<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRST AVIATION SERVICES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3724 06-1419064
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
ONE OMEGA DRIVE
STAMFORD, CONNECTICUT 06907
(203) 359-7733
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
MICHAEL C. CULVER
ONE OMEGA DRIVE
STAMFORD, CONNECTICUT 06907
(203) 359-7733
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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J. JAY HERRON, ESQ. DAVID J. JOHNSON, ESQ.
KAREN CRAIG POLTROCK, ESQ. CHARLES G. KLINK, ESQ.
O'MELVENY & MYERS LLP ANDREWS & KURTH L.L.P.
610 NEWPORT CENTER DRIVE, SUITE 1700 601 SOUTH FIGUEROA STREET, SUITE 4200
NEWPORT BEACH, CALIFORNIA 92660 LOS ANGELES, CALIFORNIA 90017
(714) 760-9600 (213) 896-3100
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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=======================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, par value $0.01 per share............ $53,820,000 $16,310
=======================================================================================================
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(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
FIRST AVIATION SERVICES INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY PART 1 OF FORM S-1
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REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION OR LOCATION
------------------------------------------------ ------------------------------------------
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1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges..................... Prospectus Summary; Risk Factors
4. Use of Proceeds................................. Use of Proceeds
5. Determination of Offering Price................. Risk Factors; Underwriting
6. Dilution........................................ Dilution
7. Selling Security Holders........................ Principal and Selling Stockholder
8. Plan of Distribution............................ Outside Front and Inside Front Cover
Pages; Underwriting
9. Description of Securities to be Registered...... Description of Capital Stock
10. Interests of Named Experts and Counsel.......... *
11. Information with Respect to the Registrant...... Outside Front and Inside Front Cover
Pages; Prospectus Summary; The Company;
The Offering; Summary Historical and Pro
Forma Financial Data; Risk Factors; API
Combs Acquisition; Use of Proceeds;
Dividend Policy; Dilution;
Capitalization; Unaudited Pro Forma
Combined Financial Information; Selected
Financial Information; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Principal Stockholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Underwriting;
Legal Matters; Experts; Additional
Information; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................... *
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- ---------------
* Not Applicable
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1996
PROSPECTUS
3,900,000 SHARES
FIRST AVIATION SERVICES INC.
COMMON STOCK
------------------
All of the 3,900,000 shares of common stock ("Common Stock") offered hereby
(the "Offering") are being sold by First Aviation Services Inc. ("First
Aviation" or the "Company"). Prior to the Offering, there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price of the Common Stock will be between $10.00 and
$12.00 per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.
Application has been made to have the Common Stock approved for quotation
on the Nasdaq National Market under the symbol "FAVS."
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY (2)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Per Share $ $ $
- ------------------------------------------------------------------------------------------------
Total(3) $ $ $
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
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(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses payable by the Company, estimated at
$ .
(3) The minority stockholder of First Aviation (the "Selling Stockholder")
has granted the Underwriters a 30-day option to purchase up to 585,000
additional shares of Common Stock solely to cover over-allotments, if
any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to the
Company and Proceeds to the Selling Stockholder will be $ ,
$ , $ and $ , respectively.
------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that certificates for the shares of Common
Stock offered hereby will be available for delivery on or about ,
1997, at the offices of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
SMITH BARNEY INC. DILLON, READ & CO. INC.
, 1997
<PAGE> 4
[ARTWORK]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information, including "Risk Factors" and
Financial Statements and notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, all references in this Prospectus to the "Company"
are to First Aviation Services Inc. ("First Aviation") and its subsidiaries,
National Airmotive Corporation ("NAC") and Aircraft Parts International Combs,
Inc. ("API Combs"). "Old API" refers to the assets of Aircraft Parts
International, a division of AMR Combs, Inc. ("AMR Combs") to be acquired
concurrent with the closing of the Offering ("API Combs Acquisition"). All
references to "Allison" refer to the Allison Engine Company, a subsidiary of
Rolls Royce USA. The information in this Prospectus (i) reflects a 6.4549 to 1
stock split to be effected as a stock dividend in January 1997, (ii) assumes all
currently outstanding warrants to purchase the Company's Common Stock have been
exercised in full, (iii) gives effect to the API Combs Acquisition, and (iv)
assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
First Aviation is a worldwide leader in providing services to aircraft
operators of some of the most widely used military, commercial, and general
aviation aircraft engines in the world. The Company's operations include repair
and overhaul of gas turbine engines and accessories, remanufacturing of engine
components and accessories and redistribution of new and remanufactured parts.
With the API Combs Acquisition, the Company will be one of the leading suppliers
of aircraft engine and other aircraft parts to the general aviation industry
worldwide. On a pro forma basis, including the API Combs Acquisition, the
Company had net sales of $105.9 million and net income of $4.5 million for the
nine month period ended October 31, 1996, and net sales of $109.2 million and
net income of $2.4 million for the ten month period ended January 31, 1996. See
" -- Summary Historical and Pro Forma Financial Data."
Through NAC, the Company provides repair and overhaul services for several
engine types, including the Allison engines that power the Lockheed Martin C-130
"Hercules" cargo aircraft, the most popular cargo aircraft in the world; the
engines employed on most light helicopters; and industrial turbine engines
primarily used for power cogeneration and gas transmission. The Company has also
established itself as an industry leader in the remanufacturing of serviceable
engine parts and components for use in engine overhauls.
The API Combs Acquisition is an initial step in meeting the Company's goal
of participating in the consolidation of the aviation services industry. The API
Combs Acquisition expands the Company's services by focusing on supplying
aircraft parts to the general aviation market, thereby allowing the Company to
leverage its repair and overhaul and remanufacturing expertise through new
product lines and new customer base and by expanding API Combs' geographic
coverage.
The four principal components of the Company's growth strategy are to: (i)
increase net sales and operating income through the successful marketing of its
products and services to its new customers, cross-selling of its product lines
to new and existing customers and the extension of its product lines; (ii)
capitalize on consolidation trends within the industry by pursuing strategic
acquisitions of companies with a customer base, product line or technology which
complements or expands those of the Company; (iii) increase the amount of
remanufacturing of accessories and engine components that it performs since this
work typically generates higher margins; and (iv) focus on profitable earnings
growth through the implementation of strategic initiatives which include
continued cost management and the addition of significant throughput in its
repair and overhaul services without substantial capital investment.
The Company believes it is positioned to benefit from certain industry
trends that favor independent repair and overhaul and aircraft providers
including:
- Increased outsourcing of repair and overhaul services by engine operators
as engine operators seek to reduce operating costs and turnaround time
- Increasing consolidation among repair and overhaul and parts providers as
engine operators reduce the number of providers used for these services
- Increased emphasis on the traceability of aircraft parts which has, in
turn, increased the required sophistication of information systems used
by parts distributors
- Growing demand for remanufactured parts as engine operators seek to lower
costs of repair and overhaul services
- Increasing aviation activity which, in turn, increases the demand for
repair and overhaul services
- Increased demand by aircraft operators for third parties to manage and
maintain parts inventories so that aircraft operators may reduce their
parts inventory
3
<PAGE> 6
NAC
NAC is a world leader in the types of engines and components it services.
The Company believes that it has developed this leading position in the aircraft
gas turbine engine repair and overhaul market based largely upon the fact that
it has: (i) more than 30 years of experience in the aircraft engine repair and
overhaul market; (ii) superior technical expertise and turnaround time; (iii) a
customer base comprised of more than 300 corporate and government aircraft
operators located in over 45 countries; (iv) extensive experience in the
production of remanufactured components, which deliver performance comparable to
new parts at much lower cost; and (v) a proprietary, state-of-the-art computer
system critical to managing the multitude of simultaneous and sequential tasks
necessary to repair and overhaul engines.
Since the Company's acquisition of NAC in June 1995 and the installation of
new management, NAC has initiated certain changes to its operations to improve
its financial performance. Some of these changes implemented by new management
include:
- Expansion of a foreign and domestic direct sales effort
- Rationalization of its operations under its cost containment program
- Increased efficiency through leveling of production schedules
The first elements of these changes have been implemented and further
efforts are ongoing. The Company believes that the benefits of these changes are
reflected in its improved financial performance during the nine months ended
October 31, 1996, during which overhaul and repair revenues increased 26.6%,
gross profit increased 46.0% and operating income increased 377.0%, to $5.0
million, as compared to the corresponding period in the prior year.
API COMBS
API Combs, a wholly owned subsidiary of First Aviation, was formed to
acquire the assets of Old API. API Combs signed a definitive Asset Purchase
Agreement with AMR Combs on November 25, 1996 to purchase certain assets and
assume certain liabilities for Old API. Based upon the September 30, 1996
balance sheet of Old API, the purchase price of the specific net assets
acquired, as defined in the Asset Purchase Agreement, is estimated to be $9.7
million. The Company will make a cash payment on AMR Combs equal to 90% of the
purchase price for Old API, or $8.8 million, while the remaining 10% of the
purchase price will be satisfied through the issuance to AMR Combs of 9,727
shares of API Combs' Series A Cumulative Convertible Preferred Stock (the "API
Combs Preferred Stock"). The final purchase price is subject to adjustment based
upon the closing balance sheet and the appraisal of the fair value of certain
assets acquired. See "API Combs Acquisition."
With API Combs, the Company will have acquired an aircraft parts
distributor with more than 100 major product lines. Old API's centralized
distribution facility is located in Memphis, Tennessee. Old API provides
aircraft parts and services to more than 3,000 customers per year, including
FBOs, certified repair stations, engine and component overhaulers, fleet
operators, government agencies, air cargo operators, regional air carriers and
major airlines primarily located in North America. Old API's licensed repair
station offers, brake and starter generator overhaul services and is an
authorized hose assembly manufacturing facility.
The Company believes that API Combs is an attractive acquisition because of
a number of characteristics and opportunities the Company believes that API
Combs provides, including:
- An efficient centralized parts distribution system
- Historically high revenue growth
- Opportunities to cross-market NAC's and API's products and services both
domestically and internationally
First Aviation is headquartered at One Omega Drive, Stamford, Connecticut
06907. Its telephone number is 203/359-7733. In March 1997, the Company will
relocate its headquarters to 15 Riverside Avenue, Westport, Connecticut, 06880.
THE OFFERING
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Common Stock offered by the Company............. 3,900,000 shares
Common Stock to be outstanding after the
Offering...................................... 8,750,000 shares
Use of Proceeds................................. To repay indebtedness, to fund the cash portion of
the API Combs Acquisition, to redeem all of the
outstanding shares of Series A Preferred Stock and
for general corporate purposes. See "Use of
Proceeds."
Risk Factors.................................... For a discussion of certain material factors that
should be considered in connection with an
investment in the Common Stock, see "Risk Factors."
Proposed Nasdaq National Market symbol.......... FAVS
</TABLE>
4
<PAGE> 7
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(Amounts in thousands, except per share amounts)
The Company's fiscal year end is January 31. The Company acquired NAC on
June 1, 1995 and, consequently, the Statement of Operations Data for the ten
months ended January 31, 1996 and the nine months ended October 31, 1995 include
two months and four months, respectively, during which NAC was owned and
operated by its former sole shareholder (the "Predecessor"). The Statement of
Operations Data for the fiscal years ended March 27, 1992 through March 31, 1995
cover periods during which NAC was owned and operated by the Predecessor. The
Statement of Operations Data for the twelve months ended January 31, 1996 are
presented to facilitate comparisons with the prior fiscal years and include four
months during which NAC was owned by the Predecessor and eight months by the
Company. The results of Old API are not included in the historical financial
information of the Company presented below. See "Unaudited Pro Forma Combined
Financial Information," "Selected Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and Notes thereto, appearing elsewhere in this
Prospectus.
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TEN MONTHS ENDED JANUARY 31, 1996 NINE MONTHS ENDED OCTOBER 31, 1996
------------------------------------------ -------------------------------------------
PRO FORMA(1) PRO FORMA(1)
HISTORICAL --------------------- HISTORICAL ---------------------
------------------- AS -------------------- AS
COMPANY(2) OLD API ADJUSTMENTS ADJUSTED COMPANY OLD API ADJUSTMENTS ADJUSTED
---------- ------- ----------- -------- ---------- ------- ----------- --------
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STATEMENT OF OPERATIONS
DATA:
Net sales................ $ 79,415 $29,676 $ 99 $109,190 $ 76,776 $29,078 $ 49 $105,903
Cost of sales............ 67,853 24,748 -- 92,601 65,606 24,333 -- 89,939
Gross profit............. 11,562 4,928 99 16,589 11,170 4,745 49 15,964
Selling, general and
administrative
expenses............... 6,509 4,836 495 11,840 6,163 4,258 562 10,983
Income (loss) from
operations............. 5,053 92 (396) 4,749 5,007 487 (513) 4,981
Income (loss) before
extraordinary item..... $ 861 $ (548) $ 2,121 $ 2,434 $ 2,388(3) $ (61) $ 2,143 $ 4,470
Income before
extraordinary item per
common share(4)........ $ 0.26 $ 0.47 $ 0.51
Weighted average number
of shares.............. 9,280(5) 4,844 8,744
</TABLE>
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COMPANY
------------------------------------------------------------------------------------------
TEN MONTHS NINE MONTHS ENDED
FISCAL YEAR ENDED TWELVE MONTHS ENDED
-------------------------------------------- ENDED JANUARY OCTOBER 31,
MARCH 27, APRIL 2, APRIL 1, MARCH 31, JANUARY 31, 31, -----------------
1992 1993 1994 1995 1996(4) 1996(2)(4) 1995(4) 1996
--------- -------- -------- --------- ------------- ---------- ------- -------
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STATEMENT OF OPERATIONS
DATA:
Net sales................ $88,600 $ 97,427 $ 92,513 $83,091 $92,857 $ 79,415 $67,171 $76,776
Cost of sales............ 81,249 86,006 79,315 72,796 81,199 67,853 59,522 65,606
Gross profit............. 7,351 11,421 13,198 10,295 11,658 11,562 7,649 11,170
Selling, general and
administrative
expenses............... 9,528 9,721 8,536 9,362 8,578 6,509 6,600 6,163
Income (loss) from
operations............. (2,177) 1,700 4,662 933 3,080 5,053 1,049 5,007
Income (loss) before
extraordinary item..... (5,620) (3,023)(6) 2,021 (1,291) (1,060) 861 (1,699) 2,388
Net income (loss)(4)..... $(5,620) $ (2,690) $ 2,021 $(1,291) $(1,060) $ 861 $(1,699) $ 1,524
</TABLE>
5
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OCTOBER 31, 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(7)
------- --------------
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BALANCE SHEET DATA:
Working capital............................................................ $38,770 $ 47,500
Total assets............................................................... 59,036 72,002
Current portion of long-term debt.......................................... 1,105 --
Long-term debt, less current portion....................................... 33,643 7,518
API Combs Preferred Stock.................................................. -- 973
Series A Preferred Stock................................................... 1,650 --
Total stockholders' equity................................................. $ 5,710 $ 41,480
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(1) On November 25, 1996, API Combs entered into a definitive agreement to
acquire substantially all of the assets of Old API for cash and API Combs
Preferred Stock. See "API Combs Acquisition," "Use of Proceeds," "Unaudited
Pro Forma Combined Financial Information" and "Business." The pro forma
operating data gives effect to the Offering and the API Combs Acquisition as
if both had occurred as of the first day of the period presented. Such pro
forma financial information is not necessarily indicative of the results of
operations as they may be in the future or as they might have been had the
API Combs Acquisition been effected on the assumed date.
(2) For the two months ended May 31, 1995, the Company reported $10,896 of net
sales with cost of sales of $10,463 and gross profit of $433; selling,
general and administrative expenses were $1,160; and loss from operations
was $727.
(3) Excludes (i) the effect of an extraordinary charge of $864 due to the
write-off of prepaid financing costs and early extinguishment charges
incurred in connection with the early extinguishment of debt and (ii)
dividends of $99 on the Company's outstanding Series A Preferred Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
(4) The financial information presented for the twelve months ended January 31,
1996, the ten months ended January 31, 1996 and the nine months ended
October 31, 1995 include four months, two months and four months,
respectively, during which NAC was owned by the Predecessor, and eight
months, eight months and five months, respectively, during which NAC was
owned by the Company. Due to the change in ownership and equity structure,
income (loss) per share data for these periods cannot be presented
meaningfully.
(5) Includes warrants to purchase 538,750 shares of Common Stock that were
cancelled in June 1996 in connection with the repayment of a portion of the
subordinated debt held by the warrant holder.
(6) Excludes the effect of an extraordinary benefit of $333 due to the
utilization of net operating loss carry forwards.
(7) Gives effect to (i) the sale of shares offered hereby by the Company at an
assumed initial public offering price of $11.00 per share and the
application of the estimated net proceeds therefrom and (ii) the API Combs
Acquisition as if it had occurred as of October 31, 1996. See "API Combs
Acquisition," "Use of Proceeds" and "Unaudited Pro Forma Combined Financial
Information."
6
<PAGE> 9
RISK FACTORS
Investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information contained in this
Prospectus, prospective investors should consider carefully the following
factors in evaluating the Company and its business before purchasing any Common
Stock offered hereby.
RELIANCE ON ALLISON ENGINE COMPANY, A SUBSIDIARY OF ROLLS ROYCE U.S.A.
NAC principally services gas turbine engines manufactured by Allison and
derived more than 92% of its revenues from the repair and overhaul of Allison
engines and Allison part sales in each of the last five years. NAC is an Allison
Authorized Maintenance Center ("AMC") and pursuant to the three Authorized
Maintenance Center Agreements (the "AMC Agreements") with Allison, NAC is
authorized to purchase parts from Allison and service designated Allison Model
501 flight engines, Model 250 engines and Model 501/570/571-K industrial
engines. Allison has announced that it will cease the production of new Model
501 flight engines at the end of 1996. The Company has had contracts or AMC
Agreements with Allison since 1970. The AMC Agreements with Allison each expire
by their terms on December 31, 1997, except that the 570/571 AMC Agreement
expires December 31, 1998. The AMC Agreements, other than the 570/571 agreement,
provide that qualifying AMCs will be permitted to renew the agreements for an
additional three year period. Renewal of the 570/571 agreement is subject to
Allison's sole unilateral decision. The Company has no reason to believe that
the current agreements with Allison will not be renewed or extended. The failure
of Allison to renew or extend the AMC Agreements would, however, have a material
adverse effect on the Company's business, financial condition and results of
operations. See "-- Substantial Competition" and "Business -- Relationship with
Allison."
NAC has from time to time, including during 1995 and 1996, experienced
difficulty in obtaining certain parts from Allison because of parts shortages
and inventory fluctuations at Allison. The shortage or unavailability of Allison
parts can and has from time to time caused delays in the timely completion of
repair and overhaul production schedules. Such delays may adversely affect the
Company's relationship with its customers and could adversely affect the
Company's commitments to customers and its work-in-process inventory levels. An
inability to maintain timely access to Allison parts and components on
commercially reasonable terms would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Relationship with Allison."
RELIANCE ON OTHER SUPPLIERS
NAC services certain McDonnell Douglas helicopter components and recently
commenced the servicing of Pratt & Whitney Canada PT6 engines. In addition, the
Company may commence the servicing of other gas turbine engines in the future.
Although the Company has an agreement with McDonnell Douglas, it does not have
an agreement with Pratt & Whitney Canada and is dependent on such parties for
parts required to work on their respective parts and engines. The Company,
through API Combs, purchases aircraft parts for resale from a wide range of
manufacturers. An inability to maintain timely access to parts for resale and to
parts and components on any such other engines serviced by the Company could
have a material adverse effect on the Company's business, financial condition,
and results of operations. API Combs' single largest supplier is The New Piper
Aircraft Company ("Piper"). The sale of new Piper parts accounted for
approximately 7.0% and 17.0% of API Combs' revenues in 1995, and the first nine
months of 1996, respectively. API Combs maintains an inventory of Piper parts
equivalent to approximately two month's sales. Upon the completion of the API
Combs Acquisition, API Combs will distribute Piper parts under the existing
distribution agreement between Piper and AMR Combs. AMR Combs is not obligated
to maintain or renew its Piper distribution agreement and there is no assurance
that, in the event that the agreement between Piper and AMR Combs is terminated
or not renewed for any reason, API Combs would be able to obtain a distribution
agreement from Piper. The loss of the Piper distributorship or a decline in the
availability of Piper parts would have a material adverse effect on the
Company's business, financial condition and results of operation.
7
<PAGE> 10
GROWTH STRATEGY AND RISKS RELATING TO FUTURE ACQUISITIONS
A key element of the Company's strategy involves growth through the
acquisition of other independent service and parts providers whose assets or
product lines would complement or expand the Company's existing repair and
overhaul and spare parts businesses. The Company's ability to grow by
acquisition is dependent upon, and may be limited by, the availability of
suitable acquisition candidates and capital resources available to the Company.
In addition, acquisitions involve risks that could adversely affect the
Company's operating results, including the assimilation of the operations and
personnel of acquired companies, the potential amortization of acquired
intangible assets and the potential loss of key employees of acquired companies.
There can be no assurance that the Company will be able to consummate
acquisitions on satisfactory terms or that the Company will be successful in
integrating any such acquisitions, including that of API Combs, into its
operations. The Company evaluates acquisition opportunities from time to time
but no commitments or binding agreements have been entered into to date, except
with respect to API Combs. No assurance can be given that any acquisitions will
be consummated by the Company. See "Business -- Company Strategy."
RISKS REGARDING THE COMPANY'S INVENTORY
The Company's inventory consists principally of new, overhauled,
serviceable and repairable aircraft engine parts and other aircraft parts that
are purchased principally from Allison and from parts resellers and customers.
Before any part may be installed in an aircraft, such part must meet certain
standards of condition established by the U.S. Federal Aviation Administration
("FAA"), the U.S. Department of Defense ("DOD"), or the equivalent regulatory
agencies in other countries whose engines are being serviced by NAC. Specific
regulations vary from country to country, although regulatory requirements in
other countries generally coincide with applicable U.S. requirements. Parts must
also be traceable to sources deemed acceptable by such agencies. Parts owned or
acquired by the Company may not meet applicable standards or standards may
change in the future, causing parts which are already contained in the Company's
inventory to be scrapped or modified. Aircraft engine manufacturers may also
develop new parts to be used in lieu of parts already contained in the Company's
inventory. In all such cases, to the extent that the Company has such parts in
its inventory, their value may be reduced.
CUSTOMER CONCENTRATION
NAC has historically derived approximately 70% of its revenues from the
repair and overhaul of engines. Of the $64.4 million, $59.7 million, and $63.3
million of repair and overhaul revenues generated in fiscal 1995, the ten month
period ended January 31, 1996, and the nine month period ended October 31, 1996,
19.7%, 33.4%, and 15.6%, respectively, were attributable to military contracts
with agencies of the U.S. government, including work performed for foreign
militaries through the U.S. government's military support of its allies through
the Foreign Military Services ("FMS") program. A majority of the U.S. government
revenues in the periods identified above were attributable to a five year FMS
contract for the support of Allison Model 501 engines that expired in October
1995. Work performed by NAC for the U.S government as a percentage of its total
revenues has declined and is expected to decline further in future periods. See
"-- Defense Spending Reductions."
Apart from the U.S. government, NAC's top five customers accounted for
22.2%, 10.3%, and 34.9% of NAC's revenues from the repair and overhaul of
engines during fiscal 1995, the ten month period ended January 31, 1996, and the
nine month period ended October 31, 1996, respectively. The identity and mix of
NAC's customers changes as significant contracts are obtained and fulfilled. The
majority of NAC's revenues are derived from short-term contracts with its
customers.
DEFENSE SPENDING REDUCTIONS
There has been and there continues to be a reduction in defense spending by
the U.S. government. These reductions, including reductions in the DOD's
military support of U.S. allies, may adversely affect demand for the Company's
services. While recent closings of U.S. military aircraft bases and reductions
in miliary personnel have led to decisions by the military to outsource in
certain instances certain engine repairs and
8
<PAGE> 11
overhauls to commercial suppliers, which may increase the number of military gas
turbine engines available to be serviced by independent contractors such as the
Company, there can be no assurance that such outsourcing will take place or that
the Company will be successful in obtaining any such work. Moreover, the Company
cannot predict whether reductions in defense and government spending in general
will adversely affect the Company's results of operations in the future.
SUBSTANTIAL COMPETITION
Engine Repair and Overhaul. The Company is subject to substantial
competition in providing engine repair and overhaul services on the engine lines
that it currently services from other Allison AMCs and, with respect to
McDonnell Douglas helicopter components and Pratt & Whitney Canada engines,
numerous other domestic and foreign manufacturers and independent service
centers, many of which competitors have substantially greater capital and other
resources than the Company. In addition to NAC, there are eight other Allison
Model 501 AMCs, twenty-five other Model 250 AMCs and one other Allison Model
570/571 AMC, each of which is unrestricted in geographic territory and each of
which may purchase parts for resale and use in engine repair from Allison on
substantially the same terms as the Company. The Company's agreements with
Allison do not restrict Allison from increasing the number or geographic
location of AMCs authorized by it. In addition, certain foreign competitors have
a monopoly on their country's military contracts for repair and overhaul of
engines such as those serviced by the Company. These monopolies limit the
potential market for the Company's services in these jurisdictions. Neither
Rolls Royce nor Allison is, at present, a significant factor in the repair and
overhaul of Allison gas turbine engines. Rolls Royce has publicly stated that
its future strategy for competing in the aircraft engine business includes
active competition in the aftermarket. In addition, other major aircraft engine
companies, such as General Electric and Pratt & Whitney, are beginning to
compete aggressively in the aftermarket. There can be no assurance that Rolls
Royce, its affiliates, or perhaps another engine manufacturer, all of which have
greater size and financial resources than the Company, will not enter or
substantially increase their presence in the aftermarket in the Company's
product lines.
Allison Engine Parts Sales. Prior to 1994, Allison maintained a more
limited system of authorized distributors of its parts. Under the old system,
independent overhaul centers that were not authorized distributors of Allison
engine parts were required to purchase needed parts from an authorized
distributor, such as the Company. Under the current system, independent overhaul
centers that are AMCs may purchase parts directly from Allison for resale. As a
result, the Company's parts sales of Allison engine parts over-the-counter has
declined. During fiscal 1995, the ten months ended January 31, 1996 and the nine
months ended October 31, 1996, parts sales, excluding parts embodied in overhaul
operations, were $18.0 million, $17.6 million and $11.2 million, respectively.
The Company expects the level of its over-the-counter Allison parts sales to
continue at reduced levels. See "Business -- Relationship with Allison."
Other Parts Sales. API Combs competes with several aviation parts
distributors who, in the aggregate, offer most of the same product lines to the
same customers. Most aviation manufacturers appoint between two and fifteen
distributors. Such appointments are typically contracted on an annual basis, can
be terminated at any time, and, in many cases, are not evidenced by a formal
contract. There is little or no exclusivity given by manufacturers and no
assurance of contract renewals and no assurance that any such contract or
relationship will not be terminated with little or no notice to the Company. The
loss or non-renewal of one or more product lines could have a material adverse
effect on the Company's business, financial condition and results of operations.
GOVERNMENT REGULATION
FAA regulations require that aircraft engines operated commercially in the
United States be serviced by a certified provider such as NAC. NAC is also
required to maintain certifications from foreign governments in order to service
their aircraft engines. Although the Company believes that NAC possesses all
required domestic and foreign governmental certifications, including FAA
certifications entitling it to service all gas turbine aircraft engine lines and
models and aircraft currently serviced by NAC, the revocation or limitation of
its FAA certification would have a material adverse effect on the Company's
operations. The DOD requires
9
<PAGE> 12
that parties servicing aircraft engines and aircraft for branches of the U.S.
armed services comply with applicable government regulations and the DOD
continually reviews operations for compliance with applicable regulations. See
"Business -- Government Regulation" and "-- Legal Proceedings."
In June 1993, NAC entered into an Administrative Settlement Agreement (the
"Settlement Agreement") with the U.S. Air Force as lead agency for the DOD. The
Settlement Agreement arose from an investigation conducted by the U.S.
Department of Justice and DOD concerning the dealings of certain defense
contractors, including NAC, with representatives of the Israeli Air Force. Under
the terms of the Settlement Agreement, NAC pleaded guilty to allegations of
fraud and false claims submissions and paid $3 million in fines and penalties to
the U.S. government and agreed to a higher level of reporting regarding
compliance with NAC's ethics program and an increased level of scrutiny of its
operations by the DOD for three years. Under the Settlement Agreement, the DOD
agreed not to limit NAC's ability to obtain government contracts or subcontracts
on account of NAC's past dealings with the Israeli Air Force. The Settlement
Agreement has expired.
In April 1994, NAC acquired certain assets of Heli-Dyne, Inc.
("Heli-Dyne"). In October 1994, NAC made a formal voluntary disclosure to the
DOD Inspector General concerning apparent impermissible product substitutions
made by employees of Heli-Dyne prior to NAC's acquisition of its assets and very
limited product substitutions made after the acquisition but prior to NAC's
identification of the problem. While the government may assert otherwise, the
Company does not believe it is responsible for the conduct of Heli-Dyne that
occurred prior to the acquisition of its assets. To date, there has not been any
disposition of this matter. See "Business -- Government Regulation" and
"-- Legal Proceedings."
Since 1993, the U.S. government, through the DOD and other agencies, has
questioned other matters concerning the operations of NAC. In 1995 and during
1996, the Office of Special Investigations of the U.S. Air Force has conducted
an investigation concerning NAC's use of government surplus parts without prior
government approval in repairing aircraft engines pursuant to FMS contracts with
the U.S. Air Force from 1987 through 1995 in violation of the FMS contracts. The
Company does not believe that any Company employee knowingly violated the FMS
contracts and the Company believes that the U.S. Air Force knew of NAC's
utilization of surplus parts and in some cases requested that the Company use
certain government surplus parts under the FMS contracts. To date, there has not
been any disposition of this matter. See "Business -- Government Regulation" and
"-- Legal Proceedings."
The U.S. government has considerable discretion regarding compliance with
its rules, regulations and procedures. Although the Company undertakes to comply
with all applicable government rules, regulations and procedures, the U.S.
government and its agencies have substantial latitude in determining whether
their regulations and policies have been upheld. The operations of the Company
have and may continue to come under the close scrutiny of the U.S. government
and its agencies, and U.S. government approvals of the Company's operations and
output may be given or withheld based upon subjective criteria. If any of the
pending matters described above is determined in a manner adverse to the
Company, such determination could have a material adverse impact on the
Company's business, financial condition or results of operations. See
"Business -- Government Regulation" and "-- Legal Proceedings."
ENVIRONMENTAL REGULATION
The Company's business operations and facilities are subject to a number of
federal, state and local environmental laws and regulations including
requirements under the Clean Air Act Amendments of 1990 relating to the
discharge of air pollutants into the environment and the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"). The
Company is currently a named party in an action which alleges, among other
things, violations of CERCLA, and for which contributions for cleanup costs are
sought by third parties. The Company has denied any responsibility in such
action, and the Company believes that its current operations and facilities are
in material compliance with all federal, state and local environmental laws and
regulations. However, no assurance can be given that changes in such laws,
regulations or interpretations thereof or in the nature of the Company's
operations will not require the
10
<PAGE> 13
Company to make significant additional capital expenditures in order to maintain
or effect compliance. See "Business -- Environmental Matters and Proceedings."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Revenues attributable to foreign customers represented approximately 31.6%
and 34.8% of total revenues for the ten month period ended January 31, 1996 and
the nine month period ended October 31, 1996, respectively. The Company's
contracts are all denominated in U.S. dollars and all of such revenues were paid
in U.S. dollars. International sales are subject to inherent risks, including
variations in local economies, fluctuating exchange rates which may tend to make
the Company's services more expensive to foreign customers, greater difficulty
in accounts receivable collection, costs and risks associated with changes in
tariffs and other trade barriers, adverse foreign tax consequences, cultural
differences and burdens of complying with a variety of foreign laws. There is no
assurance that these factors will not have a material adverse impact on the
Company's ability to maintain or increase the level of its international
revenues.
AVIATION INDUSTRY RISKS
A substantial percentage of the Company's revenues and operating income is
derived from services and parts it provides to its customers in the aviation
industry, including the United States and foreign governments and militaries.
Therefore, the Company's business is directly affected by economic factors and
other trends that affect its customers in the aviation industry, including a
possible decrease in outsourcing by aircraft operators or projected market
growth that may not materialize or continue. When such economic and other
factors adversely affect the aviation industry, they tend to reduce the overall
customer demand for the Company's products and services, thereby decreasing the
Company's revenues and operating income. There can be no assurance that economic
and other factors that might affect the aviation industry will not adversely
affect the Company's results of operations. See "Business -- Industry Overview"
and "-- Industry Trends."
PRODUCT LIABILITY RISKS
The Company's business exposes it to possible claims for personal injury,
death or property damage which may result from the failure or malfunction of
engines serviced by the Company or aircraft spare parts sold by the Company. The
Company currently has in force aviation products, premises and hangarkeepers
insurance, which the Company believes provides coverage in amounts and on terms
that are generally consistent with industry practice. The Company also has
insurance coverage for liability in connection with the industrial or marine gas
turbine engines that it services. During the last five years, the Company has
not experienced any material product liability claims related to its products.
However, the Company is subject to a material loss to the extent that a claim is
made against the Company which is not covered in whole or in part by insurance
and for which any third-party indemnification is not possible. In addition,
there can be no assurance that insurance coverages can be maintained in the
future at an acceptable cost.
DEPENDENCE ON KEY PERSONNEL
The continued success of the Company is dependent to a significant degree
upon the services of its executive officers and upon the Company's ability to
attract and retain qualified personnel experienced in the various phases of the
Company's business. Loss of the services of such employees, particularly Michael
Culver, Chief Executive Officer of the Company and API Combs; John F. Risko,
Chief Operating Officer of the Company and Chief Executive Officer of NAC; or
John A. Marsalisi, Chief Financial Officer of the Company and NAC could
adversely affect the operations of the Company. The Company does not maintain
key man life insurance for any of its executive officers or key employees.
RELIANCE ON SKILLED PERSONNEL
From time to time the Company has experienced difficulty in attracting and
retaining skilled personnel to perform some of its repair and overhaul
operations on sophisticated engines and components. The ability of the
11
<PAGE> 14
Company to operate and grow successfully could be jeopardized if the Company is
unable to attract and retain a sufficient number of skilled personnel.
CONCENTRATION OF SHARE OWNERSHIP AND CONTROL OF COMPANY
Approximately 73.3% of the Company's outstanding Common Stock is owned by
FAS Inc. ("FAI"), a subsidiary of First Equity Development, Inc., an aerospace
investment and advisory firm ("First Equity"). Upon consummation of the
Offering, FAI will own in the aggregate approximately 40.6% of the outstanding
Common Stock, and by virtue of such ownership will have effective control over
all matters requiring a vote of stockholders, including the election of
directors. See "Principal Stockholders" and "Description of Capital Stock."
BENEFITS OF OFFERING TO EXISTING STOCKHOLDERS; IMMEDIATE AND SUBSTANTIAL
DILUTION
The existing stockholders of the Company will receive certain benefits from
the sale of the Common Stock offered hereby. The Offering will establish a
public market for the Common Stock and provide increased liquidity to the
existing stockholders for the shares of Common Stock they will own after the
Offering, subject to certain limitations. See "Shares Eligible For Future Sale."
The Company intends to use $1.9 million of the net proceeds from the Offering to
repay the outstanding balance of 15% subordinated debt owed to the Selling
Stockholder, $1.8 million to redeem the outstanding Series A Preferred Stock of
the Company held by FAI, $350,000 to pay a fee to First Equity for assistance
with the Offering and $250,000 to pay a fee to First Equity for assistance
rendered in connection with the API Combs Acquisition. See "Use of Proceeds."
Assuming that the over-allotment option granted to the Underwriters is exercised
in full, the Selling Stockholder will sell 585,000 shares of Common Stock in the
Offering and will receive approximately $6.0 million in net proceeds, based upon
an initial public offering price of $11.00 per share and after deducting the
estimated underwriting discounts and commission, reflecting a net gain of $10.18
per share over the original cost of the shares and an aggregate net gain of
approximately $6.0 million. See "Principal Stockholders." Additionally,
immediately following the Offering, the existing stockholders will have an
average unrealized gain over the original cost of the shares that will continue
to be held by them of $10.10 per share, based upon the assumed initial public
offering price, or an aggregate unrealized gain of approximately $49.0 million.
See "Dilution" and "Principal Stockholders." Purchasers of the Common Stock
offered hereby will incur immediate and substantial dilution of $6.06 in the net
tangible book value per share of Common Stock. See "Dilution."
ANTI-TAKEOVER PROTECTIONS; BLANK CHECK PREFERRED STOCK
The Company's Certificate of Incorporation and Bylaws contain provisions
that may have the effect of discouraging certain transactions involving an
actual or threatened change of control of the Company. See "Description of
Capital Stock -- Certain Provisions of the Certificate and Bylaws" for a
description of these provisions. In addition, the Board of Directors of the
Company has the authority to issue up to 5,000,000 shares of preferred stock in
one or more series and to fix the preferences, rights and limitations of any
such series without stockholder approval. See "Description of Capital
Stock -- Preferred Stock." The ability to issue preferred stock could have the
effect of discouraging unsolicited acquisition proposals or making it more
difficult for a third party to gain control of the Company, or otherwise could
adversely affect the market price of the Common Stock.
OFFERING PRICE DETERMINATION; ABSENCE OF PUBLIC MARKET
Prior to the Offering, there has been no public market for the shares of
Common Stock offered hereby and there can be no assurance that an active trading
market will develop or be sustained subsequent to the Offering. The initial
public offering price of the Common Stock will be determined in negotiations
among the Company, the Selling Stockholder and the representatives of the
Underwriters and may not be indicative of the prices that may prevail in the
public market. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. There can be no assurance that
the market price of the Common Stock will not decline below the initial public
offering price.
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<PAGE> 15
FLUCTUATIONS IN QUARTERLY RESULTS; PRICE VOLATILITY
The Company may experience significant fluctuations in future quarterly
operating results due to a number of factors, including, among others, the
timing and receipt of orders for the repair and overhaul of engines and
fulfillment of such contracts, parts shortages that delay completion of work in
progress, general economic conditions or other factors. These factors or market
conditions in general may cause the market price of the Common Stock to
fluctuate, perhaps substantially. In addition, in recent years, the stock market
has experienced significant price and volume fluctuations. These fluctuations,
which are often unrelated to the operating performances of specific companies,
have had a substantial effect on the market price of stocks, particularly for
many lower capitalization companies. Factors such as those cited above, as well
as other factors may be unrelated to the operating performance of the Company,
and may adversely affect the price of the Common Stock.
ABSENCE OF DIVIDENDS
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. Except with respect to the dividends on the
preferred stock of API Combs to be issued in connection with the API Combs
Acquisition, the Company intends to retain profits, if any, to fund growth and
expansion. The terms of NAC's bank credit facility currently prohibit its
payment of cash dividends except with the lender's consent. See "Dividend
Policy" and "Description of Capital Stock."
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<PAGE> 16
API COMBS ACQUISITION
API Combs was formed to acquire the assets of Old API. API Combs signed a
definitive Asset Purchase Agreement with AMR Combs on November 25, 1996 to
purchase certain assets and assume certain liabilities of Old API. The closing
of the acquisition will occur concurrent with the closing of the Offering.
The purchase price for the assets of Old API is the net value of the assets
to be acquired subject to adjustment to reflect changes therein as of the date
of closing. Ninety percent of the purchase price is payable to AMR Combs in
cash, and 10% by means of the issuance to AMR Combs of API Combs Preferred Stock
at a face value of $100 per share. The shares of API Combs Preferred Stock will
be entitled to an annual dividend of $4.00 per share, payable quarterly.
If the API Combs Acquisition had occurred as of September 30, 1996, based
upon Old API's net asset value as of that date, the purchase price would have
been $9.7 million, of which $8.8 million would have been payable in cash and the
balance by the issuance of 9,727 shares of API Combs Preferred Stock. The actual
purchase price will be determined within 90 days after the consummation of the
API Combs Acquisition, and may be more or less than the amount set forth above.
In connection with the API Combs Acquisition, First Aviation, API Combs and
AMR Combs will enter into a Stockholders Agreement. Pursuant to the Stockholders
Agreement, AMR Combs will agree that it will not sell the shares of API Combs
Preferred Stock received by AMR Combs or the shares of API Combs common stock
into which such shares are convertible (collectively the "API Combs Acquisition
Shares") for a minimum period of three years. API Combs has the right to redeem
the API Combs Acquisition Shares at any time and AMR Combs has the right to
cause the Company to redeem the API Combs Acquisition Shares commencing three
years after the closing of the API Combs Acquisition. The redemption price is
equal to the fair market value of the API Combs Acquisition Shares as determined
by independent appraisal. The Stockholders Agreement will also contain certain
other rights including: (i) a right of first refusal on the part of First
Aviation with respect to any proposed sale of the API Combs Acquisition Shares;
(ii) the right of First Aviation to require AMR Combs to participate, on a pro
rata basis, with it in the sale of the capital stock of API Combs to a third
party; (iii) the right of AMR Combs to elect to participate, on a pro rata
basis, in the sale of the capital stock of API Combs to a third party; and (iv)
piggyback and demand registration rights granted to AMR Combs with respect to
the API Combs Acquisition Shares. The demand registration rights are not
exercisable until three years after the closing of the API Combs Acquisition,
and, if API Combs has not previously closed an underwritten public offering of
its common stock at the time AMR Combs elects to exercise its demand
registration rights, API Combs may elect to treat the demand as an exercise by
AMR Combs of its put option with respect to the API Combs Acquisition Shares.
There are no plans to cause API Combs to conduct a public offering of its
securities.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,900,000 shares of Common
Stock offered hereby, assuming an offering price of $11.00 per share (the
midpoint of the estimated initial public offering price range), are estimated to
be $37.9 million, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, including a $350,000 fee
payable to First Equity for assistance rendered in connection with the Offering
and a $250,000 fee payable to First Equity for assistance rendered in connection
with the API Combs Acquisition. See "Certain Transactions." Concurrently with
the closing of the Offering, the Selling Stockholder will be exercising warrants
for 1,293,000 shares of common stock at a price of $0.05 per share.
The Company intends to use $8.8 million (subject to adjustment) of the net
proceeds to acquire Old API, $1.9 million to repay the outstanding balance of
15% subordinated debenture owed to the Selling Stockholder, Canpartners
Investments IV, LLC ("Canpartners"), $2.8 million to repay term debt outstanding
under NAC's credit facility and approximately $1.8 million to redeem the
Company's outstanding Series A Preferred Stock held by FAI. See "API Combs
Acquisition" and "Certain Transactions." Approximately $22.6 million will be
used to reduce the outstanding balance under NAC's credit facility. The total
balance
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<PAGE> 17
outstanding under the credit facility was $32.9 million as of October 31, 1996.
Advances under the revolving portion of the credit facility bear interest at the
LIBOR rate plus 3.0% and on the term debt portion of the credit facility bear
interest at the LIBOR rate plus 3.5% and 4.5%, and have been used primarily to
finance inventory purchases and accounts receivable.
The Company intends to use any remaining net proceeds for working capital
and general corporate purposes, including the possible investment in or
strategic acquisition of other complementary businesses. Although the Company is
continually evaluating potential acquisitions, the Company currently has no
agreements, understandings or commitments with respect to any acquisition other
than Old API, nor is the Company engaged in negotiations with respect to any
acquisition.
Proceeds not immediately required for the purposes described above will be
invested principally in U.S. Government securities, short term certificates of
deposit, money market funds or other short term, interest bearing securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends or distributions on
its Common Stock since its inception. The Company anticipates that, for the
foreseeable future, all earnings will be retained for use in the Company's
business and no cash dividends will be paid on the Common Stock. Any payment of
cash dividends in the future on the Common Stock will be dependent upon the
Company's financial condition, results of operations, current and anticipated
cash requirements, plans for expansions, the ability of its subsidiaries to pay
dividends or otherwise make cash payments or advances to it and restrictions, if
any, under any future debt obligations, as well as other factors that the Board
of Directors deems relevant. NAC's credit facility prohibits the payment of cash
dividends by it except with the lender's consent.
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<PAGE> 18
DILUTION
The difference between the public offering price per share of Common Stock
and the net tangible book value per share of the Company after the Offering
constitutes the dilution to investors in the Offering. Net tangible book value
per share is determined by dividing the net tangible book value of the Company
(tangible assets less total liabilities) by the applicable number of shares of
Common Stock.
At October 31, 1996, the net tangible book value of the Company was
$5,350,000, or $1.10 per share of Common Stock. After giving effect to the sale
by the Company of the 3,900,000 shares of Common Stock offered by the Company in
the Offering (less underwriting discounts and commissions and estimated expenses
of the Offering) at an assumed initial public offering price per share of $11.00
(the midpoint of the estimated initial public offering price range), the net
tangible book value of the Company at October 31, 1996, as adjusted for the
Offering, would have been $43,247,000 or $4.94 per share, representing an
immediate increase in net tangible book value of $3.84 per share to existing
stockholders and an immediate dilution of $6.06 per share to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Public offering price............................................... $11.00
Net tangible book value before the Offering....................... $1.10(1)
Increase in net tangible book value attributable to new
investors...................................................... 3.84
-----
Pro forma net tangible book value after the Offering.............. $ 4.94
-----
Dilution to new investors........................................... $ 6.06
=====
</TABLE>
- ---------------
(1) Computed by reducing total assets of $59,036,000 at October 31, 1996 by
$360,000 (the amount of intangible assets), and subtracting total
liabilities of $53,326,000 and then dividing by 4,850,000 (the number of
shares outstanding immediately prior to the Offering).
The following table sets forth, with respect to existing stockholders and
new investors, a comparison of the number of shares of Common Stock acquired
from the Company, the percentage ownership of such shares, the total
consideration paid, the percentage of total consideration paid and the average
price per share. The calculations are based on an assumed initial public
offering price of $11.00 per share.
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 4,850,000 55.4% $ 621,000 1.4 % $ 0.13
New investors...................... 3,900,000 44.6% 42,900,000 98.6 % $ 11.00
--------- ----- ----------- -----
Total.................... 8,750,000 100.0% $43,521,000 100.0%
========= ===== =========== =====
</TABLE>
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<PAGE> 19
CAPITALIZATION
The following table sets forth, as of October 31, 1996: (i) the actual
capitalization of the Company as of such date; and (ii) the capitalization of
the Company on a pro forma as adjusted basis, giving effect to (a) the API Combs
Acquisition and (b) the sale by the Company of 3,900,000 shares of Common Stock
in the Offering at an assumed offering price of $11.00 per share (the midpoint
of the estimated initial public offering price range) and the application of the
net proceeds therefrom, including the redemption of all of the Company's
outstanding Series A Preferred Stock, as if both occurred on October 31, 1996.
See "Use of Proceeds." This table should be read in conjunction with information
contained under the caption "Unaudited Pro Forma Combined Financial Information"
and the Financial Statements and the Notes thereto of each of the Company and
API Combs included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1996
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current portion of long-term debt................................ $ 1,105 $ --
Long-term debt, less current portion............................. 33,643 7,518
API Combs Preferred Stock........................................ -- 973
Stockholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized;
33,000 shares issued and outstanding actual; none
outstanding, pro forma as adjusted.......................... 1,650 --
Common Stock, $0.01 par value; 25,000,000 shares authorized,
4,850,000 shares issued and outstanding actual; 8,750,000
shares issued and outstanding, pro forma as adjusted........ 36 88
Additional paid-in capital....................................... 625 38,540
Retained earnings................................................ 3,399 2,852
------- -------
Total stockholders' equity..................................... 5,710 41,480
------- -------
Total capitalization........................................ $40,458 $49,971
======= =======
</TABLE>
17
<PAGE> 20
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following sets forth the Company's Unaudited Pro Forma Combined Income
Statement for the ten months ended January 31, 1996, and the nine months ended
October 31, 1996, and the Company's Unaudited Pro Forma Combined Balance Sheet
at October 31, 1996, in each case giving effect to both (i) the API Combs
Acquisition using the "purchase" method of accounting and (ii) the Offering and
the application of the net proceeds therefrom assuming an initial public
offering price of $11.00 per share (the midpoint of the estimated initial public
offering price range). The Company's Unaudited Pro Forma Combined Income
Statements present the API Combs Acquisition and the Offering, in each case, as
if each had been consummated at the beginning of the periods presented. The
Company's Unaudited Pro Forma Combined Balance Sheet presents the API Combs
Acquisition and the Offering, in each case, as if each had been consummated on
October 31, 1996. The Unaudited Pro Forma Combined Financial Information of the
Company is presented for illustrative purposes only, and does not purport to
present the financial position or results of operations of the Company had the
API Combs Acquisition and the Offering occurred on the dates indicated, nor are
they necessarily indicative of the results of operations which may be expected
to occur in the future.
The results of Old API are not included in the historical financial
information of the Company presented below. The pro forma adjustments relating
to allocation of purchase price of API Combs represent the Company's preliminary
determinations of the purchase accounting and other adjustments and are based
upon available information and certain assumptions the Company considers
reasonable under the circumstances. Final amounts could differ from those set
forth therein.
The following unaudited pro forma combined financial information should be
read in connection with the more detailed information, including the Financial
Statements and Notes thereto, included elsewhere in this Prospectus.
18
<PAGE> 21
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
TEN MONTHS ENDED JANUARY 31, 1996
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
ACQUISITION
HISTORICAL AND
---------------------- OFFERING AS
COMPANY OLD API(1) ADJUSTMENTS ADJUSTED
------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales................................... $79,415 $ 29,676 $ 99(2a) $ 109,190
Cost of sales............................... 67,853 24,748 -- 92,601
------- ------- ------- --------
Gross profit................................ 11,562 4,928 99 16,589
Selling, general and administrative
expenses.................................. 6,509 4,836 495(2b) 11,840
------- ------- ------- --------
Income from operations...................... 5,053 92 (396) 4,749
------- ------- ------- --------
Other (income) expense:
Interest expense.......................... 2,892 643 (2,840)(2c) 695
Other..................................... -- (3) -- (3)
------- ------- ------- --------
Total other (income) expense......... 2,892 640 (2,840) 692
------- ------- ------- --------
Income (loss) before provision for income
taxes..................................... 2,161 (548) 2,444 4,057
Income tax expense.......................... 1,300 -- 323(2d) 1,623
------- ------- ------- --------
Income (loss) before extraordinary item..... $ 861 $ (548) $ 2,121 $ 2,434
======= ======= ======= ========
Income per share............................ $ 0.26
========
Shares used in computation of net income per
share..................................... 9,280
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
19
<PAGE> 22
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
NINE MONTHS ENDED OCTOBER 31, 1996
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------
ACQUISITION
HISTORICAL AND
---------------------- OFFERING
COMPANY OLD API(1) ADJUSTMENTS AS ADJUSTED
------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................................ $76,776 $ 29,078 $ 49(2a) $ 105,903
Cost of sales............................ 65,606 24,333 -- 89,939
------- ------- ------- --------
Gross profit............................. 11,170 4,745 49 15,964
Selling, general and administrative
expenses............................... 6,163 4,258 562(2b) 10,983
------- ------- ------- --------
Income from operations................... 5,007 487 (513) 4,981
------- ------- ------- --------
Other expense:
Interest expense....................... 2,619 548 (2,656)(2c) 511
Other.................................. -- -- -- --
------- ------- ------- --------
Total other expense............ 2,619 548 (2,656) 511
------- ------- ------- --------
Income (loss) before provision for income
taxes.................................. 2,388 (61) 2,143 4,470
Income tax expense....................... -- -- -- --
------- ------- ------- --------
Income (loss) before extraordinary
item................................... $ 2,388 $ (61) $ 2,143 $ 4,470
======= ======= ======= ========
Income per share......................... $ 0.51
========
Shares used in computation of net income
per share.............................. 8,744
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
20
<PAGE> 23
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
BALANCE SHEET
OCTOBER 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
ACQUISITION
HISTORICAL AND
----------------------- OFFERING
COMPANY OLD API(1) ADJUSTMENTS AS ADJUSTED
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ -- $ 3,699 $ (3,553)(3a) $ 146
Restricted cash.......................... 544 -- -- 544
Trade and other receivables, net......... 17,937 6,676 -- 24,613
Inventories.............................. 34,645 4,273 (300)(3b) 38,618
Deferred income taxes.................... 1,036 -- -- 1,036
Prepaid expenses and other............... 1,763 418 (135)(3c) 2,046
------- ------- -------- -------
Total current assets............. 55,925 15,066 (3,988) 67,003
Other assets............................. 282 -- (225)(3c) 57
Plant and equipment, net................. 2,829 653 75(3b) 3,557
Excess of cost over net assets
acquired.............................. -- -- 1,385(3b) 1,385
------- ------- -------- -------
Total assets..................... $ 59,036 $ 15,719 $ (2,753) $72,002
======= ======= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 11,729 $ 2,592 $ -- $14,321
Accrued liabilities...................... 4,321 448 413(3b) 5,182
Due to affiliates........................ -- 14,340 (14,340)(3d) --
Current portion of long-term debt........ 1,105 -- (1,105)(3e) --
------- ------- -------- -------
Total current liabilities........ 17,155 17,380 (15,032) 19,503
------- ------- -------- -------
Long-term debt less current portion........ 33,643 -- (26,125)(3e) 7,518
Other long-term liabilities................ 2,528 -- -- 2,528
API Combs Preferred Stock.................. -- -- 973(3f) 973
------- ------- -------- -------
Total liabilities................ 53,326 17,380 (40,184) 29,549
AMR Combs' net investment in Old API....... -- (1,661) 1,661(3g) --
Stockholders' equity:
Preferred stock.......................... 1,650 -- (1,650)(3f) --
Common stock............................. 36 -- 52(3f) 88
Additional paid-in capital............... 625 -- 37,915(3f) 38,540
Retained earnings (deficit).............. 3,399 -- (547)(3h) 2,852
------- ------- -------- -------
Total stockholders' equity....... 5,710 -- 35,770 41,480
------- ------- -------- -------
Total liabilities and
stockholders' equity........... $ 59,036 $ 15,719 $ (2,753) $72,002
======= ======= ======== =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information.
21
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(Amounts in thousands, except per share data)
1. The pro forma periods for the ten months ended January 31, 1996 and for
the nine months ended October 31, 1996 are the Company's historical financial
reporting periods. For the pro forma period ended January 31, 1996, Old API has
been included for the twelve months ended December 31, 1995 because as a
division of AMR Combs it had historically reported on a calendar year end.
Historical financial information of Old API for the nine months ended September
30, 1996 is included in the pro forma financial information for the nine months
ended October 31, 1996. The Company believes the effect of the difference in
these reporting periods is not significant and it is not reflected in the
Unaudited Pro Forma Combined Financial Information. The final purchase price of
the assets to be acquired in the API Combs Acquisition will be determined based
upon the balance sheet at the date of closing. Based upon Old API's September
30, 1996 balance sheet, the purchase price would be $9,727 and the allocation
would be:
<TABLE>
<S> <C>
Current assets..................................................... $11,078
Plant and equipment................................................ 728
Excess of purchase price over net assets acquired.................. 1,385
Accounts payable and accrued expenses.............................. (3,464)
-------
Total purchase price..................................... $ 9,727
=======
</TABLE>
Total cash consideration paid by the Company will be 90% of the total
purchase price or $8,754. The remaining 10% of the purchase price will be
reflected by the Company as a minority interest in the form of API Combs
Preferred Stock issued to AMR Combs. The foregoing purchase price and
allocations are based on the September 30, 1996 Old API balance sheet and
preliminary estimates of fair value. The final purchase price determination and
amount of preferred stock to be issued and cash to be paid are contingent upon
final assessment or appraisal of the fair value of certain assets to be
acquired.
2. The Company's pro forma income statement adjustments for the ten months
ended January 31, 1996 and the nine months ended October 31, 1996 present the
effects on the historical combined financial statements of the API Combs
Acquisition, the Offering and the application of the net proceeds therefrom, in
each case as if they occurred as of the beginning of such periods, including:
(a) To reflect sales made by Old API to an affiliated company at
intercompany prices that management believes were not reflective
of third party sales. The adjustments are calculated to reflect
the difference between such intercompany sales and the gross
margin stipulated in the Asset Purchase Agreement for such sales
during the periods reflected.
(b) To exclude certain amounts, aggregating $381 and $228, from
selling, general and administrative expenses for the ten months
ended January 31, 1996 and the nine months ended October 31, 1996,
respectively, relating to expenses incurred prior to the
acquisition which are neither recurring nor indicative of future
operations. In addition, adjustments also include certain amounts,
aggregating $838 and $755 for the ten months ended January 31,
1996 and the nine months ended October 31, 1996, respectively, for
selling, general and administrative expenses which would have been
incurred by Old API on a stand alone basis and to record
amortization of $38 and $35 for the ten months ended January 31,
1996 and the nine months ended October 31, 1996, respectively,
calculated on a straight line basis over thirty years of the
$1,385 excess of cost over net assets acquired in the API Combs
Acquisition.
(c) To record the reduction in interest expense totalling $2,840 and
$2,656 for the periods ended January 31, 1996 and October 31, 1996,
respectively, reflecting the application of the net proceeds from
the Offering, consisting of: (i) $128 and $160, respectively,
related to the repayment of $2,800 of the Company's term debt; (ii)
$335 and $315, respectively, related to the repayment of $1,845 of
subordinated debt; (iii) $1,740 and $1,634, respectively, related to
the repayment of $22,585 of NAC's credit facility; and (iv) $637 and
$547, respectively, related to interest paid by Old API to AMR
Combs.
22
<PAGE> 25
(d) To record the income tax provision arising from the pro forma
adjustments discussed above based on the Company's estimated
effective tax rate of 40% for the ten months ended January 31,
1996.
3. For purposes of preparing the Unaudited Pro Forma Combined Balance
Sheet, Old API's assets and liabilities acquired or assumed have been recorded
at their estimated fair values. A final determination of the required purchase
price accounting adjustments and of the fair value of the assets acquired or
assumed has not yet been finalized. Accordingly, the purchase accounting
adjustments made in connection with the development of the unaudited pro forma
financial information reflects the Company's best estimate based upon currently
available information.
(a) Adjustments reflect: (i) net cash proceeds generated from the sale
of 3,900,000 shares at $11.00 per share, net of expenses and
underwriting discounts and commissions of approximately $5,003;
(ii) cash generated from the exercise of warrants for 1,293,000
shares of Common Stock at $0.05 per share; (iii) the repayment of
$2,800 of term debt, the repayment of $1,845 of subordinated debt,
and the pay down of $22,585 of NAC's credit facility; (iv) the
redemption by the Company of the Series A Preferred Stock held by
FAI, face value $1,650 plus accrued dividends thereon of $187; (v)
the $8,800 cash consideration for the API Combs Acquisition; and
(vi) cash not contractually acquired in the API Combs Acquisition.
(b) The historical financial position of Old API has been adjusted to
include: (i) the write-up of fixed assets of $75 to estimated fair
value; (ii) $1,385 relating to the excess of cost over net assets
acquired; (iii) $300 relating to the write-down of inventory; and
the increase in accrued liabilities to record costs related to the
acquisition.
(c) Adjustment reflects the write-off of deferred financing costs for
debt which has been repaid.
(d) Reflects liabilities not contractually assumed in the API Combs
Acquisition.
(e) Adjustments to long-term debt reflect: (i) the repayment of the
Company's term debt by $2,800; (ii) the repayment of the Company's
subordinated debt by $1,845; and (iii) the pay down of NAC's
credit facility by $22,585.
(f) Adjustments reflect: (i) the redemption of the Company's Series A
Preferred Stock owned by FAI, face value $1,650; (ii) the issuance
of API Combs Preferred Stock to AMR Combs, which represents 10% of
the purchase price of Old API, resulting in a minority interest of
$973; (iii) the effect of the sale of 3,900,000 shares of Common
Stock at $11.00 per share, net of expenses and underwriting
discounts and commissions of approximately $5,003; and (iv) the
exercise of warrants for 1,293,000 shares of Common Stock at $0.05
per share.
(g) Adjustment to reflect the elimination of $1,661 of AMR Combs
investment in and advances to Old API.
(h) Adjustments to retained earnings reflect (i) the write-off of $360
for deferred financing costs and (ii) the $187 of accumulated
dividends paid to FAI as the holder of the Company's Series A
Preferred Stock.
23
<PAGE> 26
SELECTED FINANCIAL INFORMATION
(Amounts in thousands, except per share amounts)
The selected financial data set forth below should be read in conjunction
with the Financial Statements and related Notes, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information included herein.
The selected financial data of the Company as of and for the ten month
period ended January 31, 1996 has been derived from the consolidated financial
statements of First Aviation, audited by Ernst & Young LLP, independent
accountants. These financial statements and the notes thereto appear elsewhere
in this Prospectus.
The selected financial data of the Company for the nine month periods ended
October 31, 1995 and October 31, 1996 has been derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for the fair presentation of the financial position and results of operations
for those periods. These financial statements and the notes thereto appear
elsewhere in this Prospectus. Results of operations for the nine month period
ended October 31, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending January 31, 1997.
The selected financial data as of and for the years ended March 27, 1992,
April 2, 1993, April 1, 1994 and March 31, 1995 has been derived from the
financial statements of NAC, audited by Price Waterhouse LLP, independent
accountants. The NAC balance sheet as of March 31, 1995 and the related
statements of operations and cash flows for the two years then ended and notes
thereto appear elsewhere in this Prospectus.
The historical data of NAC and the Company are not comparable in all
respects. The results of Old API are not included in the financial information
of the Company presented below.
<TABLE>
<CAPTION>
COMPANY
------------------------------------------------------------------------------------------------
TWELVE TEN
FISCAL YEAR ENDED MONTHS MONTHS NINE MONTHS
---------------------------------------------- ENDED ENDED ENDED OCTOBER 31,
MARCH 27, APRIL 2, APRIL 1, MARCH 31, JANUARY 31, JANUARY 31, -------------------
1992 1993 1994 1995 1996(1) 1996(1)(2) 1995(1) 1996
--------- ----------- -------- --------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $88,600 $97,427 $ 92,513 $83,091 $92,857 $79,415 $67,171 $76,776
Cost of sales................ 81,249 86,006 79,315 72,796 81,199 67,853 59,522 65,606
------- ------- ------- ------- ------- ------- ------- -------
Gross profit................. 7,351 11,421 13,198 10,295 11,658 11,562 7,649 11,170
Selling, general and
administrative expenses.... 9,528 9,721 8,536 9,362 8,578 6,509 6,600 6,163
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................. (2,177) 1,700 4,662 933 3,080 5,053 1,049 5,007
Interest expense............. 2,857 1,390 1,076 1,807 3,249 2,892 2,303 2,619
Other income (expense)....... (1,307) (3,000) (519) (1,302) (801) -- (801) --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes
and extraordinary items.... (6,341) (2,690) 3,067 (2,176) (970) 2,161 (2,055) 2,388
Income tax expense
(benefit).................. (721) 333 1,046 (885) 90 1,300 (356) --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item......... (5,620) (3,023) 2,021 (1,291) 1,060 861 (1,699) 2,388
Extraordinary item........... -- 333(3) -- -- -- -- -- (864)(4)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ $(5,620) $(2,690) $ 2,021 $(1,291) $(1,060) $ 861 $(1,699) $ 1,524
======= ======= ======= ======= ======= ======= ======= =======
Dividend on preferred
stock(5)................... 99
-------
Net income (loss) applicable
to common stockholder...... 1,425
=======
Net income per common share:
Income before extraordinary
item per common share.... $ 0.47
Extraordinary item per
common share............. $ (0.18)(4)
-------
Net income per common
share.................... $ 0.29
=======
Weighted average number of
shares..................... 4,844
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
COMPANY
-------------------------------------------------------------------------
MARCH 27, APRIL 2, APRIL 1, MARCH 31, JANUARY 31, OCTOBER 31,
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................... $43,138 $ 37,739 $ 30,379 $35,560 $31,413 $38,770
Total assets............................. 77,231 69,649 65,059 64,074 60,384 59,036
Current portion of long-term
debt................................... 151 244 289 379 1,970 1,105
Long-term debt, less current portion..... 24,011 21,005 10,963 18,660 27,005 33,643
Other long-term liabilities.............. 1,681 1,322 2,243 2,168 3,601 2,528
Series A Preferred Stock................. -- -- -- -- 1,650 1,650
Total stockholders' equity............... 36,984 34,294 36,315 35,024 4,186 5,710
</TABLE>
- ---------------
(1) The financial information presented for the twelve months ended January 31,
1996, the ten months ended January 31, 1996 and the nine months ended
October 31, 1995 include four months, two months and four months,
respectively, during which NAC was owned by the Predecessor. This
information also includes the eight months, eight months and five months,
respectively, during which NAC was owned by the Company. Due to the change
in ownership and equity structure, income (loss) per share data for these
periods cannot be presented meaningfully.
(2) For the two months ended May 31, 1995, the Company reported $10,896 of net
sales with cost of sales of $10,463 and gross profit of $433. Selling,
general and administrative expenses were $1,160. Loss from operations was
$727. Interest expenses were $287. Pretax loss was $1,014.
(3) Represents an extraordinary benefit of $333 due to the utilization of net
operating loss carry forwards.
(4) Represents an extraordinary charge of $864, or $0.18 per share, due to the
write-off of prepaid financing costs and early extinguishment charges
incurred in connection with the early extinguishment of debt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
(5) The calculation of net income per common share requires the deduction from
net income of cumulative but undeclared preferred stock dividends. Net
income per common share for all periods, except as shown, cannot be
presented meaningfully due to the change in ownership and equity structure.
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Company's Consolidated
Financial Statements, including the Notes thereto, pro forma financial
information and selected financial data of the Company included elsewhere in
this Prospectus. The results of Old API are not included in the financial
information of the Company presented and discussed below.
OVERVIEW
First Aviation was formed in March 1995 to acquire the stock of NAC. The
acquisition of NAC was completed on June 1, 1995 and has been accounted for
under the purchase method of accounting. Net sales for NAC consist of revenues
derived from the overhaul and repair of aircraft engines, engine components and
industrial turbines as well as the sales of parts and components. Net sales are
generally recorded when repaired or overhauled engines and components are
completed, tested and shipped. In the ten month period ended January 31, 1996
and the nine month period ended October 31, 1996, revenues from the servicing,
repair and overhaul of gas turbine engines and original aircraft components
accounted for approximately 74.6% and 82.4% of net sales, respectively, with
revenue from the sale of spare parts accounting for the remaining 25.4% and
17.6%, respectively.
On November 25, 1996, API Combs signed a definitive agreement to acquire
the assets of Old API, a division of AMR Combs, which acquisition will close
concurrently with the closing of the Offering. Old API is an aircraft parts
distributor for more than 100 major product lines of aircraft parts. API
Technologies, Old API's licensed repair station, offers brake, and starter
generator overhaul services and is an authorized hose assembly manufacturing
facility. Net sales for Old API represent the sales of parts and components,
which are recorded when products are shipped.
The API Combs Acquisition is an initial step in meeting the Company's goal
of participating in the consolidation of the aviation services industry. The API
Combs Acquisition expands the Company's services by focusing on supplying
aircraft parts to the general aviation market, thereby allowing the Company to
leverage its repair and overhaul and remanufacturing expertise through new
product lines and a new customer base and by expanding API Combs' geographic
coverages.
Since the acquisition of NAC in June 1995 and the installation of new
senior management NAC has initiated certain changes to its operations to improve
its financial performance. The first elements of these changes, including
expansion of its foreign and domestic direct sales effort, rationalization of
its operations under its cost containment program and increased efficiency
through the leveling of production schedules to increase efficiency, have been
implemented and further efforts are ongoing. The Company believes that the
benefits of these changes are reflected in its improved financial performance
during the nine months ended October 31, 1996 as compared to the comparable
period in the prior fiscal year.
The Company analyzes its profit margins by, among other methods, product
line and, in doing so, excludes certain other costs of good sold, including
inventory obsolescence, warranty and related costs, production variances and
scrap costs. These other costs of good sold are included in determining the
Company's total gross profit. Beginning in 1994, when Allison changed its
authorized distribution agreements, Allison significantly reduced the discounts
off of list price, both for parts for over-the-counter sales and parts embedded
in overlands and repairs. As a result, the Company's profit margins for parts
for a portion of 1995 and 1996 have been adversely impacted. Nonetheless, the
Company's profit margins increased for overhauls and repairs during these
periods.
The Company intends to pursue tax planning and related strategies,
including the formation of a Foreign Sales Corporation through which the Company
will make certain of its export sales. As a result of the anticipated
implementation of these strategies, the Company believes that it can reduce its
effective tax rate from statutory levels. No assurance can be given that the
Company's tax planning strategies will be successful.
The Company's fiscal year ends January 31. Prior to its acquisition, NAC's
fiscal year ended on the Saturday closest to March 31.
26
<PAGE> 29
RESULTS OF OPERATIONS-FIRST AVIATION
The following table sets forth, for the periods indicated, the percentages
of the Company's net sales that certain income and expense items represent. The
results of Old API are not included in the financial information presented and
discussed below. For information relating to the results of operations and
financial condition of Old API, see the Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED, NINE MONTHS ENDED,
---------------------------------- -------------------------
APRIL 1, MARCH 31, JANUARY 31, OCTOBER 31, OCTOBER 31,
1994 1995 1996 1995 1996
-------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 85.7 87.6 87.4 88.6 85.5
----- ----- ----- ----- -----
Gross profit.................................. 14.3 12.4 12.6 11.4 14.5
Selling, general and administrative
expenses.................................... 9.2 11.3 9.2 9.8 8.0
----- ----- ----- ----- -----
Income from operations........................ 5.1 1.1 3.4 1.6 6.5
Interest expense.............................. 1.2 2.2 3.5 3.4 3.4
Other income (expense)........................ (0.6) (1.6) (0.9) (1.2) --
----- ----- ----- ----- -----
Income (loss) before taxes.................... 3.3 (2.7) (1.0) (3.0) 3.1
Income tax expense (benefit).................. 1.1 (1.1) -- (0.5) --
----- ----- ----- ----- -----
Net income (loss)............................. 2.2% (1.6)% (1.0)% (2.5)% 3.1%
===== ===== ===== ===== =====
</TABLE>
Nine months ended October 31, 1996 compared with nine months ended October 31,
1995
Net sales for the nine months ended October 31, 1996 increased $9.6
million, or 14.3%, to $76.8 million from $67.2 million during the comparable
period ended October 31, 1995. The growth in net sales was primarily due to the
$13.8 million, or 26.6%, increase in revenue from repair and overhaul. This
increase was offset in part by a $3.6 million, or 21.4%, decrease in the level
of parts sold directly to customers due primarily to larger than normal parts
orders from one customer in the nine months ended October 31, 1995.
Cost of sales increased $6.1 million during the nine months ended October
31, 1996 due to the increase in sales during that period. As a percentage of net
sales, cost of sales decreased 3.1% to 85.5% during the nine months ended
October 31, 1996 from 88.6% during the comparable period in the prior year. This
decrease was due primarily to charges incurred during the nine months ended
October 31, 1995 of $1.0 million for inventory obsolescence and $0.9 million for
warranty and other accruals. Additionally, cost of sales for the nine months
ended October 31, 1996 reflect $0.5 million reduced depreciation expense as
compared to the same period in the prior year, due to purchase accounting
adjustments for the acquisition of NAC by the Company in June 1995.
The Company's total gross profit increased $3.5 million, or 46%, to $11.2
million for the nine months ended October 31, 1996. As a percentage of sales,
total gross profit increased 3.1% from 11.4% to 14.5% for the nine months ended
October 31, 1996. The profit margins of the repair and overhaul product line
increased from 14.6% to 16.4% for the nine months ended October 31, 1996, while
profit margins on part sales declined from 16.2% to 14.7%. Profit margins for
the nine months ended October 31, 1996 for repair and overhaul and part sales
product lines reflect, to a greater extent than in the prior period, the effect
of changes in Allison's arrangements with its AMCs. For parts ordered after
September 1994, Allison reduced the Company's discount off of list price on
over-the-counter parts sales from 25% to 10% for the 501 product line and from
40% to 15% on the 250 product line. For parts embodied in overhauls, Allison
reduced the discount off of list price from 25% to 20% for the 501 engine, and
from 40% to 32% for the 250 engine. The decrease in profit margins on
over-the-counter part sales for the nine months ended October 31, 1996 was
largely due to the change in Allison's arrangements with its AMCs. Profit
margins of the repair and overhaul product line increased during the nine months
ended October 31, 1996 despite the adverse effect of the change in Allison's
parts pricing on margins.
The Company's total gross profit margins for the nine months ended October
31, 1996 reflect a reduction of $1.3 million of other cost of goods sold
compared to the same period in the prior year, primarily due to $1.0 million
inventory obsolescence charge and $0.9 million recorded for warranty and related
expenses
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incurred in the nine months ended October 31, 1995. Additionally, total gross
margins for the nine months ended October 31, 1996 reflect $0.5 million reduced
depreciation expense as compared to the same period in the prior year, due to
purchase accounting adjustments for the acquisition of NAC by the Company in
June 1995.
Selling, general and administrative expenses for the nine months ended
October 31, 1996 decreased $0.4 million, or 6.6%, to $6.2 million from $6.6
million for the comparable period ended October 31, 1995. As a percentage of
sales, selling, general and administrative expenses decreased from 9.8% to 8.0%.
The reduction was due primarily to a one-time charge of $0.6 million incurred in
1995 for the lump sum settlement to eliminate longevity pay to certain
personnel.
Interest expense for the nine month period ended October 31, 1996 increased
$0.3 million to $2.6 million from $2.3 million for the nine months ended October
31, 1995. This increase was due to an increase in the average borrowings under
the Company's credit facilities as a result of the Company's need for increased
working capital and indebtedness incurred in connection with the acquisition of
NAC in June 1995.
Other expenses decreased $0.8 million for the nine months ended October 31,
1996. During the nine months ended October 31, 1995, the Company incurred $0.8
million of expenses, representing the write-off of a marine gas turbine engine
joint venture investment, including related advances, and professional fees
incurred in connection with the sale of NAC by its former shareholder.
Net income increased by $3.2 million to $1.5 million for the nine months
ended October 31, 1996, compared to a loss of $1.7 million for the nine months
ended October 31, 1995.
Twelve months ended January 31, 1996 compared to the Fiscal Year ended March
31, 1995
The twelve months ended January 31, 1996 is comprised of three separate
periods of time and operation. The initial two months of the period, February
and March of 1995, are also reported as part of fiscal year ended March 31,
1995. During these two months, the predecessor company incurred after tax losses
of $1.9 million. April and May of 1995 represent the two months immediately
preceding the acquisition of NAC by the Company. Under the ownership management
of the Predecessor, NAC incurred after tax losses of $1.0 million during this
two month period. The Company acquired NAC on June 1, 1995 and installed new
senior management during the last eight months of this period. During this
period, the Company generated net income of $1.9 million.
Net sales for the twelve months ended January 31, 1996 were $92.9 million,
an increase of $9.8 million, or 11.8%, over the fiscal year ended March 31,
1995. Repair and overhaul revenues were $70.0 million in the twelve months ended
January 31, 1996, an increase of $5.6 million, or 8.7%, over fiscal 1995. The
increase was due largely to increased sales under the FMS contract. During the
twelve months ended January 31, 1996, parts sales were $22.9 million as compared
to $18.7 million during the fiscal year 1995.
Cost of sales increased $8.4 million to $81.2 million during the twelve
months ended January 31, 1996, or an increase of 11.5%. As a percentage of net
sales, cost of sales for the twelve months ended January 31, 1996 decreased
slightly to 87.4% compared to 87.6% in fiscal 1995.
Total gross profit for the twelve months ended January 31, 1996 increased
$1.4 million, or 13.2%, to $11.7 million from $10.3 million for the fiscal year
ended March 31, 1995. As a percentage of net sales, gross profits increased
slightly to 12.6%, from 12.4% in the fiscal year ended March 31, 1995. Profit
margins of the repair and overhaul product line for the twelve months ended
January 31, 1996 increased to 14.7% from 13.6%. Profit margins of the parts
sales product line increased to 16.1% from 14.0% during fiscal 1995, due largely
to higher margin sales on greater than normal part sales to one customer during
the twelve months ended January 31, 1996. These improvements in both profit
margins of the repair and overhaul and parts products lines for the twelve
months ended January 31, 1996 were largely offset by an increase of $1.7 million
of other cost of sales during that period compared to fiscal 1995, primarily
relating to inventory obsolescence and warranty and related expenses.
Selling, general and administrative expenses for the twelve months ended
January 31, 1996 were $8.6 million, a decrease of $0.8 million, or 8.4%, from
the $9.4 million incurred during fiscal 1995. The
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Company's selling, general and administrative expenses are primarily associated
with its repair and overhaul activities. As a percentage of net sales, selling,
general and administrative expenses decreased to 9.2% from 11.3% in fiscal 1995.
This decrease was primarily due to the freezing of NAC's pension plan, a
reduction in management fees and a company-wide effort to lower controllable
costs, partially offset by increased contributions to NAC's 401(k) plan and
greater direct sales and marketing efforts and related costs.
Interest expense during the twelve months ended January 31, 1996 increased
by $1.4 million from $1.8 million to $3.2 million as compared to the fiscal year
ended March 31, 1995. The increase was due to the increase in the level of
borrowings under NAC's credit facility and subordinated debenture and term loan
indebtedness incurred in connection with the acquisition of NAC in June 1995.
Other expenses declined during the twelve months ended January 1996 by $0.5
million, or 38.5%, to $0.8 million compared to $1.3 million incurred during
fiscal 1995. Both periods include the write-off of a marine gas turbine engine
joint venture investment, including related advances. During fiscal 1995, the
Company also incurred $0.7 million in professional fees incurred in connection
with efforts to sell NAC by its former shareholder.
The loss before taxes for the twelve months ended January 31, 1996 was $1.0
million, a $1.2 million improvement compared to the loss of $2.2 million
incurred during the fiscal year ended March 31, 1995. During the last eight
months of the period ended January 31, 1996, when NAC was under current
management, the Company earned $3.2 million on a pretax basis. The pretax loss
for the four months immediately preceding the ownership change was $4.2 million.
Income taxes for the twelve months ended January 31, 1996 were $0.1 million
compared to a tax benefit of $0.9 million for fiscal 1995. The charge for the
twelve months ended January 31, 1996 is due to the incurrence of state franchise
taxes.
As a result of the factors described above, the net loss of $1.1 million
incurred during the twelve months ended January 31, 1996 represents a decline of
$0.2 million from the $1.3 million loss reported during the fiscal year ended
March 31, 1995.
Fiscal 1995 compared to Fiscal 1994
Net sales for fiscal 1995 declined 10.2%, or $9.4 million, to $83.1 million
from $92.5 million for fiscal 1994. Overhaul revenues declined 4.5% to $64.1
million in fiscal 1995 due primarily to $13.0 million in reduced revenues under
the FMS contract offset to a large extent by increased revenues in most of the
Company's product lines. Parts sales decreased 25.2%, or $6.3 million, due to a
shortage of parts supplied by Allison and weak industry conditions.
Cost of sales declined $6.5 million from $79.3 million for fiscal 1994 to
$72.8 million for fiscal 1995, due primarily to the decrease in sales. As a
percentage of net sales, cost of sales increased to 87.6% in fiscal 1995 from
85.7% in fiscal 1994.
Total gross profit decreased $2.9 million to $10.3 million for fiscal 1995.
As a percentage of sales, the Company's gross profit declined to 12.4% in fiscal
1995 from 14.3% in fiscal 1994. Profit margins of the repair and overhaul
product line decreased from 19.6% to 13.6% in fiscal 1995 due primarily to a
33.8% decline in revenue in the Company's largest product line, the 510 flight
engine. Profit margins of parts sales increased from 13.2% to 14.0% in fiscal
1995. Other cost of goods sold decreased from $3.3 million in fiscal 1994 to
$1.1 million in fiscal 1995 due primarily to large production variances in
fiscal year 1994.
Selling, general and administrative expenses increased $0.9 million to $9.4
million for fiscal 1995 from $8.5 million for fiscal 1994. The increase was due
to several factors including increases in management fees, the termination of a
lease and increased investments in business development programs.
Interest expenses increased $0.7 million in fiscal 1995 to $1.8 million
from $1.1 million in fiscal 1994. The increase was due to increased borrowing
under NAC's credit facility in order to finance a dividend to the Predecessor.
In addition, interest rates paid on the credit lines increased from an average
of 7.185% to 9.625% in fiscal 1995.
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Other expenses increased in fiscal 1995 by $0.8 million to $1.3 million
from $0.5 million in fiscal 1994. This was due to the write-off of a joint
venture investment in connection with a marine gas turbine engine joint venture
investment, including related advances, and professional fees incurred in
connection with efforts to sell NAC by its former shareholder.
Income before taxes declined from $3.1 million in fiscal 1994 to a loss of
$2.2 million for fiscal 1995 due to the factors discussed above.
In fiscal 1995, NAC had an income tax benefit of $0.9 million compared to
income taxes of $1.0 million for fiscal 1994. The tax benefit resulted from the
Company's loss from operations in fiscal 1995.
NAC incurred a loss of $1.3 million in fiscal 1995 compared to income of
$2.0 million in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
First Aviation's aggregate capital expenditures for fiscal 1995, the ten
months ended January 31, 1996, and the first nine months ended October 31, 1996
were $2.5 million, $1.1 million and $0.8 million, respectively. Management
anticipates that capital expenditures for the balance of fiscal 1997 and fiscal
1998 will be, in the aggregate, approximately $3.5 million, exclusive of the
costs of acquiring Old API. These expenditures will be used to fund the purchase
of tooling, test equipment, and data processing equipment. Management expects to
fund these capital expenditures from cash flow from operations and, if
necessary, from borrowings.
The Company's cash flow (deficit) from operations for the nine months ended
October 31, 1996, the eight months ended January 31, 1996 and the fiscal year
ended March 31, 1995 was $(4.2) million, $0.8 million and $(3.9) million,
respectively. Cash used for investing during these same periods was $1.0
million, $13.6 million and $3.3 million, respectively. Cash generated by
financing activities during these same periods was $5.2 million, $12.9 million
and $7.2 million, respectively.
Concurrently with the consummation of the Offering, the Company will use
the net proceeds from the Offering to complete the API Combs Acquisition and to
pay down a portion of the credit facility presently in place at NAC. The Company
will also retire the $1.9 million of 15% subordinated debenture due to
Canpartners and the $1.8 million of Series A Preferred Stock (including
accumulated but unpaid dividends of $187,000) that is outstanding and held by
FAI. The balance of the funds will be held for general corporate purposes
including potential acquisitions.
In June 1996, NAC entered into a new credit facility. Borrowings under this
$40.0 million credit facility were used to retire the outstanding debt under
NAC's then-existing $30.0 million revolving credit line and term loan.
Additionally, the new facility provided funds needed to finance the Company's
expansion plans by enabling the Company to acquire an adequate supply of
inventory and to finance receivables. In connection with the refinancing, the
Company recorded an extraordinary charge of $864,000 for prepayment penalties
and the write-off of the unamortized balance of loan fees.
The new credit facility provides NAC with a revolving credit facility that
allows for borrowings of up to $37.0 million and $3.0 million of term loans.
Advances under the revolving portion of the credit facility bear interest at
LIBOR plus 3.0%. The revolving portion of the credit facility also allows for
the issuance of letters of credit up to an aggregate of $1.5 million. At October
31, 1996, borrowings under the revolving portion of the credit facility,
including outstanding letters of credit, amounted to $30.1 million and carried
an interest rate of 8.38%. The credit facility expires on May 15, 1999.
As part of the credit facility, NAC has borrowed $1.0 million and $2.0
million, respectively, under two term loans. The term loans bear interest at a
variable rate of LIBOR plus 3.50% and 4.50%, respectively. At October 31, the
interest rates on these two term loans were 8.88% and 9.88%, respectively.
This new credit facility contains a number of covenants, including
restrictions on mergers, consolidations and acquisitions, the incurrence of
indebtedness, transactions with affiliates, the creation of liens, capital
expenditures and management fees. The covenants also require NAC to maintain
defined minimum levels of net worth as well as certain interest coverage ratios
and minimum backlog levels. The Company is currently in
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compliance with all such covenants. However, there can be no assurance that the
Company will continue to be in compliance with such covenants, or that such
covenants will not restrict the types of business or level of growth the Company
can undertake.
At October 31, 1996, letters of credit issued under the prior credit
facility and still outstanding amounted to $494,000. These letters of credit are
currently collateralized by cash in the amount of $0.5 million. Of this amount,
$468,000 will expire prior to March 3, 1997, at which time, the cash collateral
will be returned to NAC. One letter of credit in the amount of $26,000 does not
expire until October 1999.
In connection with the acquisition of Old API, API Combs will issue 9,727
shares of API Combs Preferred Stock. Such preferred stock is convertible solely
into common stock of API Combs. The API Combs Preferred Stock will carry a $4.00
per share annual dividend, payable quarterly.
Based upon current and anticipated levels of operations and plans for
integrating Old API's business, the Company believes that its cash flow from
operations, combined with borrowings available under the existing line of
credit, will be sufficient to meet its current and anticipated cash operating
requirements, including scheduled interest and principal payments, capital
expenditures, preferred dividends requirements and working capital needs through
the end of fiscal 1997.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 31, 1995. The Company adopted SFAS 121 on February 1, 1996 and
there was no effect of adoption.
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BUSINESS
GENERAL
First Aviation is a worldwide leader in providing services to aircraft
operators of some of the most widely used military, commercial, and general
aviation aircraft engines in the world. The Company's operations include repair
and overhaul of gas turbine engines and accessories, remanufacturing of engine
components and accessories, and redistribution of new and remanufactured parts.
With the API Combs Acquisition, the Company will be one of the leading suppliers
of aircraft engine and other aircraft parts to the general aviation industry
worldwide. On a pro forma basis, including the API Combs Acquisition, the
Company had net sales of $105.9 million and net income of $4.5 million for the
nine month period ended October 31, 1996, and net sales of $109.2 million and
net income of $2.4 million for the ten month period ended January 31, 1996.
Through NAC, the Company provides repair and overhaul services for several
engine types, including the Allison engines that power the Lockheed Martin C-130
"Hercules" cargo aircraft, the most popular cargo aircraft in the world; the
engines employed on most light helicopters; and industrial turbine engines
primarily used for power cogeneration and gas transmission. The Company has also
established itself as an industry leader in the remanufacturing of serviceable
engine parts and components for use in engine overhauls.
The API Combs Acquisition is an initial step in meeting the Company's goal
of participating in the consolidation of the aviation services industry. The API
Combs Acquisition expands the Company's services by focusing on supplying
aircraft parts to the general aviation market, thereby allowing the Company to
leverage its repair and overhaul and remanufacturing expertise through new
product lines and a new customer base and by expanding API Combs' geographic
coverage.
The Company believes it is positioned to benefit from certain industry
trends that favor independent repair and overhaul and aircraft providers
including: (i) increased outsourcing of repair and overhaul services by engine
operators as engine operators seek to reduce operating costs and turnaround
time; (ii) increasing consolidation among repair and overhaul and parts
providers as engine operators reduce the number of providers used for these
services; (iii) increased emphasis on the traceability of aircraft parts which
has, in turn, increased the required sophistication of information systems used
by parts distributors; (iv) growing demand for remanufactured parts as engine
operators seek to lower costs of repair and overhaul services; (v) increasing
aviation activity which, in turn, increases the demand for repair and overhaul
services; and (vi) increased demand by aircraft operators for third parties to
manage and maintain parts inventories so that aircraft operators may reduce
their parts inventory.
INDUSTRY OVERVIEW
Engine Repair and Overhaul. The Company believes that the current annual
worldwide market for gas turbine engine repair and overhaul services is
approximately $6.5 billion. Gas turbine engines are used to power aircraft and
marine vessels and to generate electricity for industrial applications. Repair
and overhaul services are performed by engine operators, engine manufacturers,
and independent operators such as the Company. The engine repair and overhaul
market is highly fragmented with over 1,800 service providers, competing
primarily on the basis of price, quality and turnaround time. The repair and
overhaul of aircraft engines and engine components is regulated by governmental
agencies throughout the world, including the FAA and the DOD, and is
supplemented by engine manufacturers' guidelines which generally require that
engines be overhauled and certain engine components be replaced after a certain
number of flight hours and or cycles (take-offs and landings).
Aviation Parts Sales. The Company believes that the current annual
worldwide market for new and used spare engine parts and spare aircraft engines
is approximately $10.0 billion of which $1.3 billion is supplied by the
aftermarket. The aviation parts market is highly-fragmented with a limited
number of large, well-capitalized companies selling a broad range of aircraft
spare parts, and numerous smaller competitors serving niche markets. Through API
Combs, the Company serves the general aviation sector of this market, which
includes regional airlines, business aviation, and helicopter and recreational
operators. In the general aviation sector FBOs play an integral role in aircraft
servicing and maintenance by providing a broad range of services to general
aviation aircraft operators on an as needed basis. FBOs and other maintenance
operators
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continue to consolidate and are dependent on a limited number of aftermarket
suppliers to provide the parts and customer service necessary to support general
aviation aircraft.
INDUSTRY TRENDS
Increased Outsourcing of Repair and Overhaul Services. In recent years,
many engine operators have recognized outsourcing of repair and overhaul
services as an opportunity to reduce operating costs and turnaround time.
Outsourcing allows engine operators to benefit from the expertise of service
providers such as the Company who have developed proprietary repair schemes and
achieved economies of scale unavailable to individual operators. Additionally,
outsourcing allows engine operators to limit their capital investment in
infrastructure and personnel by eliminating the need for the remanufacturing
equipment, sophisticated information systems technology, and inventory required
to effectively repair and overhaul engines. As engine operators continue to
become more cost and value conscious, and as modern aircraft engines become
increasingly more sophisticated, the Company expects the trend to outsourcing to
continue.
Increasing Consolidation. The Company believes that customers are
increasingly seeking the services of larger, more sophisticated and better
capitalized service providers. In order to reduce costs, satisfy increased
governmental regulatory scrutiny, streamline buying decisions and assure
quality, engine operators are seeking to reduce the number of providers that are
used both for repair and overhaul and parts supply services. As modern aircraft
engines become more sophisticated, so do the repairs and parts requirements for
such engines. At the same time, engine operators have become more sensitive to
quick turnaround times. As a result, the Company believes that engine operators
increasingly select those service providers which have made a significant
capital commitment toward developing proprietary repair schemes and acquiring
remanufacturing equipment and inventories, and therefore are capable of
providing higher quality and more timely services than under-capitalized
competitors can offer. Additionally, the increasing costs of technology and
inventory levels required to compete effectively has made entry into and
continued success in the industry more difficult and expensive. The Company
believes that well-capitalized, technologically sophisticated providers capable
of offering a wide breadth of services will benefit from this consolidation
trend.
Greater Emphasis on Traceability. Due to concerns regarding unapproved
aircraft spare parts, regulatory authorities have increased the level of
documentation which must be maintained on aircraft spare parts. This requirement
has, in turn, been extended by end-users to the vendors of the parts. The
sophistication required to track the history of an inventory consisting of
thousands of aircraft spare parts is considerable and has required companies to
invest significantly in information systems technology.
Growing Demand for Remanufactured Parts. During the course of an engine
overhaul or a repair, engine components are replaced using either new parts or
aftermarket parts that are of FAA-certified "overhauled" or "serviceable"
condition. As engine operators seek to lower costs related to overhaul and
repair services, they have focused on engine component costs, which comprise a
majority of the engine overhaul expense. Increasingly, these operators are using
high quality remanufactured parts instead of new parts supplied by the original
equipment manufacturer since aftermarket parts are frequently sold at a 30-40%
discount to new parts.
Increasing Aviation Activity. Aviation activity is expected to increase
significantly over the next ten years. According to the 1996 Boeing Current
Market Outlook, global commercial air travel is expected to increase 70% through
the year 2005, while the number of passenger and cargo aircraft deliveries is
expected to increase by 47%. According to the FAA, U.S. turbine powered general
and business aviation will increase 28% by the year 2006. Production of general
aviation aircraft has risen by 10% in the first half of 1996, after a 16%
increase in 1995. The Company believes that the growth in aviation activity will
result in increased utilization of existing aircraft and increase the demand for
repair and overhaul services and aircraft and engine components.
Inventory Management by Third Parties. Aircraft operators, FBOs and other
maintenance providers are increasingly seeking to lower costs through the
reduction of their parts inventory. The Company believes that these parties seek
well-capitalized and technologically sophisticated parts redistributors who have
a broad availability of inventory which can be delivered on a next-day basis to
reduce their inventory carrying needs.
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COMPETITIVE STRENGTHS
The Company believes that it is well positioned to take advantage of
positive trends in the marketplace based upon the following competitive
strengths:
Worldwide Leader. The Company is the worldwide leader in engine repair,
overhaul and support for each of the Allison engines that it services, which
includes the engine that powers the C-130 "Hercules," with more than 30 years of
experience. The Company provides repair and overhaul services to more than 300
customers located in more than 45 countries. The Company believes that its
customers select it based on its quality of service, superior turnaround time
and price competitiveness.
Remanufacturing and Engineering Expertise. Through the development of
proprietary remanufacturing and repair techniques, the Company is able to
provide its customers with low cost overhaul and repair services. The Company
believes that its ability to provide in-house remanufacturing capabilities
enables it to offer complete maintenance programs while maintaining higher
quality standards and faster turnaround times than other service providers who
rely on third party providers to remanufacture parts. To demonstrate its
commitment to excellence in the quality of its services, the Company is seeking
to have its repair and overhaul processes and inspection procedures certified to
internationally recognized ISO 9001 Quality Standards and expects certification
to be completed in 1997. The Company believes that it will be the only engine
repair and overhaul provider in the world designated at this highest ISO
standard, a standard generally reserved for manufacturing concerns.
Computer-based Advanced Remanufacturing System ("CARS"). The Company has
developed a proprietary, advanced integrated computer system for the management
and scheduling of the sequential and simultaneous tasks that are required to
overhaul engines and components. CARS substantially reduces engine and parts
inspection time, reduces required inventory levels and expedites preparation of
customer work orders and cost estimates. Moreover, the system provides real-time
information that permits management to optimize and automate the daily
deployment of personnel and materials among the Company's product lines, manage
inventory, perform costs analysis and prepare customer estimates, reports and
billing.
Unique Approach to Aviation Parts Distribution. API Combs seeks to
differentiate itself to customers through the combination of superior customer
service, just-in-time delivery and broad product offerings at competitive
prices. By maintaining a single warehouse and shipping center in Memphis,
Tennessee, API Combs is able to provide real-time quotes and next day delivery
for over 100 product lines and 80,000 parts and the Company believes it is able
to receive and fulfill customer orders later in the day than any other national
competitor. API Combs' centralized distribution center further allows it to
eliminate the duplication of inventories, branch overhead expenses prevalent
with competitors which operate in multiple locations and offer its products at
competitive prices. API Combs' extensive inventory and same-day shipping
capabilities enable customers to reduce their inventory by relying on API Combs
to be their third party inventory manager.
Sophisticated Information Systems. API Combs' management information
systems track inventory on a real-time basis and capture and report data
regarding customer records, quotations, lost sales, inventory traceability,
pricing, market availability, payment performance, shipping records, and other
critical information relating to both inventory and customers. This data is used
to forecast demand, maximize inventory turns, provide quick and accurate
customer service and to assist in marketing strategies.
Partnership Approach to Customers. API Combs enjoys substantial repeat
sales to established customers and actively seeks opportunities to develop
closer linkages with its customers. While API Combs maintains a central
warehouse, it fields a national and international network of field
representatives to maintain and develop relationships. Common practices at API
Combs include stocking specially requested items, providing customized price
books, and locating hard-to-find parts. API Combs also offers an extensive
cooperative marketing program designed to help API Combs customers attract
business to their facilities.
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BUSINESS STRATEGY
The Company is committed to providing total maintenance solutions to its
customers. The Company believes that its competitive strengths place it in a
unique position to capitalize on the industry trend toward expanded outsourcing
of repair and overhaul work and increased use of remanufactured parts to reduce
maintenance costs. In addition, the centralized distribution structure of API
Combs allows it to focus resources into a more efficient, lower cost
distribution center that provides high order fill rates and superior customer
service so that it can compete favorably with traditional distributors that
service customers through branch operations. The key components of the Company's
business strategy include the following:
Internal Growth. The Company's strategy is to increase net sales and
operating income through the successful marketing of its products and services
to new customers, cross-selling of its product lines to new and existing
customers and the extension of its product lines. The Company believes its
commitment to an increased direct sales effort will play an integral role in
generating internal growth. An example of the Company's success in developing
new product lines is the Pratt & Whitney Canada PT6 engine, used to power
aircraft and helicopters, for which the Company has recently signed two major
contracts scheduled to commence in early 1997. The Company seeks to demonstrate
to its customers and potential customers how the Company is able to provide
total maintenance solutions for their engines by combining technical support,
inventory pools, customized engineering services and assistance in arranging
financing. The Company believes that providing a total maintenance solution will
lead to closer and longer term relationships with customers that should provide
a more predictable flow of business.
Growth by Acquisitions. In order to capitalize on the consolidation trends
within the industry, the Company pursues strategic acquisitions of companies
with a customer base, product line or technology which complements or expands
the Company's existing operations. The API Combs Acquisition is an example of an
acquisition which allows the Company to expand its product and service lines.
The Company believes that strategic acquisitions will help the Company achieve
its goal of providing total maintenance support to its customers as a large,
sophisticated, fully-integrated service provider.
Expand Accessory and Component Remanufacturing. The Company is committed
to increasing the amount of remanufacturing of accessories and engine components
that it performs since this work typically generates higher margins for the
Company. The Company's remanufacturing business serves both the Company's
existing repair and overhaul customers, where embodied engine parts are
remanufactured at a significantly lower cost than the cost of new parts, as well
as third party customers which do not possess the capability to remanufacture
serviceable parts. The Company has experienced significant customer demand for
its remanufacturing services and has dedicated a portion of its production
capacity and plans to dedicate additional production capacity to the
remanufacturing of accessories and engine components.
Operating Efficiencies. The Company's management will continue to focus on
profitable earnings growth through the continued implementation of several
strategic initiatives which include continued cost management and the addition
of significant throughput in its repair and overhaul services without
substantial capital investment. An example of the Company's ability to manage
operating efficiencies is API Combs' centralized distribution center, which
allows the Company to eliminate the duplication of inventories and branch
overhead expenses prevalent with competitors which operate in multiple
locations.
OPERATIONS
NAC Repair and Overhaul. The three primary reasons for removing an engine
from an aircraft for servicing are: (i) the number of engine hours since its
last overhaul have reached the engine's "life limit" and its parts must be
replaced; (ii) the engine has been damaged; and (iii) the aircraft
instrumentation system indicates that the engine is not performing optimally in
its operating environment. The cost of servicing an engine that has been removed
varies depending upon the age, size and model of engine, and the extent of the
repairs being performed.
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<PAGE> 38
The following table sets forth: (i) the lines of gas turbine engines and
components the Company services; (ii) the Company's estimate of the number of
such engines currently in service; (iii) the typical cost of the overhaul of
such engines; (iv) the estimated cost of a new engine/component, and (v) the
principal applications of such engines.
<TABLE>
<CAPTION>
TYPICAL COST ESTIMATED
NUMBER IN OF COMPLETE COST OF NEW
LINES SERVICE OVERHAUL ENGINE/COMPONENTS PRINCIPAL ENGINE APPLICATIONS
- ------------------------ --------- ------------------- ------------------ -----------------------------------
<S> <C> <C> <C> <C>
ALLISON ENGINE COMPANY
Model 501/T56 8,000+ $450,000 $1.2-$1.7 million Fixed wing commercial and military
aircraft, including the Lockheed
C-130 Hercules, Lockheed Electra,
Lockheed P3, Convair 580, and
Grumman C2/E2
Model A250 25,000+ $90,000 $240,000-$400,000 Rotary and fixed wing commercial
and military aircraft, including
Bell helicopter models 206, 407 and
430, and McDonnell Douglas MD500
and MD600 helicopters
Model 501, 570/571-K 1,400+ $350,000 $750,000+ Industrial and electric power,
cogeneration, marine propulsion and
gas compression
PRATT & WHITNEY CANADA
PT6 20,000+ $100,000-$180,000 $250,000-$400,000 Beech King Air, Beech 1900, Cessna
Caravan and other fixed wing and
helicopter applications
MCDONNELL DOUGLAS
MD-500 (Helicopter
components) 2,500 Varies depending Varies depending Not applicable
upon specific upon specific
components components
</TABLE>
Description of an Overhaul -- Model 501 Flight Engine Example. The
following discussion describes the range of work hours and procedures scheduled
for the repair and overhaul of a representative Model 501 engine. The repair and
overhaul process for other engine types which the Company services are broadly
similar to those of the Model 501.
<TABLE>
<CAPTION>
RANGE OF HOURS
SCHEDULED
ACTIVITY FOR COMPLETION
---------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
Disassemble, clean and reassemble..................................... 300 - 450
Inspection............................................................ 300 - 450
Remanufacturing....................................................... 650 - 850
----- -----
Total hours per engine........................................... 1,250 - 1,750
===== =====
</TABLE>
Each overhaul can involve 8,000 or more parts and 150 separate work orders.
Nonetheless, the Company currently performs some Model 501 overhauls in less
than 30 days. In order to achieve this throughput, many parallel processes must
be performed, with numerous components coming together just before final
assembly. The nature of this overhaul process requires a highly managed
systems-driven environment, which is facilitated by the Company's specialized
object-oriented software described in more detail below.
Disassembly, Cleaning and Inspection. Upon the receipt of an engine or
module, technicians disassemble the unit into its components. In the case of a
complete flight engine, the unit is initially broken down into its three major
modules: the turbine, the compressor and the gearbox. These modules are then
disassembled further into their components, a process which requires special
tooling and expertise. Each component and part is completely cleaned to allow
for comprehensive inspection. The inspection involves testing and evaluating
part size, structural integrity and material tolerances. There are thousands of
individual parts in an Allison Model 501 flight engine, all of which are subject
to inspection. A detailed checklist and reporting procedure is used to create a
"condition report" documenting the state of each part inspected. Inspectors tag
all parts which need to be replaced or reworked, and electronically prepare, but
do not submit at this stage, work orders and requisitions to the Company's parts
and production departments for inventory and scheduling purposes. The Company
utilizes its CARS system throughout this process to significantly reduce the
amount of detailed inspection time required. See "Computer-based Advanced
Remanufacturing System."
36
<PAGE> 39
As a result of the work completed in the disassembly and inspection
process, the Company obtains detailed information concerning which engine parts
can be reused or repaired and which must be replaced, as well as the approximate
labor needed to complete the job. The inspector and the sales and customer
support personnel covering the customer account evaluate the parts and
production orders, prepare a detailed cost estimate and send the price estimate
with the condition report to the customer typically within a week. Upon receipt
of the customer's approval of the estimate, the Company releases the
requisitions and work orders into the workflow. The Company's computer system
identifies and tracks the parts and associated work orders from each individual
engine throughout the overhaul process in order to maintain the integrity of the
engines it services. During the overhaul process, if additional repairs or work
are deemed necessary, the Company's customer support personnel become actively
involved in negotiating pricing, scheduling and logistical issues with the
customer.
Parts Remanufacturing, Replacement and Reassembly. The parts
remanufacturing process involves reworking existing parts to original
specifications. This entails a combination of machining, parts coating, welding,
heat treatment, metalizing, metal reshaping and deposition. Although the Company
subcontracts a limited number of functions, such as plating, to outside parties,
the majority of work is done in the Company's facilities. The Company has
developed significant expertise in performing Allison authorized repairs and
modifications and has also developed, with appropriate oversight of the FAA or
DOD, its own proprietary repair schemes, sometimes referred to as Engineering
Authorizations or "EAs." The development of EAs is important to the Company's
competitive position because the use of a proprietary repair scheme can maintain
or increase the quality of work performed and significantly reduce cost and
turnaround time relative to the Company's competitors. If a part cannot be
reclaimed, the Company may install either a new part or a previously-reworked
part from inventory. The Company maintains an inventory of serviceable parts
that it has reworked for this purpose. By either remanufacturing parts or using
serviceable parts from inventory in lieu of new parts the Company is generally
able to lower customer costs for parts by more than 25% in comparison to an
overhaul in which only new parts are used. After the engine is completely
reassembled, it is ready for diagnostic testing and shipping.
Engine Testing, Shipping and Billing. The reassembled engine is taken to
one of the Company's seven test cell facilities adjacent to the main plant. At
these facilities, the engine is mounted in a stand and run in order to test for
functionality, seal leaks, fuel efficiency, operating temperature ranges and
maximum horsepower. At this stage, the engine must meet the manufacturer's
original performance and safety specifications. The result is a "zero time"
engine which is the performance equivalent of a new engine. Upon successful
completion of testing, the engine is rated for horsepower and specific fuel
consumption, and is then packaged and shipped back to the customer.
Pricing. NAC offers its customers two alternative arrangements for pricing
of repair and overhaul services: time and material based arrangements and flat
rate fixed price arrangements. Under the time and materials fee arrangement,
customers receive a detailed price estimate and condition report from NAC after
completion of the disassembly, cleaning and initial inspection process, at which
time NAC has substantial information about the extent of necessary repair and
replacement and the amount of labor needed to complete such work. Pursuant to
this arrangement, following approval from the customer of the estimate, NAC
releases work orders and requisitions into the work flow and continues the
overhaul process. NAC's customer support personnel involve themselves in the
overhaul process and negotiate with the customer any additional pricing,
scheduling and logistical issues which arise during the overhaul process.
Under the flat rate fixed pricing contracts, NAC establishes a set price
prior to undertaking an overhaul based upon estimates made either before or
after inspection of a unit. NAC's flat rate fixed price estimates made prior to
inspection of a unit are based upon standard labor and materials requirements
and typically include provisions for adjustments based upon conditions of the
engine. Under flat rate fixed price arrangements, NAC benefits to the extent
that efficiencies in labor hours and material usage can be achieved relative to
the estimate on which the flat rate price was based.
The entire overhaul and repair process typically takes about two to six
weeks from the receipt of engine to final testing, depending on the type of
engine and extent of work required.
37
<PAGE> 40
API Combs Component Overhaul and Assembly. API Combs operates an FAA
certified repair station which provides component overhaul, assembly, and
maintenance services to its customers nationwide. This division, API Combs
Technologies, currently offers three lines of service: hose assembly,
starter/generator overhauls and brake overhauls. More than 90% of API Combs
Technologies' work is performed on components for piston and turbine powered
general aviation aircraft and the balance is related to helicopters and
scheduled air carriers. API Combs maintains an inventory of overhauled units
ready for immediate shipment.
Parts Distribution
General. Aircraft spare parts conditions are classified within the
industry as (i) factory new, (ii) new surplus, (iii) remanufactured, (iv)
serviceable, and (v) as removed. A factory new or new surplus part is one that
has never been installed or used. Factory new parts are purchased from
manufacturers or their authorized distributors. New surplus parts are purchased
from excess stock of airlines, repair facilities or other redistributors. A
remanufactured part has been disassembled, inspected, repaired, reassembled and
tested by a licensed repair facility. An aircraft spare part is classified
serviceable if it is repaired by a licensed repair facility rather than
completely disassembled as in an overhaul. A part may also be classified
serviceable if it is removed by the operator from an aircraft or engine while
operating under an approved maintenance program and is functional and meets any
manufacturer or time and cycle restrictions applicable to the part. A factory
new, new surplus, remanufactured or serviceable part designation indicates that
the part can be immediately utilized on an aircraft. A part in as removed
condition requires functional testing, repair or overhaul by a licensed facility
prior to being returned to service in an aircraft.
API Combs Parts Sales. API Combs sells new and factory reconditioned parts
representing more than 100 product lines and 80,000 parts to professional
aircraft maintenance organizations. The parts are all FAA approved and are
acquired from small, specialized manufacturers as well as major original
equipment manufacturers such as Champion Aviation Products, Goodyear, Michelin,
B.F. Goodrich, General Electric, Textron Lycoming, Teledyne Continental, Parker
Hannifin, AlliedSignal, Piper and Cessna. Most of API Combs' suppliers are
committed to servicing aftermarket customers solely through wholesale
distributors such as API Combs. The distributors add value to commonly available
products by offering immediate availability, broad product lines, technical
assistance and additional services. API Combs does not have any long-term
agreements or commitments from the original equipment manufacturers from whom it
purchases parts and is dependent on these manufacturers for access to parts for
resale.
