partnership or membership interests) of Borrower as of the date hereof, without
the prior written consent of Lender; (xiii) if there is any change in the chief
executive officer, chairman or chief financial officer of Borrower; (xiv) if an
event of default occurs under the Fields Loan Agreement; or (xv) if Lender
determines in good faith that the Collateral is insufficient to fully secure the
Obligations or that the prospect of payment of performance of the Obligations is
impaired.
8.2. Remedies. Upon the occurrence of any Event of Default, and at any
time thereafter, Lender, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following: (i) cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other Loan Document; (ii) accelerate and
declare all or any part of the Obligations to be immediately due, payable and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any of the Obligations; (iii) take
possession of any or all of the Collateral wherever it may be found, and for
that purpose Borrower hereby authorizes Lender, without judicial process, to
enter onto any of Borrower's premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain (or
cause a custodian to remain) on the premises in exclusive control thereof,
without charge for so long as Lender deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, that if Lender seeks to take possession of any of the
Collateral by court process, Borrower hereby irrevocably waives (A) any bond and
any surety or security relating thereto required by law as an incident to such
possession, (B) any demand for possession prior to the commencement of any suit
or action to recover possession thereof and (C) any requirement that Lender
20
<PAGE>
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (iv) require Borrower to assemble any or all of the
Collateral and make it available to Lender at one or more places designated by
Lender which are reasonably convenient to Lender and Borrower, and to remove the
Collateral to such locations as Lender may deem advisable; (v) complete the
processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, Lender shall have
the right to use Borrower's premises, vehicles and other Equipment and all other
property without charge; (vi) sell, lease or otherwise dispose of any of the
Collateral, in its condition at the time Lender obtains possession of it or
after further manufacturing, processing or repair, at one or more public or
private sales, in lots or in bulk, for cash, exchange or other property, or on
credit (a "Sale"), and to adjourn any such Sale from time to time without notice
other than oral announcement at the time scheduled for Sale (and, in connection
therewith, (A) Lender shall have the right to conduct such Sale on Borrower's
premises without charge, for such times as Lender deems reasonable, on Lender's
premises, or elsewhere, and the Collateral need not be located at the place of
Sale; (B) Lender may directly or through any of its Affiliates purchase or lease
any of the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title, physical condition or otherwise at the time of sale);
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value; and (viii)
demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
relating thereto. In addition to the rights and remedies set forth above, Lender
shall have all the other rights and remedies accorded a secured party after
default under the UCC and under all other applicable laws, and under any other
Loan Document, and all of such rights and remedies are cumulative and
non-exclusive. Exercise or partial exercise by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations have been fully paid and performed. If notice of
any sale or other disposition of Collateral is required by law, notice at least
seven (7) days prior to the sale designating the time and place of sale in the
case of a public sale or the time after which any private sale or other
disposition is to be made shall be deemed to be reasonable notice, and Borrower
waives any other notice. If any Collateral is sold or leased by Lender on credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment is collected by Lender.
21
<PAGE>
8.3. Application of Proceeds. Subject to any application required by
law, all proceeds realized as the result of any Sale shall be applied by Lender
to the Obligations in such order as Lender shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; but Borrower shall remain liable to Lender for any deficiency.
If Lender, in its sole discretion, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any Sale, Lender shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Lender of
the cash therefor.
9. GENERAL PROVISIONS.
9.1. Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, by regular first-class mail or certified mail return receipt requested,
addressed to Lender at the address shown in the heading to this Agreement or
Borrower at 2251-A Ward Avenue, Simi Valley, California 93065, or by facsimile
to the facsimile number shown in Section 9(k) of Schedule A, or at any other
address (or to any other facsimile number) designated in writing by one party to
the other party in the manner prescribed in this Section 9.1. All notices shall
be deemed to have been given when received or when delivery is refused by the
recipient.
9.2. Severability. If any provision of this Agreement, or the
application thereof to any party or circumstance, is held to be void or
unenforceable by any court of competent jurisdiction, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.3. Integration. This Agreement and the other Loan Documents
represent the final, entire and complete agreement between Borrower and Lender
and supersede all prior and contemporaneous negotiations, oral representations
and agreements, all of which are merged and integrated into this Agreement.
THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE
PARTIES WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4. Waivers. The failure of Lender at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Documents shall not waive or diminish any right of Lender later to
demand and receive strict compliance therewith. Any waiver of any default shall
not waive or affect any other default, whether prior or subsequent, and whether
or not similar. None of the provisions of this Agreement or any other Loan
Document shall be deemed to have been waived by any act or knowledge of Lender
or its agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
22
<PAGE>
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
9.5. Amendment. The terms and provisions of this Agreement may not
be amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6. Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement and the other Loan
Documents.
9.7. Attorneys Fees and Costs. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents or Borrower or any Obligor; to administer
this Agreement and the other Loan Documents (including the cost of periodic
financing statement, tax lien and other searches conducted by Lender); to
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; to commence, intervene in, or defend any
action or proceeding; to initiate any complaint to be relieved of the automatic
stay in bankruptcy; to file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; to examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; to protect, obtain
possession of, lease, dispose of, or otherwise enforce Lender's security
interests in, the Collateral; and to otherwise represent Lender in any
litigation relating to Borrower. If either Lender or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Lender may be entitled pursuant to this
Section shall immediately become part of the Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
9.8. Benefit of Agreement; Assignability. The provisions of this
Agreement shall be binding upon and inure to the benefit of the respective
successors, assigns, heirs, beneficiaries and representatives of Borrower and
Lender; provided, that Borrower may not assign or transfer any of its rights
under this Agreement without the prior written consent of Lender, and any
prohibited assignment shall be void. No consent by Lender to any assignment
shall release Borrower from its liability for any of the Obligations.
23
<PAGE>
Lender shall have the right to assign all or any of its rights and obligations
under the Loan Documents, and to sell participating interests therein, to one or
more other Persons, and Borrower agrees to execute all agreements, instruments
and documents requested by Lender in connection with each such assignment and
participation.
9.9. Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower or any other Obligor.
9.10. Headings; Construction. Section and subsection headings are used
in this Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
9.11. GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL IS
LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT ANY CLAIM OR
DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL COURTS OF NEW
YORK. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER AND SHALL BE
24
<PAGE>
DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE EXTENT PERMITTED
BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT
OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO
PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH
FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN
ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
9.12. WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL
BY JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
25
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as
of the date set forth in the heading.
Borrower: Lender:
FIELDS AERO MANAGEMENT, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By___________________________________
Its__________________________________ By__________________________________
Its Authorized Signatory
26
<PAGE>
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement
between FIELDS AERO MANAGEMENT, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "Agreement").
1. Loan Limits for
Revolving Loans:
(a) Maximum $10,000,000
Facility Amount:
(b) Advance Rates:
(i) Accounts 80%; provided, that if the Dilution
Advance Percentage exceeds 5%, such advance rate
Rate: will be reduced by the number of full or
partial percentage points of such excess
(ii) Inventory
Advance
Rate(s):
(A) Finished
goods: 50%
(B) Raw
materials: not applicable
(C) Work in
process: not applicable
(c) Accounts At any time of determination, the
Sublimit: Maximum Aero Facility Amount less the
aggregate advances against Inventory
outstanding at such time
(d) Inventory
Sublimit(s):
(i) Overall $4,000,000, minus the portion of the
sublimit Fields Loan Balance at such time that is