NAC Sales of Remanufactured Engine Components and Accessories. The
Company's expertise in remanufacturing aircraft engine components as an element
of performing engine overhauls has positioned it to take advantage of the
increasing demand for remanufactured components and accessories. As described
earlier, one-half of the hours spent in overhauling a Model 501 engine may be
dedicated to remanufacturing components in the engine so that their performance
is equivalent to that of a new part. Traditionally, overhaul companies have used
these techniques to repair components from a particular engine for reinsertion
into the same engine. In recent years, however, a market for rotable
remanufactured parts has emerged, due primarily to engine owners becoming more
price-sensitive and more willing to purchase a remanufactured part at a 30-40%
discount to the cost of a new part. The Company has, because of the developments
described above, increased its focus on the remanufacture of components and
accessories as a separate segment of its business, apart from its overhaul
business. The Company currently is dedicating shop capacity and labor to
remanufacturing operations for third party sales.
NAC Sale of Allison New Parts. The Company sells new Allison spare parts
to engine owners and independent overhaulers. The Allison spare parts
distributed by the Company are Allison approved and source controlled parts, and
the Company maintains an inventory of complete Allison engines, components and
accessories ready for immediate delivery around the world. The sale of Allison
spare parts represents a diminishing portion of the Company's business. NAC
intends to focus its efforts on the sale of remanufactured parts.
38
<PAGE> 41
COMPUTER-BASED ADVANCED REMANUFACTURING SYSTEM
The Company has made substantial expenditures to develop CARS. CARS has
been in use for approximately two years to shorten turnaround times for customer
orders, increase output, improve inventory management and reduce costs by
eliminating duplication of work and reducing errors in ordering of parts. The
system consists of two parts: an automated inspection and routing system; and a
remanufacturing variable control system.
CARS enables NAC to shorten lead times, increase output and improve
inventory management by allowing NAC to manage and control the process of
detailed parts inspection, material requisitioning, and work order scheduling
and release. The system's database contains much of the information required to
perform engine inspection activities, including illustrated parts catalogues.
This has largely eliminated the need to manually update parts catalogues and
allows an engine inspector using a personal computer located at his workstation
to (i) refer to computer based parts manuals and catalogues to identify needed
parts, (ii) access and check on the availability in inventory of needed parts,
(iii) requisition needed parts from inventory and schedule the time for delivery
of the parts to repair and overhaul mechanics and (iv) create and record an
audit trail for all inspected parts and processes. These features of the system
have substantially reduced total detailed engine inspection time required in the
overhaul process.
Using the system, all materials and labor associated with the work order is
recorded using bar code scanners located throughout NAC's Oakland and Long Beach
facilities. This function allows NAC to provide more accurate cost and timing
estimates to customers and the faster and more accurate preparation of customer
invoices. In addition, planners (shoploading and material requisition personnel)
receive more accurate planning data. Using the system, management can plan based
upon sales forecasts and actual orders, and optimize on a daily basis manpower
and material utilization.
RELATIONSHIP WITH ALLISON
NAC's relationship with Allison began over 30 years ago when NAC expanded
its overhaul and repair operations to include support of the Allison turbine
engine. In 1970, NAC became a direct service dealer franchise for the Model 501
flight engine and the Model 501-K industrial engine, and thereafter grew to
become one of the largest independent commercial overhaul facilities in the
world for Allison engines. In 1982, NAC was appointed as an Authorized
Distributor for the Model 250, pursuant to which it was given an exclusive
territory in which to operate.
Allison modified its aftermarket support system for the Model 250 and Model
501 engines in 1994. Under the current system, Allison appoints as AMCs
independent service providers, such as the Company, who satisfy Allison's
technical and quality standards and pay a one-time "technical fee" for such
appointment. Although each AMC is assigned a non-exclusive region of
responsibility in which such AMC undertakes to provide repair and overhaul
services, component repair, warranty work and other customer support functions,
Allison permits all AMCs to market such services throughout the world. All AMCs
are permitted to purchase parts directly from Allison rather than having to
purchase parts from an Authorized Distributor, as was required under the
previous system. The AMC Agreements restrict the establishment of an AMC's
repair and marketing facilities to specific sites identified in its AMC
Agreement. As of September 30, 1996, in addition to NAC, there are eight other
AMCs for the Model 501, 25 other AMCs for the Model 250, and one other AMC for
the Model 570/571-K industrial engine. In addition, for parts ordered after
September 1994, Allison reduced the Company's discounts off list prices on parts
other than with respect to certain specified items, including the FMS Contract,
as to which reductions in discounts were phased in over time. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company is party to an AMC Agreement with Allison for each of the three
Allison model lines it services. Each of the AMC Agreements between Allison and
NAC: (i) entitles NAC to purchase engine parts from Allison or certain approved
vendors; (ii) specifies the terms on which the Company purchases engines and
engine parts from Allison, which include a discount from list price and the
ability to attain credits upon embodiment of parts into a customer's engine;
(iii) requires NAC to provide aftermarket support for the Allison engines in
specified regions identified in the AMC Agreement; (iv) delineates the permitted
physical
39
<PAGE> 42
sites at which NAC is permitted to perform repair and overhaul services, store
parts and inventory and maintain marketing offices; and (v) defines the working
relationship between the two companies in a number of areas, including technical
training, quality systems, inventory planning and management, exchange of
customer and marketing information, and other administrative matters.
The AMC Agreements with Allison for the Model 501 and Model 250 each expire
by their terms on December 31, 1997 except that the AMC Agreement for the Model
570/571-K expires by its terms on December 31, 1998. The AMC Agreements for the
Model 501 and Model 250 provide, however, that qualifying AMCs who have adhered
to the terms and conditions of their AMC Agreements and who have the "ability
and desire" to continue through a three year renewal period may renew the AMC
agreements for an additional three year period for a renewal fee of $1. Renewal
of the 570/571 AMC Agreement is subject to Allison's sole unilateral decision.
The Company has no reason to believe that these agreements with Allison will not
be extended. The failure of Allison to renew or extend the contracts would have
an adverse and material impact on the Company and its operations.
SALES AND MARKETING
Overhaul and Repair. Since the acquisition of NAC in June 1995, the
Company's new management team has implemented several sales and marketing
initiatives, including the expansion of its direct sales effort, aimed at
increasing the Company's net sales from its existing customer base as well
attracting new customers. The Company believes that the implementation of these
initiatives contributed significantly to its ability to generate 26.6% growth in
overhaul and repair revenues for the nine months ended October 31, 1996 versus
the comparable period in the prior year.
The Company uses direct sales personnel for all product lines. The Vice
President of Sales and Marketing supervises the Company's sales professionals,
whose sales efforts are supported by the quality assurance and engineering
departments to aid in customer support. Additionally, as a result of the
initiatives implemented by the Company's new management, senior management plays
an active role in marketing several of the Company's product lines. The sales
and marketing efforts of the Company differ for each of its business segments
and within each of the engine lines it services.
The Company's sales professionals work closely with engineering and
customer support to provide cost effective solutions to maintaining engines,
stressing the Company's repair and overhaul engineering expertise, turnaround
times and component remanufacturing capabilities.
The Company actively participates in many of the major industry gatherings
and air shows globally, as well as hosts group of engine operators at technical
and other meetings. In certain instances, the Company actively bids on
government contracts for certain lines through a separate government contracts
department, which coordinates with the sales and marketing team.
NAC Parts Distribution. New and serviceable parts are sold primarily to
existing overhaul customers and parts resellers. These sales are handled by the
Company's material department, and in the case of accessories and components, a
separate sales group.
API Combs Parts Distribution. API Combs uses regional sales managers,
inside salespersons, outbound telephone salespersons, independent contract
representative and associated distributors in its sales and marketing efforts.
CUSTOMERS
NAC. NAC provides repair and overhaul services to more than 300 customers,
which include militaries (both foreign and U.S.), air cargo carriers, major
industrial corporations and others. During the ten month period ended January
31, 1996 and the nine month period ended October 31, 1996, NAC's top 10
customers accounted for approximately 45% of operating revenues, and except for
System Control Technologies, which in effect represents a number of foreign
governments, no single customer accounted for more than 10% of its net sales.
40
<PAGE> 43
API Combs. API Combs services over 3,000 customers per year representing
almost every segment of the aviation industry including: FBOs, certified repair
stations, engine and component overhaulers, fleet operators, government
agencies, air cargo operators, regional air carriers and major airlines. During
the first nine months of 1996, API Combs' top 10 and top 100 customers accounted
for approximately 12.0% and 38.0%, respectively, of its operating revenues, and
no single customer accounted for more than 3.0% of its operating revenues.
COMPETITION
Repair and Overhaul. In the repair and overhaul market for Allison Models
250 or 501, NAC competes primarily with other independent operators, including
the other Allison AMCs, located throughout the world. Management believes that
its most significant competitors in this market include UNC Incorporated and
Dallas Airmotive in the United States, and Standard Aero of Winnipeg, Canada,
Hunting of Manchester, United Kingdom and Singapore Aerospace of Singapore, each
of which is an AMC in one or more product lines. Certain international
competitors of the Company have the advantage of a monopoly on their country's
military contracts for repair and overhaul of the engines serviced by the
Company. In the market for repair and overhaul of other lines serviced by the
Company, including Pratt & Whitney Canada and McDonnell Douglas, the Company
competes against the original equipment manufacturers as well as other
independent operators. Many of the Company's competitors have financial
resources substantially greater than those of the Company, and have a longer and
more extensive record of repair and overhaul work on the Pratt & Whitney Canada
engine lines and McDonnell Douglas helicopter lines relative to the Company.
Spare Parts. Competition in the parts distribution market is generally
based on price, availability of product and quality, including traceability.
NAC's major competitors include Allison, Rolls Royce and other AMCs. API Combs'
major competitors include Aviall, Inc., Aviation Service Corporation ("Avsco"),
Cooper Aviation Industries, Inc. and Cessna Aircraft Company (a subsidiary of
Textron). There is also substantial competition, both domestically and overseas,
from larger and smaller companies who focus on regional/niche markets or on
market segments of secondary interest. Examples of these companies include AAR
Corp., Aviation Sales Company, Satair A/S, Superior Air Parts, Inc. and Omaha
Aircraft Supply.
Accessory and Engine Component Remanufacturing. NAC's significant
competitors in this market include Standard Aero, Dallas Airmotive and UNC
Incorporated. The Company believes that the primary competitive factors in this
marketplace are price, quality, engineering and customer service. The Company
has engineered and developed a significant number of EAs, which are proprietary
in nature. Due to its advanced systems, technology and years of expertise in
Allison component remanufacturing, the Company believes its competes favorably
with regard to such factors.
BACKLOG
As of October 31, 1996, the total contract price of the backlog of orders
for repair and overhaul services, was approximately $45.0 million and
approximately $17.0 million or 38.6% of the orders represented thereby are
expected to be filled in fiscal 1997.
REGULATION
Governments around the world, through regulatory bodies such as the FAA and
DOD, require all aircraft and engines to follow a defined maintenance program to
ensure airworthiness and safety. Such programs are developed by the original
equipment manufacturer in coordination with the regulatory body. The DOD's
regulatory program for engines used by the armed services is separate and apart
from the FAA procedures. The maintenance of industrial engines used in power
plants is relatively unregulated, except when such maintenance is performed for
the government. The Company has certificates from the FAA and the Joint Aviation
Authority (the European regulatory body similar to the FAA) covering its repair
and overhaul facilities. Under the authority of these certifications, the
Company is permitted to service all Allison engine
41
<PAGE> 44
lines, the Pratt & Whitney Canada PT6 and its other product lines. The DOD
requires that parties servicing aircraft engines for branches of the U.S. armed
services comply with applicable government regulations, and the DOD continually
reviews the operations for compliance with applicable regulations.
All aircraft must be maintained under a continuous condition monitoring
program and must periodically undergo thorough inspection and maintenance. The
inspection, maintenance and repair procedures for the various types of aircraft
and equipment are prescribed by regulatory authorities and can be performed only
by certified repair facilities and/or certified technicians. Certification and
conformance is required prior to installation of any part on an aircraft.
Presently, whenever necessary with respect to a particular part, the Company
utilizes FAA certified repair stations to repair and certify parts to ensure
marketability. The operations of the Company may in the future be subject to new
and more stringent regulatory requirements. In that regard, the Company closely
monitors the FAA and industry trade groups in an attempt to better understand
how possible future regulations might impact the Company. See "Risk
Factors-Risks Regarding the Company's Inventory" and "-- Government Regulation."
The documentation or traceability that is supplied with an aircraft spare part
is an important factor in the aircraft spare parts distribution market. The
Company requires all of its suppliers to provide adequate documentation as
dictated by the appropriate regulatory authority.
The U.S. government has considerable discretion regarding compliance with
its rules, regulations and procedures. Although the Company undertakes to comply
with all applicable government rules, regulations and procedures, the U.S.
government and its agencies have substantial latitude in determining whether
their regulations and policies have been upheld. The operations of the Company
have and may continue to come under the close scrutiny of the U.S. government
and its agencies, and U.S. government approvals of the Company's operations and
output may be given or withheld based upon subjective criteria. See "Risk
Factors -- Government Regulations." The Company believes it is in material
compliance with applicable regulations. See "-- Legal Proceedings."
EMPLOYEES
As of October 31, 1996, approximately 401 and 91 persons were employed on a
full-time basis by the Company and API Combs, respectively. None of the
Company's employees are covered by collective bargaining agreements. The Company
believes that its relations with its employees are good.
PROPERTIES
The Company leases the following facilities:
<TABLE>
<CAPTION>
SQUARE LEASE
LOCATION ENTITY DESCRIPTION FOOTAGE EXPIRATION
- -------------------- --------------- ------------------------------------------ ------- ----------
<S> <C> <C> <C> <C>
Stamford, CT(1) First Aviation Executive offices 1,000 1997
Oakland, CA(2) NAC Allison engine repair and overhaul shop 157,000 2015
and offices
Long Beach, CA NAC Allison engine and Pratt & Whitney PT6 28,500 1999
repair and overhaul
Long Beach, CA NAC Maintenance of McDonnell Douglas 3,000 1997
helicopter components
San Leandro, CA NAC Warehouse 8,900 1999
Houston, TX NAC Repair of industrial engines 5,800 monthly
Indianapolis, IN(3) NAC Overhaul center 12,800 1998
Indianapolis, IN(3) NAC Overhaul center 12,300 1999
Indianapolis, IN(3) NAC Overhaul center 19,200 1998
Memphis, TN API Combs Distribution/sales 30,250 monthly
</TABLE>
- ---------------
42
<PAGE> 45
(1) On December 13, 1996, the Company entered into a new sublease for
approximately 2,000 square feet of office space in Westport, Connecticut,
commencing on approximately March 1, 1997. This sublease will replace the
current lease. See "Certain Transactions."
(2) NAC owns the buildings at this location but leases the land on which the
structures are located.
(3) Pursuant to the agreement between Allison and NAC under which these
facilities are made available to Allison, Allison has "deemed it necessary
to overhaul and repair some products in Indianapolis for the purpose of
maturing the product sooner, reducing direct operating cost to the customer,
gaining product knowledge more rapidly, improving engineering awareness,
providing improved reliability data and reducing warranty, policy and
campaign cost." This agreement limits the number of personnel that are to be
employed at the facility. NAC is reimbursed its direct cost for the
facilities as well as the labor pool provided.
ENVIRONMENTAL MATTERS AND PROCEEDINGS
The Company's operations are subject to extensive, and frequently changing,
federal, state and local environmental laws and substantial related regulation
by government agencies, including the United States Environmental Protection
Agency (the "EPA"), the California Environmental Protection Agency (the "Cal
EPA") and the United States Occupational Safety and Health Administration. Among
other matters, these regulatory authorities impose requirements that regulate
the operation, handling, transportation, and disposal of hazardous materials,
the health and safety of workers, and require the Company to obtain and maintain
licenses and permits in connection with its operations. This extensive
regulatory framework imposes significant compliance burdens and risks on the
Company. Notwithstanding these burdens, the Company believes that it is in
material compliance with all federal, state, and local laws and regulations
governing its operations.
The Company is principally subject to the requirements of the Clean Air Act
of 1970 (the "CAA"), as amended in 1990, the Clean Water Act of 1977; CERCLA;
the Resource Conservation Recovery Act of 1976 (the "RCRA"); and the Hazardous
and Solid Waste Amendments of 1984 ("HSWA"). The following is a summary of the
material regulations that are applicable to the Company:
The CAA imposes significant requirements upon owners and operators of
facilities that discharge air pollutants into the environment. The CAA mandates
that facilities which emit air pollutants comply with certain operational
criteria and secure appropriate permits. Additionally, authorized states such as
California develop their own regulations for air pollution control.
CERCLA, as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), is designed to respond to the release of hazardous substances.
CERCLA's most notable objectives are to provide criteria and funding for the
cleanup of sites contaminated by hazardous substances and impose strict
liability on parties responsible for such contamination namely, owners and
operators of facilities or vessels from which such releases or threatened
releases occur, and persons who generated, transported, or arranged for the
transportation of hazardous substances to a facility from which such release or
threatened release occurs. California law is similar to CERCLA in that it
imposes strict liability for releases of hazardous substances on owners and
operators of contaminated sites. RCRA and the EPA's implementing regulations
establish the basic framework for federal regulation of hazardous waste. RCRA
governs the generation, transportation, treatment, storage and disposal of
hazardous waste through a comprehensive system of hazardous waste management
techniques and requirements. RCRA requires facilities such as the Company's that
treat, store, or dispose of hazardous waste to comply with enumerated operating
standards. The Company believes that its facilities are in material compliance
with all currently applicable RCRA requirements, hold all applicable permits
required under RCRA, and are operating in material compliance with the terms of
all such permits. California law concerning the control of hazardous waste
parallels, and is in some ways stricter than, RCRA. Cal EPA has been authorized
to implement portions of RCRA on behalf of the EPA.
As part of the HSWA which amended RCRA, Congress enacted federal
regulations governing the underground storage of petroleum products and
hazardous substances. The federal underground storage tank ("UST") regulatory
scheme mandates that the EPA establish requirements for leak detection,
construction standards for new USTs, reporting of releases, corrective actions,
on-site practices and record-keeping, closure
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<PAGE> 46
standards, and financial responsibility. Some states, including California, have
promulgated their own performance criteria for new USTs, including requirements
for spill and overfill protection, UST location, as well as primary and
secondary containment. The Company believes that its facilities are in material
compliance with the federal and state UST regulatory requirements and
performance criteria.
The Company is also subject to a variety of environmental-related worker
and community safety laws. The Occupational Safety and Health Act of 1970
("OSHA") mandates general requirements for safe workplaces for all employees. In
particular, OSHA provides special procedures and measures for the handling of
certain hazardous and toxic substances. In addition, specific safety standards
have been promulgated for workplaces engaged in the treatment, disposal or
storage of hazardous waste. Requirements under state law, in some circumstances,
may mandate additional measures for facilities handling materials specified as
extremely dangerous. The Company believes that its operations are in material
compliance with OSHA's health and safety requirements.
In October 1995, a committee comprised of a group of companies and
individuals responsible for the cleanup of the Petroleum Products corporation
Superfund Site in Pembroke Park, Florida contacted NAC and alleged that NAC was
responsible for a share of the clean-up costs pursuant to CERCLA. The committee
demanded that NAC pay approximately $70,000 to join the committee handling the
clean-up and threatened to add NAC as a defendant to an existing lawsuit
regarding the site if NAC declined to pay. The committee alleges that NAC is
responsible to pay a portion of the cleanup costs due to its status as the
successor of Design Engineering Company ("DEC"), which the committee alleges
sent waste oil to the Petroleum Products Superfund Site between approximately
1969 and 1973 from property located in Miami, Florida (the "Miami Property").
The committee alleges that DEC sent approximately 194,500 gallons of waste oil
to the Petroleum Products Superfund Site and has estimated that total clean-up
costs for the Petroleum Products Superfund Site allocable to the Company could
range from $.75 to $1.25, per gallon. At this time, the Company is unable to
determine the accuracy of the committee's clean-up cost estimates or the
likelihood that NAC will be required to contribute a portion of such clean-up
costs. NAC has not joined the committee and intends to vigorously contest the
committee's allegations regarding the amount of waste oil allegedly shipped by
DEC to the Petroleum Products Superfund Site.
In February 1996, NAC and several other past and present owners/operators
of the Miami Property were served with a complaint filed in the Florida District
Court of the 11th Judicial Circuit in and for Dade County, Florida, wherein the
owners of certain property adjacent to the Miami Property allege that
contamination at the Miami Property has migrated to and/or impacted their
adjacent property. The complaint seeks unspecified damages for cleanup costs,
loss of property value and attorneys' fees. Although NAC believes it divested
all its interest in the Miami Property in June 1975, at this time, it is unclear
if and to what extent any contamination was caused or present during the time
that it owned the property. NAC has answered the complaint and is vigorously
contesting the plaintiffs' allegations.
In October 1994, NAC entered into a Stipulation with the office of the
District Attorney for the County of Alameda resulting in the entry of a civil
Consent Order by the Superior Court of California for the County of Alameda.
This Consent Order resolved issues arising out of an investigation by various
agencies of the State of California involving environmental compliance at the
Company's Oakland facility. This investigation focused primarily on three
issues: (i) a spill of approximately 1,100 gallons of Jet-A fuel at NAC's
Oakland test cell facility in September 1992, (ii) the historical discharge of
wastewater from the test cell facility to adjacent fields owned by the Port of
Oakland, and (iii) the circumstances and effect of an alleged discharge of
materials into a storm drain opening at NAC's headquarters. Pursuant to the
Consent Order, NAC has made payments and incurred related expenses aggregating
approximately $425,000 including payment of fines and fees of approximately
$221,000 to certain agencies of the State of California, and payment for
remediation projects enumerated in the Consent Order at a cost of approximately
$161,000. These projects include investigation and monitoring of soil and
groundwater conditions in various areas on or adjacent to NAC's facilities,
completion of an environmental compliance audit, and implementation of an
environmental training program for employees. Pursuant to the terms of the
Consent Order, the Court retains jurisdiction to ensure NAC's compliance with
and completion of the obligations specified in the Consent Order. NAC believes
that
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it is in compliance with the terms and conditions of the Consent Order. In
connection with these events, NAC has become a zero discharge facility at its
site in Oakland.
LEGAL PROCEEDINGS
The Company's business exposes it to possible claims for personal injury,
death or property change which may result from a failure of engines serviced by
the Company or spare parts sold by it. The Company takes what it believes to be
adequate precautions to ensure the quality of the work it performs and the
traceability of the aircraft spare parts which it sells. The Company maintains
what it believes is adequate liability insurance to protect it from such claims.
In 1995 and early 1996, the Office of Special Investigations ("OSI") of the U.S.
Air Force conducted an investigation concerning NAC's use of government surplus
parts in repairing aircraft engines pursuant to FMS contracts with the Air Force
from 1987 through 1995. OSI investigated whether NAC used government surplus
parts, knowing that doing so was in violation of the FMS contracts. Such a
knowing and intentional violation of a government contract could constitute a
criminal false statement or a criminal or civil false claim. The Company does
not believe that any Company employee knowingly violated the FMS contracts and
the Company believes that the U.S. Air Force knew of NAC's utilization of
surplus parts and in some cases requested that the Company use certain
government surplus parts under the FMS contracts. Although NAC has been informed
that the government has determined not to pursue this matter criminally, it is
not clear whether or to what extent the government will pursue a civil
complaint. The U.S. Air Force also may claim a breach of contract if government
surplus parts were used in violation of the FMS contracts, even if it was not a
knowing violation. It is unclear what, if any, damages would be awarded for such
a breach. The Company believes, however, that the amount of damages, if any,
that might be awarded for such a breach would not have a material adverse effect
on the Company's business, financial condition or results of operations.
In November 1994, NAC made a formal voluntary disclosure to the DOD
Inspector General concerning apparent product substitution by employees of
Heli-Dyne prior to the Company's acquisition of the assets of Heli-Dyne in April
1994. NAC was accepted into the voluntary disclosure program and in early 1995
executed a written agreement with the DOD Inspector General and the Department
of Justice ("DOJ"). In August 1995, NAC submitted a written report to the DOD
Inspector General concerning the relevant facts and detailing the corrective
actions taken. On behalf of the DOD Inspector General, the Defense Contract
Audit Agency and the Army Criminal Investigative Division conducted audit and
verification investigations concerning the Company's written report, and NAC
believes that the results of such investigations were forwarded to the civil
division of the DOJ for a determination of whether NAC bears any financial
responsibility for damages caused by Heli-Dyne. It is management's position that
NAC bears no responsibility for such damages. Management believes that the
damages, if any, that might be awarded in connection with this matter would not
be material to the Company's business, financial condition or results of
operations. See "Risk Factors -- Governmental Regulations."
The Company is also involved in various matters relating to compliance with
DOD regulations governing services performed for U.S. military aircraft and
environmental regulations. See "-- Environmental Matters and Proceedings."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers (the "Named Executive Officers") and directors of
the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Aaron P. Hollander....... 40 Chairman of the Board
Michael C. Culver........ 45 Chief Executive Officer and Director of the Company;
Chief Executive Officer of API Combs
John F. Risko............ 45 Chief Operating Officer and Director of the Company;
President and Chief Executive Officer of NAC
John A. Marsalisi........ 41 Chief Financial Officer, Secretary and Director of the
Company; Chief Financial Officer of NAC
Joshua S. Friedman....... 40 Director
Robert L. Kirk........... 67 Director(1)
Charles Ryan............. 46 Director(1)
</TABLE>
- ---------------
(1) Messrs. Kirk and Ryan have agreed to become Directors upon consummation of
the Offering.
Aaron P. Hollander has served as Chairman of the Company since March 1995.
Mr. Hollander became a director of NAC in June 1995. Mr. Hollander co-founded
First Equity, an aerospace investment and advisory firm, in 1985 and has served
as Co-Managing Director since that time.
Michael C. Culver became a Director of the Company and has served as Chief
Executive Officer of the Company since March 1995. Mr. Culver became a director
of NAC in June 1995 and Chairman in August 1996. Following the consummation of
the API Combs Acquisition, Mr. Culver will serve as Chairman and Chief Executive
Officer of API Combs. Mr. Culver co-founded First Equity, an aerospace
investment and advisory firm, in 1985 and has served as Co-Managing Director
since that time.
John F. Risko became a Director and has served as Chief Operating Officer
of the Company since March 1995 and has served as Chief Executive Officer of NAC
since January 1996 and as its President since August 1996. From July 1995 to
August 1996, Mr. Risko served as Chairman of NAC. Since 1993, he has been and is
an officer of First Equity, an aerospace investment and advisory firm. From 1990
to 1993, Mr. Risko was Managing Director and a member of the Board of Directors
of Burns Fry, Ltd. of Toronto, an investment banking firm. From 1988 to 1990, he
was a Managing Director at Bankers Trust Company. From 1980 to 1988, Mr. Risko
was with Morgan Stanley & Co. Incorporated, where he was a Principal in Mergers
and Acquisitions.
John A. Marsalisi became a Director and has served as Chief Financial
Officer and Secretary of the Company since March 1995. Mr. Marsalisi has served
as a director of NAC since June 1995 and as its Chief Financial Officer and
Secretary since August 1996. Since 1996, he has been and is an officer of First
Equity. From 1991 to May 1996, Mr. Marsalisi was Director of Taxes for Omega
Engineering. Prior to joining Omega Engineering, Mr. Marsalisi was Director of
Taxes for the Entrepreneurial Services Group of Ernst & Young's Stamford,
Connecticut office. Mr. Marsalisi is a Certified Public Accountant.
Joshua S. Friedman became a Director of the Company in December 1996. He
has been a Director of NAC since June 1995. Since its inception in 1990, Mr.
Friedman has been an executive officer of Canyon Partners Incorporated, a
merchant banking and money management firm which Mr. Friedman co-founded and
which is an affiliate of Canpartners, a subordinated creditor and warrant holder
of the Company. See "Certain Transactions." From 1984 to 1990, Mr. Friedman was
Executive Vice President and Co-Director, Capital Markets of Drexel Burnham
Lambert Incorporated. Mr. Friedman currently serves as a member of the Board of
Directors of Signature Resorts, Inc., a publicly traded developer and operator
of timeshare resorts, and several privately held companies and charitable
organizations.
Robert L. Kirk is and has been since 1992 the Chairman of British Aerospace
Holdings, Inc., an international aerospace corporation. Mr. Kirk served as
Chairman and Chief Executive Officer of CSX
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Transportation, Inc., the railroad subsidiary of CSX Corporation, from 1990 to
1992, and was Chairman and Chief Executive Officer of Allied-Signal Aerospace
Co. from 1986 to 1989. Mr. Kirk is a director of United Defense L.P., a defense
contractor, and Harsco Corporation, a diversified industrial company.
Charles Ryan is and has been since 1986 the President and Chief Operating
Officer, of Nordam Group Inc., a manufacturer and overhaul agency of airframes,
nacelles and thrust reversers. Mr. Ryan has been associated with Nordam Group
Inc. since 1976.
The officers of the Company are elected by the Board of Directors to serve
until their successors are elected and qualified. The directors of the Company
are elected at the annual meeting of the stockholders. The Certificate of
Incorporation and Bylaws of the Company provide for a Board of Directors divided
into three classes, as nearly equal in size as possible, with staggered terms of
three years. As a result, approximately one-third of the Board will be elected
each year. Messrs. Hollander and Kirk will serve until the 1997 Annual Meeting
of Stockholders, Messrs. Culver and Friedman will serve until the 1998 Annual
Meeting of Stockholders, and Messrs. Marsalisi, Ryan and Risko will serve until
the 1999 Annual Meeting of Stockholders. If the Company issues a series of
preferred stock, the holders thereof may be entitled to elect additional
directors who shall not be divided into classes.
Additional officers of NAC and API Combs are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
Lorne C. Dyke................. 38 Vice President, Remanufacturing, Engineering and
Test Facility -- NAC
Joseph E. Ghantous............ 51 Vice President, Sales, Marketing and
Customer Support -- NAC
Peter LaSalle................. 38 President -- API Combs
Rajesh Sharma................. 38 Chief Operating Officer -- NAC
</TABLE>
Lorne C. Dyke has been NAC's Vice President, Remanufacturing, Engineering
and Test Facility since January 1996. Mr. Dyke joined NAC in December 1995,
initially serving as Vice President Quality and Engineering. Prior to joining
NAC, Mr. Dyke held progressive engineering and operations management positions
with Aviall Inc. and its successor in general aviation engines, Dallas Airmotive
Inc., from 1990 to 1995, culminating in the position of Director of Engineering.
From 1983 through 1990, Mr. Dyke was with Standard Aero Ltd. of Canada, in
senior engineering and product line management positions.
Joseph E. Ghantous has served as NAC's Vice President, Sales, Marketing and
Customer Support since 1992. Prior to joining NAC, Mr. Ghantous worked at Aviall
Inc. and Ryder Airline Services from 1972 to 1992 during which time he held the
positions of Program Manager, Customer Support Manager and Customer Service
Manager.
Peter LaSalle has been Old API's Vice President and General Manager since
August 1993, and will serve as President of API Combs following the consummation
of the API Combs Acquisition. Prior to joining Old API, Mr. LaSalle was
Executive Vice President and General Manager of Edge Productions, Inc. from 1991
to 1993. Mr. LaSalle was a Manager in the Dallas Management Consulting Practice
of Price Waterhouse from 1990 to 1991. Prior to that time, Mr. LaSalle was the
President of Aviation Systems and Programs, a division of Duncan Aviation, Inc.,
from 1985 to 1988, and served as the Executive Vice President and General
Manager of Pelican Aviation Corporation from 1981 to 1985.
Rajesh Sharma has been NAC's Chief Operating Officer since January 1996.
From 1994 to August 1996, he also served as NAC's Chief Financial Officer. From
April 1994 to December 1995, Mr. Sharma was Vice President-Finance and
Operations for NAC. Between September 1991 and April 1994, Mr. Sharma served as
Controller of NAC.
BOARD COMMITTEES
In December 1996, the Board of Directors established an Audit Committee, a
Compensation Committee and an Executive Committee. The Audit Committee will be
initially composed of Messrs. Hollander, Friedman and Ryan. The Audit Committee
reviews the Company's annual audit and meets with the
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<PAGE> 50
Company's independent auditors to review the Company's internal controls and
financial management practices. The Compensation Committee will be initially
composed of Messrs. Friedman, Hollander and Kirk. The primary function of the
Compensation Committee is to review and make recommendations to the Board with
respect to the compensation, including bonuses, of the Company's officers. The
Company's Executive Committee is composed of Messrs. Culver, Hollander and
Risko. The Executive Committee has and may exercise all of the powers and
authority of the Board of Directors in the management of the business affairs of
the Company except that it does not have the power and authority to: (i) amend
the Certificate of Incorporation or Bylaws of the Company; (ii) adopt an
agreement of merger or consolidation or to recommend to stockholders the sale,
lease or exchange of all or substantially all of the Company's property and
assets; (iii) recommend to stockholders a dissolution of the Company or a
revocation of the dissolution; or (iv) declare a dividend or authorize the
issuance of stock of the Company unless expressly authorized by a resolution of
the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is or has been an employee of the
Company.
DIRECTOR COMPENSATION
Each of the Company's non-employee directors is entitled to receive an
annual fee of $20,000 in cash or stock. No director of the Company receives any
directors' fees for attendance at meetings of the Board of Directors or
committees thereof, although non-employee members of the Board do receive
reimbursement for actual expenses of such attendance.
STOCK PLANS
Stock Option Plan. The Company has adopted a Stock Option Plan (the
"Plan") which will become effective upon the closing of the Offering. The Plan
is intended to provide a means to attract and retain key employees (including
officers, whether or not directors) of the Company and its subsidiaries and
promote the success of the Company.
Under the Plan, awards may consist of any combination of stock options
(incentive or nonqualified), restricted stock, stock appreciation rights
("SARs") and performance share awards. The number of shares of Common Stock that
may be issued under the Plan is 250,000. Awards under the Plan may be made to
any director, officer, or key employee of the Company, including directors who
serve on the Compensation Committee of the Board of Directors.
Participants in the Plan are selected by the Compensation Committee. The
Compensation Committee is appointed by the Board of Directors and is empowered
to determine the terms and conditions of each award made under the Plan, subject
to the limitations that the exercise price of incentive stock options cannot be
less than the fair market value of the Common Stock on the date of grant (110%
if granted to an employee who owns 10% or more of the Common Stock), and no
incentive stock option can be granted to anyone other than a full-time employee
of the Company or its subsidiaries. Non-qualified stock options may be granted
under the Plan with an exercise price determined by the Compensation Committee.
Options granted under the Plan may be exercised as determined by the
Compensation Committee, but in no event after ten years from the date of grant.
Restricted stock awards may be granted on the basis of such factors as the
Compensation Committee deems appropriate. Each restricted stock award agreement
shall specify the number of shares of Common Stock to be issued, the date of
such issuance, the price, if any, to be paid for such shares by the participant,
whether and to what extent the cash consideration paid for such shares shall be
returned upon a forfeiture and the restrictions imposed on such shares. Shares
subject to restricted stock awards are nontransferable until such shares have
vested and are subject to a risk of forfeiture unless certain conditions are
satisfied.
SARs may be granted in connection with stock options or separately. SARs
granted in connection with stock options will provide for payments to the holder
based upon increases in the price of the Common Stock over the exercise price of
the related option on the exercise date. The SARs may provide that the holder of
the
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<PAGE> 51
SARs may exercise the SARs or the option in whole or in part. The Compensation
Committee may elect to pay SARs in cash or in Common Stock or in a combination
of cash and Common Stock.
Performance share awards may be granted on the basis of such factors as the
Compensation Committee deems appropriate. Generally, these awards will be based
upon specific agreements and will specify the number of shares of Common Stock
subject to the award, the price, if any, to be paid for such shares by the
participant and the conditions upon which the issuance to the participant will
be based.
Options and SARs which have not yet become exercisable will lapse upon the
date a participant is no longer employed by the Company for any reason. Options
and SARs which have become exercisable must be exercised within 30 days after
such date if the termination of employment was for any reason other than
retirement, total disability, death or discharge for cause. In the event a
participant is discharged for cause, all options and SARs shall lapse
immediately upon such termination of employment. If the termination of
employment was due to retirement, total disability or death, the options and
SARs, which are exercisable on the date of such termination, must be exercised
within three months of the date of such termination or such shorter period
provided in the award agreement. Shares subject to restricted stock awards that
have not become vested upon the date a participant is no longer employed by the
Company for any reason will be forfeited in accordance with the terms of the
related award agreements. Shares subject to performance share awards that have
not been issued or become issuable upon the date a participant is no longer
employed by the Company for any reason shall similarly be forfeited.
In the event the stockholders of the Company approve the dissolution or
liquidation of the Company, certain mergers or consolidations, or the sale of
substantially all of the business assets of the Company, unless prior to such
event the Board of Directors determines that there shall be either no
acceleration or limited acceleration of awards, each option and related SAR
shall become immediately exercisable, restricted stock shall immediately vest
and the number of shares covered by each performance share award shall be issued
to the participant.
Section 423 Plan. The Company has adopted an Employee Stock Purchase Plan
(the "Stock Purchase Plan") effective as of April 1, 1997. Under the Stock
Purchase Plan, 250,000 shares of the Company's Common Stock would be available
for purchase by eligible employees the Company and its subsidiaries electing to
participate in the Stock Purchase Plan. Such employees would be entitled
annually to purchase Common Stock of the Company, by means of payroll
deductions, at a 15% discount from the market price of the Company's Common
Stock. The Stock Purchase Plan provides incentive to employees (i) to achieve
business goals of the Company that would increase stock values and (ii) to
remain in the employment of the Company.
Under the Stock Purchase Plan, Qualified Employees (as such term is defined
below) are given the opportunity prior to each January 1 (March 15, 1997 in the
case of calendar 1997) to participate in the Stock Purchase Plan by designating
a certain amount of their after-tax base salary to be set aside over the next
twelve months (the "Plan Year") to purchase the Company's Common Stock. On the
last day of each Plan Year (the "Exercise Date"), the total amount set aside by
each participant is used to purchase Common Stock. The purchase price of each
share of Common Stock is 85% of the closing price of a share of Common Stock on
the Nasdaq National Market on the first day of the Plan Year or the Exercise
Date, whichever is lower.
Only Qualified Employees are eligible to participate in the Stock Purchase
Plan. The Stock Purchase Plan defines a "Qualified Employee" as an employee of
the Company or any of its subsidiaries who has completed twelve months of
continuous service with the Company or such subsidiary as of the grant date and
who is customarily employed for more than twenty hours per week and more than
five months in a calendar year. Employees of Old API will receive service credit
for their tenure as employees of Old API. The term "Qualified Employee" does not
include any employee who, after giving effect to his or her participation in the
Stock Purchase Plan, owns or would own stock representing 5% or more of the
total combined voting power or value of all classes of stock of the Company or
any of its subsidiaries or any employee covered a collective bargaining
agreement. As of November 30, 1996, there were approximately 400 Qualified
Employees eligible to participate in the Stock Purchase Plan.
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<PAGE> 52
The fair market value of stock purchased by any participant cannot exceed
$25,000 in any calendar year. In addition, the maximum amount that a participant
may elect to set aside under the Stock Purchase Plan in each Plan Year is 10% of
his or her base salary. The minimum amount that a participant may elect to set
aside each pay period is $10.00.
The Stock Purchase Plan has no definite term and will terminate when all of
the shares subject to the Stock Purchase Plan have been purchased unless
terminated sooner by the Board of Directors. The Stock Purchase Plan does not
restrict the Company's right to terminate the employment of participants. The
Stock Purchase Plan provides that upon termination of a participant's employment
due to death, disability or retirement, the participant or his or her personal
representative may elect to either (i) purchase Common Stock under the Stock
Purchase Plan using the funds credited to the participant's account as of the
date of death, disability or retirement, or (ii) receive a refund of the balance
of the participant's account. Upon termination of employment for a reason other
than death, disability or retirement, the participant will be deemed to have
withdrawn from the Stock Purchase Plan and all amounts credited to his or her
account will be refunded to him or her without interest. Termination of
employment has no effect on shares previously purchased under the Stock Purchase
Plan.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger, or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of all or substantially all of the property of the Company to
another corporation, the Stock Purchase Plan will terminate and the rights of
participants to purchase shares under the Stock Purchase Plan will terminate and
the Company thereupon will refund the balance of a participant's accounts to the
participant, without interest, unless (i) the administrating committee of the
Board of Directors determines that the rights of participants to purchase shares
should accelerate or (ii) provision is made in connection with such transaction
for the assumption of the Stock Purchase Plan or the substitution of rights to
purchase the Company's Common Stock with rights to purchase stock of a successor
employer corporation or an affiliate thereof, with appropriate adjustments as to
number and kind of shares and prices.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Certificate of Incorporation that
limit the liability of its directors for monetary damages arising from a breach
of their fiduciary duty as directors to the fullest extent permitted by Delaware
law as it now exists or may in the future be amended. The Company's Bylaws
provide that indemnification will not extend in the event that the person's
conduct was intentional or was a knowing and culpable violation of the law.
Moreover, the right to indemnification conferred by the Company includes the
right to be paid by the Company for any expenses incurred in defending any
proceeding in advance of its final disposition.
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
The Company was formed in March 1995 to acquire NAC and each of the
executive officers of the Company became an officer at the time of its
formation. None of the executive officers of the Company received any employment
compensation from the Company or NAC during the ten month period ended January
31, 1996, except Mr. Risko. Mr. Risko has been paid a salary at the rate of
$180,000 per annum by NAC since becoming its President and Chief Executive
Officer in January 1996. The salary payments to Mr. Risko have reduced, dollar
for dollar, the amount of the $300,000 annual management fee NAC pays to First
Equity for management services. The obligation to pay a management fee to First
Equity terminates upon consummation of the Offering. See "Certain Transactions."
In December 1996, First Aviation entered into employment agreements with
Michael C. Culver, John F. Risko, and John A. Marsalisi. Mr. Culver's, Mr.
Risko's and Mr. Marsalisi's employment agreements are each for terms of three
years which expire on December 31, 1999, and provide for an annual base salary
of $180,000, $180,000 and $155,000, respectively. In addition, each of the three
employment agreements provides for: (i) benefits which are also generally
available to other employees of First Aviation in similar employment positions;
(ii) reimbursement of reasonable business related expenses; (iii) three weeks
paid
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<PAGE> 53
vacation a year; and (iv) a severance payment, upon termination without cause or
for death or disability, equal to six months base salary. Each of the agreements
may be terminated by First Aviation without cause at any time upon 30 days
notice or by the executive for any reason upon 30 days notice.
Mr. Culver, Mr. Risko and Mr. Marsalisi each have, as part of their
respective employment agreements, agreed not to compete with First Aviation for
a period of six months following the end of their employment by First Aviation
and not to solicit employees or customers of First Aviation for a period of six
months following the end of their employment with First Aviation.
NAC has entered into a Post-Employment Consulting Agreement with Mr. Rajesh
Sharma. The agreement requires Mr. Sharma to provide specified consulting
services to NAC following a termination of Mr. Sharma's employment by (i) NAC
without "Cause" or (ii) by Mr. Sharma for "Good Reason" (either, a "Qualifying
Termination") as these terms are defined. "Cause" is defined to include
misappropriation of funds, acts of fraud or gross misconduct, conviction of a
felony, disclosure of confidential information, misappropriation of business
opportunities and competitive behavior against NAC. "Good Reason" is defined to
include reduction in Mr. Sharma's base salary or benefits, reduction in Mr.
Sharma's executive title and relocation of the workplace to a location over 50
miles away. The agreement provides that following a Qualifying Termination, Mr.
Sharma shall thereafter provide consulting services to NAC for 12 months, or if
sooner, until such date as Mr. Sharma is entitled to receive full retirement
benefits under NAC's applicable retirement plans. In exchange for his services,
Mr. Sharma is entitled to receive a fee, payable in equal monthly installments,
equal to his annual base salary as in effect prior to the Qualifying
Termination. The agreement also obligates NAC to continue medical, dental,
vision and life insurance for Mr. Sharma to the extent such were provided to him
prior to his termination of employment. Mr. Sharma is obligated to pay 50% of
NAC's cost for all such insurance. If Mr. Sharma enters into new employment
during the consulting period, the agreement provides that the consulting fee and
benefits otherwise payable to Mr. Sharma shall be reduced or terminated by
specified amounts depending upon the terms and conditions of his new employment.
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CERTAIN TRANSACTIONS
On June 1, 1995, in connection with the acquisition of NAC by the Company
from Triton Group Ltd., the Company issued 33,000 shares of its Series A
Preferred Stock to FAI for an aggregate price of $1,650,000 and 3,557,000 shares
of its Common Stock at an aggregate price of $551,000. Messrs. Culver, Hollander
and Risko beneficially own substantially all of the equity interests in FAI, and
each of them, as well as Mr. Marsalisi is an officer of FAI.
On June 1, 1995, NAC entered into the Loan and Security Agreement (the
"Loan Agreement") between NAC and Canpartners (as assignee of Canpartners
Investments III, L.P.,) Mr. Friedman, a director of the Company, is affiliated
with Canpartners. See "Management -- Executive Officers and Directors." Pursuant
to the Loan Agreement, Canpartners made a $3,000,000 loan (the "Subordinated
Debt") to NAC which is subordinated in right of payment to NAC's credit
facility. The Subordinated Debt bears interest at the rate of 15% per year,
requires scheduled prepayments of principal and interest, and initially was due
no later than July 5, 1997. On June 13, 1996, in connection with a refinancing
of NAC's credit facility, NAC repaid $1,000,000 in principal to Canpartners and
made certain modifications to the Loan Agreement, including an extension of the
final maturity date of the Subordinated Debt to June 13, 1999. In connection
with the execution of the Loan Agreement, NAC and Canpartners entered into a
Warrant Agreement (the "Warrant Agreement"), pursuant to which NAC issued
warrants to purchase 1,831,750 shares of its Common Stock at an exercise price
of $0.05 per share to Canpartners. In connection with the repayment of
$1,000,000 of the Subordinated Debt in June 1996, 538,750 of the warrants held
by Canpartners were cancelled. Pursuant to the Second Amendment to Warrant
Agreement, dated December 20, 1996, the remaining NAC warrants held by
Canpartners became exercisable for and are deemed to be exercised for shares of
the Company's Common Stock at an exercise price of $0.05 per share in the event
of a "Qualified IPO" as defined therein. A "Qualified IPO" is defined as an
initial public offering of the Company's Common Stock pursuant to a registration
statement filed with the Securities and Exchange Commission, that yields at
least $10.0 million in net proceeds to the Company. The Company granted
Canpartners certain registration rights in the Warrant Agreement. See "Use of
Proceeds" and "Description of Capital Stock -- Registration Rights."
Pursuant to a Shareholders Agreement entered into among NAC, the Company
and Canpartners in connection with the execution of the Loan Agreement (the
"Shareholders Agreement"), NAC agreed to pay a management fee to the Company (or
First Equity) in the amount of $300,000 per year, payable quarterly. NAC reduces
payment of this management fee to the Company by the amount of compensation paid
to Mr. Risko in connection with his services as an officer of the Company and
NAC. The obligation to pay a management fee to First Equity terminates upon
consummation of the Offering. Pursuant to the Shareholders Agreement, NAC agreed
to pay an annual management fee of $50,000 per year to Canpartners for each of
the four years commencing June 1, 1995, which fee is payable quarterly. The
Shareholders Agreement provides for accelerated payment to Canpartners of all
remaining annual management fees upon the occurrence of certain events specified
in the Warrant Agreement, including: (i) the consummation of a public offering
of the Company's Common Stock or the common stock of NAC; (ii) the transfer by
the Company of any of its stock in NAC to an entity not controlled by, under
common control with, or controlling the Company; and (iii) the sale of
substantially all of the assets of NAC.
On September 30, 1996, the Company entered into two agreements with First
Equity whereby First Equity is to provide certain investment advisory services
in connection with the Offering as well as to provide advice with respect to and
negotiate for the API Combs Acquisition. Upon the closing of the Offering, First
Equity will be paid a fee of $350,000 for assistance rendered in connection with
the Offering and $250,000 for its services with regard to the API Combs
Acquisition. First Equity may render other investment advisory services to the
Company in the future. If it does so, any investment advisory fees paid to it
would not exceed customary fees for such services.
On December 20, 1996, the Company and First Equity entered into an
agreement allocating potential investment and acquisition opportunities in the
global aircraft engine repair and overhaul market. Pursuant to the agreement,
First Equity has agreed that commencing with the consummation of the Offering,
neither First Equity nor any of its majority-owned subsidiaries will, as a
principal, consummate any acquisition of a
52
<PAGE> 55
majority interest in any business that is engaged in the repair and overhaul of
military and commercial aircraft engines anywhere in the world (a "Covered
Acquisition"), without first notifying the Company and providing the Company
with the opportunity to choose to effect the Covered Acquisition for its own
account. The Company's decision as to whether to effect the Covered Acquisition
will be made by the directors of the Company that have no affiliation with First
Equity. The agreement will remain in effect for a five-year term, subject to
earlier termination in the event First Equity reduces its ownership interest in
the Company to less than 10% of the Company's outstanding voting securities. In
addition, the agreement does not apply to any proposed acquisition by First
Equity of any business that generates less than 15% of its aggregate net sales
from the repair and overhaul of military and commercial aircraft engines nor to
any advisory services performed by First Equity on behalf of third parties.
The Company leases approximately 1,000 square feet of office space from
First Equity under a month to month sublease. Monthly payments under the
sublease are $2,500. On December 13, 1996, the Company entered into a new
sublease with First Equity which will replace the current lease. Under the new
sublease, the Company will lease approximately 2,000 square feet of office space
in Westport, Connecticut for a period of ten years with options for two
additional five year periods commencing on approximately March 1, 1997. Monthly
payments under this sublease currently are $5,000, subject to increase on an
annual basis.
53
<PAGE> 56
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 30, 1996, and as adjusted
to give effect to the sale of shares offered hereby (i) by each person who is
known by the Company to own beneficially 5% or more of the outstanding shares of
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers, and (iv) all directors and executive officers as a group.
Except as indicated in the footnotes to the table, the persons named in the
table have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community property laws
where applicable, and are located at 7200 Earhart Street, Oakland, California
92621.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING NUMBER OF OFFERING(1)
-------------------------- SHARES ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(2) BEING OFFERED NUMBER PERCENT(2)
- ---------------------------------------- --------- ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
FAI Inc., a wholly owned subsidiary of
First Equity Development, Inc......... 3,557,000(3) 73.3% -- 3,557,000 40.6%
One Omega Drive
Box 4660
Stamford, Connecticut 06907
Canpartners Investments IV, LLC......... 1,293,000 26.7% --(1) 1,293,000 14.8%
9665 Wilshire Boulevard
Suite 200
Beverly Hills, California 90212
Aaron P. Hollander...................... --(3) -- -- -- --
Michael C. Culver....................... --(3) -- -- -- --
John F. Risko........................... --(3) -- -- -- --
John A. Marsalisi....................... -- -- -- -- --
Joshua S. Friedman...................... --(4) -- -- -- --
Robert L. Kirk.......................... -- -- -- -- --
Charles Ryan............................ -- -- -- -- --
All directors and executive officers as
a group
(7 persons)........................... --(3)(4) -- -- -- --
</TABLE>
- ---------------
(1) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is exercised in full, Canpartners will
sell 585,000 shares of Common Stock, thereby reducing its holdings to
708,000 shares, or 8.1%. Canpartners Incorporated is the Managing Member of
Canpartners. Mr. Friedman, Mitchell R. Julis and R. Christian B. Evenson are
the sole shareholders and directors of Canpartners Incorporated and such
individuals may be deemed to share beneficial ownership of the shares shown
as owned by Canpartners. Such persons disclaim beneficial ownership of such
shares.
(2) Percentage calculation is based upon 4,850,000 shares outstanding (8,750,000
shares following the Offering, based on the proposed issuance of 3,900,000
shares by the Company in the Offering).
(3) Messrs. Risko, Culver and Hollander own, in the aggregate, substantially all
of the outstanding shares of First Equity.
(4) Excludes 1,293,000 shares shown as owned by Canpartners. Mr. Friedman is a
Vice President of Canpartners and is a shareholder and director of
Canpartners Incorporated, the Managing Member of Canpartners, and, as such,
may be deemed to have voting and investment power over such shares. Mr.
Friedman disclaims any beneficial ownership of such shares.
54
<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
Upon the completion of the Offering, the Company's authorized capital stock
will consist of 25,000,000 shares of Common Stock, par value $0.01 per share,
and 5,000,000 shares of undesignated preferred stock, par value $0.01 per share
(the "Preferred Stock") after giving effect to the redemption of the Series A
Preferred Stock which will occur upon the consummation of the Offering.
COMMON STOCK
Prior to the Offering, there were 3,557,000 shares of Common Stock issued
and outstanding, held by one entity. Canpartners owns warrants to purchase up to
1,293,000 shares of Common Stock at $0.05 per share. Canpartners will exercise
the warrants concurrent with the closing of the Offering. See "Certain
Transactions." Accordingly, total shares outstanding immediately prior to the
Offering are 4,850,000.
Each holder of Common Stock is entitled to one vote for each share held of
record on all matters presented to stockholders, including the election of
directors. In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share equally and ratably
in the assets of the Company, if any, remaining after paying all debts and
liabilities of the Company and the liquidation preferences of any outstanding
Preferred Stock. The Common Stock has no preemptive rights or cumulative voting
rights and no redemption, sinking fund or conversion provisions.
Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors out of funds legally available therefore,
subject to the dividend and liquidation rights of any Preferred Stock that may
be issued and outstanding and subject to any dividend restrictions in any of the
Company's outstanding debt and credit facilities. See "Dividend Policy."
All of the shares offered hereby, when issued and sold, will be validly
issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further stockholder action,
to issue any or all shares of the authorized Preferred Stock in one or more
series and to fix and determine the designations, preferences and relative
rights and qualifications, limitations or restrictions thereon of any series so
established, including voting powers, dividend rights, liquidation preferences,
redemption rights and conversion privileges. The issuance of Preferred Stock
with voting rights or conversion rights may adversely affect the voting power of
the Common Stock, including the loss of voting control to others. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of the Company. The Company presently has no plans, agreements
or understandings for the authorization or issuance of any shares of Preferred
Stock.
CERTAIN PROVISIONS OF THE CERTIFICATE AND BYLAWS
General. A number of provisions of the Company's Restated Certificate of
Incorporation ("Certificate") and Bylaws ("Bylaws") concern matters of corporate
governance and the rights of stockholders. These provisions, among other things,
(i) classify those members of the Board of Directors elected by the holders of
Common Stock into three classes of directors with each class serving staggered
three-year terms, with the initial Class I, Class II and Class III directors'
terms ending in 1997, 1998 and 1999, respectively, and (ii) grant the Board of
Directors the right to issue shares of Preferred Stock and to set the voting
rights, preference and other terms thereof. These provisions may be deemed to
have an anti-takeover effect and may discourage takeover attempts not first
approved by the Board of Directors (including takeovers which certain
stockholders may deem to be in their best interests). To the extent takeover
attempts are discouraged, temporary fluctuations in the market price of the
Common Stock, which may result from actual or rumored takeover attempts, may be
inhibited. These provisions, together with the classified Board of Directors and
the ability of the Board to issue Preferred Stock without further stockholder
action, also could delay or frustrate the removal of incumbent directors or the
assumption of control by stockholders, even if such removal or assumption would
be beneficial to stockholders of the Company. These provisions also could
discourage or make more difficult a merger, tender offer or proxy contest, even
if they could be favorable to the interests of
55
<PAGE> 58
stockholders, and could potentially depress the market price of the Common
Stock. The Board of Directors believes that these provisions are appropriate to
protect the interests of the Company and all of its stockholders.
Meetings of Stockholders. The Certificate provides that a special meeting
of stockholders may be called only by the Board of Directors. The Bylaws provide
that only those matters set forth in the notice of a special meeting may be
considered or acted upon at that special meeting, unless otherwise provided by
law. In addition, the Bylaws set forth certain advance notice and informational
requirements and time limitations on any director nomination or any new business
which a stockholder wishes to propose for consideration at an annual meeting of
stockholders.
No Stockholder Action by Written Consent. The Certificate provides that
any action required or permitted to be taken by the stockholders of the Company
at an annual or special meeting of stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
stockholders in lieu thereof.
Indemnification and Limitation of Liability. The Bylaws provide that
directors of the Company shall be, and, in the discretion of the Board of
Directors, officers and non-officer employees may be, indemnified by the Company
to the fullest extent authorized by Delaware law, as it now exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company. The Bylaws also provide
that the right of directors to indemnification shall be a contract right and
shall not be exclusive of any other right possessed or hereafter acquired under
any bylaw, agreement, vote of stockholders or otherwise. The Certificate
contains a provision permitted by Delaware law that generally eliminates the
personal liability of directors for monetary damages for breaches of their
fiduciary duty, including breaches involving negligence or gross negligence in
business combinations, unless the director has breached his or her duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or a
knowing violation of law, paid a dividend or approved a stock repurchase in
violation of the Delaware General Corporation Law or obtained an improper
personal benefit. This provision does not alter a director's liability under the
federal securities laws. In addition, this provision does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty.
STATUTORY BUSINESS COMBINATION PROVISION
Section 203 of the Delaware General Corporation Law ("Section 203")
provides, with certain exceptions, that a Delaware corporation may not engage in
any of a broad range of business combinations with a person or affiliate, or
associate of such person, who is an "interested stockholder" for a period of
three years from the date that such person became an interested stockholder
unless: (i) the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the board of directors
of the corporation before the person becomes an interested stockholder; (ii) the
interested stockholder acquired 85% or more of the outstanding voting stock of
the corporation in the same transaction that makes it an interested stockholder
(excluding shares owned by persons who are both officers and directors of the
corporation, and shares held by certain employee stock ownership plans); or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
the holders of at least 66 2/3% of the corporation's outstanding voting stock at
an annual or special meeting, excluding shares owned by the interested
stockholder. Under Section 203, an "interested stockholder" is defined (with
certain limited exceptions) as any person that is (i) the owner of 15% or more
of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested stockholder.
REGISTRATION RIGHTS
Pursuant to the terms of the Warrant Agreement, dated June 1, 1995, between
the Company and Canpartners, as amended on June 13, 1996, Canpartners was
granted certain registration rights with respect to
56
<PAGE> 59
the shares of Common Stock issuable upon exercise of its 1,293,000 common stock
purchase warrants (the "Registrable Securities"). If the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other securityholders (excluding registrations on
Forms S-4 and S-8), Canpartners is entitled to include the Registrable
Securities in the registration statement, subject to reduction by the managing
underwriter, if any. Canpartners' right to sell securities not included in the
Offering is subject to the lock-up agreement restricting sale for a period of
180 days after the date of this Prospectus and applicable securities laws. See
"Shares Eligible for Future Sale."
Pursuant to a Registration Rights Agreement, dated December 20, 1996,
between the Company and FAI, FAI was granted certain registration rights with
respect to the 3,557,000 shares of Common Stock it holds. Specifically, if the
Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other securityholders, FAI is
entitled to include its shares of Common Stock in the registration statement,
subject to certain conditions and limitations. This right to include shares of
Common Stock will not apply to registration statements of the Company relating
to certain stock option, purchase or incentive plans, any dividend reinvestment
plan, or certain merger or exchange transactions. In addition, FAI has the right
at any time subsequent to the consummation of an offering, to require the
Company to register its shares of Common Stock under the Securities Act. FAI is
entitled to six such requested registrations. The right of FAI to sell
securities immediately after the Offering is subject to the lock-up agreement
restricting sale for 180 days after the date of this Prospectus. See "Shares
Eligible For Future Sale" and "Underwriting."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is U.S. Stock
Transfer Corporation.
LISTING
Application has been made to have the Company's Common Stock approved for
quotation on the Nasdaq National Market under the trading symbol "FAVS."
57
<PAGE> 60
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through the sale of its equity
securities. Upon the closing of the Offering, the Company will have outstanding
8,750,000 shares of Common Stock. Of these shares, the 3,900,000 shares sold in
the Offering will be freely tradeable without restriction under the Securities
Act, unless purchased by "affiliates" of the Company.
The remaining 4,850,000 shares of Common Stock held by existing
stockholders will be "restricted" shares under the Securities Act (the
"Restricted Shares"). Upon the expiration of lock-up agreements between the
stockholders and the Underwriters, which will occur 180 days after the effective
date of this Prospectus (the "Effective Date"), the 3,557,000 Restricted Shares
held by FAI will become eligible for sale under Rule 144, subject to the volume
limitations described below, and the 1,293,000 Restricted Shares held by
Canpartners will become eligible for sale under Rule 144 upon the second
anniversary of the consummation of the Offering.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the number of shares of
Common Stock then outstanding (approximately 87,500 shares immediately after the
Offering) or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales pursuant to Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has beneficially
owned Restricted Shares for at least three years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations and requirements
described above. The Securities and Exchange Commission has proposed to reduce
the Rule 144 holding periods. If enacted, such modification could have an impact
on the timing of when shares of Common Stock become eligible for resale.
The Company, its executive officers, directors and stockholders have agreed
that, for a period of 180 days from the Effective Date, they will not, without
the prior written consent of Smith Barney Inc., sell, offer to sell, solicit an
offer to buy, contract to sell, grant any option to purchase or otherwise
transfer or dispose of, any shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, shares of Common Stock, subject to
certain exceptions. See "Underwriting."
58
<PAGE> 61
UNDERWRITING
Upon the terms and subject to the conditions of the Underwriting Agreement,
dated the date hereof, each of the Underwriters named below has severally agreed
to purchase from the Company, and the Company has agreed to sell to such
Underwriter, the respective number of shares of Common Stock set forth opposite
the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Smith Barney Inc. .................................................................
Dillon, Read & Co. Inc. ...........................................................
---------
Total....................................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are purchased.
The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the public offering price set forth on the cover page
of this Prospectus and part of the shares to certain dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. Smith
Barney Inc, and Dillon, Read & Co. Inc., as representatives of the several
underwriters (the "Representatives"), have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Canpartners has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 585,000 shares of the
Common Stock at the price to public set forth on the cover page of this
Prospectus minus the underwriting discount and commissions. The Underwriters may
exercise such option solely for the purpose of covering over-allotments, if any,
in connection with the Offering of the shares of Common Stock offered hereby. To
the extent such option is exercised, each Underwriter will be obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares as the number of shares set forth opposite each Underwriter's
name in the preceding table bears to the total number of shares listed in such
table.
The Company, its executive officers, directors and stockholders have agreed
with the Representatives that until 180 days after the Effective Date they will
not sell, offer to sell, contract to sell or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of Common Stock, any
options or grants to purchase shares of Common Stock, or any securities
convertible or exchangeable for shares of Common Stock owned directly by such
holders or with respect to which they have power of disposition. The Company has
also agreed not to sell, offer to sell, contract to sell, grant any option to
purchase or otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or any rights
to acquire Common Stock for a period of 180 days after the Effective Date
without the prior written consent of Smith Barney Inc., subject to certain
limited exceptions including grants of options and sales of shares under the
Company's stock benefit plans. The lock-up agreements with the Representatives
may be released at any time as to all or any portion of the shares subject to
such agreements at the sole discretion of Smith Barney Inc.
59
<PAGE> 62
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
Prior to the Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in the Offering has been determined by
negotiations among the Company and the Representatives. Among the factors
considered in determining such price were the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for the
growth of the Company's revenues and earnings, the current state of the economy
in the United States and the current level of economic activity in the industry
in which the Company competes and in related or comparable industries, and
currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies that are comparable to the
Company.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by O'Melveny & Myers LLP. Andrews & Kurth L.L.P., Los Angeles,
California will act as counsel to the Underwriters.
EXPERTS
The consolidated balance sheets of First Aviation Services Inc. at January
31, 1996 and July 31, 1996, and the consolidated statements of operations,
stockholders' equity, and cash flows for the two-month period ended May 31,
1995, the eight-month period ended January 31, 1996 and the six-month period
ended July 31, 1996 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of NAC as of March 31, 1995 and for each of the
two years in the period ended March 31, 1995 included in this Prospectus and
Registration Statement have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The balance sheet of Aircraft Parts International Combs at September 30,
1996 and December 31, 1995 and the Statements of Operations and Division Equity
for the nine month period ended September 30, 1996, and the year ended December
31, 1995 appearing in this Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), in Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. Certain items are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement and the exhibits filed as a part thereof. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and, in each instance, if
such contract or document is field as an exhibit, reference is made to the copy
of such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference to such
exhibit. Upon completion of the offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
except the proxy requirements, and in accordance therewith, will file reports
and other
60
<PAGE> 63
information with the Commission. The Registration Statement, including exhibits
thereto, as well as the reports and other information filed by the company with
the Commission, may be inspected without charge at the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Electronic filings made through the
Electronic Data Gathering Analysis and Retrieval System are publicly available
thought the Commission's Web Site (http://www.sec.gov).
The Company will issue to its stockholders annual reports and unaudited
quarterly reports for the first three quarters of each fiscal year. Annual
reports will include audited financial statements and a reports of its
independent auditors with respect to the examination of such financial
statements.
61
<PAGE> 64
INDEX TO FINANCIAL STATEMENTS
FIRST AVIATION SERVICES INC.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
NATIONAL AIRMOTIVE CORPORATION
Report of Price Waterhouse LLP, Independent Accountants............................... F-18
Balance Sheet......................................................................... F-19
Statement of Operations............................................................... F-20
Statement of Stockholder's Equity..................................................... F-21
Statement of Cash Flows............................................................... F-22
Notes to Financial Statements......................................................... F-23
AIRCRAFT PARTS INTERNATIONAL
Report of Ernst & Young LLP, Independent Auditors..................................... F-34
Balance Sheets........................................................................ F-35
Statements of Operations and Division Equity.......................................... F-36
Statement of Cash Flows............................................................... F-37
Notes to Financial Statements......................................................... F-38
</TABLE>
F-1
<PAGE> 65
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
First Aviation Services Inc.
We have audited the accompanying consolidated balance sheets of First
Aviation Services Inc. as of January 31, 1996 and July 31, 1996, and the
consolidated statements of operations, stockholders' equity, and cash flows for
the two month period ended May 31, 1995, the eight month period ended January
31, 1996 and the six month period ended July 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
First Aviation Services Inc. as of January 31, 1996 and July 31, 1996, and the
consolidated results of its operations and its cash flows for the two month
period ended May 31, 1995, the eight month period ended January 31, 1996 and the
six month period ended July 31, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Francisco, California
September 12, 1996,
except Note 12, as to which the date is
December 20, 1996
------------------------
The foregoing report is in the form that will be signed upon completion of
stockholder approval of the 6.4549 to 1 stock split and stock option and stock
purchase plans described in Note 12 to the consolidated financial statements.
San Francisco, California
December 20, 1996
F-2
<PAGE> 66
FIRST AVIATION SERVICES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31, OCTOBER 31,
1996 1996 1996
----------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Trade receivables, net of allowance for doubtful accounts of
$278 at January 31, 1996, $316 at July 31, 1996 and $259
at October 31, 1996....................................... $23,388 $ 19,553 $17,937
Inventories.................................................. 31,207 33,245 34,645
Restricted cash.............................................. -- 1,039 544
Deferred income taxes........................................ 1,036 1,036 1,036
Prepaid expenses and other................................... 1,374 1,354 1,763
------- ------- -------
Total current assets........................................... 57,005 56,227 55,925
Plant and equipment, net....................................... 2,706 2,776 2,829
Other assets................................................... 673 392 282
------- ------- -------
$60,384 $ 59,395 $59,036
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $18,167 $ 10,987 $11,729
Accrued compensation and related expenses.................... 1,116 1,235 1,178
Accrued reorganization expenses.............................. 1,021 511 459
Accrued liabilities.......................................... 2,685 2,589 2,558
Income taxes payable......................................... 507 4 --
Due to stockholders.......................................... 126 126 126
Current portion of long-term debt............................ 1,970 1,100 1,105
------- ------- -------
Total current liabilities...................................... 25,592 16,552 17,155
Long-term debt, less current portion........................... 27,005 35,087 33,643
Other noncurrent liabilities................................... 3,601 2,723 2,528
------- ------- -------
Total liabilities.............................................. 56,198 54,362 53,326
------- ------- -------
Stockholder's equity:
Preferred stock, $0.01 par value, liquidation preference of
$330, $660 and $660 at January 31, 1996, July 31, 1996 and
October 31, 1996, respectively, 5,000,000 shares
authorized, 33,000 shares issued and outstanding.......... 1,650 1,650 1,650
Common stock, $0.01 par value, 25,000,000 shares authorized,
3,557,000 shares issued and outstanding................... 36 36 36
Additional paid-in capital................................... 625 625 625
Retained earnings............................................ 1,875 2,722 3,399
------- ------- -------
Total stockholders' equity..................................... 4,186 5,033 5,710
------- ------- -------
$60,384 $ 59,395 $59,036
======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 67
FIRST AVIATION SERVICES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
PREDECESSOR
------------
TWO-MONTH EIGHT-MONTH SIX-MONTH NINE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, JANUARY 31, JULY 31, OCTOBER 31, OCTOBER 31,
1995 1996 1996 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 10,896 $ 68,519 $ 52,354 $ 67,171 $ 76,776
Cost of sales.............................. 10,463 57,390 44,608 59,522 65,606
------- ------- ------- ------- -------
Gross profit............................... 433 11,129 7,746 7,649 11,170
Selling, general and administrative
expenses................................. 1,160 5,349 4,186 6,600 6,163
------- ------- ------- ------- -------
Income (loss) from operations.............. (727) 5,780 3,560 1,049 5,007
Interest expenses.......................... 287 2,605 1,849 2,303 2,619
Other expenses............................. -- -- -- 801 --
------- ------- ------- ------- -------
Income (loss) before provision (benefit)
for income taxes and extraordinary
item..................................... (1,014) 3,175 1,711 (2,055) 2,388
Provision (benefit) for income taxes....... -- 1,300 -- (356) --
------- ------- ------- ------- -------
Income (loss) before extraordinary item.... (1,014) 1,875 1,711 (1,699) 2,388
Extraordinary item:
Loss on early extinguishment of debt..... -- -- (864) -- (864)
------- ------- ------- ------- -------
Net income (loss).......................... (1,014) 1,875 847 (1,699) 1,524
Dividends on preferred stock............... -- 88 66 -- 99
------- ------- ------- ------- -------
Net income (loss) applicable to common
stockholders............................. $ (1,014) $ 1,787 $ 781 $ (1,699) $ 1,425
======= ======= ======= ======= =======
Net income (loss) per common share:
Income (loss) before extraordinary item
applicable to common stockholders..... $ 0.33 $ 0.34 $ 0.47
Extraordinary item....................... -- (0.18) (0.18)
------- ------- -------
Net income (loss) applicable to common
stockholders.......................... $ 0.33 $ 0.16 $ 0.29
======= ======= =======
Shares used in computation of net income
(loss) applicable to common
stockholders............................. 5,379,721 4,843,626 4,843,626
======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 68
FIRST AVIATION SERVICES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ -------------------- ADDITIONAL
NUMBER NUMBER PAID-IN RETAINED
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1995
(predecessor)................... -- $ -- 4,750,000 $ 4,750 $ 27,385 $ 2,889 $ 35,024
Net loss for the two-month
period ended May 31, 1995.... -- -- -- -- -- (1,014) (1,014)
------ ------ ---------- ------- -------- ------- --------
Balances at May 31, 1995
(predecessor)................... -- -- 4,750,000 4,750 27,385 1,875 34,010
Elimination of predecessor
divisional equity upon
acquisition on June 1,
1995......................... -- -- (4,750,000) (4,750) (27,385) (1,875) (34,010)
Common stock and preferred stock
issued for cash on June 1,
1995......................... 33,000 1,650 3,557,000 36 515 -- 2,201
Warrants issued in connection
with subordinated note
payable...................... -- -- -- -- 110 -- 110
Net income for the eight-month
period ended January 31,
1996......................... -- -- -- -- -- 1,875 1,875
------ ------ ---------- ------- -------- ------- --------
Balances at January 31, 1996...... 33,000 1,650 3,557,000 36 625 1,875 4,186
Net income for the six-month
period ended July 31, 1996... -- -- -- -- -- 847 847
------ ------ ---------- ------- -------- ------- --------
Balances at July 31, 1996......... 33,000 1,650 3,557,000 36 625 2,722 5,033
Net income for the three-month
period ended October 31, 1996
(unaudited).................. -- -- -- -- -- 677 677
------ ------ ---------- ------- -------- ------- --------
Balances at October 31, 1996
(unaudited)..................... 33,000 $1,650 3,557,000 $ 36 $ 625 $ 3,399 $ 5,710
====== ====== ========== ======= ======== ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 69
FIRST AVIATION SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
PREDECESSOR
BUSINESS
------------ EIGHT-MONTH
TWO-MONTH PERIOD SIX-MONTH NINE-MONTH NINE-MONTH
PERIOD ENDED ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, JANUARY 31, JULY 31, OCTOBER 31, OCTOBER 31,
1995 1996 1996 1995 1996
------------ ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ (1,014) $ 1,875 $ 847 $ (1,699) $ 1,524
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 400 947 577 1,669 800
Extraordinary item, loss on early extinguishment of
debt................................................. -- -- 864 -- 864
Deferred income taxes.................................. 129 664 -- (630) --
Termination of executive defined benefit plan.......... -- (548) -- (548) --
Changes in assets and liabilities:
Receivables.......................................... 1,860 (13,460) 3,835 (7,282) 5,451
Inventories.......................................... (605) (1,744) (2,038) (441) (3,438)
Prepaid expenses and other assets.................... (341) 947 (691) 1,674 (758)
Accounts payable..................................... 821 12,587 (7,180) 9,264 (6,438)
Accrued liabilities.................................. 578 58 (990) 509 (1,134)
Other noncurrent liabilities......................... (10) (567) (878) 340 (1,073)
------- -------- -------- ------- --------
Net cash provided by (used in) operating activities...... 1,818 759 (5,654) 2,856 (4,202)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets from former owners including
acquisition costs...................................... -- (12,397) -- (12,397) --
Purchase of plant and equipment.......................... (282) (862) (519) (1,130) (777)
Payment for license rights............................... -- (375) -- (375) (250)
Proceeds from disposal of plant and equipment............ 6 13 -- 6 --
------- -------- -------- ------- --------
Net cash used in investing activities.................... (276) (13,621) (519) (13,896) (1,027)
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash.......................................... -- -- (1,039) -- (544)
Borrowings on long-term debt............................. 10,703 103,891 95,351 88,098 121,138
Payments on long-term debt............................... (12,191) (92,955) (87,979) (78,963) (115,267)
Sale of preferred stock.................................. -- 1,650 -- 1,650 --
Sale of common stock..................................... -- 551 -- 551 --
Repayment of other noncurrent liabilities................ (54) (275) (160) (296) (98)
------------ ----------- ------------ ------------ ------------
Net cash (used in) provided by
financing activities................................... (1,542) 12,862 6,173 11,040 5,229
------------ ----------- ------------ ------------ ------------
Net change in cash....................................... -- -- -- -- --
Cash, beginning of period................................ -- -- -- -- --
------------ ----------- ------------ ------------ ------------
Cash, end of period...................................... $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
Supplemental cash flow disclosures:
Cash paid for:
Interest............................................. $ 154 $ 2,322 $ 1,513 $ 1,613 $ 2,330
=========== =========== =========== =========== ===========
Income taxes......................................... $ -- $ 129 $ 545 $ 108 $ 545
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 70
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share amounts)
1. BUSINESS AND BASIS OF PRESENTATION
First Aviation Services Inc. ("First Aviation" or the "Company") through
its wholly owned subsidiary, National Airmotive Corporation ("NAC") repairs and
overhauls commercial and military aircraft engines, and industrial turbines and
parts. The Company is headquartered in Stamford, Connecticut. Customers of the
Company include airlines, foreign governments, U.S. and foreign military
services and industrial companies.
The accompanying consolidated financial statements include the accounts of
First Aviation and its wholly owned subsidiary, NAC.
First Aviation was formed in March 1995 to acquire the capital stock of
NAC. On June 1, 1995, Triton Group, Ltd. ("Triton"), former parent company of
NAC, sold its ownership interest in the capital stock of the NAC to First
Aviation pursuant to the Agreement and Plan of Merger dated March 3, 1995. The
acquisition has been accounted for under the purchase method of accounting as of
the closing date. The gross purchase price of $30,355 includes debt assumed of
$17,958, transaction-related fees and expenses amounting to $1,147, and a net
cash payment to Triton of $11,250. The purchase price, including acquisition
costs, was allocated to the assets and liabilities of the NAC based on their
relative fair values.
In connection with the allocation of the purchase price and in order to
implement plans and actions designed to streamline operations, the Company
recorded a reorganization accrual to cover the estimated costs of employee
separations and other employee incentive programs. The Company incurred and
charged against accrued reorganization costs was $1,400 and $500 during the
eight month period ended January 31, 1996 and the six month period ended July
31, 1996, respectively. The Company also recorded accruals for various
liabilities including pension plan termination (Note 9), environmental matters
(Note 11) and legal matters. The remaining accruals as of July 31, 1996 total
$2,948 and are included in accrued liabilities and other noncurrent liabilities
in the accompanying balance sheet.
The financial statements for the two month period ended May 31, 1995,
represent the operations of the NAC when NAC was owned by Triton
("Predecessor"). The financial statements of the Company since June 1, 1995
("Successor Business") reflect the impact of indebtedness incurred in the
acquisition of the Company as well as the impact of the purchase price
allocation. Accordingly, the financial statements of the Successor Business are
not directly comparable to those of the Predecessor.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if the Predecessor had been acquired as of
April 1, 1995 and 1994, after including the impact of certain adjustments, such
as reduced depreciation expense due to asset write-downs, increased interest
expense due to acquisition financing and the tax benefit resulting from
utilization of the Predecessor net operating loss:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1995 TO
MARCH 31, 1995 JANUARY 31, 1996
-------------- ----------------
<S> <C> <C>
Sales............................................ $ 83,091 $ 79,415
Net income....................................... 1,517 1,156
Net income applicable to common stockholders..... 1,517 1,068
Net income per common share...................... 0.28 0.20
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire period
presented and is not intended to be a projection of future results.
F-7
<PAGE> 71
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Actual results could differ from those estimates.
Revenues
Revenue related to the repair and overhaul of engines is recorded upon
completion of repair and overhaul services. Revenue for parts and engine
components sold is recorded when the product is shipped.
The Company provides credit in the form of trade accounts receivable to its
customers. The Company generally does not require collateral to support domestic
customer receivables. Receivables arising from export activities are supported
by letters of credit or foreign credit insurance. The Company performs ongoing
credit evaluations of its customers and maintains allowances which management
believes are adequate for potential credit losses.
Combined sales to agencies of the U.S. government represented 25%, 27% and
16% of net sales for the two month period ended May 31, 1995, the eight month
period ended January 31, 1996 and the six month period ended July 31, 1996,
respectively. The combined accounts receivable from agencies of the United
States Government represented 13%, 17% and 25% of total accounts receivable for
the two month period ended May 31, 1995, the eight month period ended January
31, 1996 and the six month period ended July 31, 1996, respectively. Sales to
one customer who acts as agent for a number of foreign governments accounted for
11.8% of total net sales for the six month period ended July 31, 1996.
The Company has no foreign operations; however, export sales were
approximately 26%, 32% and 35% of net sales in the two month period ended May
31, 1995, the eight month period ended January 31, 1996 and the six month period
ended July 31, 1996, respectively. The majority of export sales activities were
to the following geographic areas: Central America, Middle East, Far East,
Canada, and Europe.
Inventories
Inventories are stated at the lower of cost or market with cost determined
using the first-in, first-out ("FIFO") and specific identification methods.
Costs include direct material, direct labor and applicable manufacturing
overhead.
The Company's inventory consists principally of new, overhauled,
serviceable and repairable aircraft engine parts that are purchased principally
from Allison Engine Company ("Allison"), a subsidiary of Rolls Royce Ltd., and
from parts resellers and customers. Before any part may be installed in an
aircraft, it must meet certain standards of condition established by the Federal
Aviation Administration, the U.S. Department of Defense, or the equivalent
regulatory agencies in other countries whose engines are being serviced by the
Company. Specific regulations vary from country to country, although regulatory
requirements in other countries generally coincide with applicable U.S.
requirements. Parts must also be traceable to sources deemed acceptable by such
agencies. Parts owned or acquired by the Company may not meet applicable
standards prior to remanufacturing or standards may change in the future,
causing parts which are already contained in the Company's inventory to be
scrapped or modified. Aircraft engine manufacturers may also develop new parts
to be used in lieu of parts already contained in the Company's inventory.
Provisions are made in each period for the estimated effect of excess and
obsolete inventories. Actual excess and obsolete inventories may differ
significantly from such estimates and such differences could be material to the
financial statements.
F-8
<PAGE> 72
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)
Plant and Equipment
Plant and equipment are stated at cost, less allowance for accumulated
depreciation. Additions and improvements that materially increase the productive
capacity or extend the useful life of an asset are added to its cost.
Expenditures for normal maintenance and repairs are charged to expense as
incurred.
Depreciation of plant and equipment is computed using the straight-line
method over the estimated lives of the assets which range from 3 to 30 years.
Leasehold improvements are amortized over the shorter of the estimated life of
the improvement or the terms of the related lease.
In 1995, the Financial Accounting Standards Board issued the Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. The Company adopted SFAS 121 on February 1, 1996 and
there was no effect of adoption.
Income Taxes
The Company uses the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Major Suppliers
Historically, the Company's primary supplier has been Allison. The Company
is an Authorized Maintenance Center for Allison's product lines. During the six
month period ended July 31, 1996, the Company purchased $21,870 in parts and
engine components from Allison and at July 31, 1996 accounts payable to Allison
totaled $4,417. The Company is also an authorized distributor for Bendix, AC and
several suppliers of accessories that compliment the Allison commercial engine.
The Company is an authorized service center for both Lockheed Hercules QEC's and
McDonnell Douglas Helicopter Systems' dynamic components.
NAC has from time to time, experienced difficulty in obtaining certain
parts because of parts shortages and inventory fluctuations at Allison. The
shortage or unavailability of Allison parts can and has from time to time caused
delays in the timely completion of repair and overhaul production schedules.
Such delays may adversely affect the Company's relationship with its customers
and could adversely affect the Company's commitments to customers and its
work-in-process inventory levels. An inability to maintain timely access to
Allison parts and components on commercially reasonable terms would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Net Income (Loss) Per Common Share
Except as noted below, net income (loss) per common share has been computed
based upon the weighted average number of common shares outstanding including
dilutive common equivalent shares from stock warrants, using the treasury stock
method. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletins rules, common and common equivalent shares issued by the Company at
prices below the anticipated public offering price during the twelve months
immediately preceding the Company's proposed initial public offering are
included in the calculation (using the treasury stock method and the anticipated
initial public offering price) as if they were outstanding for all periods prior
to the offering date.
F-9
<PAGE> 73
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)
Net income (loss) per common share is not presented for the two month
period ended May 31, 1995 and the nine month period ended October 31, 1995 since
such amounts are not deemed meaningful as a result of the change in ownership
and capital stock structure of NAC that occurred on June 1, 1995.
Interim Financial Information (Unaudited)
The balance sheet as of October 31, 1996 and statements of operations and
cash flows for the nine month periods ended October 31, 1996 and 1995, and the
statement of stockholders' equity for the three month period ended October 31,
1996 are unaudited but include all adjustments (consisting only of normal,
recurring adjustments) which, in the opinion of the management of the Company,
considers necessary for a fair presentation of the financial position at such
dates and the operating results and cash flows for those periods. The results
for the interim periods are not necessarily indicative of results for the entire
year.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31, OCTOBER 31,
1996 1996 1996
----------- ------- -----------
<S> <C> <C> <C>
Raw materials...................................... $16,493 $14,900 $16,993
Work-in-process.................................... 8,958 12,585 10,674
Finished goods..................................... 5,756 5,760 6,978
------- ------- -------
$31,207 $33,245 $34,645
======= ======= =======
</TABLE>
4. PLANT AND EQUIPMENT
The cost and accumulated depreciation of plant and equipment are as
follows:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31, OCTOBER 31,
1996 1996 1996
----------- ------ -----------
<S> <C> <C> <C>
Machinery and equipment............................. $ 1,338 $1,456 $ 1,546
Building and other leasehold improvements........... 976 976 1,027
Office furniture, fixtures and equipment............ 575 725 797
Construction-in-process............................. 551 586 619
------ ------ -------
3,440 3,743 3,989
Less accumulated depreciation....................... (734) (967) (1,160)
------ ------ -------
$ 2,706 $2,776 $ 2,829
====== ====== =======
</TABLE>
5. RELATED PARTIES
The Company has agreed to pay a management fee to a stockholder in the
amount of $300,000 per year, payable quarterly. The Company reduces payment of
this management fee by the amount of compensation paid to certain employees in
connection with their services as officers of the Company and its subsidiaries.
The Company has also agreed to pay an annual management fee of $50,000 per year
to the subordinated debtholder for each of the four years commencing June 1,
1995, which fee is payable quarterly. This agreement with the subordinated
debtholder also provides for accelerated payment of all remaining annual
management fees upon the occurrence of certain events, including the
consummation of a public offering of the Company's Common Stock; and the sale of
substantially all of the assets of the Company.
F-10
<PAGE> 74
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)
Fees under the agreement totalling $133 and $85 were included in selling,
general and administrative expenses in the accompanying statements of operations
for the eight month period ended January 31, 1996 and the six month period ended
July 31, 1996, respectively. There were no such fees for the two month period
ended May 31, 1995.
The Company leases office space from a stockholder under a month to month
sublease. Monthly payments under the lease are three thousand dollars.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1996 1996
----------- -------
<S> <C> <C>
Borrowings under revolving line of credit...................... $24,123 $31,285
Term loans..................................................... 1,767 2,950
Subordinated note payable...................................... 2,925 1,952
Note payable................................................... 160 --
------- -------
Total.......................................................... 28,975 36,187
Less current portion........................................... (1,970) (1,100)
------- -------
$27,005 $35,087
======= =======
</TABLE>
On June 13, 1996, the Company entered into a new credit facility.
Borrowings under this facility were used to retire the outstanding borrowings
under the Company's existing revolving line of credit and term loan and also to
reduce the Company's subordinated note by $1,000. In connection with this
refinancing, the Company recorded an extraordinary charge of $864, for
prepayment penalty fees and the write-off of unamortized loan fees.
This new credit agreement consists of a revolving credit facility that
allows for borrowings of up to $37,000 and two term loans in the amounts of
$2,000 and $1,000, respectively. Borrowings under the revolving credit facility
are further limited to specified percentages of eligible accounts receivable and
inventories. The revolving line of credit expires May 15, 1999. Management
believes that the borrowing base under this credit facility will exceed the
outstanding borrowings for at least the next twelve months, and has classified
these outstanding borrowings as long-term debt in the accompanying balance
sheet. Borrowings under the revolving credit facility bear interest at the LIBOR
rate plus 3.0% (8.45% at July 31, 1996). The credit agreement also allows for
the issuance of letters of credit not to exceed an aggregate of $1,500. Such
letters of credit reduce the availability of borrowings under the facility. At
July 31, 1996, standby letters of credit totaling $944 were outstanding on the
prior credit agreement against which the Company has provided $1,039 in cash
collateral. This deposit is included in restricted cash in the accompanying
balance sheet at July 31, 1996.
The term loans mature May 15, 1999 and bear interest at a variable rate of
the LIBOR rate plus either 3.50% or 4.50% (8.95% and 9.95% at July 31, 1996,
respectively).
The credit agreement contains a number of covenants, including among other
provisions restrictions on mergers, consolidations and acquisitions, the
incurrence of indebtedness, transactions with affiliates, the creation of liens,
capital expenditures, and management fees. The credit agreement also requires
the Company to maintain minimum levels of net worth and requires certain
interest expense coverage ratios and minimum backlog levels. The terms of the
Company's credit agreement currently restrict the payment of dividends except
with the lender's consent.
The subordinated note bears interest at 15%, payable monthly and is due in
quarterly installments through June 1999. The subordinated note agreement
requires the Company to maintain certain levels of net worth, limits capital
expenditures and requires certain interest expense coverage ratios.
F-11
<PAGE> 75
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)
The revolving line of credit, term loans and subordinated debt are
collateralized by substantially all of the Company's assets.
Aggregate annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
August 1, 1996 to January 31, 1997................................. $ 524
Fiscal year 1998................................................... 1,078
Fiscal year 1999................................................... 1,100
Fiscal year 2000................................................... 33,485
-------
$36,187
=======
</TABLE>
Management believes that the carrying amounts of the Company's borrowings
under its revolving credit facility and term loans approximate their fair values
because the interest rate is variable and resets frequently. Management also
believes that the carrying value of the Company's subordinated notes
approximates its fair value based upon the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
7. STOCKHOLDERS' EQUITY
The preferred stock bears cumulative annual dividends of $4.00 per share,
has a liquidation preference that increases annually in $10.00 per share
increments up to $50.00 per share in 1999, and has no voting rights. No
dividends shall be paid on common shares until all preferred stock dividends
have been paid. All preferred stock dividends shall be paid in shares of
preferred stock until the subordinated debt has been fully repaid. Total
cumulative dividends earned but not yet declared at July 31, 1996 were $187.
In connection with the issuance of the subordinated note on June 1, 1995,
the Company issued to the debtholder warrants to purchase up to 1,831,750 shares
of the Company's common stock at $.05 per share. In connection with the debt
transactions discussed in Note 6, the number of shares eligible for purchase
under this warrant was reduced to 1,293,000. The warrants were valued at the
time of issuance by management at $110 and the resulting discount on the
subordinated debt is being amortized over the term of the debt. The Company has
reserved 1,293,000 shares of common stock for the exercise of these warrants.
8. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
TWO MONTH EIGHT MONTH SIX MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, JANUARY 31, JULY 31,
1995 1996 1996
------------ ------------- ------------
<S> <C> <C> <C>
Current tax provision:
Federal......................................... $ -- $ 523 $ --
State........................................... -- 113 --
------ ------ ------
-- 636 --
Deferred tax provision:
Federal......................................... -- 529 --
State........................................... -- 135 --
------ ------ ------
-- 664 --
------ ------ ------
$ -- $ 1,300 $ --
====== ====== ======
</TABLE>
F-12
<PAGE> 76
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)
A reconciliation between income tax provisions computed at the U.S. federal
statutory rate and the effective rate reflected in the statements of operations
is as follows:
<TABLE>
<CAPTION>
TWO MONTH EIGHT MONTH SIX MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, JANUARY 31, JULY 31,
1995 1996 1996
------------ ------------- ------------
<S> <C> <C> <C>
Provision (benefit) at statutory rate............. 34.0% 34.0% 34.0%
State tax provision, net of Federal benefit....... 6.6 6.6 6.6
Effect of losses of predecessor business.......... (41.0) -- --
Change in valuation allowance..................... -- -- (41.0)
Other............................................. 0.4 0.4 0.4
------ ------- -------
0.0% 41.0% 0.0%
====== ======= =======
</TABLE>
Deferred tax assets and liabilities result from temporary differences in
the recognition of income and expenses for tax and financial statement purposes.
The principal sources of these differences include state net operating loss
carryforwards, financial accruals, and differences in the income tax and
financial statement asset bases due to purchase accounting. These differences
are set forth below:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1996 1996
----------- --------
<S> <C> <C>
Financial statement accruals not currently deductible for
income tax purposes.......................................... $ 4,755 $ 3,772
Differences in the financial statement and income tax basis of
fixed assets................................................. 2,441 2,242
Attributes subject to IRC sec. 382............................. 503 629
Net operating loss carryforwards............................... 251 192
Other.......................................................... 222 293
------ ------
8,172 7,128
Valuation allowance............................................ (7,136) (6,092)
------ ------
Net deferred tax assets........................................ $ 1,036 $ 1,036
====== ======
</TABLE>
The Company has net operating loss carryforwards available for California
state tax reporting purposes of approximately $2,700 which will expire in the
years 1997 through 1999. Because of the "change of ownership" provision of the
Tax Reform Act of 1986, and applicable state statutes, utilization of the
Company's federal and state tax "net unrealized built-in losses" and state net
operating loss carryforwards which existed as of the acquisition date are
subject to an annual limitation in current and future periods. As a result of
the annual limitation, a portion of the net operating loss carryforwards may
expire unused.
The Company believes that based on a number of factors, including its
recent history of operating losses, substantial uncertainty exists as to the
realization of its deferred tax assets. Accordingly, a valuation allowance has
been provided on the deferred tax assets. The Company will continue to assess
the realizability of the deferred tax assets in future periods and make such
adjustments to the valuation allowance as it considers appropriate. The
valuation allowance was unchanged in the eight month period ended January 31,
1996, and decreased $1,044 in the six month period ended July 31, 1996.
The Company files a consolidated federal tax return with its parent
company, First Equity Group, Inc. The Company's federal income tax provision has
been based on the tax sharing agreement between the companies which stipulates
that the Company is liable for federal taxes as if it filed on a separate
company
F-13
<PAGE> 77
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)
basis subject to certain limitations and adjustments. The federal taxes payable
account primarily relates to the intercompany liability under the tax sharing
agreement.
Prior to June 1, 1995, the Company was a party to a tax sharing agreement
with Triton. In accordance with the terms of the tax sharing agreement, federal
income taxes for the two month period ended May 31, 1995 were calculated on a
stand-alone basis. For the two month period ended May 31, 1995, a valuation
allowance was established for the Company's net operating loss carryforwards due
to uncertainties as to the realization of these amounts and as a result, no
income tax benefit or expense was recorded.
9. EMPLOYEE BENEFIT PLANS
Profit Sharing
The Company maintains a discretionary non-qualified profit sharing plan
covering substantially all of its employees. The Company expensed approximately
$216 and $214 in the eight month period ended January 31, 1996 and the six month
period ended July 31, 1996, respectively, related to this plan. The Company
recorded no profit sharing expense for the two month period ended May 31, 1995.
The Company maintains a 401(k) savings plan that covers substantially all
full-time employees. The plan allows employees to defer up to 15 percent of
their salary. In addition, the Company partially matches employee contributions.
The Company's contributions to the plan were $13, $236 and $270, in the two
month period ended May 31, 1995, the eight month period ended January 31, 1996
and the six month period ended July 31, 1996, respectively.
Pension Plans
On June 1, 1995, the Company decided to terminate its qualified defined
benefit retirement plan. In connection with the termination of the plan, the
Company amended the plan agreement to provide 100% vesting for all participants,
and freeze further benefit accruals for participants. At that date, the Company
recorded $1,000 in other noncurrent liabilities to cover the cost of settling
the obligations under this plan. Prepaid pension costs of $287 and $451 at
January 31, 1996 and July 31, 1996, respectively, are netted against this
accrued pension obligation in the accompanying balance sheets.
Substantially all employees of the Company are covered by this
noncontributory retirement plan. The Company's funding policy was to contribute
annually the amount required by ERISA as determined by the plan's actuaries. All
of the qualified plan's assets are held by, and invested in, investment funds of
Principal Mutual Life Insurance Company, a qualified insurance company.
F-14
<PAGE> 78
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)
Net periodic pension cost for the retirement plan calculated under the
projected unit credit cost method includes the following components:
<TABLE>
<CAPTION>
TWO MONTH EIGHT MONTH SIX MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, JANUARY 31, JULY 31,
1995 1996 1996
------------ ------------- ------------
<S> <C> <C> <C>
Service cost -- benefits earned during the
period........................................... $ 115 $ -- $ --
Interest cost on projected benefit obligation...... 133 448 390
Actual return on plan assets....................... (123) (845) (317)
Net amortization and deferral...................... 22 240 (237)
---- --------- ------- --
Net periodic pension cost (credit)................. $ 147 $ (157) $ (164)
==== ========= =========
</TABLE>
The following table sets forth the plan's funded status:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1996 1996
----------- --------
<S> <C> <C>
Vested accumulated benefit obligation......................... $ (10,212) $(10,350)
==== =========
Projected benefit obligation for service rendered to date..... $ (10,212) $(10,350)
Plan assets at fair value -- listed debt securities........... 10,867 10,940
---- ---------
Funded status................................................. 655 590
Unrecognized net loss subsequent to transition................ (368) (139)
---- ---------
Prepaid pension cost-netted against accrued pension
obligation.................................................. $ 287 $ 451
==== =========
Significant actuarial assumptions:
Discount rate............................................... 6.75% 6.75%
==== =========
Rates of increase in compensation levels.................... 5.40% 5.40%
==== =========
Expected long-term rate of return on plan assets............ 9.00% 9.00%
==== =========
</TABLE>
At June 1, 1995, the Company had an accrued liability of $870 for a
nonqualified defined benefit pension plan that was terminated in January 1991.
In July 1995, annuities were purchased for $870 to settle vested benefits in the
nonqualified defined benefit pension plan.
10. COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases certain land, plant facilities, and equipment. Many of
the Company's operating leases have options which allow the Company, at the end
of the initial lease term, to renew the leases for periods ranging from three to
five years. Certain lease agreements also contain escalation clauses which are
based on the consumer price index. Future minimum rental payments under
operating leases that have initial noncancellable lease terms in excess of one
year as of July 31, 1996 are as follows:
<TABLE>
<S> <C>
August 1 to January 31, 1997...................................... $ 533
Fiscal year 1998.................................................. 1,052
Fiscal year 1999.................................................. 894
Fiscal year 2000.................................................. 796
Fiscal year 2001.................................................. 637
Fiscal year 2002 and thereafter................................... 2,569
------
$6,481
======
</TABLE>
F-15
<PAGE> 79
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)
Rental expense under all short-term and noncancellable operating leases
amounted to $79, $316 and $450, net of sublease rental income of $39, $193 and
$133 for the two month period ended May 31, 1995, the eight month period ended
January 31, 1996 and the six month period ended July 31, 1996, respectively.
The Company has post-employment consulting agreements with certain of its
management personnel which may require the Company to make post-employment
payments of up to $254 in the event that employment is terminated under
specified circumstances.
Contingencies
In the ordinary course of business, the Company is involved in many levels
of governmental inquiry and investigation. Among the agencies which oversee the
Company's business activities are: the Federal Aviation Administration, the
Department of Defense, the Department of Justice, the Environmental Protection
Agency and the Defense Contract Audit Agency. The Company does not anticipate
that any action as a result of such inquiries and investigations would have a
material adverse affect on its financial position, results of operations or its
ability to conduct business. In the normal conduct of its business, the Company
is also involved in various claims and lawsuits, none of which, in the opinion
of the Company's management, will have a material adverse impact on the
Company's financial position or results of operations. However, depending on the
amount and timing, unfavorable resolution of these matters could have a material
effect on the Company's financial position and results of operations in a
particular period.
11. ENVIRONMENTAL
Liabilities are recorded when environmental claims for remedial efforts are
probable and the cost can be reasonably estimated. As of July 31, 1996, the
Company has provided for environmental remediation costs in the amount of $307
and such amounts are included in other noncurrent liabilities in the
accompanying consolidated balance sheet. Environmental expenditures that relate
to current operations are expensed.
The Company is a potentially responsible party to certain properties that
are contaminated and will require remediation. The exact extent of the Company's
liability, if any, has not yet been determined but, in the opinion of
management, these matters will not have a material adverse impact on the
Company's financial position or results of operations. However, depending on the
amount and timing, unfavorable resolution of these matters could have a material
effect on the Company's financial position and results of operations in a
particular period.
12. SUBSEQUENT EVENTS
On October 15, 1996, the Company announced the termination of its qualified
defined benefit retirement plan (the "Qualified Plan"). The settlement will be
conducted in accordance with the requirements of ERISA, upon regulatory approval
of the Qualified Plan's termination. In addition, on October 7, 1996, an
agreement was signed by the Company to purchase annuities for retirees who were
receiving benefits from the Qualified Plan.
On November 25, 1996, Aircraft Parts International Combs, Inc. ("API
Combs"), a subsidiary of the Company, entered into an agreement to acquire
certain assets and liabilities of Aircraft Parts International ("Old API"), a
division of AMR Combs, Inc. ("AMR Combs"). The acquisition of Old API (the "API
Combs Acquisition"), is expected to close concurrently with the closing of the
Company's proposed initial public offering of its common stock. Based upon the
September 30, 1996 balance sheet of API Combs, the purchase price of the
specific net assets acquired as defined in the contract is estimated to be
$9,727. The Company will make a cash payment equal to 90% of the purchase price,
while the remaining 10% will be settled via the issuance of 9,727 shares of API
Combs Series A cumulative convertible redeemable preferred stock. The final
purchase price is contingent upon the closing balance sheet and, if necessary,
the appraisal of the fair value of certain assets acquired.
F-16
<PAGE> 80
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)
On December 20, 1996, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock in an
initial public offering.
On December 20, 1996, the Board of Directors approved, subject to
stockholder approval, a 6.4549 to 1 stock split of issued and outstanding common
stock effected as a stock dividend. All common shares in the accompanying
consolidated financial statements have been retroactively adjusted to reflect
the stock split.
On December 20, 1996, a Stock Option Plan was adopted by the Board of
Directors, subject to stockholder approval. The Plan provides for the grant of
incentive stock options, nonqualifying stock options, stock appreciation rights
and stock purchase rights. A total of 250,000 shares of common stock have been
reserved for issuance under the plan.
On December 20, 1996, an Employee Stock Purchase Plan was adopted by the
Board of Directors, subject to stockholder approval. Under the Plan, 250,000
shares of common stock have been reserved for issuance. The Plan allows for
eligible employees to purchase stock at 85% of the lower of the fair market
value of the Company's common stock as of the first day of each offering year or
the fair market value of the stock at the end of the offering period. The
initial offering period will commence concurrent with its initial public
offering of common stock.
On September 30, 1996, the Company entered into two agreements with a
stockholder whereby the stockholder is to provide certain investment advisory
services in connection with the proposed public offering as well as to provide
advice and negotiate for the Old API acquisition. Upon closing of the proposed
public offering, the stockholder will be paid a fee of $750 for assistance
rendered in connection with the offering and $250 for its services with regard
to the Old API acquisition.
F-17
<PAGE> 81
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
National Airmotive Corporation
In our opinion, the accompanying balance sheet and the related statements
of operations, of shareholder's equity and of cash flows present fairly, in all
material respects, the financial position of National Airmotive Corporation, a
wholly-owned subsidiary of Triton Group Ltd. ("Triton"), at March 31, 1995 and
the results of its operations and its cash flows for each of the two years in
the period then ended in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
These financial statements are presented under the historical cost basis
and as discussed in Notes 1 and 11 do not give effect to the adjustments
recorded by Triton in connection with its emergence from bankruptcy in fiscal
year 1994 or purchase accounting adjustments resulting from Triton's sale of its
ownership interest in the Company on June 1, 1995.
PRICE WATERHOUSE LLP
San Francisco, California
June 14, 1995
F-18
<PAGE> 82
NATIONAL AIRMOTIVE CORPORATION
BALANCE SHEET
(in thousands, except share amounts)
<TABLE>
<CAPTION>
MARCH 31,
1995
-------
<S> <C>
ASSETS
Current assets:
Trade receivables, net of allowance for doubtful accounts of $460................ $11,788
Inventories...................................................................... 28,858
Prepaid expenses and other....................................................... 1,490
Deferred income taxes............................................................ 1,447
Advances to parent............................................................... 199
-------
Total current assets..................................................... 43,782
Plant and equipment, net........................................................... 10,362
Excess of cost over net assets acquired, net....................................... 6,920
Other assets....................................................................... 3,010
-------
$64,074
=======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................................. $ 4,758
Accrued liabilities.............................................................. 3,085
Current portion of capital lease obligation...................................... 379
-------
Total current liabilities................................................ 8,222
Note payable to bank............................................................... 18,499
Capital lease obligation, less current portion..................................... 161
Deferred income taxes.............................................................. 1,124
Other long-term liabilities........................................................ 1,044
-------
Total liabilities........................................................ 29,050
-------
Commitments and contingencies: (Note 9)
Shareholder's equity:
Common stock, $1 par value, 10,000,000 shares authorized, 4,750,000 shares issued
and outstanding............................................................... 4,750
Additional paid-in capital....................................................... 27,385
Retained earnings................................................................ 2,889
-------
Total shareholder's equity.................................................... 35,024
-------
$64,074
=======
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
F-19
<PAGE> 83
NATIONAL AIRMOTIVE CORPORATION
STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------
APRIL 1, MARCH 31,
1994 1995
--------- ---------
<S> <C> <C>
Net sales (Note 10)................................................... $ 92,513 $ 83,091
Cost of sales......................................................... 79,315 72,796
--------- ---------
Gross profit.......................................................... 13,198 10,295
Selling, general and administrative expenses (Note 5)................. 8,536 9,362
--------- ---------
Income from operations................................................ 4,662 933
Interest expense...................................................... 1,076 1,807
Other expense (Note 5)................................................ 519 1,302
--------- ---------
Income (loss) before income taxes..................................... 3,067 (2,176)
(Provision) benefit for income taxes.................................. (1,046) 885
--------- ---------
Net income (loss)..................................................... $ 2,021 $ (1,291)
========= =========
Net income (loss) per common share.................................... $ 0.43 $ (0.27)
========= =========
Weighted average common shares outstanding............................ 4,750,000 4,750,000
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
F-20
<PAGE> 84
NATIONAL AIRMOTIVE CORPORATION
STATEMENT OF SHAREHOLDER'S EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
NUMBER OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at April 2, 1993......................... 4,750,000 $4,750 $ 27,385 $2,159 $34,294
Net income....................................... -- -- -- 2,021 2,021
--------- ------ ------- ------ -------
Balance at April 1, 1994......................... 4,750,000 4,750 27,385 4,180 36,315
Net loss......................................... -- -- -- (1,291) (1,291)
--------- ------ ------- ------ -------
Balance at March 31, 1995........................ 4,750,000 $4,750 $ 27,385 $2,889 $35,024
========= ====== ======= ====== =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
F-21
<PAGE> 85
NATIONAL AIRMOTIVE CORPORATION
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------
APRIL 1, MARCH 31,
1994 1995
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................................... $ 2,021 $(1,291)
Adjustments to net income (loss):
Depreciation and amortization...................................... 2,394 2,508
Deferred income taxes.............................................. 718 (1,041)
Net (gain) loss on disposal of plant and equipment................. (41) 123
Accrued interest on long-term debt................................. (177) --
Changes in other assets and liabilities:
Receivables..................................................... (1,800) 6,902
Inventories..................................................... 7,346 (4,457)
Prepaid expenses and other assets............................... (933) 493
Accounts payable................................................ 6,367 (6,822)
Accrued liabilities and other long-term liabilities............. (3,885) (319)
-------- -------
Net cash flows from operating activities................... 12,010 (3,904)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of plant and equipment................................. (1,794) (2,469)
Payment for license rights and other intangibles................... -- (800)
Proceeds from disposal of plant and equipment...................... 52 --
-------- -------
Net cash flows from investing activities................... (1,742) (3,269)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of capital lease obligation.................................. (191) (359)
Advances to parent................................................... (212) (4)
Net borrowings (repayments) of note payable to bank.................. (9,865) 7,536
-------- -------
Net cash flows from financing activities................... (10,268) 7,173
-------- -------
Net change in cash and cash equivalents.............................. -- --
Cash and cash equivalents, beginning of year......................... -- --
-------- -------
Cash and cash equivalents, end of year............................... $ -- $ --
======== =======
Supplemental cash flow disclosures
Amounts paid for:
Interest paid................................................... $ 869 $ 1,745
Income taxes.................................................... 524 160
Acquisition of equipment under capital lease obligation............ -- 303
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
F-22
<PAGE> 86
NATIONAL AIRMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. FORMATION, HISTORY AND OPERATIONS
Formation and History
National Airmotive Corporation ("Company"), a California corporation, was
incorporated in 1960. In 1969, the Company's outstanding shares of common stock
were sold to Republic Corporation ("Republic"). On January 31, 1985, Triton
Group Ltd. ("Old Triton"), a majority-owned subsidiary of Intermark, Inc.
("Intermark"), acquired Republic in a transaction which was accounted for as a
purchase. Consequently, the net assets of Republic (including its investment in
the Company) were revalued to reflect the Old Triton purchase price. On August
30, 1990, Old Triton became a wholly-owned subsidiary of Intermark pursuant to
an Agreement and Plan of Merger dated March 2, 1990.
On October 19, 1992, Intermark and Old Triton filed separate voluntary
petitions in the United States Bankruptcy Court for the Southern District of
California seeking protection under Chapter 11 of the U.S. Bankruptcy Code. On
June 25, 1993, Intermark and Old Triton emerged from bankruptcy as a single
restructured company known as Triton Group Ltd. ("Triton").
In connection with its emergence from bankruptcy, Triton announced a plan
to liquidate its assets within a targeted two year time frame. In accordance
with that plan, Triton sold its ownership interest in the Company on June 2,
1995 to First Aviation Services, Inc., a holding company owned by First Equity
Development, Inc. (Note 11).
Operations
The Company specializes in overhaul, repair, service, and parts support for
the entire Allison Engine Company ("Allison") commercial engine line including
the 501/T56, 250, 501K and 570/571 models. Based in Oakland, California, the
Company was one of only three companies worldwide approved by Allison to repair
and overhaul the Allison prop-jet 501/T56 engine, which is used on thousands of
Lockheed C130's and several other aircraft. The Company was the sole distributor
for Allison's largest turbine engine, the 570/571, used in marine and industrial
applications. Substantially all of fiscal 1995 and 1994 revenues relate to the
Allison products. Customers of the Company include airlines, foreign
governments, U.S. and foreign military services and industrial companies. In
addition to Allison, the Company is an authorized distributor for Bendix, AC and
several suppliers of accessories that complement the Allison commercial engine.
The Company is also an authorized Lockheed Hercules QEC Repair Center.
In April 1994, the Company acquired the net assets of Heli-Turbine
International ("Heli-Turbine") and Heli-Dyne Incorporated ("Heli-Dyne"), both of
Long Beach, California, for $1,300,000 in cash. Heli-Turbine is an authorized
overhaul and maintenance center for Allison 250 Engines as well as a service
center of the Turbomeca/Arriel engines. Heli-Dyne is a service center for both
McDonnell Douglas and Schweizer Helicopters, specializing in the overhaul and
sale of dynamic components. As a result of this acquisition, the Company
transferred its operations located in LaVerne, California to the Heli-Dyne and
Heli-Turbine operations in Long Beach, California (Note 5). Pro forma
information for fiscal year 1994 related to revenues and net income is not
presented since the acquisition was not material.
The Company's T56/501D Flight Distributor, 501K Major Repair Center
Agreement and 250 Allison Distributor agreements with Allison ("Allison
Agreements") expired September 30, 1994. In November 1994 the Allison Agreements
and other existing agreements related to the Company's Allison business were
replaced with the Authorized Maintenance Center ("AMC") agreement. The new AMC
network, among other things, expands the opportunities for some of the Company's
existing customers to become an AMC and purchase parts directly from Allison and
it also reduces the Company's discounts provided by Allison for parts sold over
the counter and the parts embodied in the overhaul, repair and service
activities. Management anticipates a reduction in parts sales and increased cost
of sales from that historically experienced by the Company as a result of these
changes in Allison business arrangements. In March 1995, Allison was acquired
F-23
<PAGE> 87
NATIONAL AIRMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
by Rolls-Royce. Although there can be no assurance, management believes the AMC
agreements will not be materially affected as a result of this change in
ownership.
Liquidity and capital resources
Management believes that the Company's equity contributions obtained, and
financing arrangements executed, in connection with the change in ownership
transaction, discussed more fully in Note 11, will provide sufficient funds to
finance the Company's working capital and capital resource requirements
throughout fiscal 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The financial statements of the Company have been prepared on an historical
cost basis based on Old Triton's purchase price and its related investment in
the Company. As permitted under generally accepted accounting principles, these
stand-alone financial statements of a wholly-owned subsidiary do not reflect
adjustments which were made by Triton to adjust the carrying values of its
consolidated assets and liabilities in connection with its emergence from
bankruptcy. The adjustments made by Triton adjusted the historical cost amounts
of consolidated assets and liabilities to reorganization value (also referred to
as "fresh start accounting"). Reorganization value is defined as the amount of
value available, and to become available, for the satisfaction of postpetition
liabilities and allowed claims and interest, as negotiated or litigated between
the debtor-in-possession or trustee and the creditors and holders of equity
interests.
Fiscal year
The Company's fiscal year is a fifty-two or fifty-three week period ending
the Friday nearest March 31. This resulted in a fifty-two week year in both
fiscal 1994 and fiscal 1995.
Revenue recognition
Revenue for engines and parts sold is recorded when the product is shipped.
Revenue related to the repair and overhaul of engines is recorded after
completion and upon shipment.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out ("FIFO") and specific identification
methods. Costs include direct material, direct labor and applicable
manufacturing overhead.
Plant and equipment
Plant and equipment includes the cost of machinery and equipment,
buildings, furniture and fixtures, leasehold improvements and that amount of Old
Triton's purchase price that was allocated to plant and equipment based upon
estimated fair values at the date of acquisition. Additions and improvements
that materially increase the productive capacity or extend the useful life of an
asset are added to its cost. Expenditures for normal maintenance and repairs are
charged to expense as incurred.
When properties are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the determination of income.
F-24
<PAGE> 88
NATIONAL AIRMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Depreciation of plant and equipment is computed using the straight-line
method over the estimated lives of the assets which range from four to thirty
years. Leasehold improvements are amortized over the shorter of the estimated
life of the improvement or the term of the related lease.
Excess of cost over net assets acquired
The excess of Old Triton's purchase price for the Company over the fair
value of the net assets acquired has been included in the balance sheet under
the caption "Excess of cost over net assets acquired, net" and is being
amortized under the straight-line method over a forty year period. The
accumulated amortization was $2,250,000 at March 31, 1995.
Impairment of long-lived assets
Management of the Company assesses the recoverability of its long-lived
assets by determining whether the amortization of the asset's balance over its
remaining life can be recovered through projected undiscounted future cash
flows. Management of the Company continually evaluates the existence of
impairment of its long-lived assets and takes into consideration operating
results, trends and prospects of the Company, including comparison to the
Company's competitors, and the impact of potential changes to its distribution
and repair center agreements. Management of the Company believes no impairment
of the Company's intangible and tangible assets has occurred and, for purposes
of fairly presenting the Company's financial position under the historical cost
basis of accounting, adjustments to the amortization period or the unamortized
balance of intangible and other long-lived assets are not required.
The Company's methodology is substantially consistent with the provisions
of Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting
for the Impairment of Long-Lived Assets and Assets to be Disposed of" which must
be adopted in fiscal year 1996. The adoption of FAS 121 is therefore not
expected to have any material effect to the Company's results of operations or
financial position.
License rights
The cost of license rights purchased from Allison is amortized using the
straight-line method over the period of minimum expected benefit of fifteen
years.
Income taxes
The Company uses the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards No. 109
("FAS 109"), "Accounting for Income Taxes." The asset and liability approach
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities.
Accounts payable
The Company has reclassified checks outstanding in excess of bank balances
of $1,498,000 to accounts payable at March 31, 1995.
Concentration of credit risk
The Company provides credit in the form of trade accounts receivable to its
customers. The Company generally does not require collateral to support customer
receivables although letters of credit may be required prior to shipment. The
Company performs ongoing credit evaluations of its customers and maintains
allowances which management believes are adequate for potential credit losses.
F-25
<PAGE> 89
NATIONAL AIRMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Earnings (loss) per share
Earnings (loss) per share is computed based upon the weighted average
number of common shares outstanding. There were no common stock equivalents
required to be included in the calculation.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1995
---------
<S> <C>
Raw materials...................................................... $14,932
Work-in-process.................................................... 7,874
Finished goods..................................................... 6,052
-------
$28,858
=======
</TABLE>
4. PLANT AND EQUIPMENT
The cost and accumulated depreciation of plant and equipment are as follows
(in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1995
---------
<S> <C>
Machinery and equipment............................................ $16,846
Building and other leasehold improvements.......................... 6,610
Furniture and fixtures............................................. 677
-------
24,133
Less accumulated depreciation and amortization..................... 14,261
-------
9,872
Construction-in-progress........................................... 490
-------
$10,362
=======
</TABLE>
Depreciation and amortization expense for plant and equipment was
$2,162,000 and $2,240,000 for the years ended April 1, 1994 and March 31, 1995.
At March 31, 1995, plant and equipment includes assets under capital lease (Note
9) of approximately $1,644,000 with accumulated amortization of $1,122,000 at
March 31, 1995.
F-26
<PAGE> 90
NATIONAL AIRMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1995
---------
<S> <C>
Accrued wages and employee benefits................................ $ 907
Accrued vacation................................................... 591
Accrued license rights............................................. 375
Accrued warranty................................................... 151
Customer and vendor deposits....................................... 148
Accrued severance.................................................. 134
Accrued insurance.................................................. 73
Other.............................................................. 706
------
$ 3,085
======
</TABLE>
In connection with the new AMC agreement with Allison, the Company agreed
to pay $1,500,000 to Allison to become an AMC for a period of up to fifteen
years (including renewal options). The Company paid $750,000 of this amount in
fiscal 1995, with the remaining balance due in two installments of $375,000 each
in November 1995 and November 1996. Accrued license rights represents the
current portion of this obligation. The long-term portion at March 31, 1995 of
$375,000 is included in "Other long-term liabilities."
"Other expenses" in the fiscal 1995 statement of operations include
approximately $636,000 for fees and other expenses paid to investment bankers in
connection with the Company's efforts to locate a buyer of Triton's equity
interest in the Company. "Selling, general and administrative expenses" in
fiscal 1995 include early lease termination charges aggregating $329,000
applicable to the relocation of the La Verne facilities to Long Beach.
During fiscal 1994, the Company pursued an acquisition of selected net
assets of the Business Aviation Division of Aviall, Inc., a subsidiary of Ryder
System, Inc. ("Ryder"). Ryder did not accept the Company's offer and all
acquisition due diligence costs and expenses incurred by the Company
(approximately $443,000) are included in "Other expenses" in the fiscal 1994
statement of operations. In addition, "Selling, general and administrative
expenses" in the fiscal 1995 and 1994 statements of operations include
approximately $125,000 and $287,000, respectively, of severance and other
related costs and expenses incurred in connection with a reduction in workforce.
6. LONG-TERM DEBT
Until June 1, 1995, the Company had a $30,000,000 senior secured credit
facility with a bank consisting of a $25,000,000 revolving line-of-credit and a
loan commitment of $5,000,000 for the purchase of new equipment ("Credit
Facility"). The Credit Facility was replaced in June 1995 in connection with the
change in ownership (Note 11) and amounts outstanding were repaid. The Credit
Facility, as amended, would have expired in November 1997 and was renewable
annually thereafter. Advances under the revolving line-of-credit were limited to
the lesser of $25,000,000 or a stipulated percentage of eligible accounts
receivable and inventory and were payable the earlier of five years from the
date of funding or the expiration date of the Credit Facility. Under these
limitations, advances available under the revolving line-of-credit were
$20,959,000 at March 31, 1995, while actual outstanding borrowings under the
revolving line-of-credit amounted to $18,499,000 at March 31, 1995. Outstanding
letters of credit issued in favor of the Company were approximately $184,000 at
March 31, 1995. Under the equipment loan commitment, the Company could fund 75%
of the equipment's purchase price to a maximum of $2,800,000 in any one fiscal
year. There were no outstanding borrowings under the equipment loan commitment
at March 31, 1995.
F-27
<PAGE> 91
NATIONAL AIRMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Interest on all outstanding borrowings was based on LIBOR plus 3.5%, or
9.625%, at March 31, 1995 and 7.185% at April 1, 1994 and was payable monthly.
Outstanding borrowings under the Credit Facility were collateralized by
substantially all the assets of the Company and were guaranteed by Triton.
The Credit Facility included certain financial covenants with respect to
net worth, limitations on borrowings and leases, working capital, and
profitability, among others. Although the Company was not in compliance with
certain of these financial covenants at March 31, 1995, for purposes of the
historical cost, stand-alone financial statement presentation, this debt amount
has been classified as a non-current liability since it was refinanced with
another long-term credit facility in connection with the change in ownership
transaction discussed in Note 11.
7. INCOME TAXES
The Company and Triton are parties to a tax sharing agreement. The
agreement was amended for fiscal 1994 only to provide that the Company (whose
income is consolidated with that of Triton for federal and, to the extent
permitted, state income tax reporting purposes) record amounts representing
federal and state income taxes calculated on a "stand-alone basis." In
connection with this amendment, the Company agreed to reimburse Triton in the
event of any adjustment (including interest or penalties) to its consolidated
federal and state income tax returns based upon the Company's obligations with
respect thereto. Accordingly, amounts paid could exceed the Company's actual tax
liability on a "stand-alone basis."
In fiscal 1995, federal income taxes are calculated on a stand-alone basis
and all refundable income taxes are calculated on an "incremental" basis in
accordance with the terms of the original tax sharing agreement. The Company is
not required to pay state income taxes if Triton has a consolidated net
operating loss or utilizes a consolidated net operating loss carryforward that
eliminates Triton's consolidated state taxable income. Refundable federal and
state income taxes can be recorded by the Company related to its net operating
losses only when the net operating losses of the Company are utilized by Triton
to reduce the consolidated federal or state tax liability of the Group. In
connection with Triton's emergence from bankruptcy, consolidated net operating
losses and other tax benefit attributes of Triton and its subsidiaries were
substantially reduced and/or eliminated pursuant to statutory limitations for
both federal and state income tax reporting purposes.
Under the tax sharing agreement and solely for purposes of calculating the
Company's federal income tax provision on a stand-alone basis, all deductible
temporary differences which were eliminated with Triton's emergence from
bankruptcy remain available to reduce the Company's taxable income. Accordingly,
these temporary differences have been included as a reduction of the calculated
deferred income tax liability at March 31, 1995. Because of the extent of these
limitations, the tax sharing agreement results in the Company recording a tax
benefit for temporary differences that are not available to Triton. In addition,
these limitations, and potentially further limitations, would carry-over in the
event of a change in ownership.
The income tax provision and related deferred tax assets and liabilities do
not give effect to the limitations applicable to the future deductibility of
related temporary differences resulting from the change in ownership discussed
in Note 11.
F-28
<PAGE> 92
NATIONAL AIRMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The (provision) benefit for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
APRIL 1, MARCH 31,
1994 1995
------- ---------
<S> <C> <C>
Federal:
Current............................................... $ (292) $(135)
Deferred.............................................. (442) 815
------- -----
(734) 680
------- -----
State:
Current............................................... (36) (21)
Deferred.............................................. (276) 226
------- -----
(312) 205
------- -----
$(1,046) $ 885
======= =====
</TABLE>
The gross deferred tax assets and liabilities at March 31, 1995 consist of
the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1995
---------
<S> <C>
Gross deferred tax assets:
Inventory reserve.................................................. $ 2,092
Accrued liabilities................................................ 474
Provision for doubtful accounts.................................... 199
Other.............................................................. 275
------
3,040
------
Gross deferred tax liabilities:
Prepaid expenses................................................... 219
Depreciation and amortization...................................... 1,042
Other assets....................................................... 426
Other.............................................................. 1,030
------
2,717
------
Net deferred tax asset............................................... $ 323
======
</TABLE>
There were no valuation allowances on deferred tax assets as future taxable
income on a stand-alone basis as determined under the tax sharing arrangement
was expected to be sufficient to allow realization of recorded tax assets.
A reconciliation of the federal statutory rate to the effective rate
follows (in percent):
<TABLE>
<CAPTION>
APRIL 1, MARCH 31,
1994 1995
-------- ---------
<S> <C> <C>
Federal statutory rate................................... 34.0 (34.0)
State taxes, net of federal benefit...................... 6.7 (6.2)
Department of Justice settlement liability............... (9.6) 3.9
Goodwill amortization.................................... 2.6 (3.6)
Other, net............................................... .4 (.8)
---- -----
Effective rate........................................... 34.1 (40.7)
==== =====
</TABLE>
F-29
<PAGE> 93
NATIONAL AIRMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS
Profit Sharing and Bonus Plans
The Company has contractual and discretionary profit sharing and bonus
arrangements with certain officers and key employees. The Company charged to
expense approximately $857,000 and $451,000 in the years ended April 1, 1994 and
March 31, 1995, respectively, for these arrangements.
The Company established a 401(k) salary deferral savings plan on November
1, 1987. The plan covers all full time employees. The plan allows employees to
defer up to fifteen percent of their salary with partially matching Company
contributions. The Company's contributions to the plan were $201,000 and
$185,000 in the years ended April 1, 1994 and March 31, 1995, respectively.
Pension plans
Substantially all employees of the Company are covered by a qualified
noncontributory defined benefit pension plan. The Company also had an unfunded,
nonqualified defined benefit pension plan for certain management employees which
supplemented the qualified pension plan. Benefits under the plans become fully
vested after 5 years of service. The Company's funding policy is to contribute
annually the amount required by ERISA as determined by the Plans' actuaries. All
of the qualified plan's assets are held by, and invested in various investment
funds of Principal Mutual Life Insurance Company, a qualified insurance company.
In January 1991, the Company terminated participation by nonretired
participants in the nonqualified defined benefit pension plan. These nonretired
participants now participate in a defined contribution plan in which the Company
contributes amounts equal to the premiums on participants' life insurance
policies. There was no material settlement/curtailment gain (loss) from this
transaction. The Company's contribution related to the defined contribution plan
totaled $102,000 in fiscal 1994 and $103,000 in fiscal 1995.
Net periodic pension cost for the defined benefit plans calculated under
the projected unit credit cost method for the years ended April 1, 1994 and
March 31, 1995 included the following components (in thousands):
<TABLE>
<CAPTION>
APRIL 1, MARCH 31,
1994 1995
-------- ---------
<S> <C> <C>
Qualified Plan
Service cost -- benefits earned during the period............. $ 613 $ 677
Interest cost on projected benefit obligation................. 694 818
Actual return on plan assets.................................. (1,085) 61
Net amortization and deferral................................. 643 (738)
------- ----
Net periodic pension cost..................................... $ 865 $ 818
======= ====
Nonqualified Plan
Service cost -- benefits earned during the period............. $ -- $ --
Interest cost on projected benefit obligation................. 56 56
Net amortization and deferral................................. 9 9
------- ----
Net periodic pension cost..................................... $ 65 $ 65
======= ====
</TABLE>
Amortization of prior service cost included in net periodic pension cost
was calculated using the straight-line method over the average remaining service
period of participants expected to receive benefits under the plans.
F-30
<PAGE> 94
NATIONAL AIRMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the defined benefit plans' funded status and
amounts recognized in the Company's balance sheet at March 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
1995
---------
<S> <C>
Qualified Plan
Accumulated benefit obligation:
Vested.................................................................. $ (8,929)
Not yet vested.......................................................... (164)
--------
$ (9,093)
========
Projected benefit obligation for service rendered to date................. $ (13,088)
Plan assets at fair value -- listed debt securities....................... 9,526
--------
Excess of projected benefit obligation over plan assets................... (3,562)
Unrecognized net loss subsequent to transition............................ 4,979
Prior service costs not recognized in net periodic pension costs.......... (44)
Unrecognized net asset at February 1, 1988 being amortized over 15
years................................................................... (367)
--------
Prepaid pension cost included in prepaid expenses and other assets........ $ 1,006
========
Nonqualified Plan
Accumulated benefit obligation:
Vested.................................................................. $ (775)
========
Projected benefit obligation for service rendered to date................. $ (726)
========
Accrued pension cost included in accrued liabilities and other long-term
liabilities............................................................. $ (726)
========
</TABLE>
Significant Actuarial Assumptions
<TABLE>
<CAPTION>
APRIL 1, MARCH 31,
1994 1995
-------- ---------
<S> <C> <C>
Qualified Plan:
Discount rate.................................................. 6.75% 7.25%
----- -----
Rates of increase in compensation levels....................... 5.50% 5.36%
----- -----
Expected long-term rate of return on plan assets............... 9.00% 9.00%
----- -----
Nonqualified Plan:
Discount rate.................................................. 6.75% 7.50%
----- -----
Rates of increase in compensation levels....................... N/A N/A
----- -----
Expected long-term rate of return on plan assets............... 9.00% 9.00%
----- -----
</TABLE>
During fiscal 1995, the discount rate used to determine the projected
benefit obligation was increased from 6.75% to 7.25% for the qualified plan and
from 6.75% to 7.50% for the non-qualified plan, in order to more closely
approximate rates on high-quality, long-term obligations. Additionally,
actuarial assumptions with respect to rates of salary increase and withdrawal,
disability and spouse's age were revised for the qualified plan to more closely
reflect the actual status of the plan's participants. During fiscal 1994,
actuarial assumptions with respect to mortality were revised to consider the
longer life expectancy of the plan participants. The effect to the accumulated
and projected benefit obligations as a result of these assumption changes for
both plans is included in "Unrecognized net loss subsequent to transition" and
will be amortized
F-31
<PAGE> 95
NATIONAL AIRMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
as a component of net periodic pension cost. Accordingly, the net effect of
these changes in actuarial assumptions on the Company's results of operations
and financial condition was not material.
The fiscal 1994 workforce reductions discussed in Note 5 resulted in a
curtailment of plan benefits with a corresponding reduction in the projected
benefit obligation of approximately $669,000. This curtailment gain was recorded
as a reduction in "Unrecognized net loss subsequent to transition" and will be
amortized as a component of periodic pension cost. Accordingly, there was no
effect to the Company's fiscal 1994 results of operations.
Subsequent to March 31, 1995 and the June 1, 1995 change in ownership
transaction discussed in Note 11, the Company's new parent announced its
intention to terminate the qualified defined benefit pension plan. In connection
with the termination of the plan, the Company will amend the plan agreement to
provide 100% vesting for all participants, freeze further benefit accruals for
participants and settle the related obligations upon regulatory approval of the
plan's termination. The Company anticipates a material curtailment gain and
settlement loss from this termination event. The determination of the amount of
the curtailment gain and settlement loss is to be made by the Company's actuary
and the related calculation has not been performed.
9. COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases certain land, plant facilities and equipment under
operating leases and certain equipment under capital leases. Many of the
Company's operating leases have options which allow the Company, at the end of
the initial lease term, to renew the leases for periods ranging from three to
five years. The lease agreements contain certain escalation clauses which are
based on the consumer price index. Future minimum rental payments under
operating leases, before sublease rental income, that have initial or remaining
noncancellable lease terms in excess of one year and future minimum payments for
capital leases as of March 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING: CAPITAL OPERATING
---------------------------------------------------------- ------- ---------
<S> <C> <C>
1996.................................................... $ 427 $ 578
1997.................................................... 99 504
1998.................................................... 93 485
1999.................................................... -- 273
2000.................................................... -- 181
2001 and thereafter..................................... -- 2,691
---- -----
619 $ 4,712
=====
Less amounts representing interest........................ 79
----
Net present value of future minimum lease payments........ 540
Less current portion...................................... 379
----
$ 161
====
</TABLE>
Rental expense under all short-term and noncancellable operating leases
amounted to $405,000 and $509,000, net of sublease rental income of $165,000 and
$226,000, for the years ended April 1, 1994 and March 31, 1995, respectively.
F-32
<PAGE> 96
NATIONAL AIRMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Contingencies
In the ordinary course of business, the Company is subject to many levels
of governmental inquiry and investigation. Among the agencies which oversee the
Company's business activities are: the Federal Aviation Administration, the
Department of Defense, the Department of Justice, the Environmental Protection
Agency and the Defense Contract Audit Agency. The Company does not anticipate
that any action as a result of such inquiries and investigations would have a
material adverse affect on its financial position, results of operations or its
ability to conduct business. In the normal conduct of its business, the Company
is also subject to various claims and lawsuits, none of which, in the opinion of
the Company's management, will have a material adverse affect on the Company's
financial position or results of operations.
10. SIGNIFICANT CUSTOMERS AND EXPORT SALES
The Company operates in one industry (Note 1). Combined sales to agencies
of the United States Government represented 28% and 15% of total net sales for
the years ended April 1, 1994 and March 31, 1995, respectively.
The Company has no foreign operations. However, export sales were
approximately $31,000,000 or 33% of total net sales in the year ended April 1,
1994 and $26,000,000 or 31% of total net sales in the year ended March 31, 1995.
The majority of export activities for the years ended April 1, 1994 and March
31, 1995 were to the following geographic areas: United Kingdom, Middle East,
Far East and Canada.
11. SUBSEQUENT EVENTS
On June 1, 1995, Triton sold its ownership interest in the capital stock of
the Company for cash of $11,250,000 to First Aviation Services, Inc. ("First
Aviation"). First Aviation and its parent company, First Equity Development,
Inc. ("First Equity"), funded this acquisition with the proceeds from the sale
of common and preferred stock (approximately $1,700,000 and $550,000,
respectively) and borrowings under a credit facility (see below). The
transaction is to be accounted for as a purchase. The amount paid by First
Equity is less than the historical cost basis of the assets acquired and
liabilities assumed.
First Aviation and its parent, First Equity, obtained debt financing for
the acquisition of the Company, and to provide additional funds for working
capital purposes pursuant to a senior credit facility with a bank and a
subordinated term loan from an investment group. The Company's outstanding
advances under its Credit Facility were repaid with a portion of the proceeds of
these credit facilities.
The senior credit facility aggregates $30,000,000 and consists of revolving
lines-of-credit of $28,000,000 and a term loan of $2,000,000. Advances under the
revolving line-of-credit are limited to a stipulated percentage of eligible
accounts receivable and inventory and are payable at the expiration of the
agreement on June 1998 or one year renewal periods thereafter. The senior term
loan is payable monthly over a five year period. Borrowings under the credit
facility bear interest at the Company's option of either the lending bank's
prime rate plus 1.25% per annum or the Eurodollar rate plus 3.5% per annum, and
are secured by substantially all assets of the Company. The subordinated term
loan amounts to $3,000,000 and is payable quarterly over a two year period, with
interest accruing at an annual rate of 15%.
F-33
<PAGE> 97
REPORT OF INDEPENDENT AUDITORS
The Shareholder
AMR Combs, Inc.
We have audited the accompanying balance sheets of Aircraft Parts International
(the "Company"), a division of AMR Combs, Inc., as of December 31, 1995, and
September 30, 1996, and the related statements of operations and division equity
and cash flows for the year and nine months then ended, respectively. 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 audit.
We conducted our audit 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 audit provides 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 the Company as of December 31,
1995, and September 30, 1996, and the results of its operations and its cash
flows for the year and nine months then ended, respectively, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
November 15, 1996, except for Note 7, as
to which the date is November 25, 1996
F-34
<PAGE> 98
AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Current assets:
Cash............................................................ $ -- $ 3,698,800
Accounts receivable, net of allowance for doubtful accounts..... 5,327,100 6,222,000
Accounts receivable from affiliates............................. 534,500 454,400
Inventories, net of allowance for excess and obsolete
inventory.................................................... 6,099,400 4,272,600
Prepaid expenses and other...................................... 86,900 418,100
------------ -------------
Total current assets.............................................. 12,047,900 15,065,900
Plant and equipment, net.......................................... 674,500 652,700
------------ -------------
$ 12,722,400 $ 15,718,600
========== ==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable................................................ $ 2,215,800 $ 2,591,600
Accrued liabilities............................................. 329,200 219,600
Accrued compensation and related benefits....................... 142,900 228,900
Amounts due affiliates.......................................... 11,634,600 14,339,700
------------ -------------
Total current liabilities......................................... 14,322,500 17,379,800
------------ -------------
Division equity................................................... (1,600,100) (1,661,200)
------------ -------------
$ 12,722,400 $ 15,718,600
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 99
AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)
STATEMENTS OF OPERATIONS AND DIVISION EQUITY
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Sales:
Non-affiliates.................................................. $ 27,896,100 $ 27,813,700
Affiliates...................................................... 1,779,800 1,263,900
------------ -------------
Total sales....................................................... 29,675,900 29,077,600
Cost of sales..................................................... 24,748,000 24,332,900
------------ -------------
Gross profit...................................................... 4,927,900 4,744,700
Selling, general and administrative expenses...................... 4,835,600 4,257,900
------------ -------------
Income from operations............................................ 92,300 486,800
Interest expense.................................................. 643,000 547,800
Other expenses, net............................................... (2,400) 100
------------ -------------
Loss before income taxes.......................................... (548,300) (61,100)
Provision for income taxes........................................ -- --
------------ -------------
Net loss.......................................................... (548,300) (61,100)
Division equity at the beginning of the period.................... (1,051,800) (1,600,100)
------------ -------------
Division equity at the end of the period.......................... $ (1,600,100) $ (1,661,200)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE> 100
AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.......................................................... $ (548,300) $ (61,100)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation.................................................... 154,000 154,900
Provision for doubtful accounts................................. 114,800 13,100
Provision for excess and obsolete inventory..................... 132,900 87,500
Changes in assets and liabilities:
Accounts receivable.......................................... (1,564,600) (827,900)
Inventories.................................................. (955,600) 1,739,300
Prepaid expenses and other assets............................ (52,900) (331,200)
Accounts payable............................................. 764,100 375,800
Accrued liabilities.......................................... 163,400 (23,600)
Other, net................................................... -- 2,000
------------ -------------
Net cash flows provided by (used in) operating activities......... (1,792,200) 1,128,800
INVESTING ACTIVITIES:
Acquisition of plant and equipment................................ (475,700) (156,900)
Proceeds from disposal of plant and equipment..................... -- 21,800
------------ -------------
Net cash flows used in investing activities....................... (475,700) (135,100)
FINANCING ACTIVITIES:
Change in amounts due affiliates.................................. 2,267,900 2,705,100
------------ -------------
Net change in cash................................................ -- 3,698,800
Cash at the beginning of the period............................... -- --
------------ -------------
Cash at the end of the period..................................... $ -- $ 3,698,800
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 101
AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996
1. BUSINESS AND BASIS OF PRESENTATION
Aircraft Parts International (the "Company") is a division of AMR Combs,
Inc. ("AMR Combs"), a wholly-owned subsidiary of AMR Services Corporation ("AMR
Services"), and has no separate legal status or existence. Transactions with AMR
Services, American Airlines, Inc. ("American"), and AMR Eagle, Inc. ("AMR
Eagle"), all wholly owned subsidiaries of AMR Corporation ("AMR"), are described
in Note 3. The financial position, results of operations, and cash flows
reflected in the accompanying financial statements are not necessarily
indicative of the financial position, results of operations, or cash flows that
would have been obtained had the Company operated as a separate legal entity.
The Company is an aircraft parts distributor for more than 100 major
product lines of aircraft parts. API Technologies, the Company's licensed repair
station, offers brake and starter generator overhaul services and is an
authorized hose assembly manufacturing facility. The Company's centralized
distribution facility is located in Memphis, Tennessee.
The Company provides aircraft parts and services to over 3,000 customers
per year, including fixed base operators, certified repair stations, engine and
component overhaulers, fleet operators, government agencies, air cargo
operators, regional air carriers, and major airlines, primarily located in North
America. The Company is not dependent upon any single customer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of average cost or market, cost being
determined using first-in, first-out ("FIFO") method. Provisions are made in
each period for the estimated effect of excess and obsolete inventories. The
allowance for excess and obsolete inventory was $350,700, and $429,700 as of
December 31, 1995, and September 30, 1996, respectively. Such allowance was
based on management's best estimate, which is subject to change. Actual results
could differ significantly from this estimate.
Component Inventory Sales
The Company, through its licensed repair station, API Technologies, and
arrangements with third-party vendors, provides overhaul services on certain
core aircraft components, including brake and starter generator components. As
part of these services, a customer generally sends to the Company a used core
component of the same type that the customer is purchasing from the Company.
The Company records a sale for the value of the core and build-up of the
component at the time the component is shipped to the customer. No profit margin
is recognized on the sale of the core portion of the component sale as the
customer is granted a credit on return of a used core component. Profit is
recognized on any core sold when it is determined that the customer will not
send the Company a used core in exchange.
Plant and Equipment
Plant and equipment is stated at original cost less allowance for
accumulated depreciation. Plant and equipment transferred from affiliates is
recorded at the affiliate's net book value on the date of the transfer.
Expenditures for normal maintenance and repairs are charged to expense as
incurred.
F-38
<PAGE> 102
AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996
Depreciation of plant and equipment is computed using the straight-line
method over the estimated lives of the assets which range from three to ten
years. Equipment and property transferred from affiliates is depreciated over
the remainder of its original estimated useful life. Leasehold improvements are
amortized over the estimated life of the improvement.
Income Taxes
AMR Combs is included in AMR's consolidated United States federal income
tax return. Under the terms of AMR's tax-sharing policy, income taxes are
allocated to AMR subsidiaries and divisions as if the subsidiaries and divisions
were separate taxable entities. As such, amounts due affiliates would be charged
an amount equal to the income tax payments that the Company would have been
obligated to pay if it had filed separate income tax returns.
The Company computes its provision for deferred income taxes using the
liability method as if it were a separate taxpayer. Under this method, deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was
$234,000 and $108,800 for the year ended December 31, 1995, and the nine months
ended September 30, 1996, respectively.
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. Actual results could differ from those estimates.
3. TRANSACTIONS WITH RELATED PARTIES
As a result of its relationship with AMR and its affiliates, including AMR
Combs and American, the Company has extensive related party transactions. These
transactions have been recognized on a basis determined by the parties, which
may not be representative of the terms the Company might have negotiated with
third parties.
The Company generally does not maintain separate cash deposits. American
funds disbursements on behalf of the Company and cash receipts by the Company
are generally transferred to American immediately, with a corresponding increase
or decrease in amounts due affiliates. In addition, amounts due affiliates is
immediately credited or charged upon the recording of certain transactions,
including the recognition of certain sales to affiliates and the payment of
certain expenses on behalf of the Company by American. Accordingly, no
receivables or payables for these transactions are reflected on the Company's
balance sheet. To the extent that American has provided funds to the Company and
paid expenses on behalf of the Company in excess of the amounts transferred to
American, the Company is charged interest at the average rate that American
earns on its short-term investments portfolio. The interest rate, which is reset
monthly, was 5.9% and 5.7% as of December 31, 1995, and September 30, 1996,
respectively.
F-39
<PAGE> 103
AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996
Interest expense on the amounts due affiliates was $636,600, and $546,600
for the year ended December 31, 1995, and the nine months ended September 30,
1996, respectively, and was charged directly to amounts due affiliates.
Sales to affiliates consist of aircraft parts sales to AMR Combs, AMR
Eagle, and American. Sales to affiliated companies are typically made on terms
and conditions similar to those of transactions with non-affiliates, except for
sales to AMR Combs which are made on a cost plus basis. Accounts receivable from
affiliates represent amounts owed to the Company for aircraft parts sales and
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Accounts receivable from:
AMR Combs....................................... $277,500 $ 196,500
AMR Eagle....................................... 101,400 64,900
American........................................ 62,800 85,600
Others.......................................... 92,800 107,400
------------ -------------
$534,500 $ 454,400
========== ==========
</TABLE>
The Company is covered under the general and product liability insurance
programs of AMR Combs. The Company is allocated a portion of the premiums paid
by AMR Combs under its insurance programs utilizing a formula based on sales and
determined by AMR Combs. During the year ended December 31, 1995, and the nine
months ended September 30, 1996, the Company recognized expenses of $144,700 and
$112,800, respectively, related to its coverage under the AMR Combs general and
product liability insurance programs.
The Company's employees are covered under the AMR Services group health
insurance plan. The costs associated with the Company's participation in the AMR
Services group health plan are reimbursed to AMR Services by the Company. During
the year ended December 31, 1995, and the nine months ended September 30, 1996,
the Company recognized expenses of $143,300, and $111,300, respectively, related
to its participation in the AMR Services health plan.
The Company's employees are eligible for business travel on American and
AMR Eagle at rates stipulated by American and AMR Eagle. During the year ended
December 31, 1995, and the nine months ended September 30, 1996, the Company
recognized expenses of $53,500 and $45,400, respectively, for travel charges
from American and AMR Eagle.
The rates for a significant portion of the Company's shipping and
distribution costs are based on American's contracts with certain shipping and
distribution providers. During the year ended December 31, 1995, and the nine
months ended September 30, 1996, charges for such services totaled $1,101,300
and $1,226,200, respectively, of which $525,500 and $662,100 were billed to
customers. There can be no assurances that the Company would be able to obtain
similar rates for these services were it to cease being covered under American's
agreements.
4. CONCENTRATIONS OF RISK
The Company does not believe it has significant concentrations of credit
risk in its accounts receivable, which are unsecured. The Company performs
ongoing credit evaluations of its customers and maintains
F-40
<PAGE> 104
AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996
allowances which management believes are adequate for potential credit losses.
The allowance for doubtful accounts was $275,900 and $283,100 as of December 31,
1995, and September 30, 1996, respectively.
The Company's single largest supplier is The New Piper Aircraft Company
("Piper"). The Company has direct access to Piper parts because AMR Combs is one
of thirteen factory authorized domestic distributors of Piper parts. The sale of
Piper parts accounted for approximately seventeen percent of the Company's sales
to non-affiliates during the nine months ended September 30, 1996. The loss of
the Piper distributorship by AMR Combs or a decline in the availability of Piper
parts could have a material adverse impact on the Company's business, financial
condition, and results of operations.
The Company competes with several aviation parts distributors who, in the
aggregate, offer most of the same product lines to the same customers. Most
aviation manufacturers appoint two to fifteen parts distributors. Such
appointments are typically contracted on an annual basis and most can be
terminated at any time. There is little or no exclusivity given by manufacturers
and there are no assurances of contract renewals.
The Company has no foreign operations; however, export sales were
$3,590,100 and $2,485,600 for the year ended December 31, 1995, and the nine
months ended September 30, 1996, respectively. Accounts receivable from foreign
customers, all denominated in U.S. dollars, were $1,148,600 and $960,200 as of
December 31, 1995, and September 30, 1996, respectively. The majority of export
sales activities were in Canada and Central and South America.
5. PLANT AND EQUIPMENT
The cost and accumulated depreciation of plant and equipment were:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Office furniture, fixtures and equipment.......... $ 583,900 $ 641,900
Machinery and equipment........................... 502,100 534,000
Leasehold improvements............................ 205,200 205,200
------------ -------------
1,291,200 1,381,100
Less accumulated depreciation..................... 616,700 728,400
------------ -------------
$ 674,500 $ 652,700
========== ==========
</TABLE>
Rent expense was $167,100 and $128,400 for the year ended December 31,
1995, and the nine months ended September 30, 1996, respectively. The lease on
the Company's distribution facility contains a three year renewal option at
rates consistent with those paid during the nine months ended September 30,
1996.
6. INCOME TAXES
The Company has been included in AMR's consolidated United States federal
income tax return since its inception. Under the terms of AMR's tax sharing
policy, the Company computes its provision for income taxes as if it were a
separate taxpayer. Accordingly, the deferred tax assets and liabilities included
in these financial statements may not represent the deferred tax assets and
liabilities that the Company would retain were it to cease being included in the
consolidated federal income tax return of AMR.
The Company did not record an income tax provision for the year ended
December 31, 1995 or the nine months ended September 30, 1996, as the Company
incurred net operating losses in each period and recorded a valuation allowance
for the benefit of those net operating losses. As of September 30, 1996, the
Company
F-41
<PAGE> 105
AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996
had available under the terms of AMR's tax sharing policy approximately $667,000
of net operating loss carryforwards expiring in the years 2004 through 2110
available to reduce future federal taxable income.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities were:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 234,800 $ 226,600
Provision for excess and obsolete inventory..... 119,200 146,100
Accounts receivable............................. 97,500 58,400
Allowance for doubtful accounts................. 93,800 96,300
Accrued liabilities............................. 23,100 55,000
Other........................................... 43,700 46,500
Valuation allowance............................. (575,600) (589,000)
------------ -------------
Total deferred tax assets......................... 36,500 39,900
Deferred tax liability -- depreciation............ (36,500) (39,900)
------------ -------------
Net deferred tax asset............................ $ -- $ --
========== ==========
</TABLE>
During the year ended December 31, 1995, and the nine months ended
September 30, 1996, the Company's valuation allowance for deferred tax assets
increased by $161,700 and $13,400 respectively.
7. SUBSEQUENT EVENT
On November 25, 1996, AMR Combs and First Aviation Services Inc. ("First
Aviation") entered into an asset purchase agreement providing for the
acquisition of certain assets and liabilities of the Company by a subsidiary of
First Aviation. The closing of the transaction will occur simultaneously with
the completion of an initial public offering by First Aviation of its Common
Stock.
F-42
<PAGE> 106
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 3
Summary Historical and Pro Forma
Financial Data...................... 5
Risk Factors.......................... 7
API Combs Acquisition................. 14
Use of Proceeds....................... 14
Dividend Policy....................... 15
Dilution.............................. 16
Capitalization........................ 17
Unaudited Pro Forma Combined Financial
Information......................... 18
Selected Financial Information........ 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 32
Management............................ 46
Certain Transactions.................. 52
Principal Stockholders................ 54
Description of Capital Stock.......... 55
Shares Eligible for Future Sale....... 58
Underwriting.......................... 59
Legal Matters......................... 60
Experts............................... 60
Additional Information................ 60
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
3,900,000 SHARES
FIRST AVIATION
SERVICES INC.
COMMON STOCK
------------
PROSPECTUS
, 1997
------------
SMITH BARNEY INC.
DILLON, READ & CO. INC.
------------------------------------------------------
------------------------------------------------------
<PAGE> 107
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the
issuance and distribution of the Common Stock being registered. All amounts are
estimates except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee...................... $ 16,310
NASD filing fee..........................................................
Nasdaq listing fee.......................................................
Accounting fees and expenses.............................................
Legal fees and expenses..................................................
Blue Sky qualification fees and expenses.................................
Printing and engraving expenses..........................................
Transfer agent and registrar fees........................................
D&O Insurance............................................................
Miscellaneous............................................................
----------
Total.......................................................... $
==========
</TABLE>
- ---------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the provisions of Section 145(a) of the Delaware General
Corporation Law, the Company has the power to indemnify anyone made or
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Company) because such person is
or was a director or officer of the Company against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in the defense or settlement of such action, suit, or
proceeding, provided that (i) such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the Company's best interest and
(ii) in the case of a criminal proceeding such person had no reasonable cause to
believe his conduct was unlawful.
With respect to an action or suit by or in the right of the Company to
procure a judgment in its favor, Section 145(b) of the Delaware General
Corporation Law provides that the Company shall have the power to indemnify
anyone who was, is, or is threatened to be made a party to any threatened,
pending, or completed action or suit brought by or in the right of the Company
to procure a judgment in its favor because such person is or was a director or
officer of the Company against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, provided that such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the Company's best interests,
except that no indemnification shall be made in a case in which such person
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall have determined upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably Indemnification as described above shall only be granted
in a specific case upon a determination that indemnification is proper under the
circumstances using the applicable standard of conduct which is made by (a) a
majority of a quorum of directors who were not parties to such proceeding, (b)
independent legal counsel in a written opinion if such quorum cannot be obtained
or if a quorum of disinterested directors so directs, or (c) the shareholders of
the Company.
II-1
<PAGE> 108
Section 145(g) of the Delaware General Corporation Law permits the purchase
and maintenance of insurance to indemnify directors and officers against any
liability asserted against or incurred by them in any such capacity, whether or
not the Company itself would have the power to indemnify such director or
officer against such liability. The Company has obtained such insurance and the
premiums therefor are paid by the Company.
The Certificate of Incorporation of the Company provides for the
indemnification of directors of the Company to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, as the same may be amended
or supplemented. The Certificate of Incorporation further provides that the
indemnification provided for therein shall not be exclusive of any rights to
which those indemnified may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors, or otherwise.
The Certificate of Incorporation also contains a provision that eliminates
the personal liability of the Company's directors to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director.
The provision does not limit a director's liability for (i) breaches of duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith, involving intentional misconduct or involving knowing violations of law,
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law, or (iv)
transactions in which the director received an improper personal benefit.
Depending on judicial interpretation, the provision may not affect liability for
violations of the federal securities laws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Company has entered into indemnification agreements with certain of its
directors that require the Company to indemnify such directors to the fullest
extent permitted by applicable provisions of law, provided that any settlement
of a third party action against a director or officer is approved by the
Company, and subject to limitations for actions initiated by the director or
officer, penalties paid by insurance and violations of Section 16(b) of the
Securities Exchange Act of 1934, as amended, and similar laws.
The Form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the Underwriters of the
Company and its directors and officers for certain liabilities arising under the
Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is a summary of transactions by the Company during the last
three years preceding the date hereof involving sales of the Company's
securities that were not registered under the Act.
In March 1995, the Company made the following issuances:
1) 5 shares of its then-existing Series A Common Stock to First Equity
at a price of $200 per share; and
2) 500 shares of its then-existing Series A Preferred Stock to
Holliday-Tyler Printing Inc. ("Holliday") at a price of $500 per share.
In May 1995, the Company issued 500 shares of its then-existing Series A
Preferred Stock to Holliday at a price of $500 per share.
II-2
<PAGE> 109
In June 1995, the Company made the following issuances:
1) 2,495 shares of its then-existing Series A Common Stock to Holliday
at $200.40 per share;
2) 1,800 shares of its then-existing Series A Preferred Stock to
Holliday at $500 per share; and
3) 500 shares of its then-existing Series A Preferred Stock to First
Equity at $500 per share.
In connection with a recapitalization of the Company on December 20, 1996,
all of the Company's outstanding shares of Series A Common Stock and Series A
Preferred Stock were contributed to FAI, who then exchanged 2,500 shares of
then-existing Series A Common Stock and 3,300 shares of Series A Preferred Stock
for 551,000 shares of new Common Stock and 33,000 shares of new Series A
Preferred.
The Company relied on Section 4(2) of the Securities Act of 1933 with
respect to the private sales of its Series A Common Stock and Series A Preferred
Stock for the exemption from the registration requirements of such Act. The
Company relied on Section 3(a)(9) of the Securities Act of 1933 for the
exemption from the registration requirements of such Act with respect to the
recapitalization of the Company.
In June 1995, NAC issued warrants to purchase its common stock to
Canpartners. On December 20, 1996, the Company authorized an amendment to the
Warrant Agreement between NAC and Canpartners providing that the subject
warrants to purchase shares of NAC's Common Stock will become exercisable for
shares of the Company's Common Stock in the event of a public offering of the
Company's Common Stock which yields at least $10 million in proceeds to the
Company.
The Company relied on Section 4(2) of the Securities Act of 1933 for the
exemption from the registration requirements of such act with respect to the
warrants.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------------------------------------------------------------------
<C> <S>
1.1 * Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of the Company
3.2 Restated Bylaws of the Company
4.1 * Specimen stock certificate
5.1 * Opinion of O'Melveny & Myers LLP
10.1 Form of Director Indemnification Agreement between the Company and each of its
directors
10.2 Loan and Security Agreement, dated June 13, 1996, by and between NAC and Fleet
Capital Corporation
10.3 Amendment Number One to Loan and Security Agreement, dated September 1, 1996, by
and between NAC and Fleet
10.4 Loan and Security Agreement, dated June 1, 1995, by and between NAC and
Canpartners Investments IV, LLC (as successor in interest to Canpartners
Investments III, L.P.) ("Canpartners")
10.5 First Amendment to Loan and Security Agreement, dated June 13, 1996, by and
between NAC and Canpartners
10.6 Warrant Agreement, dated June 1, 1995, by and between NAC and Canpartners
10.7 First Amendment to Warrant Agreement, dated June 13, 1996, by and between NAC and
Canpartners
10.8 Second Amendment to Warrant Agreement, dated December 20, 1996, by and between NAC
and Canpartners
</TABLE>
II-3
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------------------------------------------------------------------
<C> <S>
10.9 * Asset Purchase Agreement, dated November 25, 1996, by and between AMR Combs and
API Combs.
10.10 Form of Authorized Maintenance Center Agreement, by and between NAC and Allison
Engine Company
10.11* Employment Agreement, dated as of December 20, 1996, by and between John F. Risko
and the Company
10.12* Employment Agreement, dated as of December 20, 1996, by and between John Marsalisi
and the Company
10.13 Post-Employment Consulting Agreement, dated January 17, 1992, by and between
Rajesh Sharma and NAC
10.14* 1996 Stock Option Plan
10.15* 1996 Employee Stock Purchase Plan
10.16 Lease, dated January 23, 1991, by and between NAC and the City of Oakland (main
building lease)
10.17 First Supplement to lease, dated November 22, 1991, by and between NAC and the
City of Oakland (main building lease)
10.18 Lease, dated January 23, 1991, by and between NAC and the City of Oakland (test
cells lease)
10.19 Standard Industrial Lease-Net, dated November 26, 1996, by and between NAC (as
assignee) and Pacific Energy Resources, as amended
10.20* Employment Agreement, dated as of December 20, 1996, by and between Michael C.
Culver and the Company
10.21* Investment Advisory Services Agreement Relating to the API Combs Acquisition,
dated as of September 30, 1996, by and between First Equity and First Aviation
10.22* Investment Advisory Services Agreement Relating to the Offering, dated as of
September 30, 1996, by and between First Equity and First Aviation
10.23* Letter, dated as of December 20, 1996, by and between First Equity and First
Aviation regarding pursuit of acquisition opportunities
10.24 Registration Rights Agreement, dated as of December 20, 1996, by and between the
Company and FAI
10.25* Agreement and Plan of Merger, dated as of March 3, 1995, by and among the Company,
FE Acquisition Subsidiary, Triton Group Ltd. and NAC
10.26* Amendment No. 1 to Agreement and Plan of Merger, dated as of June 1, 1995, by and
among the Company, FE Acquisition Subsidiary, Triton Group Ltd. and NAC
11.1 Statement re: Computation of Earnings Per Share
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP
23.2 Consent of Price Waterhouse LLP
23.3 * Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
24.1 Power of Attorney (contained on page II-6)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
II-4
<PAGE> 111
(b) FINANCIAL STATEMENT SCHEDULES.
Set forth below is the financial statement schedule included as part of the
Registration Statement:
Schedule II
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the Consolidated Financial
Statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
the registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oakland,
County of Alameda, State of California, on the 23rd day of December, 1996.
FIRST AVIATION SERVICES INC.
By: /s/ MICHAEL C. CULVER
--------------------------------------
POWER OF ATTORNEY
We, the undersigned directors and officers of First Aviation Services Inc.,
do hereby constitute and appoint Michael C. Culver and John A. Marsalisi, or
either of them, our true and lawful attorneys and agents, to do any and all acts
and things in our name and behalf in our capacities as directors and officers
and to execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but without limitation, power and authority
to sign for us or any of us in our names and in the capacities indicated below,
any and all amendments (including post-effective amendments) to this
Registration Statement, or any related registration statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended; and we do hereby ratify and confirm all that the said attorneys and
agents, or either of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------------------------------- -----------------------------------------------------
<S> <C> <C>
/s/ AARON P. HOLLANDER Chairman of the Board December 23, 1996
-----------------------------------
Aaron P. Hollander
/s/ MICHAEL C. CULVER Chief Executive Officer and December 23, 1996
----------------------------------- Director
Michael C. Culver
/s/ JOHN F. RISKO Chief Operating Officer, Director December 23, 1996
-----------------------------------
John F. Risko
/s/ JOHN A. MARSALISI Chief Financial Officer and December 23, 1996
----------------------------------- Director (principal financial and
John A. Marsalisi accounting officer)
----------------------------------- Director December , 1996
Joshua S. Friedman
</TABLE>
II-6
<PAGE> 113
SCHEDULE II
FIRST AVIATION SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AS OF CHARGES TO CHARGES TO BALANCE
BEGINNING COSTS AND OTHER AS OF END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
DESCRIPTION
Year ended March 31, 1995
Allowance for Doubtful Trade
Receivables.......................... $ 500,000 $ 132,000 -- $172,000 $ 460,000
Two months ended May 31, 1995
Allowance for Doubtful Trade
Receivables.......................... 460,000 -- -- -- 460,000
Eight months ended January 31, 1996
Allowance for Doubtful Trade
Receivables.......................... 460,000 55,000 -- 237,000 278,000
Six months ended July 31, 1996
Allowance for Doubtful Trade
Receivables.......................... 278,000 38,000 -- -- 316,000
</TABLE>
S-1
<PAGE> 114
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGES
------- -----------------------------------------------------------------------------------
<C> <S> <C>
1.1 * Form of Underwriting Agreement........................................
3.1 Restated Certificate of Incorporation of the Company..................
3.2 Restated Bylaws of the Company........................................
4.1 * Specimen stock certificate............................................
5.1 * Opinion of O'Melveny & Myers LLP......................................
10.1 Form of Director Indemnification Agreement between the Company and
each of its directors.................................................
10.2 Loan and Security Agreement, dated June 13, 1996, by and between NAC
and Fleet Capital Corporation.........................................
10.3 Amendment Number One to Loan and Security Agreement, dated September
1, 1996, by and between NAC and Fleet.................................
10.4 Loan and Security Agreement, dated June 1, 1995, by and between NAC
and Canpartners Investments IV, LLC (as successor in interest to
Canpartners Investments III, L.P.) ("Canpartners")....................
10.5 First Amendment to Loan and Security Agreement, dated June 13, 1996,
by and between NAC and Canpartners....................................
10.6 Warrant Agreement, dated June 1, 1995, by and between NAC and
Canpartners...........................................................
10.7 First Amendment to Warrant Agreement, dated June 13, 1996, by and
between NAC and Canpartners...........................................
10.8 Second Amendment to Warrant Agreement, dated December 20, 1996, by and
between NAC and Canpartners...........................................
10.9 * Asset Purchase Agreement, dated November 25, 1996, by and between AMR
Combs and API Combs...................................................
10.10 Form of Authorized Maintenance Center Agreement, by and between NAC
and Allison Engine Company............................................
10.11* Employment Agreement, dated as of December 20, 1996, by and between
John F. Risko and the Company.........................................
10.12* Employment Agreement, dated as of December 20, 1996, by and between
John Marsalisi and the Company........................................
10.13 Post-Employment Consulting Agreement, dated January 17, 1992, by and
between Rajesh Sharma and NAC.........................................
10.14* 1996 Stock Option Plan................................................
10.15* 1996 Employee Stock Purchase Plan.....................................
10.16 Lease, dated January 23, 1991, by and between NAC and the City of
Oakland (main building lease).........................................
10.17 First Supplement to lease, dated November 22, 1991, by and between NAC
and the City of Oakland (main building lease).........................
10.18 Lease, dated January 23, 1991, by and between NAC and the City of
Oakland (test cells lease)............................................
10.19 Standard Industrial Lease-Net, dated November 26, 1996, by and between
NAC (as assignee) and Pacific Energy Resources, as amended............
10.20* Employment Agreement, dated as of December 20, 1996 by and between
Michael C. Culver and the Company.....................................
</TABLE>
<PAGE> 115
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGES
------- -----------------------------------------------------------------------------------
<C> <S> <C>
10.21* Investment Advisory Services Agreement Relating to the API Combs
Acquisition, dated as of September 30, 1996, by and between First
Equity and First Aviation.............................................
10.22* Investment Advisory Services Agreement Relating to the Offering, dated
as of September 30, 1996, by and between First Equity and First
Aviation..............................................................
10.23* Letter, dated as of December 20, 1996, by and between First Equity and
First Aviation regarding pursuit of acquisition opportunities.........
10.24 Registration Rights Agreement, dated as of December 20, 1996, by and
between the Company and FAI...........................................
10.25* Agreement and Plan of Merger, dated as of March 3, 1995, by and among
the Company, FE Acquisition Subsidiary, Triton Group Ltd. and NAC.....
10.26* Amendment No. 1 to Agreement and Plan of Merger, dated as of June 1,
1995, by and among the Company, FE Acquisition Subsidiary, Triton
Group Ltd. and NAC....................................................
11.1 Statement re: Computation of Earnings Per Share.......................
21.1 List of Subsidiaries..................................................
23.1 Consent of Ernst & Young LLP..........................................
23.2 Consent of Price Waterhouse LLP.......................................
23.3 * Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)............
24.1 Power of Attorney (contained on page II-6)............................
27.1 Financial Data Schedule...............................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
FIRST AVIATION SERVICES INC.
The undersigned, John Marsalisi, hereby certifies that:
1. He is the duly elected, qualified and acting Vice
President of First Aviation Services Inc. (the "Corporation").
2. The Corporation's original Certificate of Incorporation
was filed with the Secretary of State of Delaware on March 6, 1995.
3. An amendment to the Corporation's Certificate of
Incorporation was filed with the Secretary of State of Delaware on March 24,
1995, and a Certificate of Designation of Series A Cumulative Preferred Stock of
the Corporation was filed with the Secretary of State of Delaware on May 23,
1995.
4. Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware, and having been duly adopted in accordance
therewith, this Restated Certificate of Incorporation restates and integrates
and amends the provisions of the Certificate of Incorporation of this
Corporation, as it may have heretofore been amended or supplemented.
5. The text of the Certificate of Incorporation of the
Corporation, as it may have heretofore been amended or supplemented, is hereby
further amended and restated to read in its entirety as follows:
ARTICLE I.
NAME
The name of the corporation is First Aviation Services Inc.
ARTICLE II.
REGISTERED AGENT AND OFFICE
The name and address of the registered office of the
Corporation in the State of Delaware is:
Corporation Service Company
1013 Centre Road
Wilmington, New Castle County, Delaware 19805
<PAGE> 2
ARTICLE III.
PURPOSES
The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
ARTICLE IV.
CAPITAL STOCK
The total number of shares of capital stock which the
Corporation shall have the authority to issue is 30,000,000, of which (i)
25,000,000 shares shall be Common Stock, par value $0.001 per share (the "Common
Stock"), and (ii) 5,000,000 shares shall be Preferred Stock, par value $0.01 per
share (the "Preferred Stock"). The Board of Directors of the Corporation shall
have the full authority permitted by law to fix by resolution full, limited,
multiple, fractional or non-voting rights, and such designations, preferences,
limitations or restrictions thereof of any series that may be desired in respect
of the Preferred Stock.
The following is a statement of the designations, preferences,
voting powers, qualification, special or relative rights and privileges in
respect of the authorized capital stock of the Corporation.
A. COMMON STOCK
SECTION 1. VOTING. Holders of record of shares of
Common Stock shall be entitled to one vote for each share of such
stock upon all questions presented to stockholders of the
Corporation.
SECTION 2. DIVIDENDS. Subject to provisions of law and this
Certificate of Incorporation, the holders of Common Stock shall be entitled to
receive any dividends or distributions out of funds legally available therefor
at such times and in such amounts as the Board of Directors may determine in its
sole discretion.
SECTION 3. LIQUIDATION. The rights of holders of Common Stock
shall be subject to the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, of the Preferred Stock. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the holders of Preferred Stock shall be entitled, before any
distribution or payment is made to the holders of any Common Stock, to be paid
in full the redemption price in effect at the time of such distribution or
payment date,
2
<PAGE> 3
together with accrued dividends to such distribution or payment date whether or
not earned or declared.
If such payment shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Corporation shall be distributed
among the holders of Common Stock according to their respective numbers of
shares. For the purposes of this Section A.3 or Article IV, the consolidation or
merger of the Corporation with any other entity (except a merger of a subsidiary
into the Corporation) shall be deemed to constitute a liquidation, dissolution
or winding up of the Corporation.
SECTION 4. NOTICES. In the event that the Corporation provides
any notice, report or statement to any holder of Common Stock, the Corporation
shall at the same time provide a copy of any such notice, report or statement to
each holder of outstanding Common Stock.
B. PREFERRED STOCK
1. DESIGNATIONS. The initial series of Preferred Stock shall
be designated "Series A Preferred Stock."
2. NUMBER OF SHARES. The number of shares constituting the
Series A Preferred Stock shall be 60,000.
3. SALE PRICE. The term "Sale Price" shall mean $50 per
share.
4. DIVIDENDS. The holders of the Series A Preferred Stock
shall be entitled to receive dividends, when and as declared by the Board of
Directors, at the rate of $4.00 per share per annum, payable in preference to
all other shareholders. Such dividends shall be cumulative, and no dividend
shall be paid on the shares of any other class unless the current dividend, and
all arrears of dividends, if any, on the shares of the Series A Preferred Stock
shall have been paid, or provision shall have been made for the payment thereof.
The holders of shares of Series A Preferred Stock shall at no time have any
other right to further dividends of any kind.
Until such time as the subordinated debt of National Airmotive
Corporation, a California corporation ("NAC"), and its successors under that
certain initial Loan and Security Agreement between NAC and its successors and
Canpartners Investments III, L.P. (the "Subordinated Debt") has been repaid in
full, all dividends on the Series A Preferred Stock shall be paid in additional
shares of Series A Preferred Stock (based on the Sale Price). After the
Subordinated Debt has been paid in full, the Board of Directors may elect,
subject to other contractual restrictions, to pay such dividends in cash in lieu
of additional shares.
3
<PAGE> 4
Dividends shall not accrue when NAC or its successors is in
default for nonpayment of interest or principal on the Subordinated Debt, and
the dividend accruing to a holder of Series A Preferred Stock will be reduced,
pro rata, for the fraction of the year for which such default exists.
5. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary
(referred to herein as a "Liquidation"), the holders of Series A Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of the Common Stock, the
Liquidation Preference (as defined) per share before any payment shall be made
or any assets distributed to the holders of the Common Stock. If upon such
Liquidation, the assets thus distributed among the holders of the Series A
Preferred Stock shall be insufficient to permit the payment in full of the
Liquidation Preference, the entire assets of the Corporation to be distributed
shall be distributed ratably among the holders of the Series A Preferred Stock.
Following the completion of the distribution of the Liquidation Preference to be
paid to the holders of the Series A Preferred Stock, any remaining assets shall
be distributed to the holders of the Common Stock of the Corporation; provided,
however, if no shares of Common Stock are outstanding at the time of such
distribution, the holders of the Series A Preferred Stock shall be entitled to
receive, ratably all the assets of the Corporation remaining after the payment
of Liquidation Preference of the Series A Preferred Stock set forth herein. The
term "Liquidation Preference" means $10 if the Liquidation occurs on or before
May 31, 1996, $20 if the Liquidation occurs after May 31, 1996 but on or before
May 31, 1997, $30 if the Liquidation occurs after May 31, 1997 but on or before
May 31, 1998, $40 if the Liquidation occurs after May 31, 1998 but on or before
May 31, 1999, and $50 if the Liquidation occurs after May 31, 1999, plus, in
each case, an amount equal to any then declared but unpaid dividends on the
Series A Preferred Stock.
6. OPTIONAL REDEMPTION BY THE CORPORATION. At any time the
Corporation may, at the option of the Board of Directors, redeem all or part of
the outstanding shares of the Series A Preferred Stock at the Sale Price plus
all accrued and all declared but unpaid dividends on the shares of Series A
Preferred Stock (the "Redemption Price"). The redemption procedure shall be as
set forth in this Section B.6. The Corporation may initiate redemption of the
Series A Preferred Stock by mailing written notice (the "Redemption Notice"),
postage prepaid, to the holders of the Series A Preferred Stock at least 30 days
but no more than 60 days prior to the date fixed by the Corporation for
redemption which shall be the first business day of a calendar month (the
"Redemption Date"). The Redemption Notice shall be addressed to each such
shareholder at the address of such holder appearing on the books of the
4
<PAGE> 5
Corporation or given by such holder to the Corporation for the purpose of
notice, or if no such address appears or is so given, at the place where the
principal office of the Corporation is located. The Redemption Notice shall
state the Redemption Date, the Redemption Price, the number of shares of Series
A Preferred Stock of such holders to be redeemed, and shall call upon such
holder to surrender to the Corporation on the Redemption Date at the place
designated in the Redemption Notice such holder's redeemed stock. On or before
the Redemption Date, each holder of shares of Series A Preferred Stock called
for redemption shall surrender the certificate evidencing such shares to the
Corporation at the place designated in the Redemption Notice and shall thereupon
be entitled to receive payment of the redemption price. If less than all of the
outstanding shares of Series A Preferred Stock are to be redeemed, then the
Corporation shall redeem a pro rata portion from each holder of Series A
Preferred Stock according to the respective number of shares of Series A
Preferred Stock held by such holder.
7. VOTING RIGHTS. Except as required by law, the holders of
Series A Preferred Stock shall not be entitled to vote on matters presented to
the holders of Common Stock.
ARTICLE V.
DIRECTORS
SECTION 1. GENERAL. The business and affairs of the
Corporation shall be managed by or under the direction of the
Board of Directors, except as otherwise provided herein or
required by law.
SECTION 2. ELECTION OF DIRECTORS. Election of Directors need
not be by written ballot unless the Bylaws of the Corporation shall so provide.
SECTION 3. TERMS OF DIRECTORS. The number of Directors of the
Corporation shall be fixed by resolution duly adopted from time to time by the
Board of Directors. The Directors, other than those who may be elected by the
holders of any series of Preferred Stock of the Corporation, shall be
classified, with respect to the term for which they severally hold office, into
three classes. The initial Class I Directors shall serve for a term expiring at
the annual meeting of stockholders to be held in 1997, the initial Class II
Directors shall serve for a term expiring at the annual meeting of stockholders
to be held in 1998, and the initial Class III Directors shall serve for a term
expiring at the annual meeting of stockholders to be held in 1999. At each
annual meeting of stockholders, the successor or successors of the class of
Directors whose term expires at that meeting shall be elected by a plurality of
the votes cast at such meeting and shall hold office for a term expiring at the
annual meeting of stockholders
5
<PAGE> 6
held in the third year following the year of their election. The Directors
elected to each class shall hold office until their successors are duly elected
and qualified or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the
provision of Article IV of this Certificate of Incorporation, the holders of any
one or more series of Preferred Stock shall have the right, voting separately as
a series or together with holders of other such series, to elect Directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation and any certificate of designations
applicable thereto, and such Directors so elected shall not be divided into
classes pursuant to this Section 3.
During any period when the holders of any series of Preferred
Stock have the right to elect additional Directors as provided for or fixed
pursuant to the provisions of Article IV hereof, then upon commencement and for
the duration of the period during which such right continues; (i) the then
otherwise total authorized number of Directors of the Corporation shall
automatically be increased by such specified number of Directors, and the
holders of such Preferred Stock shall be entitled to elect the additional
Directors so provided for or fixed pursuant to said provisions, and (ii) each
such additional Director shall serve until such Director's successor shall have
been duly elected or qualified, or until such Director's right to hold such
office terminates pursuant to said provisions, whichever occurs earlier, subject
to such Director's earlier death, disqualification, resignation or removal.
Except as otherwise provided by the Board in the resolution or resolutions
establishing such series, whenever the holders of any series of Preferred Stock
having such right to elect additional Directors are divested of such right
pursuant to the provisions of such stock, the terms of office of all such
additional Directors elected by the holders of such stock, or elected to fill
any vacancies resulting from the death, resignation, disqualification or removal
of such additional Directors, shall forthwith terminate and the total and
authorized number of Directors of the Corporation shall be reduced accordingly.
SECTION 4. VACANCIES. Subject to the rights, if any, of the
holders of any series of Preferred Stock to elect Directors and to fill
vacancies in the Board of Directors relating thereto, any and all vacancies in
the Board of Directors, however occurring, including, without limitation, by
reason of an increase in size of the Board of Directors, or the death,
resignation, disqualification or removal of a Director, shall be filled solely
by the affirmative vote of a majority of the remaining Directors then in office,
even if less than a quorum of the Board of Directors. Any Director appointed in
6
<PAGE> 7
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected or qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect Directors when the number of Directors is increased or
decreased, the Board of Directors shall determine the class or classes to which
the increased or decreased number of Directors shall be apportioned; provided,
however, that no decrease in the number of Directors shall shorten the term of
any incumbent Director. In the event of a vacancy in the Board of Directors, the
remaining Directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
SECTION 5. REMOVAL. Subject to the rights, if any, of any
series of Preferred Stock to elect Directors and to remove any Director whom the
holders of any such stock have the right to elect, any Director (including
persons elected by Directors to fill vacancies in the Board of Directors) may be
removed from office only with cause. At least 30 days prior to any meeting of
stockholders at which it is proposed that any Director be removed from office,
written notice of such proposed removal shall be sent to the Director whose
removal will be considered at the meeting.
ARTICLE VI.
LIMITATION OF LIABILITY
To the fullest extent permitted by the General Corporation Law
of the State of Delaware, as the same exists or may hereafter be amended, a
Director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director.
The liability of a Director of the Corporation to the Corporation or its
stockholders for monetary damages shall be eliminated to the fullest extent
permissible under applicable law in the event it is determined that Delaware law
does not apply. The Corporation shall, to the fullest extent permitted by law,
indemnify its Directors against any liabilities, losses or related expenses
which they may incur by reason of serving or having served as Directors of the
Corporation. The Corporation may, to the fullest extent permitted by law,
indemnify its officers against any liabilities, losses or related expenses which
they may incur by reason of serving or having served as officers of the
Corporation, or serving or having served at the request of the Corporation as
Directors, officers, trustees, partners, employees or agents of any entity in
which the Corporation has an interest. The Corporation is authorized to provide
by Bylaw, agreement or otherwise for indemnification of Directors, officers,
employees and agents in excess of the indemnification otherwise permitted
7
<PAGE> 8
by applicable law. Any repeal or modification of this Article VI shall not
result in any liability of a Director, or any change or reduction in the
indemnification to which a Director, officer, employee or agent would otherwise
be entitled, with respect to any action or omission occurring prior to such
repeal or modification.
ARTICLE VII.
AMENDMENT OF BYLAWS
Except as otherwise provided by law, the Bylaws of the
Corporation may be amended or repealed by the Board of Directors.
ARTICLE VIII.
STOCKHOLDERS MEETING REQUIREMENT
Any election or other action by stockholders of this
Corporation must be effected at an annual or special meeting of stockholders and
may not be effected by written consent without a meeting.
ARTICLE IX.
CALL OF SPECIAL MEETINGS
Special meetings of the stockholders of the Corporation for
any purpose or purposes may be called at any time by the Board of Directors, or
by a majority of the members of the Board of Directors. Such special meetings
may not be called by any other person or persons or in any other manner.
6. The foregoing Restated Certificate of Incorporation has
been approved by the Corporation's Board of Directors by written consent in
accordance with Section 141(f) of the General Corporation Law of the State of
Delaware.
7. The foregoing Restated Certificate of Incorporation has
been approved by the stockholders of the Corporation by written consent in
accordance with Section 228 of the General Corporation Law of the State of
Delaware, and written notice thereof has been given as provided in such Section
228.
8
<PAGE> 9
IN WITNESS WHEREOF, this Restated Certificate of Incorporation
has been signed in the name of the Corporation and on its behalf by John A.
Marsalisi, its Secretary, this ___ day of December, 1996.
By:
-------------------------------
9
<PAGE> 1
EXHIBIT 3.2
RESTATED BYLAWS
OF
FIRST AVIATION SERVICES INC.
ARTICLE I
STOCKHOLDERS
Section 1.1. Annual Meetings. An annual meeting of
stockholders shall be held for the election of directors at such date, time and
place either within or without the State of Delaware as may be designated by the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of
stockholders may be called at any time by the Board of Directors, to be held at
such date, time and place either within or without the State of Delaware as may
be stated in the notice of the meeting. Business transacted at any special
meeting shall be limited to the purposes stated in the notice of the special
meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, the written
notice of any meeting shall be given not less than ten nor more than sixty days
before the date of the meeting to each stockholder entitled to vote at such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the stockholder at such
stockholder's address as it appears on the records of the Corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual
or special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of stockholders, except
where otherwise provided by law or the certificate of incorporation or these
bylaws, the holders
<PAGE> 2
of a majority of the voting power of the issued and outstanding shares of
capital stock entitled to vote at the meeting, present in person or represented
by proxy, shall constitute a quorum. For purposes of the foregoing, two or more
classes or series of stock shall be considered a single class if the holders
thereof are entitled to vote together as a single class at the meeting. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided by Section 1.4 of these
bylaws until a quorum shall attend. Shares of its own capital stock belonging on
the record date for the meeting to the Corporation or to another corporation, if
a majority of the shares entitled to vote in the election of directors of such
other corporation is held, directly or indirectly, by the corporation, shall
neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the Corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity. The Chairman of the meeting may determine that a quorum is present
based upon any reasonable evidence of the presence in person or by proxy of
stockholders holding a majority of the outstanding votes, including without
limitation, evidence from any record of stockholders who have signed a register
indicating their presence at a meeting.
Section 1.6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, or in the absence of the Chairman of
the Board, by a chairman designated by the Board of Directors, or in the absence
of such designation, by a chairman chosen by stockholders at the meeting. The
Secretary shall act as secretary of the meeting, or in the absence of the
Secretary by an Assistant Secretary, or in their absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for such stockholder by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the corporation. Voting at meetings of stockholders need not be by written
ballot unless so ordered by the Chairman, or, if for election of directors,
unless requested by any stockholder present at the meeting. At all meetings of
stockholders for the election of directors a plurality of the votes cast shall
be sufficient to elect. With respect to other matters, unless otherwise provided
by law or by the certificate of incorporation or these bylaws, the affirmative
vote of the holders of a majority of the voting power of the issued and
outstanding shares of capital stock present in person or represented by
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proxy at the meeting and entitled to vote on the subject matter shall be the act
of the stockholders. Where a separate vote by class is required, the affirmative
vote of the holders of a majority of the voting power of the issued and
outstanding shares of each class present in person or represented by proxy at
the meeting shall be the act of such class, except as otherwise provided by law
or by the certificate of incorporation or these bylaws.
Section 1.8. Inspectors of Election. The Board of Directors
shall, in advance of any meeting of stockholders, appoint one or more inspectors
to act at the meeting and make a written report thereof. The Board of Directors
may appoint one or more alternate inspectors to replace any inspector who fails
to act. The inspector shall ascertain the number of shares outstanding and the
voting power of each, determine the shares represented at the meeting and the
validity of the proxies and ballots, count all votes and ballots, determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors and certify their determination of
the number of shares represented at the meeting and their count of all votes and
ballots. The inspector shall perform his or her duties and shall make all
determinations in accordance with the Delaware General Corporation Law
including, without limitation, Section 231 of the Delaware General Corporation
Law.
The date and time of the opening and closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor revocations thereof
or changes thereto, shall be accepted by the inspectors after the closing of the
polls unless the Court of Chancery upon application by a stockholder shall
determine otherwise.
The appointment of an inspector or inspectors of election
shall be in the discretion of the Board until such time as the Corporation has a
class of voting stock that is (i) listed on a national securities exchange, (ii)
authorized for quotation on an interdealer quotation system of a registered
national securities association, or (iii) held of record by more than 2,000
stockholders, at which time appointment of inspectors shall be obligatory.
Section 1.9. Fixing Date for Determination of Stockholders of
Record. In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days before the date of such meeting, nor more
than sixty days prior to any other action. If no record date is fixed: (1) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day
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on which the meetings in held; (2) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board is necessary shall be the day on which the
first written consent is expressed; and (3) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however-
that the Board may fix a new record date for the adjourned meeting.
Section 1.10. List of Stockholders Entitled to Vote. The
Secretary shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof and may be inspected by any
stockholder who is present.
Section 1.11. Conduct of Meetings. The date and time of the
opening and the closing of the polls for each matter upon which the stockholders
will vote at a meeting shall be announced at such meeting by the person
presiding over the meeting. The Board of Directors of the Corporation may adopt
by resolution such rules or regulations for the conduct of meetings of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board of Directors, the
chairman of any meeting of stockholders shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such acts as, in
the judgment of such chair, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board of
Directors or prescribed by the chairman of the meeting, may include, without
limitation, the following: (1) the establishment of an agenda or order of
business for the meeting; (2) rules and procedures for maintaining order at the
meeting and the safety of those present; (3) limitations on attendance at or
participation in the meeting to stockholders of record of the Corporation, their
duly authorized and constituted proxies or such other persons as the chairman
shall permit; (4) restrictions on entry to the meeting after the time fixed for
the commencement thereof; and (5) limitations on the time allotted to questions
or comments by participants. Unless, and to the extent, determined by the Board
of Directors or the chairman of the meeting, meetings of stockholders shall not
be required to be held in accordance with rules of parliamentary procedure.
Section 1.12. Notice of Business. At any meeting of
stockholders, only such business shall be conducted as shall have been brought
before the meeting (a) by or at the direction of the Board, (b) in accordance
with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or (c) by any stockholder of
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the Corporation who was a stockholder of record at the time of giving of notice
provided for in this bylaw, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this bylaw. For business to be
properly brought before a meeting by a stockholder pursuant to clause (c) of
this bylaw, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 60th day nor earlier
than the close of business on the 90th day prior to the meeting; provided,
however, that if less than 70 days' notice of the date of the meeting is given
by the Corporation, notice by the stockholder to be timely must be so delivered
no later than the 10th day following the day on which public announcement of the
date of such meeting is first made by the Corporation. In no event shall the
public announcement of an adjournment of a meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (i) as to any business that the stockholder proposes to
bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (ii) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the proposal is made (x) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner and (y) the
class and number of shares of stock of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner. If
notice has not been given pursuant to this Section, the chairman of the meeting
may declare to the meeting that the proposed business was not properly brought
before the meeting, and such business may not be transacted at the meeting. The
foregoing provisions of this Section do not relieve any stockholder of any
obligation to comply with all applicable requirements of the Exchange Act and
rules and regulations thereunder. For purposes of these bylaws, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the corporation with the Securities Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Section 1.13. Nomination of Directors. At any meeting of
stockholders, a person may be a candidate for election to the Board only if such
person is nominated (a) by or at the direction of the Board, (b) by any
nominating committee or person appointed by the Board, or (c) by a stockholder
of record entitled to vote at such meeting who complies with the notice
procedures set forth in this Section and has given timely notice of such
nomination in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
meeting; provided, however, that if less than 70 days' notice of the date of the
meeting is given by the Corporation, notice by the stockholder to be timely must
be so delivered no later than
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the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Exchange Act and Rule 14a-11
thereunder (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected). The Corporation
may require such other information to be furnished respecting any proposed
nominee as may be reasonably necessary to determine whether the proposed nominee
has, or represents, interests which are opposed to or in conflict with the
interests of the Corporation. No person shall be eligible for election as a
director at any meeting unless nominated in accordance with this Section.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. Powers; Number; Qualifications. The business and
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors, except as may be otherwise provided by law or in the
certificate of incorporation. The Board shall initially consist of seven
members. Thereafter, the number of directors shall be fixed or altered
exclusively by resolution of the Board. Directors need not be stockholders.
Section 2.2. Election; Term of Office; Resignation; Vacancies.
Each director shall hold office in accordance with the provisions set forth in
the certificate of incorporation concerning the terms of the classes of
directors and until his or her successor is elected and qualified or until his
or her earlier resignation or removal. Any director may resign at any time upon
written notice to the Board of Directors or to the President or the Secretary of
the Corporation. Such resignation shall take effect at the time specified
therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective. Any director may be removed
from office, solely for cause, by the vote of the holders of at least a majority
of the voting power of the issued and outstanding shares then entitled to vote
at an election of directors. Unless otherwise provided in the certificate of
incorporation or these bylaws, vacancies and newly created directorships
resulting from any increase in the authorized number of directors elected by all
of the stockholders having the right to vote as a single class or from any other
cause may be filled by a majority of the directors then in office, although less
than a quorum, or by the sole remaining director. Whenever the holders of any
class or classes of stock or series thereof are entitled to elect one or more
directors by the provisions of the certificate of incorporation, vacancies and
newly created
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directorships of such class or classes or series shall be filled by a majority
of the voting power of the issued and outstanding shares of capital stock of
such class or classes or series.
Section 2.3. Regular Meetings. Regular meetings of the Board
of Directors may be held at such places within or without the State of Delaware
and at such times as the Board may from time to time determine, and if so
determined notice thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board
of Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board. Reasonable notice thereof
shall be given by the person or persons calling the meeting; reasonable notice
shall include, without limitation, notice sent by telecopy transmission at least
24 hours in advance of a special meeting.
Section 2.5. Meetings by Telephonic Communication. Unless
otherwise restricted by the certificate or incorporation or these bylaws,
members of the Board of Directors, or any committee designated by the Board, may
participate in a meeting of the Board or of such committee, as the case may be,
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this bylaw shall constitute presence in
person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings
of the Board of Directors a majority of the entire Board shall constitute a
quorum for the transaction of business. The vote of a majority of the voting
power held by the directors present at a meeting at which a quorum is present
shall be the act of the Board unless the certificate of incorporation or these
bylaws shall otherwise provide. In case at any meeting of the Board a quorum
shall not be present, the members of the Board present may adjourn the meeting
from time to time until a quorum shall attend.
Section 2.7. Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if or in the absence of the
Chairman of the Board, by a chairman chosen at the meeting. The Secretary, or in
the absence of the Secretary an Assistant Secretary, shall act as secretary of
the meeting, but in the absence of the Secretary and any Assistant Secretary,
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8. Unanimous Action by Directors Without Meeting.
Unless otherwise restricted by the certificate of incorporation or these bylaws,
any action required or permitted to be taken at any action any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board or of such committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
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Section 2.9. Compensation of Directors. The Board of Directors
shall have the authority to fix the compensation of directors.
ARTICLE III
COMMITTEES
Section 3.1. Committees. The Board of Directors may, by
resolution passed by a majority of the voting power of the whole Board,
designate one or more committees, each committee to consist of two or more of
the directors of the Corporation. The Chairman may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution of the Board, shall have and may exercise all
the powers and authority of the Board in the management of the business and
affairs of the corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have
power or authority in reference to amending the certificate of incorporation
(except that a committee may, to the extent authorized in the resolutions
providing for the issuance of shares of preferred stock adopted by the Board of
Directors, provide for one or more series of such stock, and establish or change
from time to time the number of shares to be included in each such series, and
fix the designations, powers, preferences and the relative, participating,
optional or other special rights of the shares of each series and any
qualifications, limitations and restrictions thereof), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of dissolution, removing or indemnifying directors or amending these
bylaws; and, unless the resolution expressly so provides, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
Section 3.2. Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board may adopt, amend and
repeal rules for the conduct of its business. In the absence of a provision by
the Board or a provision in the rules of such committee to the contrary, a
majority of the entire authorized number of members of such committee shall
constitute a quorum for the transaction of business, the vote of a majority of
the members present at a meeting at the time of such vote if a quorum is then
present shall be the act of such committee, and in other respects each committee
shall conduct its business in the same manner as the Board conducts its business
pursuant to Article II of these bylaws.
Section 3.3. Executive Committee. There shall be an Executive
Committee of the Board, consisting of at least three directors of the
Corporation to be designated by the Board, which Executive Committee shall have
and may exercise all of the powers and authority of the Board in the management
of the business affairs of the
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corporation to the fullest extent permitted by law, and may authorize the seal
of the Corporation to be affixed to all papers which may require it.
ARTICLE IV
OFFICERS
Section 4.1. Officers; Election. As soon as practicable after
the annual meeting of stockholders in each year, the Board of Directors shall
elect a President and a secretary, and it may, if it so determines, elect from
among its members a Chairman of the Board. The Board may also elect one or more
Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers and such other
officers as the Board may deem desirable or appropriate and may give any of them
such further designations or alternate titles as it considers desirable. Any
number of offices may be held by the same person.
Section 4.2. Term of Office; Resignation; Removal; Vacancies.
Except as otherwise provided in the resolution of the Board of Directors
electing any officer, each officer shall hold office until the first meeting of
the Board after the annual meeting of stockholders next succeeding his or her
election, and until his or her successor is elected and qualified or until his
or her earlier resignation or removal. Any officer may resign at any time upon
written notice to the Board or to the President or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein,
and unless otherwise specified therein no acceptance of such resignation shall
be necessary to make it effective. The Board may remove any officer with or
without cause at any time. Any such removal shall be without prejudice to the
contractual rights of such officer, if any, with the Corporation, but the
election of an officer shall not of itself create contractual rights. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled for the unexpired portion of the term by the
Board at any regular or special meeting.
Section 4.3. Chairman of the Board. The Chairman of the Board,
if any, shall preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present and shall have and may exercise
such powers as may, from time to time, be assigned to him or her by the Board
and as may be provided by law.
Section 4.4. Chief Executive Officer. The Chief Executive
officer shall have general charge and supervision of the business of the
Corporation, and shall perform all duties as may, from time to time, be assigned
to him or her by the Board.
Section 4.5. President. The President shall perform all duties
incident to the office of president of a corporation and such other duties as
may, from time to time, be assigned to him or her by the Board or as may be
provided by law.
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Section 4.6. Vice Presidents. The Vice President or Vice
Presidents, at the request of the President, shall perform the duties of the
President, and when so acting shall have the powers of the President. If there
be more than one Vice President, the Board of Directors may determine which one
or more of the Vice Presidents shall perform any of such duties; or if such
determination is not made by the Board, the President may make such
determination; otherwise any of the Vice Presidents may perform any of such
duties. The Vice President or Vice Presidents shall have such other powers and
shall perform such other duties as may, from time to time, be assigned to him or
her or them by the Board or the President or as may be provided by law.
Section 4.7. Secretary. The Secretary shall have the duty to
record the proceedings of the meetings of the stockholders, the Board of
Directors and any committees in a book to be kept for that purpose, shall see
that all notices are duly given in accordance with the provisions of these
bylaws or as required by law, shall be custodian of the records of the
Corporation, may affix the corporate seal to any document the execution of
which, on behalf of the Corporation, is duly authorized, and when so affixed may
attest the same, and, in general, shall perform all duties incident to the
office of secretary of a corporation and such other duties as may, from time to
time, be assigned to him or her by the Board or the President or as may be
provided by law.
Section 4.8. Treasurer. The Treasurer shall have charge of and
be responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by or under
authority of the Board of Directors. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his or her duties, with such
surety or sureties as the Board may determine. The Treasurer shall keep or cause
to be kept full and accurate records of all receipts and disbursements in books
of the Corporation, shall render to the President and to the Board, whenever
requested, an account of the financial condition of the Corporation, and, in
general, shall perform all the duties incident to the office of treasurer of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.9. Other officers. The other officers, if any, of
the Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in a resolution of the Board of Directors which
is not inconsistent with these bylaws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board. The Board may require any officer, agent or employee to give security for
the faithful performance of his or her duties.
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ARTICLE V
STOCK
Section 5.1. Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by or in the name of
the Corporation by the Chairman of the Board of Directors, or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such holder in the Corporation. If such certificate is manually signed
by one officer or manually countersigned by a transfer agent or by a registrar,
any other signature on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates. The Corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or such owner's legal representative, to
give the Corporation an affidavit certifying to the loss, theft or destruction
of the certificate and/or a bond sufficient to indemnify it against any claim
that may be made against it on account of the alleged loss, theft or destruction
of any such certificate or the issuance of such new certificate.
ARTICLE VI
INDEMNIFICATION
Section 6.1. Power to Indemnify in Actions, Suits or
Proceedings Other Than Those by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a part to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director of the Corporation, and the Corporation may, in its
discretion, indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that he is or was
an officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
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connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 6.2. Limitation of Indemnification. Notwithstanding
anything contained in this Article VI to the contrary, except for proceedings to
enforce rights to indemnification, the Corporation shall not be obligated to
indemnify any director, officer, employee or agent in connection with a
proceeding (or part thereof) initiated by such person unless such proceeding (or
part thereof) was authorized or consented to by the Board of Directors of the
Corporation.
ARTICLE VII
MISCELLANEOUS
Section 7.1. Fiscal Year. The Company shall operate on a
fiscal year ending on January 31 or as shall otherwise be determined by
resolution of the Board of Directors.
Section 7.2. Seal. The Corporation may have a corporate seal
which shall have the name of the Corporation inscribed thereon and shall be in
such form as may be approved from time to time by the Board of Directors. It
shall not be necessary to the validity of any instrument executed by any
authorized officer or officers of the Corporation that the execution of such
instrument be evidenced by the corporate seal, and all documents, instruments,
contracts and writings of all kinds signed on behalf of the Corporation by any
authorized officer or officers shall be as effectual and binding on the
Corporation without the corporate seal, as if the execution of the same had been
evidenced by affixing the corporate seal thereto. The Board may give general
authority to any officer to affix the seal of the Corporation and to attest the
affixing by signature.
Section 7.3. Representation of Interests in Other Entities.
Corporate stock, partnership or joint venture interests, or interests in any
trust or other entity whatever its form of organization, which may be owned or
held by the Corporation shall be voted and all rights incident thereto shall be
represented and exercised on behalf of the Corporation, as follows: (i) as the
Board of the Corporation may determine from time to time, or (ii) in the absence
of such determination, by the Chairman of the Board, or (iii) if there shall be
no Chairman or if the Chairman shall not vote or otherwise act with respect to
the matter, by the Chief Executive Officer. The foregoing authority may
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be exercised either by any such officer in person or by any other person
authorized so to do by proxy or power of attorney duly executed by said officer.
Section 7.4. Waiver of Notice of Meetings of Stockholders,
Directors and Committees. Whenever notice is required to be given by law or
under any provision of the certificate of incorporation or these bylaws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or these bylaws.
Section 7.5. Interested Directors; Quorum. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
her or their votes are counted for such purpose, if: (1) the material facts as
to his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the full Board and the Board in good faith authorizes
the contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (2) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by the affirmative vote of the holders of the majority of
the outstanding shares entitled to vote thereon; or (3) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board which authorizes the contract or transaction.
Section 7.6. Amendment of Bylaws. These bylaws may be amended
or repealed, and new bylaws adopted, by the Board of Directors. To the extent
provided by law, the stockholders also have the power to adopt, amend or repeal
bylaws; provided, however, that the adoption, amendment or repeal of any bylaw
by the stockholders shall require the affirmative vote of at least two-thirds of
the outstanding shares entitled to vote on such matter, unless the Board of
Directors recommends that the stockholders approve such amendment or repeal, in
which case such amendment or repeal shall only require the affirmative vote of a
majority of the outstanding shares entitled to vote on such matter.
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ADOPTED: [ ]
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EXHIBIT 10.1
DIRECTOR INDEMNIFICATION AGREEMENT
This Agreement, made and entered into as of the ____ day of
_________________, 199_ ("Agreement"), by and between ______________, a
Delaware corporation ("Company"), and ______________ ("Indemnitee"):
WHEREAS, highly competent persons justifiably are reluctant to
serve publicly-held corporations as directors or in other capacities unless
they are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation;
and
WHEREAS, the Board of Directors of the Company (the "Board")
has determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers, and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the Company or business enterprise itself; and
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining
qualified persons; and
WHEREAS, the Board has determined that the increased
difficulty in attracting and retaining qualified persons is detrimental to the
best interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of protection in the
future; and
WHEREAS, it is reasonable, prudent and necessary for the
Company contractually to obligate itself to indemnify such persons to the
fullest extent permitted by applicable law so that they will serve or continue
to serve the Company free from undue concern that they will not be so
indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and
to take on additional service for or on behalf of the Company on the condition
that he be so indemnified;
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NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Company and Indemnitee do hereby covenant and
agree as follows:
1. Services by Indemnitee. Indemnitee agrees to serve as a
director of the Company. Indemnitee may at any time and for any reason resign
from such position, in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in any such position. The foregoing
notwithstanding, this Agreement shall continue in force after Indemnitee has
ceased to serve as a director of the Company.
2. Indemnification - General. The Company shall indemnify,
and advance Expenses (as hereinafter defined) to Indemnitee as provided in this
Agreement and (subject to the provisions of this Agreement) to the fullest
extent permitted by applicable law in effect on the date hereof and to such
greater extent as applicable law may thereafter from time to time permit. The
rights of Indemnitee provided under the preceding sentence shall include, but
shall not be limited to, the rights set forth in the other Sections of this
Agreement.
3. Proceeding Other Than Proceedings by or in the Right of
the Company. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to or
participant in any threatened, pending, or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant
to this Section 3, Indemnitee shall be indemnified against Expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such Proceeding or any
claim, issue or matter therein, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal Proceeding, had no reasonable cause
to believe his conduct was unlawful.
4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any threatened, pending or completed Proceeding
brought by or in the right of the Company to procure a judgment in its favor.
Pursuant to this Section, Indemnitee shall be indemnified against Expenses
actually and reasonably incurred by him or on his behalf in connection with
such Proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company.
Notwithstanding the foregoing, no indemnification against such Expenses shall
be made in respect of any claim, issue or matter in such Proceeding as to which
Indemnitee shall have been adjudged to be liable to the Company if applicable
law prohibits such indemnification; provided, however, that, if applicable law
so permits, indemnification against Expenses
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shall nevertheless be made by the Company in such event if and only to the
extent that the Court of Chancery of the State of Delaware, or the Court in
which such Proceeding shall have been brought or is pending, shall determine.
5. Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to
the extent that Indemnitee is successful, on the merits or otherwise, in (i)
defending any Proceeding brought against the Indemnitee by reason of his
Corporate Status or (ii) in prosecuting any Proceeding described in the last
sentence of Section 14 hereof, he shall be indemnified against all Expenses
actually and reasonably incurred by him or on his behalf in connection
therewith. If Indemnitee is not wholly successful in any such Proceeding but
is successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in any such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf in connection with each successfully resolved claim, issue or
matter. For purposes of this Section and without limitation, the termination
of any claim, issue or matter in such a Proceeding by dismissal, with or
without prejudice, shall be deemed to be a successful result as to such claim,
issue or matter.
6. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith.
7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by Indemnitee and shall include or be preceded or accompanied by an
undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it
shall ultimately be determined that Indemnitee is not entitled to be
indemnified against such Expenses.
8. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board in
writing that Indemnitee has requested indemnification.
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(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 8(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter defined)
(unless Indemnitee shall request that such determination be made by a majority
vote of the Disinterested Directors (as hereinafter defined) or by the
stockholders, in which case by the person or persons or in the manner provided
for in clauses (ii) or (iii) of this Section 8(b)) in a written opinion to the
Board, a copy of which shall be delivered to Indemnitee; (ii) if a Change of
Control shall not have occurred, (A) by a majority vote of the Disinterested
Directors even though less than a quorum of the Board, or (B) if there are no
such Disinterested Directors or if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee or (C) by the stockholders of the Company; or (iii) as
provided in Section 9(b) of this Agreement; and, if it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee shall be made
within ten (10) days after such determination. Indemnitee shall cooperate with
the person, persons or entity making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Company (irrespective
of the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
hereof, the Independent Counsel shall be selected as provided in this Section
8(c). If a Change of Control shall not have occurred, the Independent Counsel
shall be selected by the Board of Directors, and the Company shall give written
notice to Indemnitee advising him of the identity of the Independent Counsel so
selected. If a Change of Control shall have occurred, the Independent Counsel
shall be selected by Indemnitee (unless Indemnitee shall request that such
selection be made by the Board of Directors, in which event the preceding
sentence shall apply), and Indemnitee shall give written notice to the Company
advising it of the identity of the Independent Counsel so selected. In either
event, Indemnitee or the Company, as the case may be, may, within 7 days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case
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<PAGE> 5
may be, a written objection to such selection. Such objection may be asserted
only on the ground that the Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Section 17 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, the Independent
Counsel so selected may not serve as Independent Counsel unless and until a
court has determined that such objection is without merit. If, within 20 days
after submission by Indemnitee of a written request for indemnification pursuant
to Section 8(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as
the Court shall designate, and the person with respect to whom an objection is
so resolved or the person so appointed shall act as Independent Counsel under
Section 8(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 8(b) hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
8(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding pursuant to
Section 10(a)(iii) of this Agreement, Independent Counsel shall be discharged
and relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
9. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in
making a determination with respect to entitlement to indemnification
hereunder, the person or persons or entity making such determination shall
presume that Indemnitee is entitled to indemnification under this Agreement if
Indemnitee has submitted a request for indemnification in accordance with
Section 8(a) of this Agreement, and the Company shall have the burden of proof
to overcome that presumption in connection with the making by any person,
persons or entity of any determination contrary to that presumption.
(b) If the person, persons or entity empowered or
selected under Section 8 of this Agreement to determine whether Indemnitee is
entitled to indemnification shall not have made a determination within 60 days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material
fact necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or
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<PAGE> 6
(ii) a prohibition of such indemnification under applicable law; provided,
however, that such 60-day period may be extended for a reasonable time, not to
exceed an additional 30 days, if the person, persons or entity making the
determination with respect to entitlement to indemnification in good faith
requires such additional time for the obtaining or evaluating of documentation
and/or information relating thereto; and provided, further, that the foregoing
provisions of this Section 9(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 8(b) of this Agreement and if (A) within 15 days after receipt by the
Company of the request for such determination the Board of Directors has
resolved to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
stockholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat, or (ii) if
the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim,
issue or matter therein, by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent, shall not (except as otherwise
expressly provided in this Agreement) of itself adversely affect the right of
Indemnitee to indemnification or create a presumption that Indemnitee did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct
was unlawful.
10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant
to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification under this Agreement, (ii) advancement of Expenses is not timely
made pursuant to Section 7 of this Agreement, (iii) the determination of
entitlement to indemnification is to be made by Independent Counsel pursuant to
Section 8(b) of this Agreement and such determination shall not have been made
and delivered in a written opinion within 90 days after receipt by the Company
of the request for indemnification, or (iv) payment of indemnification is not
made pursuant to Section 5 or Section 6 of this Agreement within ten (10) days
after receipt by the Company of a written request therefor, or (v) payment of
indemnification is not made within ten (10) days after a determination has been
made that Indemnitee is entitled to indemnification or such determination is
deemed to have been made pursuant to Section 8 or 9 of this Agreement,
Indemnitee shall be entitled to an adjudication in the Court of Chancery of the
State of Delaware of his entitlement to such indemnification or advancement of
Expenses. Indemnitee shall commence such proceeding seeking an adjudication
within 180
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days following the date on which Indemnitee first has the right to commence
such proceeding pursuant to this Section 10(a); provided, however, that the
foregoing clause shall not apply in respect of a proceeding brought by
Indemnitee to enforce his rights under Section 5 of this Agreement. The
Company shall not oppose Indemnitee's right to seek any such adjudication.
(b) In the event that a determination shall have
been made pursuant to Section 8 of this Agreement that Indemnitee is not
entitled to indemnification, any judicial proceeding commenced pursuant to this
Section 10 shall be conducted in all respects as a de novo trial on the merits
and Indemnitee shall not be prejudiced by reason of that adverse determination.
If a Change of Control shall have occurred, in any judicial proceeding
commenced pursuant to this Section 10 the Company shall have the burden of
proving that Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be.
(c) If a determination shall have been made or
deemed to have been made pursuant to Section 8 or 9 of this Agreement that
Indemnitee is entitled to indemnification, the Company shall be bound by such
determination in any judicial proceeding commenced pursuant to this Section 10,
absent (i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting
in any judicial proceeding commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court that the Company is bound by
all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to
this Section 10, seeks a judicial adjudication to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee shall be entitled
to recover from the Company, and shall be indemnified by the Company against,
any and all expenses (of the types described in the definition of Expenses in
Section 17 of this Agreement) actually and reasonably incurred by him in such
judicial adjudication, but only if he prevails therein. If it shall be
determined in said judicial adjudication that Indemnitee is entitled to receive
part but not all of the indemnification or advancement or expenses sought, the
expenses incurred by Indemnitee in connection with such judicial adjudication
shall be appropriately prorated.
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11. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Certificate of Incorporation, the By-Laws, any
agreement, a vote of stockholders or a resolution of directors, or otherwise.
No amendment, alteration or termination of this Agreement or any provision
hereof shall be effective as to any Indemnitee with respect to any action taken
or omitted by such Indemnitee in his Corporate Status prior to such amendment,
alteration or termination.
(b) To the extent that the Company maintains an
insurance policy or policies providing liability insurance for directors of the
Company or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which such person is or was serving
at the request of the Company, Indemnitee shall be covered by such policy or
policies in accordance with its or their terms to the maximum extent of the
coverage available for any such director under such policy or policies.
(c) In the event of any payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who shall execute all papers required
and take all action necessary to secure such rights, including execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.
(d) The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
12. Duration of Agreement. This Agreement shall continue
until and terminate upon the later of: (a) 10 years after the date that
Indemnitee shall have ceased to serve as a director, or (b) the final
termination of all pending Proceedings in respect of which Indemnitee is
granted rights of indemnification or advancement of Expenses hereunder and of
any proceeding commenced by Indemnitee pursuant to Section 10 of this Agreement
relating thereto. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and his
heirs, executors and administrators.
13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal
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or unenforceable, that is not itself invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give maximum effect to the intent of the parties hereto;
and (c) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable,
that is not itself invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested by the provision held invalid, illegal
or unenforceable.
14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding, or any claim therein, brought or made
by him against the Company. Notwithstanding the preceding sentence, Indemnitee
shall, however, be entitled to indemnification or advancement of Expenses under
this Agreement with respect to any Proceeding, or any claim therein, brought or
made by him against the Company (i) if such Proceeding or claim therein has
been approved in writing in advance of the filing of such Proceeding, or claim
therein, by or at the direction of the Board or (ii) if such Proceeding or
claim therein is to recover and receive any amounts or benefits that is found
by a court of competent jurisdiction to be due to him pursuant to (x) the
Company's Restated Certificate of Incorporation or By-laws, (y) any agreement,
arrangement or understanding between him and the Company, or (z) any agreement,
arrangement, or understanding between the Company and any third party for his
benefit.
15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
16. Headings. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
17. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control
of the Company occurring after the Effective Date of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or
not the Company is
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then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the Effective Date (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board in office immediately prior to such person attaining such
percentage interest; (ii) the Company is a party to a merger, consolidation,
sale of assets or other reorganization, or a proxy contest, as a consequence of
which members of the Board in office immediately prior to such transaction or
event constitute less than a majority of the Board thereafter; or (iii) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board (including for this purpose any new director whose
election or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute
at least a majority of the Board.
(b) "Corporate Status" describes the status of a
person who is or was a director of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of
the Company who is not and was not a party to the Proceeding in respect of
which indemnification is sought by Indemnitee.
(d) "Effective Date" means ____________, 199_.
(e) "Expenses" shall include all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other disbursements
or expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, being or preparing
to be a witness in, or otherwise participating in, a Proceeding.
(f) "Independent Counsel" means a law firm, or a
member of a law firm, that is experienced in matters of corporation law and
neither presently is, nor in the past five years has been, retained to
represent: (i) the Company or Indemnitee in any matter material to either such
party, or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
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interest in representing either the Company or Indemnitee in an action to
determine Indemnitee's rights under this Agreement.
(g) "Proceeding" includes any action, suit,
arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding whether civil, criminal,
administrative or investigative, except one initiated by an Indemnitee pursuant
to Section 10 of this Agreement to enforce his rights under this Agreement.
18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
19. Notice by Indemnitee. Indemnitee agrees promptly to
notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder.
20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
(b) If to the Company to:
or such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
21. Contribution. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating
to an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all of the circumstances of
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such Proceeding in order to reflect (i) the relative benefits received by the
Company and Indemnitee as a result of the event(s) and/or transaction(s) giving
cause to such Proceeding; and/or (ii) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
22. Governing Law; Submission to Jurisdiction; Appointment of
Agent for Service of Process. This Agreement and the legal relations among the
parties shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware, without regard to its conflict of laws
rules. Each of the Company and Indemnitee hereby irrevocably and
unconditionally (i) agrees that any action or proceeding arising out of or in
connection with this Agreement shall be brought only in the Chancery Court of
the State of Delaware (the "Delaware Court"), and not in any other state or
federal court in the United States of America or any court in any other
country, (ii) consents to submit to the exclusive jurisdiction of the Delaware
Court for purposes of any action or proceeding arising out of or in connection
with this Agreement, (iii) appoints to the extent such party is not a resident
of the State of Delaware, irrevocably The Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware as its agent in the State of Delaware as
such party's agent for acceptance of legal process in connection with any such
action or proceeding against such party with the same legal force and validity
as if served upon such party personally within the State of Delaware, (iv)
waives any objection to the laying of venue of any such action or proceeding in
the Delaware Court, and (v) waives, and agrees not to plead or to make, any
claim that any such action or proceeding brought in the Delaware Court has been
brought in an improper or otherwise inconvenient forum.
23. Miscellaneous. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
ATTEST:
--------------------------------
By By
------------------------------ -------------------------------
INDEMNITEE
----------------------------------
Address:
-------------------------
13
<PAGE> 1
EXHIBIT 10.2
-------------------------------
NATIONAL AIRMOTIVE CORPORATION
-------------------------------
-------------------------------
LOAN AND SECURITY AGREEMENT
Dated: June 13, 1996
$40,000,000
-------------------------------
-------------------------------
FLEET CAPITAL CORPORATION
-------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 1. CREDIT FACILITY .................................................. 2
1.1 Revolving Credit Loans.................................... 2
1.2 Term Loans................................................ 3
1.3 Letters of Credit; LC Guaranties.......................... 3
SECTION 2. INTEREST, FEES AND CHARGES........................................ 3
2.1 Interest.................................................. 3
2.2 Computation of Interest and Fees.......................... 4
2.3 Conditional Interest Rate Reduction at 1997 FYE........... 4
2.4 Closing Fee............................................... 5
2.5 Letter of Credit and LC Guaranty Fees..................... 5
2.6 Unused Line Fee........................................... 5
2.7 Collection Charges........................................ 5
2.8 Audit and Appraisal Fees.................................. 5
2.9 Reimbursement of Expenses................................. 5
2.10 Bank Charges.............................................. 6
SECTION 3. LOAN ADMINISTRATION............................................... 6
3.1 Manner of Borrowing Revolving Credit Loans................ 6
3.2 Payments.................................................. 7
3.3 Prepayments............................................... 8
3.4 Application of Payments and Collections................... 8
3.5 All Loans to Constitute One Obligation.................... 9
3.6 Loan Account.............................................. 9
3.7 Statements of Account..................................... 9
SECTION 4. TERM AND TERMINATION.............................................. 9
4.1 Term of Agreement......................................... 9
4.2 Termination............................................... 9
SECTION 5. SECURITY INTERESTS................................................ 10
5.1 Security Interest in Collateral........................... 10
5.2 Lien Perfection; Further Assurances....................... 11
5.3 .......................................................... 11
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 6. COLLATERAL ADMINISTRATION....................................... 11
6.1 General................................................. 11
6.2 Administration of Accounts.............................. 12
6.3 Administration of Inventory............................. 14
6.4 Administration of Equipment............................. 14
6.5 Payment of Charges...................................... 15
SECTION 7. REPRESENTATIONS AND WARRANTIES.................................. 15
7.1 General Representations and Warranties.................. 15
7.2 Continuous Nature of Representations and Warranties..... 21
7.3 Survival of Representations and Warranties.............. 21
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS............................. 21
8.1 Affirmative Covenants................................... 22
8.2 Negative Covenants...................................... 23
8.3 Specific Financial Covenants............................ 28
9.1 Documentation........................................... 29
9.2 Intentionally Omitted................................... 29
9.3 Other Loan Documents.................................... 29
9.4 Availability............................................ 30
9.5 Fiscal Year End Financial Statements.................... 30
9.6 Certified Documents of Borrower......................... 30
9.7 [Intentionally omitted]................................. 30
9.8 Confirmation Searches................................... 30
9.9 Opinion of Counsel...................................... 30
9.10 Evidence of Insurance of Collateral..................... 31
9.11 Use of Financing........................................ 31
9.12 Pay-Off Letter and UCC Termination Statements, etc. .... 31
9.13 Disbursement Instruction Letter......................... 31
9.14 Offshore Receivable Financing........................... 31
9.15 Past Due Allison Payable................................ 31
9.16 Dominion Account Agreement.............................. 31
9.17 Inventory Analysis...................................... 31
9.18 Tax Sharing Agreement................................... 31
9.19 Shareholders Agreement.................................. 31
9.20 Canpartners Sub Debt Documents.......................... 31
9A.1 No Default.............................................. 32
9A.2 Representations and Warranties.......................... 32
9A.3 No Litigation........................................... 32
SECTION 9B. CONDITION SUBSEQUENT............................................ 32
9B.1 ........................................................ 32
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT................... 33
10.1 Events of Default........................................... 33
10.2 Acceleration of the Obligations............................. 35
10.3 Other Remedies.............................................. 35
10.4 Remedies Cumulative; No Waiver.............................. 37
SECTION 11. MISCELLANEOUS....................................................... 37
11.1 Power of Attorney........................................... 37
11.2 Indemnity................................................... 38
11.3 Modification of Agreement; Sale of Interest................. 38
11.4 Severability................................................ 39
11.5 Successors and Assigns...................................... 39
11.6 Cumulative Effect; Conflict of Terms........................ 39
11.7 Execution in Counterparts................................... 40
11.8 Notice...................................................... 40
11.9 Lender's Consent............................................ 41
11.10 Credit Inquiries............................................ 41
11.11 Time of Essence............................................. 41
11.12 Entire Agreement............................................ 41
11.13 Interpretation.............................................. 41
11.14 GOVERNING LAW: CONSENT TO FORUM............................. 41
11.15 WAIVERS BY BORROWER......................................... 42
11.16 Confidentiality............................................. 43
</TABLE>
iii
<PAGE> 5
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 13th day of June, 1996, by
and between FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island corporation
with an office at 15260 Ventura Boulevard, Suite 1200, Sherman Oaks, California
91403 and NATIONAL AIRMOTIVE CORPORATION ("Borrower"), a California corporation
with its chief executive office and principal place of business at 7200
Lockheed Street, Oakland, California, 94621. Capitalized terms used in this
Agreement have the meanings assigned to them in Appendix A, General
Definitions. Accounting terms not otherwise specifically defined herein shall
be construed in accordance with GAAP consistently applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to $40,000,000
available upon Borrower's request therefor, as follows:
1.1 Revolving Credit Loans.
1.1.1 Loans and Reserves. Lender agrees, for so long as no Default
or Event of Default exists and subject to the satisfaction of the applicable
conditions precedent set forth in Sections 9 and 9A, to make Revolving Credit
Loans to Borrower from time to time, as requested by Borrower in the manner set
forth in subsection 3.1.1 hereof, up to a maximum principal amount at any time
outstanding equal to the lesser of (a) the Maximum Amount minus the LC Amount,
or (b) the Borrowing Base at such time minus the LC Amount, and reserves, if
any. Lender shall have the right to establish reserves in such amounts, and
with respect to such matters, as Lender shall in good faith deem necessary or
appropriate, against the amount of Revolving Credit Loans which Borrower may
otherwise request under this subsection 1.1.1, including, without limitation,
with respect to (i) price adjustments, damages, unearned discounts, returned
products or other matters for which credit memoranda are issued in the ordinary
course of Borrower's business; (ii) shrinkage, spoilage and obsolescence of
Inventory; (iii) slow moving Inventory; (iv) other sums chargeable against
Borrower's Loan Account as Revolving Credit Loans under any section of this
Agreement; (v) amounts owing by Borrower to any Person to the extent secured by
a Lien on, or trust over, any Property of Borrower; and (vi) such other matters,
events, conditions or contingencies as to which Lender, in its sole credit
judgment, determines reserves should be established from time to time hereunder.