on predicated on eligible inventory of Fields
advances
against
Eligible
Inventory
A-1
<PAGE>
(ii) Sublimit not applicable
on
advances
against
finished
goods
(iii) Sublimit
on
advances
against not applicable
raw
materials
(iv) Sublimit
on
advances
against not applicable
work in
process
(e) Credit
Accommodation
Limit: not applicable
(f) Permanent
Reserve Amount: not applicable
(g) Maximum Aero $10,000,000, minus the Fields Loan
Facility Amount Balance at such time
2. Loan Limits for Term
Loan:
(a) Principal not applicable
Amount:
(b) Repayment not applicable
Schedule:
3. Interest Rates:
(a) Revolving Loans: 3.00% per annum in excess of the
Prime Rate
(b) Term Loan: not applicable
4. Minimum Loan not applicable
Amount:
5. Maximum days after
invoice date for Eligible
Accounts: 90
6. Fees:
(a) Closing Fee: not applicable
(b) Facility Fee:
A-2
<PAGE>
(i) Initial not applicable
Term:
(ii) Renewal
Term(s): not applicable
(c) Servicing Fee: not applicable
(d) Unused Line not applicable
Fee:
(e) Minimum
Borrowing Fee: not applicable
(i) Applicable
period: not applicable
(ii) Date not applicable
payable:
(f) Success Fee: not applicable
(g) Warrants: not applicable
(h) Early not applicable
Termination Fee:
(i) Fees for letters of
credit (or
guaranties by not applicable
Lender):
(j) Fees for other
Credit not applicable
Accommodations:
7. Initial Maturity Date: April 18, 2000
8. Financial Covenants:
(a) Capital
Expenditure not applicable
Limitation:
(b) Minimum Net
Worth not applicable
Requirement:
(c) Minimum
Working Capital not applicable
Requirement:
(d) Limitation on Purchase
Money Security Interests: not applicable
(e) Limitation on Equipment
Leases: not applicable
(f) Additional Financial
Covenants: not applicable
9. Borrower Information:
(a) Prior Names of Borrower: ALR Technical Services, Inc.
(b) Prior Trade Names of
Borrower: None
(c) Existing Trade Names of
Borrower: None
(d) Inventory Locations: 341 "A" Street
Fillmore, California 93015
(e) Other Locations: 2251-A Ward Avenue
Simi Valley, California 93065
(f) Litigation: None
(g) Ownership of Borrower: 100% owned by Spares
(h) Subsidiaries (and
ownership thereof): None
(i) Existing Loans: $5,000 principal balance owed by Spares
(j) Existing Indebtedness: $8,000 principal balance owed to Fields
(k) Facsimile Numbers:
Borrower: (805) 583-0825
Lender: (212) 597-1666
10. Description of Real None
Property:
11. Lender's Bank: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
A-3
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as
of the date set forth in the heading to the Agreement.
Borrower: Lender:
FIELDS AERO MANAGEMENT, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By___________________________________
Its__________________________________ By__________________________________
Its Authorized Signatory
A-4
<PAGE>
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security Agreement
between FIELDS AERO MANAGEMENT, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING (the "Agreement"). As used in the
Agreement, the following terms have the following meanings:
"Account" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the obligor on an Account or Chattel Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership, management or
otherwise other than McDonnell Douglas Corporation or any of its affiliates.
"Agreement" and "this Agreement" mean the Loan and Security Agreement
of which this Schedule B is a part and the Schedules thereto.
"Availability" has the meaning set forth in Section 1.1(a)
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.ss.
101 et seq.).
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the Agreement.
"Borrower's Address" has the meaning set forth in the heading to the
Agreement.
"Borrower Guaranty" means the Guaranty of even date herewith executed
by Borrower, pursuant to which Borrower has guaranteed repayment in full of the
Fields Loan Balance.
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"Business Day" means a day other than a Saturday or Sunday or any other
day on which Lender or banks in New York are authorized to close.
"Chattel Paper" has the meaning set forth in the UCC.
"Collateral" means all property and interests in property in or upon
which a security interest or other Lien is granted pursuant to this Agreement or
the other Loan Documents.
"Credit Accommodation" has the meaning set forth in Section 1.1(a).
"Credit Accommodation Balance" means the sum of (i) the aggregate
undrawn face amount of all outstanding Credit Accommodations and (ii) all
interest, fees and costs due or, in Lender's estimation, likely to become due in
connection therewith.
"Default" means any event which with notice or passage of time, or
both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts as a percentage of Borrower's gross sales, calculated on a
ninety (90) day rolling average.
"Document" has the meaning set forth in the UCC.
"Early Termination Fee" has the meaning set forth in Section 7.2.