1.1.2 Use of Proceeds. The Revolving Credit Loans shall be used
solely for (a) the satisfaction of existing Indebtedness of Borrower to Existing
Lender, (b) the satisfaction of a portion of the Canpartners Subordinated Debt,
and (c) Borrower's general operating capital needs in a manner consistent with
the provisions of this Agreement and all applicable laws.
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<PAGE> 6
1.2 Term Loans.
1.2.1 Term Loan #1. So long as no Default or Event of Default
exists and subject to the satisfaction of the conditions precedent set forth in
Sections 9 and 9A, Lender agrees to make a term loan to Borrower on the Closing
Date in the principal amount of $2,000,000 which shall be repayable in
accordance with the terms of Term Note #1 and shall be secured by all of the
Collateral. The proceeds of Term Loan #1 shall be used solely for purposes for
which the proceeds of the Revolving Credit Loans are authorized to be used.
1.2.2 Term Loan #2. So long as no Default or Event of Default
exists and subject to the satisfaction of the conditions precedent set forth in
Sections 9 and 9A, Lender agrees to make a term loan to Borrower on the Closing
Date in the principal amount of $1,000,000 which shall be repayable in
accordance with the terms of Term Note #2 and shall be secured by all of the
Collateral. The proceeds of Term Loan #2 shall be used solely for purposes for
which the proceeds of the Revolving Credit Loans are authorized to be used.
1.3 Letters of Credit; LC Guaranties. So long as no Default or
Event of Default exists and subject to the satisfaction of the applicable
conditions precedent set forth in Sections 9 and 9A, Lender agrees, if requested
by Borrower, to (i) issue its, or cause to be issued its Affiliate's, Letters of
Credit for the account of Borrower or (ii) execute LC Guaranties by which Lender
or its Affiliate shall guaranty the payment or performance by Borrower of its
reimbursement obligations with respect to Letters of Credit, provided that the
LC Amount at any time shall not exceed the lesser of (a) $1,500,000, and (b) the
lesser of (i) the Maximum Amount minus the then aggregate outstanding principal
amount of Revolving Credit Loans or (ii) the Borrowing Base at such time minus
the aggregate outstanding principal amount of the Revolving Credit Loans. No
Letter of Credit or LC Guaranty may have an expiration date that is after the
last day of the Original Term or the then applicable Renewal Term. Any amounts
paid by Lender under any LC Guaranty or in connection with any Letter of Credit
shall be treated as Revolving Credit Loans, shall be secured by all of the
Collateral and shall bear interest and be payable at the same rate and in the
same manner as Revolving Credit Loans.
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<PAGE> 7
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Rates of Interest.
(i) Term Loans. Interest shall accrue on the Term Loan #1
in accordance with the terms of Term Note #1. Interest shall accrue
on the Term Loan #2 in accordance with the terms of Term Note #2.
(ii) Revolving Loans. Interest shall accrue on the principal
amount of each Revolving Credit Loan outstanding at the end of each
day at a fluctuating rate per annum equal to 3.00% plus the LIBOR
Rate. The rate of interest on Revolving Credit Loans shall increase
or decrease by an amount equal to any increase or decrease in the
LIBOR Rate, effective as of the opening of business on the day that
any such change in the LIBOR Rate occurs.
2.1.2 Default Rate of Interest. Upon and after the occurrence and
during the continuation of an Event of Default, the principal amount of all
Loans shall bear interest at a rate per annum equal to 2.00% plus the interest
rate otherwise applicable thereto (the "Default Rate").
2.1.3 Maximum Interest. In no event whatsoever shall the aggregate
of all amounts deemed interest hereunder or under the Term Notes and charged or
collected pursuant to the terms of this Agreement or pursuant to the Term Notes
exceed the highest rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto. If any
provisions of this Agreement or the Term Notes are in contravention of any such
law, such provisions shall be deemed amended to conform thereto.
2.2 Computation of Interest and Fees. Interest, Letter of Credit and LC
Guaranty fees, unused line fees, and collection charges hereunder and under the
Term Notes shall be calculated daily and shall be computed on the actual number
of days elapsed over a year of 360 days. For the purpose of computing interest
hereunder, all items of payment received by Lender shall be deemed applied by
Lender on account of the Obligations (subject to final payment of such items)
on the second Business Day after receipt by Lender of such items in Lender's
account located at Harris Bank in Chicago, Illinois or such other account as
Lender may designate by written notice to Borrower.
2.3 Conditional Interest Rate Reduction at 1997 FYE. If and only if
Borrower achieves EBITDA for Borrower's 1997 fiscal year of not less than
$9,000,000, then, from and after Lender's receipt of the financial statements
and accompanying compliance certificate required to be delivered under Section
8.1.3(i) hereof and Lender's confirmation from such financial statements that
such EBITDA has been achieved, the respective rates of interest per annum
otherwise applicable to Term Loan #1, Term Loan #2, and the Revolving Credit
Loans thereafter shall be reduced by 25 basis points. The conditional interest
rate reduction described in the foregoing sentence is limited to solely the
circumstances expressly described in the foregoing sentence.
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<PAGE> 8
2.4 Closing Fee. Borrower shall pay to Lender a closing fee of $200,000
which shall be fully earned and nonrefundable on the Closing Date and shall be
paid concurrently with the initial Loan hereunder. The amount of any
unexpended portion of the good faith deposit and commitment fee previously paid
to Lender, after deduction therefrom for the payment of Lender's costs, fees,
and expenses, shall be credited toward the Closing Fee.
2.5 Letter of Credit and LC Guaranty Fees. Borrower shall pay to Lender,
for standby Letters of Credit and LC Guaranties of standby Letters of Credit,
2.00% per annum of the aggregate face amount of such Letters of Credit and LC
Guaranties outstanding from time to time during the term of this Agreement,
plus all normal and customary charges associated with the issuance,
negotiation, and administration thereof, which fees and charges shall be deemed
fully earned upon issuance of each such Letter of Credit or LC Guaranty, shall
be due and payable on the first Business Day of each month and shall not be
subject to rebate or proration upon the termination of this Agreement for any
reason.
2.6 Unused Line Fee. Commencing on the first day of the second month
following the Closing Date, Borrower shall pay to Lender a fee equal to 0.375%
per annum of the amount by which $40,000,000 exceeds the sum of (a) the average
outstanding principal balance of the Loans, and (b) the average LC Amount, in
each case, during the preceding month. The unused line fee shall be payable
monthly in arrears on the first day of each calendar month thereafter.
2.7 Collection Charges. If items of payment are received by Lender at a
time when there are no Revolving Credit Loans outstanding, such items of
payment shall be subject to a collection charge equal to two Business Days
interest on the amount thereof at the rate then applicable to Revolving Credit
Loans, which collection charges shall be payable on the first Business Day of
each month.
2.8 Audit and Appraisal Fees. Borrower shall pay to Lender all
reasonable out-of-pocket expenses incurred by Lender in connection with audits
and appraisals of Borrower's books and records, and the collateral. Audit fees
shall be payable on the first day of the month following the date of issuance
by Lender of a request for payment thereof to Borrower.
2.9 Reimbursement of Expenses. If, at any time or times regardless of
whether or not an Event of Default then exists, Lender incurs costs or
out-of-pocket expenses (including reasonable attorneys fees) in connection with
(i) the negotiation and preparation of this Agreement or any of the other Loan
Documents, any amendment of or
4
<PAGE> 9
modification of this Agreement or any of the other Loan Documents; (ii) the
administration of this Agreement or any of the other Loan Documents and the
transactions contemplated hereby and thereby; (iii) any litigation, contest,
dispute, suit, proceeding or action (whether instituted by Lender, Borrower or
any other Person) in any way relating to the Collateral, this Agreement or any
of the other Loan Documents or Borrower's affairs; (iv) any attempt to enforce
any rights of Lender against Borrower or any other Person which may be
obligated to Lender by virtue of this Agreement or any of the other Loan
Documents, including, without limitation, the Account Debtors; or (v) any
attempt to inspect, verify, protect, preserve, restore, collect, sell,
liquidate or otherwise dispose of or realize upon the Collateral; then all such
costs and out-of-pocket expenses of Lender shall be charged to Borrower. All
amounts chargeable to Borrower under this Section 2.9 shall be Obligations
secured by all of the Collateral, shall be payable on demand to Lender and
shall bear interest from the date such demand is made until paid in full at the
rate applicable to Revolving Credit Loans from time to time. Borrower shall
also reimburse Lender for expenses incurred by Lender in its administration of
the Collateral to the extent and in the manner provided in Section 6 hereof.
2.10 Bank Charges. Borrower shall pay to Lender, on demand, any and all
fees, costs or expenses which Lender pays to a bank or other similar
institution arising out of or in connection with (i) the forwarding to Borrower
or any other Person on behalf of Borrower, by Lender, of proceeds of Loans made
by Lender to Borrower pursuant to this Agreement, and (ii) the depositing for
collection, by Lender of any check or item of payment received or delivered to
Lender on account of the Obligations.
SECTION 3. LOAN ADMINISTRATION
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the
credit facility established pursuant to Section 1.1 hereof shall be as follows:
3.1.1 Loan Requests. A request for a Revolving Credit Loan shall be
made, or shall be deemed to be made, in the following manner: (i) Borrower may
give Lender notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date, no
later than 11:00 a.m. Los Angeles time, on the proposed borrowing date,
provided, however, that no such request may be made at a time when there exists
a Default or an Event of Default and (ii) the becoming due of any amount
required to be paid under this Agreement or the Term Notes, whether as interest
or for any other Obligation, irrevocably shall be deemed to be a request for a
Revolving Credit Loan on the due date in the amount required to pay such
interest or other Obligation. As an accommodation to Borrower, Lender may
permit telephonic requests for Loans and electronic transmittal of instructions,
authorizations, agreements or reports to Lender by Borrower. Unless Borrower
specifically directs Lender in writing not to accept or act upon telephonic or
electronic communications from Borrower, Lender shall have no liability to
Borrower for any loss or damage suffered by Borrower as a result of Lender's
honoring of any requests, execution of any instructions, authorizations or
agreements, or reliance on any reports communicated to it telephonically or
electronically and believed in good faith by Lender to have been sent to Lender
by Borrower and Lender shall have no duty to verify the origin of any such
communication or the authority of the person sending it.
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<PAGE> 10
3.1.2 Disbursement. Borrower hereby irrevocably authorizes Lender
to disburse the proceeds of each Revolving Credit Loan requested, or deemed to
be requested, pursuant to this subsection 3.1.2 as follows: (i) the proceeds of
each Revolving Credit Loan requested under subsection 3.1.1(i) shall be
disbursed by Lender in lawful money of the United States of America in
immediately available funds, in the case of the initial borrowing, in accordance
with the terms of the written disbursement letter from Borrower, and in the case
of each subsequent borrowing, by wire transfer to such bank account as may be
agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to
a written direction from Borrower; and (ii) the proceeds of each Revolving
Credit Loan requested under subsection 3.1.1 (ii) shall be disbursed by Lender
by way of direct payment of the relevant interest or other Obligation.
3.1.3 Authorization. Borrower hereby irrevocably authorizes Lender,
in Lender's sole discretion, to advance to Borrower, and to charge to Borrower's
Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all
interest accrued on the Obligations during the immediately preceding month and
to pay all costs, fees and expenses at any time owed by Borrower to Lender
hereunder.
3.2 Payments. Except where evidenced by notes or other instruments
issued or made by Borrower to Lender specifically containing payment provisions
which are in conflict with this Section 3.2 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), the
Obligations shall be payable as follows:
3.2.1 Principal. Principal payable on account of Revolving Credit
Loans shall be payable by Borrower to Lender immediately upon the earliest of
(i) the receipt by Lender or Borrower of any proceeds of any of the Collateral
other than Equipment or real Property, to the extent of said proceeds; (ii) the
occurrence of an Event of Default in consequence of which Lender elects to
accelerate the maturity and payment of the Obligations in accordance with the
terms hereof, or (iii) termination of this Agreement pursuant to Section 4
hereof; provided, however, that if an Uncommitted Advance shall exist at any
time, Borrower shall, on demand, repay the Uncommitted Advance.
3.2.2 Interest. Interest accrued on the Revolving Credit Loans
shall be due on the earliest of (1) the first calendar day of each month (for
the immediately preceding month), computed through the last calendar day of the
preceding month, (2) the acceleration of the maturity and payment of the
Obligations in accordance with the provisions hereof, upon the occurrence of an
Event of Default and Lender's election to accelerate, or (3) termination of this
Agreement pursuant to Section 4 hereof.
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<PAGE> 11
3.2.3 Costs, Fees and Charges. Costs, fees and charges payable
pursuant to this Agreement shall be payable by Borrower as and when provided in
Section 2 hereof, to Lender or to any other Person designated by Lender in
writing.
3.2.4 Other Obligations. The balance of the Obligations requiring
the payment of money, if any, shall be payable by Borrower to Lender as and when
provided in this Agreement, the Other Agreements or the Security Documents, or
on demand, whichever is earlier.
3.3 Prepayments.
3.3.1 Proceeds of Sale Loss Destruction or Condemnation of
Collateral. Except as provided in subsection 6.4.2 hereof, if Borrower sells any
of the Equipment or real Property, or if any of the Collateral is lost or
destroyed or taken by condemnation, Borrower shall pay to Lender, unless
otherwise agreed by Lender, as and when received by Borrower and as a mandatory
prepayment of the Term Loans (to be applied in such order and, as between the
Term Loans, in such proportion as determined by Lender) a sum equal to the
proceeds (including insurance payments) received by Borrower from such sale,
loss, destruction or condemnation. Any such prepayment of the Term Loans shall
be without premium or penalty.
3.3.2 Optional Prepayment in Full of Term Loans. Anything to the
contrary notwithstanding, Borrower shall have the right, upon not less than
thirty (30) days prior written notice to Lender, to prepay, in whole but not in
part and without premium or penalty, the Term Loans (but not just one of the
Term Loans, unless Term Loan #2 shall have been paid in full in cash at the time
of such proposed prepayment) in cash and from any source other than proceeds of
any Revolving Credit Loan made hereunder or any other source supported by any
Letter of Credit or LC Guaranty caused to be issued hereunder. With such
prepayment, Borrower also shall pay interest accrued and unpaid on the Term
Loans to the date of such prepayment.
3.4 Application of Payments and Collections. For purposes of calculating
Availability, all items of payment received by Lender by 12:00 noon, Los
Angeles time, on any Business Day shall be deemed received on that Business
Day. All items of payment received after 12:00 noon, Los Angeles time, on any
Business Day shall be deemed received on the following Business Day. Borrower
irrevocably waives the right to direct the application of any and all payments
and collections at any time or times hereafter received by Lender from or on
behalf of Borrower, and Borrower does hereby irrevocably agree that, subject to
subsection 3.2.1(i), Lender shall have the continuing exclusive right to apply
and reapply any and all such payments and collections received at any time or
times hereafter by Lender or its agent against the Obligations, in such manner
as Lender may deem advisable, notwithstanding any entry by Lender upon any of
its books and records. If, as the result of collections of Accounts as
authorized by subsection 6.2.6 hereof, a credit balance exists in the Loan
Account, such credit balance shall not accrue
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<PAGE> 12
interest in favor of Borrower, but shall be available to Borrower at any time
or times for so long as no Default or Event of Default exists. Such credit
balance shall not be applied or be deemed to have been applied as a prepayment
of the Term Loans except that Lender may, at its option, offset such credit
balance against any of the Obligations upon and after the occurrence of an
Event of Default.
3.5 All Loans to Constitute One Obligation. The Loans shall constitute
one general Obligation of Borrower, and shall be secured by Lender's Lien upon
all of the Collateral.
3.6 Loan Account. Lender shall enter all Loans as debits to the Loan
Account and shall also record in the Loan Account all payments made by Borrower
on any Obligations and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practices, other debits and credits, including interest and all charges and
expenses properly chargeable to Borrower.
3.7 Statements of Account. Lender will account to Borrower monthly with
a statement of Loans, charges and payments made pursuant to this Agreement, and
such account rendered by Lender shall be deemed final, binding and conclusive
upon Borrower unless Lender is notified by Borrower in writing to the contrary
within 30 days of the date each accounting is mailed to Borrower. Such notice
shall only be deemed an objection to those items specifically objected to
therein.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making Loans
to Borrower upon or after the occurrence of any Default or Event of Default,
this Agreement shall be in effect for a period of 2 years and eleven months from
the date hereof, through and including May 15, 1999 (the "Original Term"), and
this Agreement shall automatically renew itself for one-year periods thereafter
(the "Renewal Terms"), in each case, unless terminated as provided in Section
4.2 hereof.
4.2 Termination.
4.2.1 Termination by Lender. Upon at least 90 days prior written
notice to Borrower, Lender may terminate this Agreement as of the last day of
the Original Term or the then current Renewal Term and Lender may terminate this
Agreement without notice upon or after the occurrence of an Event of Default.
4.2.2 Termination by Borrower. Upon at least 90 days prior written
notice to Lender, Borrower may, at its option, terminate this Agreement;
provided, however, no such termination shall be effective until Borrower has
paid all of the Obligations in immediately available funds, and all Letters of
Credit and LC Guaranties have expired or have been cash collateralized to
Lender's satisfaction. Any notice of
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termination given by Borrower shall be irrevocable unless Lender otherwise
agrees in writing, and Lender shall have no obligation to make any Loans or
issue or procure any Letters of Credit or LC Guaranties on or after the
termination date stated in such notice. Borrower may elect to terminate this
Agreement in its entirety only. No section of this Agreement or type of Loan
available hereunder may be terminated singly.
4.2.3 Termination Charges. At the effective date of termination of
this Agreement for any reason, Borrower shall pay to Lender (in addition to the
then outstanding principal, accrued interest and other charges owing under the
terms of this Agreement and any of the other Loan Documents) as liquidated
damages for the loss of the bargain and not as a penalty, an amount ("Early
Termination Charge") equal to (a) 2.00% of the Total Credit Facility if
termination occurs during the first twelve-month period of the Original Term
(June 13, 1996 through and including June 15, 1997); and (b) 1.00% of the Total
Credit Facility if termination occurs thereafter, prior to the last day of the
Original Term. If termination occurs on the last day of the Original Term or
the last day of any Renewal Term, no termination charge shall be payable.
4.2.4 Effect of Termination. All of the Obligations shall be
immediately due and payable upon the termination date stated in any notice of
termination of this Agreement. All undertakings, agreements, covenants,
warranties and representations of Borrower contained in the Loan Documents shall
survive any such termination and Lender shall retain its Liens in the Collateral
and all of its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds, together with the applicable termination charge, if
any. Notwithstanding the payment in full of the Obligations, Lender shall not
be required to terminate its security interests in the Collateral unless, with
respect to any loss or damage Lender may incur as a result of dishonored checks
or other items of payment received by Lender from Borrower or any Account Debtor
and applied to the Obligations (except to the extent such loss is the proximate
result of Lender's gross negligence or willful misconduct), Lender shall, at its
option, (i) have received a written agreement, executed by Borrower and by any
Person whose loans or other advances to Borrower are used in whole or in part to
satisfy the Obligations, indemnifying Lender from any such loss or damage; or
(ii) have retained such monetary reserves and Liens on the Collateral for such
period of time as Lender, in its reasonable discretion, may deem necessary to
protect Lender from any such loss or damage.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment and
performance to Lender of the Obligations, Borrower hereby grants to Lender a
continuing Lien upon all of Borrower's assets, including all of the following
Property and interests in Property of Borrower, whether now owned or existing
or hereafter created, acquired or arising and wheresoever located:
(i) Accounts;
(ii) Inventory;
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(iii) Equipment;
(iv) General Intangibles;
(v) All monies and other Property of any kind now or at any time
or times hereafter in the possession or under the control of Lender or a
bailee or Affiliate of Lender;
(vi) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (i) through (v) above,
including, without limitation, proceeds of and unearned premiums with
respect to insurance policies insuring any of the Collateral; and
(vii) All books and records (including, without limitation, customer
lists, credit files, computer programs, print-outs, and other computer
materials and records) of Borrower pertaining to any of (i) through (vi)
above.
5.2 Lien Perfection; Further Assurances. Borrower, at Lender's request,
shall execute such UCC-1 financing statements as are required by the Code and
such other instruments, assignments or documents as are necessary to perfect
Lender's Lien upon any of the Collateral and shall take such other action as
may be required to perfect or to continue the perfection of Lender's Lien upon
the Collateral. Unless prohibited by applicable law, Borrower hereby
authorizes Lender to execute and file any such financing statement on
Borrower's behalf. The parties agree that a carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement and
may be filed in any appropriate office in lieu thereof. At Lender's request,
Borrower also shall promptly execute or cause to be executed and shall deliver
to Lender any and all documents, instruments and agreements deemed necessary by
Lender to give effect to or carry out the terms or intent of the Loan
Documents.
5.3 Intentionally omitted.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General
6.1.1 Location of Collateral. All Collateral, other than Inventory
in transit, motor vehicles and equipment that may be carried off-site in
connection with service calls, will at all times be kept by Borrower at one or
more of the business locations set forth in Exhibit 6.1.1 hereto and shall not,
without the prior written approval of Lender, be moved therefrom except, prior
to an Event of Default and Lender's acceleration of the maturity of the
Obligations in consequence thereof for (i) sales of Inventory in the ordinary
course of business; and (ii) removals in connection with dispositions of
Equipment that are authorized by subsection 6.4.2 hereof.
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6.1.2 Insurance of Collateral. Borrower shall maintain and pay for
insurance upon all Collateral wherever located and with respect to Borrower's
business, covering casualty, hazard, public liability and such other risks in
such amounts and with such insurance companies as are reasonably satisfactory to
Lender. Borrower shall deliver the originals of such policies to Lender with
438-BFU (NS) lender's loss payable endorsements or other satisfactory lender's
loss payable endorsements, naming Lender as loss payee and additional insured,
as appropriate. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than 30 days prior written notice to
Lender in the event of cancellation of the policy for any reason whatsoever and
a clause specifying that the interest of Lender shall not be impaired or
invalidated by any act or neglect of Borrower or the owner of the Property or by
the occupation of the premises for purposes more hazardous than are permitted by
said policy. If Borrower fails to provide and pay for such insurance, Lender
may, at its option, but shall not be required to, procure the same and charge
Borrower therefor. Borrower agrees to deliver to Lender, promptly as rendered,
true copies of all reports made in any reporting forms to insurance companies.
6.1.3 Protection of Collateral. All expenses of protecting,
storing, warehousing, insuring, handling, maintaining and shipping the
Collateral, any and all excise, property, sales, and use taxes imposed by any
state, federal, or local authority on any of the Collateral or in respect of the
sale thereof shall be borne and paid by Borrower. If Borrower fails to promptly
pay any portion thereof when due, Lender may, at its option, but shall not be
required to, pay the same and charge Borrower therefor. Lender shall not be
liable or responsible in any way for the safekeeping of any of the Collateral or
for any loss or damage thereto (except for reasonable care in the custody
thereof while any Collateral is in Lender's actual possession) or for any
diminution in the value thereof, or for any act or default of any warehouseman,
carrier, forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.
6.2 Administration of Accounts.
6.2.1 Records, Schedules and Assignments of Accounts. Borrower
shall keep accurate and complete records of its Accounts and all payments and
collections thereon and shall submit to Lender on such periodic basis as Lender
may reasonably request a sales and collections report for the preceding period,
in form satisfactory to Lender. On or before the fifteenth day of each month
from and after the date hereof, Borrower shall deliver to Lender, in form
acceptable to Lender, a detailed aged trial balance of all Accounts existing as
of the last day of the preceding month, specifying the names, addresses, face
value, dates of invoices and due dates for each Account Debtor
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obligated on an Account so listed ("Schedule of Accounts"), and, upon
Lender's request therefor, copies of proof of delivery and the original copy of
all documents, including, without limitation, repayment histories and present
status reports relating to the Accounts so scheduled and such other matters and
information relating to the status of then existing Accounts as Lender shall
reasonably request. In addition, in the event that, during the period between
the submission of Schedules of Accounts, Eligible Accounts in an aggregate face
amount in excess of $100,000 become ineligible because they fall within one of
the specified categories of ineligibility set forth in the definition of
Eligible Accounts or otherwise established by Lender, Borrower shall notify
Lender of such occurrence on the first Business Day following such occurrence,
and the Borrowing Base thereupon shall be adjusted to reflect such occurrence.
If requested by Lender, Borrower shall execute and deliver to Lender formal
written assignments of all of its Accounts weekly or daily, which shall include
all Accounts that have been created since the date of the last assignment,
together with copies of invoices or invoice registers related thereto.
6.2.2 Discounts, Allowances, Disputes. If Borrower grants any
discounts, allowances or credits that are not shown on the face of the invoice
for the Account involved, Borrower shall report such discounts, allowances or
credits, as the case may be, to Lender as part of the next required Schedule of
Accounts. If any amounts due and owing in excess of $100,000 are in dispute
between Borrower and any Account Debtor, Borrower shall provide Lender with
written notice thereof at the time of submission of the next Schedule of
Accounts, explaining in detail the reason for the dispute, all claims related
thereto and the amount in controversy. Upon and after the occurrence of an
Event of Default, Lender shall have the right to settle or adjust all disputes
and claims directly with the Account Debtor and to compromise the amount or
extend the time for payment of the Accounts upon such terms and conditions as
Lender may deem advisable, and to charge the deficiencies, costs and expenses
thereof, including attorney's fees, to Borrower.
6.2.3 Taxes. If an Account includes a charge for any tax payable to
any governmental taxing authority, Lender is authorized, in its sole discretion,
to pay the amount thereof to the proper taxing authority for the account of
Borrower and to charge Borrower therefor; provided, however that Lender shall
not be liable for any taxes to any governmental taxing authority that may be due
by Borrower.
6.2.4 Account Verification. Whether or not a Default or an Event of
Default has occurred, any of Lender's officers, employees or agents shall have
the right, at any time or times hereafter, in the name of Lender, any designee
of Lender or Borrower, to verify the validity, amount or any other matter
relating to any Accounts by mail, telephone, telegraph or otherwise. Borrower
shall cooperate fully with Lender in an effort to facilitate and promptly
conclude any such verification process.
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6.2.5 Maintenance of Dominion Account. Borrower shall maintain a
Dominion Account pursuant to a lockbox arrangement acceptable to Lender with
such bank as may be selected by Borrower and be acceptable to Lender. Borrower
shall issue to such bank an irrevocable letter of instruction directing such
bank to deposit all payments or other remittances received in the lockbox
maintained by such bank to the Dominion Account for application on account of
the Obligations. All funds deposited in the Dominion Account immediately shall
become the property of Lender and Borrower shall obtain the agreement by such
bank in favor of Lender to waive any offset rights against the funds so
deposited. Lender assumes no responsibility for such lockbox arrangement,
including, without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder.
6.2.6 Collection of Accounts, Proceeds of Collateral. To expedite
collection, Borrower shall endeavor in the first instance to make collection of
its Accounts for Lender. All remittances received by Borrower on account of
Accounts, together with the proceeds of any other Collateral, shall be held as
Lender's property by Borrower as trustee of an express trust for Lender's
benefit and Borrower shall immediately deposit same in kind in the Dominion
Account. Lender retains the right at all times after the occurrence of a
Default or an Event of Default to notify Account Debtors that Accounts have been
assigned to Lender and to collect Accounts directly in its own name and to
charge the collection costs and expenses, including reasonable attorneys' fees
to Borrower.
6.3 Administration of Inventory.
6.3.1 Records and Reports of Inventory. Borrower shall keep
accurate and complete records of its Inventory. Borrower shall furnish to
Lender Inventory reports in form and detail satisfactory to Lender, at such
times as Lender may request, but at least once each month, not later than the
twentieth day of such month. Borrower shall conduct a physical inventory no
less frequently than annually and shall provide to Lender a report based on each
such physical inventory promptly thereafter, together with such supporting
information as Lender shall request.
6.3.2 Returns of Inventory. If at any time or times hereafter any
Account Debtor returns any Inventory to Borrower the shipment of which generated
an Account on which such Account Debtor is obligated in excess of $100,000,
Borrower immediately shall notify Lender of the same, specifying the reason for
such return and the location, condition and intended disposition of the returned
Inventory.
6.4 Administration of Equipment.
6.4.1 Records and Schedules of Equipment. Borrower shall keep
accurate records itemizing and describing the kind, type, quality, quantity and
value of its Equipment and all dispositions made in accordance with subsection
6.4.2 hereof, and shall furnish Lender with a current schedule containing the
foregoing information on at least an annual basis and more often if requested by
Lender. Immediately on request therefor by Lender, Borrower shall deliver to
Lender any and all evidence of ownership, if any, of any of the Equipment.
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6.4.2 Dispositions of Equipment. Borrower will not sell, lease or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Lender; provided, however, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (i) dispositions of Equipment which, in the aggregate during
any consecutive twelve-month period, has a fair market value or book value,
whichever is less, of $50,000 or less, provided that all proceeds thereof are
remitted to Lender for application to the Loans, or (ii) dispositions of
Equipment that is substantially worn, damaged or obsolete, provided that
replacement Equipment shall be acquired in connection with any disposition of
such Equipment, the replacement Equipment shall be free and clear of Liens other
than Permitted Liens that are not Purchase Money Liens, and Borrower shall have
given Lender at least 5 days prior written notice of such disposition.
6.5 Payment of Charges. All amounts chargeable to Borrower under Section
6 hereof shall be Obligations secured by all of the Collateral, shall be
payable on demand and shall bear interest from the date such advance was made
until paid in full at the rate applicable to Revolving Credit Loans from time
to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to enter
into this Agreement and to make Loans or issue Letters of Credit and LC
Guaranties hereunder, Borrower warrants and represents to Lender that:
7.1.1 Organization and Qualification. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Borrower is duly qualified and is authorized
to do business and is in good standing as a foreign corporation in each state or
jurisdiction listed in Exhibit 7.1.1 and in all other states and jurisdictions
where the character of its Properties or the nature of its activities make such
qualification necessary or in which the failure of Borrower to be so qualified
would have a material adverse effect on the financial condition, business or
Properties of Borrower.
7.1.2 Corporate Power and Authority. Borrower is duly authorized
and empowered to enter into, execute, deliver and perform this Agreement and
each of the other Loan Documents to which it is a party. The execution,
delivery and performance of this Agreement and each of the other Loan Documents
have been duly authorized by all necessary corporate action and do not and will
not (i) require any consent or approval of the shareholders of Borrower; (ii)
contravene Borrower's charter, articles or certificate of incorporation or
by-laws; (iii) violate, or cause Borrower to be in default under, any provision
of any law, rule, regulation order, writ, judgment, injunction, decree,
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determination or award in effect having applicability to Borrower; (iv) result
in a breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which Borrower is a
party or by which it or its Properties may be bound or affected; or (v) result
in, or require, the creation or imposition of any Lien (other than Permitted
Liens) upon or with respect to any of the Properties now owned or hereafter
acquired by Borrower.
7.1.3 Legally Enforceable Agreement. This Agreement is, and each of
the other Loan Documents when delivered under this Agreement will be, a legal,
valid and binding obligation of Borrower enforceable against it in accordance
with its respective terms.
7.1.4 Capital Structure. Exhibit 7.1.4 hereto states (i) the correct
name of each of the Subsidiaries of Borrower, its jurisdiction of incorporation
and the percentage of its Voting Stock owned by Borrower, (ii) the name of each
of Borrower's corporate or joint venture Affiliates and the nature of the
affiliation, (iii) the number, nature and holder of all outstanding Securities
of Borrower and each Subsidiary of Borrower, and (iv) the number of authorized,
issued and treasury shares of Borrower and each Subsidiary of Borrower. Borrower
has good title to all of the shares it purports to own of the stock of each of
its Subsidiaries, free and clear in each case of any Lien other than Permitted
Liens. All such shares have been duly issued and are fully paid and
non-assessable. There are no outstanding options to purchase, or any rights or
warrants to subscribe for, or any commitments or agreements to issue or sell, or
any Securities or obligations convertible into, or any powers of attorney
relating to, shares of the capital stock of Borrower or any of its Subsidiaries
not listed in Exhibit 7.1.4. There are no outstanding agreements or instruments
binding upon any of Borrower's shareholders relating to the ownership of shares
of Borrower's capital stock not listed in Exhibit 7.1.4.
7.1.5 Corporate Names. Borrower has not during the last 5 years been
known as or used any corporate, fictitious or trade names except those listed on
Exhibit 7.1.5 hereto. Except as set forth on Exhibit 7.1.5, Borrower has not
during the last 5 years been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any Person.
7.1.6 Business Locations; Agent for Process. Borrower's chief
executive office and other places of business are as listed on Exhibit 6.1.1
hereto. During the preceding one-year period, Borrower has not had an office,
place of business or agent for service of process other than as listed on
Exhibit 6.1.1. Except as shown on Exhibit 6.1.1 no inventory is stored with a
bailee, warehouseman or similar party, nor is any Inventory consigned to any
Person.
7.1.7 Title to Properties; Priority of Liens. Borrower has good,
indefeasible and marketable title to and fee simple ownership of, or valid and
subsisting leasehold interests in, all of its real Property, and good title to
all of the Collateral and all
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of its other Property, in each case, free and clear of all Liens except
Permitted Liens. Borrower has paid or discharged all lawful claims which, if
unpaid, might become a Lien against any of Borrower's Properties that is not a
Permitted Lien. The Liens granted to Lender under Section 5 hereof are first
priority Liens, subject only to Permitted Liens.
7.1.8 Accounts. All Accounts that are included as Eligible Accounts
in a certificate signed by Borrower and submitted to Lender qualify as Eligible
Accounts under the terms of this Agreement. Lender may rely, in determining
which Accounts are Eligible Accounts, on all statements and representations made
by Borrower with respect to any Account or Accounts. Unless otherwise indicated
in writing to Lender, with respect to each Account:
(i) It is genuine and in all respects what it purports to
be, and it is not evidenced by a judgment;
(ii) It arises out of a completed, bona fide 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 and forming a part of the contract between Borrower
and the Account Debtor;
(iii) Billing has, with the exception of an Eligible Unbilled
Account, been made on the Account;
(iv) It is for a liquidated amount maturing as stated in the
duplicate invoice covering such sale or rendition of services, a copy
of which has been furnished or is available to Lender;
(v) Such Account, and Lender's security interest therein, is
not, and will not (by voluntary act or omission of Borrower) be in
the future, subject to any offset, Lien, deduction, defense, dispute,
counterclaim or any other adverse condition except for disputes
resulting in returned goods where the amount in controversy is deemed
by Lender to be immaterial, and each such Account is absolutely owing
to Borrower and is not contingent in any respect or for any reason;
(vi) Borrower has made no agreement with any Account Debtor
thereunder for any extension, compromise, settlement, or modification
of any such Account or any deduction therefrom, except discounts or
allowances which are granted by Borrower in the ordinary course of
its business for prompt payment and which are reflected in the
calculation of the net amount of each respective invoice related
thereto and are reflected in the Schedule of Accounts submitted to
Lender pursuant to subsection 6.2.1 hereof;
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(vii) There are no facts, events or occurrences which in any
way impair the validity or enforceability of any Accounts or tend to
reduce the amount payable thereunder from the face amount of the
invoice and statements delivered to Lender with respect thereto;
(viii) To the best of Borrower's knowledge, the Account
Debtor thereunder (a) had the capacity to contract at the time any
contract or other document giving rise to the Account was executed
and (b) such Account Debtor is Solvent; and
(ix) To the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any
Account Debtor thereunder which might result in any material adverse
change in such Account Debtor's financial condition or the
collectibility of such Account.
7.1.9 Equipment. The Equipment is in good operating condition and
repair, and all necessary replacements of and repairs thereto shall be made so
that the value and operating efficiency of the Equipment shall be maintained and
preserved, reasonable wear and tear excepted. Borrower will not permit any of
the Equipment to become affixed to any real Property leased to Borrower so that
an interest arises therein under the real estate laws of the applicable
jurisdiction unless the landlord of such real Property has executed a Collateral
Access Agreement in favor of and in form acceptable to Lender, and Borrower will
not permit any of the Equipment to become an accession to any personal Property
other than Equipment that is subject to first priority (except for Permitted
Liens) Liens in favor of Lender.
7.1.10 Financial Statements; Fiscal Year. The Consolidated balance
sheets of Borrower and such other Persons described therein (including the
accounts of all Subsidiaries of Borrower for the respective periods during which
a Subsidiary relationship existed) as of February 3, 1996, and the related
statements of income, changes in stockholder's equity, and changes in financial
position for the periods ended on such date, have been prepared in accordance
with GAAP, and present fairly the financial positions of Borrower and such
Persons at such date and the results of Borrower's operations for such periods.
Since February 3, 1996, there has been no material change in the condition,
financial or otherwise, of Borrower and such other Persons as shown on the
Consolidated balance sheet as of such date and no change in the aggregate value
of Equipment and Real Property owned by Borrower or such other Persons, except
changes in the ordinary course of business, none of which individually or in the
aggregate has been materially adverse. The fiscal year of Borrower and each of
its Subsidiaries ends on (or about) January 31 of each year.
7.1.11 Full Disclosure. The financial statements referred to in
subsection 7.1.10 hereof do not, nor does this Agreement or any other written
statement of Borrower to Lender, contain any untrue statement of a material fact
or omit a material fact
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necessary to make the statements contained therein or herein not misleading.
There is no fact (other than facts of a general economic nature) which Borrower
has failed to disclose to Lender in writing which materially affects adversely
or, so far as Borrower can now foresee, will materially affect adversely the
Properties, business, profits or condition (financial or otherwise) of Borrower
or the ability of Borrower to perform this Agreement or the other Loan
Documents. The projections and pro forma financial information contained in
the materials referenced above are based upon good faith estimates and
assumptions believed by such Persons to be reasonable at the time made, it
being recognized by the Banks that such projections as to future events are not
to be viewed as facts and that actual results during the period or periods
covered by any such projections may differ from the projected results.
7.1.12 Solvent Financial Condition. Borrower is now and, after
giving effect to the Loans to be made and the Letters of Credit and LC
Guaranties to be issued hereunder, at all times will be, Solvent.
7.1.13 Surety Obligations. Borrower is not obligated as surety or
indemnitor under any surety or similar bond or other contract issued or entered
into any agreement to assure payment, performance or completion of performance
of any undertaking or obligation of any Person.
7.1.14 Taxes. Borrower's federal tax identification number is
95-2742753. Borrower has filed all federal, state and local tax returns and
other reports it is required by law to file and has paid, or made provision for
the payment of, all taxes, assessments, fees, levies and other governmental
charges upon it, its income and Properties as and when such taxes, assessments,
fees, levies and charges that are due and payable, unless and to the extent any
thereof are being actively contested in good faith and by appropriate
proceedings and Borrower maintains reasonable reserves on its books therefor.
The provision for taxes on the books of Borrower are adequate for all years not
closed by applicable statutes, and for its current fiscal year.
7.1.15 Brokers. There are no claims for brokerage commissions,
finder's fees or investment banking fees in connection with the transactions
contemplated by this Agreement.
7.1.16 Patents, Trademarks, Copyrights and Licenses. Borrower owns
or possesses all the patents, trademarks, service marks, trade names, copyrights
and licenses necessary for the present and future conduct of its business
without any known conflict with the rights of others. All such patents,
trademarks, service marks, tradenames, copyrights, licenses and other similar
rights are listed on Exhibit 7.1.16 hereto.
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7.1.17 Governmental Consents. Borrower has, and is in good standing
with respect to, all governmental consents, approvals, licenses, authorizations,
permits, certificates, inspections and franchises necessary to continue to
conduct its business as currently or proposed to be conducted by it and to own
or lease and operate its Properties as now owned or leased by it.
7.1.18 Compliance with Laws. Borrower has duly complied with, and
its Properties, business operations and leaseholds are in compliance in all
material respects with, the provisions of all federal, state and local laws,
rules and regulations applicable to Borrower, its Properties or the conduct of
its business and there have been no citations, notices or orders of
noncompliance issued to Borrower under any such law, rule or regulation.
Borrower has established and maintains an adequate monitoring system to insure
that it remains in compliance with all federal, state and local laws rules and
regulations applicable to it. No Inventory has been produced in violation of
the Fair Labor Standards Act (29 U.S.C. Section 201 et seq.), as amended.
7.1.19 Restrictions. Borrower is not a party or subject to any
contract, agreement, or charter or other corporate restriction, which materially
and adversely affects its business or the use or ownership of any of its
Properties. Borrower is not a party or subject to any contract or agreement
which restricts its right or ability to incur Indebtedness, other than as set
forth on Exhibit 7.1.19 hereto, none of which prohibit the execution of or
compliance with this Agreement or the other Loan Documents by Borrower.
7.1.20 Litigation. Except as set forth on Exhibit 7.1.20 hereto,
there are no actions, suits, proceedings or investigations pending, or to the
knowledge of Borrower, threatened, against or affecting Borrower, which could,
if adversely determined, be reasonably expected to have a material adverse
effect on the business, operations, Properties, profits or condition of
Borrower. Borrower is not in default with respect to any order, writ,
injunction, judgment, decree or ruling of any court, governmental authority or
arbitration board or tribunal.
7.1.21 No Defaults. No event has occurred and no condition exists
which would, upon or after the execution and delivery of this Agreement or
Borrower's performance hereunder, constitute a Default or an Event of Default.
Borrower is not in default, and no event has occurred and no condition exists
which constitutes, or which with the passage of time or the giving of notice or
both would constitute, a default in the payment of any Indebtedness to any
Person for Money Borrowed.
7.1.22 Leases. Exhibit 7.1.22(A) hereto is a complete listing of
all capitalized leases of Borrower and Exhibit 7.1.22(B) hereto is a complete
listing of all operating leases of Borrower. Borrower is in full compliance
with all of the terms of each of its capitalized and operating leases.
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7.1.23 Pension Plans. Except as disclosed on Exhibit 7.1.23
hereto, Borrower does not maintain any Plan. Borrower is in full compliance
with the requirements of ERISA and the regulations promulgated thereunder with
respect to each Plan. No fact or situation that could result in a material
adverse change in the financial condition of Borrower exists in connection with
any Plan. Borrower does not have any withdrawal liability in connection with a
Multiemployer Plan.
7.1.24 Trade Relations. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of Borrower, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially affect
adversely Borrower or prevent Borrower from conducting such business after the
consummation of the transaction contemplated by this Agreement in substantially
the same manner in which it has heretofore been conducted.
7.1.25 Labor Relations. Except as described on Exhibit 7.1.25
hereto, Borrower is not a party to any collective bargaining agreement. There
are no material grievances, disputes or controversies with any union or any
other organization of Borrower's employees, or threats of strikes, work
stoppages or any asserted pending demands for collective bargaining by any union
or organization.
7.1.26 Eligible Inventory. All Inventory that is included as
Eligible Inventory in a certificate signed by Borrower and submitted to Lender
qualify as Eligible Inventory under the terms of this Agreement.
7.1.27 No Restricted Inventory. No Inventory consists of any
Restricted Inventory.
7.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain accurate, complete and
not misleading at all times during the term of this Agreement, except for
changes in the nature of Borrower's business or operations that would render the
information in any exhibit attached hereto either inaccurate, incomplete or
misleading, so long as Lender has consented to such changes or such changes are
not expressly prohibited by this Agreement.
7.3 Survival of Representations and Warranties. All representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Lender
and the parties thereto and the closing of the transactions described therein or
related thereto.
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SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.1.1 Visits and Inspections. Permit representatives of Lender,
from time to time, as often as may be reasonably requested, but only during
normal business hours, to visit and inspect the Properties of Borrower, inspect,
audit and make extracts from its books and records, and discuss with its
officers, its employees and its independent accountants, Borrower's business,
assets, liabilities, financial condition, business prospects and results of
operations.
8.1.2 Notices. Promptly notify Lender in writing of the occurrence
of any event or the existence of any fact which renders any representation or
warranty in this Agreement or any of the other Loan Documents inaccurate,
incomplete or misleading.
8.1.3 Financial Statements. Keep adequate records and books of
account with respect to its business activities in which proper entries are made
in accordance with GAAP reflecting all its financial transactions; and cause to
be prepared and furnished to Lender the following (all to be prepared in
accordance with GAAP applied on a consistent basis, unless Borrower's certified
public accountants concur in any change therein and such change is disclosed to
Lender and is consistent with GAAP):
(i) not later than 90 days after the close of each fiscal
year of Borrower, unqualified audited financial statements of
Borrower as of the end of such year, certified by a firm of
independent certified public accountants of recognized standing
selected by Borrower but acceptable to Lender (except for a
qualification for a change in accounting principles with which the
accountant concurs);
(ii) not later than 20 days after the end of each month
hereafter, including the last month of Borrower's fiscal year,
unaudited interim financial statements of Borrower as of the end of
such month and of the portion of Borrower's financial year then
elapsed, certified by the principal financial officer of Borrower as
being prepared in accordance with GAAP and fairly presenting the
financial position and results of operations of Borrower for such
month and period subject only to changes from audit and year-end
adjustments and except that such statements need not contain notes;
(iii) 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,
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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;
(iv) promptly after the filing thereof, copies of any annual
report required by ERISA to be filed in connection with each Plan;
and
(v) 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 financial condition or
results of operations.
Concurrently with the delivery of the financial statements described in
clause (i) of this subsection 8.1.3, Borrower shall forward to Lender a copy of
the accountants' letter to Borrower's management that is prepared in connection
with such financial statements and also shall cause to be prepared and shall
furnish to Lender a certificate of the aforesaid certified public accountants
certifying to Lender that, based upon their examination of the financial
statements of Borrower performed in connection with their examination of said
financial statements, they are not aware of any Default or Event of Default, or,
if they are aware of such Default or Event of Default, specifying the nature
thereof. Concurrently with the delivery of the financial statements described
in clauses (i) and (ii) of this subsection 8.1.3, or more frequently if
requested by Lender, Borrower shall cause to be prepared and furnished to Lender
a Compliance Certificate in the form of Exhibit 8.1.3 hereto executed by the
Chief Financial Officer of Borrower.
8.1.4 Landlord and Storage Agreements. Provide Lender with copies
of all written agreements between Borrower and any landlord or warehouseman
which owns any premises at which any Inventory may, from time to time, be kept.
8.1.5 Intentionally Omitted.
8.1.6 Projections. Not later than 30 days prior to the end of each
fiscal year of Borrower, deliver to Lender Projections of Borrower for the
forthcoming 3 years, year by year, and for the forthcoming fiscal year, month by
month.
8.2 Negative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Lender, Borrower covenants that,
unless Lender has first consented thereto in writing, it will not:
8.2.1 Mergers; Consolidations; Acquisitions. Merge or consolidate,
or permit any of its Subsidiaries to merge or consolidate, with any Person; nor
acquire, nor permit any of its Subsidiaries to acquire, all or any substantial
part of the Properties of any Person.
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8.2.2 Loans. Make, or permit any Subsidiary of Borrower to make, any
loans or other advances of money (other than for salary, travel advances,
advances against commissions and other similar advances in the ordinary course
of business) to any Person.
8.2.3 Total Indebtedness. Create, incur, assume, or suffer to
exist, or permit any Subsidiary of Borrower to create, incur or suffer to exist,
any Indebtedness, except:
(i) Obligations owing to Lender;
(ii) Subordinated Debt existing on the date of this
Agreement;
(iii) Unsecured (except as may be cash-collateralized below)
letters of credit and letter of credit guaranties issued by the
Existing Lender set forth on Exhibit 8.2.3, to the extent the same
are cash-collateralized with the proceeds of Loans made hereunder or
are supported by LC Guaranties or Letters of Credit caused to be
issued hereunder; provided, however, that such Letters of Credit and
Letter of Credit Guaranties issued by the Existing Lender shall not
be renewed and shall be terminated or permitted to expire as soon as
practicable;
(iv) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed) which are not aged
more than 120 days from billing date or more than 90 days from the
due date, in each case incurred in the ordinary course of business
and paid within such time period, unless the same are being actively
contested in good faith and by appropriate and lawful proceedings;
and Borrower or such Subsidiary shall have set aside such reserves,
if any, with respect thereto as are required by GAAP and deemed
adequate by Borrower or such Subsidiary and its independent
accountants;
(v) Obligations to pay Rentals permitted by subsection
8.2.13;
(vi) Permitted Purchase Money Indebtedness;
(vii) contingent liabilities arising out of endorsements of
checks and other negotiable instruments for deposit or collection in
the ordinary course of business; and
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(viii) Indebtedness not included in paragraphs (i) through
(vii) above which does not exceed at any time, in the aggregate, the
sum of $100,000.
8.2.4 Affiliate Transactions. Enter into, or be a party to, or
permit any Subsidiary of Borrower to enter into or be a party to, any
transaction with any Affiliate of Borrower, except (a) in the ordinary course of
and pursuant to the reasonable requirements of Borrower's or such Subsidiary's
business and upon fair and reasonable terms which are fully disclosed to Lender
and are no less favorable to Borrower than would obtain in a comparable arm's
length transaction with a Person not an Affiliate or stockholder of Borrower or
such Subsidiary, and (b) subject to this Agreement and the Intercreditor
Agreement, the performance by Borrower of its obligations under the Tax Sharing
Agreement and the Shareholders Agreement.
8.2.5 Limitation on Liens. Create or suffer to exist, any Lien upon
any of its Property, income or profits, whether now owned or hereafter acquired,
except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed pursuant to
any of the provisions of ERISA) not yet due, or being contested in
the manner described in subsection 7.1.14 hereto, but only if in
Lender's judgment such Lien does not adversely affect Lender's rights
or the priority of Lender's Lien in the Collateral;
(iii) Liens arising by operation of law in favor of
warehouseman, landlords, carriers, mechanics, materialmen, laborers
or suppliers, incurred in the ordinary course of business of Borrower
and not in connection with the borrowing of money, for sums not yet
delinquent or which are being contested in good faith and by proper
proceedings diligently pursued, provided that a reserve or other
appropriate provision, if any, required by GAAP shall have been made
therefor on the applicable financial statements of Borrower, and at
Lender's option, Lender shall be entitled to create a reserve against
the Borrowing Base in an amount sufficient to discharge such Lien and
any and all penalties or interest payable in connection therewith;
(iv) Deposits made in connection with worker's compensation
or other unemployment insurance incurred in the ordinary course of
Borrower's business;
(v) Deposits to secure performance of bids, tenders, or
leases (to the extent permitted under this Agreement), incurred in
the ordinary course of business of Borrower and not in connection
with the borrowing of money;
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(vi) Liens arising by reason of security for surety or
appeal bonds in the ordinary course of business of Borrower;
(vii) Liens of or resulting from any judgment or award, the
time for the appeal or petition for rehearing of which has not yet
expired, or in respect of which Borrower is in good faith prosecuting
an appeal or proceeding for a review, and in respect of which a stay
of execution pending such appeal or proceeding for review has been
secured; provided, however, that any such Lien does not give rise to
any Event of Default;
(viii) With respect to any real property: easements, rights
of way, zoning and similar covenants and restrictions and similar
encumbrances which customarily exist on properties of corporations
engaged in similar activities and similarly situated and which in any
event do not materially interfere with or impair the use or operation
of the Collateral by Borrower or the value of Lender's Lien thereon
and security interest therein, or materially interfere with the
ordinary conduct of the business of Borrower;
(ix) Purchase Money Liens securing Permitted Purchase Money
Indebtedness;
(x) Liens securing Indebtedness of one of Borrower's
Subsidiaries to Borrower or another such Subsidiary;
(xi) such other Liens as appear on Exhibit 8.2.5 hereto;
(xii) such other Liens as Lender may hereafter approve in
writing; and
(xiii) Deposits as cash collateral for the Letters of
Credit and Letter of Credit Guaranties described in, and to the
extent permitted by, item (iii) of Section 8.2.3 hereof.
8.2.6 Subordinated Debt. Make, or permit any Subsidiary of Borrower
to make, any payment of any part or all of any Subordinated Debt, except, if the
Junior Payments Fixed Charge Coverage Condition is satisfied therefor, payments
with respect to the Canpartners Subordinated Debt to the extent (and in the
manner) expressly permitted under Section 4(b) of the Intercreditor Agreement.
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8.2.7 Distributions. Declare or make any Distributions other than
Permitted Distributions. Without limiting the generality of the foregoing,
until the payment in full in cash of all Obligations and the termination of
Lender's commitments to make Loans and issue Letters of Credit and LC
Guaranties, Borrower shall not exercise the Management Call or the Canpartners
Call and shall not make any Distribution in respect of the Canpartners Put.
8.2.8 Capital Expenditures. Make Capital Expenditures (including,
without limitation, by way of capitalized leases) which, in the aggregate,
exceed $2,500,000 during any fiscal year of Borrower.
8.2.9 Disposition of Assets. Sell, lease or otherwise dispose of
any of, or permit any Subsidiary of Borrower to sell, lease or otherwise
dispose of any of, its Properties, including any disposition of Property as
part of a sale and leaseback transaction, to or in favor of any Person, except
(i) sales of Inventory in the ordinary course of business for so long as no
Event of Default exists hereunder, or (ii) dispositions expressly authorized by
Section 6.4.2 of this Agreement.
8.2.10 Stock of Subsidiaries. Permit any of its Subsidiaries to
issue any additional shares of its capital stock except director's qualifying
shares.
8.2.11 Bill-and-Hold Sales, Etc. Make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, or any sale on a repurchase or return basis.
8.2.12 Restricted Investment. Make or have, any Restricted
Investment.
8.2.13 Leases. Become a lessee under any operating lease (other
than a lease under which Borrower is lessor) of Property if the aggregate net
Rentals payable during any current or future period of 12 consecutive months
under the lease in question and all other leases under which Borrower or any of
its Subsidiaries is then lessee would exceed $1,500,000. The term "Rentals"
means, as of the date of determination, all payments which the lessee is
required to make by the terms of any lease.
8.2.14 Tax Consolidation. Except under the Tax Sharing Agreement,
file or consent to the filing of any consolidated income tax return with any
Person other than a Subsidiary of Borrower.
8.2.15 Management Fees. Pay any management fees or fees for
financial and advisory services to or for the benefit of Investor (or any
Affiliate thereof) or Canpartners, whether under Section 2.3 of the Shareholders
Agreement or otherwise, unless (a) no Event of Default has occurred and is
continuing or would result therefrom, (b) if the Management Payments Fixed
Charge Coverage Condition is satisfied therefor, and (c) Borrower is in
compliance with subsections 8.3.1 through 8.3.5; provided, however, that all
such fees, in the aggregate, shall not exceed $400,000 per annum. The
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foregoing to the contrary notwithstanding, Borrower may (a) pay reasonable
compensation to a partner of Investor who serves as the chief executive officer
(or other officer position) of Borrower, and (b) pay the non-employee
directors' fees under Section 2.4 of the Shareholders Agreement;
8.2.16 Amendments or Waivers of Certain Documents. Enter into any
amendment, supplement, or modification of: (a) any Canpartners Sub Debt
Document; (b) the Tax Sharing Agreement; or (c) the Shareholders Agreement; in
each case, in any manner that reasonably could be expected to be adverse to the
interests of Lender or materially adverse to the interests of Borrower.
8.2.17 Restricted Inventory. Acquire any Restricted Inventory or
use or intend to use any existing Inventory as Restricted Inventory, unless
Borrower provides to Lender, not less than 45 days prior to any such
acquisition, use, or intention to use, written notification thereof and such
Security Documents and filings (each in form and substance satisfactory to
Lender) as are necessary or reasonably desirable by Lender to perfect with the
Federal Aviation Administration its Liens on such Restricted Inventory under the
provisions of the Federal Aviation Act.
8.3 Specific Financial Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.3.1 Minimum Net Worth. Maintain at all times Net Worth of not
less than the amount shown below for the period corresponding thereto:
Period Amount
------ ----------
May 1, 1996 through July 31, 1996 $3,700,000
August 1, 1996 through October 31, 1996 $4,200,000
November 1, 1996 through January 31, 1997 $4,700,000
February 1, 1997 through April 30, 1997 $5,000,000
In each subsequent fiscal quarter thereafter $5,000,000
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8.3.2 Minimum Average Availability. Maintain Average Availability,
as of the end of each month, of not less than $1,000,000, and maintain
Availability, on the last day of each month, of not less than $1,000,000.
8.3.3 [Intentionally omitted].
8.3.4 Fixed Charge Coverage Ratio. Achieve a Fixed Charge Coverage
Ratio for each fiscal quarter of not less than the ratio shown below for the
period corresponding thereto:
May 1, 1996 through July 31, 1996 1.05 to 1.00
August 1, 1996 through October 31, 1996 1.05 to 1.00
November 1, 1996 through January 31, 1997 1.10 to 1.00
In each subsequent fiscal quarter thereafter 1.10 to 1.00
8.3.5 Minimum Backlog. Maintain, at the end of each fiscal quarter,
a Backlog of not less than $24,000,000.
SECTION 9. CONDITIONS PRECEDENT TO INITIAL CREDITS
Notwithstanding any other provision of this Agreement or any of the other
Loan Documents, and without affecting in any manner the rights of Lender under
the other sections of this Agreement, Lender shall not be required to make or
issue the initial Loans, Letters of Credit, or LC Guaranties under this
Agreement unless and until each of the following conditions has been and
continues to be satisfied:
9.1 Documentation. Lender shall have received, in form and substance
satisfactory to Lender and its counsel, a duly executed copy of this Agreement
and the other Loan Documents, together with such additional documents,
instruments and certificates as Lender and its counsel shall require in
connection therewith from time to time, all in form and substance satisfactory
to Lender and its counsel.
9.2 Intentionally Omitted.
9.3 Other Loan Documents. Each of the conditions precedent set forth in
the other Loan Documents shall have been satisfied.
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9.4 Availability. Lender shall have determined that immediately after
Lender has made the initial Loans and issued the initial Letters of Credit and
LC Guaranties contemplated hereby, and paid all closing costs incurred in
connection with the transactions contemplated hereby, Availability shall not be
less than $2,000,000.
9.5 Fiscal Year End Financial Statements. Lender shall have received,
and shall have approved in its sole discretion, copies of Borrower's audited
1996 fiscal year end financial statements, dated as of February 3, 1996,
prepared in accordance with the requirements of subsection 8.1.3(i), which
financial statements shall not reflect any material adverse change or changes
from Borrower's draft 1996 fiscal year end financial statements previously
submitted to Lender.
9.6 Certified Documents of Borrower. On or before the Closing Date,
Borrower shall have delivered to Lender copies of the following documents, duly
certified, or the following certificates, as applicable:
(i) Resolutions of the board of directors of Borrower authorizing
(a) the execution, delivery and performance of the Loan Documents to which
Borrower is a party, (b) the consummation of the transactions contemplated by
the Loan Documents to which Borrower is a party, and (c) all other actions to be
taken by Borrower in connection with the Loan Documents to which it is a party;
(ii) A certificate, signed by the secretary or an assistant
secretary of Borrower, dated as of the Closing Date, as to (a) the incumbency,
and containing the specimen signature or signatures, of the Person or Persons
authorized to execute the Loan Documents to which Borrower is a party on behalf
of Borrower, together with evidence of the incumbency of such secretary or
assistant secretary, and (b) the authenticity and completeness of the articles
of incorporation and bylaws of Borrower (with complete and accurate copies of
same to be attached to the certificate); and
(iii) Certificates of status or good standing of Borrower, from the
Secretary of State of California and Texas, and in each other jurisdiction in
which Borrower is required to be qualified to do business, dated within 15 days
of the Closing Date.
9.7 [Intentionally omitted].
9.8 Confirmation Searches. Lender shall have received searches
reflecting the filing of its financing statements and/or fixture filings with
respect to Borrower.
9.9 Opinion of Counsel. Lender shall have received from counsel for
Borrower a legal opinion in form and substance reasonably satisfactory to Lender
and its counsel.
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9.10 Evidence of Insurance of Collateral. Lender shall have
received certificates of insurance in respect of the Collateral, together with
the endorsements thereto, as are required by subsection 6.1.2 hereof.
9.11 Use of Financing. Lender shall have received a certificate
from Borrower satisfactory to it that the Loans to be made hereunder are being
used in accordance with subsection 1.1.2 hereof.
9.12 Pay-Off Letter and UCC Termination Statements, etc.. Existing
Lender shall have executed and delivered the Pay-Off Letter, which shall be in
full force and effect, together with UCC termination statements and other
documentation evidencing the termination of its Liens on the Property of
Borrower.
9.13 Disbursement Instruction Letter. Borrower shall have executed
and delivered to Lender the Disbursement Instruction Letter.
9.14 Offshore Receivable Financing. Lender shall have received
evidence satisfactory to it that Borrower has received the proceeds of the
Garuda Indonesia receivable financed by the Export Import Bank.
9.15 Past Due Allison Payable. Lender shall have received evidence
satisfactory to it that Borrower is in good standing with regard to any and all
past due amounts owing to Allison Engine Company.
9.16 Dominion Account Agreement. Lender shall have received an
executed and delivered original counterpart of the Dominion Account Agreement
entered into by the bank at which the Dominion Account is maintained, which
shall be acceptable in form and content to Lender.
9.17 Inventory Analysis. Lender shall have conducted and approved
of the results of a "Pre-Funding Audit" during which audit Lender shall have
compared the inventory costing of repairable and serviceable parts to the list
price for new parts.
9.18 Tax Sharing Agreement. Lender shall have received a copy of
the Tax Sharing Agreement, together with a certificate of the Secretary of
Borrower certifying the same to be a true, correct, and complete copy thereof.
9.19 Shareholders Agreement. Lender shall have received a copy of
the Shareholders Agreement, together with a certificate of the Secretary of
Borrower certifying the same to be a true, correct, and complete copy thereof.
9.20 Canpartners Sub Debt Documents. Lender shall have received a
copy of the Canpartners Sub Debt Documents, together with a certificate of the
Secretary of Borrower certifying the same to be a true, correct, and complete
copy thereof.
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SECTION 9A. CONDITIONS PRECEDENT TO ALL CREDITS
Notwithstanding any other provision of this Agreement or any of the other
Loan Documents, and without affecting in any manner the rights of Lender under
the other sections of this Agreement, Lender shall not be required to make or
issue any Loans, Letters of Credit or LC Guaranties under this Agreement unless
each of the following conditions is satisfied:
9A.1 No Default. No Default or Event of Default shall exist.
9A.2 Representations and Warranties. The representations and warranties
contained in this Agreement and the other Loan Documents shall be true and
correct in all material respects on and as of date of such Loan (except to the
extent that such representations and warranties relate solely to an earlier
date).
9A.3 No Litigation. No action, proceeding, investigation, regulation, or
legislation shall have been instituted, threatened, or proposed before any
court, governmental agency, or legislative body to enjoin, restrain, or
prohibit, or to obtain damages in respect of, or which is related to or arises
out of this Agreement or the consummation of the transactions contemplated
hereby.
9A.4 Adverse Change. No material adverse change shall have occurred in
the financial condition or business operations of Borrower.
SECTION 9B. CONDITION SUBSEQUENT
As a condition subsequent to the making or issuing of the Loans, Letters of
Credit, or LC Guaranties under this Agreement on the Closing Date, Borrower
shall perform or cause to be performed the following (the failure by Borrower to
so perform or cause to be performed constituting an Event of Default hereunder):
9B.1 Retention of Chief Financial Officer. Within 120 days of the Closing
Date, Borrower shall have hired a chief financial officer, which individual
shall be satisfactory to Lender, such approval not to be unreasonably withheld
or delayed.
9B.2 Collateral Access Agreements. (a) Within 60 days of the Closing
Date, Lender shall have received the Oakland Collateral Access Agreements, each
of which shall have been duly executed and delivered and shall be in full force
and effect.
(b) Within 45 days of the Closing Date, Lender shall have received
Collateral Access Agreements (other than the Oakland Collateral Access
Agreements) in respect of any location of Borrower at which Inventory or
Equipment is located and that either (i) is not owned in fee by Borrower, or
(ii) is subject to a mortgage in favor of a mortgagee other than Lender, each of
which shall have been duly executed and delivered and shall be in full force and
effect.
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SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
10.1 Events of Default. The occurrence of one or more of the following
events shall constitute an "Event of Default":
10.1.1 Payment of Notes. Borrower shall fail to pay any
installment of principal, interest, or premium, if any, owing on either of the
Term Notes on the due date of such installment.
10.1.2 Payment of Other Obligations. Borrower shall fail to pay
any of the Obligations that are not evidenced by the Term Notes on the due date
thereof (whether due at stated maturity, on demand, upon acceleration or
otherwise).
10.1.3 Misrepresentations. Any representation, warranty or other
statement made or furnished to Lender by or on behalf of Borrower in this
Agreement, any of the other Loan Documents or any instrument, certificate or
financial statement furnished in compliance with or in reference thereto proves
to have been false or misleading in any material respect when made or furnished
or when reaffirmed pursuant to Section 7.2 hereof.
10.1.4 Breach of Specific Covenants. (a) Borrower shall fail or
neglect to perform, keep or observe any covenant contained in Sections 5.2,
6.1.1, 8.1.1, 8.2, or 8.3 hereof on the date that Borrower is required to
perform, keep or observe such covenant; or (b) in the case of Sections 6.2 or
8.1.3, Borrower has not performed, kept or observed such covenant within 15 days
of the date that Borrower is required to perform, keep or observe such covenant.
10.1.5 Breach of Other Covenants. Borrower shall fail or neglect
to perform, keep or observe any covenant contained in this Agreement (other than
a covenant which is dealt with specifically elsewhere in Section 10.1 hereof)
and the breach of such other covenant is not cured to Lender's satisfaction
within 15 days after the sooner to occur of Borrower's receipt of notice of such
breach from Lender or the date on which such failure or neglect first becomes
known to any officer of Borrower.
10.1.6 Default Under Security Documents/Other Agreements. Any event
of default shall occur under, or Borrower shall default in the performance or
observance of any term, covenant, condition or agreement contained in, any of
the Security Documents or the Other Agreements and such default shall continue
beyond any applicable grace period.
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10.1.7 Other Defaults. There shall occur any default or event of
default on the part of Borrower under any agreement, document or instrument to
which Borrower is a party or by which Borrower or any of its Property is bound,
creating or relating to any Indebtedness (other than the Obligations) if the
payment or maturity of such Indebtedness is accelerated in consequence of such
event of default or demand for payment of such Indebtedness is made.
10.1.8 Uninsured Losses. Any material loss, theft, damage or
destruction of any of the Collateral not fully covered (subject to such
deductibles as Lender shall have permitted) by insurance.
10.1.9 Adverse Changes. There shall occur any material adverse
change in the financial condition or business prospects of Borrower.
10.1.10 Insolvency and Related Proceedings. Borrower shall cease to
be Solvent or shall suffer the appointment of a receiver, trustee, custodian or
similar fiduciary, or shall make an assignment for the benefit of creditors, or
any petition for an order for relief shall be filed by or against Borrower under
the Bankruptcy Code (and if against Borrower, the continuation of such
proceeding for more than 45 days; provided, however, that during the pendency of
such proceeding, Lender shall be relieved of its obligation to make additional
Revolving Credit Loans hereunder or cause to be issued additional Letters of
Credit or LC Guaranties hereunder), or Borrower shall make any offer of
settlement, extension or composition to its unsecured creditors generally.
10.1.11 Business Disruption; Condemnation. There shall occur a
cessation of a substantial part of the business of Borrower for a period which
significantly affects Borrower's capacity to continue its business, on a
profitable basis; or Borrower shall suffer the loss or revocation of any license
or permit now held or hereafter acquired by Borrower which is necessary to the
continued or lawful operation of its business; or Borrower shall be enjoined,
restrained, or in any way prevented by court, governmental or administrative
order from conducting all or any material part of its business affairs; or any
material lease or agreement pursuant to which Borrower leases, uses or occupies
any Property shall be canceled or terminated prior to the expiration of its
stated term and such cancellation or termination of such lease or agreement,
either individually or together with the cancellation or termination of all
other such leases and agreements, could reasonably be expected to result in a
material adverse change in the financial condition or business of Borrower; or
any part of the Collateral shall be taken through condemnation or the value of
such Property shall be impaired through condemnation.
10.1.12 Change of Ownership. First Aviation shall cease to own and
control, beneficially and of record, 51% of the issued and outstanding capital
stock of Borrower.
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10.1.13 ERISA. A Reportable Event shall occur which Lender in its
sole discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee for any
Plan, or if any Plan shall be terminated or any such trustee shall be requested
or appointed, or if Borrower is in "default" (as defined in Section 4219(c)(5)
of ERISA) with respect to payments to a Multiemployer Plan resulting from
Borrower's complete or partial withdrawal from such Plan.
10.1.14 Challenge to Agreement. Borrower or any Affiliate of
Borrower shall challenge or contest in any action, suit or proceeding the
validity or enforceability of this Agreement, or any of the other Loan
Documents, the legality or enforceability of any of the Obligations, or the
perfection or priority of any Lien granted to Lender.
10.1.15 Intentionally Omitted.
10.1.16 Criminal Forfeiture. Borrower or any Subsidiary of Borrower
shall be criminally indicted or convicted under any law that could lead to a
forfeiture of any Property of Borrower or any Subsidiary of Borrower having a
fair market value exceeding $100,000.
10.1.17 Judgments. Any money judgment, writ of attachment or
similar process is filed against Borrower or any of its Property in the amount
of $100,000 in the aggregate and the same is not discharged or bonded within 30
days of such filing.
10.2 Acceleration of the Obligations. Without in any way limiting the
right of Lender to demand payment of any portion of the Obligations payable on
demand in accordance with Section 3.2 hereof, upon or at any time after the
occurrence of an Event of Default, all or any portion of the Obligations shall,
at the option of Lender and without presentment, demand protest or further
notice by Lender, become at once due and payable and Borrower shall forthwith
pay to Lender, the full amount of such Obligations, provided that upon the
occurrence of an Event of Default specified in subsection 10.1.10 hereof, all of
the Obligations shall become automatically due and payable without declaration,
notice or demand by Lender.
10.3 Other Remedies. Upon and after the occurrence of an Event of
Default, Lender shall have and may exercise from time to time the following
rights and remedies:
10.3.1 All of the rights and remedies of a secured party under the
Code or under other applicable law, and all other legal and equitable rights to
which Lender may be entitled, all of which rights and remedies shall be
cumulative and shall be in addition to any other rights or remedies contained in
this Agreement or any of the other Loan Documents, and none of which shall be
exclusive.
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10.3.2 The right to take immediate possession of the Collateral,
and to (i) require Borrower to assemble the Collateral, at Borrower's expense,
and make it available to Lender at a place designated by Lender which is
reasonably convenient to both parties, and (ii) enter any premises where any of
the Collateral shall be located and to keep and store the Collateral on said
premises until sold (and if said premises be the Property of Borrower, Borrower
agrees not to charge Lender for storage thereof).
10.3.3 The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable. Borrower agrees that 10 days written
notice to Borrower of any public or private sale or other disposition of
Collateral shall be reasonable notice thereof, and such sale shall be at such
locations as Lender may designate in said notice. Lender shall have the right to
conduct such sales on Borrower's premises, without charge therefor, and such
sales may be adjourned from time to time in accordance with applicable law.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Obligations. The
proceeds realized from the sale of any Collateral may be applied, after allowing
2 Business Days for collection, first to the costs, expenses and attorneys' fees
incurred by Lender in collecting the Obligations, in enforcing the rights of
Lender under the Loan Documents and in collecting, retaking, completing,
protecting, removing, storing, advertising for sale, selling and delivering any
Collateral, second to the interest due upon any of the Obligations; and third,
to the principal of the Obligations. If any deficiency shall arise, Borrower
shall remain liable to Lender therefor.
10.3.4 Lender is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrower's rights under all licenses and
all franchise agreements, to the extent permitted under the terms of such
licenses, shall inure to Lender's benefit.
10.3.5 Lender may, at its option, require Borrower to deposit with
Lender funds equal to the LC Amount and, if Borrower fails to promptly make such
deposit, Lender may advance such amount as a Revolving Credit Loan (whether or
not an Uncommitted Advance is created thereby). Any such deposit or advance
shall be held by Lender as a reserve to fund future payments on such LC
Guaranties and future drawings against such Letters of Credit. At such time as
all LC Guaranties have been paid or terminated and all Letters of Credit have
been drawn upon or expired, any amounts remaining in such reserve shall be
applied against any outstanding Obligations, or, if all Obligations have been
indefeasibly paid in full, returned to Borrower.
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10.3.6 Lender, at its option, may retain an independent consultant
to perform a valuation of Borrower's Inventory. Borrower shall provide such
independent consultant with full access to Borrower's business and records to
the same extent granted to Lender in subsection 8.1.1 hereof.
10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule given to Lender or contained in any other agreement between
Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall
be deemed cumulative to and not in derogation or substitution of any of the
terms, covenants, conditions, or agreements of Borrower herein contained. The
failure or delay of Lender to require strict performance by Borrower of any
provision of this Agreement or to exercise or enforce any rights, Liens, powers,
or remedies hereunder or under any of the aforesaid agreements or other
documents or security or Collateral shall not operate as a waiver of such
performance, Liens, rights, powers and remedies, but all such requirements,
Liens, rights, powers, and remedies shall continue in full force and effect
until all Loans and all other Obligations owing or to become owing from Borrower
to Lender shall have been fully satisfied. None of the undertakings, agreements,
warranties, covenants and representations of Borrower contained in this
Agreement or any of the other Loan Documents and no Event of Default by Borrower
under this Agreement or any other Loan Documents shall be deemed to have been
suspended or waived by Lender, unless such suspension or waiver is by an
instrument in writing specifying such suspension or waiver and is signed by a
duly authorized representative of Lender and directed to Borrower.
SECTION 11. MISCELLANEOUS
11.1 Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent, may, without notice to Borrower and in either Borrower's or Lender's
name, but at the cost and expense of Borrower:
11.1.1 At such time or times upon or after the occurrence of an
Event of Default as Lender or its agent, in its sole discretion, may determine,
endorse Borrower's name on any checks, notes, acceptances, drafts, money orders
or any other evidence of payment or proceeds of the Collateral which come into
the possession of Lender or under Lender's control.
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11.1.2 At such time or times upon or after the occurrence of an
Event of Default as Lender or its agent, in its sole discretion, may determine:
(i) demand payment of the Accounts from the Account Debtors, enforce payment of
the Accounts by legal proceedings or otherwise, and generally exercise all of
Borrower's rights and remedies with respect to the collection of the Accounts;
(ii) settle, adjust, compromise, discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or other Collateral; (iii) sell or assign any of the Accounts and other
Collateral upon such terms, for such amounts and at such time or times as Lender
deems advisable; (iv) take control, in any manner, of any item of payment or
proceeds relating to any Collateral: (v) prepare file and sign Borrower's name
to a proof of claim in bankruptcy or similar document against any Account Debtor
or to any notice of lien, assignment or satisfaction of lien or similar document
in connection with any of the Collateral; (vi) receive, open and dispose of all
mail addressed to Borrower and to notify postal authorities to change the
address for delivery thereof to such address as Lender may designate; (vii)
endorse the name of Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Lender on
account of the Obligations; (viii) endorse the name of Borrower upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts, Inventory and any other
Collateral; (ix) use Borrower's stationery and sign the name of Borrower to
verifications of the Accounts and notices thereof to Account Debtors; (x) use
the information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Accounts, Inventory, Equipment
and any other Collateral; (xi) make and adjust claims under policies of
insurance; and (xii) do all other acts and things necessary, in Lender's
determination, to fulfill Borrower's obligations under this Agreement.
11.2 Indemnity. Borrower hereby agrees to indemnify Lender and hold
Lender harmless from and against any liability, loss, damage, suit, action or
proceeding ever suffered or incurred by Lender (including reasonable attorneys
fees and legal expenses) as the result of Borrower's failure to observe, perform
or discharge Borrower's duties hereunder. In addition, Borrower shall defend
Lender against and save it harmless from all claims of any Person with respect
to the Collateral. Without limiting the generality of the foregoing, these
indemnities shall extend to any claims asserted against Lender by any Person
under any Environmental Laws or similar laws by reason of Borrower's or any
other Person's failure to comply with laws applicable to solid or hazardous
waste materials or other toxic substances. The foregoing to the contrary
notwithstanding, the obligation of Borrower under this Section 11.2 shall
survive the payment in full of the Obligations and the termination of this
Agreement.
11.3 Modification of Agreement; Sale of Interest. This Agreement may not
be modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement, any of the other Loan Documents, or any of the Obligations, or
any portion thereof, including, without limitation, Borrower's rights, title,
interests, remedies, powers, and duties
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hereunder or thereunder. Lender may, with the written consent of Borrower
(which shall not be unreasonably withheld, conditioned, or delayed),
participate, sell, assign, transfer, or otherwise dispose of, at any time or
times hereafter, this Agreement and any of the other Loan Documents, or of any
portion hereof or thereof, including, without limitation, Lender's rights,
title, interests, remedies, powers, and duties hereunder or thereunder;
provided, however, that no such consent of Borrower shall be required if: (a)
any such assignment or sale is in connection with the merger, sale,
consolidation, sale, transfer, or other disposition of all or any substantial
portion of the business or loan portfolio of Lender; or (b) any such
participation, sale, assignment, transferee, or other disposition is to an
Eligible Transferee. In the event Lender elects to make an assignment of a
portion of its interests in respect of this Agreement and the other Loan
Documents, Lender agrees to use reasonable best efforts to make any such
assignment in the minimum amount of $10,000,000 (with unfunded commitments and
outstanding Loans being aggregated for such purpose) or such lesser amount as
then is held by Lender. In the case of an assignment, the assignee shall have,
to the extent of such assignment, the same rights, benefits and obligations as
it would if it were "Lender hereunder and Lender shall be relieved of all
obligations hereunder upon any such assignments. Borrower agrees that it will
use its best efforts to assist and cooperate with Lender in any manner
reasonably requested by Lender to effect the sale of participations in or
assignments of any of the Loan Documents or any portion thereof or interest
therein, including, without limitation, assisting in the preparation of
appropriate disclosure documents. Borrower further agrees that Lender may
disclose credit information regarding Borrower and its Subsidiaries to any
potential participant or assignee provided such participant or assignee shall
be bound by the provisions of Section 11.16.
11.4 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
11.5 Successors and Assigns. This Agreement, the Other Agreements and the
Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender permitted under Section 11.3
hereof.
11.6 Cumulative Effect; Conflict of Terms. The provisions of the Other
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof
and except as otherwise provided in any of the other Loan Documents by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the other Loan Documents, the provision contained in
this Agreement shall govern and control.
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11.7 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
11.8 Notice. Except as otherwise provided herein, all notices, requests
and demands to or upon a party hereto, to be effective, shall be in writing and
shall be sent by certified or registered mail, return receipt requested, by
personal delivery against receipt, by overnight courier or by facsimile and,
unless otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered immediately when delivered against receipt, one
Business Day after deposit in the mail, postage prepaid, or with an overnight
courier or, in the case of facsimile notice, when sent, addressed as follows:
If to Lender: FLEET CAPITAL CORPORATION
15260 Ventura Boulevard, Suite 1200
Sherman Oaks, California 91403
Attention: Loan Administration Manager
Facsimile No.: (818) 905-5927
With a copy to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope St., Suite 2100
Los Angeles, California 90071
Attention: John Francis Hilson, Esquire
Facsimile No.: (213) 239-1324
If to Borrower: NATIONAL AIRMOTIVE CORPORATION
7200 Lockheed Street
Oakland, California 94621
Attention: John F. Risko
Facsimile No.: (510) 568-7058
With a copy to: O'MELVENY & MYERS
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660-6474
Attention: Joseph J. Herron, Esquire
Facsimile No.: (714) 669-6994
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2
hereof shall not be effective until received by Lender.
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11.9 Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction, condition or event,
Lender shall be authorized to give or withhold such consent in its sole and
absolute discretion and to condition its consent upon the giving of additional
collateral security for the Obligations, the payment of money or any other
matter.
11.10 Credit Inquiries. Borrower hereby authorizes and permits Lender to
respond to usual and customary credit inquiries from third parties concerning
Borrower.
11.11 Time of Essence. Time is of the essence of this Agreement, the
Other Agreements and the Security Documents.
11.12 Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.
11.13 Interpretation. No provision of this Agreement or any of the other
Loan Documents shall be construed against or interpreted to the disadvantage of
any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured or dictated such
provision.
11.14 GOVERNING LAW: CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
LOS ANGELES, CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT IF
ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN
CALIFORNIA, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND
PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE
ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE
EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT
WITH THE LAWS OF CALIFORNIA. AS PART OF THE CONSIDERATION FOR NEW VALUE
RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF
BUSINESS OF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE
SUPERIOR COURT OF LOS ANGELES COUNTY, CALIFORNIA, OR, AT LENDER'S OPTION, THE
UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA, CENTRAL
DIVISION, SHALL HAVE
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EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT
OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. 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 BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN
THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID. 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 SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
11.15 WAIVERS BY BORROWER. BORROWER WAIVES (I) THE RIGHT TO TRIAL BY JURY
(WHICH LENDER HEREBY 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: (II) PRESENTMENT, DEMAND AND PROTEST AND
NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE,
COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER,
ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES
AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (III) NOTICE PRIOR
TO 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; (IV) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION
LAWS; AND (V) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE
FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS
AGREEMENT
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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.
11.16 Confidentiality. Lender agrees that material, non-public
information regarding Borrower, its operations, assets, and existing and
contemplated business plans shall be treated by Lender in a confidential manner,
and shall not be disclosed by it to Persons who are not parties to this
Agreement, except: (a) to counsel for and other advisors, accountants, and
auditors to Lender, (b) as may be required by statute, decision, or judicial or
administrative order, rule, or regulation, (c) as may be agreed to in advance by
Borrower, (d) as to any such information that is or becomes generally available
to the public, and (e) in connection with any assignment, prospective
assignment, sale, prospective sale, participation or prospective participation,
or pledge or prospective pledge of Lender's interests under this Agreement,
provided that any such assignee, prospective assignee, purchaser, prospective
purchaser, participant, prospective participant, pledgee, or prospective pledgee
shall take its interest hereunder subject to the terms hereof.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, this Agreement has been duly executed on the day and
year specified at the beginning of this Agreement.
ATTEST: NATIONAL AIRMOTIVE CORPORATION,
a California corporation
By /s/ JOHN F. RISKO
- --------------------------------- --------------------------------
Name: Rajesh Sharma Name: John F. Risko
Title: Secretary Title: Chief Executive Officer
ACCEPTED IN LOS ANGELES, CALIFORNIA:
FLEET CAPITAL CORPORATION
By /s/ JOSEPH C. AVENATTI
---------------------------------
Name: Joseph C. Avenatti
Title: Vice President
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APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of June 13, 1996 by
and between Fleet Capital Corporation and National Airmotive Corporation, the
following terms shall have the following meanings (terms defined in the singular
to have the same meaning when used in the plural and vice versa):
Account Debtor - any Person who is or may become obligated under or
on account of an Account.
Accounts - all accounts, contract rights, chattel paper, instruments
and documents, whether now owned or hereafter created or acquired by
Borrower or in which Borrower now has or hereafter acquires any interest.
Affiliate - a Person: (i) which directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common
control with, a Person; (ii) which beneficially owns or holds 5% or more of
any class of the Voting Stock of a Person; or (iii) 5% or more of the
Voting Stock (or in the case of a Person which is not a corporation, 5% or
more of the equity interest) of which is beneficially owned or held by a
Person or a Subsidiary of a Person.
Agreement - the Loan and Security Agreement referred to in the first
sentence of this Appendix A, all Exhibits thereto and this Appendix A.
Allison - Allison Engine Company, Inc.
Availability - the amount of money which Borrower is entitled to
borrow from time to time as Revolving Credit Loans, such amount being the
difference derived when (a) the sum of the principal amount of Revolving
Credit Loans then outstanding (including any amounts which Lender may have
paid for the account of Borrower pursuant to any of the Loan Documents and
which have not been reimbursed by Borrower), plus the LC Amount, is
subtracted from (b) the Borrowing Base. If the amount outstanding is equal
to or greater than the Borrowing Base, Availability is 0.
Average Availability - with respect to any month, the sum of
Availability on each Business Day during such month divided by the number
of Business Days in such month.
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Backlog- as of the last day of any fiscal quarter commencing with
July 31, 1996, the dollar amount of the scheduled shipments reasonably
projected to be made by Borrower during the next 90 day period.
Borrowing Base - as at any date of determination thereof, an amount
equal to:
(a) 85% of the net amount of Eligible Accounts; PLUS
(b) an amount equal to the lesser of: (i) $2,000,000 and
(ii) 70% of the net amount of Eligible Unbilled Accounts; PLUS
(c) an amount equal to the lesser of: (i) $19,500,000 and
(ii) the sum of (w) 60% of the value of Eligible Inventory; provided,
however, that, during the 10 consecutive quarters following the
Closing Date, such percentage shall be permanently reduced by 1% in
each quarter during which Borrower is not in compliance with
subsection 8.3.2, 8.3.4 and 8.3.5hereof; PLUS
(d) the lesser of (1) $6,000,000 and (2) 60% of the value
of Eligible WIP Inventory; provided, however, that, during the 10
consecutive quarters following the Closing Date, such percentage
shall be permanently reduced by 1% in each quarter during which
Borrower is not in compliance with subsection 8.3.2, 8.3.4 and 8.3.5
hereof;PLUS
(e) the lesser of (1) $2,000,000 and (2) 50% of the value
of Eligible Slow and Rental Inventory; MINUS
(d) the aggregate amount of the Environmental Reserve.
For purposes hereof, the net amount of Eligible Accounts at any time shall
be the face amount of such Eligible Accounts less any and all returns, rebates,
discounts (which may, at Lender's option, be calculated on shortest terms),
credits, allowances or excise taxes of any nature at any time issued, owing,
claimed by Account Debtors, granted, outstanding or payable in connection with
such Accounts at such time.
Business Day - any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the State of California or is a day on
which banking institutions located such state are closed.
Canpartners - Canpartners Investments IV, LLC, a California limited
liability company, as assignee of Canpartners Investments III, L.P., a
California limited partnership.
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Canpartners Call - the right of Borrower to exercise the "CPI Call
Option" (as defined in the Shareholders Agreement) in respect of Securities
of Borrower owned by Canpartners in accordance with Article VI of the
Shareholders Agreement.
Canpartners Put - the right of Canpartners to exercise the "Put
Option" in respect of the Securities of Borrower owned by Canpartners in
accordance with Article VI of the Shareholders Agreement.
Canpartners Sub Debt Documents - all material agreements,
instruments, and documents in respect of the Canpartners Subordinated Debt,
including, without limitation, that certain Loan and Security Agreement,
dated as of June 1, 1995, as amended by that certain First Amendment to
Loan and Security Agreement of National Airmotive Corporation, dated of
even date herewith, between Canpartners and Borrower, and that certain
Warrant Agreement of National Airmotive Corporation, dated as of June 1,
1995, as amended by that certain First Amendment to Warrant Agreement of
National Airmotive Corporation, dated of even date herewith, between
Canpartners and Borrower.
Canpartners Subordinated Debt - Subordinated Debt of Borrower owing
to Canpartners in the principal amount of $2,000,000 as of the Closing
Date.
Capital Expenditures - cash expenditures made or liabilities incurred
under this Agreement for the acquisition of any fixed assets or
improvements, replacements, substitutions or additions thereto which are
capital assets as defined in accordance with GAAP.
Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
Closing Date - the date on which all of the conditions precedent in
Sections 9 and 9A of the Agreement are satisfied and the initial Loan is
made or the initial Letter of Credit or LC Guaranty is issued under the
Agreement.
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Code - the Uniform Commercial Code as adopted and in force in the
State of California as from time to time in effect, except that in those
circumstance where the California Commercial Code requires the application
of the Uniform Commercial Code of another jurisdiction, the term Code shall
refer to the Uniform Commercial Code as enacted in such jurisdiction.
Collateral - all of the Property and interests in Property described
in Section 5 of the Agreement, and all other Property and interests in
Property that now or hereafter secure the payment and performance of any of
the Obligations.
Collateral Access Agreement - a landlord waiver, mortgagee waiver,
bailee letter, or similar acknowledgement agreement of any warehouseman or
processor of Inventory or Equipment, in each case in form and substance
satisfactory to Lender.
Consolidated - the consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.
Cumulative Fixed Charge Coverage Ratio - For the cumulative period
beginning on the date of this Agreement and ending on the date of
calculation of this ratio, the ratio of cumulative EBITDA minus cumulative
Capital Expenditures divided by the sum of cumulative Interest Expense plus
cumulative Scheduled Principal Amortization plus cumulative unscheduled
principal amortization payments plus cumulative actual cash income taxes
(other than cash payments of income taxes accrued through April 30, 1996
for the period from June 1, 1995 through April 30, 1996) for such fiscal
periods of Borrower plus cumulative Distributions in respect of the
"Preferred Stock" (as defined in the Intercreditor Agreement), as
determined in accordance with GAAP and as reflected on the financial
statement of Borrower supplied to Lender pursuant to subsection 8.1.3 of
the Agreement plus the cumulative cash equivalent value of any
distributions of stock in respect of the "Preferred Stock" not otherwise
included in cumulative Distributions.
Current Assets - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets
shown on a balance sheet at such date in accordance with GAAP.
Default - an event or condition the occurrence of which would, with
the lapse of time or the giving of notice, or both, become an Event of
Default.
Default Rate - as defined in subsection 2.1.2 of the Agreement.
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Disbursement Instruction Letter - a signed letter of instruction, in
form and content satisfactory to Lender, instructing Lender as to the
disbursements of Loans to be made on the Closing Date.
Distribution - in respect of any corporation means and includes: (i)
the payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (ii) the redemption or
acquisition of Securities unless made contemporaneously from the net
proceeds of the sale of Securities.
Dominion Account - a special account of Lender established by
Borrower pursuant to the Agreement at a bank selected by Borrower, but
acceptable to Lender in its reasonable discretion, and over which Lender
shall have sole and exclusive access and control for withdrawal purposes.
Dominion Account Agreement - any and all agreements with respect to
the Dominion Account in form and substance satisfactory to Lender.
Early Termination Charge - as defined in subsection 4.2.3 of the
Agreement.
EBITDA - with respect to any fiscal period, means the net earnings
(or loss) before interest expense, provision for income taxes,
depreciation, and amortization expense for such fiscal period of Borrower,
as determined in accordance with GAAP and as reflected on the financial
statement of Borrower supplied to Lender pursuant to subsection 8.1.3 of
the Agreement, but excluding non- recurring transaction costs incurred in
connection with the negotiation, execution, and delivery of this Agreement
and the concurrent amendments to the Canpartners Sub Debt Documents.
Eligible Account - an Account arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services which
Lender, in its sole credit judgment, deems to be an Eligible Account.
Without limiting the generality of the foregoing, no Account shall be an
Eligible Account if:
(i) it arises out of a sale made by Borrower to a
Subsidiary or an Affiliate of Borrower or to a Person controlled by
an Affiliate of Borrower; or
(ii) (A) with respect to Accounts other than Supported
Foreign Accounts, it is unpaid for more than 60 days after the
original due date shown on the invoice; or (B) with respect to
Supported Foreign Accounts, its is unpaid for more than 150 days
after the original due date shown on the invoice; or
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(iii) it is due or unpaid more than 120 days after the
original invoice date; provided that, in the case of either (A)
Accounts for which the Account Debtor is the United States of
America, or (B) Supported Foreign Accounts, such time period may be
up to 150 days; or
(iv) 50% or more of the Accounts from the Account Debtor
are not deemed Eligible Accounts hereunder; or
(v) the total unpaid Accounts of the Account Debtor
(excluding Federal Accounts and LC Supported Foreign Accounts) exceed
20% of the net amount of all Eligible Accounts, to the extent of such
excess; provided however, that in the case of Insurance Supported
Foreign Accounts, the forgoing percentage shall be 30% before the
excess would be deemed ineligible; or
(vi) any covenant, representation or warranty contained in
the Agreement with respect to such Account has been breached; or
(vii) the Account Debtor is also Borrower's creditor or
supplier, or the Account Debtor has disputed liability with respect
to such Account, or the Account Debtor has made any claim with
respect to any other Account due from such Account Debtor to
Borrower, or the Account otherwise is or may become subject to any
right of setoff by the Account Debtor; or
(viii) the Account Debtor has commenced a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter
amended, or made an assignment for the benefit of creditors, or a
decree or order for relief has been entered by a court having
jurisdiction in the premises in respect of the Account Debtor in an
involuntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other petition or other
application for relief under the federal bankruptcy laws has been
filed against the Account Debtor, or if the Account Debtor has
failed, suspended business, ceased to be Solvent, or consented to or
suffered a receiver, trustee, liquidator or custodian to be appointed
for it or for all or a significant portion of its assets or affairs;
or
(ix) it arises from a sale to an Account Debtor outside the
United States, unless it is a Supported Foreign Account; or
(x) it arises from a sale to the Account Debtor on a
bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or any other repurchase or return basis; or
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(xi) [Intentionally omitted].
(xii) the Account is subject to a Lien other than a
Permitted Lien; or
(xiii) the goods giving rise to such Account have not been
delivered to and accepted by the Account Debtor or the services
giving rise to such Account have not been performed by Borrower and
accepted by the Account Debtor or the Account otherwise does not
represent a final sale; or
(xiv) the Account is evidenced by chattel paper or an
instrument of any kind that has not been delivered into the
possession of Lender, or has been reduced to judgment; or
(xv) Borrower has made any agreement with the Account
Debtor for any deduction therefrom, except for discounts or
allowances which are made in the ordinary course of business for
prompt payment and which discounts or allowances are reflected in the
calculation of the face value of each invoice related to such
Account; or
(xvi) Borrower has made an agreement with the Account Debtor
to extend the time of payment thereof.
The foregoing as to the general eligibility of Accounts owed by an Account
Debtor that is the United States of America or any department, agency or
instrumentality thereof ("Federal Accounts") notwithstanding, Borrower shall, at
Lender's request, promptly assign to Lender Borrower's rights to payment of: (y)
prior to the occurrence and during the continuance of a Default or Event of
Default, Federal Accounts in excess of a $250,000 invoice amount; and (z) upon
the occurrence and during the continuance of a Default or Event of Default, all
Federal Accounts; in each case, in a manner satisfactory to Lender, so as to
comply with the Assignment of Claims Act of 1940 (31 U.S.C. Section 203 et seq.,
as amended) (it being understood that the foregoing shall not limit Lender's
right not to make any Revolving Credit Loan or to cause to be issued any Letter
of Credit or LC Guaranty if and for so long as a Default or Event of Default
shall exist).
Eligible Transferee - any of: (a) a commercial bank organized under
the laws of the United States, or any state thereof, and having total
assets in excess of $100,000,000; (b) a commercial bank organized under the
laws of any other country that is a member of the Organization for Economic
Cooperation and Development or a political subdivision of such country, and
having total assets in excess of $100,000,000; provided, however, such bank
is acting through a branch or agency located in the United States; (c) a
finance company, insurance or other financial
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institution or fund that is engaged in making, purchasing, or
otherwise investing in commercial loans in the ordinary course of
business and having total assets in excess of $100,000,000; (d) any
Affiliate (other than individuals) of Lender; (e) any other Person
approved by Lender and Borrower; or (f) Investor or any Affiliate
thereof or Canpartners or any Affiliate thereof.
Eligible Inventory - such Inventory of Borrower (other than packaging
materials and supplies) which Lender, in its sole credit judgment, deems to
be Eligible Inventory. Without limiting the generality of the foregoing,
no Inventory shall be Eligible Inventory if:
(i) it is not new, serviceable, or repairable Allison
parts (constituting type A, B, or C Inventory as determined by
Lender), finished goods, or new, serviceable, or repairable parts
furnished by vendors other than Allison; or
(ii) it is not (y) in good and saleable condition, and (z)
new, serviceable , or repairable; or
(iii) it is slow moving (i.e., it has not moved within 24
months from the date of purchase or, in the case of serviceable
parts, from the date of production,) obsolete or unmerchantable; or
(iv) it does not meet all applicable standards imposed by
any governmental agency or authority; or
(v) it does not conform in all respects to the warranties
and representations set forth in the Agreement; or
(vi) it is not at all times subject to Lender's duly
perfected, first priority security interest and no other Lien except
a Permitted Lien; or
(vii) it is not situated at a location in compliance with
the Agreement or is in transit.
Eligible Slow and Rental Inventory - such Inventory of Borrower that
would constitute Eligible Inventory except for the fact that it consists of
slow moving Inventory (net of reserves) and rental engines.
Eligible Unbilled Accounts - such Accounts of Borrower that would
constitute Eligible Accounts except for the fact that they have been earned
by performance but not yet billed.
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Eligible WIP Inventory - such Inventory of Borrower that would
constitute Eligible Inventory except for the fact that it consists of
work-in-process.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters.
Environmental Reserve - $50,000 in respect of Borrower's potential
liability for additional remediation costs for its Oakland, California
facility, such reserve to remain in place until Borrower's two year
obligation to monitor the facility has been satisfied.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or
owned by Borrower or in which Borrower has an interest, whether now owned
or hereafter acquired by Borrower and wherever located, and all parts,
accessories and special tools and all increases and accessions thereto and
substitutions and replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974, as
amended, and all rules and regulations from time to time promulgated
thereunder.
Event of Default - as defined in Section 10.1 of the Agreement.
Existing Lender - Congress Financial Corporation (Western), a
California corporation.
Federal Accounts - has the meaning ascribed thereto in the definition
of Eligible Accounts.
First Aviation - First Aviation Services, Inc., a Delaware
corporation.
Fixed Charge Coverage Ratio - The ratio of EBITDA minus Capital
Expenditures divided by the sum of Interest Expense plus Scheduled
Principal Amortization plus actual cash income taxes (other than cash
payments of income taxes accrued through April 30, 1996 for the period from
June 1, 1995 through April 30, 1996) for such fiscal period of Borrower
plus Distributions in respect of the "Preferred Stock" (as defined in the
Intercreditor Agreement), as determined in accordance with GAAP and as
reflected on the financial statement of Borrower supplied to Lender
pursuant to subsection 8.1.3 of the Agreement.
GAAP - generally accepted account principles in the United States of
America in effect from time to time.
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General Intangibles - all personal property of Borrower (including
things in action) other than goods, Accounts, chattel paper, documents,
instruments and money, whether now owned or hereafter created or acquired
by Borrower.
Indebtedness - as applied to a Person means, without duplication
(i) all items which in accordance with GAAP would be
included in determining total liabilities as shown on the liability
side of a balance sheet of such Person as at the date as of which
Indebtedness is to be determined, including, without limitation,
Capitalized Lease Obligations,
(ii) all obligations of other Persons which such Person has
guaranteed,
(iii) all reimbursement obligations in connection with
letters of credit or letter of credit guaranties issued for the
account of such Person, and
(iv) in the case of Borrower (without duplication), the
Obligations.
Insurance Supported Foreign Accounts - Accounts which qualify as a
Supported Foreign Account under item (b) or (c) of the definition of
Supported Foreign Account.
Intercreditor Agreement - the Intercreditor and Subordination
Agreement to be dated on or about the closing date among Borrower, Lender,
First Aviation and Canpartners.
Interest Expense - with respect to any fiscal period, the interest
expense incurred for such period as determined in accordance with GAAP plus
the Letter of Credit and LC Guaranty fees owing for such period.
Inventory - all of Borrower's inventory, whether now owned or
hereafter acquired including, but not limited to, all goods intended for
sale or lease by Borrower, or for display or demonstration; all work in
process; all raw materials and other materials and supplies of every nature
and description used or which might be used in connection with the
manufacture, printing, packing, shipping, advertising, selling, leasing or
furnishing of such goods or otherwise used or consumed in Borrower's
business; and all documents evidencing and General Intangibles relating to
any of the foregoing, whether now owned or hereafter acquired by Borrower.
Investor - First Equity Development, Inc., a Delaware corporation.
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Junior Payments Fixed Charge Coverage Condition - Borrower shall have
achieved, for the relevant period, a Fixed Charge Coverage Ratio that
exceeds the minimum Fixed Charge Coverage Ratio set forth in Section 8.3.4
for such period by at least five points (0.05). By way of illustration
only, the Junior Fixed Charge Coverage Condition is satisfied if Borrower
achieves a Fixed Charge Coverage Ratio of 1.10:1.00 for the fiscal quarter
ending July 31, 1996 and is not satisfied if Borrower achieves a Fixed
Charge Coverage Ratio of 1.09:1.00 for the fiscal quarter ending July 31,
1996.
Junior Payments Heightened Fixed Charge Coverage Condition - Borrower
shall have achieved, for the relevant period, a Fixed Charge Coverage Ratio
that exceeds the minimum Fixed Charge Coverage Ratio set forth in Section
8.3.4 for such period by at least ten points (0.10). By way of
illustration only, the Junior Heightened Fixed Charge Coverage Condition is
satisfied if Borrower achieves a Fixed Charge Coverage Ratio of 1.15:1.00
for the fiscal quarter ending July 31, 1996 and is not satisfied if
Borrower achieves a Fixed Charge Coverage Ratio of 1.14:1.00 for the fiscal
quarter ending July 31, 1996.
LC Amount - at any time, the aggregate undrawn face amount of all
Letters of Credit and LC Guaranties then outstanding.
LC Guaranty - any guaranty pursuant to which Lender or any Affiliate
of Lender shall guaranty the payment or performance by Borrower of its
reimbursement obligation under any standby letter of credit.
LC Supported Foreign Accounts - Accounts which qualify as a Supported
Foreign Account under item (a) of the definition of Supported Foreign
Account.
Letter of Credit - any letter of credit issued by Lender or any of
Lender's Affiliates for the account of Borrower.
LIBOR Rate - the rate of interest displayed on the Reuters LIBOR Page
from time to time as the then prevailing one month LIBOR Rate; and, if such
rate quotation service is discontinued or substantially modified for any
reason, a comparable rate quotation designated by Lender as a substitute
therefor. Each determination by Lender of the LIBOR Rate shall be
conclusive.
Lien - 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. The term "Lien" shall
also include reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting Property. For the purpose of the
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.
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Loan Account - the loan account established on the books of Lender
pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the Security
Documents.
Loans - all loans and advances of any kind made by Lender pursuant to
the Agreement.
Management Call - the right of Borrower to exercise the "Management
Call Option" (as defined in the Shareholders Agreement) in respect of
Securities of Borrower owned by "Management Holders" (as defined in the
Shareholders Agreement) in accordance with Article VI of the Shareholders
Agreement.
Management Payments Fixed Charge Coverage Condition - Borrower shall
have achieved, for the relevant period, a Fixed Charge Coverage Ratio that
exceeds the minimum Fixed Charge Coverage Ratio set forth in Section 8.3.4
for such period by at least ten points (0.10). By way of illustration
only, the Management Payments Fixed Charge Coverage Condition is satisfied
if Borrower achieves a Fixed Charge Coverage Ratio of 1.15:1.00 for the
fiscal quarter ending July 31, 1996 and is not satisfied if Borrower
achieves a Fixed Charge Coverage Ratio of 1.14:1.00 for the fiscal quarter
ending July 31, 1996.
Maximum Amount - as of any date of determination, $40,000,000 minus
the unpaid principal balance of the Term Loans at such date.
Money Borrowed - means (i) Indebtedness arising from the lending of
money by any Person to Borrower; (ii) Indebtedness, whether or not in any
such case arising from the lending by any Person of money to Borrower, (A)
which is represented by notes payable or drafts accepted that evidence
extensions of credit, (B) which constitutes obligations evidenced by bonds,
debentures, notes or similar instruments, or (C) upon which interest
charges are customarily paid (excluding accounts payable) or that was
issued or assumed as full or partial payment for Property; (iii)
Indebtedness that constitutes a Capitalized Lease Obligation; (iv)
reimbursement obligations with respect to letters of credit or guaranties
of letters of credit and (v) Indebtedness of Borrower under any guaranty of
obligations that would constitute Indebtedness for Money Borrowed under
clauses (i) through (iii) hereof, if owed directly by Borrower.
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Multiemployer Plan - has the meaning set forth in Section 4001(a)(3)
of ERISA.
Net Worth - with respect to any fiscal period, means Borrower's Net
Worth as determined in accordance with GAAP and as reflected in the
financial statement of Borrower supplied to Lender pursuant to subsection
8.1.3 of the Agreement.
Oakland Collateral Access Agreements - Collateral Access Agreements
in respect of each of the Oakland Leases.
Oakland Leases - collectively, (i) that certain License and
Concession Agreement, between the City of Oakland, a municipal corporation
acting by and through its Board of Port Commissioners, and Borrower, dated
November 22, 1990, respecting certain property described therein located at
the Metropolitan Oakland International Airport consisting of approximately
28,455 square feet of land near Building L-815 and more commonly known as
722 Grumman Street, and (ii) that certain Lease, between the City of
Oakland, a municipal corporation acting by and through its Board of Port
Commissioners, and Borrower, dated January 31, 1991, respecting certain
property described therein located at the Metropolitan Oakland
International Airport consisting of approximately 95,256 square feet of
land.
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties, together with all interest, fees and
other charges thereon (including without limitation, Early Termination
Changes), owing, arising, due or payable from Borrower to Lender of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under the Agreement or any of
the other Loan Documents or otherwise whether direct or indirect (including
those acquired by assignment), absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising and
however acquired.
Original Term - as defined in Section 4.1 of the Agreement.
Other Agreements - the Dominion Account Agreements, the Pay-Off
Letter, the Disbursement Instruction Letter, the Intercreditor Agreement
and any and all agreements, instruments and documents (other than the
Agreement and the Security Documents), heretofore, now or hereafter
executed by Borrower, any Subsidiary of Borrower or any other third party
and delivered to Lender in respect of the transactions contemplated by the
Agreement.
Pay-Off Letter - the letter, in form and substance reasonably
satisfactory to Lender, from Existing Lender, respecting the amount
necessary to repay in full all of the obligations of Borrower owing to
Existing Lender and obtain a termination or release of all of the security
interests or liens existing in favor of Existing Lender in and to the
Property of Borrower.
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Permitted Distributions - (a) solely to the extent (and in the
manner) expressly permitted under Section 4(c) of the Intercreditor
Agreement and if the Junior Payments Heightened Fixed Charge Coverage
Condition is satisfied therefor, payments of dividends on and redemptions
of the "Preferred Stock" (as defined in the Intercreditor Agreement),
provided, however, that upon repayment in full in cash of the Term Loans,
Borrower may make payments of cash dividends so long as Borrower's
Cumulative Fixed Charge Coverage Ratio is equal to or greater than 1.20;
(b) so long as no Event of Default has occurred and is continuing or would
result therefrom, repurchases or redemptions by Borrower of Securities
issued by Borrower to "Management Holders" (as defined in the Shareholders
Agreement) pursuant to Article V of the Shareholders Agreement; provided,
however, that the aggregate amount of all such redemptions shall not exceed
$250,000; and (c) Distributions that are made by Borrower through First
Aviation to Investor in the amount of income tax payments then due and
owing by Borrower under the Tax Sharing Agreement (and provided such
Distributions are not made earlier than 10 days prior to the date such
payments are due and owing by Borrower) and are paid promptly by Investor
on behalf of Borrower in connection with consolidated income tax returns
filed by Investor under the Tax Sharing Agreement (and each of Investor and
First Aviation, by the execution and delivery by First Aviation of the
Intercreditor Agreement, shall be deemed to have agreed promptly to use the
proceeds of such Distributions solely for such purpose).
Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of
the Agreement.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness
of Borrower incurred after the date hereof which is secured by a Purchase
Money Lien and which, when aggregated with the principal amount of all
other such Indebtedness of Borrower at the time outstanding, does not
exceed $100,000. For the purposes of this definition, the principal amount
of any Purchase Money Indebtedness consisting of capitalized leases shall
be computed instead as a Capitalized Lease Obligation.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of Borrower that is covered by Title IV of ERISA.
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Projections - Borrower's forecasted (a) balance sheets, (b) profit
and loss statements, (c) cash flow statements, and (d) capitalization
statements, all prepared on a consistent basis with Borrower's historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
Property - any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
Purchase Money Indebtedness - means and includes (i) Indebtedness
(other than the Obligations) for the payment of all or any part of the
purchase price of any fixed assets, (ii) any Indebtedness (other than the
Obligations) incurred at the time of or within 10 days prior to or after
the acquisition of any fixed assets for the purpose of financing all or any
part of the purchase price thereof, and (iii) any renewals, extensions or
refinancings thereof, but not any increases in the principal amounts
thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined
solely to the fixed assets the purchase price of which was financed through
the incurrence of the Purchase Money Indebtedness secured by such Lien.
Rentals - as defined in subsection 8.2.13 of the Agreement.
Renewal Terms - as defined in Section 4.1 of the Agreement.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Restricted Inventory - Inventory consisting of any:
a. aircraft engine which is rated 750 or more takeoff
horsepower or the equivalent of such horsepower;
b. aircraft propeller which is rated as being capable of
absorbing 750 or more rated takeoff shaft horsepower; or
c. aircraft engines, propellers, spare parts, or
appliances, including any instrument, equipment, apparatus, parts,
appurtenances or accessories of whatever description, which are used
or capable of being or intended to be used, in the navigation,
operation or control of aircraft in flight (including parachutes,
communication equipment and any other mechanism or mechanisms
installed or attached to aircraft during flight) which are not parts
of aircraft, aircraft engines or propellers, that are maintained on
behalf of an air carrier certified by the Civil Aeronautics Board.
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Restricted Investment - any investment made in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or
other obligation or Security, or by loan, advance or capital contribution,
or otherwise, or in any Property except the following:
(i) investments in one or more Subsidiaries of Borrower to
the extent existing on the Closing Date;
(ii) Property used or to be used in the ordinary course of
business;
(iii) Current Assets arising from the sale of goods and
services in the ordinary course of business of Borrower and its
Subsidiaries;
(iv) investments in direct obligations of the United States
of America, or any agency thereof or obligations guaranteed by the
United States of America, provided that such obligations mature
within one year from the date of acquisition thereof;
(v) investments in certificates of deposit maturing within
one year from the date of acquisition issued by a bank or trust
company organized under the laws of the United States or any state
thereof having capital surplus and undivided profits aggregating at
least $100,000,000; and
(vi) investments in commercial paper given the highest
rating by a national credit rating agency and maturing not more than
270 days from the date of creation thereof.
(vii) loans or other advances of money for salary, travel
advances, advances against commissions and other similar advances in
the ordinary course of business; provided, however, that no such loan
or other advance of money shall be evidenced by a note or other
instrument.
Revolving Credit Loan - a Loan made by Lender as provided in Section
1.1 of the Agreement.
Schedule of Accounts - as defined in subsection 6.4.1 of the
Agreement.
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Scheduled Principal Amortization - scheduled repayment of unpaid
principal for the relevant period as required under the Term Notes and,
irrespective of whether permitted under the Intercreditor Agreement to be
paid, the Canpartners Subordinated Debt.
Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
Security Documents - All instruments and agreements now or at any
time hereafter securing the whole or any part of the Obligations.
Shareholders Agreement - that certain Shareholders Agreement, dated
as of June 1, 1995, as amended by that certain Amendment to Shareholders
Agreement, dated as of even date herewith, among Borrower and the "Holders"
identified therein, as such agreement is in existence on the Closing Date.
Solvent - as to any Person, such Person (i) owns Property whose fair
saleable value is greater than the amount required to pay all of such
Person's Indebtedness (including contingent debts), (ii) is able to pay all
of its Indebtedness as such Indebtedness matures and (iii) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage.
Stockholder's Equity - at any date, the sum of Borrower's stated
capital, paid-in surplus and retained earnings, less treasury stock, all as
determined in accordance with GAAP, and specifically not including any
reevaluation surplus.
Subordinated Debt - Indebtedness of Borrower that is subordinated to
the Obligations in a manner satisfactory to the Lender.
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the Voting
Stock at the time of determination.
Supported Foreign Account - An Account owed by an Account Debtor
located outside the United States that is: (a) supported by an irrevocable
letter of credit satisfactory to Lender (as to form, substance, and issuer,
including an acceptable domestic confirming bank), a copy of which is in
the possession of Lender or its agent so long as no Default or Event of
Default has occurred and is continuing, and the original of which is in the
possession of Lender or its agent from and after the occurrence and during
the continuance of a Default or Event of Default (it being understood that
the foregoing shall not limit Lender's right not to make any Revolving
Credit Loan or to cause to be issued any Letter of Credit or LC Guaranty if
and for so long as a Default or Event of Default shall exist); or (b)
covered under foreign credit insurance satisfactory to Lender (as to form,
substance, and issuer) evidence of which is in possession of Lender or its
agent; or (c) covered by credit insurance issued by the Export Import Bank
in form and amount satisfactory to Lender.
A-17
<PAGE> 65
Tax Sharing Agreement - that certain Tax Sharing Agreement, dated as
of June 1, 1995, among Investor and those of its Affiliates signatory
thereto, as such agreement is in existence on the Closing Date.
Term Loans - Term Loan #1 and Term Loan #2.
Term Loan #1 - the Loan described in subsection 1.2.1 of the
Agreement.
Term Loan #2 - the Loan described in subsection 1.2.2 of the
Agreement.
Term Notes - Term Note #1 and Term Note #2.
Term Note #1 - the Secured Promissory Note to be executed by Borrower
on or about the Closing Date in favor of Lender to evidence Term Loan #1
which shall be in the form of Exhibit T-1 to the Agreement.
Term Note #2 - the Secured Promissory Note to be executed by Borrower
on or about the Closing Date in favor of Lender to evidence Term Loan #2
which shall be in the form of Exhibit T-2 to the Agreement.
Total Credit Facility - $40,000,000.
Voting Stock - Securities of any class or classes of a corporation
the holders of which are ordinarily, in the absence of contingencies,
entitled to elect a majority of the corporate directors (or Persons
performing similar functions).
Other Terms. All other terms contained in the Agreement shall have,
when the context so indicates, the meanings provided for by the Code to the
extent the same are used or defined therein.
Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a
whole and not to any particular section, paragraph or subdivision. Any
pronoun used shall be deemed to cover all genders. The section titles,
table of contents and list of exhibits appear as a matter of convenience
only and shall not affect the interpretation of the Agreement. All
references to statutes and related regulations shall include any amendments
of same and any successor statutes and regulations. All references to any
of the Loan Documents shall include any and all modifications thereto and
any and all extensions or renewals thereof.
A-18
<PAGE> 66
LIST OF EXHIBITS
Exhibit T-1 Term Note #1 (LIBOR Option)
Exhibit T-2 Term Note #2 (LIBOR Option)
Exhibit 6.1.1 Borrower's and each Subsidiary's Business Locations
Exhibit 7.1.1 Jurisdictions in which Borrower and each Subsidiary is
Authorized to do Business
Exhibit 7.1.4 Capital Structure of Borrower
Exhibit 7.1.5 Corporate Names
Exhibit 7.1.16 Patents, Trademarks, Copyrights and Licenses
Exhibit 7.1.19 Contracts Restricting Borrower's Right to Incur Debts
Exhibit 7.1.20 Litigation
Exhibit 7.1.22(A) Capitalized Leases
Exhibit 7.1.22(B) Operating Leases
Exhibit 7.1.23 Pension Plans
Exhibit 7.1.25 Labor Contracts
Exhibit 8.1.3 Compliance Certificate
Exhibit 8.2.3 Letters of Credit and Letter of Credit Guaranties
issued by Existing Lender
Exhibit 8.2.5 Permitted Liens
A-19
<PAGE> 67
EXHIBIT T-1
SECURED PROMISSORY NOTE
$2,000,000 June 13, 1996
Los Angeles, California
FOR VALUE RECEIVED, the undersigned (hereinafter "Borrower"), hereby
promises to pay to the order of FLEET CAPITAL CORPORATION, INC., a Connecticut
corporation (hereinafter "Lender"), in such coin or currency of the United
States which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, the principal sum of Two Million Dollars
($2,000,000), together with interest from and after the date hereof on the
unpaid principal balance outstanding at a variable rate per annum equal to 3.50%
plus the LIBOR Rate.
This Secured Promissory Note (the "Note") is the Term Note #1 referred to
in, and is issued pursuant to, that certain Loan and Security Agreement between
Borrower and Lender dated the date hereof (hereinafter, as amended from time to
time, the "Loan Agreement"), and is entitled to all of the benefits and security
of the Loan Agreement. All of the terms, covenants, and conditions of the Loan
Agreement and the Security Documents are hereby made a part of this Note and are
deemed incorporated herein in full. All capitalized terms used herein, unless
otherwise specifically defined in this Note, shall have the meanings ascribed to
them in the Loan Agreement.
At all times, the rate of interest shall increase or decrease by an amount
equal to any increase or decrease in the LIBOR Rate, effective as of the opening
of business on the day that any such change in the LIBOR Rate occurs. All
interest shall be computed in the manner provided in subsection 2.1.3 and
Section 2.2 of the Loan Agreement.
For so long as no Event of Default shall have occurred, the principal
amount and accrued interest of this Note shall be due and payable on the dates
and in the manner hereinafter set forth:
(a) Interest shall be due and payable monthly, in arrears, on
the first day of each month, commencing on July 1, 1996, and continuing
until such time as the full principal balance, together with all other
amounts owing hereunder, shall have been paid in full;
(b) Principal shall be due and payable monthly commencing on
July 1, 1996, and continuing on the first day of each month thereafter
until paid in full, in installments of Twenty Three Thousand and 00/100
Dollars ($23,000.00) each;
A-20
<PAGE> 68
(c) Paragraph (b) above notwithstanding, the entire remaining
principal amount then outstanding, together with any and all other amounts
due hereunder, shall be due and payable on May 15, 1999.
Notwithstanding the foregoing, the entire unpaid principal balance and accrued
interest on this Note shall be due and payable immediately upon any termination
of the Loan Agreement pursuant to Section 4 thereof.
This Note shall be subject to mandatory prepayment in accordance with the
provisions of Section 3.3 of the Loan Agreement. Borrower also may terminate
the Loan Agreement and, in connection with such termination, prepay this Note in
the manner provided in Section 4 of the Loan Agreement.
Upon the occurrence of an Event of Default, Lender shall have all of the
rights and remedies set forth in Section 10 of the Loan Agreement.
Time is of the essence of this Note. To the fullest extent permitted by
applicable law, Borrower, for itself and its legal representatives, successors
and assigns, expressly waives presentment, demand, protest, notice of dishonor,
notice of non-payment, notice of maturity, notice of protest, presentment for
the purpose of accelerating maturity, diligence in collection, and the benefit
of any exemption or insolvency laws.
Wherever possible, each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or remaining provisions of this
Note. No delay or failure on the part of Lender in the exercise of any right or
remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in
any default, nor shall any single or partial exercise by Lender of any right or
remedy preclude any other right or remedy. Lender, at its option, may enforce
its rights against any collateral securing this Note without enforcing its
rights against Borrower, any guarantor of the indebtedness evidenced hereby or
any other property or indebtedness due or to become due to Borrower. Borrower
agrees that, without releasing or impairing Borrower's liability hereunder,
Lender may at any time release, surrender, substitute or exchange any collateral
securing this Note and may at any time release any party primarily or
secondarily liable for the indebtedness evidenced by this Note.
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of California.
A-21
<PAGE> 69
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed and
delivered in Los Angeles, California, on the date first above written.
ATTEST: NATIONAL AIRMOTIVE CORPORATION,
a California corporation
By /s/ JOHN F. RISKO
- ---------------------------------- ----------------------------------
Name: Rajesh Sharma Name: John F. Risko
Title: Secretary Title: Chief Executive Officer
A-22
<PAGE> 70
EXHIBIT T-2
SECURED PROMISSORY NOTE
$1,000,000 June 13, 1996
Los Angeles, California
FOR VALUE RECEIVED, the undersigned (hereinafter "Borrower"), hereby
promises to pay to the order of FLEET CAPITAL CORPORATION, INC., a Connecticut
corporation (hereinafter "Lender"), in such coin or currency of the United
States which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, the principal sum of One Million Dollars
($1,000,000), together with interest from and after the date hereof on the
unpaid principal balance outstanding at a variable rate per annum equal to 4.50%
plus the LIBOR Rate.
This Secured Promissory Note (the "Note") is the Term Note #2 referred to
in, and is issued pursuant to, that certain Loan and Security Agreement between
Borrower and Lender dated the date hereof (hereinafter, as amended from time to
time, the "Loan Agreement"), and is entitled to all of the benefits and security
of the Loan Agreement. All of the terms, covenants, and conditions of the Loan
Agreement and the Security Documents are hereby made a part of this Note and are
deemed incorporated herein in full. All capitalized terms used herein, unless
otherwise specifically defined in this Note, shall have the meanings ascribed to
them in the Loan Agreement.
At all times, the rate of interest shall increase or decrease by an amount
equal to any increase or decrease in the LIBOR Rate, effective as of the opening
of business on the day that any such change in the LIBOR Rate occurs. All
interest shall be computed in the manner provided in subsection 2.1.3 and
Section 2.2 of the Loan Agreement.
For so long as no Event of Default shall have occurred, the principal
amount and accrued interest of this Note shall be due and payable on the dates
and in the manner hereinafter set forth:
(a) Interest shall be due and payable monthly, in arrears, on
the first day of each month, commencing on July 1, 1996, and continuing
until such time as the full principal balance, together with all other
amounts owing hereunder, shall have been paid in full;
(b) Principal shall be due and payable monthly commencing on
July 1, 1996, and continuing on the first day of each month thereafter
until paid in full, in installments of Twenty Seven Thousand and 00/100
Dollars ($27,000.00) each;
A-23
<PAGE> 71
(c) Paragraph (b) above notwithstanding, the entire remaining
principal amount then outstanding, together with any and all other amounts
due hereunder, shall be due and payable on May 15, 1999.
Notwithstanding the foregoing, the entire unpaid principal balance and accrued
interest on this Note shall be due and payable immediately upon any termination
of the Loan Agreement pursuant to Section 4 thereof.
This Note shall be subject to prepayment in accordance with the provisions
of Section 3.3 of the Loan Agreement. Borrower also may terminate the Loan
Agreement and, in connection with such termination, prepay this Note in the
manner provided in Section 4 of the Loan Agreement.
Upon the occurrence of an Event of Default, Lender shall have all of the
rights and remedies set forth in Section 10 of the Loan Agreement.
Time is of the essence of this Note. To the fullest extent permitted by
applicable law, Borrower, for itself and its legal representatives, successors
and assigns, expressly waives presentment, demand, protest, notice of dishonor,
notice of non-payment, notice of maturity, notice of protest, presentment for
the purpose of accelerating maturity, diligence in collection, and the benefit
of any exemption or insolvency laws.
Wherever possible, each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or remaining provisions of this
Note. No delay or failure on the part of Lender in the exercise of any right or
remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in
any default, nor shall any single or partial exercise by Lender of any right or
remedy preclude any other right or remedy. Lender, at its option, may enforce
its rights against any collateral securing this Note without enforcing its
rights against Borrower, any guarantor of the indebtedness evidenced hereby or
any other property or indebtedness due or to become due to Borrower. Borrower
agrees that, without releasing or impairing Borrower's liability hereunder,
Lender may at any time release, surrender, substitute or exchange any collateral
securing this Note and may at any time release any party primarily or
secondarily liable for the indebtedness evidenced by this Note.
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of California.
A-24
<PAGE> 72
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed
and delivered in Los Angeles, California, on the date first above written.
ATTEST: NATIONAL AIRMOTIVE CORPORATION,
a California corporation
By /s/ JOHN F. RISKO
- ---------------------------------- -----------------------------------
Name: Rajesh Sharma Name: John F. Risko
Title: Secretary Title: Chief Executive Officer
A-25
<PAGE> 73
EXHIBIT 6.1.1
BUSINESS LOCATIONS
1. Borrower currently has the following business locations, and no
others:
Chief Executive Office:
7200 Lockheed Street
Oakland, California
Other Locations:
2508 Palm Drive
Long Beach, California
-----------------------
Houston, Texas
2. Borrower maintains its books and records relating to Accounts and
General Intangibles at:
7200 Lockheed Street
Oakland, California
3. Borrower has had no office, place of business or agent for process
located in any county other than as set forth above, except:
4. Each Subsidiary currently has the following business locations, and no
others:
Chief Executive Office:
Other Locations:
5. Each Subsidiary maintains its books and records relating to Accounts
and General Intangibles at:
A-26
<PAGE> 74
6. Each Subsidiary has had no office, place of business or agent for
process located in any county other than as set forth above, except:
7. The following bailees, warehouseman, similar parties and consignees
hold inventory of Borrower or one of its Subsidiaries:
- -------------------------------------------------------------------------------
Name and Address Nature of Amount of
of Party Relationship Inventory Owner of Inventory
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A-27
<PAGE> 75
EXHIBIT 7.1.1
JURISDICTIONS IN WHICH BORROWER
AND ITS SUBSIDIARIES
ARE AUTHORIZED TO DO BUSINESS
Name of Entity Jurisdictions
-------------- -------------
National Airmotive Corporation California
Texas
A-28
<PAGE> 76
EXHIBIT 7.1.4
CAPITAL STRUCTURE
1. The classes and number of authorized shares of Borrower and each
Subsidiary and the record owner of such share are as follows:
Borrower:
- --------------------------------------------------------------------------------
Number of Shares
Issued and Number of Shares
Class of stock Outstanding Record Owners Authorized but Unissued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Subsidiaries:
- --------------------------------------------------------------------------------
Number of Shares
Issued and Number of Shares
Class of stock Outstanding Record Owners Authorized but Unissued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. The number, nature and holder of all other outstanding Securities of
Borrower and each Subsidiary are as follows:
A-29
<PAGE> 77
3. The correct name and jurisdiction of incorporation of each Subsidiary
of Borrower and the percentage of its issued and outstanding shares
owned by Borrower are as follows:
- --------------------------------------------------------------------------------
Percentage of Shares
Name Jurisdiction of Incorporation Owned by Borrower
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. The name of each of Borrower's corporate or joint venture Affiliates
and the nature of the affiliation are as follows:
A-30
<PAGE> 78
EXHIBIT 7.1.5
CORPORATE NAMES
1. Borrower's correct corporate name, as registered with the Secretary of
State of the State of California, is National Airmotive Corporation.
2. In the conduct of its business, Borrower has used the following names:
3. Each Subsidiaries' correct corporate name, as registered with the
Secretary of State of the State of its incorporation, is:
4. In the conduct of its business, each Subsidiary has used the following
names:
A-31
<PAGE> 79
EXHIBIT 7.1.14
TAX IDENTIFICATION NUMBERS OF SUBSIDIARIES
Subsidiary Number
---------- ------
A-32
<PAGE> 80
EXHIBIT 7.1.16
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
1. Borrower's and its Subsidiaries' patents:
- --------------------------------------------------------------------------------
Status in Federal Registration Registration
Patent Owner Parent Office Number Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. Borrower's and its Subsidiaries' trademarks:
- --------------------------------------------------------------------------------
Status
Trademark Federal Registration Registration
Trademark Owner Office Number Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-33
<PAGE> 81
3. Borrower's and its Subsidiaries' copyrights:
- --------------------------------------------------------------------------------
Status
Copyright Federal Registration Registration
Copyrights Owner Office Number Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. Borrower's and its Subsidiaries' licenses (other than routine business
licenses, authorizing them to transact business in local
jurisdictions):
- --------------------------------------------------------------------------------
Name of License Nature of License Licensor Term of License
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-34
<PAGE> 82
EXHIBIT 7.1.19
CONTRACTS RESTRUCTURING BORROWER'S RIGHT TO INCUR DEBTS
Contract that restrict the right of Borrower to incur Indebtedness:
- --------------------------------------------------------------------------------
Identity of Nature of
Title of Contract Parties Restriction Term of Contract
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-35
<PAGE> 83
EXHIBIT 7.1.20
LITIGATION
1. Actions, suits, proceedings and investigations pending against
Borrower or any Subsidiary:
- --------------------------------------------------------------------------------
Jurisdiction
Title of Action Nature of Action Complaining Parties or Tribunal
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. The only threatened actions, suits, proceedings or investigations of
which Borrower or any Subsidiary is aware are as follows:
A-36
<PAGE> 84
EXHIBIT 7.1.22(A)
CAPITALIZED LEASES
Borrower and its Subsidiaries have the following capitalized leases:
- --------------------------------------------------------------------------------
Lessee Lessor Term of Lease Property Covered
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-37
<PAGE> 85
EXHIBIT 7.1.22(B)
OPERATING LEASES
Borrower and its Subsidiaries have the following operating leases:
- --------------------------------------------------------------------------------
Lessee Lessor Term of Lease Property Covered
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-38
<PAGE> 86
EXHIBIT 7.1.23
PENSION PLANS
Borrower and its Subsidiaries have the following Plans:
- --------------------------------------------------------------------------------
Party Type of Plan
- --------------------------------------------------------------------------------
Borrower
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[Subsidiaries]
- --------------------------------------------------------------------------------
A-39
<PAGE> 87
EXHIBIT 7.1.25
COLLECTIVE BARGAINING AGREEMENTS; LABOR CONTROVERSIES
1. Borrower and its Subsidiaries are parties to the following collective
bargaining agreements:
- --------------------------------------------------------------------------------
Type of Agreement Parties Term of Agreement
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. Material grievances, disputes of controversies with employees are as
follows:
- --------------------------------------------------------------------------------
Parties Involved Nature of Grievance, Dispute or Controversy
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. Threatened strikes, work stoppages and asserted pending demands for
collective bargaining are as follows:
- --------------------------------------------------------------------------------
Parties Involved Nature of Matter
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-40
<PAGE> 88
EXHIBIT 8.1.3
COMPLIANCE CERTIFICATE
[Letterhead of Borrower]
19
-------------------, --
National Airmotive Corporation
7200 Lockheed Street
Oakland, CA 94621
Attention: John F. Risko
The undersigned, the chief financial officer of National Airmotive
Corporation, a California corporation ("Borrower"), gives this certificate to
Fleet Capital Corporation ("Lender") in accordance with the requirements of
subsection 8.1.2 of that certain Loan and Security Agreement dated June 13,
1996, between Borrower and Lender ("Loan Agreement"). Capitalized terms used in
this Certificate, unless otherwise defined herein, shall have the meanings
ascribed to them in the Loan Agreement.
1. Based upon my review of the balance sheets and statements of income of
Borrower for the [fiscal year] [fiscal quarterly period] [monthly period]
ending ______________, 19__, copies of which are attached hereto, I hereby
certify that:
(a) Consolidated Adjusted Net Worth is $___________;
(b) Average Availability was $______________; and
(c) [Intentionally omitted].
(d) The Fixed Charge Coverage Ratio is ________: 1.00;
(e) The Backlog is $___________; and
(f) Capital Expenditures during the period and for the fiscal year to
date total $____________ and $____________, respectively.
2. No default exists on the date hereof, other than: _____________________
[if none, so state]; and
3. No Event of Default exists on the date hereof, other than _____________
[if none, so state].
Very truly yours,
/s/ [SIGNATURE]
-----------------------------
Chief Financial Officer
A-41
<PAGE> 89
EXHIBIT 8.2.5
PERMITTED LIENS
- --------------------------------------------------------------------------------
Secured Party Nature of Lien
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-42
<PAGE> 1
EXHIBIT 10.3
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of September 1, 1996 by and between FLEET
CAPITAL CORPORATION, a California corporation ("Lender"), and NATIONAL
AIRMOTIVE CORPORATION, a California corporation ("Borrower"), with reference to
the following facts:
A. Lender and Borrower heretofore have entered into that certain
Loan and Security Agreement, dated as of June 13, 1996 (the
"Agreement");
B. Borrower has requested Lender to amend the Agreement to
clarify the intent of the parties in respect to the definition
of "Eligible Account";
C. Lender is willing to so amend the Agreement in accordance with
the terms and conditions hereof; and
D. All capitalized terms used but not defined herein shall have
the meanings ascribed to them in the Agreement, as amended
hereby.
NOW, THEREFORE, in consideration of the above recitals and the
mutual premises contained herein, Lender and Borrower hereby agree as follows:
1. Amendment to the Agreement.
a. Subsections (ii) and (iii) of the definition
of "Eligible Account" in Appendix A to the Agreement are
hereby deleted in their entirety and the following hereby is
substituted in lieu thereof:
(ii) it is due more than 60 days after the
original date shown on the invoice; or
(iii) it is unpaid more than 120 days after
the original invoice date; provided that, in the
case of either (A) Accounts for which the Account
Debtor is the United States of America, or (B)
Supported Foreign Accounts, such time period may be
up to 150 days; or
2. Representations and Warranties. Borrower hereby
represents and warrants to Lender that (a) the execution, delivery, and
performance of this Amendment and of the Agreement, as amended by this
Amendment, are within its corporate powers, have been duly authorized by all
necessary corporate action, and are not in contravention of any law, rule, or
regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of its charter or
bylaws, or of any contract or
1
<PAGE> 2
undertaking to which it is a party or by which any of its properties
may be bound or affected, and (b) this Amendment and the Agreement, as
amended by this Amendment, constitute Borrower's legal, valid, and
binding obligation, enforceable against Borrower in accordance with
its terms.
3. Conditions Precedent to the Effectiveness of this
Amendment. The effectiveness of this Amendment is subject to the fulfillment,
to the satisfaction of Lender and its counsel, of each of the following
conditions:
a. The representations and warranties in this
Amendment, the Agreement as amended by this Amendment, and the
other Loan Documents shall be true and correct in all respects
on and as of the date hereof, as though made on such date
(except to the extent that such representations and warranties
relate solely to an earlier date);
b. No Event of Default or event which with the
giving of notice or passage of time would constitute an Event
of Default shall have occurred and be continuing on the date
hereof, nor shall result from the consummation of the
transactions contemplated herein;
c. No injunction, writ, restraining order, or
other order of any nature prohibiting, directly or indirectly,
the consummation of the transactions contemplated herein shall
have been issued and remain in force by any governmental
authority against Borrower, Lender, or any of their Affiliates;
d. No material adverse change in the financial
condition of Borrower or in the value of the Collateral;
4. Effect on Agreement. The Agreement, as amended
hereby, shall be and remain in full force and effect in accordance with its
respective terms and hereby is ratified and confirmed in all respects. The
execution, delivery, and performance of this Amendment shall not operate as a
waiver of or, except as expressly set forth herein, as an amendment, of any
right, power, or remedy of Lender under the Agreement, as in effect prior to
the date hereof.
5. Further Assurances. Borrower shall execute and
deliver all agreements, documents, and instruments, in form and substance
satisfactory to Lender, and take all actions as Lender may reasonably request
from time to time, to perfect and maintain the perfection and priority of
Lender's security interests in the Collateral and to fully consummate the
transactions contemplated under this Amendment and the Agreement, as amended by
this Amendment.
6. Miscellaneous.
a. Upon the effectiveness of this Amendment,
each reference in the Agreement to "this Agreement",
"hereunder", "herein", "hereof" or words of like import
referring to the Agreement shall mean and refer to the
Agreement as amended by this Amendment.
2
<PAGE> 3
b. Upon the effectiveness of this Amendment, each
reference in the Loan Documents to the "Loan Agreement",
"thereunder", "therein", "thereof" or words of like import
referring to the Agreement shall mean and refer to the
Agreement as amended by this Amendment.
c. This Amendment shall be governed by and
construed in accordance with the laws of the State of
California.
d. This Amendment may be executed in any number
of counterparts, all of which taken together shall constitute
one and the same instrument and any of the parties hereto may
execute this Amendment by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
FLEET CAPITAL CORPORATION,
a Rhode Island corporation
By:
-----------------------------
Title:
--------------------------
NATIONAL AIRMOTIVE CORPORATION,
a California corporation
By:
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Title:
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EXHIBIT 10.4
Subject to that certain Intercreditor and Subordination
Agreement dated June 1, 1995 between First Aviation Services,
Inc., Canpartners Investments III, L.P., and Congress Financial
Corporation (Western)
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CANPARTNERS INVESTMENTS III, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP,
AS LENDER
AND
NATIONAL AIRMOTIVE CORPORATION
AS BORROWER
DATED: JUNE 1, 1995
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TABLE OF CONTENTS
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SECTION 1. DEFINITIONS............................................... 1
SECTION 2. LOAN AND PRINCIPAL PAYMENTS............................... 7
2.1 Loan............................................... 7
2.2 Quarterly Prepayments of Principal................. 8
2.3 Annual Repayment of Principal...................... 8
2.4 Maturity........................................... 8
SECTION 3. INTEREST AND FEES......................................... 8
3.1 Interest........................................... 8
3.2 Closing Fee........................................ 9
SECTION 4. CONDITIONS PRECEDENT...................................... 9
4.1 Conditions Precedent to Loan....................... 9
SECTION 5. GRANT OF SECURITY INTEREST................................ 12
SECTION 6. COLLECTION AND ADMINISTRATION............................. 13
6.1 Borrower's Loan Account............................ 13
6.2 Statements......................................... 13
6.3 Collection of Accounts............................. 13
6.4 Use of Proceeds.................................... 14
6.5 Payments........................................... 14
SECTION 7. COLLATERAL REPORTING AND COVENANTS........................ 15
7.1 Collateral Reporting............................... 15
7.2 Accounts Covenants................................. 15
7.3 Inventory Covenants................................ 17
7.4 Equipment Covenants................................ 17
7.5 Power of Attorney.................................. 18
7.6 Right to Cure...................................... 18
7.7 Access to Premises................................. 19
SECTION 8. REPRESENTATIONS AND WARRANTIES............................ 19
8.1 Corporate Existence, Power and Authority,
Subsidiaries....................................... 19
8.2 Financial Statements: No Material Adverse
Change............................................. 19
8.3 Chief Executive Office; Collateral................. 20
8.4 Priority of Liens; Title to Properties............. 20
8.5 Tax Returns........................................ 20
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8.6 Litigation......................................... 21
8.7 Compliance with Other Agreements and
Applicable Laws.................................... 21
8.8 Accuracy and Completeness of Information........... 21
8.9 Environmental Compliance........................... 21
8.10 Employee Benefits.................................. 22
8.11 Acquisition of Purchased Stock..................... 23
8.12 Congress Financing Agreements...................... 24
8.13 Capitalization..................................... 24
8.14 Approvals.......................................... 24
8.15 Survival of Warranties; Cumulative................. 25
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS........................ 25
9.1 Maintenance of Existence........................... 25
9.2 New Collateral Locations........................... 25
9.3 Compliance with Laws, Regulations, Etc............. 25
9.4 Payment of Taxes and Claims........................ 27
9.5 Insurance.......................................... 27
9.6 Financial Statements, Officer Certificates and
Other Information.................................. 27
9.7 Sale of Assets, Consolidation, Merger,
Dissolution, Etc................................... 29
9.8 Encumbrances....................................... 30
9.9 Indebtedness....................................... 30
9.10 Loans, Investments, Guarantees, Etc................ 31
9.11 Dividends and Redemptions.......................... 31
9.12 Transactions with Affiliates....................... 31
9.13 Inventory Turnover................................. 32
9.14 Minimum Interest Coverage Ratio.................... 32
9.15 Minimum Earnings................................... 32
9.16 Capital Expenditures...................................... 33
9.17 Compliance with ERISA.............................. 33
9.18 Settlements and Waivers Under Purchase
Agreements......................................... 34
9.19 Costs and Expenses................................. 34
9.20 Management Fees.................................... 34
9.21 Further Assurances................................. 34
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SECTION 10. EVENTS OF DEFAULT AND REMEDIES............................ 35
10.1 Events of Default.................................. 35
10.2 Remedies........................................... 37
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW ...................... 38
11.1 Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver......................... 38
11.2 Waiver of Notices.................................. 39
11.3 Amendments and Waivers............................. 39
11.4 Waiver of Counterclaims............................ 40
11.5 Indemnification.................................... 40
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.......................... 40
12.1 Term............................................... 40
12.2 Notices............................................ 40
12.3 Partial Invalidity................................. 41
12.4 Successors......................................... 41
12.5 Entire Agreement................................... 41
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INDEX TO
EXHIBITS AND SCHEDULES
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Exhibit A Information Certificate
Schedule 7.3 Permitted Inventory Locations
Schedule 8.4 Existing Liens
Schedule 8.9 Environmental Law Violations
Schedule 8.13 Capitalization
Schedule 9.11 Permitted Dividends and Other Distributions on
Capital Stock
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Subject to that certain Intercreditor and Subordination
Agreement dated June 1, 1995 between First Aviation Services,
Inc., Canpartners Investments III, L.P., and Congress Financial
Corporation (Western)
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated as of June 1, 1995 is entered into
by and between Canpartners Investments III, L.P., a California limited
partnership ("Lender"), and National Airmotive Corporation, a California
corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make a loan and provide
other financial accommodations to Borrower; and
WHEREAS, Lender has made loans in the past and may make loans in the
future and is willing to make such loan to Borrower and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code as in effect in the State of California shall have the
meanings given therein unless otherwise defined in this Agreement. All
references to the plural herein shall also mean the singular and to the singular
shall also mean the plural. All references to Borrower and Lender pursuant to
the definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof,"
"herein," "hereunder," "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. An
Event of Default shall exist or continue or be continuing until such Event of
Default is waived in accordance with Section 11.3. Any accounting term used
herein unless otherwise defined in this Agreement shall have the
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meanings customarily given to such term in accordance with GAAP. For purposes of
this Agreement, the following terms shall have the respective meanings given to
them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.3 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of California.
1.4 "Buyer" shall mean First Aviation Services Inc., a Delaware
corporation, and its successors and assigns.
1.5 "Capital Expenditures" shall mean, for any period, the aggregate of
all expenditures (whether payable in cash or other property or accrued as a
liability (but without duplication)) during such period that, in conformity with
GAAP, are required to be included in or reflected by the Borrower's or any of
its Subsidiaries' fixed asset accounts as reflected in any of their respective
balance sheets; provided, however, (i) Capital Expenditures shall include,
whether or not such a designation would be in conformity with GAAP, (A)
expenditures for the purchase or development of computer software and systems,
(B) that portion of Capital Leases which is capitalized on the consolidated
balance sheet of the Borrower and its Subsidiaries and (C) expenditures for
Equipment which is purchased simultaneously with the trade-in of existing
Equipment owned by the Borrower or any of its Subsidiaries, to the extent the
gross purchase price of the purchased Equipment exceeds the book value of the
Equipment being traded in at such time; and (ii) Capital Expenditures shall
exclude, whether or not such a designation would be in conformity with GAAP, (A)
expenditures made in connection with the replacement or restoration of property,
to the extent reimbursed or financed from insurance or condemnation proceeds not
constituting net cash proceeds of sale and (B) expenditures for leased
Inventory.
1.6 "Capital Lease" shall mean any lease of any property (whether real,
personal or mixed) by Borrower as lessee that, in conformity with GAAP, is
accounted for as a capital lease on the balance sheet of Borrower.
1.7 "Closing Date" shall mean the date of the funding of the Loan made by
Lender pursuant to Section 2 hereof.
1.8 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.9 "Collateral" shall have the meaning set forth in Section 5 hereof.
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1.10 "Congress" shall mean Congress Financial Corporation (Western), the
lender on the Congress Financing Agreements.
1.11 "Congress Financing Agreements" shall mean the Loan and Security
Agreement of even date herewith between Congress and Borrower and related
agreements, pursuant to which Congress will make certain revolving and term
loans and other financing arrangements with a maximum total credit amount of
$30,000,000, secured by the collateral provided in such agreements.
1.12 "Consolidated Cash Interest Expense" shall mean, for any period,
total interest expense, whether paid or accrued (including the interest
component of capital leases and cash payments made as interest under the
Congress Financing Agreements), of Borrower and its Subsidiaries, including,
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit, but excluding, however, interest expenses not
payable in cash (including amortization of discount), all as determined in
conformity with GAAP, plus other financing charges paid in cash, whether paid or
accrued.
1.13 "EBITDA" shall mean, for any period, the sum of the amounts for such
period of (i) Net Income, plus (ii) depreciation and amortization expense, plus
(iii) interest expense, plus (iv) federal and state income taxes, plus (v)
extraordinary losses, plus (vi) preferred dividends not paid in cash, to the
extent deducted from the revenues of Borrower in the calculation of Net Income,
plus (vii) management fees, to the extent deducted from the revenues of Borrower
in the calculation of Net Income, plus (viii) financing charges, whether paid or
accrued, to the extent deducted from the revenues of Borrower in the calculation
of Net Income, less (ix) extraordinary gains, less (x) any negative amortization
of goodwill.
1.14 "Environmental Laws" shall mean all federal, state, district, local
and foreign laws, rules, regulations, ordinances, and consent decrees relating
to health, safety, hazardous substances, pollution and environmental matters, as
now or at any time hereafter in effect, applicable to Borrower's business and
facilities (whether or not owned by it), including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contamination,
chemicals, or hazardous, toxic or dangerous substances, materials or wastes into
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals, or
hazardous, toxic or dangerous substances, materials or wastes.
1.15 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, vessels, aircraft, aircraft engines,
fixtures, tools, molds, dies, appliances, furnishings, furniture, and trade
fixtures, all attachments, accessions and property now or hereafter affixed
thereto or used in connection therewith, and any substitutions therefor and
replacements, products and proceeds thereof, wherever located.
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1.16 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.17 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.18 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.19 "Excess Availability" shall mean the amount, as determined by
Congress, calculated in accordance with the definition of Excess Availability
and the other definitions contained therein contained in the Congress Financing
Agreements as in existence on the date hereof, and related to the available
credit pursuant to the Congress Financing Agreements.
1.20 "Excess Cash Flow" shall mean, for any period, (i) Net Income,
exclusive of extraordinary gains, plus depreciation, amortization and other
non-cash items to the extent deducted from the revenues of Borrower in the
calculation of Net Income, and less any negative amortization of goodwill, less
any payments on long term debt, but excluding any quarterly mandatory
prepayments of principal on the Loan, and Capital Leases not previously deducted
from the revenue of Borrower in the calculation of Net Income, and less any
Capital Expenditures that are actually made and not financed during such period.
1.21 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.22 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Sections 9.13 and 9.14 hereof, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to Lender
prior to the date hereof.
1.23 "General Intangibles" shall mean, with respect to any Person, all of
such Person's present and future (i) general intangibles, (ii) rights,
interests, choses in action, causes of action, claims and other intangible
property of every kind and nature (other than Accounts), (iii) corporate and
other business records, (iv) loans, royalties, and other
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obligations receivable (other than Accounts), (v) trademarks, registered
trademarks, trademark applications, service marks, registered service marks,
service mark applications, patents, registered patents, patent applications,
trade names, rights of use of any name, labels, fictitious names, inventions,
designs, trade secrets, computer programs, software, printouts and other
computer materials, goodwill, registrations, copyrights, copyright applications,
permits, licenses, franchises, customer lists, credit files, correspondence, and
advertising materials, (vi) customer and supplier contracts, firm sale orders,
rights under license and franchise agreements, rights under tax sharing
agreements, and other contracts and contract rights, (vii) interests in
partnerships and joint ventures, (viii) tax refunds and tax refund claims, (ix)
right, title and interest under leases, subleases, licenses and concessions and
other agreements relating to property, (x) deposit accounts (general or special)
with any bank or other financial institution, (xi) credits with and other claims
against third parties (including carriers and shippers), (xii) rights to
indemnification and with respect to support and keep-well agreements, (xiii)
reversionary interests in pension and profit sharing plans and reversionary,
beneficial and residual interests in trusts, (xiv) proceeds of insurance of
which such Person is beneficiary, (xv) letters of credit, guarantees, Liens,
security interests and other security held by or granted to such Person, (xvi)
uncertificated securities, and (xvii) dividends and distributions and claims
with respect to dividends and distributions.
1.24 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials or wastes and including any other substances, materials or wastes that
are or become regulated under any Environmental law (including, without
limitation any that are or become classified as hazardous or toxic under any
Environmental Law).
1.25 "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the Loan.
1.26 "Inventory" shall mean, with respect to any Person, all of such
Person's present and future (i) inventory, (ii) goods, merchandise and other
personal property furnished or to be furnished under any contract of service or
intended for sale or lease, and all consigned goods and all other items which
have previously constituted Equipment of such Person but are then currently
being held for sale or lease in the ordinary course of such Person's business,
(iii) raw materials, work-in-process and finished goods, (iv) materials and
supplies of any kind, nature or description used or consumed in such Person's
business or in connection with the manufacture, production, packing, shipping,
advertising, finishing or sale of any of the property described in clauses (i)
through (iii) above, (v) goods in which such Person has a joint or other
interest or right of any kind (including, without limitation, goods
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in which such Person has an interest or right as consignee), and (vi) goods
which are returned to or repossessed by such Person; in each case whether in the
possession of such Person, a bailee, a consignee, or any other Person for sale,
storage, transit, processing, use or otherwise, and any and all documents for or
relating to any of the foregoing.
1.27 "Loan" shall mean the Loan made by Lender to Borrower as provided in
Section 2 hereof.
1.28 "Merger" shall mean the merger of FE Acquisition Subsidiary, a
California corporation and a wholly owned direct or indirect subsidiary of
Parent, with and into the Borrower, with Borrower as the surviving corporation,
pursuant to the Merger Agreements.
1.29 "Merger Agreements" shall mean that certain Agreement and Plan of
Merger dated as of March 3, 1995, by and among Parent, FE Acquisition
Subsidiary, Borrower and Triton Group Ltd., a Delaware corporation and the
parent of the Borrower prior to the effectiveness of the Merger, and the
Agreement of Merger dated June 1, 1995 between the Borrower and FE Acquisition
Subsidiary, and all related agreements, documents and instruments, as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
1.30 "Net Income" shall mean, for any period, the net earnings (or loss)
after taxes of Borrower for such period taken as a single accounting period
determined in conformity with GAAP.
1.31 "Obligations" shall mean the Loan and all other obligations,
liabilities and indebtedness of every kind, nature and description owing by
Borrower to Lender and/or its affiliates or any Person entitled to
indemnification, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including, without limitation, the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender, but excluding any obligations or
liabilities arising pursuant to that certain Warrant Agreement of even date
herewith between Lender and Borrower and the warrants issued pursuant thereto.
1.32 "Obligor" shall mean 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.
1.33 "Parent" shall mean First Aviation Services Inc., a Delaware
corporation.
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1.34 "Participant" shall mean any person which at any time participates
with Lender in respect of the Loan or other Obligations or any portion thereof.
1.35 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.
1.36 "Preferred Stock" shall have the meaning set forth in Section 8.13
hereof.
1.37 "Quarterly Determination Date" shall mean, as applicable, June 30,
1995 and the last day of each succeeding fiscal quarter of Borrower during the
term of this Agreement.
1.38 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.39 "Subordination Agreement" shall mean that certain Intercreditor and
Subordination Agreement among Congress, Lender, and Parent and acknowledged by
Borrower of even date herewith providing for the respective priorities between
the Obligations, the obligations under the Congress Financing Agreements and the
Preferred Stock.
1.40 "Subsidiary" of a Person means any corporation, limited liability
company, general or limited partnership, trust, or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other Persons performing similar functions
with respect to such entity are at the time directly or indirectly owned or
controlled by such Person, one or more of the other subsidiaries of such Person
or any combination thereof.
SECTION 2. LOAN AND PRINCIPAL PAYMENTS
2.1 Loan. Lender is making a Loan to Borrower in the original principal
amount of Three Million Dollars ($3,000,000.00). The Loan shall be (a) evidenced
by a Promissory Note in such original principal amount duly executed and
delivered by Borrower to Lender concurrently herewith; (b) to be repaid,
together with interest and other amounts, in
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accordance with this Agreement, the Promissory Note, and the other Financing
Agreements and (c) secured by all of the Collateral.
2.2 Quarterly Prepayments of Principal. Borrower shall make a mandatory
prepayment of principal with respect to each Quarterly Determination Date on
which Borrower has positive Excess Cash Flow for the immediately preceding
fiscal quarter or shorter period from the closing date, as applicable. The
prepayment shall be in an amount such that, after giving effect to the
prepayment, Borrower shall have $2.5 million in Excess Availability. The
mandatory prepayment shall be made within 35 days following the first three
Quarterly Determination Dates in Borrower's fiscal year and within 95 days
following a Quarterly Determination Date that is the end of Borrower's fiscal
year.
2.3 Annual Repayment of Principal. On or before July 5, 1996, Borrower
shall make a payment of principal in an amount such that the sum of the
quarterly prepayments of principal made pursuant to Section 2.2 prior to such
date and the amount of the annual repayment shall total One Million Five Hundred
Thousand Dollars ($1,500,000.00); provided, however, that to the extent the
prepayments made pursuant to Section 2.2 exceed such amount, Borrower shall not
be entitled to a refund of such excess.
2.4 Maturity. The balance of principal, together with any and all accrued
interest thereon, shall be paid in full in cash five days after the delivery
pursuant to Section 9.6(a) of the financial statements for the fiscal year ended
March 31, 1997, but no later than July 5, 1997. Principal may be prepaid in full
prior to maturity without penalty.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at an interest rate of 15%
per annum. Upon the occurrence and during the continuation of an Event of
Default, the interest rate shall increase to 17% per annum on all outstanding
principal and unpaid interest, compounded monthly. All interest accruing
hereunder on and after the date of any Event of Default or termination hereof
shall be payable on demand.
(b) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month for the immediately
preceding calendar month and shall be calculated on the basis of a three hundred
sixty (360) day year and actual days elapsed. In no event shall charges
constituting interest payable by Borrower to Lender exceed the maximum amount or
the rate permitted under any applicable law or regulation, and if any such part
or provision of this Agreement is in contravention of any such law or
regulation, such part or provision shall be deemed amended to conform thereto.
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3.2 Closing Fee. Borrower shall pay to Lender as a closing fee an amount
equal to the greater of $150,000 or 3.5% of the original principal amount of the
Loan, which closing fee shall be in addition to, and not in lieu of, interest,
compensation, expense reimbursements, indemnification and other Obligations.
Such fee shall be fully earned and nonrefundable when paid.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Loan. Each of the following is a condition
precedent to Lender making the Loan:
(a) Lender shall have received, in form and substance satisfactory
to Lender, evidence, including copies thereof, that the Merger Agreements have
been duly executed and delivered by and to the appropriate parties thereto and
that the transactions contemplated under the terms of the Merger Agreements have
been consummated prior to or contemporaneously with the execution of this
Agreement;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that the Congress Financing Agreements have been
executed and delivered by all parties thereto and become effective in accordance
with their terms and the initial loans and financing arrangements to be made
thereunder have been made prior to or contemporaneously with the execution of
this Agreement;
(c) Lender shall have received evidence, in form and substance
satisfactory to Lender, that the Warrant Agreement of even date herewith between
Lender and Borrower has been executed by each party thereto prior to or
contemporaneously with the execution of this Agreement;
(d) Lender shall have received evidence, in form and substance
satisfactory to Lender, that the Shareholders' Agreement of even date herewith
between Borrower, Parent and Lender has been executed and delivered by all
parties thereto and become effective in accordance with its terms prior to or
contemporaneously with the execution of this Agreement;
(e) Lender shall have received evidence, in form and substance
satisfactory to Lender, that the Management Agreement of even date herewith
between Borrower and certain members of management has been executed and
delivered by all parties thereto and become effective in accordance with its
terms prior to or contemporaneously with the execution of this Agreement;
(f) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which
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Lender may have requested in connection therewith, such documents where
requested by Lender or its counsel to be certified by appropriate corporate
officers or governmental authorities;
(g) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected security interests in
and liens upon the Collateral and any other property which is intended to be
security for the Obligations or the liability of any Obligor in respect thereof,
which liens and security interests are subordinated in priority only to the
liens and security interests granted in the Congress Financing Agreements
pursuant to the Subordination Agreement and are subject to the security
interests and liens permitted herein, and in the other Financing Agreements;
(h) Lender shall have received evidence, in form and substance
satisfactory to Lender, that the California Department of Corporations has
issued a permit to Borrower pursuant to Section 25113(b)(1) of the California
Corporate Securities Law of 1968, as amended, to qualify the issuance of the
promissory note to Lender.
(i) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since March 3, 1995, the date of the Agreement
and Plan or Merger by and among Parent, FE Acquisition Subsidiary, Borrower and
Triton Group Ltd., and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(j) Lender shall have received, in form and substance satisfactory
to Lender, all consents, waivers, acknowledgments and other agreements from
third persons which Lender may deem necessary or desirable in order to permit,
protect and perfect its security interests in and liens upon the Collateral or
to effectuate the provisions or purposes of this Agreement and the other
Financing Agreements, including, without limitation, acknowledgements by
lessors, mortgagees and warehousemen of Lender's security interests in the
Collateral, waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and agreements permitting Lender access
to, and the right to remain on, the premises to exercise its rights and remedies
and otherwise deal with the Collateral;
(k) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(l) Lender shall have received, in form and substance satisfactory
to Lender, the opinion letter of counsel(s) to Borrower with respect to the
Merger Agreements, the effectiveness of the Merger as of the date hereof, the
Congress Financing Agreements,
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the Financing Agreements and the security interests and liens of Lender with
respect to the Collateral and such other matters as Lender may request;
(m) Lender shall have received, in form and substance satisfactory
to Lender, evidence that the Certificates of Merger with respect to the Merger
have been filed with the Secretary of State of California and the Merger is
valid and effective in accordance with the terms and provisions of the Merger
Agreements and the applicable corporation statutes of the State of California;
(n) Lender shall have received, in form and substance satisfactory
to Lender, (i) a pro-forma balance sheet of Borrower reflecting the initial
transactions contemplated hereunder, including, but not limited to, (A) the
consummation of the Merger and the transactions contemplated in connection
therewith in accordance with the Merger Agreements, (B) the initial loans
provided by Congress to Borrower on the date hereof in connection with the
Congress Financing Agreements, and (C) the Loan provided by Lender to Borrower
on the date hereof and the use of the proceeds of the Loan as provided herein,
accompanied by a certificate, dated of even date herewith, of the chief
financial officer of Borrower, stating that such pro-form balance sheet
represents the reasonable, good faith opinion of such officer as to the subject
matter thereof as of the date of such certificate, and (ii) such other financial
and other information, including, but not limited to, cash flow and other
projections, budgets and business plans as Lender may reasonably request;
(o) Lender shall have received, in form and substance satisfactory
to Lender, evidence that Borrower has received net cash proceeds from a cash
equity capital contribution to Borrower on terms and conditions acceptable to
Lender and its counsel of not less than $2.2 million, invested by Parent and
that such proceeds have been applied to the cash consideration required to be
paid in respect of the Merger under the terms of the Merger Agreements; and
(p) Lender shall have received, in form and substance satisfactory
to Lender, evidence that the Subordination Agreement, as acknowledged and agreed
to by Borrower, providing for the subordination and permitted repayment of
indebtedness and related matters, has been duly authorized, executed and
delivered by the parties thereto and become effective in accordance with its
terms.
(q) this Agreement and the other Financing Agreements and all
instruments and documents hereunder and thereunder shall have been duly executed
and delivered to Lender, in form and substance satisfactory to Lender.
(r) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of the Loan and after giving effect thereto;
and
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(s) no Event of Default and no event or condition which, with notice
or passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of the Loan
and after giving effect thereto.
(t) Borrower shall have reimbursed Lender for all of its actual and
reasonable out of pocket costs and expenses incurred prior to the date hereof in
connection with the negotiation, documentation and any related filings related
to the Loan, including but not limited to all attorneys and other consultant
fees and expenses, and paid Lender all fees due under this Agreement.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, General Intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances, deposits,
deposit accounts and other property of Borrower now or hereafter held or
received by or in transit to Lender or its affiliates or at any other depository
or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents, contracts
or instruments with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
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5.5 Equipment;
5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) the Loan and other
Obligations, (b) all payments made by or on behalf of Borrower and (c) all other
appropriate debits and credits as provided in this Agreement, including, without
limitation, fees, charges, costs, expenses and interest. All entries in the loan
account(s) shall be made in accordance with Lender's customary practices as in
effect from time to time.
6.2 Statements. Upon request, Lender shall render to Borrower a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
(a) Upon the payment of all amounts owed Congress under the Congress
Financing Agreements, Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable to
Lender into which Borrower shall promptly deposit and direct its account debtors
to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The banks at which
the Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Blocked Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or deposited into
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the Blocked Accounts to such bank account of Lender as Lender may from time to
time designate for such purpose ("Payment Account"). Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise, shall be the property of Lender, subject to the terms of the
Subordination Agreement.
(b) Subject to the Subordination Agreement, Borrower and all of its
affiliates, Subsidiaries, shareholders, directors, employees or agents shall,
acting as trustees for Lender, receive, as the property of Lender, any monies,
checks, notes, drafts or any other payment relating to and/or proceeds of
Accounts or other Collateral which come into their possession or under their
control and immediately upon receipt thereof, shall deposit or cause the same to
be deposited in the Blocked Accounts, or remit the same or cause the same to be
remitted, in kind, to Lender, subject to the terms of the Subordination
Agreement. In no event shall the same be commingled with Borrower's own funds.
Borrower agrees to reimburse Lender on demand for any amounts owed or paid to
any bank as which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or person. The obligation
of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3(b)
shall survive the termination of this Agreement.
6.4 Use of Proceeds. Borrower shall use the proceeds of the Loan provided
by Lender to Borrower hereunder only for: (a) payments to each of the persons
listed in the disbursement direction letter furnished by Borrower to Lender on
or about the date hereof, (b) costs, expenses and fees in connection with the
preparation, negotiation, execution and delivery of this Agreement and the other
Financing Agreements, and (c) general operating, working capital and other
proper corporate purposes of Borrower not otherwise prohibited by the terms
hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any purpose which might cause any of the
Loans to be considered a "purpose credit" within the meaning off Regulation G of
the Board of Governors of the Federal Reserve System, as amended.
6.5 Payments. Payments for interest, principal or other Obligations shall
be payable to Lender in immediately available funds to Lender's account at Wells
Fargo Bank, 9600 Santa Monica Boulevard, Beverly Hills, California 90210, ABA#:
121-0002-48, Account No. 6645-538943, Account Name: Canpartners Investments III,
L.P. or at such other place as Lender may designate from time to time. At the
time of payment, Borrower shall also provide notice of such payment to Lender to
the attention of Kristina Rietz, Controller. Lender may apply payments received
or collected from Borrower or for the account of Borrower (including, without
limitation, the monetary proceeds of collections or of realization upon any
Collateral) to such of the Obligations, in such order and manner as Lender
determines. Borrower shall make all payments to Lender on the Obligations free
and clear of, and without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding,
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restrictions or conditions of any kind. If after receipt of any payment of, or
proceeds of Collateral applied to the payment of, any of the Obligations, Lender
is required to surrender or return such payment or proceeds to any Person for
any reason, then the Obligations intended to be satisfied by such payment or
proceeds shall be reinstated and continue and this Agreement shall continue in
full force and effect as if such payment or proceeds had not been received by
Lender. Borrower shall be liable to pay to Lender, and does hereby indemnify and
hold Lender harmless for the amount of any payments or proceeds surrendered or
returned. This Section 6.5 shall remain effective notwithstanding any contrary
action which may be taken by Lender in reliance upon such payment or proceeds.
This Section 6.5 shall survive the payment of the Obligations and the
termination of this Agreement.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender within five (5)
days of request with the following documents in a form satisfactory to Lender:
(a) a schedule of Accounts; (b) (i) perpetual Inventory reports, (ii) Inventory
reports by category, and (iii) Inventory reports by location of Inventory, with
sufficient description to permit Lender's perfection of its security interest
and lien in such Inventory under applicable law, if required (all Inventory
reports to include rental aircraft engine finished goods Inventory and a
detailed listing of the location of all of Borrower's aircraft engines on rent);
(c) agings of accounts receivable and accounts payable; (d) (i) copies of
customer statements and credit memos, remittance advices and reports, and copies
of deposit slips and bank statements, (ii) copies of shipping and delivery
documents, (iii) evidence of, or certificates attesting to, the satisfactory
completion testing by Borrower of overhauled engines prior to the shipment of
such engines by Borrower to its customers, and (iv) copies of purchase orders,
invoices and delivery documents for Inventory and Equipment acquired by
Borrower; and (e) such other reports as to the Collateral as Lender shall
request from time to time. If any of Borrower's records or reports of the
Collateral are prepared or maintained by an accounting service, contractor,
shipper or other agent, Borrower hereby irrevocably authorizes such service,
contractor, shipper or agent to deliver such records, reports, and related
documents to Lender and to follow Lender's instructions with respect to further
services at any time that an Event of Default exists or has occurred and is
continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any material delay
in Borrower's performance of any of its obligations to any account debtor or the
assertion of any claims, offsets, defenses or counterclaims by any account
debtor, or any disputes with account debtors, or any settlement, adjustment or
compromise thereof, (ii) all material adverse information relating to the
financial condition of any account debtor. No credit, discount, allowance or
extension or agreement for any of the foregoing shall be granted to any account
debtor without Lender's consent, except in the ordinary course of Borrower's
business in accordance with past practices and policies. So long as no Event of
Default exists
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or has occurred and is continuing, Borrower shall settle, adjust or compromise
any claim, offset, counterclaim or dispute with any account debtor. At any time
that an Event of Default exists or has occurred and is continuing, Lender shall,
at its option, have the exclusive right to settle, adjust or compromise any
claim, offset, counterclaim or dispute with account debtors or grant any
credits, discounts or allowances.
(b) Borrower shall promptly report to Lender any material return of
Inventory by an account debtor. In the event any account debtor returns
Inventory when an Event of Default exists or has occurred and is continuing,
Borrower shall, upon Lender's request, (i) hold the returned Inventory in trust
for Lender, (ii) segregate all returned Inventory from all of its other
property, (iii) dispose of the returned Inventory solely according to Lender's
instructions, and (iv) not issue any credits, discounts or allowances with
respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete and (ii) none of the transactions giving rise thereto will
violate any applicable State or Federal laws or regulations, all documentation
relating thereto will be legally sufficient under such laws and regulations and
all such documentation will be legally enforceable in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
promptly upon Borrower's receipt thereof, except as Lender may otherwise agree,
subject to the Subordination Agreement.
(f) Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing, (i) notify any or all account debtors that
the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all account debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has
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occurred and is continuing, at Lender's request, all invoices and statements
sent to any account debtor shall state that the Accounts and such other
obligations have been assigned to Lender and are payable directly and only to
Lender and Borrower shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower shall
at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year (which may be conducted
in cycles in a manner reasonably acceptable to Lender), but at any time or times
as Lender may request on or after an Event of Default, and promptly following
such physical inventory shall supply Lender with a report in the form and with
such specificity as may be reasonably satisfactory to Lender concerning such
physical count; (c) Borrower shall not remove any Inventory from the locations
set forth on Schedule 7.3 attached hereto or otherwise permitted herein, without
the prior written consent of Lender, except for sales of Inventory in the
ordinary course of Borrower's business and except to move Inventory directly
from one location set forth or permitted herein to another such location; (d)
upon Lender's request, Borrower shall, at its expense, no more than once in any
three (3) month period, but at any time or times as Lender may request on or
after an Event of Default, deliver or cause to be delivered to Lender written
reports or appraisals as to the Inventory in form, scope and methodology
acceptable to Lender and by an appraiser acceptable to Lender, addressed to
Lender or upon which Lender is expressly permitted to rely; (e) Borrower shall
produce, use, store and maintain the Inventory, with all reasonable care and
caution and in accordance with applicable standards of any insurance and in
conformity with applicable laws (including, but not limited to, the requirements
of the Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); (f) Borrower assumes all responsibility
and liability arising from or relating to the production, use, sale or other
disposition of the Inventory; (g) Borrower shall not sell Inventory to any
customer on approval, or any other basis which entitles the customer to return
or may obligate Borrower to repurchase such Inventory, except in the ordinary
course of business; (h) Borrower shall keep the Inventory in good and marketable
condition; (i) Borrower shall provide Lender with appropriate aircraft engine
mortgages or updated schedules to filed mortgages to perfect Lender's lien and
as a security interest in any additional aircraft engine; and (j) Borrower shall
not, without prior written notice to Lender, acquire or accept any Inventory on
consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon Lender's
request, Borrower shall, at its expense, at any time or times as Lender may
request on or after an Event of Default, deliver or cause to be delivered to
Lender written reports or appraisals as to the Equipment in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to Lender; (b)
Borrower shall keep the Equipment in good order, repair, running and marketable
condition (ordinary wear and tear excepted); (c) Borrower shall use the
Equipment with all reasonable care and caution and in accordance with
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applicable standards of any insurance and in conformity with all applicable
laws; (d) the Equipment is and shall be used in Borrower's business and not for
personal, family, household or farming use; (e) Borrower shall not remove any
Equipment from the locations set forth or permitted herein, except to the extent
necessary to have any Equipment repaired or maintained in the ordinary course of
the business of Borrower or to move Equipment directly from one location set
forth or permitted herein to another such location and except for the movement
of motor vehicles used by or for the benefit of Borrower in the ordinary course
of business; (f) the Equipment is now and shall remain personal property and
Borrower shall not permit any of the Equipment to be or become a part of or
affixed to real property; and (g) Borrower assumes all responsibility and
liability arising from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and appoints
Lender (and all persons designated by Lender) as Borrower's true and lawful
attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name, to: (a)
at any time an Event of Default exists or has occurred and is continuing (i)
demand payment on Accounts or other proceeds or Inventory or other Collateral,
(ii) enforce payment of Accounts by legal proceedings or otherwise, (iii)
exercise all of Borrower's rights and remedies to collect any Account or other
Collateral, (iv) sell or assign any Account upon such terms, for such amount and
at such time or times as the Lender deems advisable, (v) settle, adjust,
compromise, extend or renew an Account, (vi) discharge and release any Account,
(vii) prepare, file and sign Borrower's name on any proof of claim in bankruptcy
or other similar document against an account debtor, (viii) notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by Lender, and open and dispose of all mail addressed to
Borrower, and (ix) do all acts and things which are necessary, in Lender's
determination, to fulfill Borrower's obligations under this Agreement and the
other Financing Agreements and (b) at any time to (i) take control in any manner
of any item of payment or proceeds thereof, (ii) have access to any lockbox or
postal box into which Borrower's mail is deposited, (iii) endorse Borrower's
name upon any items of payment or proceeds thereof and deposit the same in the
Lender's account for application to the Obligations, (iv) endorse Borrower's
name upon any chattel paper, document, instrument, invoice, or similar document
or agreement relating to any Account or any goods pertaining thereto or any
other Collateral, (v) sign Borrower's name on any verification of Accounts and
notices thereof to account debtors and (vi) execute in Borrower's name and file
any UCC financing statements or amendments thereto. Borrower hereby releases
Lender and its officers, employees and designees from any liabilities arising
from any act or acts under this power of attorney and in furtherance thereof,
whether of omission or commission, except as a result of Lender's own gross
negligence or wilful misconduct as determined pursuant to a final non-appealable
order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any default by
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to
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preserve, protect, insure or maintain the Collateral and the rights of Lender
with respect thereto. Lender may add any amounts so expended to the Obligations
and charge Borrower's account therefor, such amounts to be repayable by Borrower
on demand. Lender shall be under no obligation to effect such cure, payment or
bonding and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrower. Any payment made or other action taken by Lender under
this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including, without limitation, the Records, and (b) Borrower shall
promptly furnish to Lender such copies of such books and records or extracts
therefrom as Lender may request, and (c) use during normal business hours such
of Borrower's personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred
and is continuing for the collection of Accounts and realization of other
Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement):
8.1 Corporate Existence, Power and Authority, Subsidiaries. Borrower is a
corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Borrower enforceable in
accordance with their respective terms. Borrower does not have any Subsidiary
except as set forth on the Information Certificate.
8.2 Financial Statements: No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender
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have been prepared in accordance with GAAP and fairly present the financial
condition and the results of operation of Borrower as at the dates and for the
periods set forth therein. Except as disclosed in any interim financial
statements furnished by Borrower to Lender prior to the date of this Agreement,
there has been no material adverse change in the assets, liabilities, properties
and condition, financial or otherwise, of Borrower, since the date of the most
recent audited financial statements furnished by Borrower to Lender prior to the
date of this Agreement.
8.3 Chief Executive Office; Collateral. The chief executive office of
Borrower and Borrower's Records concerning accounts are located only at the
address set forth below and its only other places of business and the only other
locations of Collateral, if any, are the addresses set forth in the Information
Certificate, subject to the right of Borrower to establish new locations in
accordance with Section 9.2 below. The Information Certificate correctly
identifies any of such locations which are not owned by Borrower and sets forth
the owners and/or operators thereof and to the best of Borrower's knowledge, the
holders of any mortgages on such locations. Borrower owns no aircraft engines
with 750 or more rated horsepower or the equivalent thereof, such that a
mortgage on such engines must be registered with the Federal Aviation Agency.
Borrower uses only the name "National Airmotive Corporation" and has no
registered trademarks, trademark applications pending, registered service marks,
service mark applications pending, registered patents, patent applications
pending, or fictitious names.
8.4 Priority of Liens; Title to Properties. Upon the proper filing of
UCC-1 financing statements, the security interests and liens granted to Lender
under this Agreement and the other Financing Agreements constitute valid and
perfected liens and security interests in and upon the Collateral, which liens
and security interests are subordinated in priority only to the liens and
security interests granted in the Congress Financing Agreements pursuant to the
Subordination Agreement, and subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has good
and marketable title to all of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or charges of any kind,
except those granted to Lender, to Congress in the Congress Financing Agreements
and such others as are specifically listed on Schedule 8.4 hereto or permitted
under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed
by it (without requests for extension except as previously disclosed in writing
to Lender). All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower has paid or caused to
be paid all taxes due and payable or claimed due and payable in any assessment
received by it, except taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set aside on its books.
Adequate provision has been made for the payment of all accrued and unpaid
Federal, State, county, local, foreign and other taxes whether or not yet due
and payable and whether or not disputed.
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8.6 Litigation. Except as set forth on the Information Certificate and
except with regard to workers' compensation claims, there is no present
investigation by any governmental agency pending, or to the best of Borrower's
knowledge threatened, against or affecting Borrower, its assets or business and
there is no action, suit, proceeding or claim by any Person pending, or to the
best of Borrower's knowledge threatened, against Borrower or its assets or
goodwill, or against or affecting any transactions contemplated by this
Agreement, which is reasonably likely to result in a material adverse change in
the assets, business or prospects of Borrower or would impair the ability of
Borrower to perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Lender to enforce any
Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Borrower is not
in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
8.8 Accuracy and Completeness of Information. All information taken
together furnished by or on behalf of Borrower in writing to Lender in
connection with this Agreement or any of the other Financing Agreements or any
transaction contemplated hereby or thereby, including, without limitations all
information on the Information Certificate is true and correct in all material
respects on the date as of which such information is dated or certified and does
not omit any material fact necessary in order to make such information not
misleading in light of the circumstances under which the information was
provided. No event or circumstance has occurred which has had or could
reasonably be expected to have a material adverse effect on the business, assets
or prospects of Borrower, which has not been fully and accurately disclosed to
Lender in writing.
8.9 Environmental Compliance.
(a) Except as set forth on Schedule 8.9 hereto, Borrower has not
used, generated, used, stored, treated, transported, manufactured, handled,
produced or disposed of any Hazardous Materials, on or off its premises (whether
or not owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder (except for such violations which would not have a
material adverse effect on the business, assets or prospects of Borrower) and
the operations of Borrower complies in all material respects with all
Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder.
(b) Except as set forth on Schedule 8.9 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
Borrower or the release, spill or discharge,
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threatened or actual, of any Hazardous Material or the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or any other environmental, health or safety matter, which
affects Borrower or its business, operations or assets or any properties at
which Borrower has transported, stored or disposed of any Hazardous Materials.
(c) Except as set forth on Schedule 8.9 hereto, Borrower has no
material liability (contingent or otherwise) in connection with a release, spill
or discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Except where the lack or invalidity thereof would not have a
material adverse effect on the business, assets or prospects of Borrower,
Borrower has all licenses, permits, certificates, approvals or similar
authorizations required to be obtained or filed in connection with the
operations of Borrower under any Environmental Law and all of such licenses,
permits, certificates, approvals or similar authorizations are valid and in full
force and effect.
8.10 Employee Benefits.
(a) Borrower has not engaged in any transaction in connection with
which Borrower or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code, including any accumulated funding deficiency described in
Section 8.10(c) hereof and any deficiency with respect to vested accrued
benefits described in Section 8.10(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has
been or is expected by Borrower to be incurred with respect to any employee
pension benefit plan of Borrower or any of its ERISA Affiliates. There has been
no reportable event (within the meaning of Section 4043(b) of ERISA) or any
other event or condition with respect to any employee pension benefit plan of
Borrower or any of its ERISA Affiliates which presents a risk of termination of
any such plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower or any
of its ERISA Affiliates is required under Section 302 of ERISA and Section 412
of the Code to have paid under the terms of each employee pension benefit plan
as contributions to such plan as of the last day of the most recent fiscal year
of such plan ended prior to the date hereof, and no accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, exists with respect to any employee pension benefit plan,
including any penalty or tax described in Section 8.10(a) hereof and any
deficiency with respect to vested accrued benefits described in Section 8.10(d)
hereof.
(d) As of the most recent valuation date for any employee benefit
plans maintained by Borrower that are subject to Title IV of ERISA, the excess
of the actuarial present value (determined on the basis of reasonable
assumptions employed by the
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independent actuary for such plan) of the benefit liabilities (as defined in
Section 4001(a)16 of ERISA), whether or not vested, over the fair market value
of the assets of such plan, individually or in the aggregate for all pension
plans (excluding for purposes of such computation any pension plans with respect
to which there is not such excess), does not equal an amount which would have a
material adverse effect on the Borrower.
(e) Neither Borrower nor any of its ERISA Affiliates is or has ever
been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.11 Acquisition of Purchased Stock.
(a) The Merger Agreements and the transactions contemplated
thereunder have been duly executed, delivered and performed in accordance with
their terms by the respective parties thereto in all respects, including the
fulfillment (not merely the waiver, except as may be disclosed to Lender and
consented to in writing by Lender) of all conditions precedent set forth therein
and giving effect to the terms of the Merger Agreements, Parent acquired and has
good and marketable title to all of the issued and outstanding common stock of
Borrower and Parent has good and marketable title to all of the issued and
outstanding Preferred Stock, in each case, free and clear of all claims, liens,
pledges and encumbrances of any kind, except as disclosed in writing to Lender.
(b) The Merger is valid and effective in accordance with the terms
of the Merger Agreements, and the corporation statutes of the State of
California and Borrower is the surviving corporation pursuant to the Merger.
(c) All actions and proceedings required by the Merger Agreements,
applicable law or regulation (including, but not limited to, compliance with the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended) have been
taken and the transactions required thereunder have been duly and validly taken
and consummated.
(d) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the
transactions described in the Merger Agreements and no governmental or other
action or proceeding has been threatened or commenced, seeking any injunction,
restraining order or other order which seeks to void or otherwise modify the
transactions described in the Merger Agreements.
(e) Borrower has obtained all approvals, authorizations and consents
in connection with the transactions contemplated under the Merger Agreements,
the lack of which approvals, authorizations and consents would or could have a
material adverse effect on the future prospects of Borrower.
(f) Borrower has delivered, or caused to be delivered, to Lender
true, correct and complete copies of the Merger Agreements.
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8.12 Congress Financing Agreements.
(a) The Congress Financing Agreements and the initial loans
contemplated thereby have been duly executed, delivered and performed in
accordance with their terms by the respective parties thereto in all respects,
including the fulfillment of all conditions precedent set forth therein.
(b) The Congress Financing Agreements are valid, effective and
binding obligations of the parties thereto enforceable in accordance with their
respective terms.
(c) Borrower has delivered, or caused to be delivered, to Lender
true, correct and complete copies of the Congress Financing Agreements.
8.13 Capitalization.
(a) All of the issued and outstanding shares of common stock of
Borrower are held of record and beneficially by the persons listed on Schedule
8.13 hereto. All of such shares have been duly authorized, validly issued and
fully paid and non-assessable, free and clear of all claims, liens, pledges and
encumbrances of any kind, except as disclosed in writing to Lender. The only
shares of Preferred Stock of Borrower (the "Preferred Stock") are the shares of
Series A Preferred Stock issued to Parent.
(b) Borrower is solvent and will continue to be solvent after the
creation of the Obligations, the security interests of Lender and the other
transaction contemplated hereunder, is able to pay its debts as they mature and
has (and has reason to believe it will continue to have) sufficient capital (and
not unreasonably small capital) to carry on its business and all businesses in
which it is about to engage. The assets and properties of Borrower at a fair
valuation and at their present fair salable value are, and will be, greater than
the indebtedness of Borrower, and including subordinated and contingent
liabilities computed at the amount which, to the best of Borrower's knowledge,
represents an amount which can reasonably be expected to become an actual or
matured liability.
(c) Parent has, on or before the date hereof, made a cash equity
capital contribution to Borrower in an amount not less than $2.2 million as
consideration for shares of common stock and Series A Preferred Stock of
Borrower and the proceeds of such cash equity capital contribution have been
applied, contemporaneously herewith, to the cash consideration required to be
paid in respect of the Merger under the terms of the Merger Agreement.
(d) The capitalization of the Borrower as of the date hereof and
after giving effect to the Merger Agreements and all transactions contemplated
thereunder and hereunder, including the equity contribution, is set forth on
Schedule 8.13.
8.14 Approvals. No authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body or any
other third party is
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required for the due execution, delivery and performance by the Borrower of this
Agreement or any other Financing Agreement except for the permit issued by the
California Department of Corporations pursuant to Section 25113(b)(1) of the
Corporate Securities Law of 1968, as amended, which has been duly obtained and
is in full force and effect.
8.15 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be
conclusively presumed to have been relied on by Lender regardless of any
investigation made or information possessed by Lender. The representations and
warranties set forth herein shall be cumulative and in addition to any other
representations or warranties which Borrower shall now or hereafter give, or
cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve, renew
and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, trade names, approvals, authorizations, leases
and contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of Borrower as
soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location within
the continental United States or change the location of its executive offices,
provided Borrower (a) gives Lender thirty (30) days prior written notice of the
intended opening of any such new location or change of location of its executive
offices and (b) executes and delivers, or causes to be executed and delivered,
to Lender such agreements, documents, and instruments as Lender may deem
reasonably necessary or desirable to protect its interests in the Collateral at
such location, including, without limitation, UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply in all material respects
with all law rules, regulations, licenses, permits, approvals and orders
applicable to it and duly observe in all material respects all requirements of
any Federal, State or local governmental authority, including, without
limitation, ERISA, the Occupational Safety and Hazard Act of 1970, as amended,
the Fair Labor Standards Act of 1938, as amended, and all statutes, rules,
regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including, without limitation, all of
the Environmental Laws.
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(b) Borrower shall establish and maintain, at its expense, a system
to assure and monitor its continued compliance with all Environmental Laws in
all of its operations, which system shall include annual reviews of such
compliance by employees or agents of Borrower who are familiar with the
requirements of the Environmental Laws. Copies of all environmental surveys,
audits, assessments, feasibility studies and results of remedial investigations
shall be promptly furnished, or caused to be furnished, by Borrower to Lender.
Borrower shall take prompt and appropriate action to respond to any
non-compliance with any of the Environmental Laws and shall regularly report to
Lender on such response.
(c) Borrower shall give both oral and written notice to Lender
immediately upon Borrower's receipt of any notice of, or Borrower's otherwise
obtaining knowledge of, (i) the occurrence of any event involving the release,
spill or discharge, threatened or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any non-compliance with or violation of any
Environmental Law by Borrower or (B) the release, spill or discharge, threatened
or actual, of any Hazardous Material or (C) the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or (D) any other environmental, health or safety matter,
which affects Borrower or its business, operations or assets or any properties
at which stored or disposed of any Hazardous Materials (except for any of the
foregoing which would not have a material adverse effect on the business, assets
or prospects of Borrower).
(d) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is material non-compliance, or any
condition which requires any action by or on behalf of Borrower in order to
avoid any material non-compliance, with any Environmental Law, Borrower shall,
at Lender's request and Borrower's expense: (i) cause an independent
environmental engineer acceptable to Lender to conduct such tests of the site
where Borrower's non-compliance or alleged non-compliance with such
Environmental Laws has occurred as to such non-compliance and prepare and
deliver to Lender a report as to such non-compliance setting forth the results
of such tests, a proposed plan for responding to any environmental problems
described therein, and an estimate of the costs thereof and (ii) provide to
Lender a supplemental report of such engineer whenever the scope of such
non-compliance, or Borrower's response thereto or the estimated costs thereof,
shall change in any material respect.
(e) Borrower shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including, without limitation, the costs of
any repair, cleanup or other remedial work with respect to any property of
Borrower and the preparation and implementation of any closure, remedial or
other plans required or necessary to protect the value of the Collateral or
Lender's rights and remedies hereunder.
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All representations, warranties, covenants and indemnifications in this Section
9.3 shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge all
taxes, assessments, contributions and governmental charges upon or against it or
its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Borrower shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Borrower shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrower fails to do
so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrower. All policies shall provide for at least thirty (30) days
prior written notice to Lender of any cancellation or reduction of coverage and
that Lender may act as attorney for Borrower in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and cancelling such insurance. Borrower shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower or any of its affiliates. At
its option, Lender may apply any insurance proceeds received by Lender at any
time to the cost of repairs or replacement of Collateral and/or to payment of
the Obligations, whether or not then due, in any order and in such manner as
Lender may determine or hold such proceeds as cash collateral for the
Obligations.
9.6 Financial Statements, Officer Certificates and Other Information.
(a) Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in relation
to the
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Collateral and the business of Borrower and its Subsidiaries (if any) in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Lender: (i) within thirty (30) days after the end of each fiscal month, monthly
unaudited consolidated financial statements, and, if Borrower has any
Subsidiaries, unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss and statements of
shareholders' equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of Borrower and its Subsidiaries as
of the end of and through such fiscal month, (ii) within thirty (30) days after
the end of each fiscal quarter, quarterly unaudited consolidated financial
statements, and, if Borrower has any Subsidiaries, unaudited consolidating
financial statements (including in each case balance sheets, statements of
income and loss and statements of shareholders' equity), all in reasonable
detail, fairly presenting the financial position and the results of the
operations of Borrower and its Subsidiaries as of the end of and through such
fiscal quarter, and (iii) within ninety (90) days after the end of each fiscal
year, audited consolidated financial statements and, if Borrower has any
Subsidiaries, audited consolidating financial statements of Borrower and its
Subsidiaries (including in each case balance sheets, statements of income and
loss, statements of cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower and its
Subsidiaries as of the end of and for such fiscal year, together with the
opinion of independent certified public accountants, which accountants shall be
an independent accounting firm selected by Borrower and reasonably acceptable to
Lender, that such financial statements have been prepared in accordance with
GAAP, and present fairly the results of operations and financial condition of
Borrower and its Subsidiaries as of the end of and for the fiscal year then
ended.
(b) Borrower shall furnish or cause to be furnished to Lender: (i)
within thirty (30) days after the end of each of the first three fiscal quarters
of each fiscal year during the term of this Agreement, a certificate of a senior
financial officer of Borrower, which certificate shall set forth (in reasonable
detail) the calculations provided for in Section 9.13 and Section 9.14, the
amount of Excess Availability as of the last day of the fiscal quarter and as of
the date of the certificate and the Excess Cash Flow; and (ii) within ninety
(90) days after the end of each fiscal year during the term of this Agreement, a
certificate of a senior financial officer of Borrower, which certificate shall
set forth (in reasonable detail) the calculations provided for in Section 9.13,
Section 9.14, and Section 9.15 and the amount of Capital Expenditures for such
fiscal year, the amount of Excess Availability as of the last day of the fiscal
year and as of the date of the certificate and the Excess Cash Flow for the last
fiscal quarter.
(c) Borrower shall promptly notify Lender in writing of the details
of (i) any material loss or damage, or any investigation, action, suit,
proceeding or claim relating to the Collateral or any other property which is
security for the Obligations or which would result in any material adverse
change in Borrower's business, properties, assets, goodwill or condition,
financial or otherwise and (ii) the occurrence of any Event of Default or event
which, with the passage of time or giving of notice or both, would constitute an
Event of Default.
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(d) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrower
sends to its stockholders generally and copies of all reports and registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc. Borrower shall provide to Lender copies of all notices of defaults or
events that, with the passage of time or the giving of notice or both, would
constitute an event of default sent to or received from Congress in connection
with the Congress Financing Agreements either at the time of providing such
notice or promptly after receipt of such notice, as applicable.
(e) Borrower shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the Collateral
and the business of Borrower, as Lender may, from time to time, reasonably
request. Lender is hereby authorized to deliver a copy of any financial
statement or any other information relating to the business of Borrower to any
court or other government agency or to any participant or assignee or
prospective participant or assignee. Borrower hereby irrevocably authorizes and
directs all accountants or auditors to deliver to Lender, at Borrower's expense,
copies of the financial statements of Borrower and any reports or management
letters prepared by such accountants or auditors on behalf of Borrower and to
disclose to Lender such information as they may have regarding the business of
Borrower. Any documents, schedules, invoices or other papers delivered to Lender
may be destroyed or otherwise disposed of by Lender one (1) year after the same
are delivered to Lender, except as otherwise designated by Borrower to Lender in
writing.
(f) Borrower shall deliver, or cause to be delivered, to Lender,
within ninety (90) days after the date hereof, opening balance sheets prepared
by independent certified public accountants which accountants shall be a
nationally recognized independent certified public accounting firm selected by
Borrower and reasonably acceptable to Lender and certified by such accountants
to the effect that such opening balance sheets have been prepared in accordance
with GAAP and present fairly the financial condition of Borrower as of such
date.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, directly or indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness of any other Person to any other Person or any of its
assets to any other Person (except for (i) sales of Inventory in the ordinary
course of business and (ii) the disposition of worn-out or obsolete Equipment or
Equipment no longer used in the business of Borrower so long as (A) if an Event
of Default exists or has occurred and is continuing, any proceeds are paid to
Lender, (B) such sales do not involve Equipment having an aggregate fair market
value in excess of $50,000 for all such Equipment disposed of in any fiscal year
of Borrower), or (c) form or acquire any Subsidiaries, or (d) wind up, liquidate
or dissolve or (e) agree to do any of the foregoing.
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9.8 Encumbrances. Borrower shall not create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including, without
limitation, the Collateral, except: (a) the liens and security interests of
Lender; (b) liens securing the payment of taxes, either not yet overdue or the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to which adequate
reserves have been set aside on its books; (c) non-consensual statutory liens
(other than liens securing the payment of taxes) arising in the ordinary course
of Borrower's business to the extent: (i) such liens secure indebtedness which
is not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower, in each
case prior to the commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside on its books; (d)
zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of real property which do not interfere in any material
respect with the use of such real property or ordinary conduct of the business
of Borrower as presently conducted thereon or materially impair the value of the
real property which may be subject thereto; (e) purchase money security
interests in Equipment (including capital leases) and purchase money mortgages
on real estate so long as such security interests and mortgages do not apply to
any property of Borrower other than the Equipment or real estate so acquired,
and the indebtedness secured thereby does not exceed the cost of the Equipment
or real estate so acquired, as the case may be; (f) the security interests and
liens set forth on Schedule 8.4 hereto; (g) the security interests and liens
granted to Congress in the Congress Financing Agreements; and (h) leases or
subleases of Equipment or Inventory granted by Borrower to others not
interfering in any material respect with the ordinary conduct of the business of
Borrower.
9.9 Indebtedness. Borrower shall not incur, create, assume, become or be
in any manner with respect to, or permit to exist, any monetary obligations or
indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the ordinary course of
business not yet due and payable, or with respect to which Borrower is
contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in violation
of any other provision of this Agreement;
(d) the indebtedness under the Congress Financing Agreements;
provided, that, with respect to subsection (c) above, (i) Borrower may only make
regularly scheduled payments of principal and interest in respect of such
indebtedness in accordance
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<PAGE> 35
with the terms of the agreement or instrument evidencing or giving rise to such
indebtedness as in effect on the date of the execution thereof, and (ii)
Borrower shall not, directly or indirectly, (A) make any prepayments or other
non-mandatory payments in respect of such indebtedness except as permitted by
the terms and provisions of the Subordination Agreement, or (B) amend, modify,
alter or change the terms of such indebtedness or any agreement, document or
instrument related thereto as in effect on the date hereof, or (C) redeem,
retire, defease, purchase or otherwise acquire such indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose, and (iii) Borrower
shall furnish to Lender all notices, demands or other materials in connection
with such indebtedness either received by Borrower or on its behalf, promptly
after the receipt thereof, or sent by Borrower or on its behalf, concurrently
with the sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly or
indirectly, make any loans or advance money or property to any person, or invest
in (by capital contribution, dividend or otherwise) or purchase or repurchase
the stock or indebtedness or all or a substantial part of the assets or property
of any person, or guarantee, assume, endorse, or otherwise become responsible
for (directly or indirectly) the indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing, except: (a) the
endorsement of instruments for collection or deposit in the ordinary course of
business; (b) investments in: (i) short-term direct obligations of the United
States Government, (ii) short-term negotiable certificates of deposit issued by
any bank satisfactory to Lender, payable to the order of the Borrower or to
bearer and delivered to Lender, and (iii) short-term commercial paper rated at
least Al by S&P or Pl by Moody's Investors Service, Inc.; provided, that, as to
any of the foregoing, unless waived in writing by Lender, Borrower shall take
such actions as are deemed necessary by Lender to perfect the security interest
of Lender in such investments and (c) the guarantees set forth in the
Information Certificate. Borrower shall not permit or authorize the pledge of
its capital stock to secure any obligation of Borrower or any Subsidiary.
9.11 Dividends and Redemptions. Except in connection with the Preferred
Stock, as limited by the terms and provisions of the Subordination Agreement,
Borrower shall not, directly or indirectly, declare or pay any dividends on
account of any shares of class of capital stock of Borrower now or hereafter
outstanding, or set aside or otherwise deposit or invest any sums for such
purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of
any class of capital stock (or set aside or otherwise deposit or invest any sums
for such purpose) for any consideration other than common stock or apply or set
apart any sum, or make any other distribution (by reduction of capital or
otherwise) in respect of any such shares or agree to do any of the foregoing,
except as set forth on Schedule 9.11 hereto.
9.12 Transactions with Affiliates. Borrower shall not enter into any
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person.
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9.13 Inventory Turnover. Borrower shall not on any Quarterly Determination
Date set forth below during the term of this Agreement permit the ratio of (i)
Cost of Goods Sold during the period indicated, as determined in accordance with
GAAP, adjusted to reflect an annual period if shorter than the four fiscal
quarters, to (ii) the average of the book value of Inventory on an average cost
basis on the last day of the preceding period or the Closing Date, as
applicable, and on the last day of the period, to be less than the amount
indicated:
<TABLE>
<CAPTION>
Quarterly Determination
-----------------------
Date Period Covered Ratio
---- -------------- -----
<S> <C> <C>
December 31, 1995 Closing date to 12/31/95 3.10
March 31, 1996 Closing date to 3/31/96 3.00
June 30, 1996 Four Prior Fiscal Quarters 2.85
End of fiscal quarters
thereafter Four Prior Fiscal Quarters 2.85
</TABLE>
9.14 Minimum Interest Coverage Ratio. Borrower shall not on any Quarterly
Determination Date occurring after June 30, 1995 and during the term of this
Agreement permit the ratio of (i) EBITDA minus Capital Expenditures to (ii)
Consolidated Cash Interest Expense, in each case as determined as of such
Quarterly Determination Date for the periods indicated, to be less than the
amount indicated:
<TABLE>
<CAPTION>
Quarterly Determination
-----------------------
Date Period Covered Ratio
---- -------------- -----
<S> <C> <C>
September 30, 1995 Closing date to 9/30/95 1.35
December 31, 1995 Closing date to 12/31/95 1.35
March 31, 1996 Closing date to 3/31/96 1.35
June 30, 1996 Four Prior Fiscal Quarters 1.35
End of fiscal quarters
thereafter Four Prior Fiscal Quarters 1.35
</TABLE>
9.15 Minimum Earnings. Borrower shall not for any fiscal year ending
during the term of this Agreement permit EBITDA for the twelve-month period (or
such shorter period as may be applicable):
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<PAGE> 37
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
March 31, 1996 $5,600,000
March 31, 1997 $4,600,000
Thereafter $5,000,000
</TABLE>
9.16 Capital Expenditures. Borrower shall not, for any fiscal year ending
during the term of this Agreement, permit Capital Expenditures for the
twelve-month period (or such shorter period from the closing date, as may be
applicable) ending on such date to exceed the amounts set forth below:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
March 31, 1996 $2,500,000
March 31, 1997 $1,750,000
Thereafter $1,750,000
</TABLE>
9.17 Compliance with ERISA. Borrower shall not with respect to any
"employee pension benefit plans" maintained by Borrower or any of its ERISA
Affiliates:
(a) (i) terminate any of such employee pension benefit plans so as
to incur any liability to the Pension Benefit Guaranty Corporation established
pursuant to ERISA, (ii) allow or suffer to exist any prohibited transaction
involving any of such employee pension benefit plans or any trust created
thereunder which would subject Borrower or such ERISA Affiliate to a tax or
penalty or other liability on prohibited transactions imposed under Section 4975
of the Code or ERISA, (iii) fail to pay to any such employee pension benefit
plan any contribution which it is obligated to pay under Section 302 of ERISA,
Section 412 of the Code or the terms of such plan, (iv) allow or suffer to exist
any accumulated funding deficiency, whether or not waived, with respect to any
such employee pension benefit plan, (v) allow or suffer to exist any occurrence
of a reportable event (excluding those for which the provisions for thirty (30)
days notice to the Pension Benefit Guaranty Corporation has been waived by
regulation) or any other event or condition which presents a material risk of
termination by the Pension Benefit Guaranty Corporation of any such employee
pension benefit plan that is a single employer plan, which termination could
result in any liability to the Pension Benefit Guaranty Corporation or (vi)
incur any withdrawal liability with respect to any multiemployer pension plan.
(b) As used in this Section 9.15, the term "employee pension benefit
plans," "employee benefit plans", "accumulated funding deficiency" and
"reportable event"
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<PAGE> 38
shall have the respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in Section 4975
of the Code and ERISA.
9.18 Settlements and Waivers Under Purchase Agreements. Unless it shall
have obtained Lender's prior written consent thereto, Borrower shall not, and
shall not cause or permit Buyer to, enter into any settlements, waivers, offsets
or compromises with respect to Seller's representations, warranties, indemnities
and/or other obligations to Buyer under the Purchase Agreements, or enter into
any amendments to or modifications of any of the Purchase Agreements.
9.19 Costs and Expenses. Borrower shall pay to Lender on demand all costs,
expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not limited to: (a)
all costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) costs and expenses
and fees for title insurance and other insurance premiums, environmental audits,
surveys, assessments, engineering reports and inspections, appraisal fees and
search fees; (c) costs and expenses of remitting loan proceeds, collecting
checks and other items of payment, and establishing and maintaining the Blocked
Accounts to which Lender is a party; (d) costs and expenses of preserving and
protecting the Collateral; (e) costs and expenses paid or incurred in connection
with obtaining payment of the Obligations, enforcing the security interests and
liens of Lender, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Agreement and the other Financing
Agreements or defending any claims made or threatened against Lender arising out
of the transactions contemplated hereby and thereby (including, without
limitation, preparations for and consultations concerning any such matters); (f)
all out-of-pocket expenses and costs heretofore and from time to time hereafter
incurred by Lender during the course of periodic field examinations of the
Collateral and Borrower's operations, plus a per diem charge at the rate of $600
per person per day for Lender's examiners in the field and office; and (g) the
fees and disbursements of counsel (including legal assistants) to Lender in
connection with any of the foregoing.
9.20 Management Fees. Provided no Event of Default shall have occurred and
be continuing, Borrower may pay annual management fees to Parent or an affiliate
of Parent in an amount not to exceed $300,000. Such Management Fees shall be
payable in accordance with Section 2.3 of the Shareholders Agreement of even
date herewith between Borrower, Parent and Lender.
9.21 Further Assurances. At the request of Lender at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed
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<PAGE> 39
and delivered, such further agreements, documents and instruments, and do or
cause to be done such further acts as may be necessary or proper to evidence,
perfect, maintain and enforce the security interests and the priority thereof in
the Collateral and to otherwise effectuate the provisions or purposes of this
Agreement or any of the other Financing Agreements. Where permitted by law,
Borrower hereby authorizes Lender to execute and file one or more UCC financing
statements and continuation statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more of
the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) Borrower fails to pay when due any of the Obligations or fails
to perform any of the terms, covenants, conditions or provisions contained in
this Agreement or any of the other Financing Agreements; provided, however, an
Event of Default shall not be deemed to have occurred under this Section 10.1(a)
if Borrower cures a breach of Sections 9.3, 9.4, or 9.13 within ten (10) days
after such default.
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $100,000 in any one case or in excess of
$150,000 in the aggregate (in each case in excess of any insurance coverage
which Lender has determined adequately and fully covers any such liability) and
shall remain undischarged or unvacated for a period in excess of sixty (60) days
or execution shall at any time not be effectively stayed, or any judgment other
than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against Borrower or any Obligor or any of their assets
which has a material adverse effect on the business, assets or prospects of
Borrower;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership or corporation, dissolves or suspends or discontinues doing
business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk
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<PAGE> 40
transfer or calls a meeting of its creditors or principal creditors for the
purpose of a financial workout, restructuring or other accommodation;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within sixty (60)
days after the date of its filing (provided the Lender shall have no obligation
to make any further advances hereunder prior to the dismissal of such case or
proceeding) or Borrower or any Obligor shall file any answer admitting or not
contesting such petition or application or indicates its consent to,
acquiescence in or approval of, any such action or proceeding or the relief
requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $250,000, which default is monetary or permits the
creditor thereunder to accelerate such indebtedness, which default continues for
more than the applicable cure period, if any, with respect thereto, or any
default by Borrower or any Obligor under any material contract, lease, license
or other obligation to any person other than Lender, the termination of which
would have a material adverse effect on the business, assets or prospects of
Borrower, which default continues for more than the applicable cure period, if
any, with respect thereto, and either the contract has been terminated by the
other party thereto or such party has advised Lender or Borrower in writing of
its intent to terminate the contract;
(j) any change in the controlling ownership of Borrower;
(k) there shall be a material adverse change in the business, assets
or prospects of Borrower or any Obligor after the date hereof; or
(l) there shall be an event of default under any of the other
Financing Agreements.
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<PAGE> 41
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) without notice, except as set forth
below, collect, foreclose, receive, appropriate, setoff and realize upon any and
all Collateral, (v) remove any or all of the Collateral from any premises on or
in which the same may be located for the purpose of effecting the sale,
foreclosure or other disposition thereof or for any other purpose, (vi) without
notice, except as set forth below, sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from any
right or equity of redemption of Borrower, which right or equity of redemption
is hereby expressly waived and released by Borrower and/or (vii) terminate this
Agreement. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5) days prior notice by
Lender to Borrower designating the time and place of any public sale or the time
after which any private sale or other intended disposition of Collateral is to
be made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the
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<PAGE> 42
posting of any bond which might otherwise be required. Lender is hereby granted
a license or other right to use, without charge, Borrower's trademarks,
registered trademarks, trademark applications, service marks, registered service
marks, service mark applications, patents, patent applications, trade names,
rights of use of any name, labels, fictitious names, inventions, designs, trade
secrets, computer programs, software, printouts and other computer materials,
goodwill, registrations, copyrights, copyright applications, permits, licenses,
franchises, customer lists, credit files, correspondence, and advertising
materials, or any property of a similar nature, as it pertains to the
Collateral, or any rights to any of the foregoing, in completing production of,
advertising for sale, and selling any Collateral, and Borrower's rights under
all licenses and franchise agreements shall inure to Lender's benefit.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of California
(without giving effect to principles of conflicts of law other than those
contained in California Civil Code Section 1646.5).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of any State or Federal court located within the
County of Los Angeles, State of California, and waive any objection based on
venue or forum non conveniens with respect to any action instituted therein
arising under this Agreement or any of the other Financing Agreements or in any
way connected with or related or incidental to the dealings of the parties
hereto in respect of this Agreement or any of the other Financing Agreements or
the transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether in contract, tort, equity or otherwise, and agree
that any dispute with respect to any such matters shall be heard only in the
courts described above (except that Lender shall have the right to bring any
action or proceeding against Borrower or its property in the courts of any other
jurisdiction which Lender reasonably deems necessary or appropriate in order to
realize on the Collateral or to otherwise enforce its rights against Borrower or
its property).
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<PAGE> 43
(c) Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S. mails, or, at
Lender's option, by service upon Borrower in any other manner provided under the
rules of any such courts.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER
EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR
LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless the losses were the result of acts or
omissions constituting gross negligence or willful misconduct.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any
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<PAGE> 44
one occasion shall not be construed as a bar to or waiver of any such right,
power and/or remedy which Lender would otherwise have on any future occasion,
whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding by Lender with respect to
this Agreement, the Obligations, the Collateral or any matter arising therefrom
or relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
fees and expenses of counsel, but excluding any losses which were the result of
acts or omissions constituting gross negligence or wilful misconduct of Lender.
To the extent that the undertaking to indemnify, pay and hold harmless set forth
in this Section may be unenforceable because it violates any law or public
policy, Borrower shall pay the maximum portion which it is permitted to pay
under applicable law to Lender in satisfaction of indemnified matters under this
Section . The foregoing indemnity shall survive the payment of the Obligations
and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term. This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect until all Obligations are paid in full in cash. No
termination of this Agreement or the other Financing Agreements shall relieve or
discharge Borrower of its respective duties, obligations and covenants under
this Agreement or the other Financing Agreements until all Obligations have been
fully and finally discharged and paid, and Lender's continuing security interest
in the Collateral and the rights and remedies of Lender hereunder, under the
other Financing Agreements and applicable law, shall remain in effect until all
such Obligations have been fully and finally discharged and paid.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
Lender or Borrower may designate by written notice to the other in accordance
with this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
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<PAGE> 45
nationally recognized overnight courier service with instructions to deliver the
next business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing. A copy of each notice
shall be sent in the same manner as the notice to First Equity Development, 3
River Bend, Box 4660, Stamford, Connecticut 06907, Attention: Aaron P.
Hollander.
12.3 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loan or any other interest herein
to another financial institution or other person, in which event, the assignee
or participant shall have, to the extent of such assignment or participation,
the same rights and benefits as it would have if it were the Lender hereunder,
except as otherwise provided by the terms of such assignment or participation.
Such assignments and delegations shall be in accordance with the provisions of
paragraph 18 of the Promissory Note.
12.5 Entire Agreement. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written.
41
<PAGE> 46
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
<TABLE>
<CAPTION>
LENDER BORROWER
<S> <C>
CANPARTNERS NATIONAL AIRMOTIVE
INVESTMENTS III, L.P. CORPORATION
By: Canyon Capital Management, L.P., By: _______________________________
its General Partner
Title: ____________________________
By: Canpartners Incorporated,
its General Partner
By: __________________________
Title: _________________________
Address: Chief Executive Office:
9665 Wilshire Boulevard, Suite 200 7200 Lockheed Street
Beverly Hills, California 90212 Oakland, California 94621-4504
</TABLE>
42
<PAGE> 47
INFORMATION CERTIFICATE
(See Attachment)
EXHIBIT A- 1
<PAGE> 48
PERMITTED INVENTORY LOCATIONS
Schedule 7.3
<PAGE> 49
ENVIRONMENTAL LAW VIOLATIONS
Schedule 8.9
<PAGE> 50
CAPITALIZATION
Schedule 8.13
<PAGE> 51
PERMITTED DIVIDENDS AND OTHER
DISTRIBUTIONS ON CAPITAL STOCK
Schedule 9.11
<PAGE> 1
EXHIBIT 10.5
The payments, rights and remedies hereunder are subject to that
certain Intercreditor and Subordination Agreement, dated as of
June 13, 1996 between First Aviation Services, Inc.,
Canpartners Investments IV, LLC, and Fleet Capital Corporation
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT OF
NATIONAL AIRMOTIVE CORPORATION
FIRST AMENDMENT (the "Amendment") dated June 13, 1996 between Canpartners
Investments IV, LLC, a California limited liability company, as Lender (the
"Lender"), and National Airmotive Corporation, a California corporation, as
Borrower (the "Borrower") to the Loan and Security Agreement dated as of June
1, 1995 between the Lender, as assignee of Canpartners Investments III, L.P., a
California limited partnership, and the Borrower.
PRELIMINARY STATEMENTS:
(1) Pursuant to that certain Loan and Security Agreement dated as of
June 1, 1995 (the "Loan Agreement"), Canpartners Investments III, L.P. made a
loan to Borrower in the original principal amount of Three Million Dollars
($3,000,000) (the "Loan"). Canpartners Investments III, L.P. has assigned its
rights and obligations under the Loan Agreement and all documents entered into
in connection with the Loan to the Lender.
(2) The Loan is (a) evidenced by a Promissory Note duly executed and
delivered by the Borrower to the Lender, (b) secured by the Collateral, and (c)
to be repaid, together with interest and other amounts, in accordance with the
Loan Agreement, the Promissory Note and the other Financing Agreements.
(3) On the same date as the Loan Agreement was entered into and the Loan
was made, the Borrower entered into a Loan and Security Agreement with Congress
Financial Corporation (Western) ("Congress") for a credit facility in the total
amount of $30 million, secured by the collateral provided for in such loan
agreement, to finance the acquisition of the Borrower and to provide working
capital for the Borrower.
(4) The Lender, First Aviation Services, Inc. and Congress also entered
into an Intercreditor and Subordination Agreement dated June 1, 1995 in
connection with the Loan and the Borrower's credit facility with Congress.
(5) The Borrower desires to terminate the credit facility with Congress
and to replace it with a new credit facility from Fleet Capital Corporation
("Fleet") in the maximum amount of $40 million. In connection with such
refinancing, Borrower has requested that Lender (a) consent to the Fleet credit
facility and the subordination of the Loan to the Fleet credit facility and (b)
agree to make certain modifications to the Loan Agreement and the Loan
1
<PAGE> 2
and to reduce the number of warrants to purchase shares of common stock of the
Borrower held by the Lender. The Lender is willing to grant such consents and
to make such modifications and reductions in exchange for a current reduction
in the amount of the Loan and other modifications to the terms of the Loan.
(6) Capitalized terms used in this Amendment without definition shall have
the meanings prescribed for such terms in the Loan Agreement.
ARTICLE I
AMENDMENTS TO THE LOAN AGREEMENT
Subject to the satisfaction of the conditions precedent set forth in
Article III hereof and effective as of the date thereof, the Lender and the
Borrower agree that the Loan Agreement shall be amended as provided herein.
SECTION 1.1 AMENDMENTS TO SECTION 1. The following amendments shall be
made to Section 1 of the Loan Agreement:
(a) The definition of "Capital Expenditures" in Section 1.5 of the
Loan Agreement is hereby amended in its entirety to read as follows:
"'Capital Expenditures' shall mean cash expenditures made or
liabilities incurred under the Fleet Financing Agreements for the
acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which are capital assets as
determined in accordance with GAAP."
(b) The definition of "Congress" in Section 1.10 of the Loan
Agreement is hereby deleted. The following definition of "Fleet" is hereby
added and shall replace for all purposes the term "Congress" in each
instance in the Loan Agreement where the term "Congress" formerly was used:
"'Fleet' shall mean Fleet Capital Corporation, the lender on the Fleet
Financing Agreements."
(c) The definition of "Congress Financing Agreements" in Section 1.11
of the Loan Agreement is hereby deleted. The following definition of "Fleet
Financing Agreements" is hereby added and shall replace for all purposes
the term "Congress Financing Agreements" in each instance in the Loan
Agreement where the term "Congress Financing Agreements" formerly was used:
2
<PAGE> 3
"'Fleet Financing Agreements' shall mean the Loan and Security
Agreement dated June ___, 1996 between Fleet and the Borrower and
related agreements, pursuant to which Fleet will make certain revolving
and term loans and other financing arrangements with a maximum total
credit amount of $40,000,000, secured by the collateral provided in
such agreements."
(d) The definition of "Consolidated Cash Interest Expense" in Section
1.12 of the Loan Agreement shall be deleted and shall be replaced by the
following definition of "Interest Expense":
"'Interest Expense' shall mean, with respect to any fiscal period, the
interest expense incurred for such period as determined in accordance
with GAAP plus any letter of credit fees and fees for LC Guaranties (as
defined in the Fleet Financing Agreements) provided by Fleet."
(e) The definition of "EBITDA" in Section 1.13 of the Loan Agreement
is hereby amended in its entirety to read as follows:
"'EBITDA' shall mean, with respect to any fiscal period, the net
earnings (or loss) before interest expense, provision for income taxes,
depreciation, and amortization expense for such fiscal period of the
Borrower, as determined in accordance with GAAP and as reflected on the
financial statements and certificates of the Borrower supplied to the
Lender pursuant to Section 9.6 hereof, but excluding non-recurring
transaction costs incurred in connection with the negotiation,
execution and delivery of the Fleet Financing Agreements and the
Amendment."
(f) The definition of "Excess Availability" in Section 1.19 of the
Loan Agreement is hereby deleted.
(g) The definition of "Excess Cash Flow" in Section 1.20 of the Loan
Agreement is hereby deleted.
(h) The definition of "Quarterly Determination Date" in Section 1.37
of the Loan Agreement is hereby deleted.
(i) The definition of "Subordination Agreement" in Section 1.39 of
the Loan Agreement shall be amended in its entirety to read as follows:
"'Subordination Agreement' shall mean that certain Intercreditor and
Subordination Agreement among Fleet, Lender and Parent and acknowledged
by Borrower dated June ___, 1996 providing for the respective
priorities between the Obligations, the obligations under the Fleet
Financing Agreements and the Preferred Stock."
3
<PAGE> 4
(j) The definitions of the following terms shall be added to
Section 1:
"'Amendment' shall mean the First Amendment dated June ___, 1996
between the Lender and the Borrower amending the Loan Agreement as set
forth therein."
"'Distributions' shall mean and include with respect to any corporation
(i) the payment of any dividends or other distributions on capital
stock of the corporation (except distributions in such stock) and (ii)
the redemption or acquisition of securities unless made
contemporaneously from the net proceeds of the sale of securities."