"Eligible Account" means, at any time of determination, an Account
which satisfies the general criteria set forth below and which is otherwise
acceptable to Lender (provided, that Lender may, in its sole discretion, change
the general criteria for acceptability of Eligible Accounts upon at least
fifteen (15) days' prior notice to Borrower). An Account shall be deemed to meet
the current general criteria if (i) neither the Account Debtor nor any of its
Affiliates is an Affiliate, creditor or supplier of Borrower (provided, that
Accounts deemed to be ineligible solely by reason of this clause (i) because the
Account Debtor is a creditor or supplier of Borrower shall be considered
Eligible Accounts to the extent the amount of such Accounts exceeds the amount
owing by Borrower to such Account Debtor); (ii) it does not remain unpaid more
than the number of days after the original invoice date set forth in Section 5
of Schedule A; (iii) the Account Debtor or its Affiliates are not past due on
other Accounts owing to Borrower comprising more than 50% of all of the Accounts
owing to Borrower by such Account Debtor or its Affiliates; (iv) all Accounts
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owing by the Account Debtor or its Affiliates do not represent more than 25% of
all otherwise Eligible Accounts unless otherwise approved by Lender (provided,
that Accounts which are deemed to be ineligible solely by this clause (iv) shall
be considered Eligible Accounts to the extent of the amount thereof which does
not exceed 20% of all otherwise Eligible Accounts); (v) no covenant,
representation or warranty contained in this Agreement with respect to such
Account (including any of the representations set forth in Section 5.4) has been
breached; (vi) the Account is not subject to any contra relationship,
counterclaim, dispute or set-off; (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States or
Provinces of Canada which have adopted the Personal Property Security Act or a
similar act, unless (A) the sale is fully backed by a letter of credit, guaranty
or acceptance acceptable to Lender in its sole discretion, and if backed by a
letter of credit, such letter of credit has been issued or confirmed by a bank
satisfactory to Lender, is sufficient to cover such Account, and if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of such letter of credit to Lender, or (B) such Account is subject to credit
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender; provided, that an aggregate amount of up to $75,000 of
foreign Accounts in excess of the existing credit insurance limits shall be
deemed to be subject to credit insurance so long as Borrower has applied for
acceptable credit insurance relating to such Accounts or credit insurance in any
amount is already in effect for such Account Debtor; (viii) it is absolutely
owing to Borrower and does not arise from a sale on a bill-and-hold, guarantied
sale, sale-or-return, sale-on-approval, consignment, retainage or any other
repurchase or return basis or consist of progress billings; (ix) Lender shall
have verified the Account in a manner satisfactory to Lender; (x) the Account
Debtor is not the United States of America or any state or political subdivision
(or any department, agency or instrumentality thereof), unless Borrower has
complied with the Assignment of Claims Act of 1940 (31 U.S.C. ss.203 et seq.) or
other applicable similar state or local law in a manner satisfactory to Lender;
(xi) it is at all times subject to Lender's duly perfected, first priority
security interest and to no other Lien that is not a Permitted Lien, and the
goods giving rise to such Account (A) were not, at the time of sale, subject to
any Lien except Permitted Liens and (B) have been delivered to and accepted by
the Account Debtor, or the services giving rise to such Account have been
performed by Borrower and accepted by the Account Debtor; (xii) the Account is
not evidenced by Chattel Paper or an Instrument of any kind and has not been
reduced to judgment; (xiii) the Account Debtor's total indebtedness to Borrower
does not exceed the amount of any credit limit established by Borrower or Lender
and the Account Debtor is otherwise deemed to be creditworthy by Lender
(provided, that Accounts deemed to be ineligible solely by reason of this clause
(xiii) shall be considered Eligible Accounts to the extent the amount of such
Accounts does not exceed the lower of such credit limits); (xiv) there are no
facts or circumstances existing, or which could reasonably be anticipated to
occur, which might result in any adverse change in the Account Debtor's
financial condition or impair or delay the collectibility of all or any portion
of such Account; (xv) Lender has been furnished with all documents and other
information pertaining to such Account which Lender has requested, or which
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Borrower is obligated to deliver to Lender, pursuant to this Agreement; and
(xvi) Borrower has not made an agreement with the Account Debtor to extend the
time of payment thereof beyond the time periods set forth in clause (ii) above.
"Eligible Equipment" means, at any time of determination, Equipment
owned by Borrower which Lender, in its sole discretion, deems to be eligible for
borrowing purposes.