"'Fixed Charge Coverage Ratio' shall mean the ratio of EBITDA minus
Capital Expenditures divided by the sum of Interest Expense plus
scheduled repayment of unpaid principal for the relevant period as
required by the Fleet Financing Agreements and the Loan Agreement plus
the actual cash income taxes (other than cash payments of income taxes
accrued through April 30, 1996 for the period from June 1, 1995 through
April 30, 1996) for such fiscal period of the Borrower plus
Distributions in respect of the Preferred Stock, as determined in
accordance with GAAP and as reflected on the financial statements and
certificates of the Borrower supplied to the Lender pursuant to Section
9.6 hereof."
"'Net Worth' shall mean, with respect to any fiscal period, the
Borrower's net worth as determined in accordance with GAAP and as
reflected in the financial statements and certificates supplied to the
Lender pursuant to Section 9.6 hereof."
SECTION 1.2 AMENDMENTS TO SECTION 2. The following amendments shall be
made to Section 2 of the Loan Agreement:
(a) The first sentence of Section 2.1 shall be amended to read as
follows:
"Lender has made a Loan to Borrower in the original principal amount of
Three Million Dollars ($3,000,000.00), a portion of which has been or
will be satisfied by the payment of One Million Dollars ($1,000,000.00)
on the date of the Amendment, leaving a remaining principal amount of
Two Million Dollars ($2,000,000.00)."
4
<PAGE> 5
(b) Section 2.2 is amended in its entirety to read as follows:
"2.2 Mandatory Quarterly Repayments of Principal. Borrower shall make
mandatory repayments of principal in the amount of $125,000.00 per
quarter, payable on the earlier of (a) the sixth Business Day after
receipt by Fleet of the quarterly unaudited financial statements for
the applicable fiscal quarter and the compliance certificate pursuant
to Section 8.1.3 of the Fleet Financing Agreements and (b) the
thirtieth day after the end of each such fiscal quarter."
(c) Section 2.3 is amended in its entirety to read as follows:
"2.3 Optional Prepayments of Principal. The Borrower may prepay all,
but not less than all, of the aggregate outstanding principal at any
time prior to maturity in cash at the following premium (expressed in
percentages of principal amount), plus accrued and unpaid interest
thereon through the applicable prepayment date, plus any unpaid
expenses payable by the Borrower pursuant to the terms hereof if such
optional prepayment is made during the twelve-month-period beginning on
June 13 of the years indicated below:
Year Percentage
---- ----------
1996 103.5%
1997 102.5%
1998 101.5%
The Borrower agrees that such prepayment premium shall be presumed to
be for the amount of damages sustained by Lender as a result of such
early payment and the Borrower agrees that it is reasonable under the
circumstances currently existing. The prepayment premium provided for
in this Section 2.3 shall be deemed included in the Obligations."
(d) Section 2.4 is amended in its entirety to read as follows:
"2.4 Maturity. The balance of principal, together with any and all
accrued interest thereon, shall be paid in full in cash on June 13,
1999, being the third anniversary of the date of this Amendment."
5
<PAGE> 6
SECTION 1.3 AMENDMENTS TO SECTION 9. The following amendments shall be
made to Section 9 of the Loan Agreement:
(a) Section 9.6(b) is amended to remove the requirement to provide
calculations of "Excess Availability" and as amended shall read as follows:
"(b) Borrower shall furnish or cause to be furnished to the
Lender: (i) within twenty (20) days after the end of each fiscal
quarter of each fiscal year during the term of this Agreement, a
certificate of a senior financial officer of the Borrower, which
certificate shall set forth (in reasonable detail) the calculations
provided for in Section 9.13 and Section 9.14; and (ii) within ninety
(90) days after the end of each fiscal year during the term of this
Agreement, a certificate of a senior financial officer of the Borrower,
which certificate shall set forth (in reasonable detail) the
calculations provided for in Section 9.13 and Section 9.14 and the
amount of Capital Expenditures for such fiscal year."
(b) Section 9.13 of the Loan Agreement, "Inventory Turnover," is
deleted in its entirety and amended by the replacement of Section 9.13 with
the following:
"9.13 Minimum Net Worth. The Borrower shall maintain at all times Net
Worth of not less than the amount shown below for the period
corresponding thereto:
Period Amount
------ ----------
May 1, 1996 through July 31, 1996 $3,200,000
August 1, 1996 through October 31, 1996 $3,700,000
November 1, 1996 through January 31, 1997 $4,200,000
February 1, 1997 through April 30, 1997 $4,500,000
In each subsequent fiscal quarter thereafter $4,500,000"
6
<PAGE> 7
(c) Section 9.14 is amended in its entirety to read as follows:
"9.14 Fixed Charge Coverage Ratio. The Borrower shall achieve a Fixed
Charge Coverage Ratio for each fiscal quarter of not less than the
ratio shown below for the period corresponding thereto:
Period Amount
------ ------------
May 1, 1996 through July 31, 1996 0.95 to 1.00
August 1, 1996 through October 31, 1996 0.95 to 1.00
November 1, 1996 through January 31, 1997 1.00 to 1.00
In each subsequent fiscal quarter thereafter 1.00 to 1.00"
(d) Section 9.15 is deleted in its entirety.
(e) Section 9.16 is amended in its entirety to read as follows:
"9.16 Capital Expenditures. The Borrower shall not make Capital
Expenditures (including without limitation, by way of Capital Leases)
which, in the aggregate, exceed $2,500,000 during any fiscal year of
the Borrower."
ARTICLE II
AMENDMENTS TO THE PROMISSORY NOTE
Subject to the satisfaction of the conditions precedent set forth in Article
III hereof and effective as of the date thereof, the Lender and the Borrower
agree that the Promissory Note dated June 1, 1995 from the Borrower to the
Lender executed in connection with the Loan Agreement shall be amended as
provided in this Article II so that such Promissory Note remains consistent
with the Loan Agreement, as amended by this Amendment.
2.1 AMENDMENT TO PARAGRAPH 1. Paragraph 1 of the Promissory Note is
hereby amended to reflect the repayment of $1,000,000.00 in principal on the
Loan, such that the aggregate outstanding principal on the Loan shall be
$2,000,000.00.
7
<PAGE> 8
2.1 AMENDMENT TO PARAGRAPH 2. Paragraph 2 of the Promissory Note is
amended in its entirety to read as follows:
"2. Mandatory repayments of principal shall be made quarterly as set
forth in the Loan Agreement. The entire remaining balance of
principal, together with any and all accrued interest thereon shall be
paid in full in cash on June 13, 1999 (the "Maturity Date")."
2.2 AMENDMENT TO PARAGRAPH 3. Paragraph 3 of the Promissory Note is
amended in its entirety to read as follows:
"3. Debtor may prepay all, but not less than all, of the aggregate
outstanding principal at any time prior to the Maturity Date in cash at
the following premium (expressed in percentages of principal amount),
plus accrued and unpaid interest thereon through the applicable
prepayment date, plus any unpaid expenses payable by Debtor pursuant to
the terms of the Loan Agreement, if such optional prepayment is made
during the twelve-month-period beginning on June 13 of the years
indicated below:
Year Percentage
---- ----------
1996 103.5%
1997 102.5%
1998 101.5%"
ARTICLE III
CONDITIONS PRECEDENT
Article I and Article II of this Amendment shall become effective when, and
only when, the Lender and the Borrower shall have executed and delivered this
Amendment, and all of the following actions shall have occurred or such
documents or payments shall have been received by the Lender, as applicable.
3.1 CLOSING FEE. The Borrower shall have paid to the Lender as a closing
fee for the Amendment an amount equal to $65,000.00, which closing fee shall be
in addition to, and not in lieu of, interest, compensation, expense
reimbursements, indemnification and other Obligations under the Loan Agreement.
Such fee shall be fully earned and nonrefundable when paid.
3.2 DOCUMENTS. The Lender shall have received, in form and substance
satisfactory to the Lender:
(a) Evidence, including copies thereof, that the Congress Financing
Agreements have been terminated and Congress has been paid in full all
amounts owed under the Congress Financing Agreements and all security
interests and liens granted thereunder have been released.
(b) Evidence, including copies thereof, that the Fleet Financing
Agreements have been executed and delivered by all parties thereto and
become effective in accordance with their terms and the initial loans and
financing arrangements to be made thereunder have been made prior to or
contemporaneously with the execution of this Amendment.
8
<PAGE> 9
(c) Certified copies of all documents evidencing any necessary
corporate actions with respect to this Amendment and the consummation of
the transactions contemplated hereby.
(d) A certificate of the Secretary of the Borrower, certifying the
name and true signature of the officers of the Borrower authorized to sign
this Amendment and the other documents to be delivered hereunder on behalf
of the Borrower.
(e) A certificate signed by a duly authorized officer of the Borrower
stating that, except for those matters disclosed on Schedule I hereto and
to extent specified thereon, the representations and warranties contained
in Section 8 of the Loan Agreement and Article IV of this Amendment are
correct on and as of the date of this Amendment.
(f) A copy of the permit issued by the California Department of
Corporations pursuant to Section 25121 of the California Corporate
Securities Law of 1968, as amended, to qualify the modification of the
promissory note in connection with this Amendment, certified as a true and
correct copy by a duly authorized officer of the Borrower.
(g) An opinion of counsel to the Borrower, in form and substance
satisfactory to the Lender, with respect to the Fleet Financing Agreements,
the Amendment, the Financing Agreements as amended by the Amendment, and
the continuing validity of the security interests and liens of the Lender
with respect to the Collateral and such other matters as the Lender may
request.
(h) Certified copies of the Articles of Incorporation of the
Borrower, a certificate of good standing issued by the California
Department of Corporations, and a certificate of good standing in each
other state in which the Borrower conducts business in which the nature of
the business conducted requires the qualification to do business in such
state. Copies of the Bylaws of the Borrower certified by a duly authorized
officer of the Borrower.
(i) Evidence, including a copy thereof, that the Subordination
Agreement, as acknowledged and agreed to by the Borrower, providing for the
subordination and permitted repayment of indebtedness and related matters,
has been duly authorized, executed and delivered by the parties thereto and
become effective in accordance with its terms.
3.3 MATERIAL ADVERSE CHANGE. No material adverse change shall have
occurred in the assets, business or prospects of the Borrower since the date
of the Loan Agreement.
9
<PAGE> 10
3.4 EXECUTION AND DELIVERY OF AMENDMENT. This Amendment and all
instruments and documents hereunder and thereunder shall have been duly executed
and delivered to the Lender, in form and substance satisfactory to the Lender.
3.5 REPRESENTATIONS AND WARRANTIES. All representations and warranties
contained in this Amendment shall be true and correct in all material respects.
3.6 NO EVENT OF DEFAULT. Upon giving effect to this Amendment, no Event
of Default and no event or condition which, with notice or passage of time or
both, would constitute an Event of Default, shall exist or have occurred and be
continuing on and as of the date of this Amendment.
3.7 REIMBURSEMENT OF EXPENSES. The Borrower shall have reimbursed the
Lender for all of its actual and reasonable out of pocket costs and expenses
incurred prior to the date of this Amendment in connection with the negotiation,
documentation and any related filings related to the Amendment, including but
not limited to all attorneys and other consultant fees and expenses, and paid
the Lender all of the fees due under this Amendment and the Shareholders
Agreement.
3.8 PAYMENT OF PRINCIPAL. The Borrower shall have paid the Lender
$1,000,000 in prepayment of principal under the Loan in conjunction with this
Amendment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
4.1 REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
as follows:
(a) The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of California and is duly qualified to
do business in, and is in good standing under the laws of, all states or
other jurisdictions where the nature and extent of the business transacted
by it or the ownership of assets makes such qualification necessary, except
for those jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Borrower's financial condition, results of
operation or business or the rights of Lender in or to any of the
Collateral.
(b) The execution, delivery and performance by the Borrower of this
Amendment, and the performance by the Borrower of the Loan Agreement and
the Promissory Note, as each is amended by this Amendment, and the other
transactions contemplated hereby are within the Borrower's corporate
powers, have been duly authorized by all necessary corporate action, do not
(i) contravene the Borrower's certificate of incorporation or bylaws, (ii)
contravene any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award, (iii) conflict with or result
10
<PAGE> 11
in breach of, or constitute a default under, any contract, loan agreement,
indenture, mortgage, deed of trust, lease or other instrument binding on or
affecting the Borrower or any of its property, or (iv) result in or require
the creation of any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance or preferential arrangement of any
nature upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
(c) No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery and performance by
the Borrower or this Amendment, for the performance of the Loan Agreement
and the Promissory Note as each is amended by this Amendment or the other
transactions contemplated hereby, except for the receipt of a permit from
the California Department of Corporations, which has been duly obtained and
is in full force and effect.
(e) There is no pending or threatened action, investigation or
proceeding before any court, governmental agency or arbitrator, against or
affecting the Borrower which purports to affect the legality, validity or
enforceability of this Amendment or the Loan Agreement or the Promissory
Note, as each is amended hereby, or which may materially adversely affect
the ability of the Borrower to perform its obligations under this Amendment
or the Loan Agreement or the Promissory Note as each is amended hereby.
(f) Except for those matters disclosed on Schedule I hereto relating
to additional business locations, subsidiaries, liens, litigation and
environmental compliance, guaranties and trade names, the representations
and warranties set forth in Section 8 of the Loan Agreement are true and
correct as of the date of this Amendment.
11
<PAGE> 12
ARTICLE V
GENERAL
5.1 REFERENCE TO AND EFFECT ON THE LOAN AGREEMENT.
(a) Upon the effectiveness of Article I of this Amendment, on and
after the date thereof, each reference in the Loan Agreement to "this
Agreement," "hereunder," "hereof," or words of like import referring to the
Loan Agreement shall mean and be a reference to the Loan Agreement as
amended by this Amendment.
(b) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any default or any other right, power or
remedy of the Lender under the Loan Agreement nor constitute a waiver of
any provision of the Loan Agreement, except to the extent specified in
Article I above.
5.2 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL WAIVER.
(a) The validity, interpretation and enforcement of this Amendment
and any dispute arising out of the relationship between the parties hereto,
whether in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of California (without giving effect to
principles of conflicts of law other than those contained in California
Civil Code Section 1646.5).
(b) The Borrower and the Lender irrevocably consent and submit to
the non-exclusive jurisdiction of any State or Federal court located within
the County of Los Angeles, State of California, and waive any objection
based on venue or forum non conveniens with respect to any action
instituted therein arising under this Amendment or in any way connected
with or related or incidental to the dealings of the parties hereto in
respect of this Amendment or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with
respect to any such matters shall be heard only in the courts described
above (except that the Lender shall have the right to bring any action or
proceeding against the Borrower or its property in the courts of any other
jurisdiction which the Lender reasonably deems necessary or appropriate in
order to realize on the Collateral or to otherwise enforce its rights
against the Borrower or its property).
(c) The Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made
by certified mail (return receipt requested) directed to its address set
forth on the signature pages hereof and service so made shall be deemed to
be completed five (5) days after the same shall have been so deposited in
the U.S. mails, or, at the Lender's option, by service upon the Borrower in
any other manner provided under the rules of any such courts.
12
<PAGE> 13
(d) THE BORROWER AND THE LENDER EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING
UNDER THIS AMENDMENT OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AMENDMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE BORROWER
AND THE LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY
AND THAT THE BORROWER OR THE LENDER MAY FILE AN ORIGINAL COUNTERPART OF A
COPY OF THIS AMENDMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) The Lender shall not have any liability to the Borrower (whether
in tort, contract, equity or otherwise) for losses suffered by the Borrower
in connection with, arising out of, or in any way related to the
transactions or relationships contemplated by this Amendment, or any act,
omission or event occurring in connection herewith, unless the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct.
5.3. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
5.4. CAPTIONS. The captions of the Sections of this Amendment have been
inserted for convenience only and shall have no substantive effect.
5.5. INTEGRATION. THIS AMENDMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES HERETO AS TO THE SUBJECT MATTER OF THIS AMENDMENT AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES
HERETO.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day, month and year first above written.
BORROWER:
NATIONAL AIRMOTIVE CORPORATION,
a California Corporation
By:
-----------------------------
Title:
-----------------------------
Address of Chief Executive Office:
7200 Lockheed Street
Oakland, California 94621-4504
LENDER:
CANPARTNERS INVESTMENTS IV, LLC,
a California limited liability company
By:
-----------------------------
Title:
-----------------------------
Address:
9665 Wilshire Boulevard, Suite 200
Beverly Hills, California 90212
14
<PAGE> 1
EXHIBIT 10.6
- -------------------------------------------------------------------------------
WARRANT AGREEMENT OF
NATIONAL AIRMOTIVE CORPORATION
283,849 SHARES
Dated as of June 1, 1995
- --------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANTS
<PAGE> 2
WARRANT AGREEMENT dated as of June 1, 1995 between NATIONAL AIRMOTIVE
CORPORATION, a California corporation (the "Company"), the Company as Warrant
Agent, and CANPARTNERS INVESTMENTS III, L.P. (the "Warrant Holder" or
"Holder").
The Company proposes to issue the Common Stock Purchase Warrants as
hereinafter described (the "Warrants") to purchase an aggregate of 283,849
shares of its Common Stock (the "Common Stock"), $0.01 par value per share (the
shares of Common Stock issuable on exercise of the Warrants being referred to
herein as the "Warrant Shares"), in favor of Warrant Holder.
In consideration of the benefits and services provided to the Company
by the Warrant Holder, including but not limited to that certain loan in the
amount of $3,000,000.00 (the "Loan") evidenced by a Loan and Security Agreement
of even date herewith (the "Loan Agreement"), and for the purpose of defining
the terms and provisions of the Warrants and the respective rights and
obligations thereunder of the Company and the Holders, the Company and the
Warrant Holder hereby agree as follows:
SECTION 1. TRANSFERABILITY AND FORM OF THE WARRANTS.
1.1 REGISTRATION. The Warrants shall be numbered and
shall be registered on the books of the Company maintained at the principal
office of the Company in Oakland, California (the "Warrant Register"). The
Company shall be entitled to treat the registered Holder of a Warrant as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Warrant on the part of any
other person, and shall not be liable for any Company registration or transfer
of a Warrant which is registered or to be registered in the name of a fiduciary
or the nominee of a fiduciary unless made with the actual knowledge that a
fiduciary or nominee is committing a breach of trust in requesting such
registration of transfer, or with such knowledge of such facts that its
participation therein amounts to bad faith.
1.2 TRANSFER GENERAL. Subject to the terms hereof and to
applicable securities laws, the Warrants shall be freely transferable by the
Holders thereof. A Warrant shall be transferable only on the books of the
Company maintained at its principal office upon delivery thereof duly endorsed
by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment or authority to
transfer. In all cases of transfer by an attorney, the original power of
attorney, duly approved, or a copy thereof, duly certified, shall be deposited
and remain with the Company. In case of transfer by executors, administrators,
guardians or other legal representatives, duly authenticated evidence of their
authority shall be produced, and may be required to be deposited and to remain
with the Company in its discretion. Upon any registration of transfer, the
Company shall countersign and deliver a new Warrant to the persons entitled
thereto. The Company or the Warrant Agent may require the payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any such transfer.
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1.3 FORM OF THE WARRANTS. The text of the Warrants and of
the form of election to purchase Warrant Shares (the "Purchase Form") shall be
substantially as set forth in Exhibit A attached hereto. Each Warrant shall be
executed on behalf of the Company by its Chairman of the Board, its Chief
Executive Officer, President or one of its Vice Presidents, under its corporate
seal reproduced thereon, and attested by its Secretary or an Assistant
Secretary.
A Warrant shall be dated as of the date of countersignature thereof by the
Company upon initial issuance.
SECTION 2. TERM OF THE WARRANTS; RESTRICTION ON EXERCISE AND
DEEMED EXERCISE; EXERCISE OF THE WARRANTS; WARRANT PRICE, ETC.
2.1 TERM OF THE WARRANTS. Subject to the terms of this
Agreement, the Holder shall have the right, which may be exercised at any time
and from time to time until a date ten years from the date hereof, to purchase
from the Company the number of fully paid and nonassessable Warrant Shares
which the Holder may at the time be entitled to purchase on exercise of such
Warrant. If the last day for the exercise of the Warrants shall not be a
business day, then the Warrants may be exercised on the next succeeding
business day.
2.2 RESTRICTION ON EXERCISE AND DEEMED EXERCISE. For the
four years immediately following the date of this Agreement, there shall be a
restriction on the exercise of the Warrants unless any of the following shall
occur:
(a) there is any transfer of shares of Preferred
Stock or Common Stock of the Company by First Aviation
Services, Inc. (the "Principal Holder") to someone other than
(i) any corporation or partnership all of the outstanding
securities and other interests of which are owned by the
Principal Holder, (ii) any individual or corporation who owns
directly or indirectly all of the outstanding securities and
other interests of the Principal Holder, or (iii) any other
corporation or entity that is controlled by or under common
control with the Principal Holder and investors in the
Principal Holder or such affiliates (such entities and persons,
a "PH Affiliate"),
(b) the Company issues any shares of its Preferred
Stock or Common Stock, or any rights, options, or warrants
containing the right to subscribe for or purchase shares of its
Preferred Stock or Common Stock or securities convertible into
shares of the Company's Preferred Stock or Common Stock, other
than (i) shares of Series A Preferred Stock issued as dividends
on the Company's outstanding Series A Preferred Stock, (ii) the
issuance to officers of the Company and other key employees of
the Company of shares of Common Stock or rights, options or
warrants containing the right to subscribe for or purchase
shares of Common Stock, representing, in the aggregate, no more
than ten percent (10%) of the common equity that would be
outstanding on the date of this Agreement assuming all of the
Warrants had been
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exercised, if the number of shares subject to the Warrants is
reduced pursuant to Section 8, (iii) the issuance of shares of
preferred stock of the Company in one or more series, provided
any such series of preferred stock contains a prohibition on
the redemption of such shares of preferred stock for so long as
a Warrant is outstanding, has a liquidation preference no more
favorable than the Series A Preferred Stock, and is entitled to
receive dividends at a rate and on terms no more favorable than
the Series A Preferred Stock, or (iv) the issuance of shares of
non-voting Common Stock of the Company to the Principal Holder
in exchange or in cancellation of, on a one-for-one basis,
shares of voting Common Stock of the Company.
(c) the Company files a federal income tax return
for any tax year following the date of this Agreement that does
not reflect it as part of a consolidated group including First
Aviation Services, Inc., or
(d) the sale, lease, exchange or other transfer (in
one or a series of related transactions) of all or
substantially all of the assets of the Company.
Each of the preceding shall be referred to as a "Deemed Exercise Event." In the
event a Deemed Exercise Event shall occur, the restriction on exercise of the
Warrants shall be eliminated and each Warrant Holder shall be deemed to
exercise the Warrants held by such Warrant Holder (a "Deemed Exercise"). The
Deemed Exercise shall be effective with respect to each Warrant Holder upon the
occurrence of the applicable Deemed Exercise Event unless (i) the Warrant
Holder shall notify the Company in writing within 30 days of the date such
Warrant Holder receives written notice from the Company of the occurrence of
such Deemed Exercise Event that such Warrant Holder elects not to exercise its
Warrants or (ii) the Warrant Holder shall fail to comply with the requirements
for exercise of the Warrants set forth in Section 2.3 within 30 days following
the receipt of written notice from the Company of the occurrence of a Deemed
Exercise Event. The Warrants shall, if not exercised prior thereto, be deemed
exercised in full concurrent with the consummation of an initial public
offering of the Common Stock of the Company pursuant to a registration
statement filed in accordance with the Securities Act that yields $10.0 million
or more in net proceeds to the Company.
2.3 EXERCISE OF THE WARRANTS. The Warrants may be
exercised upon surrender to the Company, at its principal office, of the
certificate evidencing the Warrants to be exercised, together with the Purchase
Form on the reverse thereof duly filled in and signed, and upon payment to the
Company, of the Warrant Price (as defined in and determined in accordance with
the provisions of Section 2 hereof), for the number of Warrant Shares in
respect of which such Warrants are then exercised. Upon partial exercise, a
Warrant Certificate for the unexercised portion shall be delivered to the
Holder. Payment of the aggregate Warrant Price shall be made in cash, by
certified or official bank check.
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Subject to Section 3 hereof, upon such surrender of the
Warrants and payment of the Warrant Price as aforesaid, the Company shall issue
and cause to be delivered with all reasonable dispatch to or upon the written
order of the Holder and in such name or names as the Holder may designate, a
certificate or certificates for the number of full Warrant Shares so purchased
upon the exercise of such Warrants. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Warrant Price, as
aforesaid, or, in the case of a Deemed Exercise, as of the date of the Deemed
Exercise; provided, however, that if, at the applicable date, the transfer books
for the Warrant Shares or other class of stock purchasable upon the exercise of
such Warrants shall be closed, the certificates for the Warrant Shares in
respect of which such Warrants are then exercised shall be issuable as of the
date on which such books shall next be opened (whether before or after the
Expiration Date) and until such date the Company shall be under no duty to
deliver any certificate for such Warrant Shares; provided, further, that the
transfer books of record, unless otherwise required by law, shall not be closed
at any one time for a period longer than 20 calendar days.
2.4 COMPLIANCE WITH GOVERNMENT REGULATIONS. Holder
acknowledges that none of the Warrants or Warrant Shares has been registered
under the Securities Act, and may be sold or disposed of in the absence of such
registration only pursuant to an exemption from such registration and in
accordance with this Agreement. The Warrants and the Warrant Shares will bear
a legend to the following effect:
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR
OTHER DISPOSITION OR PLEDGE OF THESE SECURITIES OR THE SECURITIES
UNDERLYING THESE SECURITIES CAN BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY OR A NO ACTION LETTER OR INTERPRETIVE
OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT."
2.5 WARRANT PRICE. The price per share at which Warrant
Shares shall be purchasable upon exercise of the Warrants (the "Warrant Price")
shall be $0.35.
SECTION 3. PAYMENT OF TAXES. The Company will pay all
documentary stamp taxes, if any, attributable to the initial issuance of
Warrants and Warrant Shares upon the exercise of Warrants; provided, however,
that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer involved in the issue or delivery
of the Warrants or certificates for Warrant Shares in a name other
than that of the Holder of such Warrants.
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SECTION 4. MUTILATED OR MISSING WARRANTS. In case any Warrant
shall be mutilated, lost, stolen or destroyed, the Company shall issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant, or in lieu of and substitution for the Warrant lost, stolen or
destroyed, a new Warrant certificate of like tenor and representing an
equivalent right or interest; but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction of such Warrant
certificate and indemnity or bond, if requested, also reasonably satisfactory to
them. An applicant for such substitute Warrant certificate shall also comply
with such other reasonable regulations and pay such other reasonable charges as
the Company may prescribe.
SECTION 5. RESERVATION OF WARRANT SHARES.
5.1 RESERVATION OF WARRANT SHARES. There have been
reserved, and the Company shall at all times keep reserved, out of its
authorized but unissued shares of Common Stock, a number of shares of Common
Stock sufficient to provide for the exercise of the rights of purchase
represented by the outstanding Warrants. The transfer agent for the Common
Stock ("Transfer Agent"), and every subsequent transfer agent for any shares of
the Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be and are hereby irrevocably authorized and directed
at all times until the Expiration Date to reserve such number of authorized but
unissued shares as shall be requisite for such purpose. The Company will keep
a copy of this Agreement on file with the Transfer Agent and with every
subsequent transfer agent for any shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company covenants that all Warrant Shares which may be issued
upon exercise of the Warrants will, upon issue, be fully paid, nonassessable,
free of preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issue thereof. The Company will supply such
Transfer Agent and any subsequent transfer agent with duly executed stock
certificates for such purpose. The Warrants surrendered in the exercise of the
rights thereby evidenced shall be cancelled by the Company.
5.2 CANCELLATION OF THE WARRANTS. In the event the
Company shall purchase or otherwise acquire the Warrants, the same shall be
cancelled and retired.
SECTION 6. RESTRICTIONS ON CORPORATE ACTIONS AND ADJUSTMENTS TO
WARRANT SHARES AND WARRANT PRICE.
6.1 PRESERVATION OF RIGHTS UPON MERGER, CONSOLIDATION,
ETC. In case of any consolidation of the Company with or merger of the Company
into another corporation or in case of any sale, transfer or lease to another
corporation of all or substantially all the property of the Company, the
Company or such successor or purchasing corporation, as the case may be, shall
execute an amendment to this Agreement that each Holder shall have the
right thereafter upon payment of the Warrant Price in effect immediately prior
to such action to purchase upon exercise of the Warrants the kind and amount of
shares and/or other securities and/or property which he would have owned or have
been entitled to receive upon the happening of such consolidation, merger, sale,
transfer or lease had such Warrants been exercised immediately prior to such
action and that upon such consolidation, merger, sale, transfer or lease, each
Warrant Holder shall thereafter receive the pro rata amount of dividends,
interest or other income on or from such shares or other securities and property
during the term of a Warrant. The provisions of this Section 6.1 shall similarly
apply to successive consolidations, mergers, sales, transfers or leases.
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6.2 RESTRICTIONS ON CORPORATE ACTIONS. For so long as a
Warrant remains outstanding, the Company shall not issue any capital stock in a
reclassification of the Common Stock (other than in any such reclassification
in connection with a consolidation or merger in which the Company is the
continuing entity and to which the provisions of Section 6.1 shall apply).
6.3 ADJUSTMENT OF WARRANT PRICE AND NUMBER OF WARRANT
SHARES FOR SUBDIVISION OR COMBINATION. In case the Company shall at any time
after the date of this Agreement (i) subdivide its outstanding shares of Common
Stock or (ii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the number of Warrant Shares purchasable upon
exercise of the Warrant immediately prior thereto shall be adjusted so that the
Holder of the Warrant shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company that he would have owned or
have been entitled to receive after the subdivision or combination, had such
Warrant been exercised immediately prior to the happening of such event or any
record date with respect thereto. Any adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event. Such adjustment
shall be made successively whenever any subdivision or combination shall occur.
The Warrant Price payable upon exercise of the Warrant shall be adjusted by
multiplying the Warrant Price immediately prior to such adjustment by a
fraction, the numerator of which shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
purchasable immediately thereafter.
6.4 NOTICE OF ADJUSTMENT. Whenever the number of Warrant
Shares purchasable upon the exercise of the Warrant or the Warrant Price of
such Warrant Shares is adjusted, as herein provided, the Company shall mail by
first class, postage prepaid, to each Holder notice of such adjustment or
adjustments and shall deliver to the Holder a copy of a certificate of either
the Board of Directors of the Company or of a firm of independent public
accountants selected by the Board of Directors of the Company (who may be the
regular accountants employed by the Company) setting forth the number of
Warrant Shares purchasable upon the exercise of the Warrant and the Warrant
Price of such Warrant Shares after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
6.5 STATEMENT ON THE WARRANT. Irrespective of any
adjustments in the Warrant Price or the number of shares of Common Stock
purchasable upon the exercise of the Warrant, the Warrant theretofore or
thereafter issued may continue to express the same price and number of shares
as are stated in the Warrant initially issuable pursuant to this Agreement,
subject to any transfers previously registered.
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SECTION 7. REGISTRATION RIGHTS.
7.1 CERTAIN DEFINITIONS.
As used in this Warrant Agreement, the following terms shall
have the following respective meanings:
(a) COMMISSION means the Securities and Exchange
Commission.
(b) EXCHANGE ACT means the Securities Exchange
Act of 1934, as amended, or any successor act, and the rules and regulations of
the Commission promulgated thereunder, all as the same shall be in effect at
the time.
(c) REGISTRABLE SECURITIES means the Shares
issued or issuable upon exercise of the Warrants. As to any particular
Registrable Security, once issued, such security shall cease to be one of the
Registrable Securities when (x) such security shall have been transferred to
any person pursuant to an effective registration statement, (y) such security
shall have been transferred to any person that is not an Affiliate (as defined
in the Exchange Act) of the initial Warrant Holder pursuant to Rule 144 (or any
successor provision) under the Securities Act and the shares thereupon become
freely tradeable, subject to any restrictions pursuant to the Shareholders
Agreement dated May __, 1995 by and among the Company, the Warrant Holder, the
Principal Holder and the holders of common stock and warrants of the Company,
or (z) such security shall have ceased to be outstanding.
(d) REGISTRATION EXPENSES means all expenses
incident to the Company's performance of or compliance with the registration
rights herein, including, without limitation, all registration, filing, listing
and NASD fees, all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, fees and expenses of Company's counsel and independent
public accountants, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and compliance,
and any fees and disbursements of underwriters customarily paid by issuers and
sellers of securities; provided, however, that Registration Expenses shall not
include fees and expenses of counsel for the holders of Registrable Securities
nor shall it include underwriting discounts, commissions and transfer taxes, if
any, relating to the offer and sale of Registrable Securities, all of which
shall be borne by such holders.
(e) SECURITIES ACT means the Securities Act of
1933, as amended, or any successor act thereto, and the rules and regulations
of the Commission promulgated thereunder, all as the same shall be in effect at
the time.
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7.2 REGISTRATION.
(a) COMPANY REGISTRATION. If (without any
obligation to do so) the Company proposes to register (including for this
purpose any registration effected by the Company for holders other than the
holders of Registrable Securities) any of its Common Stock or other securities
under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration on Forms S-4 or S-8 or
equivalent successor forms), then the Company shall, at such time, promptly
give all holders of Registrable Securities written notice of such registration.
Any such registration effected by the Company is referred to herein as a
"Company Registration." Upon the written request of such holders given within
twenty (20) days after the giving of such notice by the Company, the Company
shall, subject to the provisions of Section 7.2(c) below, cause to be included
in such registration statement and registered under the Securities Act all of
the Registrable Securities that each such Participating Holder has requested to
be registered.
(b) EXPENSES. The Company shall pay all
Registration Expenses incurred in connection with the registration of
Registrable Securities pursuant to Section 7.2(a).
(c) PRIORITY IN REQUESTED REGISTRATIONS. If the
Company Registration pursuant to Section 7.2(a) involves an underwritten
offering, and the managing underwriter shall advise the Company in writing,
with a copy to the Participating Holders that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) exceeds the number which
can be sold in such offering; the Company will include in such registration
statement to the extent of the number of securities which the Company is so
advised can be sold in such offering (i) first, the securities to be sold for
the account of the Company to be included in the Company Registration, and (ii)
second, the Registrable Securities and other securities of the Company entitled
to similar registration rights, if any, pro rata, in proportion to the number
of Registrable Securities and other securities requested to be included in such
registration statement.
7.3 REGISTRATION PROCEDURES.
(a) If and whenever the Company is required to
use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Section 7.2, the Company, as
expeditiously as possible and subject to the terms and conditions of Section
7.2, will:
(i) prepare and file with the Commission
the requisite registration statement to effect such registration and use its
best efforts to cause such registration to become effective;
(ii) prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement until the earlier of such time as all of such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement or the expiration of 90 days after such registration statement
becomes effective;
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(iii) furnish to each Participating Holder
such number of conformed copies of such registration statement and of each such
amendment and supplement thereto, such number of copies of the prospectus
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the Securities Act,
and such other documents, as each Participating Holder may reasonably request;
(iv) use its best efforts to register or
qualify all Registrable Securities covered by such registration statement under
such other United States state securities or blue sky laws of such
jurisdictions as each Participating Holder shall reasonably request, to keep
such registration statement qualification in effect for the period referred to
in Section 7.3(a)(ii) hereof, and take any other action which may be reasonably
necessary or advisable to enable each Participating Holder to consummate the
disposition in such jurisdictions of the securities owned by each Participating
Holder, except that the Company shall not for any such purpose be required to
(a) qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subdivision
(iv) be obligated to be so qualified, (b) subject itself to taxation in any
such jurisdiction or (c) consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause all
Registrable Securities covered by such registration statement to be registered
with or approved by such other United States state governmental agencies or
authorities as may be necessary to enable each Participating Holder to
consummate the disposition of such Registrable Securities;
(vi) use its best efforts to furnish to
any underwriter for Participating Holders a signed counterpart, addressed to
such underwriter, if any, of
(1) an opinion of counsel for the
Company, dated the effective date of such registration statement (and,
if such registration includes an underwritten public offering, dated
the date of the closing under the underwriting agreement),
satisfactory to such underwriter in its reasonable judgment, and
(2) a "comfort" letter, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated the date
of the closing under the underwriting agreement), signed by the
independent public accountants who have certified the Company's
financial statements included in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case of the
accountants' letter, such other financial matters as such underwriters, if any,
may reasonably request;
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<PAGE> 11
(vii) immediately notify the Participating
Holders at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading and at the request of the Participating Holders promptly prepare and
furnish to the Participating Holders a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(viii) otherwise use its best efforts to
comply with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, an
earning statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first full calendar month after the
effective date of such registration statement, which earning statement shall
satisfy the provisions of Section 11(a) of the Securities Act, and not file any
amendment or supplement to such registration statement or prospectus to which a
majority of the Participating Holders shall have reasonably objected in writing
on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or of the rules
or regulations thereunder, having been furnished with a copy thereof (other
than with respect to a pricing amendment or a prospectus filed pursuant to Rule
424(b)(1) under the Securities Act) at least two business days prior to the
filing thereof;
(ix) provide a transfer agent and
registrar for all Registrable Securities covered by such registration statement
not later than the effective date of such registration statement; and
(x) use its best efforts to list all
Registrable Securities covered by such registration statement on the securities
exchange, if any, on which the Common Stock is then listed.
(b) The Company may require each Participating
Holder to furnish the Company with such information and undertakings as it may
reasonably request regarding the holders requesting registration and the
distribution of such securities as the Company may from time to time reasonably
request in writing, including the agreement not to sell any Registrable
Security not included in the registration statement in a market transaction for
a reasonable period following the consummation of an underwritten initial
public offering of the Common Stock of the Company pursuant to a registration
statement filed in accordance with the Securities Act that yields $10.0 million
or more in net proceeds to the Company, provided that such period shall not
exceed 180 days and any such restriction on sales shall apply to all holders,
either directly or indirectly, of more than 5% of the Common Stock of the
Company.
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(c) Each Participating Holder agrees (A) that
upon receipt of any notice from the Company of the happening of any event of
the kind described in Section 7.3(a)(vii), such holder will forthwith
discontinue its disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until receipt by
such Participating Holder of the copies of the supplemented or amended
prospectus contemplated by subdivision (a)(vii) of this Section 7.3 and, if so
directed by the Company, will deliver to the Company all copies, other than
permanent file copies, then in such holder's possession of the prospectus
relating to such Registrable Securities at the time of receipt of such notice
and (b) that it will immediately notify the Company, at any time when a
prospectus relating to the registration of such Registrable Securities is
required to be delivered under the Securities Act, of the happening of any
event as a result of which information previously furnished by such
Participating Holder to the Company in writing for inclusion in such prospectus
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
In the event the Company or any Participating Holder shall give any such
notice, the period referred to in Section 7.3(a)(ii) shall be extended by a
number of days equal to the number of days during the period from and including
the giving of notice pursuant to Section 7.3(a)(vii) to and including the date
when such holder shall have received the copies of the supplemented or amended
prospectus contemplated by Section 7.3(a)(vii).
(d) Nothing in this Agreement to the contrary,
the Company will not be required to file such a registration statement with
respect to, or include in any registration statement, any Registrable
Securities if the Company obtains an opinion (in form and substance
satisfactory to the holder requesting registration) of counsel acceptable to
the holder of such Registrable Securities to the effect that the sale of the
Registrable Securities in the manner contemplated by such holder may be
effected without registration regardless of the identity or status of the
buyer(s) of such Registrable Securities and that such securities are freely
tradeable.
7.4 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration under the Securities Act pursuant to Section 7 hereof of any
Registrable Securities covered by such registration, the Company will, and
hereby does, indemnify and hold harmless the Participating Holders, their
directors and officers, each other person who participates as an underwriter in
the offering or sale of such securities (if so required by such underwriter as
a condition to including the Participating Holders' Registrable Securities in
such registration) and each other person, if any, who controls the
Participating Holders or any such underwriter within the meaning of the
Securities Act, to the fullest extent lawful, from and against any and all
losses, claims, damages, liabilities and expenses (including, without
11
<PAGE> 13
limitation and as incurred, reasonable costs of investigating, preparing or
defending, or if not a party, of responding as a witness or as custodian of
documents or in any manner related thereto, and reasonable attorneys' fees and
expenses incurred in connection therewith), joint or several, to which the
Participating Holders or any such director or officer or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions,
proceedings or investigations, whether commenced or threatened, in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein or any
document incorporated therein by reference, or any amendment or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and the Company will reimburse the Participating Holders and each
such director, officer, underwriter and controlling person for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Participating Holder either
specifically for inclusion therein or which the Company has informed the
Participating Holder will be used for such purposes; provided further that the
Company shall not be liable to any person who participates as an underwriter in
the offering or sale of Registrable Securities or any other person, if any, who
controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such person's failure
to send or give a copy of the final prospectus to the person claiming an
untrue statement or alleged untrue statement or omission or alleged omission
at or prior to the written confirmation of the sale of Registrable Securities
to such person if such statement or omission was corrected in such final
prospectus.
(b) INDEMNIFICATION BY THE PARTICIPATING HOLDERS. The
Company may require, as a condition to including any Registrable Securities of
the Participating Holders in any registration statement filed pursuant to
Section 7, that the Company shall have received an undertaking satisfactory to
it from the Participating Holders to indemnify and hold harmless (in the same
manner and to the same extent as set forth in subdivision (a) of this Section
7.4) the Company, each director of the Company, each officer of the Company and
each other person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by the Participating Holders
either specifically for inclusion therein or which the Company has informed the
Participating Holders will be used for such purposes.
12
<PAGE> 14
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section
7.4, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding subdivisions of this Section 7.4, except to
the extent that the indemnifying party is actually prejudiced by such failure
to give notice. In case any such action is brought against an indemnified
party, unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim, the indemnifying party shall be entitled to participate in and
to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall consent to entry of any judgment or
enter into any settlement without the consent of the indemnified party which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to
that specified in the preceding subdivisions of this Section 7.4 (with
appropriate modifications) shall be given by the Company and the Participating
Holders with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority, other than the Securities Act.
(e) CONTRIBUTION. If the indemnification provided for in
this Section 7.4 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then the indemnifying party, to the extent such
indemnification is unavailable, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions that resulted in
such losses, claims, damages, liabilities or expenses. The relative fault of
such indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding.
13
<PAGE> 15
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7.4(e) were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation (within
the meaning of Section 10(f) of the Securities Act) shall be entitled to
contribution from any person.
If indemnification is available under this Section 7.4, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Sections 7.4(a) and 7.4(b) without regard to the relative fault of
said indemnifying parties or indemnified party or any other equitable
consideration provided for in this Section 7.4(e).
7.5 INCORPORATION OF CERTAIN RIGHTS UNDER SHAREHOLDERS
AGREEMENT. The rights and obligations of the Warrant Holder pursuant to
Articles III, IV, V and VI of the Shareholders Agreement related to "Tag-Along
Rights," "Drag-Along Rights," "Repurchase of Shares by the Company," and "Call
and Put Options" are incorporated in this Agreement as though set forth herein.
SECTION 8. CANCELLATION UPON EARLY PAYMENT OF LOAN. If the Loan
is repaid in full prior to July 5, 1996, the number of shares of Common Stock
purchasable upon exercise of the Warrants shall be reduced by 83,485, as such
number may be adjusted pursuant to the provisions of Section 6.3 of this
Agreement.
SECTION 9. FRACTIONAL INTERESTS. The Company shall not be
required to issue fractional Warrant Shares on the exercise of the Warrants.
If any fraction of a Warrant Share would, except for the provisions of this
Section 9, be issuable on the exercise of the Warrants (or specified portion
thereof), the Company shall issue one full share in lieu of such fractional
share.
SECTION 10. NO RIGHTS TO VOTE OR TO STOCKHOLDER NOTICES FOR
HOLDER. Nothing contained in this Agreement or in the Warrants shall be
construed as conferring upon a Holder or any transferees the right to vote or
to consent to or receive notice as a stockholder in respect of any meeting of
stockholders for the election of directors of the Company or any other matter.
SECTION 11. INSPECTION OF WARRANT AGREEMENT. The Company shall
keep copies of this Agreement and any notices given or received hereunder
available for inspection by a Holder during normal business hours at its
principal office.
SECTION 12. IDENTITY OF TRANSFER AND WARRANT AGENT. Forthwith
upon the appointment of any subsequent transfer agent for the Common Stock or
Warrant Agent, or any other shares of the Company's capital stock issuable upon
the exercise of the Warrants, the Company will notify the Warrant Holders of
the name and address of such subsequent transfer agent.
14
<PAGE> 16
SECTION 13. NOTICES. Any notice pursuant to this Agreement by any
Holder to the Company, shall be in writing and shall be mailed first class,
postage prepaid, or delivered to the Company at its office at 7200 Lockheed
Street, Oakland, California 94621-4504, Attention: Chief Executive Officer,
with a copy to First Equity Development, 3 River Bend Center, Box 4660,
Stamford, Connecticut 06907, attention: Aaron P. Hollander.
Each party hereto may from time to time change the address to
which notices to it are to be delivered or mailed hereunder by notice in
writing to the other party. Any notice mailed pursuant to this Agreement by
the Company or the Warrant Agent to any Holder shall be in writing and shall be
mailed first class, postage prepaid, or delivered to the Holder at his address
on the books of the Warrant Agent.
SECTION 14. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California, without
giving effect to principles of conflict of laws. The parties hereto agree to
submit to the jurisdiction of the Courts of the State of California in any
action or proceeding arising out of or relating to this Agreement.
SECTION 15. SUCCESSORS. All the covenants and provisions of this
Agreement shall bind and inure to the benefit of the parties' respective
successors and assigns hereunder, including transferees of the Warrant Holders.
SECTION 16. MERGER OR CONSOLIDATION OF THE COMPANY. So long as
any Warrant remains outstanding, the Company will not merge or consolidate with
or into, or sell, transfer or lease all or substantially all of its property
to, any other corporation unless the successor or purchasing corporation, as
the case may be (if not the Company), shall expressly assume, by supplemental
agreement, the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Company.
SECTION 17. CAPTIONS. The captions of the Sections of this
Agreement have been inserted for convenience only and shall have no substantive
effect.
SECTION 18. COUNTERPARTS. This Agreement may be executed in any
number of counterparts each of which so executed shall be deemed to be an
original; but such counterparts together shall constitute but one and the same
instrument.
15
<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed as of the day, month and year first above written.
THE COMPANY:
NATIONAL AIRMOTIVE CORPORATION,
a California corporation
By:
--------------------------------
Title:
--------------------------------
THE WARRANT AGENT:
NATIONAL AIRMOTIVE CORPORATION,
a California corporation
By:
--------------------------------
Title:
--------------------------------
THE WARRANT HOLDER:
CANPARTNERS INVESTMENTS III, L.P.,
a California limited partnership,
By: Canyon Capital Management, L.P.
its general partner
By: Canpartners Incorporated,
its general partner
By:
--------------------------------
Title:
--------------------------------
Address:
9665 Wilshire Boulevard, Suite 200
Beverly Hills, California 90212
16
<PAGE> 18
EXHIBIT A
Warrant Certificate
No. [ ] [ ] Shares
COMMON STOCK PURCHASE WARRANT
Void After 5:00 P.M.
Pacific Time on June 1, 2005
THIS CERTIFIES THAT, for value received, [__________________________],
the registered holder of these Common Stock Purchase Warrant (the "Warrant") or
assigns (the "Holder"), is entitled to purchase from National Airmotive
Corporation, a California corporation (the "Company"), at any time until 5:00
p.m. Pacific Time on June 1, 2005 (the "Expiration Date"), at the purchase
price of $0.001 per share (the "Warrant Price"), the number of shares of Common
Stock of the Company (the "Common Stock") which is equal to the number of
Shares set forth above.
This Warrant is issued under and in accordance with a Warrant
Agreement dated as of June 1, 1995, between the Company and the Warrant Holder
and is subject to the terms and provisions contained in the Warrant Agreement,
to all of which the Holder of this Warrant by acceptance hereof consents. A
copy of the Warrant Agreement may be obtained for inspection by the Holder
hereof upon written request to the Company.
This Warrant may be exercised in whole or in part by presentation of
this Warrant with the Purchase Form attached hereto duly executed and
simultaneous payment of the Warrant Price at the principal office of the
Company in Oakland, California. Payment of such price shall be made at the
option of the Holder hereof in cash or by certified or official bank check.
Terms relating to exercise of the Warrant are set forth more fully in the
Warrant Agreement.
A-1
<PAGE> 19
This Warrant may be exercised in whole or in part. Upon partial
exercise, a Warrant Certificate for the unexercised portion shall be delivered
to the Holder. No fractional shares will be issued upon the exercise of this
Warrant but one whole share shall be issued in lieu of any fraction upon the
exercise of the Warrant. This Warrant is transferable as described in this
Warrant Agreement at the office of the Company in Oakland, California, in the
manner and subject to the limitations set forth in the Warrant Agreement.
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR
OTHER DISPOSITION OR PLEDGE OF THESE SECURITIES OR THE SECURITIES
UNDERLYING THESE SECURITIES CAN BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY OR A NO ACTION LETTER OR INTERPRETIVE
OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT."
The Holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company. Any notice to the contrary
notwithstanding, and until such transfer on which books, the Company may treat
the Holder hereof as the owner for all purposes.
A-2
<PAGE> 20
This Warrant shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Company.
NATIONAL AIRMOTIVE CORPORATION
By: /s/ [SIGNATURE]
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
Attest /s/ [SIGNATURE]
-----------------------------
Name:
-----------------------
Title:
-----------------------
DATED: June 1, 1995
A-3
<PAGE> 21
PURCHASE FORM
Mailing Address
- ------------------------------------ ---------------------------------------
- ------------------------------------ ---------------------------------------
- ------------------------------------ ---------------------------------------
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
_______________ shares of the stock provided for therein, and tenders herewith
payment of the purchase price in full in the form of cash or by cashier's check
in the amount of $______________.
The undersigned requests that certificates for such shares be issued
in the name of:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print Name, Address and Social Security No.)
DATED:
-------------------------------
Name of Warrant Holder or Assignee:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature:
---------------------------------------------------------------------
Signature Guaranteed: Note: The above signature must correspond with the
name as written upon the face of this Warrant
Certificate in every particular, without
alteration or enlargement or any change
whatever, unless this Warrant has been assigned.
<PAGE> 1
EXHIBIT 10.7
FIRST AMENDMENT TO
WARRANT AGREEMENT OF
NATIONAL AIRMOTIVE CORPORATION
FIRST AMENDMENT (the "Amendment") dated June 13, 1996 between National
Airmotive Corporation, a California corporation (the "Company"), as issuer and
as Warrant Agent, and Canpartners Investments IV, LLC, a California limited
liability company ("Warrant Holder"), as assignee of Canpartners Investments
III, L.P., a California limited partnership.
PRELIMINARY STATEMENTS:
(1) The Company and Canpartners Investments III, L.P., a California
limited partnership ("Canyon"), entered into the Warrant Agreement dated June 1,
1995 (the "Warrant Agreement"), pursuant to which the Company issued to the
Warrant Holder warrants to purchase 283,849 shares of the Common Stock, $0.01
par value (the "Common Stock"), of the Company at a price of $.35 per share,
with such number of shares and the price per share subject to adjustment as set
forth in the Warrant Agreement. Canyon has assigned its interest in the Warrant
Agreement and the Warrant to the Warrant Holder.
(2) Section 8 of the Warrant Agreement provides for a reduction in the
number of shares of Common Stock purchasable upon exercise of the Warrants if a
loan made to the Company pursuant to a separate Loan and Security Agreement
dated June 1, 1995 (the "Loan Agreement") is paid in full prior to July 5,
1996.
(3) The Loan Agreement is being amended and modified as of the date hereof
and, in conjunction with such amendment and in consideration of the promises
and covenants provided in such amendment, the Company and the Warrant Holder
have agreed to amend the terms of the Warrant Agreement as hereinafter set
forth.
SECTION 1. GENERAL. Capitalized terms used in this Amendment without
definition shall have the meanings prescribed for such terms in the Warrant
Agreement.
SECTION 2. AMENDMENT TO THE WARRANT AGREEMENT. Subject to the satisfaction
of the conditions precedent set forth in Section 3 hereof and effective as of
the date hereof:
(a) The conditions of Section 8 of the Warrant Agreement shall be
and hereby are deemed to have been satisfied and the number of shares of
Common Stock purchasable upon exercise of the Warrants shall be and hereby
are reduced by 83,485 so that a total of 200,364 shares of Common Stock are
purchasable upon exercise of the Warrants, as such number may be adjusted
pursuant to the provisions of Section 6.3 of the Warrant Agreement.
1
<PAGE> 2
(b) Section 1.3 of the Warrant Agreement shall be amended to
include the Chief Operating Officer and the Chief Financial Officer as
officers authorized to execute a Warrant on behalf of the Company and, as
amended, shall read as follows:
"1.3 FORM OF WARRANTS. The text of Warrants and of the form
of election to purchase Warrant Shares (the "Purchase Form") shall
be substantially as set forth in Exhibit A attached hereto. Each
Warrant shall be executed on behalf of the Company by its Chairman
of the Board, its Chief Executive Officer, President, Chief
Operating Officer, Chief Financial Officer or one of its Vice
Presidents, under its corporate seal reproduced thereon, and
attested by its Secretary or an Assistant Secretary.
A Warrant shall be dated as of the date of countersignature
thereof by the Company upon initial issuance."
SECTION 3. CONDITIONS PRECEDENT. Section 2 of this Amendment shall become
effective when, and only when, the Company and the Warrant Holder shall have
executed and delivered this Amendment and all of the following shall have been
received by the Warrant Holder:
(a) An executed copy of the First Amendment to the Loan Agreement,
which shall be in form and substance satisfactory to the Warrant Holder, as
evidenced by the Warrant Holder's execution thereof.
(b) Payment of $1,000,000 in conjunction with the First Amendment
to the Loan Agreement in partial prepayment of the promissory note.
(c) Payment by the Company of all fees and expenses owed to the
Warrant Holder pursuant to the Shareholders Agreement, the Loan Agreement
or the First Amendment to the Loan Agreement.
(d) A copy of a permit issued by the California Department of
Corporations, certified by an officer of the Company, qualifying the
modification of the Loan.
(e) A new Warrant issued to the Warrant Holder for the purchase of
200,364 shares of common stock of the Company, subject to adjustment as
provided in the Warrant Agreement, and the existing Warrant No. 1 is
surrendered to the Company.
2
<PAGE> 3
SECTION 4. REFERENCE TO AND EFFECT ON THE WARRANT AGREEMENT.
(a) Upon the effectiveness of Section 2 of this Amendment, on and
after the date thereof, each reference in the Warrant Agreement to "this
Agreement," "hereunder," "hereof," or words of like import referring to the
Warrant Agreement shall mean and be a reference to the Warrant Agreement as
amended hereby.
(b) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any default or any other right, power or
remedy of the Warrant Holder under the Warrant Agreement nor constitute a
waiver of any provision of the Warrant Agreement, except to the extent
specified in Section 2 above.
SECTION 5. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to principles of conflict of laws. The parties hereto agree to submit to
the jurisdiction of the Courts of the State of California in any action or
proceeding arising out of or relating to this Amendment or the Warrant
Agreement, as amended.
SECTION 6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
SECTION 7. CAPTIONS. The captions of the Sections of this Amendment have
been inserted for convenience only and shall have no substantive effect.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day, month and year first above written.
THE COMPANY:
NATIONAL AIRMOTIVE CORPORATION,
a California Corporation
By:
-----------------------------
Title:
-----------------------------
THE WARRANT AGENT:
NATIONAL AIRMOTIVE CORPORATION,
a California Corporation
By:
-----------------------------
Title:
-----------------------------
THE WARRANT HOLDER:
CANPARTNERS INVESTMENTS IV, LLC
a California limited liability company
By:
-----------------------------
Title:
-----------------------------
Address:
9665 Wilshire Boulevard, Suite 200
Beverly Hills, California 90212
4
<PAGE> 1
EXHIBIT 10.8
SECOND AMENDMENT TO
WARRANT AGREEMENT OF
NATIONAL AIRMOTIVE CORPORATION
SECOND AMENDMENT (the "Amendment") dated December 20, 1996 between
National Airmotive Corporation, a California corporation (the "Company"), First
Aviation Services Inc., a Delaware corporation and sole shareholder of the
Company ("FASI"), and Canpartners Investments IV, LLC, a California limited
liability company ("Warrant Holder").
PRELIMINARY STATEMENTS:
A. The Company and the Warrant Holder are parties to that certain Warrant
Agreement, dated June 1, 1995, as amended by that certain First Amendment to
Warrant Agreement, dated June 13, 1996 (the "Warrant Agreement"). The Company,
FASI and the Warrant Holder desire to amend certain terms and conditions of the
Warrant Agreement.
B. FASI proposes to conduct a firm underwritten public offering of shares
of its Common Stock, par value $.01 per share ("FASI Shares").
C. The Warrant Holder acknowledges that FASI is entitled to conduct a
public offering of its securities without the consent of the Warrant Holder, and
FASI acknowledges that conducting a public offering of its securities will not
affect any rights or agreements the Warrant Holder presently has with respect to
the Company except as specified herein or in written amendments to any such
agreements.
D. If, on or before March 31, 1997, FASI consummates an initial public
offering of FASI Shares pursuant to a registration statement filed in accordance
with the Securities Act of 1933, as amended, that yields $10.0 million or more
in net proceeds (a "Qualified IPO"), the Warrant Holder, the Company and FASI
desire the Warrants to be exercisable for FASI Shares and to be exercised in
full concurrent with consummation of a Qualified IPO.
SECTION 1. GENERAL. Capitalized terms used in this Amendment without
definition shall have the meanings prescribed for such terms in the Warrant
Agreement. This Amendment shall be deemed effective only immediately after the
recapitalization of FASI to replicate at FASI the capital structure of the
Company with FAI Inc. as the sole shareholder of FASI.
SECTION 2. AMENDMENT TO THE WARRANT AGREEMENT. Effective as of the date
hereof:
a. EXERCISE OF THE WARRANTS FOR FASI SHARES. Concurrent with the
consummation of a Qualified IPO by FASI on or before March 31, 1997, the
Warrants shall be deemed exercised in full for 200,364 shares (the "FASI
Shares") of
1
<PAGE> 2
FASI Common Stock and no shares of the Company shall be issued pursuant to
the Warrants. Concurrent with the deemed exercise of the Warrants, the
Warrant Holder shall pay the Warrant Price ($0.35 per share) in full to
FASI. At the election of the Warrant Holder, the exercise price of the
Warrant shall be paid through the reduction of the management fees payable
to Canpartners Investments IV, LLC pursuant to Section 2.3 of the Amended
and Restated Shareholders Agreement upon the occurrence of a Deemed
Exercise Event by an amount equal to the aggregate Warrant Price. Except
for a deemed exercise in connection with the consummation of a Qualified
IPO by FASI on or before March 31, 1997, the Warrants shall not be
exercisable for shares of FASI Common Stock.
The provisions of Section 2.2 and Section 6 of the Warrant
Agreement shall be applicable after the date hereof with respect to the exercise
of the Warrant for FASI Shares and, in each instance, with respect to action by
FASI rather than actions by the Company; provided, however, that a stock
dividend by FASI is not deemed to be a Deemed Exercise Event and in the event of
a stock dividend by FASI the number of Warrant Shares and the Warrant Price
shall be adjusted in the manner provided in Section 6 for stock splits.
b. REGISTRATION RIGHTS. If the Warrants are exercised in accordance
with Section 2(a) of this Amendment, the registration rights set forth in
Sections 7.1 through 7.4 of the Warrant Agreement shall be applicable to
the FASI Shares.
SECTION 3. TERMINATION OF AMENDMENT. This Amendment shall be of no force
or effect and shall terminate if a Qualified IPO is not consummated on or before
March 31, 1997.
SECTION 4. REFERENCE TO AND EFFECT ON THE WARRANT AGREEMENT. Upon and
throughout the effectiveness of this Amendment, each reference in the Warrant
Agreement to "this Agreement," "hereunder," "hereof," or words of like import
referring to the Warrant Agreement shall mean and be a reference to the Warrant
Agreement as amended hereby. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any default or any other right, power
or remedy of the Warrant Holder under the Warrant Agreement nor constitute a
waiver of any provision of the Warrant Agreement, except to the extent specified
in Section 2 above.
SECTION 5. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to principles of conflict of laws. The parties hereto agree to submit to
the jurisdiction of the Courts of the State of California in any action or
proceeding arising out of or relating to this Amendment or the Warrant
Agreement, as amended.
SECTION 6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
SECTION 7. CAPTIONS. The captions of the Sections of this Amendment have
been inserted for convenience only and shall have no substantive effect.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day, month and year first above written.
THE COMPANY AND WARRANT AGENT:
NATIONAL AIRMOTIVE CORPORATION,
a California corporation
By: ________________________________
Name: ________________________________
Title: ________________________________
FASI:
FIRST AVIATION SERVICES INC.
a Delaware corporation
By: ________________________________
Name: ________________________________
Title: ________________________________
THE WARRANT HOLDER:
CANPARTNERS INVESTMENTS IV, LLC
a California limited liability company
By: ________________________________
Name: ________________________________
Title: ________________________________
Address:
9665 Wilshire Boulevard, Suite 200
Beverly Hills, California 90212
3
<PAGE> 1
(c) 1994
EXHIBIT 10.10
ALLISON ENGINE COMPANY, INC.
AUTHORIZED MAINTENANCE CENTER AGREEMENT
AGREEMENT, effective the day of by and between
Allison Engine Company (herein called "Allison") having its principal place of
business at Indianapolis, Indiana and National Airmotive Corporation located at
Oakland, California (herein called "Authorized Maintenance Center").
GENERAL PURPOSE OF AGREEMENT
Allison is in the business of manufacturing and marketing Allison gas turbine
Engines, Modules and Parts.
Allison desires to establish a worldwide network of independently owned and
operated Authorized Maintenance Center(s) operating under agreement(s) with
Allison to support the operation, maintenance and safety of the Products,
Modules and/or Parts.
Authorized Maintenance Center has been selected by Allison among other reasons
on the basis of its (a) business plans for Products, (b) its organizational and
financial structure, (c) its qualifications and willingness to provide Product
support and Maintenance Services, (d) willingness to perform Component Repair,
(e) the qualifications and business abilities of its principal management and
principal owners, and (f) its commitment to use its best efforts to promote the
sale of Modules and Parts through Embodiment. Allison relies upon Authorized
Maintenance Center to provide the required capital, equipment, facilities,
management, and human resources to effectively provide support for Products
through the supply of Maintenance Services.
Authorized Maintenance Center acknowledges that as an independently owned and
operated business, its success and enjoyment of profitable operations will be
determined substantially by how effectively its Business Operations are
conducted and managed in conjunction with development of the overall market for
Products and worldwide economic conditions. Authorized Maintenance Center
acknowledges that its association with Allison and the use of Allison Marks is
beneficial to its current Business Operations.
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The purpose of this Agreement is to appoint an Allison Authorized Maintenance
Center subject to the terms and conditions hereof.
This Agreement sets forth the rights and responsibilities of both Allison and
Authorized Maintenance Center with regard to maintenance and support of
Products, the sale of Products, Modules and Parts, and the circumstances in
which the Agreement will be continued or terminated.
Accordingly, Allison and Authorized Maintenance Center hereby agree as follows:
FIRST: RIGHTS GRANTED BY ALLISON
In reliance upon Authorized Maintenance Center satisfactorily performing the
responsibilities it assumes hereunder, Allison grants Authorized Maintenance
Center:
(1) a non-exclusive right to identify itself as an Authorized Maintenance
Center and to conduct Business Operations (as hereinafter defined) at a
Primary Premise, Branch Location(s) and Marketing Office(s) identified
in the Primary Premise, Branch Location(s) and Marketing Office(s)
Statement;
(2) a non-exclusive right to acquire from Allison, or its designated sources,
the Items identified in the Products Statement and/or the Modules and
Parts Statement or any other material as detailed in this Agreement for
use through Embodiment in a Maintenance Service/Component Repair or for
resale in an Over-the-Counter function.
Allison expressly reserves the right to contract with third parties for the
sale or resale of any material identified in the Modules and Parts Statement
and Products Statement or any other material. Allison also expressly reserves
the right to appoint other Authorized Maintenance Centers as necessary.
SECOND: RESPONSIBILITIES ASSUMED BY AUTHORIZED MAINTENANCE CENTER
Authorized Maintenance Center accepts and assumes the responsibilities
identified by this Agreement, including responsibility to:
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(1) establish and maintain satisfactory Maintenance Services capabilities at
the locations identified in the Authorized Maintenance Center Primary
Premise, Branch Location(s) and Marketing Office(s) Statement;
(2) provide complete Maintenance Services, certain Field Services and Book
Repairs on Items directly for Customers operating in the Region of
Responsibility and Original Equipment Manufacturers located in the
Region of Responsibility, regardless of where the Items were purchased;
(3) actively and effectively market and promote the purchase and encourage
proper use (consistent with Allison Manuals) of Items by Customers in
the Region of Responsibility, consistent with the Products Statement,
the Modules and Parts Statement and this Agreement;
(4) properly perform all obligations of Authorized Maintenance Center under
this Agreement; and
(5) procure, utilize and promote only Allison Authorized Items and Component
Repairs in fulfilling Maintenance Service obligations as contemplated
under this Agreement.
THIRD: ORGANIZATION
Allison, by entering into this Agreement, has acted in substantial reliance
upon:
(1) Authorized Maintenance Center's representations to Allison in respect of
its business plan(s) as outlined in their proposals as submitted to
Allison for the Allison Products, Modules & Parts, its organization and
financial structure, and its qualifications and willingness to fulfill
the responsibilities assumed by Authorized Maintenance Center under
Paragraph SECOND above; and
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(2) the personal qualifications and business abilities of Authorized
Maintenance Center's principal management (officers, directors, senior
managers and Allison Product program managers) who are responsible for
determining and implementing Authorized Maintenance Center's business
plan(s) and principal owners who are designated by Authorized
Maintenance Center in the Authorized Maintenance Center Statement of
Management and Ownership furnished by Authorized Maintenance Center to
Allison and accepted by Allison by its endorsement thereon.
FOURTH: CHANGES IN MANAGEMENT AND OWNERSHIP
(1) Any ownership change which alters the controlling interest of the
Authorized Maintenance Center as set forth in the Authorized Maintenance
Center Statement of Management and Ownership (or its accepted revision),
or any sale, in whole or in part, of Authorized Maintenance Center's
Primary Premise or Branch Location(s) and/or Product related assets to a
party that wishes to become an Authorized Maintenance Center requires
the prior written approval and acceptance of Allison. If any such
ownership change or sale is contemplated, Authorized Maintenance Center
will provide Allison prior written notice subject to applicable laws in
the form requested and in a timely manner, together with all applicable
information requested by Allison to evaluate the proposed ownership
change or sale.
(2) Allison agrees to review factors requested by Authorized Maintenance
Center to be considered and to base its analysis and final decision(s)
on whether the proposed change(s) is likely to result in successful
Business Operation(s) meeting or exceeding the responsibilities outlined
in this Agreement, including but not limited to, satisfactory facilities
and equipment at the approved Primary Premise and Branch Location(s) and
whether controlling ownership is acceptable to Allison as an
organization which will effectively fulfill the responsibilities assumed
by Authorized Maintenance Center under paragraph SECOND.
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(3) Upon written acceptance by Allison of a proposed ownership change, a new
Authorized Maintenance Center Statement of Management and Ownership
reflecting all changes will replace the original statement in its
entirety and will become an attachment to this Agreement, or, at
Allison's option, a new agreement may be executed. Any ownership change
made without the prior acknowledgment and written approval and
acceptance by Allison that is substantially determined to be
unacceptable by Allison may be cause for termination of this Agreement
by Allison per the terms and conditions of this Agreement.
(4) Authorized Maintenance Center will notify Allison of any executive
management change relative to any officer, director, senior manager or
Product program manager(s) directly relating to the Business Operations,
the Primary Premise or Branch Location(s).
(5) Any change in ownership or principal management relied upon by Allison,
under paragraph THIRD, in entering into this Agreement will constitute
sufficient basis for disapproving such change.
FIFTH: TECHNICAL FEE
Authorized Maintenance Center agrees to pay to Allison at such time this
Agreement becomes effective, a technical fee in accordance with the payment
term and schedule referenced in the application For Appointment Statement for
each applicable Product.
SIXTH: AGREEMENT TRANSFER, ASSIGNMENT, DELEGATION OR SALE
(1) Neither this Agreement, nor any right or responsibility under this
Agreement may be transferred, assigned, delegated or sold (as detailed
in FOURTH above) by Authorized Maintenance Center without the prior
written approval of Allison. Such approval shall not be unreasonably
withheld provided the entire Agreement and its provisions are assumed
and accepted in writing by the transferee, assignee, delegate or
purchaser and provided that such change in the sole judgment of Allison
is likely to result in successful Business Operations. Such transfer,
assignment, delegation or sale will result in this Agreement being
modified or replaced by another agreement between Allison and the
specific party.
(2) Authorized Maintenance Center may not appoint any Second Level Entity or
any Entity as an Authorized source of Maintenance Services or
Over-the-Counter sales of Allison Items on behalf of Allison or the
Authorized Maintenance Center.
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(3) Allison may assign this Agreement to a parent company, subsidiary,
affiliate, or successor in interest which undertakes the manufacture
and/or sale of Items and/or the performance of this Agreement with
respect to the Items.
SEVENTH: ADDITIONAL PROVISIONS
The provisions set forth in the following "Additional Provisions Applicable to
Authorized Maintenance Center Agreement" are hereby incorporated as a part of
this Agreement.
EIGHTH: TERM
Unless sooner terminated pursuant to a provision(s) of this Agreement, this
Agreement will automatically terminate without notice or action by either party
on 31 December 1997. Opportunity for renewal is strictly contingent upon the
Authorized Maintenance Center's adherence to the terms and conditions of this
Agreement and Authorized Maintenance Center's ability and desire to continue
through a renewal period. To qualifying Authorized Maintenance Centers, three
(3) year renewal periods of an agreement substantially like the Agreement will
be available at a renewal fee of only one (1) U.S. dollar at the time of
renewal. At the time of renewal, Authorized Maintenance Center and Allison
both agree to execute a mutual general release of any and all claims against
each other and their respective affiliates existent, anticipated or planned for
as a result of performances under the Agreement subject to renewal.
NINTH: WAIVER
The failure of Allison to enforce any provision of this Agreement, or to
exercise any option which may be provided, or to require or fail to require at
any time strict performance by the Authorized Maintenance Center of any
provision of this Agreement, shall in no way affect the validity or act as a
waiver of this Agreement, or any part, or the right of Allison thereafter to
enforce any agreement provision allowable retroactively.
TENTH: LIMITATION OF DAMAGES
The Parties agree that the maximum damages available to the Authorized
Maintenance Center in connection with any claim, controversy or breach related
to, or arising out of, this Agreement shall be limited as follows:
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Authorized Maintenance Center shall be limited to an award of economic
damages not to exceed the Technical Fee paid by the Authorized
Maintenance Center. In the event damages are associated with only one
Product application (aircraft or industrial), then an award of
economic damages shall be limited to Authorized Maintenance Center's
proportion of revenues, expressed as a percent, for the past two (2)
years, or the aggregate year(s) to date if less than two (2) years,
multiplied by the Technical Fee paid by the Authorized Maintenance
Center for the respective product. This clause is not applicable to
the Allison 250 Engine series.
Authorized Maintenance Center and Allison irrevocably waive trial by jury in
any action, proceeding, or counterclaim, whether at law or in equity, brought
by either of them against the other, whether or not there are other parties in
such action or proceeding under this Agreement. If either party fails to
notify the other in writing within one (1) year from the occurrence of any
default or circumstance giving rise to any claim relating to this Agreement,
the relationship of the Authorized Maintenance Center and Allison, Authorized
Maintenance Center's Business Operations, or any Product, Module and/or Part
and any and all claims related to such default or circumstance shall be barred.
Allison and the Authorized Maintenance Center hereby waive to the fullest
extent permitted by law any right to or claim of any punitive or exemplary
damages against the other and agree that in the event of a dispute between
them, each shall be limited to the recovery of any actual damages sustained by
such party, subject to the limitations outlined in the Agreement.
Nothing herein shall bar Allison's right to obtain injunctive relief against
threatened conduct that will cause Allison loss or damage under this Agreement.
Such relief includes all rights under the usual equity rules, including the
applicable rules for obtaining specific performance, restraining orders, and
preliminary injunctions.
Each party shall pay its own costs and expenses, including all court costs and
attorney's fees, incurred by it with respect to enforcing or defending against
any claim or default or the enforcement of any provision of this Agreement,
including but not limited to, the obtaining of injunctive or other equitable
relief.
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Authorized Maintenance Center hereby submits to the jurisdiction of any state
or federal court within the state of Indiana and waives any jurisdiction over
its person. Authorized Maintenance Center waives any objection to such courts
based on forum non conveniens (which generally permits a court to decline
jurisdiction if it appears that an action may be handled more expeditiously
and/or with greater convenience to the parties in another jurisdiction) or
Section 1404(a) of Title 28 United States Code and any objection to venue of
any action instituted in connection with this Agreement.
ELEVENTH: EXECUTION ON BEHALF OF ALLISON AND AUTHORIZED MAINTENANCE CENTER
Neither this Agreement, the Additional Provisions, the Statements or any
related agreement or addendum will be valid unless:
(1) It is signed on behalf of Authorized Maintenance Center by its duly
authorized representative(s).
(2) It is signed on behalf of Allison by its duly Authorized
representative(s).
The parties hereto have executed this Agreement in duplicate to be effective as
of the day and year first above written.
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ALLISON ENGINE COMPANY, INC. NATIONAL AIRMOTIVE CORPORATION
AUTHORIZED MAINTENANCE CENTER
BY JAMES F. LEACH BY Gerry Roberts
-------------------------------- -------------------------------
(Signature) (Signature)
James F. Leach Gerry Roberts
Vice President, Customer Support President
-------------------------------- -------------------------
(Typed Name and Title) (Typed Name and Title)
Date 30 September 1994 Date 14 November 1994
Witnesses
By NORMAN D. BRITTON By RON GARTENSCHLAEGER
-------------------------------- -------------------------------
(Signature) (Signature)
Norman D. Britton, Manager Ron Gartenschlaeger
T56/501 Authorized Maintenance Director Lg. Engine Sales &
Center Administration Business Development
- ---------------------------------- --------------------------
(Typed Name and Title) (Typed Name and Title)
Date 30 September 1994 Date 14 November 1994
----------------- ---------------------
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ALLISON ENGINE COMPANY, INC.
ADDITIONAL PROVISIONS APPLICABLE TO
AUTHORIZED MAINTENANCE CENTER AGREEMENT
TABLE OF CONTENTS
Article 1. Definitions
Article 2. Region of Responsibility
2.1 Authorized Maintenance Center Primary Premise, Branch
Location(s) and Marketing Office(s) Overview
2.2 Authorized Maintenance Center's Responsibilities
2.3 Changes in Authorized Maintenance Center Primary Premise,
Branch Location(s), Marketing Office(s) or Business
Operation(s)
2.4 Field Service Outside Region of Responsibility
Article 3. Facilities, Equipment and Capital Requirements
3.1 Overview
3.2 Facility Requirements
3.2.1 Primary Premise
3.2.2 Branch Location(s)
3.2.3 Marketing Office(s)
3.3 Capital Requirements
3.4 Equipment and Capabilities
3.5 Ground Support Equipment (GSE)
3.6 Test Equipment Stands and Adapters
3.7 Multi-Engine Facilities
3.8 Lease and Rental Assets
3.9 Remanufactured Engines/Modules
3.10 Right to Purchase Displaced Products
Article 4. Allison Responsibilities
4.1 Overview
4.2 Products, Modules and Parts Available to Authorized
Maintenance Center
4.2.1 Authorized Maintenance Center's Orders for Products,
Modules and Parts
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4.2.2 Excusable Delay or Failure to Fill Orders or Accept
Shipment
4.2.3 Changes in or Discontinuance of Products, Modules
and Parts
4.3 Component Repair
4.4 Technical and Engineering Assistance
4.5 Advertising Programs and Marketing/Promotion Materials
4.6 Evaluation of Authorized Maintenance Center Business
Operation(s)
Article 5. Authorized Maintenance Center Responsibilities
5.1 Overview
5.2 Maintenance Philosophy
5.3 Service of Products, Modules and Parts
5.4 Repair of Products and Modules
5.5 Overhaul of Products and Modules
5.6 Authorized Maintenance Center Locations
5.7 Customer Support Responsibility
5.8 Customer Support Standards
5.9 Modules and Parts
5.10 Component Repair
5.11 Administration
5.11.1 Sales Promotion Standards
5.11.2 Charges for Rework
5.11.3 Marketing and Sales Organizations
5.11.4 Maintenance Services Organization
5.11.5 Invoicing
5.11.6 Customer Support Performance Requirements
5.11.6.1 Adjustments-Warranty, Policy,
Campaign and Special Programs
5.11.6.2 Maintenance Service
5.11.6.3 Overhaul Service
5.11.6.4 Rework of Parts
5.11.6.5 Unit Exchange Program
5.11.6.6 Field Service
5.11.7 Customer Technical Assistance
5.11.8 Customer Complaints
5.11.9 Records
5.11.9.1 Customer Records
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5.11.9.2 Quarterly Summary Reports
5.11.9.3 Warranty(ies) Records
5.11.9.4 Training
5.11.9.5 Examination of Accounts and Records
5.11.9.6 Confidentiality of Authorized
Maintenance Center's Accounts,
Records or Data
5.11.9.7 Record Copies
5.12 Warranty(ies), Policy, Campaigns, Special Programs and OCP/SPP
5.13 Market and Sales Forecast/Usage
5.14 Relationships with Original Equipment Manufacturers
5.15 Disposition of Products, Modules and Parts Cores
5.16 Training
5.17 Financial Information
5.18 Traceability
5.18.1 Overview
5.18.2 Information to be Traced
5.18.3 Reporting
5.18.4 Information Timing
5.18.5 New Modules and Parts
5.19 Marketing and Sales
5.20 Establishment of Additional Authorized Maintenance Center
Branch Location(s) as Directed by Allison
5.21 Business Operations Hours of Availability
5.22 Identification of Authorized Maintenance Center
5.23 Modules and Parts Use and Representation
5.24 Lease and/or Rental Assets
Article 6. General Provisions
6.1 Responsibility for Authorized Maintenance Center's Commitments
6.2 Manuals, Bulletins and Technical Data
6.3 Engineering and Ground Support Equipment Drawings
6.4 Applicable Law, Jurisdiction and Construction
6.5 Authorized Maintenance Center is Not Agent or Legal
Representative
6.6 Compliance with Government Regulations
6.7 Notices
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6.8 No Implied Waivers
6.9 Confidentiality of Agreement
6.10 Indemnity and Insurance
6.10.1 Indemnification by Allison
6.10.2 Indemnification by Authorized Maintenance Center
6.10.3 Product Liability
6.10.4 Insurance Coverage
Article 7. Warranty(ies) on Products, Modules and Parts
7.1 Overview
7.2 OCP/SPP Description
7.2 OCP/SPP Coverage Summary
Article 8. Inventory of Products, Modules and Parts
8.1 Inventory Levels
8.2 Inventory Planning and Provisioning
8.3 Inventory Scheduling
8.4 Buffer and Safety Stock
8.5 Lead Times
8.6 Consumption Usage Data
8.7 Additional Information
Article 9. Component Repair
9.1 Overview
9.1.1 Approach
9.1.2 General Issues
9.2 Grandfather Component Repairs
9.3 Technical Coordination and Support
9.3.1 Candidate Part Selection
9.3.2 Classification and Prioritization
9.3.3 Repair Concept Approval
9.3.4 Proprietary Data
9.4 Administrative Coordination and Support
9.4.1 Repair Program Coordination
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9.4.2 Program Funding Allocation
9.4.3 Publication of Processes
9.5 Development and Qualification
9.5.1 Book Repairs
9.5.2 Request for Qualification
9.5.3 Development Plan
9.5.4 Qualification Requirements
9.5.5 Resource Obligations
9.6 Repair Source Administration
9.6.1 Repair Source Selection
9.6.2 Repair Source Control
9.6.3 Multiple Repair Sources
9.6.4 Third Party Sources
9.6.5 Source Inspection of Repairs
9.6.6 Tooling and Equipment
9.7 Quality Assurance
9.7.1 General Requirements
9.7.2 Process/Procedure Control
9.7.3 Quality Audits
9.7.4 Traceability
9.8 Supply and Inventory Control
9.8.1 Core Control
9.8.2 Repaired Part Supply/Sales/Distribution
9.8.3 Repair Material
Article 10. Prices, Payment Other Terms of Sale
10.1 Overview
10.2 New or Repaired Modules or Parts
10.3 New Products
10.4 Shipments of Modules and Parts
10.5 Shipments of Products
10.6 Authorized Maintenance Center Reimbursement
10.7 Core Credit
10.8 Exchange Credit
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10.9 Promotional Price Discount
10.10 Accounts Payable
10.11 Prepayment of Logistics Services
10.12 Late Payment Charge
10.13 Invoices
Article 11. Taxes
Article 12. Trademarks and Service Marks
12.1 Ownership
12.2 Display of Marks by Authorized Maintenance Center
12.3 Discontinuance of Use Upon Termination
12.4 Mark Registration by Authorized Maintenance Center
12.5 Liability for Failure to Discontinue Use
Article 13. Termination of Agreement
13.1 Transactions After Termination
13.1.1 Termination Deliveries
13.1.2 Effect of Transactions after Termination
13.1.3 Allison's Option to Purchase
13.2 Termination by Authorized Maintenance Center
13.3 Termination by Mutual Agreement
13.4 Termination for Nonperformance
13.5 Termination Due to Certain Acts or Events
13.6 Termination for Failure to be Licensed
13.7 Termination by Government Action
13.8 Responsibilities of Authorized Maintenance Center
13.9 Payment by Allison Upon Termination of Authorized Maintenance
Center
13.10 Construction of Termination Provisions
13.11 Effect of Termination
Article 14. Order of Precedence Article
Article 15. Sole Agreement of Parties
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ALLISON ENGINE COMPANY, INC.
ADDITIONAL PROVISIONS APPLICABLE TO
AUTHORIZED MAINTENANCE CENTER AGREEMENT
ARTICLE 1. DEFINITIONS
1.1 ACCOUNT REPRESENTATIVE
The individual assigned by the Parts Distribution Center who is an
Allison Employee and serves as the focal point for all Module and Part
related issues.
1.2 AGREEMENT
The Authorized Maintenance Center Agreement, including the principle
Agreement that is executed by Authorized Maintenance Center and
Allison, the Policy Manual, the Additional Provisions, the Statements
and all related agreements and addenda as referenced in this
Agreement.
1.3 ALLISON
Allison Engine Company, Inc., also known as Allison Engine Company.
1.4 ALLISON RESIDENT MANAGER
An Allison employee, who may be assigned at the Authorized Maintenance
Center's Primary Premise, whose functions may include coordination,
Warranty(ies) review and administration, and overall support of the
Maintenance Services being provided by the Authorized Maintenance
Center on the Items.
1.5 APPLICATION FOR ADJUSTMENT (AFA)
A serialized, preprinted form to be utilized by the Authorized
Maintenance Center to submit specific information to Allison in
support of a Claim for a particular Customer, or for the Authorized
Maintenance Center directly. Where compatible and available, the AFA
or an equivalent document may be obtained and submitted electronically
through the EDI system.
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1.6 AUTHORIZED/AUTHORIZATION
When used in conjunction with another defined or undefined word or
phase, Authorized denotes approval in writing by Allison.
Authorization indicates Allison has Authorized the activity.
1.7 AUTHORIZED MAINTENANCE CENTER
An independently owned and operated business entity which has been
selected and is signatory to this Agreement.
1.8 AUTHORIZED MAINTENANCE CENTER ADMINISTRATOR
Allison employee(s) who will assist in administration of this
Agreement, Authorized Maintenance Center Policy Manual and provide
assistance to the Authorized Maintenance Center network.
1.9 AUTHORIZED MAINTENANCE CENTER POLICY MANUAL (POLICY MANUAL)
The manual identified throughout this Agreement, furnished and owned
by Allison and provided to the Authorized Maintenance Center under the
terms of this Agreement. The Policy Manual may be modified from time
to time by Allison. It sets forth the policies and procedures that
shall be observed by Allison, the designated Product, Module, Part
source(s) and the Authorized Maintenance Center in matters relating
to: facilities, equipment requirements, processes, Maintenance
Services, Component Repair, distribution, marketing, sales,
administration of Items, and the treatment of Customers utilizing the
Items.
1.10 AUTHORIZED MAINTENANCE CENTER PRIMARY PREMISE, BRANCH LOCATION(S), AND
MARKETING OFFICE(S) STATEMENT
An Agreement attachment identifying the specific facilities and
geographic location(s) (including country listing) of the Authorized
Maintenance Center's Business Operations, which has been approved by
Allison and includes the Authorized Maintenance Center's Primary
Premise, Branch Location(s) and Marketing Office(s).
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1.11 BOOK REPAIR
Repair of a Candidate Part, where the Repair Process is usually within
the normal capabilities of the industry(ies) operating within the
Service, Repair or Overhaul business areas. Examples are detailed in
the Policy Manual. Book Repairs will be approved by Allison and are
generally consistent with the Component Repair Plan.
1.12 BRANCH LOCATION(S)
A facility, including equipment and tooling, owned in whole or in part
by the Authorized Maintenance Center which performs all or part of the
Business Operations and is Authorized to operate within a specific
Region of Responsibility. Such a facility must display Authorized
Maintenance Center signage and Marks indicating it is Authorized.
1.13 BULLETINS
Notices issued by Allison to Customers and Authorized Maintenance
Centers pertaining to Module(s) or Part(s) issues, procedural changes,
Field Service issues, interchangeability, modifications, process
changes, Ground Support Equipment requirements and other Product
information.
1.14 BUSINESS OPERATIONS
The Maintenance Services, Component Repair, Embodiment of Modules or
Parts, sub functions, responsibilities, operations, administration and
other business activities that are contemplated by this Agreement,
including certain Field Service functions and any optional activities
undertaken by the Authorized Maintenance Center, provided all such
activities are not in conflict with this Agreement.
1.15 CAMPAIGN
An Allison initiated corrective action on the Product implemented at
Allison's direction which may or may not be implemented by the
Authorized Maintenance Center.
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1.16 CANDIDATE PART
A Part which has been identified as Non-Serviceable which may benefit
from the application of a Repair Process. Some Candidate Parts may be
designated as "Restricted." Restricted Candidate Parts generally
include designated gas path Parts (blades, vanes, nozzles, stators),
combustion liners, fuel nozzles and integrally designated wheel/blade
components.
1.17 CLAIM
A request for consideration of Credit for work performed, Module(s) or
Part(s) Embodied, or non-conforming Module(s) or Part(s) received,
applied for through the use of an AFA and submitted to Allison by the
Authorized Maintenance Center. A Claim may be made on behalf of the
Customer or directly for the benefit of the Authorized Maintenance
Center.
1.18 CLASSIFICATION
The activity by which a Repair concept is categorized based on its
inherent complexity, technical content, and process critically. The
two (2) primary Classification categories are Book and Critical.
1.19 COMMERCIAL ENGINE BULLETIN (CEB)
Documents issued by Allison to notify Customers and Authorized
Maintenance Centers of:
1. Modifications to the Engine which affect performance, improve
reliability, increase safety, provide economy and/or
facilitate maintenance operation;
2. Substitution of one Part with another superseding Part only
when it is not completely interchangeable both functionally
and physically, or when the change is sufficiently urgent or
critical that special scheduling or record of accomplishment
is required;
3. Substitution of one imbedded software program by another
which changes equipment function and Part number of the
programmed memory device, requiring a record of
accomplishment;
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4. Special inspections/checks required to maintain the Engine or
accessories in safe operating condition;
5. Reduction or extensions of existing Parts' life limits or
establishment of first time Part's life limits; and
6. Engine conversion(s) instructions.
1.20 COMPONENT REPAIR
The application of a Repair Process to a Candidate Part to reestablish
its Serviceable status, as controlled by the CRP. A Component Repair
can be classified as either a Critical Repair or Book Repair.
Sub-detail pieces of the Candidate Parts are typically used in the
Repair Process. The necessary Quality of Component Repairs and
associated workmanship is characteristically not present at Customer
facilities, but is usually available at facilities as contemplated by
the Authorized Maintenance Center.
1.21 COMPONENT REPAIR COMMITTEE (CRC)
The committee organized to develop and coordinate the CRP. The CRC
will be chaired by Allison, and representatives from the Authorized
Maintenance Center network may participate.
1.22 COMPONENT REPAIR PLAN (CRP)
A comprehensive master document which outlines the Component Repair
related activities, specific goals/objectives and provides the
overall framework on how Component Repairs will be coordinated for
the Product. The CRP will be updated as required to meet the
changing market, Customer and Product requirements. Individual Part
CRPs may be generated for the individual Parts as required, and would
be consistent with the master CRP. The CRP will be developed by
Allison generally in conjunction with the Authorized Maintenance
Center.
1.23 COMPONENT REPAIR PROGRAM COORDINATOR
An Allison employee who is designated as the lead individual for
identification of Component Repair opportunities for Candidate Parts
as defined within the CRP. The Component Repair Program Coordinator
is the chairperson of the CRP.
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1.24 CORE
Any Non-Serviceable Item which may be considered a Candidate Part and
may be subject to Component Repair through an Authorized Repair
Process at an Authorized Repair Source. Certain Cores policy may be
identified in the relevant controlling documents, e.g., OCP/SPP
agreement.
1.25 CORE CREDIT
A monetary value assigned to a Core which may be Credited to the Owner
or Operator upon Core delivery to Allison, the Authorized Maintenance
Center, or to an entity designated by Allison. Core Credit will be
established by Allison, consistent with the CRP and Candidate Part and
in certain instances, Core Credit may be adjusted to address the
potential Cores' inventory costs.
1.26 CREDIT
A monetary adjustment to an account or an exchange of Module(s) or
Part(s). Credits could exist between Allison and the Customer,
Allison and the Authorized Maintenance Center, an entity designated by
Allison and the Authorized Maintenance Center or the Authorized
Maintenance Center and a Customer.
1.27 CREDIT MEMORANDUM
A document issued by Allison identifying the final position of Allison
on any Credit with regard to a specific Claim.
1.28 CRITICAL REPAIR
A Component Repair of a Candidate Part where the Repair Process alone,
or in conjunction with the Candidate Parts' characteristics, requires
a high level of technical capability and engineering control to ensure
reliability and/or safety. Also, a Critical Repair exists when
process related aspects are beyond normal industry standards in the
area of capability, technology, cost, or Quality assurance.
1.29 CUSTOMER
An Operator or Owner of Item(s). An OEM may also be a Customer.
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1.30 DATA REPORT
Reports submitted electronically, if available, by an Authorized
Maintenance Center, Customer and/or Allison employee. A Data Report
is required each time an Engine, Module or Part is removed, installed
or involved in an event. Data Reports, including teardown/disposition
reports and build-up reports, are to be provided to Allison every
thirty days, or as detailed specifically in the Agreement
1.31 DEVELOPMENT PLAN
The planned approach(es) and/or activity(ies) involved in
demonstrating and implementing a particular Repair Process(es) for a
particular Candidate Part.
1.32 DIRECT MAINTENANCE COST (DMC), DIRECT OPERATING COST (DOC)
The cost of operation and/or Maintenance of the Product as defined
within the applicable Allison document(s).
1.33 ELECTRONIC DATA INTERCHANGE (EDI)
The electronic network established by Allison to facilitate electronic
communication by and among the Product, Module and Part sources,
Authorized Maintenance Centers, Allison and the Customers. EDI may
encompass certain proprietary systems and templates currently in use
or as developed by Allison. The Policy Manual further defines the
applicable standards.
1.34 EMBODIED MODULES OR PARTS (EMBODY/EMBODIMENT)
Those Authorized Modules or Parts included in the Maintenance Service
functions or Component Repair functions performed by the Authorized
Maintenance Center.
1.35 ENGINE
An Engine may be referred to as the Product. The specific Engine(s)
applicable to this Agreement are defined in the Product Statement(s)
attached to this Agreement.
1.36 EVENTS
Repair, Service or Overhaul requirements as identified by a specific
Product based on Customer input, Product reliability , Module and/or
Parts usage/scrap rates, operating profiles and other indicators. The
Events will be used as an inventory planning element by Allison and
the Authorized Maintenance Center. Events data is supplied to Allison
by the Authorized Maintenance Center.
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1.37 EVENT KITS
An Authorized Maintenance Center's listing of Modules and Parts
which, in total, represent the average mix of Authorized material to
satisfy 75-85% of the requirement for the particular Event. Event
Kits are specific to both the Authorized Maintenance Center and the
Product and their content will be adjusted to compensate for
reliability, Component Repairs and other such changes. Event Kit
information is supplied to Allison by the Authorized Maintenance
Center.
1.38 EXCHANGE CREDIT
A value assigned to a Candidate Part, Core or LRU when submitted in
conjunction with the purchase of a like or similar new or Repaired
Part. An Exchange Credit may or may not be the same as a Core Credit.
1.39 EXCESS MODULES AND PARTS
Modules and Parts inventory, as purchased directly from Allison or
it's designee, which is excess to the Authorized Maintenance Centers'
needs and as further detailed in the Agreement and Policy Manual
1.40 FEDERAL AVIATION ADMINISTRATION (FAA) DIRECTIVES
Specific directives issued by the FAA pertaining to the operation,
safety, maintenance, Service, Repair or use of Items.
1.41 FIELD SERVICE
Service or Repair functions including Embodiment of Modules or Parts,
performed by an Authorized Maintenance Center outside the Primary
Premise and/or Branch Location(s). Authorized Maintenance Center
supplied Field Service may be a direct result of: (1) Customer
request, (2) Warranty or OCP/SPP obligations, (3) Authorized
Maintenance Center/Customer contract requirement or 4) correct a
defect in material or workmanship.
1.42 GRANDFATHER COMPONENT REPAIR
Component Repairs, which are utilized by the Authorized Maintenance
Center at the time of the Agreement signing and which may differ from
and are beyond the scope of Allison's published maintenance
documentation.
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1.43 GROUND SUPPORT EQUIPMENT (GSE)
Test equipment and tools designed, developed and distributed by or for
Allison for use on Items.
1.44 INSPECTION SYSTEM
An established inspection approach where specific procedures and
policies meet or exceed Allison's requirements.
1.45 ITEM(S)
Authorized Products, Modules and/or Parts purchased from Allison or a
source designated by Allison.
1.46 LINE REPLACEMENT UNITS (LRUs)
Accessories, Module(s) and Part(s) which can be readily changed on the
Product during line maintenance operations.
1.47 LOGISTICS COMPANY
An independent entity contracted by Allison to perform Item logistic
functions including, but not limited to, transportation, customs,
document tracking and Customer delivery.
1.48 MAINTENANCE SERVICES
Those actions required for restoring or maintaining an Item(s) in
Serviceable condition, including the Service, Repair, Overhaul,
inspection, determination of condition and Authorized testing
functions as performed by the Authorized Maintenance Center per the
established Quality system at the Primary Premise and Branch
Location(s).
1.49 MANUALS
Technical documents prepared and distributed by Allison. Select
Manuals may be owned by Allison and provided to the Authorized
Maintenance Center per the terms and conditions of this Agreement or a
separate bailment agreement. The Manual, Catalog and Price List, an
attachment to this Agreement, identifies the Manuals available to the
Authorized Maintenance Center.
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1.50 MARKETING OFFICES(S)
Office(s) approved by Allison in which the Authorized Maintenance
Center markets the Maintenance Services and Embodiment functions
available from its Primary Premise and Branch Location(s) to Customers
worldwide. Marketing Offices are generally located outside the
assigned Region of Responsibility, and may not perform Business
Operation(s) other than the marketing of their services.
1.51 MARKS
The various trademarks, service marks, names and designs owned by
Allison or its affiliated companies which may be used by the
Authorized Maintenance Center per the terms and conditions of this
Agreement. These Marks represent the goodwill and established
reputation of Allison and are only offered by Allison to a select set
of independent companies who undertake to perform the Authorized
functions as contemplated by this Agreement.
1.52 MODULE(S)
A combination of new, used or Overhauled assemblies, subassemblies and
Parts, contained in one package, or so arranged as to be installed
during a Maintenance Service action. Any level of hardware assembly,
i.e., Module, Part or system, marketed by Allison in connection with
Products and Parts. Modules are identified within the applicable
Module and Parts Statement(s).
1.53 MODULES AND PARTS STATEMENT(S)
The Agreement attachment which identifies the Authorized Modules,
Parts and Ground Support Equipment that may be purchased from Allison
by the Authorized Maintenance Center pursuant to the terms and
conditions of this Agreement and/or Terms of Sales Statement(s). The
Statement(s) may be amended from time to time.
1.54 NON-AUTHORIZED
Non-Authorized or Unauthorized when used in conjunction with third
party, Repair Source, Maintenance Service, Item, Embodiment, Part,
Module, Product or any other defined or undefined word or term,
denotes the subject referenced is not approved by Allison and is
neither compliant with, nor approved under, this Agreement.
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1.55 NON-SERVICEABLE
An Item which, in its current condition, does not meet Allison's
specifications and may not be used in a Maintenance Services function.
1.56 OBSOLETE PART(S)
Parts purchased from Allison which remain in the Authorized
Maintenance Center's inventory and can no longer be used in any
application due to supersedure resulting from a must conform Bulletin
change. Superseded Parts which can be reworked into a Serviceable
Part are not considered Obsolete Parts.
1.57 ON-CONDITION
A primary maintenance process and philosophy employing repetitive
inspection(s) and/or test(s) to determine the Serviceable status of
the Items or portions thereof (corrective action is taken when
required by Item condition).
1.58 OPEN AREA
A geographic region and associated countries where the Authorized
rights for Maintenance Services, Component Repair, and associated
placement of an Authorized Maintenance Center has not been fulfilled
at the time of execution of this Agreement.
1.59 OPERATING COST PROGRAM (OCP) or SERVICE PROTECTION PLAN (SPP)
A contracted program covering specific Product costs associated with
the operation and maintenance of the Product. The program is a
stand-alone agreement between Allison and certain Customers. The
Authorized Maintenance Center network may be contracted to perform
certain Maintenance Services on OCP or SPP Products, Modules and Parts
under contract with Allison. Further definition of OCP or SPP is
contained within the relevant Allison documents.
1.60 OPERATOR
An entity which to operates or is in control of the use of a Product,
Module or Part.
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1.61 ORIGINAL EQUIPMENT MANUFACTURER (OEM)
Any manufacturer of aircraft, equipment, or a conversion facility
which has been certified to install and/or resale the Product. An OEM
may have the right to market select Allison Authorized Products,
Modules or Parts and its distribution or dealer organization may have
certain Service, Repair or Field Service rights.
1.62 OVER-THE-COUNTER
Sale(s) of Modules and Parts by Allison, an Allison designated entity
and/or Authorized Maintenance Center to a Customer in support of 1)
line maintenance, 2) scheduled Service and 3) certain Service or
Repair functions.
1.63 OVERHAUL (RECONDITION)
The work necessary to return an Item to the highest standard(s)
specified within the relevant controlling document(s) or Manual(s) as
issued Authorized, approved and/or bailed by Allison. Overhaul
usually involves Critical Repair/testing and is generally limited to
performance by Authorized Maintenance Centers and Allison.
1.64 OVERSHIPMENT
Items received by the Authorized Maintenance Center in excess of the
quantity ordered by the Authorized Maintenance Center or the quantity
invoiced by Allison.
1.65 OWNER
An entity which is the legal owner of record of a Product, Module or
Part.
1.66 PART(S)
One piece, or two or more pieces, joined together and not normally
subject to disassembly without destruction of designed use. Parts may
be new, used or Repaired and are marketed by Allison in connection
with Products and/or Modules. Parts are listed in the current
Product, Module and Parts Price List, and associated supplements
thereto. Parts are identified within the Modules and Parts
Statement(s).
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1.67 PERFORMANCE AND ASSESSMENT REPORT
Report prepared by Allison within thirty (30) calendar days following
a performance and assessment audit. The Report contains a summary of
the audit findings of the Maintenance Services and identifies Allison
improvement recommendations and non conformance collective action
requirements. The areas of evaluation are business and
administration, maintenance services, business operations, customer
support, technical, Quality and other operations.
1.68 POLICY
A directive issued by Allison with regard to the handling of a
specific Product situation(s). Generally, Policy issues are not
covered under a specific Warranty. The Policy will, in most
instances, be communicated via a letter or Bulletin.
1.69 PRIMARY PREMISE
The main facility, including equipment and tooling, solely owned by
the Authorized Maintenance Center, performing the total Business
Operations as Authorized by Allison under the terms and conditions of
this Agreement. The Authorized Maintenance Center's approved Primary
Premise is the single point of contact with Allison.
1.70 PRODUCT(S)
The words Product and Engine, for the purpose of this Agreement, are
synonymous. Products are identified in the Product Statement(s).
1.71 PRODUCT, MODULES AND PARTS PRICE LIST
A list identifying the Product, Module and Part nomenclature,
identification numbers, descriptions as required, selling prices and
associated lead times along with other pertinent information,
generally published annually by Allison and updated from time to time.
1.72 PRODUCTS STATEMENT(S)
The Agreement attachment which identifies the Product(s) that may be
purchased from Allison or its designated source(s) by the Authorized
Maintenance Center pursuant to the terms and conditions of this
Agreement and the Terms of Sale Statement(s). The Statement(s) may be
amended from time to time by Allison.
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1.73 PROMOTIONAL PRICE DISCOUNTS
Discounts on Allison Modules or Parts provided exclusively to
Authorized Maintenance Center in recognition of their Embodiment,
Maintenance Services, inventory responsibilities or other special
situations as identified by Allison.
1.74 QUALIFICATION/QUALIFIED
The activity and associated acceptance criteria directed at validating
the capability of a Repair Source to implement and apply a specific
Repair Process to accomplish a specific Component Repair.
Qualification (or Qualified) may also apply to the successful
demonstration and validation of a specific Repair Process(es),
regardless of Repair Source considerations.
1.75 QUALITY SYSTEM OR QUALITY
An established Authorized Maintenance Center program utilizing
recognized Quality procedures and policies which meet or exceed
Allison's requirements and the requirements of any regulatory body
having jurisdiction.
1.76 RECORDS
Documents including, but not limited to, Data Reports, Customer
directories, Maintenance Services, Component Repair, Qualification,
Development Plan, Product delivery history, quarterly summary reports,
payment and credit history, training, Modules and Parts inventory
status and usage, and AFA applications for Warranty, Policy, Campaigns
and OCP/SPP. Records must be retained either electronically or in
hard copy for six (6) years, or longer if required by a regulatory
body.
1.77 REGION OF RESPONSIBILITY
The geographic area and associated list of countries and/or
territories described in the Region of Responsibility Statement(s)
attached to this Agreement.
1.78 REMANUFACTURED ENGINES/MODULES
The Overhaul and conversion of an Engine/Module from one Product
application to another. Authorized Maintenance Centers must receive
Authorization prior to conversion from one Product application to
another. An example not Authorized is a T56 aircraft engine being
converted to an industrial engine. An example of an Authorized
conversion would be an upgrade of a Model 250 Series I to Series II
engine.
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1.79 REPAIR(S)
To make an Item Serviceable by replacing failed or damaged Modules or
Parts with new, used or Repaired Modules or Parts.
1.80 REPAIR PROCESS
Defined and fully documented sequence of events which, when properly
performed, result in restoring a Non-Serviceable Item to Serviceable
status. Proprietary or licensable sub-processes may or may not be
involved.
1.81 REPAIR SOURCE
Manufacturing process or facility source selected and Authorized to
perform Allison approved Component Repair(s) utilizing an approved
Repair Process.
1.82 REPAIRED PART
A Part that has undergone Component Repair whereby the final Part is
Serviceable.
1.83 REQUEST FOR QUALIFICATION
Formal request submitted by an Authorized Maintenance Center to be
appointed as a Repair Source for Critical Repair. Specific format and
content of a Request for Qualification is more fully defined in the
Policy Manual.
1.84 SECOND LEVEL ENTITY
An organization or business structure which serves a second tier
distribution or marketing function and generally would be in conflict
with this Agreement.
1.85 SERVICE
An act of replenishment for the purpose of maintaining the inherent
design operating capability of an Item in compliance with Allison
recommendations. Certain Service functions may be performed in a
non-shop atmosphere (Field Service). For the purpose of this
Agreement, Service is meant to denote work performed in the Authorized
Maintenance Center's Primary Premise or Branch Location(s).
1.86 SERVICE INFORMATION LETTER (SIL) or COMMERCIAL SERVICE LETTER(CSL)
Documents issued by Allison to provide Customers and Authorized
Maintenance Centers with information such as the following:
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1. To discuss field problems and to highlight information in
existing documentation as well as detailing upcoming revisions
to published documents;
2. To notify Customers of interchangeable or Part numbers changes
which have no effect on aircraft or equipment safety,
performance, maintainability and reliability;
3. To provide preliminary information of a forthcoming Bulletin;
4. To notify Customers of available or forthcoming vendor
modifications; and
5. To notify Customers of changes in Part material finishes,
protective coatings, etc.
1.87 SERVICE PARTS DISTRIBUTION CENTER OR PARTS DISTRIBUTION CENTER
Allison or its designated source(s) which distributes Items and other
hardware, accessories or equipment as directed and Authorized by
Allison. Service Parts Distribution Center will operate under
contract to Allison, and will not compete for Maintenance Services,
including Embodiment, as contemplated by this Agreement.
1.88 SERVICEABLE
Classification of a Module or Part, whether new, used or Repaired,
which in its current condition meets Allison specifications and may be
used in a Maintenance Service function.
1.89 SHIP PROMISE DATE
The date on which Allison plans to ship the ordered Products, Modules
and Parts. Typically, the Ship Promise Date equates to the order
acceptance date plus the published or quoted lead time for the
respective Product, Module or Part.
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1.90 SPARE ENGINE
An Engine sold by Allison for purposes other than permanent
installation in OEM equipment. Authorized Maintenance Centers may
purchase a Spare Engine only for use as a lease, rental asset or Unit
Exchange and are not permitted to resell to Customers except as
specifically directed in writing by Allison or as permitted by the
terms and conditions of the Agreement, including the Product
Statement(s) and/or Terms of Sale Statement(s). Spare Engines cannot
be procured for disassembly into Modules and Parts.
1.91 SOURCE INSPECTION
The final acceptance inspection of a Candidate Part undergoing
Critical Repair at the Repair Source.
1.92 SURCHARGE
A fee levied by Allison and paid by the Authorized Maintenance Center
for a specific Module or Part, or a inventory level of Modules or
Parts when the Authorized Maintenance Center has not provisioned as
detailed in the Agreement, at an annualized level acceptable to
Allison, but generally at least 75% of the dollar value attained by
multiplying the number of Events by the respective Event Kits.
Surcharge, at Allisons discretion, may be assessed at the end of a
calendar year assuming the expected dollar value cannot be determined
until that time. Surcharges will be debited to the Authorized
Maintenance Center.
1.93 SURPLUS (MODULES AND PARTS)
Modules and Parts inventory, as purchased directly from Allison or
its designee which is in excess of the Authorized Maintenance Center
needs pursuant to provisioning/inventory conference and the terms and
conditions of the Agreement and the Policy Manual.
1.94 TERMS OF SALE STATEMENT(S), (TSS)
Statements furnished by Allison to the Authorized Maintenance Center
as an attachment to this Agreement setting forth the terms and other
provisions that apply to sale, distribution and/or marketing of Items,
as modified by Allison through amended TSSs, revision sheets or in a
new and superseding TSS.
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1.95 TEST SPECIFICATIONS
Specifications developed and issued by Allison which delineate
appropriate procedures and verification requirements with regard to
specific test standards applicable to Maintenance Services or
Component Repair.
1.96 TURNAROUND TIME (TAT)
The combined calendar days required to provide appropriate Maintenance
Services to make an Item Serviceable and to ship Item, excluding
Customer, Allison, or Logistics Company initiated delays.