"Eligible Inventory" means, at any time of determination, Inventory
(other than packaging materials and supplies) which satisfies the general
criteria set forth below and which is otherwise acceptable to Lender (provided,
that Lender may, in its sole discretion, change the general criteria for
acceptability of Eligible Inventory upon at least fifteen (15) days' prior
written notice to Borrower). Inventory shall be deemed to meet the current
general criteria if (i) it consists of finished goods; (ii) it is in good, new
and saleable condition; (iii) it is not slow-moving, obsolete, unmerchantable,
returned due to defects or repossessed; (iv) it is not in the possession of a
processor, consignee or bailee, or located on premises leased or subleased to
Borrower, or subject to a mortgage in favor of a Person other than Lender,
unless such processor, consignee, bailee or mortgagee or the lessor or sublessor
of such premises, as the case may be, has executed and delivered all
documentation which Lender shall require to evidence the subordination or other
limitation or extinguishment of such Person's rights with respect to such
Inventory and Lender's right to gain access thereto; (v) it meets all standards
imposed by any governmental agency or authority, and if required to be
registered with the Federal Aviation Administration, it has been so registered;
(vi) it conforms in all respects to any covenants, warranties and
representations set forth in the Agreement; (vii) it is at all times subject to
Lender's duly perfected, first priority security interest and no other Lien
except a Permitted Lien; (viii) it has not been consigned to Borrower; and (ix)
it is situated at an Inventory Location listed in Section 9(d) of Schedule A or
other location of which Lender has been notified as required by Section 5.6.
"Equipment" means all Goods which are used or bought for use primarily
in business (including farming or a profession) or by a Person who is a
non-profit organization or governmental subdivision or agency and which are not
Inventory, farm products or consumer goods, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
all rules, regulations and orders promulgated thereunder.
"Event of Default" has the meaning set forth in Section 8.1.
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"Fields" means Fields Aircraft Spares Incorporated, a California
corporation and an Affiliate of Borrower.
"Fields Loan Agreement" means the Loan and Security Agreement of even
date herewith between Fields and Lender, as it may be amended from time to time.
"Fields Loan Balance" means the outstanding balance of all monetary
obligations (including without limitation the aggregate undrawn face amount of
all outstanding letters of credit, bankers acceptances and other credit
accommodations and all interest, fees and costs due or, in Lender's estimation,
likely to become due in connection therewith) of Fields under the Fields Loan
Agreement.
"GAAP" means generally accepted accounting principles as in effect from
time to time, consistently applied.
"General Intangibles" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of Borrower or any other Person,
inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, internet
addresses, proprietary information, purchase orders, and all insurance policies
and claims (including life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, letters of credit, banker's acceptances and guaranties, computer
programs, discs, tapes and tape files in the possession of Borrower or any other
Person, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemnification and all other intangible
property of every kind and nature.
"Goods" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"Initial Term" has the meaning set forth in Section 7.1.
"Instrument" has the meaning set forth in the UCC.
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"Inventory" means all Goods held for sale or lease or furnished or to
be furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"Investment Property" shall mean all of Borrower's securities, whether
certificated or uncertificated, securities entitlements, securities accounts,
commodity contracts and commodity accounts.
"Lender" has the meaning set forth in the heading to the Agreement.
"Lien" means any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be deemed
to be the owner of any property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"Loan Account" has the meaning set forth in Section 2.4.
"Loan Documents" means the Agreement and all notes, guaranties
(including without limitation the Borrower Guaranty), security agreements,
certificates, landlord's agreements, Lock Box and Blocked Account agreements and
all other agreements, documents and instruments now or hereafter executed or
delivered by Borrower or any Obligor in connection with, or to evidence the
transactions contemplated by, this Agreement.
"Loan Limits" means, collectively, the Availability limits and all
other limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
"Loans" means, collectively, the Revolving Loans and any Term Loan.
"Lock Box" has the meaning set forth in Section 4.1.
"Maturity Date" has the meaning set forth in Section 7.1.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties (including without limitation the Borrower
Guaranty), covenants, duties and indebtedness at any time owing by Borrower
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to Lender, whether evidenced by this Agreement or any note or other instrument
or document, whether arising from an extension of credit, opening of a Credit
Accommodation, guaranty, indemnification or otherwise (including all fees, costs
and other amounts which may be owing to issuers of Credit Accommodations and all
taxes, duties, freight, insurance, costs and other expenses, costs or amounts
payable in connection with Credit Accommodations or the underlying goods),
whether direct or indirect (including those acquired by assignment and any
participation by Lender in Borrower's indebtedness owing to others), whether
absolute or contingent, whether due or to become due, and whether arising before
or after the commencement of a proceeding under the Bankruptcy Code or any
similar statute, including all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, loan fees, Early
Termination Fees, minimum borrowing fees and any other sums chargeable to
Borrower under this Agreement or under any other Loan Document.
"Obligor" means any guarantor, endorser, acceptor, surety or other
person liable on, or with respect to, the Obligations or who is the owner of any
property which is security for the Obligations, other than Borrower.
"Permitted Liens" means: (i) purchase money security interests in
specific items of Equipment in an aggregate amount not to exceed the limit set
forth in Section 8(d) of Schedule A; (ii) leases of specific items of Equipment
in an aggregate amount not to exceed the limit set forth in Section 8(e) of
Schedule A; (iii) Liens for taxes not yet due and payable; (iv) additional Liens
which are fully subordinate to the security interests of Lender and are
consented to in writing by Lender; (v) security interests being terminated
concurrently with the execution of this Agreement; (vi) Liens of materialmen,
mechanics, warehousemen or carriers arising in the ordinary course of business
and securing obligations which are not delinquent; (vii) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (i) or (ii) above; provided,
that any extension, renewal or replacement Lien is limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase; and (viii) Liens in
favor of customs and revenue authorities which secure payment of customs duties
in connection with the importation of goods. Lender will have the right to
require, as a condition to its consent under clause (iv) above, that the holder
of the additional Lien sign an intercreditor agreement in form and substance
satisfactory to Lender, in its sole discretion, acknowledging that the Lien is
subordinate to the security interests of Lender, and agreeing not to take any
action to enforce its subordinate Lien so long as any Obligations remain
outstanding, and that Borrower agree that any uncured default in any obligation
secured by the subordinate Lien shall also constitute an Event of Default under
this Agreement.
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"Person" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as quoted in The
Wall Street Journal as the base rate on corporate loans posted as of such time
by at least 75% of the nation's 30 largest banks (which rate is not necessarily
the lowest rate offered by such banks).
"Real Property" means the real property described in Section 10 of
Schedule A.
"Released Parties" has the meaning set forth in Section 6.1.
"Renewal Term" has the meaning set forth in Section 7.1.
"Reserves" has the meaning set forth in Section 1.2.
"Revolving Loans" has the meaning set forth in Section 1.1(b).
"Sale" has the meaning set forth in Section 8.2.
"Spares" means Fields Aircraft Spares, Inc., a Utah corporation and the
parent of Borrower.
"Subsidiary" means any corporation or other entity of which a Person
owns, directly or indirectly, through one or more intermediaries, more than 50%
of the capital stock or other equity interest at the time of determination.
"Term" means the period commencing on the date of this Agreement and
ending on the Maturity Date.
"Term Loan" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as adopted
and in effect at such time in the State of New York. All accounting terms used
in this Agreement, unless otherwise indicated, shall have the meanings given to
such terms in accordance with GAAP. All other terms contained in this Agreement,
unless otherwise indicated, shall have the meanings provided by the UCC, to the
extent such terms are defined therein. The term "including," whenever used in
this Agreement, shall mean "including but not limited to." The singular form of
any term shall include the plural form, and vice versa, when the context so
requires. References to Sections, subsections and Schedules are to Sections and
subsections of, and Schedules to, this Agreement. All references to agreements
and statutes shall include all amendments thereto and successor statutes in the
case of statutes.
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IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as
of the date set forth in the heading to the Agreement.
Borrower: Lender:
FIELDS AERO MANAGEMENT, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By___________________________________
Its__________________________________ By__________________________________
Its Authorized Signatory
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