1.97 UNIT(S) EXCHANGE / EXCHANGE UNIT(S)
Modules, subassemblies or Parts in Serviceable condition and/or a
Spare Engine which are maintained in the inventory of the Authorized
Maintenance Center or an Authorized source's inventory for the purpose
of being available for substitution for Non-Serviceable Items owned or
operated by Customers when the Non-Serviceable Core is provided in
exchange.
1.98 WARRANTY(IES)
Statements issued by Allison providing minimum performance assurances
for Items subject to governing Product design limitations and time
periods of coverage of Service or Repairs by Allison.
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ARTICLE 2. REGION OF RESPONSIBILITY
2.1 AUTHORIZED MAINTENANCE CENTER PRIMARY PREMISE, BRANCH LOCATION(S), AND
MARKETING OFFICE(S) OVERVIEW
Allison has selected independently owned and operated Authorized
Maintenance Centers operating from an approved Primary Premise, Branch
Location(s) and Marketing Office(s) to effectively provide Authorized
Maintenance Services and Embodiment functions to Customers.
2.2 AUTHORIZED MAINTENANCE CENTER'S RESPONSIBILITIES
Authorized Maintenance Center shall have a single Primary Premise and
other Branch Location(s), identified in the Primary Premise, Branch
Location(s) and Marketing Office(s) Statement as necessary to provide
satisfactory Customer support. All locations shall be satisfactory in
appearance, adequate in size, properly equipped for the conduct of the
specific Business Operation(s) contemplated at such Primary Premise
and/or Branch Location(s) and consistent with reasonable facilities
requirements defined within this Agreement and/or as outlined within
the Policy Manual.
Authorized Maintenance Center agrees not to change its Primary Premise
or Branch Location(s) or Marketing Office(s) or the specific Business
Operation(s) for which each is used without prior written approval by
Allison and the execution of a new and superseding Primary Premise,
Branch Location(s) and Marketing Office(s) Statement.
Authorized Maintenance Center will conduct Business Operation(s) only
at the Primary Premise or Branch Location(s) identified within the
Primary Premise or Branch Location(s) or Marketing Office(s) Statement
as accepted by Allison and attached to this Agreement. Authorized
Maintenance Center may not conduct Business Operations or maintain a
Primary Premise or Branch Location(s) outside its assigned Region of
Responsibility (see addendum section of the Agreement for specific
description of Regions of Responsibility).
Marketing Offices which are located outside the Region of
Responsibility may not maintain inventory of any Product, Module,
Part, or maintain any facility, plant, equipment or Ground Support
Equipment for performance of Maintenance Services, Component Repair
and/or for Over-the-Counter sales.
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Authorized Maintenance Center will not make any written or oral
arrangement(s) or agreement(s) to consign, bail or maintain an
inventory of Items or Ground Support Equipment outside their assigned
Region of Responsibility.
2.3 CHANGES IN AUTHORIZED MAINTENANCE CENTER PRIMARY PREMISE, BRANCH
LOCATION(S), MARKETING OFFICE(S) OR BUSINESS OPERATION(S)
If Authorized Maintenance Center proposes to change the location of
its Primary Premise, to change or add a Branch Location(s), to change
or add a Marketing Office, or to modify its Business Operations at any
location, Authorized Maintenance Center shall submit a written
proposal to the Authorized Maintenance Center Administrator sufficient
in detail to enable Allison to evaluate the proposed change(s).
Allison will discuss with Authorized Maintenance Center the extent to
which proposed change(s) may affect Authorized Maintenance Center's
ability to fulfill its responsibilities in its Region of
Responsibility as defined within this Agreement.
Any change in the Primary Premise, the Branch Location(s), the
Marketing Office(s), or the Business Operation(s) at any location by
Authorized Maintenance Center approved by Allison will be reflected by
the execution of a new and superseding Primary Premise, Branch
Location(s) and Marketing Office(s) Statement.
Should an Authorized Maintenance Center close, eliminate and/or
significantly change the Business Operation(s) of its Primary Premise,
Branch Location(s) or Marketing Office(s) without the proper
disclosure of and prior written approval and Authorization of Allison,
Allison may initiate action to terminate this Agreement.
2.4 FIELD SERVICE OUTSIDE REGION OF RESPONSIBILITY
Authorized Maintenance Center is required to perform Field Services, as
allowed under this Agreement, for Customers located within the Region
of Responsibility. Authorized Maintenance Center is also required to
provide Field Service for Customers outside the Region of
Responsibility to correct a defect in material associated to a
previously performed Maintenance Service.
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ARTICLE 3. FACILITIES, EQUIPMENT AND CAPITAL REQUIREMENTS
3.1 OVERVIEW
Authorized Maintenance Center will demonstrate that its Primary
Premise and Branch Location(s) have the capability (facilities, plant,
equipment, tooling, and trained personnel, working capital and net
worth) to provide Maintenance Services in accordance with Customer
requirements and the terms and conditions of this Agreement. The
Authorized Maintenance Center Primary Premise and Branch Locations
will be evaluated annually by Allison and may be audited, with respect
to any Allison-related activities, at any time to assure compliance
with both Allison and Customer requirements. Costs of such audits are
the responsibility of Allison.
3.2 FACILITY REQUIREMENTS
3.2.1 PRIMARY PREMISE
Authorized Maintenance Center will maintain a single location which
will be regarded as the Primary Premise, as identified in the attached
Primary Premise, Branch Location(s) and Marketing Office(s) Statement,
and be capable of providing complete Business Operations. Specific
capabilities/functions which should be present at the Primary Premise
include but are not limited to: Service; Repair; Overhaul; inspection;
Component Repair; accessory Repair; component cleaning; nondestructive
testing; rotor balancing; shipping and receiving; Product testing per
Allison's correlated engines; Module testing; metallurgy laboratory;
training; certain technical publications; inventory of Modules and
Parts; Customer financial support; and lease/rental Products/Modules.
The Authorized Maintenance Center's Primary Premise location will make
available suitable office space and supporting office-related
facilities (less telecommunications expenses) for an Allison Resident
Manager, at no cost to Allison.
3.2.2 BRANCH LOCATION(S)
Authorized Maintenance Center may establish Branch Location(s) in
addition to a single Primary Premise in their assigned Region of
Responsibility, as identified in the attached Primary Premise, Branch
Location(s) and Marketing Office(s) Statement. The Branch Location(s)
may provide any combination of the capabilities/functions provided by
the Primary Premise; however, the Branch Location(s) will not replace
nor displace the responsibilities of the Primary Premise.
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3.2.3 MARKETING OFFICE(S)
Authorized Maintenance Center may establish Marketing Office(s)
anywhere deemed necessary by the Authorized Maintenance Center, as
identified in the attached Primary Premise, Branch Location(s) and
Marketing Office(s) Statement, to support the Product and Customers
(except as prohibited by applicable U.S. export control and other laws
and regulations). The Marketing Office(s) shall not inventory Items,
perform any Maintenance Services, Component Repair, technical support,
or any administrative functions contemplated within the Business
Operation(s) other than marketing and sales functions. The sole
purpose of a Marketing Office(s) is to market and promote Authorized
Maintenance Center's Primary Premise and Branch Location(s)
capabilities.
3.3 CAPITAL REQUIREMENTS
Authorized Maintenance Center shall maintain working capital and net
worth in sufficient amounts to enable Authorized Maintenance Center to
maintain Business Operations at the Primary Premise and any Branch
Location(s) to properly satisfy Customer expectations within the
Region of Responsibility consistent with the intent and purpose of
this Agreement.
3.4 EQUIPMENT AND CAPABILITIES
Authorized Maintenance Center must possess and maintain, or have
access to equipment and capabilities necessary to perform Maintenance
Services on the particular Product series as identified in the
applicable product statement(s). The specific equipment requirements
shall include as a minimum the following operations:
o Parts cleaning
o Fluorescent Penetrant Inspection (FPI)
o Nondestructive Test (NDT) inspection
o Flame metal spray
o Dimensional inspection
o Static/dynamic balancing
o Grinding
o Welding
o Accessory(ies) tests (oil, fuel, pneumatic systems)
o Fundamental electronics repair (soldering pin
replacement, etc.)
o Certain machining
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o Certain training
o FADEC diagnostic test (as applicable to the Product)
o Engine test capability (Engine test cells must be
correlated per Allison requirements and the
Authorized Maintenance Center must have test
capability as a minimum at their Primary Premise
Product se
All equipment shall be maintained in good working order and operated under the
applicable Quality System, consistent with Allison standards, FAA standards and
compliant with regulatory requirements within the respective Region of
Responsibility.
An Authorized Maintenance Center may support any Engine model for which it has
an Allison-correlated Engine test stand. Each Authorized Maintenance Center
must declare the series of engines for which it possesses capability at the
beginning of each three year term. At least one test stand, correlated to
Allison standards, must be present at the Primary Premise.
Those Authorized Maintenance Centers without Allison-correlated Engine test
stands to cover the Product series identified in the Product Statement(s) must
submit evidence of an Engine test cell utilization agreement with another
Authorized Maintenance Center who does have an Allison-correlated Engine test
stand. The agreement(s) may not be longer than eighteen (18) months in length,
at which time the Authorized Maintenance Center must have a correlated Engine
test capability or refrain from providing Maintenance Services on the
respective Engine series.
Allison warranty and policy work, or other Allison contracted engine work that
requires an Engine test will be awarded only to those Authorized Maintenance
Centers who own an appropriate Allison-correlated Engine test stand for the
model or series of Engine involved.
Engine test stand correlations will be handled as follows:
1. The Authorized Maintenance Center requesting correlation will be
responsible for all costs associated with correlation.
2. The Authorized Maintenance Center requesting correlation will supply
the correlation Engine.
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3. The Authorized Maintenance Center will operate the test stand with its
Engines, obtaining relevant operating data. The Engine and data will
be forwarded to Allison for a performance run and associated
cross-data evaluation.
4. An Authorized Maintenance Center with test stand(s) which are already
correlated will recorrelate when:
a.) It has reason to believe a correlation is necessary to restore
test stand accuracy.
OR
b.) Allison demands a recorrelation because of Customer complaints
or concerns about a test stand and associated Engine
performance while operating on said test stand
3.5 GROUND SUPPORT EQUIPMENT (GSE)
The Authorized Maintenance Center shall have adequate Parts and Ground
Support Equipment and recommended special tools as may be necessary to
enable Authorized Maintenance Center to fulfill their responsibilities
under this Agreement in addition to any tools needed to train
Authorized Maintenance Center personnel.
Authorized Maintenance Center will receive the necessary GSE technical
data to support Maintenance Services and Component Repair activities
upon execution of this Agreement. GSE drawings are Allison
proprietary and will be subject to all rights or limitations specified
by Allison.
3.6 TEST EQUIPMENT STANDS AND ADAPTERS
Authorized Maintenance Center shall develop and maintain Item test
facilities capable of testing the respective Products, Modules, and
Parts in accordance with the applicable Authorized Test Specifications
and the Policy Manual.
3.7 MULTI-ENGINE FACILITIES
If Authorized Maintenance Center provides Maintenance Services on
engines other than the Product(s), and if facilities, equipment or
associated capabilities are shared with non-Product lines, Authorized
Maintenance Center will ensure the Maintenance Services and Component
Repairs performed on Items are not penalized with respect to
non-Product costs, including direct labor, indirect labor, and
material or labor related burden(s).
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3.8 LEASE AND RENTAL ASSETS
Authorized Maintenance Center may establish a lease/rental asset pool.
The quantity of lease/rental Products/Modules will be consistent with
the Customer and market requirements and subject to Allison's review
and approval. Allison reserves the right to suggest additional
lease/rental assets be held by Authorized Maintenance Center. Should
Authorized Maintenance Center choose not to hold a quantity of
lease/rental assets that Allison feels is necessary, Allison reserves
the right to utilize a third party to hold the assets. Disposal,
usage and/or sale of lease/rental assets shall be consistent with the
instructions outlined in the Policy Manual. Certain lease or rental
assets may be used on an exchange basis as Exchange Units in
conjunction with Maintenance Services. Authorized Maintenance Center
ownership and use of lease/rental Products or Modules and Unit
Exchanges does not negate the implied Component Repair aspects of this
Agreement. Specifically, both Book Repairs and Critical Repairs of
these items must remain totally compliant with the terms and
conditions of this Agreement.
3.9 REMANUFACTURED ENGINES/MODULES
The Authorized Maintenance Center may Remanufacture Engines/Modules
within the same Engine series. The Remanufactured Engine/Module must
retain its original serial number and build configuration (an
Authorized Maintenance Center may not produce its own nameplate). The
Authorized Maintenance Center may only remanufacture an Engine to
convert or generate a different Engine series. The Authorized
Maintenance Center may not change from one Product application to
another (from aircraft application to industrial application or visa
versa) without prior Allison Authorization.
3.10 RIGHT TO PURCHASE DISPLACED PRODUCTS
If Authorized Maintenance Center provides maintenance services on
engines other than the Product(s), and if Authorized Maintenance
Center displaces Products from an OEM application as a result of a
retrofit to non-Allison engines, then the Authorized Maintenance
Center must offer Allison the first option to purchase of such
displaced products at the current surplus market value or at a
bonified offer price.
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ARTICLE 4. ALLISON RESPONSIBILITIES
4.1 OVERVIEW
The purpose of this Article is to define the overall responsibilities
of Allison with regard to the Authorized Maintenance Center network.
This Article addresses certain terms and conditions regarding Items;
certain administrative functions; Allison field representation;
accident investigation; mining; technical representation; promotions;
and evaluation of Authorized Maintenance Center.
4.2 PRODUCTS, MODULES AND PARTS AVAILABLE TO AUTHORIZED MAINTENANCE CENTER
Allison has furnished Authorized Maintenance Center with a Products
Statement(s) and a Modules and Parts Statement(s) as attachments to
this Agreement, identifying the Items available for purchase by
Authorized Maintenance Center. Allison may change either Statement by
furnishing Authorized Maintenance Center a superseding Statement.
4.2.1 AUTHORIZED MAINTENANCE CENTER'S ORDERS FOR PRODUCTS, MODULES AND PARTS
Authorized Maintenance Center may cancel or modify purchase orders in
accordance with terms and conditions set forth in the respective Terms
of Sale Statement(s) attached to this Agreement, Article 8 of this
Agreement, the Policy Manual or the Products, Modules and Parts Price
List. Purchase orders from Authorized Maintenance Center are not
binding until accepted and acknowledged by Allison.
Acknowledgment of Authorized Maintenance Center's orders by Allison
shall state the price of Items and the Ship Promise Date.
Allison or its designated source(s) will endeavor to distribute Items
in a fair and equitable manner. If production capacity of Allison's
manufacturing sources or its designated sources are insufficient at
any time to meet the demand for Items, Allison shall exercise its
business judgment in determining which orders to accept based upon the
overall worldwide demand, Authorized Maintenance Center requirements,
individual Customer requirements and other specific business
situations.
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4.2.2 EXCUSABLE DELAY OR FAILURE TO FILL ORDERS OR ACCEPT SHIPMENT
Neither Allison or its designated source(s) will be liable for delays
or failure to ship Items ordered by Authorized Maintenance Center, and
Authorized Maintenance Center will not be liable for delays or failure
to accept delivery, where such delay or failure is caused, in whole or
in part, by:
(a) Any strike or labor trouble in Authorized Maintenance Center's
Primary Premise or Branch Location(s) or in the facilities of
Allison, its affiliated companies or designated sources, or
any suppliers;
(b) Any shortage or curtailment of utilities, materials,
transportation or labor or any shortage or damage to
productive facilities;
(c) Any act of government, including the enactment of laws or
regulations or issuance of judicial or administrative
injunctions or orders;
(d) Discontinuance of manufacture or sale by Allison; and
(e) Any cause beyond the control or without the fault or
negligence of Allison or its designated source(s) or
Authorized Maintenance Center.
4.2.3 CHANGES IN OR DISCONTINUANCE OF PRODUCTS, MODULES AND PARTS
With the exception of Items required to fill accepted orders, and/or
to meet Allison's contractual obligations, Allison or its suppliers
may discontinue any Item at any time without notice and without
incurring any obligation to Authorized Maintenance Center and/or as
noted in the Products Statement or Modules and Parts Statement.
Allison or its suppliers may change the design or specifications of
any Item at any time without notice and without incurring any
obligation to Authorized Maintenance Center, including any obligation
to make a similar change to any Item previously sold to Authorized
Maintenance Center or ordered by Authorized Maintenance Center and not
yet shipped except for "must conform" changes as directed by FAA
Directives and/or "must conform" changes as directed by an Authorized
Campaign.
4.3 COMPONENT REPAIR
To ensure the Products remain successful and viable in the
marketplace, Allison will participate in and support Component Repair
activity for the Products during the term of this Agreement. This
participation will be designed to assist in reducing the Customer's
Direct Maintenance/Operating Cost (DMC/DOC).
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Allison and the Authorized Maintenance Center mutually agree to
disallow those Grandfather Component Repairs which are found to be
unsafe. Grandfather Component Repairs, for non-Restricted Candidate
Parts, which are based on proven technical data and have demonstrated
reliable Product experience, will not be disallowed per the terms of
this Agreement.
All new and Grandfather Component Repairs, developed and applied to
Restricted Candidate Parts, must be Authorized by Allison, per this
Agreement.
Allison's initial review process and plan for Grandfather Component
Repairs will be in place within twelve (12) months following the
effective date of this Agreement.
4.4 TECHNICAL AND ENGINEERING ASSISTANCE
As required, Allison will furnish technical and engineering consulting
services to Authorized Maintenance Center. The cost(s) of such
technical and engineering services, if provided by Allison, will be
paid by Authorized Maintenance Center if technical and engineering
services become excessive or are not included or referenced within
this Agreement. Specifically, up to two hundred (200) hours per year
are available to the Authorized Maintenance Centers free of charge.
Any associated costs, including but not limited to, travel, test,
engineering, research and other ancillary expenses will be invoiced by
Allison to the Authorized Maintenance Center. Allison will submit an
invoice in the amount of its cost(s) of technical and engineering
services provided, as well as any equipment supplied, if technical,
and engineering service or equipment is specifically requested by
Authorized Maintenance Center. Allison will provide an advance
quotation detailing rates and any applicable additional cost upon
receipt of a written request for technical, and engineering or
equipment assistance from the Authorized Maintenance Center.
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4.5 ADVERTISING PROGRAMS AND MARKETING/PROMOTION MATERIALS
Allison may conduct general advertising programs to promote the Items
and Maintenance Service capabilities including Embodiment functions of
the Authorized Maintenance Center network for the mutual benefit of
the Authorized Maintenance Centers and Allison. Advertising focus on
specific features, benefits, Items or specific aspects of the
Authorized Maintenance Center network is solely at Allison's
discretion. Unless general in nature, references to a specific
Authorized Maintenance Center will be reviewed with the respective
Authorized Maintenance Center prior to publication.
Certain advertising aids, promotional aids, marketing aids and
marketing/sales campaign materials may occasionally be offered to the
Authorized Maintenance Centers by Allison.
4.6 EVALUATION OF AUTHORIZED MAINTENANCE CENTER BUSINESS OPERATION(S)
Evaluation of Authorized Maintenance Center's performance with regard
to its Business Operation(s) will be based upon standards established
by Allison. Such standards shall give consideration to business
forecasts, inventory planning and provisioning, Event and Event Kit
forecasting, economic conditions, OEM activity, OEM outlet activity,
Customer activity, as well as Records of the marketing and sale of
Maintenance Services and related support activities and associated
Embodiment of relevant Modules and Parts.
In evaluating Authorized Maintenance Center's performance, Allison
will evaluate the overall business and economic conditions, the
availability and delivery of Products, Modules and Parts, as well as
the trend over a reasonable period of time of Authorized Maintenance
Center's overall Business Operation(s) performance under the terms and
conditions of this Agreement.
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Every twelve (12) to twenty four (24) months Allison will evaluate
Authorized Maintenance Center's performance of its Maintenance
Services and Component Repair functions in such areas as adequacy of
facilities, tools, equipment, management, personnel, quality of
workmanship, reliability of Repairs, the manner in which Authorized
Maintenance Center performs its Maintenance Services, Module and Parts
forecasting, Module and Parts inventory, working capital, net worth,
technical expertise, Customer satisfaction, Warranty and Policy
administration, and technical/engineering expertise relative to
Component Repair.
Performance and Assessment Evaluation Reports will be prepared by
Allison within thirty (30) calendar days of the audit and will be
furnished to and discussed with Authorized Maintenance Center. The
Report will identify any action required to be taken by Authorized
Maintenance Center, if necessary, to achieve satisfactory, overall
performance within the appropriate time frame for compliance.
Written comments provided by Authorized Maintenance Center to Allison
concerning such Performance and Assessment Evaluation Report will
become a part of the Allison Report. Action necessary to correct any
deficiencies will be implemented by the Authorized Maintenance Center
consistent with the collective action program(s) as identified by
Allison.
Allison may perform an audit of the Authorized Maintenance Center with
at least one (1) business day notice.
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ARTICLE 5. AUTHORIZED MAINTENANCE CENTER RESPONSIBILITIES
5.1 OVERVIEW
The purpose of this Article is to define the overall responsibilities
of Authorized Maintenance Center as intended by this Agreement. This
Article is further supplemented by the Policy Manual.
5.2 MAINTENANCE PHILOSOPHY
Authorized Maintenance Center shall provide Maintenance Services
consistent with the requirements of Customers operating in its Region
of Responsibility and the terms and conditions of this Agreement.
5.3 SERVICE OF PRODUCTS, MODULES AND PARTS
Authorized Maintenance Center shall establish and maintain the
capability to Service Items in accordance with procedures and
specifications established within the Illustrated Parts Catalog,
Operations Manual, Operation and Maintenance Manual, Overhaul Manual,
Policy Manual and any applicable letter or Bulletins.
5.4 REPAIR OF PRODUCTS AND MODULES
Authorized Maintenance Center shall establish and maintain the
capability and capacity to Repair Products and Modules within thirty
(30) calendar days after delivery of first commercial OEM application
utilizing the respective series of Product, Module or Part, or as
agreed in writing by Allison. Said capability and capacity shall be
in accordance with procedures developed by Allison and/or approved by
Allison and appearing in the applicable provisions of the Agreement,
Overhaul Manual(s), Operations Manual(s), Engine Maintenance Manual,
Component Maintenance Manual(s), Policy Manual, the appropriate CEBs
and CRP. As applicable, Allison will provide the Authorized
Maintenance Center with Manual(s) and Bulletin(s) drafts prior to or
at the time of publication.
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5.5 OVERHAUL OF PRODUCTS AND MODULES
Authorized Maintenance Center shall establish and maintain the
capability to Overhaul Items within thirty (30) calendar days after
delivery of first commercial OEM application utilizing the respective
Item, or as agreed in writing by Allison. Said capability shall be in
accordance with procedures and specifications set forth in Policy
Manual, Overhaul Manual, Engine Maintenance Manual, Component
Maintenance Manual(s), Critical Repair Manual, Operations Manual,
appropriate revisions and any applicable Bulletins. As applicable,
Allison will provide the Authorized Maintenance Center with Manual(s)
and Bulletin(s) drafts prior to or at the time of publication.
The minimum Overhaul capability will be sufficient to meet or exceed
the Customer's requirements within Authorized Maintenance Center's
Region of Responsibility. Certain Overhaul activities may be
subcontracted to third parties consistent with the appropriate
conditions as detailed within the Policy Manual, Overhaul Manual,
Operations Manual, Engine Maintenance Manual, Critical Repair Manual
and the CRP.
5.6 AUTHORIZED MAINTENANCE CENTER LOCATIONS
Concurrent with the execution of this Agreement, Authorized
Maintenance Center and Allison have executed a Primary Premise, Branch
Location(s) and Marketing Office(s) Statement which identifies the
Authorized Maintenance Center locations and premises, whether they are
owned or leased, and the purposes for which each of such premises
shall be used. Authorized Maintenance Center agrees not to change the
premises or the purposes for which each is used without the prior
written approval of Allison, and the execution of a new and
superseding Primary Premise, Branch Location(s) and Marketing
Office(s) Statement. Authorized Maintenance Center will not conduct
any of its Business Operations, under this Agreement, at locations,
other than those identified in the Primary Premise, Branch Location(s)
and Marketing Office(s) Statement, without the prior written approval
of Allison.
5.7 CUSTOMER SUPPORT RESPONSIBILITY
In fulfilling its responsibilities as contemplated by this Agreement,
Authorized Maintenance Center will be responsible for conforming to
the policies and procedures established in the Policy Manual,
Bulletins and to the requirements of any government agency having
jurisdiction over Authorized Maintenance Center and its Business
Operations.
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In compliance with the purpose, objectives and terms and conditions of
this Agreement, Authorized Maintenance Center shall be responsible for
providing Maintenance Services to Customers operating in its Region of
Responsibility utilizing only Authorized Items.
Authorized Maintenance Center's responsibility for Maintenance
Services on Items shall include, without limitation, performance of or
providing Business Operations which are structured to accomplish the
following:
o Service, Repair and Overhaul of Products, Modules and/or Parts
within the Primary Premise and/or Branch Location(s)
o Component Repair at the Primary Premise and/or Branch
Location(s)
o Inventory of Modules and Parts consistent with forecasted
Events/Event Kits
o Embodiment of Modules and Parts
o Repairs covered under Warranty
o Repairs covered under OCP/SPP
o Lease/Rental Assets
o Field Service Support
5.8 CUSTOMER SUPPORT STANDARDS
Authorized Maintenance Center shall perform its Customer support
responsibilities under this Agreement in a good and workmanlike manner
and in accordance with: 1) applicable provisions of the Policy Manual
2) applicable provisions of the Manuals, technical data and Bulletins,
3) any applicable requirements of government authorities 4) any
specific unique instructions for a particular Maintenance Services
function that may be furnished to Authorized Maintenance Center by
Allison, 5) the policies of the applicable industry standards, 6)
representation of the Marks, and 7) consistent with the expressed
terms and conditions of this Agreement.
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5.9 MODULES AND PARTS
Authorized Maintenance Center is expected to maintain an adequate
inventory of Authorized Modules and Parts for its use in Embodiment
during Maintenance Services. Use of Non-Authorized parts supplied
directly or indirectly by the Customer to the Authorized Maintenance
Center will not be cause for termination. The Authorized Maintenance
Center must advise the Customer that Allison does not warrant those
Non-Authorized parts used during an overhaul or repair. Inventory
levels will be based upon expected usage volumes consistent with the
Product population, Product operating profiles, expected Events and
associated Event Kits for those Customers in its assigned Region of
Responsibility, as well as those Customers for which the Authorized
Maintenance Center provides Maintenance Services outside its Region of
Responsibility.
Inventory levels necessary to support Customer requirements are
further detailed in the Agreement and the Policy Manual. Should the
Authorized Maintenance Center choose to pursue Over-the-Counter sales,
the associated inventory levels to support Over-the Counter trade will
be determined by the Authorized Maintenance Center.
5.10 COMPONENT REPAIRS
The Authorized Maintenance Center must establish and maintain, as a
minimum, the capability to accomplish Book Repairs. Additionally, the
Authorized Maintenance Center is expected to support Allison's
initiatives and activities relating to Component Repair.
The Authorized Maintenance Center is required to submit a list of all
proposed Grandfather Component Repairs no later than six (6) months
following the effective date of this Agreement. The submittal list
format and content will be adequate as to define the basic process
scope and concept.
All new or Grandfather Component Repairs for Restricted Candidate
Parts, Embodied or represented to the Customer as Allison approved
must be Authorized by Allison in accordance with the Agreement.
No Component Repairs may be represented as Allison approved unless
specifically Authorized by Allison.
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The Authorized Maintenance Center may only Embody those Restricted
Candidate Parts which were Repaired by an Allison Authorized process
and source.
5.11 ADMINISTRATION
5.11.1. SALES PROMOTION STANDARDS
Authorized Maintenance Center will at all times maintain the highest
ethical standards regarding the advertising and promotion of its
Business Operations. Authorized Maintenance Center will not publish,
cause to be published, or approve any advertising related to its
Business Operations, Primary Premise, Branch Location(s), Marketing
Office(s), any Item associated Maintenance Services nor Component
Repair which misleads, deceives or misinforms prospective Customers
and the general public.
5.11.2 CHARGES FOR REWORK
Authorized Maintenance Center will not charge Customers for rework
Maintenance Services or Field Service to correct improperly performed
Maintenance Services or Component Repair (defect in material or
workmanship as supplied directly by or contracted by the Authorized
Maintenance Center, e.g., not a new Part or new Module) previously
performed by that Authorized Maintenance Center. Should previously
performed Maintenance Services require rework for defect in material
or workmanship correction, Authorized Maintenance Center will make
appropriate adjustments due the Customer or Allison (in the event it
was a Warranty or OCP/SPP related Maintenance Service).
5.11.3 MARKETING AND SALES ORGANIZATIONS
Authorized Maintenance Center shall establish and maintain marketing
and sales organization(s) that include adequate, qualified staff of
appropriate management and personnel to enable Authorized Maintenance
Center to effectively fulfill its Business Operation(s) within its
Region of Responsibility.
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5.11.4 MAINTENANCE SERVICES ORGANIZATION
Authorized Maintenance Center shall organize and maintain a complete
Maintenance Services organization, including adequate numbers of
competent, Allison trained managers, technicians and personnel to
fulfill the Service, Repair, Overhaul and Component Repair
obligations, consistent with the Customer's maintenance philosophy,
Item populations, Product usage within its Region of Responsibility
and the Authorized Maintenance Center overall Business Operations
strategy(ies).
5.11.5 INVOICING
Authorized Maintenance Center will provide Customers with invoices
covering the details of any and all Maintenance Services or Component
Repair performed or supplied on Customer's Items. Invoice detail
required to be supplied to Allison must include at least the
following:
o New Modules or Parts
o Repaired Modules or Parts
o Used Modules or Parts
o Labor
o Fuel and OH
o Outside Services
o Miscellaneous
o Warranty Adjustment (if Applicable)
o OCP/SPP Adjustment (if Applicable)
To the extent possible, all serialized and traceable Items will be
identified by serial number or the appropriate controlling number(s) on
all invoices. Invoice details will be required to be submitted to
Allison for all AFA claims and/or OCP/SPP work performed as detailed in
the Policy Manual. Should Allison develop a standardized invoice
format, Authorized Maintenance Center will undertake to utilize the
standardized invoice for Customer transactions. To the extent
capability exists, invoices will be generated electronically within the
EDI network. Customer invoice detail supplied to Allison by Authorized
Maintenance Center, in accordance with the terms of this Article, will
not be revealed to any other Authorized Maintenance Center. Collection
of invoice detail by Allison is for support of the AFA process and to
optimize the customer data base. It is not Allison's intention to
utilize invoice detail in an effort to compete with the Authorized
Maintenance Center.
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5.11.6 CUSTOMER SUPPORT PERFORMANCE REQUIREMENTS
In fulfilling its Customer Support responsibilities under this
Agreement, Authorized Maintenance Center will be responsible for
conforming to the policies and procedures established in the Policy
Manual and to the requirements of any regulatory agency having
jurisdiction over Authorized Maintenance Center.
In furtherance of the purposes and objectives of this Agreement,
Authorized Maintenance Center shall be responsible for providing
prompt, efficient and courteous Customer support to Owners and
Operators of Products. Authorized Maintenance Center's Customer
support responsibilities shall include performance of Services as
described in the applicable Policy Manual. Authorized Maintenance
Center's responsibility for Product support on all Products shall
include, without limitation, performance of the following obligations.
5.11.6.1 ADJUSTMENTS - WARRANTY, POLICY, CAMPAIGN AND SPECIAL PROGRAMS
Authorized Maintenance Center will deliver or have delivered a copy or
copies of the applicable Product Warranties and will fully explain or
have explained the provisions thereof to each Customer to whom an Item
is delivered in the Region of Responsibility.
Authorized Maintenance Center will perform, in accordance with the
applicable provisions of the Policy Manual, or Bulletins furnished by
Allison to Authorized Maintenance Center, (a) Warranty Repairs on
Products and Parts qualifying under the provisions of any Warranty
furnished thereon by Allison and (b) Policy adjustments approved by
Allison, and (c) Campaign inspections and corrections directed by
Allison to which Authorized Maintenance Center has met the engine test
criteria.
For Authorized Maintenance Center's performance of (a), (b) and (c)
above, Allison will either provide or pay Authorized Maintenance
Center for Items and labor. Such payment for Items and labor will be
made in accordance with applicable provisions of the Policy Manual.
Authorized Maintenance Center will not charge any Customer for
Services performed by Authorized Maintenance Center for which
Authorized Maintenance Center will be reimbursed by Allison.
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5.11.6.2 MAINTENANCE SERVICE
Authorized Maintenance Center shall provide prompt, efficient and
courteous Maintenance Services to Customers located in its Region of
Responsibility. Authorized Maintenance Center will provide their
Customers with itemized invoices covering the details of the
Maintenance Services performed.
5.11.6.3 OVERHAUL SERVICE
Authorized Maintenance Center will establish and maintain a capability
for Overhauling Products, Modules and Parts in accordance with the
procedures and specifications set forth in the Allison Overhaul
Manuals.
5.9.11.4 REWORK OF PARTS
Authorized Maintenance Center shall establish and maintain a
capability to rework Parts using equipment and procedures recommended
in the applicable provisions of the Overhaul Manual and Operations
(and Maintenance) Manual.
5.11.6.5 UNIT EXCHANGE PROGRAM
Authorized Maintenance Center shall develop a Unit Exchange program
which will adequately support the requirements of Customers within
Authorized Maintenance Center's Region of Responsibility. The
inventory levels will be mutually agreed upon between Allison and
Authorized Maintenance Center, consistent with Authorized Maintenance
Centers' Customers within the Region of Responsibility, Events, Event
Kits, Modules and Parts forecast, this Agreement, Authorized
Maintenance Center Repair TAT, actual Customer's Item usage patterns,
the Authorized Maintenance Centers' involvement in Component Repair
and the applicable provisions outlined in the Policy Manual. Annual
updates will reflect adjustment of succeeding annual forecast levels
based on past Module and Parts' actual usage levels, economic
conditions and other significant business factors.
5.11.6.6 FIELD SERVICE
Authorized Maintenance Center must provide Field Service for Allison
Products operating in its Region of Responsibility. This requirement
does not apply to the 501-K series Engines except for those instances
where a Field Service action is required to correct a defect in
material or workmanship associated to a previously performed
Maintenance Service by the Authorized Maintenance Center.
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Additionally, the Authorized Maintenance Center must perform Field
Service(s) for Customer(s) outside its Region of Responsibility on
Items which Authorized Maintenance Center previously performed
Maintenance Services. Modules, Parts or GSE must be transported to
the Customer's site as GSE, Modules and Parts and may not be
permanently located anywhere outside the Authorized Maintenance
Center's Region of Responsibility in support of Field Service for the
Model 250 series engines.
5.11.7 CUSTOMER TECHNICAL ASSISTANCE
Upon request by Allison, Authorized Maintenance Center will provide
assistance for accident investigations, and other instances in which
Authorized Maintenance Center may have had involvement.
Authorized Maintenance Center is responsible for providing technical
assistance to all Customers in its Region of Responsibility, as well
as technical assistance for any Items on which the Authorized
Maintenance Center previously performed Maintenance Services.
5.11.8 CUSTOMER COMPLAINTS
Authorized Maintenance Center will receive, investigate and handle
complaints from Customers with the overall objective to secure and
maintain the goodwill of the Customer and of the general public
toward Authorized Maintenance Center, Allison and the Products.
Complaints which are not directly attributed to the work performed or
to be performed by Authorized Maintenance Center or which cannot be
readily remedied by Authorized Maintenance Center or frequent
complaints concerning the same problem shall be promptly identified
along with relevant factual information and reported to the Allison
Authorized Maintenance Center Administrator.
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5.11.9 RECORDS
5.11.9.1 CUSTOMER RECORDS
Authorized Maintenance Center shall establish and maintain a
complete directory of all Customer's Maintenance Services,
Component Repair history and delivery history Record(s) on each
Item handled in any fashion by Authorized Maintenance Center.
Customer Records will be a part of the EDI network when
economically feasible. Updates to Customer Records will be made
electronically, if possible, and submitted regularly to Allison via
Data Reports in accordance with the terms of Policy Manual. The
Data Report will be used for Event reporting. Events include
Over-the-Counter Part sales, Engine or Module buildup or teardown
and Maintenance Service action pertaining to any Part. A Data
Report information and training program will be provided by
Allison. Record updates will be made not later than thirty (30)
calendar days after the Item was first handled by Authorized
Maintenance Center in an Allison approved format, and within five
(5) working days after the Maintenance Service was completed if
entered electronically.
5.11.9.2 QUARTERLY SUMMARY REPORTS
Authorized Maintenance Center shall furnish Allison with quarterly
summary reports of the Customer Records as detailed in this
Agreement within thirty (30) calendar days after the end of each
calendar quarter. Summary reports should be submitted
electronically if possible. Authorized Maintenance Center will
permit Allison to inspect any and all Allison-related Records at
reasonable times and to make copies thereof at Allison's expense
should the copy process become voluminous. Allison reserves the
right to cancel this requirement if records as reported by 5.11.9.1
of this agreement are timely and accurate.
5.11.9.3 WARRANTY(IES) RECORDS
Authorized Maintenance Center shall prepare, retain and keep
up-to-date Records, both in an EDI format and in hard copy, of all
applications for Warranty(ies), Policy, Campaigns, Maintenance
Services, Component Repair and Embodiment of Modules and Parts and
other work performed under Policy adjustments, payments or Credits
made to Authorized Maintenance Center by Allison.
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Hard copy and electronic Records of discounts, allowances,
incentives, refunds or Credits under any Product program at the
Authorized Maintenance Center will be retained for a period of six
(6) years, or longer if required by a regulatory agency.
5.11.9.4 TRAINING
Records of Products training by the Authorized Maintenance Center
shall be in accordance with policies and instructions outlined in
the Policy Manual.
5.11.9.5 EXAMINATION OF ACCOUNTS AND RECORDS
Authorized representatives of Allison may audit, examine, reproduce
and make copies of any account and/or Record required to be
maintained by Authorized Maintenance Center under this Agreement.
Audits and examinations, to the extent possible, will be conducted
at the Authorized Maintenance Center's Primary Premise during
regular business hours. Authorized Maintenance Center will be
furnished a list of any Records reproduced by the Allison
representative(s).
5.11.9.6 CONFIDENTIALITY OF AUTHORIZED MAINTENANCE CENTER'S ACCOUNTS,
RECORDS OR DATA
Allison will not furnish or otherwise disclose any account, Record
or data provided to Allison by Authorized Maintenance Center to any
third party unless authorized in writing by Authorized Maintenance
Center or required by law, or pertinent to judicial or government
administrative proceedings and specifically directed by applicable
judicial orders, other legal proceedings, or unless specifically
addressed within this Agreement or the Policy Manual.
5.11.9.7 RECORD COPIES
In the event of termination of this Agreement, Allison shall have
the right to make and retain complete copies of Records. Expenses
incurred to copy material will be billed to Allison. Allison may
utilize the Records/data as deemed necessary to support the
Products. Record copies kept by Allison may be in electronic form,
hard copy or both.
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5.12 WARRANTY(IES), POLICY, CAMPAIGNS, SPECIAL PROGRAMS AND OCP/SPP
Authorized Maintenance Center will provide a copy(s) of the
applicable Product, Module, or Part Warranty(ies), if applicable,
and will fully explain the provisions to each Customer, who purchases
an Over-the-Counter Part as well as for whom a new Serviceable or
Repaired Module or Part is Embodied within a Maintenance Services or
Component Repair.
Authorized Maintenance Center will perform, in accordance with the
applicable provisions of the Policy Manual and Bulletins provided by
Allison to Authorized Maintenance Center, (a) Service, Repair and/or
Component Repair on all Items qualifying under the provisions of any
Warranty(ies) furnished thereon by Allison, (b) special Policy
adjustments approved by Allison, (c) Campaign inspections and
corrections identified, Authorized and directed by Allison, (d)
special programs approved or Authorized by Allison and (e) any
Service, Repair or Overhaul function conducted under an OCP/SPP
related contract between Allison and the Authorized Maintenance
Center.
For Authorized Maintenance Center's performance of (a), (b), (c), (d)
and (e) above, Allison will either provide replacement Modules or
Parts or compensate Authorized Maintenance Center for use of their
inventory or the handling of Allison consigned inventory per the
terms and conditions of this Agreement and/or the Policy Manual.
Authorized Maintenance Center will review with Allison the planned
charges for a Customer for any Module, Part, labor, Maintenance
Service or Component Repair performed by Authorized Maintenance
Center for which Authorized Maintenance Center intends, plans for
and/or is reimbursed by Allison. If reimbursement occurs after a
Customer has been charged, Authorized Maintenance Center will provide
to the Customer a Credit for the total amount received.
5.13 MARKET AND SALES FORECAST/USAGE
Allison and Authorized Maintenance Center will jointly identify
overall Module and Parts forecast requirements during inventory
planning and provisioning conferences between the individual
Authorized Maintenance Center and Allison. Regional Product
populations, fleet size(s), hourly flying profiles, Customer Item
provisioning data, Event and Event Kit data and other Customer
information will be utilized to best identify the overall forecast
requirements.
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The world forecast will be adjusted to reflect the regional data and
allocated based on projected and actual usage data to the Authorized
Maintenance Center. The Authorized Maintenance Center's requirements
for new and Repaired Modules and Parts and any other worldwide
opportunities being directly pursued will be evaluated. The
Authorized Maintenance Center's Unit Exchange and lease/rental
programs will also be factored into the forecast. Forecast reviews
will be conducted as required, and whenever possible, teleconferences
will be utilized to help reduce administrative cost.
Authorized Maintenance Center will also furnish Allison with accurate
information about Authorized Maintenance Center's Maintenance
Services and Component Repairs and sales, through either Embodiment
or Over-the-Counter sales of new and used Repaired Items when
requested by Allison.
5.14 RELATIONSHIPS WITH ORIGINAL EQUIPMENT MANUFACTURERS
Since harmonious relationships between Authorized Maintenance Center
and Original Equipment Manufacturers' branch, distributor or dealer
outlets (herein called OEM outlets) enhance Authorized Maintenance
Center's Business Operations and associated opportunities, as well as
the goodwill of the Customer toward Products incorporated in
equipment produced, distributed or maintained by the OEM outlets,
Authorized Maintenance Center shall (a) establish regular contact and
provide satisfactory Maintenance Services and Component Repair in
support of OEM outlets; (b) advise Allison Authorized Maintenance
Center Administrator of contacts; (c) promptly identify and submit to
Allison all facts pertaining to any differences that may arise
between Authorized Maintenance Center and any OEM outlet involving an
Item; and (d) promptly identify and submit to Allison all facts
pertaining to OEM outlet use or representation of any Non-Authorized
Item being used on an Authorized Item.
Authorized Maintenance Center is responsible for negotiating direct
with an OEM for any work outside of Warranty(ies) or OCP/SPP.
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5.15 DISPOSITION OF PRODUCTS, MODULES AND PARTS CORES
Authorized Maintenance Center will comply with Allison's disposition
instructions on Items acquired by Authorized Maintenance Center as a
result of performing Warranty(ies), Maintenance Services, OCP/SPP
Maintenance Services, Allison directed Component Repair, special
Policy adjustments, and Campaign inspections/corrections/replacement
and/or Exchange Credits. Refer to the Policy Manual for Core
shipment instructions.
In the absence of instructions, the Authorized Maintenance Center
will hold all Allison Cores for a period of two (2) years in secured
storage, up to a maximum of 2000 cubic feet, free of charge to
Allison, itemized by Module or Part number, the serial number if
applicable, and any other established traceability standard. At the
end of the two (2) year secured storage period, Authorized
Maintenance Center may dispose of Cores only after written
notification to Allison identifying the applicable Cores by quantity,
Module or Part number, serial number or any other established
traceability standard. Such notice must be provided sixty (60)
calendar days prior to Cores disposal. Upon receipt of notice to
dispose, Allison may provide Authorized Maintenance Center
information about appropriate disposal. Core disposal is more fully
detailed in the Policy Manual. Authorized Maintenance Center accepts
all shrinkage, loss and/or damage to said cores while cores are in
its possession.
5.16 TRAINING
Training for Authorized Maintenance Center personnel shall be
provided at the Allison Training School in Indianapolis or at an
Allison Authorized Training School located other than in
Indianapolis. Authorized Maintenance Center shall be responsible for
all related tuition, travel costs and subsistence expenses for the
students attending class in Indianapolis.
Authorized Maintenance Center shall establish and maintain internal
training programs for its personnel. Authorized Maintenance Center
internal training program(s) shall be subject to periodic evaluation,
review, and approval by Allison. Course material, as available from
Allison, may be provided for a charge to Authorized Maintenance
Center for internal course preparation and course delivery. Course
material may not be reproduced or copied for any reason except as
specifically permitted by the relevant Allison document(s) or as
Authorized by Allison.
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Authorized Maintenance Centers may perform training specific to a
particular Customer's Item while Item is at the Primary Premise
and/or Branch Location(s) undergoing Maintenance Services. Training
programs will be consistent with Allison requirements, and the
Authorized Maintenance Center generally may not charge fees for such
Customer training unless agreed to previously in writing by Allison.
Criteria to be taken into account by Allison includes Customer
location, Product diversification and other unique Customer
situations.
5.17 FINANCIAL INFORMATION
Authorized Maintenance Center shall provide to the Authorized
Maintenance Center Administrator, in accordance with instructions in
the Policy Manual, complete and accurate Allison related financial
and operating statements with supporting data pertaining to
Authorized Maintenance Center's Business Operation(s) segmented by
Primary Premise and Branch Location(s) in a form acceptable to
Allison. Financial and operating documents, which will be kept
confidential by Allison, shall represent in sufficient detail the
business volumes, revenues, and operating profiles associated with
the Embodiment of Modules and Parts, Maintenance Services, Component
Repair and any other related activity provided, on or for an Item by
Authorized Maintenance Center for those Products covered under
Warranty and/or OCP/SPP contracts or a specific Customer account
under review.
Authorized Maintenance Center shall provide to the Authorized
Maintenance Center Administrator audited annual balance sheet and
income statements in accordance with Generally Accepted Accounting
Principles as soon as possible after the end of Authorized
Maintenance Center's annual accounting period, but no later than
sixty (60) days after close of the annual accounting period.
5.18 TRACEABILITY
5.18.1 OVERVIEW
Authorized Maintenance Center will maintain an inventory management
and traceability system (herein referred to as the "System")
acceptable to Allison and in accordance with ANSI X.12 and EDIFACT.
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Location and quantity of all Products, Modules, or Parts sold to
Authorized Maintenance Center must be appropriately identified and
maintained within the System. Also, each serialized Item will
require tracing. The traceability portion of the System will be in a
digital format, and compatible with the Data Report(s) and the EDI
network.
The inventory management system utilized by the Authorized
Maintenance Center shall also be a computer based system capable of
handling the bar coding format developed by Allison or as mutually
agreed upon.
5.18.2 INFORMATION TO BE TRACED
Traceability will include, but is not limited to:
o Module or Part number
o serial number
o functional Part code (list developed by Allison)
o source
o Customer
o incident date
o date received
o date of Maintenance Service(s)
o aircraft serial number
o Engine serial number
o Engine flight hours and cycles
o Module flight hours and cycles
o condition
o action/disposition
o time between Overhaul (TBO)
o time since new (TSN)
o export documentation and control
o import documentation and control
All serialized Modules, accessories, assemblies and/or Parts require
full traceability. Repaired Part traceability requirements may
require EDI transfer and bar coding capability by the Authorized
Maintenance Center.
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5.18.3 REPORTING
Computer generated Data Reports will be transmitted electronically in
digital format, when available. Authorized Maintenance Center will
be required to make and update all logbook entries related to
Maintenance Service(s). Authorized Maintenance Center will send
Module and Parts monthly usage reports to Allison's Authorized
Account Administrator via hard-copy or electronically via the EDI
system when available.
5.18.4 INFORMATION TIMING
Initial Module and Part usage data shall be entered into the
inventory management system no later than five (5) days after receipt
of an Item. Data Report(s) must be transmitted within seven (7) days
after initial teardown and no later than five (5) working days after
the Maintenance Services was performed on the Item. A Data Report(s)
must be transmitted after the sale of the Item.
5.18.5 NEW MODULES AND PARTS
Authorized Maintenance Center will utilize bar coding in accordance
with Allison, ANSI X. 12 and/or EDIFACT Standards and subsequent
revisions thereof as provided by Allison. Items will be identified
by Allison and entered into the EDI network utilizing the bar code
format to the extent the capability exists. Any new Module or Part
de coupled from its original truing system (bar code) will be
reidentified and appropriate tracing documentation reestablished.
5.19 MARKETING AND SALES
Authorized Maintenance Center may market Maintenance Services through
the Primary Premise, Branch Location(s) and/or the Marketing
Office(s). In furtherance of the purposes and objectives of this
Agreement, Authorized Maintenance Center shall, (1) actively and
effectively fulfill the needs of Customers through the marketing of
Maintenance Services and Component Repairs for Items; and (2)
actively and effectively promote the use and acquisition of Items (a)
through Authorized Maintenance Center's own market promotion and
advertising activities directed toward Maintenance Services and
Component Repair, (b) by establishing regular contact with both
existing and prospective Customers, and (c) by providing guidance to
such Customers on maintaining adequate inventory levels of Items
consistent with the Customers' Maintenance Services philosophy and
Component Repair programs, Authorized Maintenance Center's
capabilities and the overall recommendations of
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Allison as detailed in appropriate Manuals, Bulletins and Modules and
Parts inventory planning and provisioning conferences.
5.20 ESTABLISHMENT OF ADDITIONAL AUTHORIZED MAINTENANCE CENTER BRANCH
LOCATION(S) AS DIRECTED BY ALLISON In order to meet changes in the
Maintenance Services and Component Repair needs of Customers in the
Authorized Maintenance Center's Region of Responsibility, Allison may
request Authorized Maintenance Center establish an additional Branch
Location(s) or modify a Branch Location's Business Operation in
conjunction with the Primary Premise for the conduct of certain
Business Operations.
If such a request is made by Allison, the Authorized Maintenance
Center and Allison will consult one another and conduct a joint
review of all factors concerning the potential Branch Location(s)
establishment or change. If, after such a review, it is mutually
determined that there is a need for a change or addition to the
Branch Location(s), the parties will agree in writing within six (6)
months which Business Operation(s) adjustments are required, where
the change or addition to the Branch Location(s) shall be, and the
time period in which the change, addition or adjustment shall be
implemented. If mutual agreement cannot be reached, Allison reserves
the right to Authorize another Authorized Maintenance Center to
address and accomplish the establishment or change.
All additional Branch Location(s) and/or modifications to a Branch
Locations' Business Operation shall be Authorized by Allison and
shall be reflected in a new and superseding Primary Premise, Branch
Location(s) and Marketing Office(s) Statement attached to this
Agreement.
5.21 BUSINESS OPERATIONS HOURS OF AVAILABILITY
Authorized Maintenance Center shall maintain Business Operation(s)
consistent with the needs of Customers during all days and hours
which are customary in the trade and are lawful and necessary to
properly serve the Customers. Authorized Maintenance Center shall
provide, as a minimum, Item Maintenance Services within their Region
of Responsibility at a Primary Premise and/or Branch Locations
against a schedule that meets and/or exceeds the Customers'
requirements. Authorized Maintenance Center shall provide emergency
service on a daily, twenty four hour basis.
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5.22 IDENTIFICATION OF AUTHORIZED MAINTENANCE CENTER
Authorized Maintenance Center will, at its expense, install and
maintain in appropriate places at its approved Primary Premise,
Branch Location(s) and Marketing Office(s) signs to identify the
facility(s) and their Business Operation(s). Any representation made
as to Allison, Marks or the Product must first be approved by Allison
and be consistent with the Agreement.
5.23 MODULES AND PARTS USE AND REPRESENTATION
Authorized Maintenance Center will use, market, Embody, lease, rent
or Exchange Items only if they conform to type design established by
the applicable Product(s) Type Certificate in accordance with
applicable Federal Aviation Regulations, such as Part 21, or any
other agency or governmental regulations, and that are a part of the
Maintenance Services and Component Repairs performed by Authorized
Maintenance Center. Further, Authorized Maintenance Center will use,
market, represent, embody, lease, rent or exchange only Allison
manufactured and/or Authorized Products, Modules or Parts, as
supplied directly by Allison or its designee during a Maintenance
Service or Component Repair function. Authorized Maintenance Center
will notify Allison immediately, in writing or through the EDI
network, of situations where Authorized Maintenance Center comes in
contact with or is offered Non-Authorized Module(s) or Part(s). Such
notification will include the type of Module(s) or Part(s), their
Module or Part number(s) serial number(s), vendor, Customer if any,
and any and all other relevant information. Allison will hold
harmless the Authorized Maintenance Center for information provided
on Unauthorized Parts. Allison is interested in said information as
it relates to flight safety. Under no circumstance or situation will
Authorized Maintenance Center utilize a Non-Authorized Item in a
Maintenance Service or Component Repair unless Authorized Maintenance
Center provides records to identify Non-Authorized Item(s) used to
monitor Warranty and Reliability issues. Use of Non-Authorized
Item(s) during a Maintenance Services function can only occur if
Non-Authorized Item(s) have been supplied directly or indirectly by
the Customer.
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5.24 LEASE AND/OR RENTAL ASSETS
Authorized Maintenance Center may not market or sell Products, except
to the extent Authorized Maintenance Centers' own lease or rental
Products are sold within the guidelines and the terms and conditions
of this Agreement and/or the Policy Manual for the disposal of
lease/rental assets or as directed by Allison, within seven (7)
calendar days of request, on a case-by-case basis. Should a Product
be leased or rented as individual Modules, or Line Replacement Units,
the sale of those leased/rented Modules or LRUs would follow the same
guidelines as leased or rented Products.
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ARTICLE 6. GENERAL PROVISIONS
6.1 RESPONSIBILITY FOR AUTHORIZED MAINTENANCE CENTER'S COMMITMENTS
Unless otherwise provided in this Agreement, Authorized Maintenance
Center shall be solely responsible for any and all expenditures,
obligations or responsibilities made, incurred or assumed by
Authorized Maintenance Center in preparation for performance or in
the performance of Authorized Maintenance Center's obligations under
this Agreement.
6.2 MANUALS, BULLETINS AND TECHNICAL DATA
Authorized Maintenance Center will be furnished applicable Operations
(and Maintenance) Manuals, Overhaul Manuals and Illustrated Parts
Catalogs free of charge during the first three (3) years of this
Agreement. Thereafter, Authorized Maintenance Center will procure
these Manuals from Allison. During the term of this Agreement,
Allison will provide to Authorized Maintenance Center the Policy
Manual, copies of Products, Modules and Parts Price List, Terms of
Sale Statement(s), customer support Bulletins, general technical data
and other Manuals (as referenced in the Manual List) as Allison shall
deem necessary and as may be required by Authorized Maintenance
Center in support of their Business Operation(s). Such material may
be Allison proprietary and may bear appropriate copyright and Marks
restrictions. No distribution of this material is to be made outside
Authorized Maintenance Center Business Operation(s) except as
provided in each document, the Policy Manual or as specifically
Authorized by Allison. This material will be distributed to
Authorized Maintenance Center pursuant to the Policy Manual.
6.3 ENGINEERING AND GROUND SUPPORT EQUIPMENT DRAWINGS
Allison engineering drawings and microfilm copies relating to Items
will be furnished by Allison to Authorized Maintenance Center for use
in the Maintenance Services and Component Repairs on Items upon
execution of this Agreement. Such materials are Allison proprietary
and shall not be distributed or disclosed by Authorized Maintenance
Center to any third party(s) unless specifically Authorized in
writing.
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Any Ground Support Equipment drawing(s) relating to Maintenance
Services or Component Repair of a Candidate Part furnished by Allison
to Authorized Maintenance Center are furnished so that Authorized
Maintenance Center may manufacture or have manufactured such test
equipment and tools solely for use in its Maintenance Services or
Component Repairs. Such Ground Support Equipment drawing(s) are
Allison proprietary and shall not be distributed nor disclosed by
Authorized Maintenance Center to any third party(s) except to solicit
bids, and then must bear the appropriate copyright or proprietary
wording, including Marks, as established by Allison, as provided in
the Policy Manual or as noted on the individual engineering or Ground
Support Equipment drawings. Authorized Maintenance Center is
responsible for retrieval of such drawings and information after the
third party's need for material is fulfilled.
Authorized Maintenance Center agrees to abide by the terms and
conditions relating to use and sale of Ground Support Equipment set
forth in the Policy Manual and the terms and conditions of this
Agreement. Authorized Maintenance Center expressly assumes all
responsibility and liability of any kind whatsoever including, but
not limited to, liability for patent infringement arising from the
use by Authorized Maintenance Center of any test equipment and tools
so made.
All engineering and Ground Support Equipment drawings will be
distributed to Authorized Maintenance Center pursuant to the Policy
Manual.
6.4 APPLICABLE LAW, JURISDICTION AND CONSTRUCTION
This Agreement shall be governed by and construed according to the
laws of the State of Indiana, United States of America.
Authorized Maintenance Center irrevocably agrees that any legal
action or proceeding against Authorized Maintenance Center with
respect to this Agreement may be brought in the courts of the country
where Authorized Maintenance Center's Primary Premise is located or
in the state and federal courts of the state of Indiana, as Allison
may elect. Authorized Maintenance Center also irrevocably agrees
that any legal action or proceeding against Allison with respect to
this Agreement shall be brought in the state and federal courts of
the state of Indiana. Authorized Maintenance Center irrevocably
submits to the jurisdiction of the state and federal courts of the
state of Indiana and consents to the service of process in accordance
with applicable trial and court rules.
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Any invalidity of a provision of this Agreement shall not affect the
validity of any other provision of this Agreement and in the event of
a judicial finding of such invalidity, this Agreement shall remain in
force and in effect as to all other provisions and respects.
The parties expressly agree that the United Nations Convention on
Contracts for the International Sale of Goods does not apply to this
Agreement.
The official text of this Agreement is in the English language. If
this Agreement is translated into another language for the
convenience of an Authorized Maintenance Center or any third party,
the English text shall govern any question with respect to
interpretation and intent.
Article headings and titles herein are for the convenience of the
parties only and shall not be construed as affecting the substantive
provisions of this Agreement.
6.5 AUTHORIZED MAINTENANCE CENTER IS NOT AGENT OR LEGAL REPRESENTATIVE
This Agreement does not constitute Authorized Maintenance Center as
an agent or legal representative of Allison, its subsidiaries, any of
its suppliers, or designee for any purpose whatsoever.
6.6 COMPLIANCE WITH GOVERNMENT REGULATIONS
Authorized Maintenance Center and Allison will exchange information
and provide assistance as may reasonably be requested by the other to
facilitate compliance with all applicable government laws,
regulations and orders relating to the Items and the performance of
their respective obligations under or pursuant to the terms and
conditions of this Agreement.
Allison and Authorized Maintenance Center shall be responsible for
determining the existence and nature of all government laws,
regulations and orders applicable to such party and for complying
therewith. Allison will provide, in electronic format whenever
possible, necessary technical data to the Authorized Maintenance
Center so to assist in its compliance with applicable laws.
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Allison and Authorized Maintenance Center recognize and acknowledge
that the export of Items, engineering, technical data or Manuals from
the United States are subject to export control laws, regulations,
orders and requests of the Government of the United States of
America. Each party agrees to comply with and to cooperate with the
other in compliance with all such requirements. Allison will provide
Authorized Maintenance Center with applicable information on United
States of America regulations regarding export control of the
Item(s), Manuals, Bulletins and technical data.
Allison may incorporate any design features or include any equipment
or accessories as required by law on any Item ordered by Authorized
Maintenance Center. Should such design features or equipment result
in additional cost, Allison will identify cost and the relevant
orders affected by additional cost.
6.7 NOTICES
Any notice required to be given by either party to the other per any
term or condition of this Agreement shall be in writing and delivered
either personally, by facsimile or by certified mail, return receipt.
Notices to Authorized Maintenance Center shall be directed to
Authorized Maintenance Center at Authorized Maintenance Center's
Primary Premise Attn:________________. Notices to Allison shall be
directed to the Director of Contracts, Mail Code, U26A, Allison
Engine Company, Inc., P.O. Box 420, Indianapolis, Indiana 46206-0420.
Both parties will copy the Authorized Maintenance Center
Administrator on all notices pertaining to this Agreement.
6.8 NO IMPLIED WAIVERS
The failure of either party at any time to require performance by the
other party of any provision hereof shall in no way affect the full
right to require full compliance and performance at any time
thereafter. The waiver by either party of a breach of any provision
of this Agreement shall not constitute a waiver of any succeeding
breach of the same or any other Agreement provision nor constitute a
waiver of the Agreement provision itself.
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6.9 CONFIDENTIALITY OF AGREEMENT
Allison and the Authorized Maintenance Center agree not to disclose
the terms and conditions of this Agreement, in its entirety or any
section, attachment or addendum thereof to any third party, except as
required by law, without the expressed written authorization of each
other.
6.10 INDEMNITY AND INSURANCE
6.10.1 INDEMNIFICATION BY ALLISON
Allison agrees to indemnify, defend and hold harmless Authorized
Maintenance Center and its directors, officers and employees against
any and all liability, loss, damage, cost, claims, judgments and
expense (including attorney's fees) for property damage, personal
injury or death caused by or arising from any act or omission
committed by employees of Allison while on the premises of Authorized
Maintenance Center in the performance of Allison's obligations under
this Agreement; provided, however, written notice of such damage,
injury of death is given to Allison in a timely manner. Allison's
liability shall be limited to any loss or damage in excess of any
amount recovered under any insurance policy.
6.10.2 INDEMNIFICATION BY AUTHORIZED MAINTENANCE CENTER
Authorized Maintenance Center agrees to indemnify, defend and hold
harmless Allison and its directors, officers and employees against
any and all liability, loss, damage, cost, claims, judgments and
expense (including attorney's fees) for property damage, personal
injury or death caused by or arising from any act or omission
committed by employees of Authorized Maintenance Center while on the
premises of Allison in the performance of Authorized Maintenance
Center's obligations under this Agreement; provided, however, written
notice of such damage, injury or death is given to Authorized
Maintenance Center in a timely manner. Authorized Maintenance
Center's liability shall be limited to any loss or damage in excess
of any amount recovered under any insurance policy.
6.10.3 PRODUCT LIABILITY
With respect to any third party claim, action or proceeding based on
alleged defects of any Allison Product sold by Allison to Authorized
Maintenance Center under the terms of this Agreement which are
alleged to have resulted in death, personal injury or property
damage, the parties to this Agreement agree that:
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a. The parties shall communicate and cooperate with each other
and, if necessary, any appropriate insurance carrier to the
fullest extent reasonably possible in defense of the claim,
action or proceeding, including making available documents or
information or the services of knowledgeable personnel
necessary to the defense of the claim, action or proceeding;
and
b. Each party during the pendency of any such claim, action or
proceeding involving a person, entity or governmental body not
a party to this Agreement shall refrain from taking any
position adverse to or institute any cross-complaint, third
party complaint, inter pleader or otherwise against the other
party to this Agreement. This provision shall not bar either
party from pursuing any available legal or equitable remedies
against the other party after the final resolution of any such
claim, action or proceeding.
Subject to their agreement in paragraph (b), each party reserves the
right to control its own defense of any claim, action or proceeding
referred to in this Article.
In the event that a Product liability action is brought against
Allison or Authorized Maintenance Center relating to any Allison
Product, Module or Part, Authorized Maintenance Center or Allison, as
the case may be, shall promptly provide the other party with a copy
of the summon and complaint in such lawsuit.
6.10.4 INSURANCE COVERAGE
Authorized Maintenance Center, at its sole expense, shall procure and
maintain in full force and effect during the term of this Agreement
policies of insurance of the type and in the minimum amounts stated
below and with an insurance company or companies and under terms
satisfactory to Allison. Policies of insurance (except Employer's
Liability and Workman's Compensation, or substantially similar
coverage) shall name both Allison and Authorized Maintenance Center
as insured thereunder as their respective interests may appear.
Authorized Maintenance Center further agrees to furnish to Allison
prior to execution of this Agreement certificates of insurance issued
by insurance underwriter's and/or insurance broker's certifying that
such policies of insurance are in full force and effect and that
Allison shall be given sixty (60) days prior written notice by the
insurers in the event that either the insurers or Authorized
Maintenance Center desire to cancel or change such policies of
insurance.
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Each certificate shall acknowledge and accept the contractual liability arising
out of this Agreement.
The types of minimum coverage of such policies of insurance shall be as
follows:
Coverage Limits of Liability (U.S. $)
1) Aircraft, Passenger and Public $100,000,000
Liability, Property Damage
2) All Risk Ground and Flight Insurance $100,000,000
3) Employer's Liability $1,000,000
(Statutory Coverage)
4) Workman's Compensation Full Statutory Limits in
Authorized Maintenance
Center's Jurisdiction
5) General Liability Evidence of $1,000,000
Authorized Maintenance Center will provide Allison with copies of all insurance
policies as outlined within this Article no later than sixty (60) calendar days
after the effective date of the Agreement.
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ARTICLE 7: WARRANTY(IES) ON PRODUCTS, MODULES AND PARTS
7.1 OVERVIEW
Allison Warranty(ies) on Products, Modules and Parts are set forth in
the written Warranty(ies) provided therewith and as included in the
Products, Modules and Parts Warranty(ies) sections of the Policy
Manual. Such Warranties are in lieu of and exclude all other
Warranties, including the implied warranty of merchantability and
fitness for a particular purpose, arising by operation of law or
otherwise. Allison shall not be liable for incidental or
consequential damages.
7.2 OCP/SPP DESCRIPTION
The Operating Cost Program (OCP) or Service Protection Plan (SPP) is
offered on select Allison Engine models to provide Customers with a
fixed maintenance cost per engine flight hour. OCP/SPP allows more
accurate maintenance cost predictions and avoids the unplanned costs
associated with inherent unscheduled events.
The OCP/SPP is contracted by Allison with the Customer and may not be
offered by the Authorized Maintenance Center directly. Certain
OCP/SPP Maintenance Services of the Items may be contracted by Allison
to the Authorized Maintenance Center(s). Authorized Maintenance
Centers will be selected on the basis of cost, TAT, Component Repair
capability, Field Service, capacity, and other criteria.
Authorized Maintenance Centers may offer a more extensive maintenance
cost program, covering additional maintenance and service aspects
beyond the Product within their assigned Region of Responsibility.
Such offerings must utilize the Allison OCP/SPP structure and
relevant pricing for the Engine. The offerings could feature Field
Service and the supply of select Modules and Parts. All such
offerings will be mutually agreed upon by the Authorized Maintenance
Center and Allison prior to any associated marketing and/or release
of said maintenance program. Allison, at its sole discretion, may
assist in promoting a particular Authorized Maintenance Center's
maintenance cost program. Assistance would be identified in advance
and agreed to by both Allison and the Authorized Maintenance Center.
7.3 OCP/SPP COVERAGE SUMMARY
OCP/SPP Coverage Summary is contained in the Policy Manual.
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ARTICLE 8. INVENTORY OF PRODUCTS, MODULES AND PARTS
8.1 INVENTORY LEVELS
Module and Part Inventory must be maintained in an amount necessary
to support the Authorized Maintenance Centers' and the Customer(s)
Maintenance Services' requirements. Inventory levels will be
determined during the inventory planning and provisioning process as
outlined in this Agreement and the Policy Manual.
Inventory must be properly packaged, preserved, and marked.
Appropriate identification and source control must be maintained. To
the extent the Modules and/or Parts feature bar coding, such coding
should remain with the Module and/or Parts.
Authorized Maintenance Centers are responsible for understanding the
market population and Customer requirements operating within their
respective Region of Responsibility, including expected Events and
Event Kits by Product.
8.2 INVENTORY PLANNING AND PROVISIONING
It is Allison's intent to continue to reduce overall Item lead-times.
A just-in-time inventory management system is the desired objective.
Toward such an effort, Allison and the Authorized Maintenance Center
will share relevant technical and commercial data to facilitate
enhancement of inventory forecasting and reduce buffer and safety
stock within the overall worldwide demand for Items. It is generally
agreed that the holding of inventory in excess of demand is costly,
and to the extent possible, the aggregate inventory of both the
Authorized Maintenance Centers and Allison needs to be managed as a
whole.
Accordingly, Allison will forecast based on the aggregate market
demand historical demand, projected usage (reliability) and the
forecasts of the individual Authorized Maintenance Centers.
Specifically, the Authorized Maintenance Centers will provide the
following forecast information to Allison:
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o Projection of the annual Product(s) Maintenance Services
demand, by Product and Module or Event classification. The
projection is to be submitted to Allison during the third
quarter of the year preceding the projected year and will
serve as the basis for the annual inventory and provisioning
session.
o Based on the Module or Event classification, the Authorized
Maintenance Center is to identify the quantity of Event Kits
required.
o Identify all existing or contemplated long-term contracts by
Customer name, including expected Events and associated Module
and Part Event Kits. Long-term contracts and associated
forecasts will be managed separately. Long-term contracts
include OCP/SPP Agreements and other associated support
agreements with the Authorized Maintenance Centers.
o Identify a second year forecast of Events by Customer name,
along with associated Modules and Parts.
o Identify annual demand for Modules and Parts in support of
Over-the Counter demand. A second year forecast is also
expected. This forecast will be managed separately from the
Events and Event Kits.
8.3 INVENTORY SCHEDULING
Based upon the information provided to Allison under Article 8.2
above, aggregate worldwide demand for a two year period will be
determined. Individual account representatives will coordinate to
identify and eliminate redundancies in Event and/or Customer
identification. The adjusted demand will be compared to the
historical demand and projected worldwide forecast based on
individual Product reliability estimates, Parts usage profiles and
Customer operating conditions.
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The Authorized Maintenance Center's individual forecast will be
reviewed in light of known discrepancies and agreed upon demands for
both Modules and Parts will be established. The Modules and Parts
will be scheduled for the first years' forecast based upon expected
Events and associated Event Kits. The first six (6) months of the
first years' schedule will be committed to a firm schedule by the
Authorized Maintenance Center, consistent with catalog leads. The
second six (6) months will be tentatively scheduled and will be made
firm as they enter the six (6) month window. The entire forecast
will be a 24 month rolling average forecast.
Any identified long term contract Customer will be scheduled
separately and monitored, as well as Over-the Counter sales.
Allison promotes the movement of inventory commitments from one
Authorized Maintenance Center to another should Event timing and/or
Customer deviations from the identified forecast occur. Should the
Authorized Maintenance Center not support this inventory policy, any
surplus inventory would be to the Authorized Maintenance Center's
account and would not contribute to adjustment of future expected
Event and Event Kits nor Modules and Parts usage.
8.4 BUFFER AND SAFETY STOCK
Once aggregate demand has been identified and pro-rata allocations
made based upon the Authorized Maintenance Center's Customer and
Event profiles, the level of safety stock and required buffer stock
will be determined. Allison will forecast buffer stock consistent
with: 1) Authorized Maintenance Center Event forecast, 2) historical
data, and 3) Product/Customer expected reliability patterns. Buffer
stock will be targeted to support a 100% fill rate for current
production Items at catalog lead, and a 92% fill rate for slow moving
'out of production' Items. The stock will then be assembled and
distributed to select locations for maximum support and minimized
lead time. Based on the pro-rata allocations of Events/Event Kits,
the carrying cost of inventory will be co-shared by all the
Authorized Maintenance Centers and Allison. Actual principle buy
down will occur once the Module or Part has been ordered at the
established catalog price. Reorder points will be set by Allison to
ensure consistent stock levels are maintained.
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8.5 LEAD TIMES
Modules and Parts are available to the Authorized Maintenance Center
at Allison's published lead times. These lead times will be the
basis for replenishment spares procurement and inventory planning
purposes. Lead times are to be taken into consideration when
planning for procurement.
8.6 CONSUMPTION USAGE DATA
Authorized Maintenance Center must maintain, control, monitor, and
report Module(s) and Part(s) consumption usage data. This will
enable Allison to track and assist in inventory planning.
Information on consumption will be reported on a regular basis.
Abnormal/high usage Modules and/or Parts must be reported as
determination is made. Consumption usage data is especially
important in relation to Modules and critical Parts as defined in the
Policy Manual. Actual Event data will be collected via the EDI
network through submission of Data Reports and other
Allison-generated report formats and templates. Consumption usage
data supplied will be the basis for establishing the Embodiment
Credit. No Embodiment Credit will be paid without reported usage
data. If, as determined through audit Allison determines previously
reported usage data is in error, Allison reserves the right to debit
the Authorized Maintenance Centers account for the identified error
of previously issued credit.
8.7 ADDITIONAL INFORMATION
Further details on Products, Modules, and Parts inventory are
available in the Policy Manual.
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ARTICLE 9. COMPONENT REPAIR
9.1 OVERVIEW
To ensure the Products remain successful, Allison and Authorized
Maintenance Center agree that the Maintenance Services and Component
Repair activities must be coordinated to ensure the long term
viability and safety of the Product(s). This section will identify
the overall principles agreed to by Authorized Maintenance Center and
Allison with regard to Component Repair.
9.1.1 APPROACH
Allison will review and Authorize all new Component Repair activities
on Restricted Candidate Parts. Allison reserves the right to review
and disallow existing Repairs which are deemed unsafe by both
Allison.
As part of the Allison Authorization, individual Candidate Part
Development Plans will be structured for all Restricted Candidate
Parts. Similar procedural steps will be followed to obtain Repair
Process approval.
9.1.2 GENERAL ISSUES
Component Repairs Embodied by Authorized Maintenance Center must be
Authorized prior to their implementation. All new Critical Repair
activities on Restricted Candidate Parts will be managed by Allison.
The Authorized Maintenance Center is encouraged to consider
participation in this activity. Authorized Maintenance Centers will
be given consideration for Repair Source selection on Critical
Repairs for Restricted Candidate Parts. Once selected and qualified
for a Critical Repair, Authorized Maintenance Center will act as a
Repair Source to Allison.
Authorized Maintenance Center is required to participate in all
published Book Repairs and is encouraged to identify additional Book
Repair requirements. New and Grandfather Component Repairs on
non-Restricted Candidate Parts which are identified by the Authorized
Maintenance Center may be subject to disclosure restrictions to
protect Authorized Maintenance Center data rights and its business
competitive advantage(s).
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Data rights, approvals, Authorizations, Qualification, and Repair
Source privileges provided, granted or sold to Authorized Maintenance
Center under this Agreement do not include the right to manufacture
any Product, Module, Part, or sub-detail of the Product, Module or
Part. Nor is Authorized Maintenance Center allowed to participate as
a subcontractor, joint venture partner or supplier to a third party
involved in the Unauthorized manufacture, marketing or sale of
Products, Modules or Parts or subdetails of the Product, Module, or
Part.
Component Repair activities on Restricted Parts will be coordinated
and designed to optimize Customer satisfaction and assist in reducing
DMC, as well as provide additional business opportunities to
Authorized Maintenance Center and Allison. Authorized Maintenance
Center shall not provide any Component Repair related data, supply
component-related services or Cores to any Non-Authorized third
party for any purpose whatsoever.
9.2 GRANDFATHER COMPONENT REPAIRS
It is understood and recognized that the Authorized Maintenance
Center currently markets and Embodies Component Repair processes
which are beyond the scope of the Allison Authorized maintenance
documentation, and that these processes were approved against the
Quality assurance systems of the Authorized Maintenance Center and
controlling regulatory agencies.
Under the terms of this Agreement, Allison reserves the right to
review these Component Repairs (Book or Critical Repair
Classification) in order to establish their technical acceptance.
Allison will not utilize this process review as a basis to disallow
uneconomical Repairs, but reserves the right to disallow unsafe
Repairs, and specify their continued Embodiment by the Authorized
Maintenance Center as grounds for termination.
Only those Repairs which Allison has specifically qualified and
Authorized, either through publication or other written
documentation, may be represented as Authorized Repairs. Unless
specifically stated, existing Grandfather Component Repairs,
performed by the Authorized Maintenance Center, are not Authorized
Allison Repairs, and Allison makes no claims as to the Quality and
reliability of those Repairs nor any Authorized nature including the
representation of Marks as they may or may not apply to the Repairs.
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9.3 TECHNICAL COORDINATION AND SUPPORT
9.3.1 CANDIDATE PART SELECTION
All Restricted Candidate Parts, along with their associated Repair
Processes, will be considered as part of the coordinated approach to
Repairs, and will be selected based on various market, business,
Customer, technical and engineering issues. Allison reserves the
right to make final Candidate Part, Repair Process(es) selection,
Repair Source(s) selection, Candidate Part Classification and to
establish priorities. Allison may elect to delegate limited
authority to the Authorized Maintenance Center which would allow the
Authorized Maintenance Center to select Restricted Candidate Parts,
preclassify, and pursue Repair development activities for Standard
and Common Book Repairs prior to Allison approval and Authorization
(Standard and Common Book Repair are identified within the Policy
Manual).
The identification and submittal of Restricted Candidate Parts, which
are considered by Authorized Maintenance Center as probable Book
Repairs, and to which Allison concurs, will be handled in an
expeditious manner as outlined in the Policy Manual.
9.3.2 CLASSIFICATION AND PRIORITIZATION
All Candidate Parts will be subject to Classification and
prioritization. Candidate Parts and the associated Repair Processes
will be classified as either Book Repair or Critical Repair. Book
Repairs may be approved by Allison and published in the appropriate
Manuals and technical literature as directed in the Policy Manual.
All published Book Repairs are for general use by Authorized
Maintenance Center in support of Customers. Disclosure of some Book
Repairs may be restricted within the guidelines of the Policy Manual.
Allison may delegate limited authority to the Authorized Maintenance
Center for the pre-Classification of certain Repairs.
Restricted Candidate Parts and Repair Processes classified as
Critical Repair will be subjected to limited release to only approved
Repair Source(s). Critical Repairs will be administered by Allison
per the Policy Manual.
9.3.3 REPAIR CONCEPT APPROVAL
Each Restricted Candidate Part Repair concept and need must be
substantiated and submitted for approval by Allison, as defined in
the Policy Manual
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Any Request for Qualification submitted by Authorized Maintenance
Center for consideration will be evaluated according to the
individual Restricted Candidate Part, technical, engineering, market
and business factors. Classification of the Repair will also
influence the Development Plan and Qualification of the Repair.
Request for Qualification approval does not indicate Repair
Process(s) approval. Request for Qualification approval indicates
that the Repair Process(s), both technically and programmatically, is
in line with Allison Product strategies. All approved requests must
be qualified by Allison. Classification will influence the level of
effort required for Qualification, as described in the Policy Manual.
9.3.4 PROPRIETARY DATA
In the event that any selected Request for Qualification and
associated Repair Process(s) contain proprietary data or processes
which are owned, licensed or controlled by the Authorized Maintenance
Center, the Authorized Maintenance Center may be asked to license
this data to other Authorized Maintenance Centers which may be
selected as a Repair Source for the Restricted Candidate Part.
Authorized Maintenance Center will be allowed to collect a reasonable
fee or define a royalty for the use of this proprietary data and
place reasonable and customary restrictions on its use and disclosure
consistent with the specific proprietary rights.
Allison will assist in the control and administration of these
proprietary rights as requested by Authorized Maintenance Center or
as identified in the Development Plan and Qualification plan(s).
9.4 ADMINISTRATIVE COORDINATION AND SUPPORT
9.4.1 REPAIR PROGRAM COORDINATION
Component Repair activities will be coordinated within Allison by
Product. Authorized Maintenance Center Restricted Candidate Part
Repair related activities will be managed according to this
Agreement. Book Repair needs and activities may also be coordinated
as required to meet Customer and program needs.
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Authorized Maintenance Center may be invited to participate in the
meetings held to discuss the technical issues of Repair, Development
Plan(s) and market needs. The meeting locations will be mutually
agreed upon and coordinated with other activities (if possible) to
reduce administrative cost and time.
9.4.2 PROGRAM FUNDING AND ALLOCATION
For Grandfather Component Repairs which the Authorized Maintenance
Center is seeking approval, the Authorized Maintenance Center may be
required to provide resources, at a mutually agreed level, for the
purpose of Component Repair development and Qualification activities
in order to control data disclosure as defined in the Policy Manual.
Critical Repair qualification resources for Restricted,
non-Restricted Candidate Parts, for which Allison is seeking Repair
Sources will be determined on an individual component basis.
Resources may include any one or a combination of monetary funds,
manpower, or capital. Participation as a Repair Source in any
Critical Repair development program will be at the discretion of the
Authorized Maintenance Center, and subject to approval by Allison.
9.4.3 PUBLICATION OF PROCESSES
All new Book and Critical Repairs will be documented according to
requirements defined in the Policy Manual. All new Book Repairs will
be time-released based on resource and Development Plans approved by
Allison. When published, Book Repairs will be included in the
appropriate Manuals and technical data at the first available
opportunity. Grandfather Component Repairs will not be published
unless authorized by the Authorized Maintenance Center.
Documentation on Allison Authorized Critical Repairs will be
restricted to limited distribution. Allison and the Authorized
Repair Source(s) will be the only recipients of Critical Repair
documentation. Allison reserves the right to retain certain
copyright and ownership rights and place Marks on certain Repair
Process documentation and to provide such documentation to the
Authorized Repair Source(s). Marks' requirements will be determined
on an individual Component Repair basis and will be consistent with
and take into account adequate levels of resources, funding, and the
sources thereof.
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9.5 DEVELOPMENT AND QUALIFICATION
9.5.1 BOOK REPAIRS
Throughout the life of the Product(s) program(s), Book Repairs will
be identified and developed by Allison and the Authorized Maintenance
Centers. All new Book Repairs shall undergo a development and
Qualification cycle that is consistent with its complexity, as
defined in the Policy Manual. Each Authorized Maintenance Center may
be required to participate in the Qualification of Book Repairs, to
the extent such individualized Qualification is necessary.
Limited rights and responsibilities may be delegated to the
Authorized Maintenance Center, regarding identification, development
and Qualification of certain Book Repairs. This delegation of
limited authority would be accomplished as a formal addendum to this
Agreement. Granting of delegated authority will be based on
Allison's review and approval of the Authorized Maintenance Center's
demonstrated capability, business systems, operational procedures and
personnel qualifications.
At any time, Allison may revoke or limit this delegated authority,
should the Authorized Maintenance Center be found to be non-
compliant under the terms and conditions of this Agreement,
exercising poor technical judgment or exceeding the intended and
agreed to terms and conditions of the delegated authority.
Furthermore, Allison reserves the right, and may at any time, reverse
or alter an Authorized Maintenance Center Repair and/or Repair
Classification decision made under this delegated authority. Allison
will provide reasonable program, business or technical substantiation
for reversing the Authorized Maintenance Center's decision. With
regard to a reversal of approval of a Repair, the Authorized
Maintenance Center will be provided up to six (6) months to correct
any said deficiency identified during that period of time, no Repair
of which the reversal of approval applied will be pursued or utilized
in any fashion.
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9.5.2 REQUEST FOR QUALIFICATION
Authorized Maintenance Center may submit to Allison a Request for
Qualification for any specific Grandfather or new Component Repair.
Authorized Maintenance Center's requesting Allison Authorization may
be responsible for all resource requirements to approve the Repair
Process. The request shall be accompanied by a data package which
includes the details listed in the Policy Manual.
9.5.3 DEVELOPMENT PLAN
Allison reserves the right to define the Development Plan and
associated Qualification requirements for each individual Candidate
Part. The Development Plan will define the requirements and criteria
which must be satisfied in order for a Repair Process and Repair
Source to be qualified.
9.5.4 QUALIFICATION REQUIREMENTS
All Component Repairs classified as Critical in accordance with this
Agreement shall be subject to a detailed Qualification program in
order to receive Allison Authorization. The Repair Qualification
program shall be defined by Allison.
It is the responsibility of Authorized Maintenance Center, for those
Repair Processes which it is seeking approval, to ensure all Repair
criteria of the Qualification program are properly documented and
completed. Authorized Maintenance Center shall submit all Records
required to substantiate completion of the Qualification criteria.
Any changes or revisions required in the Qualification program will
be coordinated through Allison. Those revisions that may affect
testing, metallurgical results, or other requirements may require a
second Qualification at some specific level.
9.5.5 RESOURCE OBLIGATIONS
Each Authorized Maintenance Center may be required to contribute a
reasonable level of resources toward the Development and
Qualification effort of each Repair Process for which they are
seeking approval. This resource contribution will be mutually agreed
upon between Allison and Authorized Maintenance Center and in
compliance with Article 9.4.2.
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9.6 REPAIR SOURCE ADMINISTRATION
9.6.1 REPAIR SOURCE SELECTION
Authorized Maintenance Center, by virtue of its position as an
Authorized Maintenance Center, is automatically approved as a Repair
Source for all published Book Repairs. When necessary, selection,
Qualification and control of any third party Repair Source for Book
Repairs is the responsibility of Authorized Maintenance Center. The
Authorized Maintenance Center must warrant to Allison that any third
party, subcontracted by the Authorized Maintenance Center, will not
market or resell Repaired Parts or Cores nor enter into any agreement
to accomplish the same.
Authorized Maintenance Center may be given Repair Source
consideration for Critical Repairs selected by Allison for
Qualification. Authorized Maintenance Center selection as a Repair
Source for Critical Repairs is not automatic. Authorized Maintenance
Center must substantiate its capability and show its ability to meet
objectives for each Critical Repair. The quantity of Repair
Source(s) will be consistent with market factors. Authorized
Maintenance Centers selected and qualified to perform certain
Critical Repairs for Allison are fulfilling an obligation as a Repair
Source to Allison, and may not independently sell or market the
Critical Repair.
Allison reserves the right to make final Repair Source selection for
each Critical Repair it Authorizes and will consider third party
sources as required to meet market objectives. Repair Source
selections and Authorization of Critical Repairs will be handled
under separate addendum to this Agreement for each Critical Repair.
9.6.2 REPAIR SOURCE CONTROL
All Authorized Maintenance Centers selected as a Repair Source for
Critical Repairs will be subject to periodic audits.
Repair Source audits will address Repair Process related technical
and Quality assurance issues of each Authorized Critical Repair. It
is the responsibility of Authorized Maintenance Center to retain
accurate and comprehensive Records of each Repair Process, according
to established guidelines within this Agreement.
Allison may perform a Repair Source audit with at least one (1)
business day notice to Authorized Maintenance Center.
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If, during an audit, Authorized Maintenance Center is found to be
non-compliant with the Qualified Repair Process, the Authorized
Maintenance Center will be formally notified in writing of the
non-compliance and corrective action will be identified. Allison
reserves the right to temporarily or permanently withdraw its
Authorization for any or all affected Critical Repairs if the non-
compliance condition continues after corrective action steps have
been identified and implemented to pre-agreed timing requirements.
Appropriate Agreement addendum(s) would be issued to address the
temporary or permanent withdraw of the Authorization.
9.6.3 MULTIPLE REPAIR SOURCES
Multiple Repair Sources for Critical Repairs may be considered for
each selected Candidate Part. Allison reserves the right to make
final Repair Source selection for purchase of Critical Repairs and
select/limit the number of Repair Sources based on technical, market
and Product program issues.
9.6.4 THIRD PARTY SOURCES
Third party sourcing for both Book and Critical Repairs is intended
to be held to a minimum. All third party activity is intended to be
managed and defined as to limit any potential adverse effects or loss
of management over Component Repair or over all Product business loss
outside the Allison/Authorized Maintenance Center network which could
negatively impact the flight safety of the Product.
If the Authorized Maintenance Center subcontracts Repair Processes
for Book Repair to third parties, the Authorized Maintenance Center
is responsible for administering the appropriate Quality, technical,
Mark and program controls.
Authorized Maintenance Center is required to consider other
Authorized Maintenance Center's for Book Repairs, prior to
subcontracting to a third party. Validation of third party sourcing
to other Authorized Maintenance Centers for Book Repair(s) may be
audited by Allison on an annual basis.
All Critical Repairs for Restricted Parts, which involve a third
party, will be contracted and administered by Allison.
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9.6.5 SOURCE INSPECTION OF REPAIRS
In accordance with Quality assurance objectives, Critical Repairs
performed by the Authorized Maintenance Center, on behalf of Allison,
will be subject to Source Inspection until Repair Source
certification is established.
Allison will perform Source Inspection of Repairs. Authorized
Maintenance Center is required to include Source Inspection
requirements in the processing of all such Critical Repairs. Allison
shall bear any cost associated with its Repair Source Inspection.
9.6.6 TOOLING AND EQUIPMENT
Authorized Maintenance Centers are required to maintain adequate
levels of Ground Support Equipment and other necessary equipment and
capabilities which allow the performance of published Book Repairs.
In some instances, Allison may consign or bail tooling, equipment,
and/or Ground Support Equipment for Critical Repairs to Authorized
Maintenance Center. It will be the responsibility of Authorized
Maintenance Center to maintain and utilize this hardware in
accordance with the terms and conditions of the relevant consignment
and/or bailment agreement.
Consigned or bailed Ground Support Equipment, tooling or equipment
will remain the property of Allison and may be removed from
Authorized Maintenance Center by Allison at any time, following a
sixty (60) calendar day prior written notification, or as otherwise
mutually agreed.
9.7 QUALITY ASSURANCE
9.7.1 GENERAL REQUIREMENTS
Acting as a source for Repairs, the Authorized Maintenance Center
must maintain itself as an approved facility within the guidelines of
any and all regulatory agencies applicable to its Customer base.
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Allison reserves the right to initially survey, recommend changes to,
and approve the Authorized Maintenance Center Quality System. The
recognized approval and subsequent maintenance thereof is a minimum
requirement for the participation in Development and Qualification of
Component Repair of Allison approved Component Parts.
9.7.2 PROCESS/PROCEDURE CONTROL
The Authorized Maintenance Center Quality System must provide
adequate controls for the processing of Component Repairs. The
integrity of each Component Repair requires conformance to approved
Repair Processes and procedures at all times.
The Authorized Maintenance Center is responsible for maintaining
internal procedures that incorporate the latest release of Authorized
technical specification data. Once approved by Allison, individual
Repair Process(s) or procedures cannot be changed without Allison
notification and Authorization.
The Authorized Maintenance Center is responsible for control of all
supplies and services as approved for use in the performance of
Component Repairs.
An effective Inspection System will be utilized that assures
conformance to all Component Repair specifications and procedures
that can be met at all times. This must be inclusive of incoming
materials, in-process controls, and final acceptance/testing. The
Inspection System must provide for adequate documentation of
Component Repair status and traceability.
9.7.3 QUALITY AUDITS
Allison reserves the right to perform initial Quality System surveys
and periodic audits of the approved Authorized Maintenance Center
Quality System. It is the responsibility of the Authorized
Maintenance Center to impose internal self-audits and always maintain
a Quality System accounting program in acceptable standing with
Allison, and all controlling regulatory agencies. Allison Quality
System surveys and audits may be performed independent of other
business or financial audit requirements, as specified elsewhere in
this Agreement, and can become substantiation for the suspension of
Component Repair and Repair Source status if found to be
unsatisfactory.
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9.7.4 TRACEABILITY
Repaired Part traceability will be performed in accordance with the
requirements set forth by any relating industry serviceability
regulations, Allison procedures, the terms and conditions of this
Agreement and the Policy Manual.
It is the overall responsibility of the Authorized Maintenance Center
to utilize proven traceability systems that account for documentation
and Repair Process control. These include, but are not limited to:
technical data flow, changes/updates, materials/supplies, processes,
inspections, tests, and final dispositions.
Where specified or required, subsequent to the Repair, Repair Part
traceability by lot, serial number, or other effective means will be
fully documented and made available upon request.
9.8 SUPPLY AND INVENTORY CONTROL
9.8.1 CORE CONTROL
All Non-Serviceable Items displaced by a Warranty(ies), Policy or
under the auspices of an OCP/SPP revert to Allison ownership when
removed from a Product or Module.
Authorized Maintenance Center is responsible for the disposition of
all Allison-owned Cores in accordance with Allison direction. Costs
associated with the disposition of those Cores are not the
responsibility of Authorized Maintenance Center, are addressed within
the Policy Manual, and may be subject to storage by the Authorized
Maintenance Center if directed by Allison.
Non-Allison owned Cores may be applicable to Exchange Credit or Core
Credits as described within the Policy Manual.
9.8.2 REPAIRED PART SUPPLY/SALES/DISTRIBUTION
Authorized Maintenance Centers selected to perform specific Critical
Repairs for Allison are required to produce and supply those Repaired
Parts in accordance with terms and conditions of this Agreement and
Policy Manual.
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Transfer and sale of Book Repairs and Book Repair services between
Authorized Maintenance Centers is allowed and encouraged in order to
minimize unnecessary duplication and excessive capital investments.
9.8.3 REPAIR MATERIAL
All sub-Part level details will be made available to Authorized
Repair Sources for purchase, as directed by Allison, for both Book
and Critical Repairs. Cores controlled by Allison will be made
available to the Authorized Repair Source(s) in support of Component
Repairs.
Authorized Maintenance Center may be permitted to manufacture Part(s)
sub-details in certain situations, as specifically Authorized.
Should Allison choose to outsource subdetail piece Parts, the
Authorized Maintenance Centers may be given consideration to match
the terms and conditions of any beneficial offer by a third party to
Allison for equivalent supply.
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ARTICLE 10. PRICES, PAYMENT AND OTHER TERMS OF SALE
10.1 OVERVIEW
10.2 NEW OR REPAIRED MODULES OR PARTS
The price applicable to Modules and Parts sold to Authorized
Maintenance Center hereunder, including any applicable discounts or
allowances, shall be the invoice price in effect on the Ship Promise
Date (acknowledged electronically or in writing by Allison) for
Module(s) and/or Part(s). Other charges and terms of sale applicable
to purchases of Modules and Parts by Authorized Maintenance Center
shall be those established in accordance with the Terms of Sale
Statement(s) in effect at the time of shipment to Authorized
Maintenance Center, or as detailed in the Modules and Parts
Statement, its revisions or the Products, Modules and Parts Price
List, or its revisions.
The prices, charges, discounts, allowances and other terms applicable
to Modules or Parts may be changed at Allison's discretion, from time
to time.
Authorized Maintenance Center may cancel or reschedule orders for
Modules and Parts in accordance with the Module(s) and Part(s) Terms
of Sale Statement(s).
10.3 NEW PRODUCTS
The price applicable to Products sold to Authorized Maintenance
Center hereunder, including any applicable discounts or allowances,
shall be the invoice price in effect on the Ship Promise Date
(acknowledged electronically or in writing by Allison) for
Product(s). Other charges and terms of sale applicable to purchases
of Product(s) by Authorized Maintenance Center shall be those
established in accordance with the Terms of Sale Statement(s) in
effect at the time of shipment to Authorized Maintenance Center, or
as detailed in the Product Statement(s), its revisions, or the
Product, Module and Parts Price List, or its revisions.
The prices, charges, discounts, allowances and other terms applicable
to Products may be changed by Allison from time to time.
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Authorized Maintenance Center may cancel or modify orders for
Products to in accordance with cancellation terms identified in the
Terms of Sale Statements provided written notice of cancellation or
modification is delivered to Allison. All undelivered orders not
canceled or modified as provided herein shall remain in effect for
delivery by Allison.
10.4 SHIPMENTS OF MODULES AND PARTS
Allison will arrange for shipment of Modules and Parts ordered by
Authorized Maintenance Center to the Authorized Maintenance Center's
Primary Premises or Branch Location(s). Allison reserves the right
to select the production locations and the warehouse/inventory
locations of Modules and Parts. Unless otherwise directed, the
Logistics Company will handle all Module and Parts shipments on
behalf of and for the account of Authorized Maintenance Center.
Expedite and AOG shipments will be directed using the earliest
delivery mode(s).
Allison shall not be liable for any delay, loss or damage to Modules
or Parts that have been transferred to the safekeeping of the
Logistic Company. Authorized Maintenance Center should directly
contact the Logistic Company regarding delays, loss or damage.
Additional costs incurred by Allison as a result of Modules and/or
Parts being diverted because of Authorized Maintenance Center's delay
or failure to accept delivery shall be to Authorized Maintenance
Center's account, except as noted in Article 4.2.2.
10.5 SHIPMENTS OF PRODUCTS
Allison will arrange for shipment of Product(s) ordered by Authorized
Maintenance Center to the Primary Premise or Branch Location(s) in
their Region of Responsibility. Allison reserves the right to select
the production locations and the warehouse/ inventory locations of
Products. Unless otherwise directed by Allison, the Logistics
Company will handle all Product shipments on behalf of and for the
account of Authorized Maintenance Center. Expedite and AOG shipments
will be directed along the earliest delivery mode(s).
Allison shall not be liable for any delay, loss or damage to
Product(s) that have been transferred to the safekeeping of the
Logistic Company. Authorized Maintenance Center should directly
contact the Logistic Company regarding delays, loss or damage.
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Additional costs incurred by Allison as a result of Products being
diverted because of Authorized Maintenance Center delay or failure to
accept delivery shall be to Authorized Maintenance Center's account,
except as noted in Article 4.2.2.
10.6 AUTHORIZED MAINTENANCE CENTER REIMBURSEMENT
Allison shall reimburse Authorized Maintenance Center in accordance
with the applicable terms and conditions of this Agreement, the
applicable provisions of the Policy Manual and the applicable
provisions of the Standard Labor Hours Manual for the performance of
Maintenance Services and Component Repairs made pursuant to: 1)
Warranty(ies) furnished by Allison, 2) OCP/SPP contracted programs,
3) Policy adjustments approved by Allison, 4) Campaign programs, 5)
inspections or corrections for Items as directed and Authorized by
Allison, and 6) any other Allison/Customer contracted programs and
Agreements.
10.7 CORE CREDITS
If agreed by Allison, Authorized Maintenance Center and
Customer-owned Cores (Warranty, Policy or OCP/SPP displaced Cores are
Allison property) may be returned for Credit. The Authorized
Maintenance Center's actual cost for said Core will determine the
Cores Credit return value or as otherwise specifically delineated
within the Agreement.
Core Credits will be non-monetary (except in certain instances
involving termination). Authorized Maintenance Center will receive
Core Credits by way of the established equivalent value being
Credited to Authorized Maintenance Center's account. These Credits
can be used at Authorized Maintenance Center's discretion toward
Module or Part orders.
10.8 EXCHANGE CREDITS
Critical Repaired Parts will be sold to Authorized Maintenance Center
per the terms of Article 10.2 less an Exchange Credit for the
applicable Core(s) submitted with order. Exchange Cores must be
submitted, on a Part by Part, order by order basis, to receive Core
adjustment to the list price.
Orders received without exchange Cores will be invoiced at the
published List Price less the applicable discount, plus any published
Exchange Credit.
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10.9 PROMOTIONAL PRICE DISCOUNTS
Allison reserves the right to occasionally offer promotional price
discounts exclusively to Authorized Maintenance Centers. These
discounts may be utilized to encourage Embodiment activity, offset
inventory cost, encourage Authorized Maintenance Service, provide
marketing incentives and/or assist in ensuring adequate markets
exist.
10.10 ACCOUNTS PAYABLE
During the course of the business relationship hereunder, Allison
will establish accounts as necessary for the Authorized Maintenance
Center transactions. Such accounts will reflect the amount due
either party by the other in connection with Products, Modules,
Parts, Maintenance Services, Credits, discounts, Warranties and
similar matters.
While Allison may, for the mutual convenience of the parties, pay
funds to Authorized Maintenance Center while indebtedness from
Authorized Maintenance Center to Allison is outstanding, all monies
or accounts due to Authorized Maintenance Center shall be considered
net of matured indebtedness of Authorized Maintenance Center
(including indebtedness arising from the charge-back to Authorized
Maintenance Center of Claims previously Credited to Authorized
Maintenance Center and later determined not to be properly payable)
against any monies or accounts due to Authorized Maintenance Center.
Unless otherwise agreed in writing, any monies or accounts payable by
Allison to Authorized Maintenance Center shall be paid by Allison as
Product, Module or Parts Credits against the Authorized Maintenance
Center's account via the EDI network, Electronic Funds Transfer (EFT)
or as mutually agreed upon.
Authorized Maintenance Center agrees to notify Allison immediately if
the creation, management or payment of any account referred to above
does not comply with the laws or regulations of the country where
Primary Premise or Branch Location(s) performing the work are
located.
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Authorized Maintenance Center and Allison recognize the right to
disclose matters related to this Agreement, including the existence,
the nature and the amount of the above mentioned accounts, when such
disclosure is required by law or regulation or is specifically
directed by applicable judicial orders involving either Authorized
Maintenance Center or Allison.
10.11 PREPAYMENT OF LOGISTICS SERVICES
Certain shipments of Product(s), Module(s), or Part(s) may benefit
from Allison prepayment of logistics services (freight) from the
Logistics Company with regard to export/import control, value added
tax, and other costs. Should further investigation support such an
arrangement, Allison reserves the right to prepay and add to the
applicable invoice the amount of the logistics services expense.
Allison intends to include the cost of freight in the Products,
Modules and Parts Price List in the near future. Such arrangements
have been determined to be more efficient and cost effective.
10.12 LATE PAYMENT CHARGE
Allison reserves the right to assess, at its sole discretion, a late
payment charge equal to .05% per day, or the maximum allowable by
law, on any past due balances owing Allison upon failure of the
Authorized Maintenance Center to meet the account terms established
in this Agreement or the attached Statements.
10.13 INVOICES
Allison reserves the right to provide the original invoice as an
attachment to the shipment, and/or mail the invoice separately. The
invoice will be appropriately identified and an unpriced
invoice/packing slip will be contained within the package/shipment.
It remains the Authorized Maintenance Center's responsibility to
collect all such invoices from the appropriate receiving
department(s) at the Primary Premise and/or Branch Location(s). Any
deviation from this practice will most likely result in delays and
additional expense to Allison and the Authorized Maintenance Center.
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ARTICLE 11. TAXES
Authorized Maintenance Center recognizes that it is an independently
owned and operated business entity and as such accepts full
responsibility for the collection and/or payment of any and all taxes
as may be required by local regulations or statutes in connection
with any of the Business Operation(s) conducted by Authorized
Maintenance Center hereunder. Authorized Maintenance Center shall
hold Allison harmless in connection with any claims or demands made
upon Authorized Maintenance Center or Allison by local authorities in
connection with the collection and/or payment of any such taxes,
including, without limitation, stamp taxes, sales and use taxes,
personal property taxes, value added taxes, income taxes and import
duties, export duties or any other taxes. Authorized Maintenance
Center agrees to indemnify, defend and hold harmless Allison and its
directors, officers and employees against all liability claims and
expenses (including attorney's fees) for taxes which Allison might be
assessed as a consequence of Authorized Maintenance Center's Business
Operations under this Agreement.
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ARTICLE 12. TRADEMARKS AND SERVICE MARKS
12.1 OWNERSHIP
Allison, or its affiliated company(s) are exclusive owners of and
have the exclusive right to the various Marks used in connection with
Items.
12.2 DISPLAY OF MARKS BY AUTHORIZED MAINTENANCE CENTER
Authorized Maintenance Center is granted the non-exclusive privilege
of displaying Allison related Mark(s) in the conduct of its Authorized
Maintenance Center Business Operations, provided, however, the
Authorized Maintenance Center shall discontinue the display or use of
any such Marks or change the manner in which any Marks are displayed
or used when requested to do so by Allison. Such Marks may not be
used or included within the name under which Authorized Maintenance
Center's Business Operation(s) are conducted or in connection with the
business of any company affiliated with Authorized Maintenance Center
unless previously Authorized by Allison.
12.3 DISCONTINUANCE OF USE UPON TERMINATION
Upon the expiration or termination of this Agreement, Authorized
Maintenance Center will immediately discontinue the use and display
of Allison Marks, at the Authorized Maintenance Center's expense.
Thereafter, Authorized Maintenance Center will not use, directly or
indirectly, any Marks or any other marks so resembling such Marks as
to be likely to confuse or deceive the Customers or the public in
general, including reference to Allison and the Authorized
Maintenance Center designation.
12.4 MARK REGISTRATION BY AUTHORIZED MAINTENANCE CENTER
Authorized Maintenance Center will not take any action, directly or
indirectly, to register or cause to be registered any Marks nor any
marks which resemble such Marks in its favor or in the favor of any
third party. Should such registration be required, the Authorized
Maintenance Center will notify Allison of registration
requirement(s), at which time, to the extent possible, Allison will
resolve the registration directly.
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12.5 LIABILITY FOR FAILURE TO DISCONTINUE USE
Authorized Maintenance Center shall reimburse Allison, or its
affiliated company(s) for all costs, legal fees and other expenses
incurred in connection with legal action commenced by Allison or its
designee requiring Authorized Maintenance Center to discontinue use,
in accordance with the terms of this Agreement, if the judgment is
found in Allison's favor.
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ARTICLE 13. TERMINATION OF AGREEMENT
13.1 TRANSACTIONS AFTER TERMINATION
13.1.1 TERMINATION DELIVERIES
If this Agreement is voluntarily terminated by Authorized Maintenance
Center under Article 13.2, Allison will furnish, in accordance with
the terms and conditions of this Agreement, Authorized Maintenance
Center with Module(s) and/or Part(s) to satisfy the Authorized
Maintenance Center's Maintenance Services obligations effective at
the date of termination. Authorized Maintenance Center shall provide
Allison with a list of such obligations (herein called Schedule of
Termination Deliveries) within ten (10) business days following the
written notice of termination, identifying each Customer's name,
address and the details of each Item to be worked (including Product,
Module or Part numbers and serial numbers) along with the Event and
Event Kit Modules and Parts which need to be ordered or are on order
and required to fulfill the Maintenance Services obligations.
Authorized Maintenance Center's orders for Module(s) and Part(s)
identified in the Schedule of Termination Deliveries will be reviewed
by Allison within five (5) business days after receipt.
Allison's Parts Distribution Center will advise Authorized
Maintenance Center should there be any concern with any particular
obligation, and if so, what additional detail regarding subject
obligation is necessary. Upon satisfactory review, the orders will
be accepted and acknowledgment made either in writing or
electronically to Authorized Maintenance Center identifying the
orders to be filled and the related Ship Promise Date and basis of
delivery.
Authorized Maintenance Center shall accept all Module(s) or Part(s)
ordered by Authorized Maintenance Center and acknowledged under this
provision. In the event Authorized Maintenance Center fails to do
so, Authorized Maintenance Center shall have no further right to
receive any such Module(s) or Part(s).
Module(s) or Part(s) shall be delivered hereunder in substantial
accordance with the schedules and basis of delivery as identified and
as of the effective date in compliance with the notification of
termination and termination.
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Authorized Maintenance Center shall immediately provide cancellation
notice if, for any reason, a Customer cancels the respective
obligation set forth in the Authorized Maintenance Center's Schedule
of Termination Deliveries. In the event such cancellation notice is
received before shipment of the Module(s) or Part(s) to apply against
such order, Allison shall be released from its requirement to make
delivery of such Module(s) or Part(s) and Authorized Maintenance
Center shall be released from its requirement to take delivery and
make payment.
13-1.2 EFFECT OF TRANSACTIONS AFTER TERMINATION
Neither the sale of Items by Allison to Authorized Maintenance
Center, nor any other act by Allison or Authorized Maintenance Center
during termination proceedings or after termination of this Agreement
will be construed as a waiver of the termination.
13.1.3 ALLISON'S OPTION TO PURCHASE
If this Agreement is terminated by either party or expires and
Allison does not offer Authorized Maintenance Center or any
replacement candidate that has substantially the same ownership and
management or any approved transferee a new Agreement, Allison will
have the option to purchase from Authorized Maintenance Center and
may require Authorized Maintenance Center to sell any or all of the
following Items at the prices indicated:
(a) New, Repaired or Serviceable Products, Modules, Parts or Cores
and/or Non-Serviceable Cores owned or controlled by Authorized
Maintenance Center on the effective date of termination which
were purchased by Authorized Maintenance Center from Allison,
or its designee, at the invoice prices less any discounts or
Credits provided to Authorized Maintenance Center for such
Products, Modules and Parts, less transportation charges which
Authorized Maintenance Center paid for shipment of such Items
to its Primary Premise, plus normal transportation charges
prepaid by Authorized Maintenance Center to a destination
specified by Allison, less charges, at the lesser of the
adjusted invoice price or at current list price less
discounts, for any Item originally furnished on or with any
such Product, Module, Part, but not included or damaged when
received by Allison.
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(b) Allison has the option to purchase any new, Repaired, used or
Non-Serviceable Product, Module, Part or Core obtained by
Authorized Maintenance Center from a non-Allison source, at a
mutually agreed upon price, not exceeding the fair market
value price or the original purchase price, whichever is less.
(c) Any signs owned by Authorized Maintenance Center of a type
recommended in writing by Allison and bearing any Marks, at a
price mutually agreed upon by Allison and Authorized
Maintenance Center. In the event the parties cannot mutually
agreed upon a price, Authorized Maintenance Center warrants
and guarantees such signs will be properly disposed of and no
Unauthorized third party will obtain control, use or have
access to signs and the implied or actual benefits thereof.
(d) Any Ground Support Equipment purchased from Allison or its
designee preceding termination, and/or designed or
manufactured utilizing Allison data, which was recommended by
Allison and designed specifically for Maintenance Services or
Component Repair for any Item at a price mutually agreed upon
by Allison and Authorized Maintenance Center, but in no event
at a price exceeding the original invoice price, Authorized
Maintenance Center's manufacturing cost or the acquisition
cost, less associated discounts or Credits.
13.2 TERMINATION BY AUTHORIZED MAINTENANCE CENTER
Authorized Maintenance Center may terminate this Agreement upon
written notice to Allison. Any termination will be effective ninety
(90) days after receipt by Allison of a termination notice, unless
another date is agreed upon in writing by the parties.
13.3 TERMINATION BY MUTUAL AGREEMENT
This Agreement may be terminated by mutual agreement any time by
written notice between Allison and Authorized Maintenance Center.
Any provision(s) of termination assistance will be applicable only to
the extent as mutually agreed upon in writing and set forth in this
Agreement or in a written Termination Agreement(s).
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13.4 TERMINATION FOR NONPERFORMANCE
If Authorized Maintenance Center fails to perform any obligations
under this Agreement, such as (i)establishing and maintaining
Authorized Maintenance Center facilities in accordance with the terms
and conditions of this Agreement and the Policy Manual at the
approved Primary Premise and Branch Location(s) or (ii) providing
Service, Repair, Overhaul and Component Repair functions to Customers
of Products, Modules or Parts, in accordance with the terms and
conditions of this Agreement, Allison shall notify Authorized
Maintenance Center in writing of such failure(s) and shall promptly
review with Authorized Maintenance Center the reasons which, in
Allison's opinion, account for such failure(s) and the period of time
(which shall not be less than ninety (90) days) during which
Authorized Maintenance Center shall be provided to correct such
failure(s). If such failure(s) have not been remedied within such
period, Allison may terminate this Agreement.
13.5 TERMINATION DUE TO CERTAIN ACTS OR EVENTS
Each of the following represents an act or event that is within the
direct control of the Authorized Maintenance Center or originates
from action taken by Authorized Maintenance Center's management or
owners and which is so contrary to the spirit and objectives of this
Agreement as to entitle Allison to damages or to constitute cause for
termination this Agreement. This decision is solely at Allison's
discretion.
When Allison identifies any of the following acts or events have
occurred, Allison will discuss and provide written support of the act
or event to Authorized Maintenance Center. The written support may
include a corrective action plan with associated time to correct and
address the act or event. If a corrective action plan is provided,
Authorized Maintenance Center agrees to pursue the correction and pay
a damage penalty. The parties agree that the amount of damages for
the injury to Allison that would result from the occurrence of any of
the acts or events identified below are impossible to estimate
accurately, and that $50,000 is a reasonable forecast of such damages
in light of the harm to Allison that would result from the occurrence
of any such acts or events, and that the difficulties of proving the
loss resulting from the occurrence of any such acts or events or in
obtaining another adequate remedy upon the occurrence of any such
acts or events warrants the parties' agreement on this $50,000
damages sum.
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Therefore, if a proposed corrective action plan is provided, the
Authorized Maintenance Center will not only correct the deficiency
identified per the terms of the corrective action plan, but pay
Allison a $50,000.00 damages sum within ten (10) days of said notice.
If the proposed correction is not satisfied within the identified time
frame (not less than thirty (30) days) thereafter, Allison will be
entitled to terminate this Agreement. If Allison elects to terminate
this Agreement in lieu of providing a corrective action plan and
associated collection of a damages sum, the Authorized Maintenance
Center will receive written notice of termination. Such termination
will be effective upon receipt of the notice by the Authorized
Maintenance Center, or at a later date as may be specified in the
notice of termination.
(a) An unacceptable change, transfer or relinquishment, voluntary
or involuntary, by operation of law or otherwise, of any
interest in the legal, record or controlling interest of
Authorized Maintenance Center from the latest Authorized
Maintenance Center's Statement of Management and Ownership
accepted and Authorized by Allison. Specific examples include
but are not limited to interest in another Authorized
Maintenance Center, interest in the Authorized Maintenance
Center acquired by an Allison competitor and/or government
changes detrimental to the Authorized Maintenance Center's
Business Operations.
(b) An attempted or actual sale, transfer or assignment by
Authorized Maintenance Center of this Agreement or of any of
the rights granted the Authorized Maintenance Center under
this Agreement, or any attempted or actual transfer,
assignment or delegation by Authorized Maintenance Center of
any obligation under this Agreement without Allison's prior
written Authorization.
(c) A conviction by a court of original jurisdiction of an
Authorized Maintenance Center's officer, partner, director,
manager or principal stockholder of Authorized Maintenance
Center of any crime related generally to the Authorized
Maintenance Center's Business Operation(s) that is punishable
by imprisonment; or any guilty ruling by a government agency
or court of original jurisdiction that Authorized Maintenance
Center has committed an unfair or illegal business practice or
other offense related to the terms and conditions of this
Agreement or Product(s) which, in the opinion of Allison, may
significantly and adversely affect the interests of Authorized
Maintenance Center, Allison, or the reputation of the
Product(s) in the marketplace.
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(d) Insolvency of Authorized Maintenance Center; suspension of
payments by Authorized Maintenance Center; filing of a
voluntary petition in bankruptcy by Authorized Maintenance
Center; filing of a petition to have Authorized Maintenance
Center declared bankrupt or seeking appointment of a receiver
or trustee for Authorized Maintenance Center, provided such
petition is not vacated within thirty (30) days from the date
of such filing or appointment.
(e) Execution by Authorized Maintenance Center of an assignment
for the benefit of creditors or any sale or foreclosure or any
due process of law whereby any third party that is
unacceptable to Allison acquires rights to the operation,
ownership or use of the Authorized Maintenance Center's
Primary Premise, its Branch Location(s), their equipment or
principal assets used in performing Maintenance Services for
the Products, including but not limited to inventory of
Products, Modules, Parts or Ground Support Equipment that are
required for the conduct of the Authorized Maintenance
Center's Business Operations consistent with the terms,
conditions, intent and spirit of this Agreement.
(f) Any undertaking by Authorized Maintenance Center or any of its
owners, either directly or indirectly, to conduct the
Authorized Maintenance Center Business Operation at an
Unauthorized Primary Premise, Unauthorized Branch Location(s),
or Unauthorized Marketing Office(s); or any closing,
discontinuance, significant change, or Non-Authorized Business
Operation(s) of the Primary Premise, Branch Location(s), or
Marketing Office(s) without the prior written approval of
Allison, as evidenced by the execution of a new Primary
Premise, Branch Location(s) and Marketing Office(s) Statement.
(g) Failure of Authorized Maintenance Center to conduct its
Authorized Maintenance Center Business Operations during
customary business hours for seven (7) consecutive working
days and/or consistent with the requirements of the Customers,
except as specifically delineated in Article 4.2.2 of this
Agreement.
(h) Any intentional submission to Allison by Authorized
Maintenance Center or by any agent or employee of Authorized
Maintenance Center of false applications or Claims for any
payment, Credit, or discount for allowance, if such
applications or Claims are fraudulent or part of a pattern of
false applications or Claims, whether or not Authorized
Maintenance Center offers or makes restitution.
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(i) Refusal by Authorized Maintenance Center to timely furnish
Business Operations related revenue or financial information
and related support data, or to permit Allison to make an
audit, examination or copies of Authorized Maintenance
Center's data or Records, provided such failure or refusal
continues for thirty (30) days after receipt by Authorized
Maintenance Center from Allison of a written request for such
information or permission.
(j) Willful failure of Authorized Maintenance Center to comply
with the provisions of any governing laws or regulations
relating to its performance of this Agreement.
(k) Willful and intentional use of Unauthorized Items, or
acquiring Products, Modules or Parts from Unauthorized
vendors, sources, and/or third party(s) for use in Embodiment
during a Maintenance Service or Component Repair function.
(l) Nonpayment, for a period of thirty (30) days, of the technical
fee and consideration, in whole or in part, per the terms and
schedule outlined in the Technical Fee and Consideration
Statement.
(m) Willful and intentional use or involvement in Component Repair
which is inconsistent with the terms and conditions of this
Agreement or Policy Manual.
(n) Participation as a contractor, technical consultant, joint
venture partner or supplier or any other similar arrangement,
in an enterprise or venture to manufacture products or parts
that are substitutes or replacements for Allison Authorized
Products or Parts or the sale or marketing of such products or
parts manufactured as part of such enterprise or venture.
(o) The Unauthorized copying, use, disclosure and/or distribution
of any Allison confidential or proprietary data, drawings,
Manuals or any other written material furnished to the
Authorized Maintenance Center per the terms and conditions of
this Agreement any affiliated agreement or as expressly
identified on the relevant document/technical data.
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(p) Participation as a subcontractor, joint-venture partner,
equity owner, voting right owner or any similar business
arrangement which essentially negates the general spirit and
objectives of this Agreement by providing the Authorized
Maintenance Center a mechanism to perform Unauthorized
Maintenance Services.
(q) Remanufacturing of Engines/Modules contrary to the terms and
conditions of this Agreement.
(r) Sale of Unauthorized Modules or Parts to a Customer or
Customer representative where the Over-the Counter sale was
made with the intent of negating the use of Authorized Items
during a Maintenance Service or Component Repair function.
Specifically, where the Over-the Counter sale resulted in the
Customer supplying the Unauthorized Modules and Parts to the
Authorized Maintenance Center for Embodiment.
(s) Failure to notify Allison of Overshipment Item(s), and/or
failure to return the Overshipment Item(s) to Allison.
13.6 TERMINATION FOR FAILURE TO BE LICENSED
If Allison or Authorized Maintenance Center fails to secure or
maintain any license or permit required for the substantial
performance of either party's obligations under this Agreement or
such license or permit is suspended or revoked, irrespective of the
cause, the other party may immediately terminate this Agreement by
giving the defaulting party written notice.
13.7 TERMINATION BY GOVERNMENT ACTION
Allison may terminate this Agreement effective thirty (30) business
days after written notice is mailed or personally delivered to
Authorized Maintenance Center upon the occurrence of any action,
including the adoption of any law, regulation or policy, by either
the government of the United States of America or a government(s) for
which the Authorized Maintenance Center Primary Premises or Branch
Location(s) resides, that, in the opinion of Allison, either
adversely affects the ability of Authorized Maintenance Center or
Allison to perform their respective obligations hereunder or so
changes the relationship between Allison and Authorized Maintenance
Center so as to render the terms and conditions of this Agreement
ineffective.
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13.8 RESPONSIBILITIES OF AUTHORIZED MAINTENANCE CENTER
Within fifteen (15) business days following the effective date of
termination or expiration of this Agreement, Authorized Maintenance
Center will furnish Allison a list of Items and other hardware as
appropriate identifying Product, Module and Part numbers and serial
numbers if applicable along with such other information as Allison
may reasonably request pertaining to Products, Modules or Parts
offered to Allison in support of Allison's option to repurchase.
Thereafter, Allison will, within fifteen (15) business days of
receipt of such information, advise Authorized Maintenance Center in
writing, the eligible Items and other hardware which Allison chooses
to exercise its option to repurchase from Authorized Maintenance
Center, along with written shipping instructions thereof. Authorized
Maintenance Center will ship or arrange for shipment all such
Products, Modules, Parts, or Ground Support Equipment transportation
prepaid by Authorized Maintenance Center, to a destination specified
by the Service Parts Distribution Center in such instructions. Such
shipment will utilize the dedicated Logistics Company unless
otherwise stipulated by Allison.
Authorized Maintenance Center will take such necessary action to
execute and deliver such written instruments as may be necessary to
convey good and marketable title for all Items and other hardware
purchased by Allison. Further, Authorized Maintenance Center will
comply with the requirements of any applicable laws relating to bulk
sales or transfer, and satisfy and discharge any liens or
encumbrances on all Items, or Ground Support Equipment prior to their
sale and delivery to Allison, and Allison will assist as necessary in
resolution and discharge of any said liens or encumbrances.
Upon the termination or expiration of this Agreement, Authorized
Maintenance Center will immediately discontinue the use and display
of Allison Marks as provided in Article 12.3 of this Agreement.
Within fifteen (15) business days following the effective date of
termination or expiration of this Agreement, Authorized Maintenance
Center will return to Allison all originals and copies of Manuals,
drawings, processes and all other proprietary information furnished
by Allison to Authorized Maintenance Center.
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13.9 PAYMENT BY ALLISON UPON TERMINATION OF AUTHORIZED MAINTENANCE CENTER
Authorized Maintenance Center will be paid for Items, Cores or Ground
Support Equipment purchased by Allison as soon as practicable
following delivery and inspection as specified by Allison, less any
payment due or to become due from Authorized Maintenance Center to
Allison. Allison shall have no obligation to complete a purchase
under Article 13.1.3 if prohibited for any reason from exercising its
right to deduct from the purchase price amounts due from Authorized
Maintenance Center.
If Authorized Maintenance Center has not received payment for such
Items or Ground Support Equipment within sixty (60) calendar days
after delivery, Allison, will, at Authorized Maintenance Center's
written request, estimate the purchase price of the Items and other
hardware and all other amounts owed to Authorized Maintenance Center
by Allison. After deducting the amounts estimated by Allison, to be
owing to Allison, by Authorized Maintenance Center, Allison will
advance Authorized Maintenance Center seventy-five percent (75%) of
the estimated net payment (list less discounts or Credits) owed to
Authorized Maintenance Center and will pay the balance, if any, as
soon as practicable thereafter, but not later than sixty (60)
calendar days, including interest on such balance at the previous
months' averages prime rate as published in the Wall Street Journal.
13.10 CONSTRUCTION OF TERMINATION PROVISIONS
Authorized Maintenance Center expressly acknowledges that the rights
extended to Authorized Maintenance Center with respect to Items and
Ground Support Equipment are solely limited to the rights granted by
Allison pursuant to this Agreement. Authorized Maintenance Center
acknowledges and agrees that the Marks referred to in Article 12
hereof enjoy an excellent reputation worldwide. Except as otherwise
provided in this Agreement, Authorized Maintenance Center shall have
no right to compensation or indemnification from Allison in the event
of termination of this Agreement pursuant to its provisions except as
specifically delineated within this Agreement.
Allison and Authorized Maintenance Center may rely on their rights to
terminate this Agreement under any applicable provisions of this
Agreement without reference to or waiver of any other provision that
may also be applicable in the circumstances.
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13.11 EFFECT OF TERMINATION
Termination of this Agreement does not release Authorized Maintenance
Center or Allison from the obligation to pay any amounts due or which
may become due the other, including but not limited to the Module(s)
and Parts account(s), but does release the Authorized Maintenance
Center from any obligation to pay any remaining unpaid portion(s) of
the technical fee or consideration.
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ARTICLE 14. ORDER OF PRECEDENCE
Any ambiguity or inconsistency in this Agreement shall be resolved by
giving precedence in the interpretation of this Agreement in the
following order:
1) The Agreement
2) The Additional Provisions Applicable to Authorized Maintenance
Center Agreement ("The Articles")
3) Statements
4) Bulletins
5) Authorized Maintenance Center Policy Manual
6) Representations and other Instructions
7) Manuals other than Authorized Maintenance Center Policy Manual
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ARTICLE 15. SOLE AGREEMENT OF PARTIES
There are no other agreements or understandings, either oral or
written, between the parties affecting this Agreement or relating to
the sale or servicing of Products, Modules and Parts except as
otherwise specifically provided or referred to in this Agreement.
No agreement between Allison and Authorized Maintenance Center which
relates to matters covered herein, and no change in, addition to
(except the filling in of blank lines) or erasure of any printed
portion of this Agreement shall be valid or binding upon Allison
unless the same is approved in writing by authorized
representative(s) of both Allison and Authorized Maintenance Center.
Notices concerning matters other than termination or modification of
this Agreement may be transmitted by cable, telex, or facsimile
transmittal.
Allison Engine Company, Inc.
/s/ JAMES F. LEACH
----------------------------------
James F. Leach
Vice President Customer Support
(Typed Name and Title)
Date 30 Sep 94
Telephone: (317) 230-4638
Facsimile: (317) 230-3348
Witnesses
----------------------------------
Norman D. Britton, Manager
T56/501 Authorized Maintenance
Center Administration
(Typed Name and Title)
Date 30 September 1994
Authorized Maintenance Center
NATIONAL AIRMOTIVE CORPORATION
/s/ GERRY ROBERTS
----------------------------------
(Signature)
Gerry Roberts, President
(Typed Name and Title)
Date 14 November 1994
Telephone: (510) 613-1001
Facsimile: (510) 635-3221
/S/ JOHN P. VIBOCH
----------------------------------
(Signature)
John P. Viboch
Senior Vice President
(Typed Name and Title)
Date 14 November 1994
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Exhibit 10.13
POST-EMPLOYMENT CONSULTING AGREEMENT
THIS POST-EMPLOYMENT CONSULTING AGREEMENT (the "Agreement") is made and
entered into this 17th day of January, 1992, by and between NATIONAL AIRMOTIVE
CORPORATION, a California corporation with offices at 7200 Lockheed St., Bldg.
815, Oakland, California 94621 (the "Company"), and Rajesh Sharma, an individual
residing at 310 W. Line Drive, #B-204, Alameda, California 94501 (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Executive is a key employee of the Company, and as such
the Board of Directors of the Company deems it in the best interest of the
Company to offer this Agreement to the Executive;
WHEREAS, the Company and the Executive wish to provide for the
Company's retention of the Executive to perform certain consulting services
following termination of the Executive's employment by the Company, all upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises, the mutual
covenants and obligations hereinafter set forth, and other and good valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. EVENTS OF TERMINATION TRIGGERING CONSULTING SERVICES.
(a) For purposes of this Section 1, the following definitions
apply:
(i) "Cause" shall mean that the Executive: (A) has
misappropriated, stolen or embezzled funds of the Company; or (B) has committed
an act of deceit, fraud, dereliction of duty, or gross or wilful misconduct; or
(C) has been convicted of either a felony or a crime involving moral turpitude
or entered a plea of nolo contendere in response to an indictment for such crime
or felony; or (D) has intentionally disclosed confidential information of the
Company except when such disclosure is made pursuant to the direction of the
Company or in accordance with company policy; or (E) has engaged in competitive
behavior against the Company, has purposely aided a competitor of the Company or
has misappropriated or aided in misappropriated a material opportunity of the
Company.
(ii) "Good Reason" shall mean, without the written
consent of the Executive: (A) a reduction in the Executive's base salary or a
reduction in the Executive's benefits received from the Company other than in
connection with an across-the-board
1
<PAGE> 2
reduction in salaries and/or benefits for similarly situated employees of the
Company or pursuant to the Company's standard retirement policy; or (B) the
relocation of the Executive's full-time office to a location greater than fifty
(50) miles from the Company's current corporate office; or (C) a reduction in
the Executive's corporate title.
(b) The Company shall be obligated to retain the
Executive as a consultant only:
(i) in the event of a termination of the Executive's
employment with the Company due to one of the following events (hereinafter, a
"Qualifying Termination"): (A) the Company's termination of the Executive's
employment other than for Cause; or (B) the Executive's voluntary termination of
employment with the Company within thirty (30) days of an event qualifying as
Good Reason.
2. CONSULTING SERVICES. Upon the occurrence of a Qualifying Termination
and the execution by the Executive of the Release Agreement, a form of which is
attached hereto and marked Exhibit "A", the Company shall retain the Executive
to perform certain consulting services (the "Consulting Services"), and the
Executive shall perform such services, all in accordance with the terms and
conditions of this Agreement. The Consulting Services shall consist of the
following:
(a) the performance of consulting services to the Company, as
and when reasonably requested, to assist the Company in the transition period
following termination of the Executive's employment and to answer questions,
give testimony and generally cooperate in any Company matters, including
litigation;
(b) the general promotion of the goodwill of the Company.
3. CONSULTING PERIOD. The Executive shall perform the Consulting
Services for a period of time (the "Consulting Period") commencing on the day
following a Qualifying Termination and continuing thereafter until the earlier
of: (i) the expiration of twelve (12) months; or (ii) such date upon which the
Executive begins to receive full retirement benefits under the Company's
applicable retirement plans, provided that in no event shall the Consulting
Period be greater than twelve (12) months.
4. CONSULTING FEE/BENEFITS.
(a) Subject to the provisions of Sections 5, 6 and 11 hereof,
the Executive shall receive during the Consulting Period, as full compensation
for the Consulting Services, a fee, payable in equal monthly installments (a
"Consulting Fee," and collectively, the "Consulting Fees") equal to the
Executive's
2
<PAGE> 3
annual base salary immediately prior to the Qualifying Termination divided by
twelve (12). The Executive's annual base salary for purposes of calculating the
Consulting Fee shall consist solely of the Executive's base salary, exclusive of
any bonuses, commissions, allowances or other means of compensation or benefits
made available to the Executive as an employee of the Company. The Consulting
Fee for any partial months during the Consulting Period shall be reduced
proportionately. The aggregate amount of all Consulting Fees to be paid during
the full Consulting Period is sometimes hereinafter referred to as the "Total
Consulting Fees."
(b) Subject to the provisions of Section 5 hereof, during the
Consulting Period the Company shall also make available to the Executive such
medical, dental and vision insurance coverage as may be provided to the
Executive by the Company immediately prior to the Qualifying Termination (or
such Company medical insurance coverage which is consistent with the coverage in
place from time to time for comparable executives of the Company). Such medical
insurance coverage shall be provided to the extent available pursuant to the
continuation coverage provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and, if necessary, pursuant to insurance
policies providing comparable benefits to the Executive in the event of the
expiration of COBRA benefits. The Executive will be charged a premium equal to
fifty percent (50%) of the Company's cost for the medical insurance so provided.
Upon expiration of the Consulting Period, the Company may charge the maximum
premium permitted under COBRA for any remaining continuation coverage to which
the Executive is entitled. Group car and homeowner's insurance, if applicable,
may be continued during the term of the Agreement, provided that the Executive
agrees to pay all applicable premiums.
(c) Subject to the provisions of Section 5 hereof, during the
Consulting Period the Company shall also make available to the Executive life
insurance coverage, if any, as may be provided to the Executive by the Company
immediately prior to the Qualifying Termination, provided, however, that the
Executive agrees to pay fifty percent (50%) of the Company's cost of such
coverage.
(d) The Company shall also reimburse the Executive immediately
for pre-approved expenses actually incurred by the Executive at the request of
the Company in performance of the Consulting Services.
5. EFFECT OF RE-EMPLOYMENT/OTHER COMPENSATION.
(a) If at any time during the Consulting Period, the Executive
enters into employment ("Re-Employment"), the Executive shall immediately notify
the Company in writing of the Executive's monthly compensation to be received
from such Re-
3
<PAGE> 4
Employment and any insurance coverage provided pursuant thereto, and the
following provisions shall apply:
(i) If the Executive's monthly compensation from
Re-Employment is equal to or in excess of the Consulting Fee, the Company shall
promptly pay the Executive, in full satisfaction of all obligations to pay the
Consulting Fees hereunder, an amount equal to fifty percent (50%) of the
remainder of: (A) the Total Consulting Fees less (B) the Consulting Fees
actually paid to the Executive prior to Re-Employment. Notwithstanding anything
herein to the contrary, upon payment by the Company of the amounts set forth in
this Section 5(a)(i), the Company shall cease to have any obligations under the
terms of this Agreement and the Consulting Period shall be deemed to immediately
expire.
(ii) If the Executive's monthly compensation from
Re-Employment is less than the Consulting Fee, the Consulting Fee payable to the
Executive for the remainder of the Consulting Period shall automatically be
reduced by the amount of the Executive's monthly compensation from
Re-Employment; provided, however, that at the end of the Consulting Period the
Company shall pay the Executive an amount equal to fifty percent (50%) of the
remainder of: (A) the Total Consulting Fees less (B) the actual Consulting Fees
paid the Executive during the Consulting Period. The Executive shall immediately
notify the Company of any change in the level of compensation received from
ReEmployment and, if such compensation increases to a level equal to or in
excess of the Consulting Fee, the provisions of Section 5(a)(i) shall then
apply.
(b) Provided COBRA requirements have been met, the Company's
obligation to provide insurance coverage to the Executive under Section 4(b)
hereof shall terminate as to any specific coverage if and when comparable
coverage is made available to the Executive in connection with Re-Employment.
6. DEATH. If at any time during the Consulting Period during which the
Company remains obligated to pay Consulting Fees to the Executive, the Executive
dies, the Company shall pay the Executive's estate in full satisfaction of all
obligations to the Executive hereunder, an amount equal to one hundred percent
(100%) of the remainder of: (A) the Total Consulting Fees less (B) the actual
Consulting Fees paid the Executive prior to the Executive's death and less (C)
any Re-Employment compensation received by the Executive pursuant to
Re-Employment as described in Section 5 above.
7. STATUS OF THE PARTIES. The Executive, in performance of any
Consulting Services hereunder, shall be acting as an independent contractor and
shall not be an employee of the Company. The Executive shall not be entitled to
any compensation or other benefits given to or provided for the benefit of any
employees of the Company, including, without limitation, the
4
<PAGE> 5
right to participate in or receive credit for service under any "employee
welfare benefit plan" or "employee pension benefit plan" (as such terms are
defined in the Employee Retirement Income Security Act of 1974) and the
Executive shall not in any form or fashion maintain, hold out, represent, state
or imply to any other individual or entity that an employee/employer
relationship exists between the Company and the Executive.
8. RESPONSIBILITY FOR EXPENSES. The Executive hereby recognizes,
covenants and agrees that he will be acting as an independent contractor in
performing any Consulting Services hereunder, and that except as specifically
set forth to the contrary herein, the Executive shall be solely responsible and
liable for all expenses, costs, liabilities, undertakings, assessments, taxes,
insurance and other obligations incurred by the Executive at any time and for
any reason as a result of this Agreement or the performance of the Consulting
Services, including, without limitation withholding taxes, social security taxes
and state unemployment taxes.
9. NONDISCLOSURE; OWNERSHIP OF PROPRIETARY PROPERTY. The Executive
shall regard and treat each item constituting all or any portion of the Company
trade secrets and all confidential information as strictly confidential and
wholly owned by the Company and will not, for any reason in any fashion, either
directly or indirectly use, sell, disclose or distribute any such item or
information to any third party for any purpose other than in accordance with the
Executive's performance of the Consulting Services.
10. STOCK OPTIONS AND STOCK PURCHASE AGREEMENTS. Any agreements for or
options to purchase the Company's stock held by the Executive at the time of any
termination of the Executive's employment with the Company shall be exercisable
in accordance with the terms of the applicable stock purchase agreements or
stock option plans.
11. BREACH OR DEFAULT. Upon the occurrence of any breach or default in
the performance of any of the Executive's duties or responsibilities hereunder,
and the Executive's failure to cure such breach or default within seven (7) days
of receipt of written notice thereof, all obligations of the Company hereunder
to compensate the Executive or to provide benefits thereto shall immediately be
terminated and rendered null, void and of no further effect, after which the
Company shall be entitled to pursue any and all remedies available, at law or in
equity, to address the Executive's breach or default hereunder.
12. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing herein shall be construed
as giving the Executive any rights to continued employment with the Company, and
the Company shall continue to have the right to terminate the Executive with or
without cause.
5
<PAGE> 6
13. RIGHTS TO INDEMNIFICATION. Nothing in this Agreement, shall be
construed as a waiver or limitation upon any rights or entitlement of the
Executive to indemnification and liability insurance coverage pursuant to any
indemnity agreement, or the Company's Certificate of Incorporation or Bylaws or
the laws of the state of California, Common Law or otherwise.
14. GOODWILL COVENANT. During the term of this Agreement, the Executive
covenants and agrees to refrain from making detrimental statements or taking any
action detrimental to the business or goodwill of the Company.
15. GENERAL PROVISIONS.
(a) BINDING EFFECT AND ASSIGNABILITY. The rights and
obligations under this Agreement shall inure to the benefit of and be binding
upon the Executive, the Company and their successors and assigns. Neither this
Agreement, nor any rights or obligations of the Executive herein shall be
transferable or assignable by the Executive without the Company's prior written
consent, and any attempted transfer or assignment hereof by the Executive not in
accordance herewith shall be void.
(b) NOTICES. Any notices or other communications required or
permitted hereunder shall be deemed to have been duly given on the date of
service if personally served or three (3) days after mailing if mailed by first
class mail, registered or certified, postage prepaid and addressed to the
parties at their addresses as set forth in the most current records of the
Company or to such other address as shall be designated by written notice issued
pursuant hereto.
(c) ENTIRE AGREEMENT. This Agreement, together with the
Release Agreement, contains the entire agreement of the parties relating to the
subject matter hereof and supersedes any prior agreements or understandings,
oral or written, to the contrary, and the Company, on the one hand, and the
Executive, on the other hand, hereby release the other from any and all claims,
rights, obligations and liabilities arising out of or in connection with such
letter agreement.
COMPANY'S INITIALS:__________ EXECUTIVE'S INITIALS:__________
(d) WAIVER. The waiver of the breach of any term or condition
of the Agreement shall not be deemed to constitute the waiver of any other or
subsequent breach of the same or any other term or condition.
(e) GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with the laws of the State of California.
6
<PAGE> 7
(f) SEVERABILITY. The unenforceability or invalidity of any
term, provision or section of this Agreement shall not affect the validity or
enforceability of the remaining terms, provisions, or sections hereof, but such
remaining terms, provisions or sections shall be construed and interpreted in
such a manner as to carry out fully the intent of the parties hereto.
(g) MODIFICATION. This Agreement shall not be modified or
amended except by a written instrument signed by an authorized representative of
all parties executing this Agreement.
IN WITNESS WHEREOF, the Executive has executed this Agreement, and the
Company has caused its duly authorized Corporate Officer to execute this
Agreement and affix its seal hereto, all as of the day and year first above
written
"Company"
NATIONAL AIRMOTIVE CORPORATION
By:
---------------------------
Gerry A. Roberts
President
"Executive"
-----------------------------
Rajesh Sharma
(SEAL)
7
<PAGE> 8
Exhibit "A"
UNCONDITIONAL RELEASE OF ALL CLAIMS AND LIABILITY
THIS UNCONDITIONAL RELEASE OF ALL CLAIMS AND LIABILITY (the "Release")
is made and entered into as of this ______ day of ____________________, 19__, by
_______________________ (the "Executive") in favor of NATIONAL AIRMOTIVE
CORPORATION, a California corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Company has, prior to the date hereof, employed the
Executive as a full time employee of the Company, but as of this date the
Executive's status as an employee has terminated;
WHEREAS, the Company desires to engage the Executive as a consultant
for the Company and the Executive desires to be engaged by the Company as a
consultant pursuant to the terms of the Post-Employment Consulting Agreement,
dated January 17, 1992 between the Company and the Executive (the "Consulting
Agreement"); and
WHEREAS, the Company has required, as condition precedent to the
engagement of the Executive as a consultant for the Company, that the Executive
execute and deliver this Release in favor of the Company;
NOW, THEREFORE, for and in consideration of the premises, the agreement
of the Company to engage the Executive as a consultant and for other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the Executive hereby agrees as follows:
1. RELEASE. Except with respect to the Company's obligations pursuant
to the Consulting Agreement and any retirement benefits applicable to the
Executive, the Executive hereby unconditionally remixes, releases and forever
discharges to the fullest extent permitted by law, the Company, its employees,
officers, directors, agents, affiliates, subsidiaries and each of them from all
manner of actions, proceedings, causes of actions, claims, counterclaims, suits,
debts, sums, monies, accounts, covenants, agreements, promises, damages, losses
or demands of whatever kind or nature from the beginning of time to the present,
whether known or unknown, in law or in equity, which in the past, now or in the
future arise, may arise or allegedly arise or are in any way resulting from or
in any manner connected with the Executive's employment by the Company and the
termination of such employment by the Company. In consideration of the benefits
payable under the Consulting Agreement, the Executive waives all claims and
causes of action against the Company and all damages, if any, that may be
recoverable. This release and waiver of all claims and damages includes, but is
not
1
<PAGE> 9
limited to, any tort or claim of contractual restriction relating to Executive's
employment or termination thereof, any claim of wrongful discharge, and all
rights under federal, state or local law prohibiting race, sex, age, religion,
national origin, handicap, disability or other forms of discrimination,
including but not limited to, Title VII of the Civil Rights Act of 1964, as
amended the Age Discrimination in Employment Act, as amended, any state or local
Human Rights law, Workers' Compensation laws, and the National Labor Relations
Act, as amended.
2. MISCELLANEOUS. This Release embodies the entire agreement of the
parties and supersedes all prior agreements between the parties hereto relating
to the subject matter hereof. The unenforceability or invalidity of any of the
terms or provisions of this agreement shall not affect the validity or
enforceability of the remaining terms or provisions which shall be interpreted
and construed in such a manner as to carry out fully the intention of the
parties hereto. This Release shall be construed and enforced in accordance with
the laws of the State of California.
The Executive understands that by executing this release the Executive
is giving up possible rights that he may have, and that the Executive does not
have to sign this release. This Release has been voluntarily and knowingly
executed by the Executive with the express intention of effecting the
extinguishment of any and all obligations and damages that the Company may owe
to the Executive as provided herein.
THE EXECUTIVE UNDERSTANDS THAT THE EXECUTIVE HAS 21 DAYS TO CONSIDER
WHETHER OR NOT TO EXECUTE THIS RELEASE. THE EXECUTIVE UNDERSTANDS THAT A PORTION
OF THIS RELEASE, SOLELY RELATING TO THE EXECUTIVE'S RIGHTS UNDER THE FEDERAL AGE
DISCRIMINATION IN EMPLOYMENT ACT, AS AMENDED, MAY BE REVOKED BY NOTIFYING THE
COMPANY IN WRITING OF SUCH REVOCATION WITHIN 7 DAYS OF EXECUTION OF THIS
RELEASE. THE PORTION OF THIS RELEASE RELATING SOLELY TO THE EXECUTIVE'S RIGHTS
UNDER THE FEDERAL AGE DISCRIMINATION IN EMPLOYMENT ACT, AS AMENDED, IS NOT
EFFECTIVE UNTIL THE EXPIRATION OF SUCH 7 DAY PERIOD. ALL PARTS OF THIS RELEASE
NOT RELATING TO CLAIMS OF AGE DISCRIMINATION AND ALLEGED DAMAGES UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT, AS AMENDED, ARE EFFECTIVE IMMEDIATELY UPON
EXECUTION OF THIS RELEASE. THE EXECUTIVE UNDERSTANDS THAT UPON THE EXPIRATION OF
SUCH 7 DAY PERIOD THIS RELEASE WILL BECOME BINDING IN ITS ENTIRETY UPON THE
EXECUTIVE AND ALL PORTIONS THEREOF WILL BE IRREVOCABLE.
IN WITNESS WHEREOF, the Executive has duly executed this Release in
favor of the Company under seal as of the day and year first above written.
EXECUTIVE:
----------------------
----------------------
Print Name
2
<PAGE> 1
EXHIBIT 10.16
LEASE
BETWEEN
PORT OF OAKLAND
AND
NATIONAL AIRMOTIVE CORPORATION
DATED
JANUARY 23, 1991
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
SECTION Page
- ------- ----
<S> <C> <C>
1. Lease and Description of the Property . . . . . . . . . . . . . 2
1.1. Lessee's Right of First Refusal on Entire
Premises . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Effective Date; Term; Option to Extend Term . . . . . . . . . . . 4
2.1. Effective Date . . . . . . . . . . . . . . . . . . . . . 4
2.2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3. Option to Extend Term . . . . . . . . . . . . . . . . . 4
3. Use of Premises . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1. Required and Permitted Uses . . . . . . . . . . . . . . 7
3.2. Compliance with Law; Indemnity . . . . . . . . . . . . . 7
4. Rental; Monthly Rental Adjustment; Performance Deposit . . . . . 8
4.1. Monthly Rent . . . . . . . . . . . . . . . . . . . . . . 8
4.2. Retroactive Rental . . . . . . . . . . . . . . . . . . . 12
4.3. Delinquency Charge . . . . . . . . . . . . . . . . . . . 12
4.4. Accord and Satisfaction . . . . . . . . . . . . . . . . 12
4.5. Performance Deposit . . . . . . . . . . . . . . . . . . 13
5. Standard of Service; Rates and Charges . . . . . . . . . . . . . 14
6. Condition of Property . . . . . . . . . . . . . . . . . . . . . 14
7. Improvements to the Premises . . . . . . . . . . . . . . . . . . 14
7.1. Improvements by the Port . . . . . . . . . . . . . . . . 14
7.2. Improvements by the Lessee . . . . . . . . . . . . . . . 14
8. Maintenance of Improvements . . . . . . . . . . . . . . . . . . 15
8.1. Prevailing Wage Requirements . . . . . . . . . . . . . . 16
9. Title to Improvements . . . . . . . . . . . . . . . . . . . . . 19
10. Signs; Outside Displays . . . . . . . . . . . . . . . . . . . . 20
11. Utility Easements . . . . . . . . . . . . . . . . . . . . . . . 20
12. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
13. Taxes and Assessments . . . . . . . . . . . . . . . . . . . . . 21
14. Fire Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 22
15. Damage or Destruction of Premises . . . . . . . . . . . . . . . 23
16. Fire Extinguishers . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
NATIONAL AIRMOTIVE CORPORATION Contents
MAIN BUILDING LEASE PAGE 2 OF 3
<PAGE> 3
<TABLE>
<S> <C> <C>
17. Indemnification, Hold Harmless and Liability Insurance . . . . . 23
17.1. Indemnification and Hold Harmless . . . . . . . . . . . 23
17.2. Liability Insurance . . . . . . . . . . . . . . . . . . 24
18. No Liens; Mortgage of Leasehold and Protection of
Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
19. Assignment and Subletting . . . . . . . . . . . . . . . . . . . 25
20. Hazardous Substances; Fumes and Odors; Disposal of
garbage; Annoying and Injurious Conduct . . . . . . . . . . . . 30
21. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
22. Right of Entry . . . . . . . . . . . . . . . . . . . . . . . . . 32
23. Surrender and Holding Over . . . . . . . . . . . . . . . . . . . 32
24. Duty to Guard Goods . . . . . . . . . . . . . . . . . . . . . . 33
25. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
26. Right to Inspect Premises . . . . . . . . . . . . . . . . . . . 34
27. Agent for Service of Process . . . . . . . . . . . . . . . . . . 34
28. Rights of the United States of America . . . . . . . . . . . . . 34
29. Airport Security . . . . . . . . . . . . . . . . . . . . . . . . 34
30. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . 35
31. Eminent Domain Proceedings . . . . . . . . . . . . . . . . . . . 35
31.1. Total Taking . . . . . . . . . . . . . . . . . . . . . . 35
31.2. Partial Taking; Termination . . . . . . . . . . . . . . 36
31.3. Partial Taking; No Termination; Reconstruction . . . . . 36
31.4. Partial Taking; No Termination; No Reconstruction . . . 36
31.5. Taking of Leasehold Estate . . . . . . . . . . . . . . . 37
31.6. Relocation Benefits and Goodwill . . . . . . . . . . . . 37
31.7. Trade Fixtures and Equipment . . . . . . . . . . . . . . 33
31.8. Reduction in Monthly Rent; Arbitration . . . . . . . . . 38
31.9. Port's Reservation of Power of Eminent Domain . . . . . 38
32. Waiver of Claims . . . . . . . . . . . . . . . . . . . . . . . . 38
33. Reservation of Aircraft Easement . . . . . . . . . . . . . . . . 39
34. Extensions of Time . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
NATIONAL AIRMOTIVE CORPORATION CONTENTS
MAIN BUILDING LEASE PAGE 3 OF 3
<PAGE> 4
<TABLE>
<S> <C> <C>
35. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
36. Board of Port Commissioners . . . . . . . . . . . . . . . . . . 10
37. Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . 40
38. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
39. Equal opportunity; Nondiscrimination . . . . . . . . . . . . . . 40
40. Employment Resources Development Program . . . . . . . . . . . . 42
41. Quiet Possession . . . . . . . . . . . . . . . . . . . . . . . . 42
42 Attorneys' Fees and Costs . . . . . . . . . . . . . . . . . . . 42
43. Lease the Entire Agreement; Other Agreements . . . . . . . . . . 42
44. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 43
45. Applicable Law and Venue . . . . . . . . . . . . . . . . . . . . 43
46. Real Estate Brokers . . . . . . . . . . . . . . . . . . . . . . 43
47. Agreement in Multiple Copies . . . . . . . . . . . . . . . . . . 43
48. Covenant Against Contingent Fees . . . . . . . . . . . . . . . . 43
A Sketches of Property 1, 2, 3
B Legal Description 1, 2
C Irrevocable Letter of Credit 12
D Hazardous and Toxic Substances 29
E Affirmative Action Plan for Lessee 41
</TABLE>
NATIONAL AIRMOTIVE CORPORATION CONTENTS
MAIN BUILDING LEASE PAGE 4 OF 3
<PAGE> 5
L E A S E
THIS LEASE, entered into this 23rd day of January 1991 , by and
between the CITY OF OAKLAND, a municipal corporation (the "City"), acting by
and through its Board of Port Commissioners, hereinafter called the "Port" or
"Lessor", and NATIONAL AIRMOTIVE CORPORATION, a California corporation, a
wholly owned subsidiary of TRITON GROUP LTD., a Delaware Corporation,
hereinafter called the "Lessee",
W I T N E S S E T H:
WHEREAS, the City of Oakland is the owner in fee of that certain
property located in the Port Area of the City of Oakland at
the Metropolitan Oakland International Airport ("Airport") consisting of
approximately 293,377 square feet of land, said property being referred to
hereinafter as "the Property"; and
WHEREAS, the Port is vested with the complete and exclusive power, and
it is the Port's duty for and on behalf of the City with respect to the Port
Area, to make provisions for the needs of commerce, shipping and navigation of
the Port, to promote and develop the Port, and in the exercise of such power
and fulfillment of such duty, to enter into any lease of City-owned properties
in the Port Area upon such terms and conditions as the Board of Port
Commissioners shall prescribe; and
WHEREAS, the Port desires to develop, alter and improve the Property in
order to provide for improvements and facilities which will service and enhance
the Airport and the commerce, shipping and navigation in the Port Area; and
WHEREAS, the Port has determined that the Airport and the commerce,
shipping and navigation of the port will be promoted and enhanced by leasing
the Property to Lessee for the uses and purposes set forth in this Lease;
NOW, THEREFORE, for the better promotion of commerce, shipping and
navigation and the development of the Port and the Airport, and for and in
consideration of the faithful performance of the Port
NATIONAL AIRMOTIVE CORPORATION
MAIN BUILDING LEASE - 1 -
<PAGE> 6
and Lessee of the terms, covenants and conditions hereof and of the payments
herein provided to be made by Lessee, the Port and Lessee hereby agree as
follows:
1. LEASE AND DESCRIPTION OF THE PROPERTY: The Port has leased
and demised, and by these presents does lease and demise unto Lessee, and
Lessee by these presents does lease, hire and take from the Port the Property
which is located in the "Port Area" of the City of Oakland, County of Alameda,
State of California, and more particularly described and depicted in Exhibits
"A" and "B" attached hereto and by this reference incorporated herein. The
Property together with the improvements thereon from time to time are sometimes
hereinafter referred to as the "Premises".
This Lease is subject to (1) all easements, covenants, conditions,
restrictions, reservations, rights of way, liens, encumbrances and other
matters of record, including without limitation those listed on Exhibit "B"
attached hereto, (2) all matters discoverable by physical inspection of the
Property or that would be discovered by an accurate survey of the Property, and
(3) all matters known to Lessee or of which Lessee has notice, constructive or
otherwise.
1.1. LESSEE'S RIGHT OF FIRST REFUSAL ON ENTIRE PREMISES:
The Port hereby grants to Lessee three (3) rights of first refusal for all its
current leased properties to extend the term of this Lease for five (5) year
periods each, the first to occur on February 1, 2015 the second to occur on
February 1, 2020, and the third to occur on February 1, 2025 ("Right of First
Refusal Dates") when the term of this Lease as specified in Section 2.2
expires. In the event the Port determines on the Right of First Refusal Date
that the Premises as shown on Exhibit "A" attached hereto should be leased,
licensed or assigned to a third party, the Port shall prior to leasing,
licensing or assigning said Premises to a third party give Lessee fifteen (15)
days' prior written notice of its intent to so lease, license or assign said
Premises together with the term of such lease, license or assignment and the
rental and/or other consideration to be received from the third party for such
lease, license or assignment and Lessee may thereafter within fifteen (15) days
of the Port's notice give notice to the Port of its intention to lease, license
or assign the Premises for the same term and rental and/or other consideration
as that set forth in the Port's notice. It is understood and agreed that
Lessee's right of first refusal as above set forth shall not be applicable in
instances in which the Port itself develops or redevelops the Premises for its
own use or common Airport use or
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for the ultimate use by third parties. In the event Lessee so exercises its
right to so lease the Premises, said Lease shall be effective thirty (30) days
after the date of the Port's said notice and if Lessee does not so exercise its
right within fifteen (15) days of the Port's notice, Lessee's right to exercise
its option to lease the Premises shall immediately expire.
The Port agrees that it shall not lease, to any party other than
Lessee, an approximately one hundred thousand (100,000) square foot parcel
immediately adjacent to the north-east of Port Building L-815 shown in said
Exhibit "A" and hereinafter referred to as "Parcel A", or any portion
thereof during the first two (2) years of the term of this Lease, except in
accordance with this Paragraph 1.1. If during said two (2) year period the
Port desires to lease to a third party or parties all or any portion of Parcel
A, the Port shall give Lessee written notice thereof including the terms of the
proposed Lease for Parcel A, or a portion thereof. Within fifteen (15) days
after receipt by Lessee of such notice, Lessee shall notify the Port in writing
whether it is interested in leasing Parcel A, proposed for lease by the Port to
a third party or parties, at its fair rental value, or in the event the Port
has received a higher bona fide offer to lease Parcel A at such higher rental.
In the event that Lessee notifies the Port that it is interested in leasing
Parcel A at its fair rental value, or at such other bona fide offer to lease as
the Port may have received in the event the other offer is higher, the parties
agree that they shall have a period of fifteen (15) days from the date of
Lessee's notice to conclude an agreement with respect thereto which is
acceptable to the Port and Lessee. Such periods of time may be extended by
mutual agreement in writing. In the event that Lessee notifies the Port that
it is not interested in leasing Parcel A, or does not respond to the written
notice from the Port's during the initial fifteen (15) day period following the
Port's notice, the Port shall be free to proceed to lease Parcel A, or a
portion thereof, as the case may be, to others and all rights of Lessee in
regard of Parcel A shall cease; provided, that in the event the Port does not
thereafter finalize a lease or leases with a third party or parties upon the
terms and conditions stated in the Port's notice, within a period of one (1)
year from date of the Port's notice, Lessee's Option to Extend the Term of this
Lease as provided herein, as hereinabove set forth, shall be reinstated and any
subsequent offers by the Port to lease Parcel A or portions thereof to a third
party or parties shall be subject thereto. In any event all unexercised rights
of Lessee with regard to Parcel A, including this Option to Extend the Term of
this Lease to the extent the same has not been exercised by Lessee, shall
terminate at the end of the first two (2) years of the term of this lease.
All provisions of this Lease (including without limitation Lessee's
obligations to pay rent and to indemnify the Port), except for provisions that
are applicable by the terms of this Lease only to the Premises described in
Paragraph 1 of this Lease, and provision for additional rentals, shall become
effective as to Parcel A upon the date that the Port delivers to Lessee
possession of Parcel A and the Parties hereto shall execute a
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supplemental agreement to this Lease evidencing the addition of Parcel A. All
references to "Property" or "Premises" in this Lease shall be deemed to include
Parcel A on and after the date that the Port delivers possession of Parcel A to
Lessee pursuant to this Paragraph 1.1.
2. EFFECTIVE DATE; TERM; OPTION TO EXTEND TERM:
2.1. EFFECTIVE DATE: This Lease shall become effective upon the
effective date of the ordinance authorizing the Lease. However, if said
ordinance does not become effective immediately upon the expiration of thirty
(30) days from and after the date of its final passage because of the
referendum process then this Lease shall not become effective except by mutual
written agreement of the Port and Lessee.
2.2. TERM: The term of this Lease shall commence upon the first day
of the first full calendar month after the effective date of this Lease and
shall terminate on January 31, 2015.
2.3. OPTION TO EXTEND TERM: Lessee may exercise an option to extend
the term of this Lease in accordance with the provisions of this Paragraph 2.3
upon timely satisfaction or occurrence of all of the following terms and
conditions, and upon failure of timely satisfaction or occurrence of any one or
more of such terms and conditions, the Port without liability may terminate
this option by resolution adopted by the Board of Port Commissioners. Lessee
agrees that there shall be no waiver or release from the complete and timely
satisfaction of each and every term and condition unless and until the Port at
its sole discretion and by resolution expressly so provides. The Port hereby
grants to Lessee an option to extend the term of this Lease for three (3)
five-year periods commencing upon February 1, 2015, upon each and all of the
following terms and conditions:
(i) Lessee must commence and complete within two (2)
years from the effective date of this Lease (as specified in Section 2.1 above)
the acquisition of all necessary permits for the construction of a 60,000
square foot shop/warehouse building on Parcel A.
(ii) Lessee must commence and complete within four (4)
years from the effective date of this Lease (as specified in Section 2.1 above)
construction of a 60,000 square foot shop/warehouse building on Parcel A at a
minimum cost of Two million and no/100 ($2,000,000.00) to Lessee evidenced by
copies of paid invoices submitted to the Port at least 6 months before
expiration of the four-year period, but within 90 days of the works completion.
(iii) Lessee gives to the Port and the Port receives
written notice of the exercise of the option to extend this Lease for said
additional term no earlier than 12 months and no later than 6 months prior to
the time that the option period would commence if the option were exercised.
If said notification of the
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exercise of the option is not so given and received, this option shall
automatically expire.
(iv) Lessee shall have no right to exercise the option,
notwithstanding any provision of this Lease to the contrary, (a) during the
time commencing from the date the Port gives to Lessee a notice of default
pursuant to this Lease and continuing until the default alleged in said notice
of default is cured, or (b) during the time commencing on the day after a
monetary obligation to the Port is due from Lessee and unpaid (without any
necessity for notice thereof to Lessee) and continuing until the obligation is
paid. The period of time within which Lessee may exercise the option shall not
be extended or enlarged by reason of Lessee's inability to exercise because of
the foregoing provisions.
(v) In the event that Lessee exercises its option and
extends the term of this Leasee, the monthly rent herein provided to be paid by
Lessee on or before the first day of each calendar month during said remaining
term, shall be adjusted to the fair market rental value of the Property
(including land, buildings and leasehold improvements) for each option renewal
period; provided, that in no event shall the adjusted monthly rent be less than
the theretofore existing monthly rent. Pending the final determination of the
adjusted monthly rent Lessee shall continue to pay to the Port the amount of
the monthly rent payable for the preceding period; and if the adjusted monthly
rent as finally so determined should exceed the amount of monthly rent for the
previous period, Lessee shall pay to the Port the accrued excess amount then
due within thirty (30) days after the Port sends to Lessee a written request
therefore.
The parties shall have ninety (90) days before the
rent adjustment date in which to agree on the adjusted monthly rent. If the
parties agree on the adjusted monthly rent during that period, they immediately
shall execute and acknowledge an amendment of this Lease stating the adjusted
monthly rent.
If the parties are unable to agree on the adjusted
monthly rent within that period, then within ten (10) days after the expiration
of that period each party, at its cost and by giving notice to the other party,
shall appoint a real estate appraiser to appraise and submit an opinion of the
fair market rental value of the Property expressed in terms of an adjusted
monthly rent. If a party does not appoint an appraiser within ten (10) days
after the other party has given notice of the name of its appraiser, the single
appraiser appointed shall be the sole appraiser and the appraiser's opinion of
the fair market rental value of the Property shall be the adjusted monthly
rent. If the two appraisers are appointed by the parties as stated in this
section, they shall meet promptly and attempt to select a third appraiser
meeting the qualifications stated in this Section within ten (10) days after
the last day the two appraisers are appointed. If they are unable to agree on
the third appraiser, either of the parties to this Lease by giving ten (10)
days' notice to the other
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party may apply to the presiding judge of the Alameda County Superior Court for
the selection of a third appraiser who meets the qualifications stated in this
section. Each of the parties shall bear one half of the cost of appointing the
third appraiser and one half of the third appraiser's fee. The third
appraiser, however selected, shall be a person who has not previously acted in
any capacity for either party.
Within sixty (60) days after the selection of the
third appraiser, each of the appraisers shall submit to each party the
appraiser's report and opinion of the fair market rental value of the Property
expressed in terms of adjusted monthly rent.
From among the opinions of adjusted monthly rent
submitted, the median opinion shall be identified, such other opinion which is
closest to said median shall be added to said median, and the average of said
two opinions shall be the adjusted monthly rent; provided, that in no event
shall the adjusted monthly rent be less than the theretofore existing monthly
rent.
In forming an opinion of the adjusted monthly rent,
the appraiser or appraisers shall consider a similar use for the Property with
regard to the restrictions on use of the Property contained in this Lease.
All appraisers appointed shall hold the MAI
designation of the American Institute of Real Estate Appraisers or its
successor organization.
(vi) The Port and Lessee promptly shall execute and
acknowledge an appropriate amendment to this Lease memorializing exercise of
the option hereunder which the Port shall then record.
In the event Lessee has so extended the term of this
Lease for an initial five (5) year period Lessee shall have a further option to
extend the term of this Lease for an additional five (5) year period commencing
upon February 1, 2020, subject to the same terms and conditions set forth above
in items (iii) through (vi). In the event that Lessee has so extended the term
of this Lease for an additional five (5) year period Lessee shall have a
further option to extend the term of this Lease for an additional five (5) year
period commencing upon February 1, 2025, subject to the same terms and
conditions set forth above in items (iii) through (vi).
The options granted herein shall not extend the term
of this Lease beyond January 31, 2030, and if Lessee elects to exercise the
options granted herein, Lessee's Rights of First Refusal granted pursuant to
Paragraph 1.1 shall immediately terminate.
Lessee hereby expressly agrees that it may exercise
the options granted herein only upon the timely satisfaction of the conditions
set forth in items (i) and (ii) above in addition to those items set forth in
items (iii), (iv),
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(v) and (vi) and upon failure of timely satisfaction or occurrence of any one
or more of such terms and conditions particularly conditions (i) and (ii), the
Port without liability may terminate the options granted herein by resolution.
3. USE OF PREMISES:
3.1. REQUIRED AND PERMITTED USES: The Property shall be
used by Lessee for the construction, maintenance and operation thereon by
Lessee of a complete aircraft engine service facility and offices in connection
therewith, which service shall include but not be limited to the overhauling
and sale of both piston and jet type aircraft engines and the sale of related
components. The Property may also be used for other uses and purposes
incidental and reasonably related to such hereinabove specified uses.
Lessee agrees for itself, its successors and assigns
that it will not make use of the Premises in any manner which might interfere
with the landing and taking off of aircraft from the Airport or otherwise
constitute a hazard. In the event the aforesaid covenant is breached, the Port
reserves the right to enter upon the Premises and cause the abatement of such
interference at the expense of the Lessee.
This Lease and all the provisions hereof shall be
subject to whatever right the United States Government now has, or in the
future may have or acquire, affecting the control, operation, regulation and
taking over of the Airport or the exclusive or nonexclusive use of the Airport
by the United States during the time of war or national emergency.
It is understood and agreed that this Lease to use
the Premises, as provided herein, extends only to the Premises and does not
extend to the use of or access to the ramps, taxiways, landing areas, or any
other area of the Airport except as provided in Paragraph 1; provided, however,
that Lessee may use said facilities in common with others and in compliance
with all applicable laws and regulations. It is also understood and agreed
that nothing herein contained shall be construed to grant or authorize the
granting of an exclusive right within the meaning of Section 308(a) of the
Federal Aviation Act of 1958 (49 U.S.C. 1349(a)).
3.2. COMPLIANCE WITH LAW; INDEMNITY: Lessee shall not use
or permit the Premises, or any part thereof, to be used in whole or in part for
any purpose other than as hereinabove set forth except with the prior written
consent of the Port evidenced by resolution of its Board of Port Commissioners,
nor for any use in violation of any present or future laws, ordinances, general
rules or regulations at any time applicable thereto of any public or
governmental authority having jurisdiction over the premises, including the City
of Oakland and its Board of Port Commissioners, relating to filling of or
discharges into the water, sanitation or the public health, safety or welfare.
Lessee hereby expressly agrees at all times during the term of this Lease, at
its
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own cost, to maintain and operate the Premises in a clean, wholesome and
sanitary condition, and Lessee shall at all times faithfully obey and comply
with all laws, rules and regulations applicable thereto adopted by federal,
state, local or other governmental bodies or departments or officers thereof
and applicable to the Premises; provided, however, that Lessee may reasonably
and in good faith contest any such law, rule or regulation through appropriate
proceedings, and, during such contest, Lessee need not comply therewith,
provided further, that Lessee shall at all times reasonably protect the
interest of the Port under this Lease, shall indemnify the Port for all Port
expenses (exclusive of general office and administrative expense) actually and
reasonably incurred as a result of said contest, and shall promptly comply with
any such contested law, rule or regulation if any such contest is resolved
against Lessee.
Lessee agrees to indemnify and save harmless the Port
and Port officers, employees and agents from any penalties or charges
(including, without limitation, reasonable attorneys' fees and reasonable legal
expenses incurred by the Port in connection with such penalties or charges)
imposed on the Port for any violation by Lessee or by Lessee's licensees,
sublessees or invitees, of any and all laws, ordinances and regulations
applicable to Lessee's use of the Premises and which violation is not solely
the result of acts or omissions on the part of the Port or its officers, agents
or employees.
4. RENTAL; MONTHLY RENTAL ADJUSTMENT; PERFORMANCE DEPOSIT:
4.1. MONTHLY RENT: The monthly rent for the specified
periods of the term will be as follows:
(i) Commencement of term to January 31, 1995,
Nine Thousand Six Hundred Sixty-Eight and 80/100 ($9,668.80).
(ii) Monthly rent shall be adjusted effective the
the first day of February, 1995 by the percentage increase, if any, in the
Consumer Price Index published immediately prior to the Adjustment Date from
that index published for the corresponding index reporting period sixty (60)
months previous; provided, however, that in no event shall monthly rent ever be
less than said monthly rent for the immediate preceding five (5) year period;
provided further, however, that in no event shall use of the CPI adjustment
procedure result in an increase of the then effective monthly rent of greater
than thirty-five percent (35%) for any Adjustment Date ("CPI Adjusted Minimum
Rent") of the preceding five year period.
"Consumer Price Index", as used herein, and
notwithstanding any other provision of this Lease to the contrary, as used
elsewhere in this Lease, shall mean the Consumer Price Index for Urban Wage
Earners and Clerical Workers, All Items, Francisco-Oakland (1982-84 equals 100),
of the Bureau of Labor Statistics of the United States Department of Labor,
or the official successor of said Index. If said Index is changed so that
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the base year differs from the base year used in the last index published prior
to the commencement of the term of this Lease, the former Index shall be
converted to the new Index in accordance with the conversion factor published
by the United States Department of Labor Bureau of Labor Statistics. If the
Index is discontinued or revised during the term of this Lease, such other
government index or computation with which it is replaced, as determined by
said Department or said Bureau, or, failing such determination, such other
government index or computation which is most similar to said Index as
determined by the Port, shall be used in order to obtain substantially the same
result as would be obtained if the index had not been discontinued or revised
provided, that in the event the parties are unable to agree upon such other
government index or computation, it shall be selected by arbitration pursuant
to the rules of the American Arbitration Association.
(iii) On February 1, 2000, the monthly rent herein
provided to be paid by Lessee on or before the first day of each calendar month
until January 31, 2005, shall be adjusted to the fair market rental value of
the Property without percentage cap; provided, that in no event shall the
adjusted monthly rent be less than the thereto-fore existing monthly rent.
Pending the final determination of the adjusted monthly rent Lessee shall
continue to pay to the Port the amount of the monthly rent payable for the
preceding period; and if the adjusted monthly rent as finally so determined
should exceed the amount of monthly rent for the previous period, Lessee shall
pay to the Port the accrued excess amount then due within thirty (30) days
after the Port sends to Lessee a written request therefore.
The parties shall have ninety (90) days before the
rent adjustment date in which to agree on the adjusted monthly rent. If the
parties agree on the adjusted monthly rent during that period, they immediately
shall execute and acknowledge an amendment to this Lease stating the adjusted
monthly rent.
If the parties are unable to agree on the adjusted
monthly rent within that period, then within ten (10) days after the expiration
of that period each party, at its cost and by giving notice to the other party,
shall appoint a real estate appraiser to appraise and submit an opinion of the
fair market rental value of the Property expressed in terms of an adjusted
monthly rent. If a party does not appoint an appraiser within ten (10) days
after the other party has given notice of the name of its appraiser, the single
appraiser appointed shall be the sole appraiser and the appraiser's opinion of
the fair market rental value of the Property shall be the adjusted monthly
rent. If the two appraisers are appointed by the parties as stated in this
section, they shall meet promptly and attempt to select a third appraiser
meeting the qualifications stated in this Section within ten (10) days after
the last day the two appraisers are appointed. If they are unable to agree on
the third appraiser, either of the parties to this Lease by giving ten (10)
days' notice to the other party may apply to the presiding judge of the Alameda
County Superior Court for the selection of a third appraiser who meets the
qualifications stated
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in this section. Each of the parties shall bear one half of the cost of
appointing the third appraiser and one half of the third appraiser's fee. The
third appraiser, however selected, shall be a person who has not previously
acted in any capacity for either party.
Within sixty (60) days after the selection of the
third appraiser, each of the appraisers shall submit to each party the
appraiser's report and opinion of the fair market rental value of the Property
expressed in terms of adjusted monthly rent.
From among the opinions of adjusted monthly rent
submitted, the median opinion shall be identified, such other opinion which is
closest to said median shall be added to said median, and the average of said
two opinions shall be the adjusted monthly rent; provided, that in no event
shall the adjusted monthly rent be less than the theretofore existing monthly
rent.
In forming an opinion of the adjusted monthly rent,
the appraiser or appraisers shall consider a similar use for the Property with
regard to the restrictions on use of the Property contained in this Lease.
All appraisers appointed shall hold the MAI
designation of the American Institute of Real Estate Appraisers or its
successor organization.
(iv) Monthly rent shall be adjusted effective the first
day of February 2005, and the first day of February 2010, by the percentage
increase, if any, in the Consumer Price Index published immediately prior to
the Adjustment Date from that index published for the corresponding index
reporting period sixty (60) months previous; provided, however, that in no
event shall monthly rent ever be less than said monthly rent for the immediate
preceding five (5) year period; provided further, however, that in no event
shall use of the CPI adjustment procedure result in an increase of the then
effective monthly rent of greater than thirty-five percent (35%) for the
immediately preceding five-year period for any Adjustment Date ("CPI Adjusted
Minimum Rent").
"Consumer Price Index", as used herein, and
not-withstanding any other provision of this Lease to the contrary, as used
elsewhere in this Lease, shall mean the same as Consumer Price Index as defined
in section (ii) hereinabove.
(v) During any extended term of this Lease the monthly
rent herein provided to be paid by Lessee on or before the first day of each
calendar month shall be adjusted to the fair market rental value of the
Property (for land, building and leasehold improvements); provided, that in no
event shall the adjusted monthly rent be less than the theretofore existing
monthly rent. Pending the final determination of the adjusted monthly rent
Lessee shall continue to pay to the Port the amount of the monthly rent payable
for the preceding period; and if the adjusted monthly rent as finally so
determined should exceed the amount of monthly
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rent for the previous period, Lessee shall pay to the Port the accrued excess
amount then due within thirty (30) days after the Port sends to Lessee a
written request therefore. The parties shall have ninety (90) days before the
rent adjustment date in which to agree on the adjusted monthly rent. If the
parties agree on the adjusted monthly rent during that period, they immediately
shall execute and acknowledge an amendment to this Lease stating the adjusted
monthly rent.
If the parties are unable to agree on the adjusted
monthly rent within that period, then within ten (10) days after the expiration
of that period each party, at its cost and by giving notice to the other party,
shall appoint a real estate appraiser to appraise and submit an opinion of the
fair market rental value of the Property expressed in terms of an adjusted
monthly rent. If a party does not appoint an appraiser within ten (10) days
after the other party has given notice of the name of its appraiser, the single
appraiser appointed shall be the sole appraiser and the appraiser's opinion of
the fair market rental value of the Property shall be the adjusted monthly
rent. If the two appraisers are appointed by the parties as stated in this
section, they shall meet promptly and attempt to select a third appraiser
meeting the qualifications stated in this section within ten (10) days after
the last day the two appraisers are appointed. If they are unable to agree on
the third appraiser, either of the parties to this Lease by giving ten (10)
days' notice to the other party may apply to the presiding judge of the Alameda
County Superior Court for the selection of a third appraiser who meets the
qualifications stated in this section. Each of the parties shall bear one
half of the cost of appointing the third appraiser and one half of the third
appraiser's fee. The third appraiser, however selected, shall be a person who
has not previously acted in any capacity for either party.
Within sixty (60) days after the selection of the
third appraiser, each of the appraisers shall submit to each party the
appraiser's report and opinion of the fair market rental value of the Property
expressed in terms of adjusted monthly rent.
From among the opinions of adjusted monthly rent
submitted, the median opinion shall be identified, such other opinion which is
closest to said median shall be added to said median, and the average of said
two opinions shall be the adjusted monthly rent; provided, that in no event
shall the adjusted monthly rent be less than the theretofore existing monthly
rent.
In forming an opinion of the adjusted monthly rent,
the appraiser or appraisers shall consider the highest and best use for the
Property with regard to the restrictions on use of the Property contained in
this Lease.
All appraisers appointed shall hold the MAI
designation of the American Institute of Real Estate Appraisers or its
successor organization.
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Monthly rent for the Premises shall be paid on or
before the first day of each and every month during the term of this Lease,
without setoff, in advance and without previous demand, commencing upon the
first day of the first full calendar month of this Lease.
4.2. RETROACTIVE RENTAL: As additional consideration to
the Port for entering this Lease, and not as security for Lessee's performance
under this Lease, Lessee shall unconditionally pay to the Port upon Lessee's
execution of this Lease, the following retroactive rentals on the parking lot
receipt of which will be acknowledged in writing by the Port:
1. For the period of November 1, 1987 through
and including October 31,1988 $14,238.00
2. For the period of November 1, 1988 through
January 31, 1990 $2,022.30 per month.
3. For the period of February 1, 1990 through
the commencement date of this lease $9,668.80
per month.
4.3. DELINQUENCY CHARGE: Any payment required to be made
by Lessee under this Lease (all such payments are hereby agreed to be rent)
that remains due and unpaid under the terms of this Lease for a period of 30
days after it becomes due and payable shall be subject to a delinquency charge,
for violation of this Lease, equal to ten percent (10%) per annum of such
delinquent payment from the date such payment became due and payable until
payment has been received by the Port. Unpaid delinquency charges that accrue
shall be compounded monthly. The Port shall apply any monies received from
Lessee first to any accrued delinquency charges and then to any other payments
then due hereunder. The delinquency charges provided by this Section are in
addition to all other remedies that the Port may have that are provided by this
Lease or otherwise by law or in equity with respect to any payment that has
become due and has not been paid.
4.4. ACCORD AND SATISFACTION: No payment by Lessee or
receipt by the Port of a lesser amount of Monthly Rent or any other sum due
hereunder, shall be deemed to be other than on account of the earliest due rent
or payment, nor shall any endorsement or statement on any check or any letter
accompanying any such check or payment be deemed an accord and satisfaction,
and the Port may accept such check or payment and pursue any other remedy
available in this Lease, at law or in equity. The Port may accept any partial
payment from Lessee without invalidation of any contractual notice required to
be given herein (to the extent such contractual notice is required) and without
invalidation of any notice required to be given pursuant to California Code of
Civil Procedure Section 1161, et seq., or of any successor statute thereto.
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4.5. PERFORMANCE DEPOSIT: On February 1, 1990, Lessee
shall pay to the Port the sum of $16,000.00. Such sum is hereinafter referred
to as the "Deposit."
Any Deposits required by this Lease shall be
evidenced by cash, multiple maturity certificates of deposits payable to the
Port or an irrevocable letter of credit in the form of Exhibit "C" attached
hereto and by this reference incorporated herein.
Interest on certificates of deposit shall be payable
to Lessee by the issuer of the same. The Port shall not be required to pay to
or credit Lessee with any interest on any deposit. The issuing bank shall
provide that a certificate of deposit or an irrevocable letter of credit is
payable in San Francisco or Oakland. The irrevocable letter of credit shall be
confirmed by and payable at the counters of a bank in San Francisco or Oakland.
If despite Lessee's good faith best efforts Lessee is unable to secure such a
provision, the Port will accept a letter of credit without such provisions but
in that case unless the Port receives a written extension of the letter of
credit at least thirty (30) days before the end of the term of the letter of
credit, the Port without notice to Lessee may negotiate the letter of credit
and retain all proceeds as a cash deposit pursuant to the terms of this
Paragraph 4.5.
The Deposit shall be retained by the Port as a
performance deposit and will be returned to Lessee within ninety (90) days of
termination of its occupancy hereunder, except to the extent that the Deposit
is required to pay the cost of all or any combination of the following: (i)
replacement of any improvements or items which were, during the term hereof,
the property of the Port and which have been removed or otherwise misplaced
during the term of this Lease, (ii) repair, restoration and cleaning of the
Premises necessary to put them in condition required by Paragraphs 8 and 23 of
this Lease, except for repair, restoration and cleaning not caused by Lessee's
negligence and caused by (a) ordinary wear and tear given the nature and age of
the improvements at the date of termination or (b) any casualty, fire, the
elements or act of God, or (iii) the payment of any outstanding charges or
liabilities incurred by Lessee to the Port pursuant to any of the provisions of
this Lease. In the event the Port is required to use the Deposit or any
portion thereof during the term of this Lease for the purposes hereinabove set
forth, Lessee shall deposit with the Port an additional sum evidenced as
hereinabove provided sufficient to restore the Deposit to the amount thereof
immediately prior to such required use.
The required Deposit shall be adjusted as of each
Minimum Monthly Rent Adjustment Date so that the Deposit equals at all times
two (2) times the Monthly rent. In no event shall the Deposit at any time be
decreased.
Each increase in the Deposit shall be submitted to
the Port within thirty (30) days after the date that the Port gives
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to Lessee written notice of the Port's final determination of the adjusted
Deposit, and Lessee shall deposit with the Port any additional sums necessary
to increase the Deposit as hereinabove set forth on or before the expiration of
such thirty (30) days period.
The Deposit or any remaining portion thereof shall be
returned to Lessee within 90 days of the termination of this Lease after
deduction of any amounts therefrom for payment of the items specified above for
which deduction from the Deposit is allowable. The payment of the Deposit by
Lessee shall not limit Lessee's liability to the Port for the payment of
charges due to the Port by Lessee in excess of the amount of the Deposit.
5. STANDARD OF SERVICE; RATES AND CHARGES: Lessee agrees to
furnish or cause to be furnished good, prompt and efficient service at the
Airport to furnish said service on a fair, reasonable and reasonably
nondiscriminatory basis to all users thereof, and to charge fair, reasonable
and reasonably nondiscriminatory prices for each unit of sale or service;
provided, that Lessee may make reasonable and reasonably nondiscriminatory
discounts, rebates or other similar types of price reductions to volume
purchasers. Noncompliance with this provision shall constitute a material
breach of this Lease and in the event of such noncompliance, the Port shall
have the right to terminate this Lease and any estate hereby created without
liability therefor or at the election of the Port or the United States, either
or both of said Governments shall have the right to judicially enforce this
provision.
6. CONDITION OF PROPERTY: The taking of possession of the
Property by Lessee shall in itself constitute acknowledgment that said Property
is in good and tenantable condition. Lessee agrees to accept said Property in
its then existing condition, "as is", and that the Port shall not be obligated
to make any repairs, improvements, alterations or additions thereto, except as
expressly provided in Paragraph 7 of this Lease. Lessee acknowledges that it
has made a sufficient investigation of the conditions of the Property existing
immediately prior to the execution of this Lease, including without limitation
the condition of the soil, and is satisfied that said Property will safely and
feasibly support the type of improvements to be maintained by Lessee upon said
Property.
7. IMPROVEMENTS TO THE PREMISES:
7.1. IMPROVEMENTS BY THE PORT: The Port is not obligated
to construct or install any improvements on or off of the property.
7.2. IMPROVEMENTS BY THE LESSEE: The layout,
specifications, detailed plans and architectural plans of all improvements to
be constructed upon the Property and adjacent thereto shall be subject to the
prior written approval of the Port.
Lessee, or its licensed contractor, also shall secure
at no cost to the Port all other necessary permits, including, but not limited
to, building permits and any necessary
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approvals and permits from the San Francisco Bay Conservation and Development
Commission. Lessee agrees to comply with all terms and conditions of permits
whether secured by Lessee or the Port.
Lessee shall be responsible for the repair of any
Port or other facilities which are damaged as a result of Lessee's construction
activities.
It is understood and agreed that if the Port consents
to Lessee's installation of a fire alarm system in the Premises which is the
subject of this Agreement, Lessee agrees to notify the Port in writing within
thirty (30) days of said installation and to install a proper fire alarm system
which complies with all ordinance(s), rule(s) and regulation(s) of the City of
Oakland and Port of Oakland, including but not limited to, connecting said
system to the Port of Oakland's Airport Operations Center's fire alarm
annunciator panel or such other fire alarm annunciator panel as the Port may
designate. Lessee's failure to comply with the terms and conditions of this
Paragraph will constitute a material breach of this Agreement subject to the
default provisions of Paragraph 21 hereof.
8. MAINTENANCE OF IMPROVEMENTS: Lessee agrees that during the
entire term of this Lease, at its own cost and expense, it shall keep and
maintain the Premises, in first-class order, repair and condition. Lessee shall
perform, at its own cost and expense, any and all maintenance, repairs,
rehabilitation or reconstruction thereto, whether required by structural failure
or deterioration or by operations of Lessee or otherwise. The Port shall have
no maintenance repair, rehabilitation or reconstruction obligations of any kind
with respect to the Premises.
It is recognized that because of the length of the term of
this Lease it may be necessary for Lessee to perform certain substantial
maintenance, repair, rehabilitation or reconstruction (hereinafter collectively
referred to as "repair" or "repairs") of the Improvements in order to ensure
that the Premises are kept in first-class order, repair and condition.
"First-class order, repair and condition," as used herein,
shall mean the maintenance, repair, renovation or replacement of buildings,
equipment, furniture, fixtures, landscaping and appurtenances necessary to keep
the Premises in efficient and attractive condition, given the nature and age of
the Improvements at any time during the term of this Lease. The Port and
Lessee do not intend by the immediately preceding sentence that a property item
is not first-class merely because of ordinary and reasonable wear and tear that
does not materially and substantially reduce the attractiveness and utility of
the item given the nature and age of the Improvements at any time during the
term of this Lease.
If Lessee for a period of forty-five (45) days after written
notice from the Port shall fail, neglect or refuse to perform, or commence and
continuously and diligently proceed in good faith to complete, any required
repair or maintenance, the
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Port may perform such repair or maintenance and Lessee shall reimburse the Port
within thirty (30) days after receipt of notice from the Port demanding payment
for the cost thereof, including the Port's administrative overhead. In
performing such repair, the Port shall interfere as little as reasonably
possible with Lessee's operations on the Premises. The making of such repairs
or performance of maintenance by the Port shall in no event be construed as a
waiver of the duty of Lessee to make repairs or perform maintenance as herein
provided.
Lessee may make alterations, additions, or betterments to the
Premises only after complete plans and specifications therefor have been
submitted to and approved by the Port and after securing, at no cost to the
Port, all the necessary building, electrical and other plumbing permits from
the Port, the City of Oakland and other appropriate governmental agencies. In
addition, Lessee shall maintain, at its expense, all equipment, furnishings and
trade fixtures upon the Premises required for the maintenance and operation of
a business of the type to be conducted pursuant to Paragraph 3 hereof.
Lessee hereby expressly waives the right to make repairs at
the expense of Lessor and the benefit of the provisions of Sections 1941 and
1942 of the Civil Code of the State of California relating thereto.
8.1. PREVAILING WAGE REQUIREMENTS: Lessee agrees that in the
performance of work under this Lease, Lessee shall comply with:
(a) The Public Work Prevailing Wage Requirements, which
are the applicable prevailing wage requirements of California Labor Code
Sections 1720, et seq. and Port Ordinance No. 1606, as amended, and which
------
generally apply to construction, costing more than $1,000.00, which is made on
or to Port property and the cost of which is paid for in whole or in part by
the Port's advance or reimbursement to Lessee or by credit against rent or
other sums due the Port; and
(b) The Private Work Prevailing Wage Requirements of this
Lease generally apply to all construction, other than construction to which the
Public Work Prevailing Wage Requirements apply, which is made on or to Port
property, costing more than $50,000.00.
"Construction" as used herein shall apply to construction,
alteration, demolition or repair work, and the laying of carpet and maintenance
work, provided, that Private Work Prevailing Wage Requirements shall not apply
to maintenance work. "Construction" includes all construction of building core
and shell, tenant improvements and public works that are within the customary
jurisdiction of the construction trades and crafts, whether performed on- or
off-site. Off-site work, performed by Materialmen, as defined under California
Law, is not included in the term "Construction".
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The Private Work Prevailing Wage Requirements shall not apply
to tenant improvements costing less than $50,000.00, nor to tenant improvements
for which the initial building permit for such work is issued more than one
year after the certificate of occupancy is approved on the core and shell. The
$50,000.00 cost shall be adjusted annually pursuant to the CPI.
The following provisions of this subsection apply only if, and
to the extent that, the prevailing wage requirements are applicable.
The prevailing wage requirements shall apply to the employees
of any employer including the Lessee, any tenant of Lessee, any general
contractor or subcontractor or other contractor engaged in construction of
Improvements for the Lessee, including their successors and assignees, but
shall not apply to supervisory or managerial personnel or to persons employed
in the rental, operation or (in the case of Private Work Prevailing Wage
Requirements only) maintenance of the Premises.
The Lessee shall cause the provisions of this subsection to be
incorporated into each contract and subcontract, and lease agreement which
would be subject to this subsection. In the event the provisions are not so
incorporated, the Lessee shall be liable to the worker in any action or
proceeding for the difference between the prevailing wage rate required to be
paid and the amount actually paid to the worker, including costs and attorney
fees, as if the Lessee were the actual employer.
The prevailing wage requirements of this subsection will be
monitored and enforced by the Port. In addition to any other rights provided
by California law to recover compensation, a worker that has been paid less
than the prevailing wage rates shall have a right to commence an action or
proceeding against the employer of the worker for the difference between the
prevailing wage rates and the amount paid to such worker for each calendar day
or portion thereof for which the worker was paid less than the compensation
required to be paid under the provisions of this subsection. No issue other
than that of the liability of the employer for the amount of unpaid wages
allegedly due shall be determined in such action or proceeding, and the burden
shall be on the employer to establish that the amounts demanded are not due. A
worker recovering any or all of the wages claimed to be due shall recover his
costs and attorney fees in securing such recovery. Nothing in this section
shall preclude its enforcement by the California Division of Labor Standards
Enforcement.
Nothing in this lease shall prevent the employment of any
number of properly registered apprentices, as defined in Chapter 4, Division 3
of the Labor Code. Every such apprentice shall be paid not less than the
standard wage paid to apprentices under the regulations of the crafts or trade
at which he is employed, and shall be employed only at the work of the craft or
trade to which he is registered. The employment and training of each
apprentice shall be in accordance with the provisions of the
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apprenticeship standards and apprentice agreements under which he is in
training.
Lessee agrees that, any action by Lessee or its assignee
against the Port for the recovery of penalties or forfeitures shall be
commenced, and written notice thereof shall be actually received by the Port,
within the ninety-day period after the Port's Chief Engineer notifies Lessee in
writing that the Chief Engineer has determined that the work is complete.
Lessee agrees that such suit on the Lease for alleged breach thereof in not
making an advance or reimbursement or in not permitting a credit to rent or
other sums due the Port is the exclusive remedy of Lessee or the Lessee's
assignee with reference to such penalties or forfeitures. Lessee or Lessee's
assignee may bring such suit without permission of the Port, but the suit shall
be limited to the recovery of the penalties or forfeitures without prejudice to
Lessee or Lessee's assignee's rights in other matters affecting the Lease.
Lessee agrees that no other issues shall be presented to the court in such case
and the burden shall be on the plaintiff to establish plaintiff's right to the
penalties or forfeitures withheld or to be withheld.
Lessee agrees that to the extent that Lessee is required to
comply with the prevailing wage requirements, Lessee shall assure that all
workers are paid the prevailing rate of per diem wages, and travel and
subsistence payments (defined in applicable collective bargaining agreements
filed in accordance with Section 1773.8 of the California Labor Code), in
effect on the date of the Port's first approval of a building permit or other
approval of the work. Copies of the applicable prevailing rate of per diem
wages are on file at the Port's principal office and will be made available to
any interested party on request. Lessee agrees to post a copy of the
prevailing rate of per diem wages at each job site.
Lessee, as a penalty to the Port, shall forfeit twenty-five
dollars ($25) for each calendar day, or portion thereof (or such other sum as
specified from time to time by Section 1775 of the California Labor Code), for
each worker paid less than the applicable prevailing rates for such work or
craft in which such worker is employed. The difference between such prevailing
wage rates and the amount paid to each worker for each calendar day or portion
thereof for which each worker was paid less than the prevailing wage rate shall
be paid to each worker by Lessee.
To the extent that there is insufficient money due Lessee as
an advance, reimbursement or credit to cover all penalties forfeited and
amounts due and in all cases where the Lease does not provide for a money
payment by the Port to Lessee, and except in cases where enforcement authority
is vested in the State pursuant to Section 1775 of the California Labor Code,
the Port not later than ninety (90) days after the filing of a valid notice of
completion in the office of the Alameda County Recorder or not later than
ninety (90) days after the Port's acceptance of the work, whichever last
occurs, may maintain an action in any
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court of competent jurisdiction to recover the penalties and the amounts due
provided for herein. Lessee agrees that no issue other than that of the
liability of Lessee for the penalties allegedly forfeited and amounts due shall
be determined in such action, and the burden shall be upon Lessee to establish
that the penalties and amounts demanded in such action are not due. Out of any
money withheld or recovered or both there shall first be paid the amount due
each worker and if insufficient funds are withheld or recovered or both to pay
each worker in full the money shall be prorated among all such workers.
Lessee agrees to keep or cause to be kept by each contractor
and subcontractor an accurate payroll record for each worker employed on work
covered by this Paragraph showing all of the information specified in
subsection (a) of Section 1776 of the California Labor Code. All such payroll
records shall be certified, available for inspection and filed in accordance
with the procedures specified in subsections (b)-(e) inclusive of Section 1776
of the California Labor Code. In the event of noncompliance with the foregoing
requirements concerning payroll records which continues for more than ten (10)
days after the Port gives to Lessee written notice specifying in what respects
Lessee must comply, Lessee shall forfeit as a penalty to the Port for each
worker twenty-five dollars ($25) for each calendar day, or portion thereof,
until strict compliance is effectuated.
Lessee shall be responsible for complying with Section 1777.5
of the California Labor Code concerning apprenticeable occupations, with
respect to all work covered by that section.
Except where the context otherwise requires, the definitions
of terms and phrases contained in the State prevailing wage law, Sections 1720
et seq. of the California Labor Code, and in the implementing administrative
regulations, shall apply to the same terms and phrases which are used in the
prevailing wage requirements of this subsection.
9. TITLE TO IMPROVEMENTS: Title to all structures, buildings and
any and all other permanent improvements constructed, erected or placed upon
the demised premises by the Lessee, and additions or improvements made thereto
by Lessee shall vest in and become the property of the Lessee upon completion
thereof. Title of the above structures, buildings and improvements shall be
vested in and become the property of the Port and shall be surrendered with the
Premises as part thereof upon termination of this Lease; provided, that the
Port, at its option, may upon prior written notice require Lessee to remove at
Lessee's expense, improvements or portions of improvements constructed, erected
or placed upon the Premises by Lessee during the term of this Lease and if the
Port so notifies Lessee of its exercise of its right to require such removal
Lessee shall complete said removal with all reasonable dispatch but in no event
shall said removal completion exceed thirty (30)days after termination of this
Lease. Lessee may, at the termination of this Lease, if Lessee is not then in
default
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under any provision of this Lease, remove its machinery, boilers, equipment,
movable partitions and other trade fixtures placed upon the demised premises by
it; provided, that in such event Lessee shall repair any damage caused by such
removal and, provided further, that usual and customary lighting, plumbing,
wall-to-wall carpeting, window coverings, air conditioning and heating fixtures
shall remain upon the Premises and be surrendered therewith upon termination of
this Lease. Upon termination of this Lease, Lessee shall remove all equipment,
furniture, furnishings and trade fixtures from the Premises unless otherwise
agreed by the Port.
Lessee agrees and hereby makes the irrevocable and binding
election not to take for federal income tax purposes investment tax credits or
depreciation on assets financed with the proceeds of tax exempt Port bonds or
notes, unless the Port otherwise expressly agrees in advance in writing signed
by the Port's Executive Director. Lessee also agrees at the Port's request
from time to time to execute such additional documents reasonably requested by
the Port or its bond counsel to effectuate and/or evidence said agreement and
election. This agreement and election, and the obligation to execute said
documents relative thereto is binding on each successor or assignee of Lessee.
10. SIGNS; OUTSIDE DISPLAYS: Lessee shall not install, paint,
inscribe or place any signs or placards upon the exterior of the Premises or
upon the interior of the Premises if intended to be viewed from the exterior
thereof, without the prior written consent of the Port. The Port agrees not
unreasonably to withhold or delay consent to such signs which state the name of
the tenant or tenants or the type of businesses conducted on the Premises and
that otherwise comply with the applicable Port sign policies for the Airport.
Lessee agrees, at its own expense, to remove or paint over to the satisfaction
of the Port promptly upon termination of this Lease any and all signs or
placards installed, painted, inscribed or placed by it in or upon the interior
or exterior of the Premises; and should Lessee fail to so remove or paint over
such signs or placards, the Port may do so at the expense of Lessee and Lessee
shall reimburse the Port for the cost thereof upon demand.
11. UTILITY EASEMENTS: The Port reserves to itself, and reserves
the right to grant to others in the future, nonexclusive utility easements
over, under, through, across or on the Property in locations that will not
unreasonably interfere with Lessee's use of the Premises. Any interference
during the installation of utility facilities shall be temporary, and all work
on the Premises shall proceed expeditiously. Lessee shall be given reasonable
notice before commencement of any work on the Premises.
The Port also reserves and retains (i) any and all existing
rights of way for storm drains, sewer outfalls, for gas and other pipelines,
for water mains, for hydrants, for electrical cables and wires, (ii) the right
to locate in, upon or across said Premises in a location or locations which
will not interfere with Lessee's use and enjoyment of said Premises, other such
conduits,
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lines and mains as may be deemed necessary by the Port for its uses, the uses
of other tenants of the Port or the United States of America in connection with
the latter's use and enjoyment of premises in the vicinity, including, but not
limited to, the installation and maintenance of a Federal Aviation
Administration radio transmitter in an upper level storage space of
approximately one thousand five hundred square feet of the hangar with related
antennas installed on the structural roof members of the hangar and (iii) the
right by its own employees, agents or designees to enter the Premises to
maintain, repair and replace all of said facilities.
In the event the installation or maintenance of such utilities
in such easements causes any damage to the Premises, or any portion thereof, or
to any other buildings, structures or facilities located upon the Property, the
same shall be repaired by the Port at its expense, if not so repaired by the
party installing and maintaining the utility facility.
12. UTILITIES: Lessee shall pay for all water, gas, heat,
electricity, fuel, power, telephone service, and other utilities, as well as
janitor or watchman services and mechanical fire alarm or security services,
which may be furnished to Lessee. In the event the Port by arrangement with
Lessee provides or pays for any utility services, Lessee shall pay the Port for
such services or reimburse to the Port such payment not later than the first
day of the calendar month following Lessee's receipt from the Port of a billing
statement for said services or reimbursement.
In cases where arrangements have been made between Lessee and
the Port for the Port to furnish and deliver gas, electricity or water, the
Port will exercise reasonable diligence and care to furnish and deliver the
same; provided, however, that the Port does not guarantee the continuity or
sufficiency of such supply. The Port will not be liable for interruptions or
shortages or insufficiency of supply or any loss or damage of any kind or
character occasioned thereby if the same is caused by accident, act of God,
fire, strikes, riots, war, inability to secure a sufficient supply from the
utility company furnishing the Port, or any other cause except such as arises
from the Port's failure to exercise reasonable diligence. It is understood
that Lessee shall take such steps as Lessee may consider necessary to protect
Lessee's equipment from any damage that may be caused to such equipment in the
event of failure or interruption of any such utility services. Whenever the
Port shall find it necessary for the purpose of making repairs or improvements
to any utility supply system it shall maintain, it shall have the right to
suspend temporarily the delivery of gas, electricity or water, but in all such
cases reasonable notice of such suspension will be given to Lessee, and the
making of such repairs or improvements will be prosecuted as rapidly as
practicable and, if possible, so as to cause the least amount of inconvenience
to Lessee.
13. TAXES AND ASSESSMENTS: The property interests created by this
Lease may be subject to property taxation and the Lessee
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hereunder in whom the possessory interest is vested may be subject to the
payment of property taxes levied on such interest. Lessee agrees to pay before
delinquency all lawful taxes, assessments, fees or charges which at any time
may be levied by the state, county, city or any tax or assessment levying body
upon any activity carried on under this Lease, any interest in this Lease or
any possessory right which Lessee may have in or to any property covered hereby
by reason of its use or occupancy thereof or otherwise, as well as all lawful
taxes, assessments, fees and charges on goods, merchandise, fixtures,
appliances, equipment and property owned by Lessee in or about said Premises.
Lessee may at no cost to the Port reasonably contest the legal
validity or amount of any taxes, assessments, or charges for which Lessee is
responsible under this Lease, and institute such proceedings as Lessee
considers necessary; provided, however, that Lessee shall at all times protect
the Port and the Premises from foreclosure of any lien, and that the Port shall
not be required to join in any proceeding or contest brought by Lessee.
14. FIRE INSURANCE: Lessee shall maintain at all times during the
term of this Lease fire legal liability coverage in not less than the sum of
$100,000.00 or in such other sums specified from time to time by the Port.
Lessee shall further carry fire insurance for full replacement
cost with extended coverage endorsements thereto upon all trade fixtures,
equipment, furniture, furnishings and stock in trade located in and upon the
demised premises to the full amount of the replacement value thereof.
Lessee shall obtain from its insurers under all policies of
insurance maintained under this Paragraph by Lessee at any time during the term
of this Lease endorsements providing a waiver of all rights of subrogation
which the insurer may have against the Port. Lessee hereby waives any right
which it may have against the Port on account of any loss or damage occasioned
to Lessee arising from any risk covered by the insurance that Lessee is
required to carry under this Paragraph or covered by any other insurance
maintained by Lessee insuring the Premises, its contents or other of Lessee's
personal property on or about the Premises.
A certificate or certificates evidencing Lessee's said fire
legal liability and furniture or fixture insurance shall be filed with the
Secretary of the Board of Port Commissioners prior to the commencement of the
term of this Lease, and said certificate or certificates shall provide that
such insurance coverage will not be canceled or reduced without at least 30
days' prior written notice to said Secretary. At least 30 days prior to the
expiration of such policy or policies a certificate or certificates showing
that such insurance coverage has been renewed or extended shall be filed with
said Secretary.
If any such coverage is canceled or reduced, Lessee shall
within 15 days after receipt of written notice from the Port of
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such cancellation or reduction in coverage file with the Secretary of said
Board a certificate showing that the required insurance has been reinstated or
provided through another insurance company or companies. Upon failure to so
file such certificate, the Port may without further notice and at its option
either (1) notwithstanding the provisions of Paragraph 21 of this Lease cause
this Lease to be forfeited and exercise such other rights as it may have in the
event of Lessee's default; or (2) procure such insurance coverage at Lessee's
expense and Lessee shall promptly reimburse the Port for such expense.
15. DAMAGE OR DESTRUCTION OF PREMISES: In the event that, during
the term of this Lease, the demised Premises shall be damaged or destroyed by
fire, earthquake, act of God or other cause to an extent in excess of fifty
percent (50%) of the aggregate of the then value thereof, either party shall
have the right, upon giving sixty (60) days' written notice to the other party
(such notice to be given within sixty (60) days after such damage or
destruction), to cancel and annul this Lease and retain any insurance proceeds
attributable to the damage to said building or premises; provided, however,
that if said damage to the Premises does not exceed fifty percent (50%) of said
value, Lessee hereby agrees with due diligence to restore the demised Premises
to a good and tenantable condition.
16. FIRE EXTINGUISHERS: Lessee agrees at its own expense to
provide and keep on the premises fire extinguishers of such number, type and
material as may be prescribed from time to time by the regulations of the Board
of Port Commissioners, the Fire Prevention Bureau of the City of Oakland or
other competent authority.
17. INDEMNIFICATION, HOLD HARMLESS AND LIABILITY INSURANCE:
17.1. INDEMNIFICATION AND HOLD HARMLESS: It is an express
condition of this Lease that the Port, the Board of Port Commissioners, and its
officers, employees and agents shall be free from any and all liabilities and
claims for damages and/or suits for or by reason of any death or deaths of or
any injury or injuries to any person or persons or damages to property of any
kind whatsoever, whether the person or property of Lessee, its agents or
employees, or third persons, from any cause or causes whatsoever while in or
upon the Premises or any part thereof during the term of this Lease or
occasioned by any occupancy or use of the Premises or any activity carried on
by Lessee in connection therewith, and Lessee hereby covenants and agrees to
indemnify and to save harmless the Port from all liabilities, charges, expenses
(including reasonable counsel fees) and costs on account of or by reason of any
such death or deaths, injury or injuries, liabilities, claims, suits or losses,
however occurring or damages growing out of the same; provided, however, that
this sentence shall not apply to death or deaths, injury or injuries,
liabilities, claims, suits or losses in any way caused by (i) any actively
negligent or intentional or willful actions or omissions of the Port or its
agents, officers or employees, or (ii) any passively negligent actions or
omissions on the part of the Port or
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its agents, officers or employees in any situation or set of circumstances
where Lessee was not passively or actively negligent with respect to the same
situation or set of circumstances.
17.2. LIABILITY INSURANCE: Lessee shall maintain in force during the
term of this Lease public liability and property damage insurance, including
premises and operations, blanket contractual, completed operations, broad form
property damage, personal injury, independent contractors coverage, with such
coverage and limits as may be reasonably requested by the Port from time to
time, but in no event for less than the sum of FIVE MILLION DOLLARS
($5,000,000.00) combined single limit, except that the owned, nonowned and
hired automobile insurance shall have limits of not less than ONE MILLION
DOLLARS ($1,000,000.00); fire legal liability insurance in the amount of ONE
HUNDRED THOUSAND AND 00/100 DOLLARS ($100,000.00); and Lessee agrees that the
Port shall be named as an additional insured under such liability insurance
policy or policies.
All such policies shall be endorsed with a severability of
interest or cross-liability endorsement, reading generally as follows:
CROSS-LIABILITY - In the event of one of the assureds incurring
liability to any other of the assureds, this policy shall cover the
assured against whom claim is or may be made in the same manner as if
separate policies had been issued to each assured. Nothing contained
herein shall operate to increase underwriters' limit of liability.
A certificate or certificates, in a form reasonably
satisfactory to the Port, evidencing such insurance coverage shall be filed
with the Secretary of the Board of Port Commissioners prior to the commencement
of the term of this Lease, and said certificate(s) shall provide that such
insurance coverage will not be canceled or reduced without at least thirty (30)
days' prior written notice to the Secretary of said Board. Prior to the
expiration of any such policy, a certificate showing that such insurance
coverage has been renewed or extended shall be filed with the Secretary of said
Board; provided that in the event a policy renewal certificate is not
reasonably available to Lessee prior to said expiration Lessee may file with
the Port on a temporary basis a policy binder of other satisfactory evidence of
insurance coverage renewal and shall file the insurance certificate with the
Port as soon as the same is available from the insurance carrier. If such
coverage is canceled or reduced, Lessee shall, within fifteen (15) days after
receipt of written notice from the Port of such cancellation or reduction in
coverage but in no event later than the effective date of cancellation or
reduction, file with the Secretary of said Board a certificate showing that the
required insurance has been reinstated or provided through another insurance
company or companies. Upon failure to so file such certificate, the Port may
without further notice and at its option either (1) exercise the Port's rights
as provided in Paragraph 21 of this
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Lease ("Defaults"), or (2) procure such insurance coverage at Lessee's expense
and Lessee shall promptly reimburse the Port for such expense.
18. NO LIENS; MORTGAGE OF LEASEHOLD AND PROTECTION OF LENDER:
Except as otherwise expressly provided in this Lease, Lessee shall pay for all
labor done and materials furnished in the repair, replacement, development or
improvement of the Property by Lessee and shall keep the Premises, and Lessee's
possessory interest in the Premises, free and clear of any lien or encumbrance
of any kind whatsoever created by Lessee.
If any such lien is so filed, Lessee shall promptly either
cause such lien to be released of record or diligently contest the claim
relating to such lien, provided that if such contest is resolved against
Lessee, Lessee shall promptly cause such lien to be released of record, and if
Lessee fails so to do, the Port shall have the right and option, but not the
duty, to pay or otherwise discharge, stay or prevent the execution of any
judgment or lien or both. If the Port exercises such option, the Port shall
not be deemed to have waived the Port's right to declare a default of this
Lease pursuant to Paragraph 21 hereof, and Lessee shall reimburse the Port for
all sums expended in connection with any such judgment or lien, or both,
including the Port's reasonable attorneys' fees and costs, together with any
delinquency charge provided for in Paragraph 4.2 of this Lease, and said
reimbursement shall be due and payable ten (10) days from the date the Port
gives to Lessee written notice of any such payments, fees or costs.
19. ASSIGNMENT AND SUBLETTING: Except as hereinafter in this
Paragraph 19 expressly provided, Lessee shall not, either directly or
indirectly, voluntarily or involuntarily, assign, hypothecate, encumber or
transfer this Lease or any interest therein or right granted thereby or sublet
the whole or any part of the Premises, or license the use of same, or suffer
any other person or entity to occupy, use or manage (except management by
Lessee's employees) the same, in whole or in part, without the prior written
consent of the Port evidenced by resolution of its Board of Port Commissioners.
The Port shall not unreasonably withhold its consent to an assignment or
subletting. Neither this Lease nor any interest therein or right granted
thereby shall be assignable or transferable in proceedings in attachment,
garnishment or execution against Lessee, or in voluntary or involuntary
proceedings in bankruptcy or insolvency or receivership taken by or against
Lessee or by any process of law and possession of the whole or any part of the
demised premises shall not be divested from Lessee in such proceedings or by
any process of law, without the prior written consent of the Port evidenced by
resolution of its Board of Port Commissioners. Except as hereinafter provided,
no occupancy or use of the demised Premises or exercise of any right granted by
this Lease by any prospective transferee, sublessee, or assignee shall occur
before the Port's written consent to the transfer, sublease, or assignment
which consent shall not be unreasonably withheld; provided that the Port shall
not be deemed unreasonable in withholding its consent if the
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proposed transfer, assignment or sublease will involve the relocation of an
existing Airport tenant, will result in reduced percentage rental to the Port,
or will result in Lessee's receipt of a higher rental than Lessee is paying to
the Port on a prorata square foot basis for the Premises area involved in the
transfer, assignment or sublease in which latter event the Port may require
Lessee to pay to the Port as additional minimum rental a portion of the amount
by which the rental paid by said transferee, assignee or sublessee exceeds the
Monthly Rental then paid by Lessee to the Port on a prorata square foot basis.
Any breach of the provisions of this Paragraph shall constitute a default and
shall cause this Lease to terminate immediately at the option of the Port
without further notice to Lessee. Lessee shall not be deemed to be in default
if Lessee causes an attachment or execution to be removed within fifteen (15)
days of levy, or if Lessee causes an involuntary proceeding in bankruptcy to be
dismissed or receiver to be removed within thirty (30) days of the date of
commencement of said proceeding or appointment of said receiver.
It is expressly understood and hereby agreed that if Lessee
sells the building or leases all or a portion of the building the Port shall be
entitled to fifty percent (50%) of the "bonus value" or rental income in excess
of the rent then paid by Lessee. Bonus value shall be defined herein as the
present worth of the difference between market rent and contract rent.
An assignment within the meaning of this Paragraph 19 shall
include, but is not limited to, the following:
A. If Lessee is other than a corporation, the transfer
of the Lease or any of Lessee's interests therein to a corporation that is not
wholly owned or controlled by Lessee;
B. If Lessee consists of more than one person or entity,
or a combination of a person or persons and an entity or entities, a purported
assignment, voluntary, involuntary, or by operation of law of any interest in
the Lease from one or more such persons or entities, to any other person or
persons or entity or entities whether or not such other person or persons or
entity or entities are Lessees;
C. If Lessee is a partnership, a withdrawal or change,
voluntary, involuntary, or by operation of law, of any general partner, or the
dissolution of the partnership;
D. If Lessee is a corporation, any dissolution, merger,
consolidation, or other reorganization of Lessee, or the sale or other transfer
of a controlling percentage of the capital stock of Lessee, or the sale of more
than fifty percent (50%) of the value of the assets of Lessee whether in one
conveyance or cumulatively in the aggregate in more than one conveyance. The
phrase "controlling percentage" means the ownership of, and the right to
vote, stock possessing at least fifty percent (50%) of the total combined
voting power of all classes of Lessee's capital stock issued, outstanding, and
entitled to vote for the election of
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directors. This subparagraph D shall not apply to National Airmotive
Corporation or to a corporation the stock of which is traded through an
exchange or over the counter or to any transfer, distribution or contribution
of a controlling percentage of the capital stock of Lessee (i) by any corporate
shareholder of Lessee to one or more of its own shareholders, or (ii) by any
shareholder of Lessee to another corporation the capital stock of which such
shareholder owns a controlling percentage, except that in such events said
Lessee shall give the Port written notice of such transfers, distribution and
contribution.
The Port's consent to or waiver of its option to terminate
this Lease in the event of a default on account of any assignment, transfer,
occupation or use requiring prior written Port consent shall not be construed
or deemed to be a waiver of the restrictions hereinabove contained or to be a
consent to or waiver of objections to any subsequent assignment, transfer or
occupation or use by another person. The Port's consent to a proposed
assignment shall not be deemed effective unless and until there is filed with
the Port's Chief Executive Officer or his designee fully executed and complete
copies of all documents used to effectuate the assignment and a document in
recordable form signed by the assignee whereby assignee expressly shall assume
all covenants and conditions of this Lease.
Lessee and the Port acknowledge and agree that the rights
retained by and granted to the Port pursuant to this Paragraph constitute a
material part of the consideration for entering into this Lease and constitute
a material and substantial inducement to the Port to enter into this Lease at
the rental, for the terms, and upon the other covenants and conditions
contained in this Lease, and that the acceptability of Lessee, and of any
sublessee, assignee or other transferee of any right or interest in this Lease,
involves the exercise of broad discretion by the Port in promoting commerce,
navigation and shipping in the Port Area of the City of Oakland. Therefore,
Lessee agrees that it shall not be unreasonable for the Port to withhold its
consent to an assignment, sublease or other transfer by Lessee in the event
that the Port makes the reasonable, good faith determination that the making of
such proposed assignment, sublease or other transfer is not in accordance with
this Lease, or that the proposed assignee, sublessee or other transferee will
not use the Premises for purposes consistent with the Charter of the City of
Oakland or will not otherwise maintain and/or operate the Premises in the
manner provided in this Lease.
No subletting or assignment, even with the Port's consent, shall
relieve Lessee of its rental or other obligations to be performed by Lessee
hereunder, and Lessee shall continue to be liable as a principal and not as a
guarantor or surety, to the same extent as though no assignment or subletting
had been made.
Lessee agrees that as a condition to the Port's consideration
of any request by Lessee for each proposed sublease, assignment, or other
transfer that Lessee shall deliver to the Port
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a nonrefundable processing fee of not less than $100.00. The Port's Manager of
Airport Properties Department, or such other Port representative designated from
time to time by the Port's Chief Executive Officer, may within ten (10) days of
receipt of said fee give to Lessee notice that said fee shall be increased by a
sum, not to exceed an additional $400.00, that said Manager or such other
designated representative may in his discretion determine is necessary to cover
the anticipated Port administrative costs and expenses, including labor, in
processing and investigating Lessee's request. Lessee agrees that unless and
until said fee, and any request for such additional fee, is delivered to the
Port, Lessee shall be deemed to have made no request to the Port, to assign or
sublease. The minimum and maximum fees shall be adjusted upon the commencement
of each successive year of this Lease, in the same percentage as the change in
last Consumer Price Index published prior to the date of each succeeding
one-year period from the last such index published prior to the commencement of
the term of this Lease; provided that in no event shall the adjusted fees be
less than the theretofore existing fees. "Consumer Price Index," as used
herein, shall mean the Consumer Price Index for Urban Wage Earners and Clerical
Workers, All Items, San Francisco-Oakland (as applicable) of the Bureau of Labor
Statistics of the United States Department of Labor, or the official successor
of said Index. If said Index is changed so that the base year differs from the
base year used in the last index published prior to the commencement of the term
of this Lease, the former Index shall be converted to the new Index in
accordance with the conversion factor published by the United States Department
of Labor, Bureau of Labor Statistics. If said Index is discontinued or revised
during the term of this Lease, such other government index or computation with
which it is replaced, as determined by said Department or said Bureau, or,
failing such determination, such other government index or computation which is
most similar to said Index, shall be used in order to obtain substantially the
same result as would be obtained if said Index had not been discontinued or
revised.
In addition, the parties hereto each agree that Lessee's
request for consent to any proposed sublease, assignment or other transfer
shall not be deemed to have been submitted to the Port unless and until Lessee,
except as and to the extent excused in writing by the Port's Manager of Airport
Properties Department, shall have submitted to the Port, in writing, the
following information and documents:
A. The name of the proposed subtenant, assignee
or other transferee;
B. The nature of proposed subtenant's or
assignee's business to be carried on in the Premises;
C. Each of the terms and provisions of the
proposed sublease, assignment or transfer, including without limitation the
full consideration for such sublease, assignment or transfer;
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D. A balance sheet of the proposed subtenant or
assignee as of a date within at least ninety (90) days of the request for the
Port's consent;
E. Statements of income or profit and loss of
the proposed subtenant for the 2-year period preceding the request for the
Port's consent;
F. A statement in reasonable detail as to the
business experience of the proposed subtenant or assignee during the 5-year
period preceding the request for the Port's consent;
G. Such other information and documents relating
to the proposed sublessee's or assignee's business, experience, finances as the
Port may reasonably request.
It is understood and agreed that the Port's consent
to a requested sublease, assignment or other transfer, if said consent in the
Port's sole discretion is granted shall not be granted unless and until the
Port receives each of the following:
A. In the case of a proposed assignment, a full
and complete executed copy of all documents to effectuate the assignment,
together with a document in recordable form whereby the proposed assignee shall
expressly assume all the covenants and conditions of this Lease.
B. In the case of a proposed sublease, a full
and complete copy of the executed sublease, which sublease shall contain a
provision satisfactory to the Port, requiring sublessee to attorn to the Port
if Lessee defaults under this Lease and if the sublessee is notified of
Lessee's default and instructed to make sublessee's rental payments to the
Port.
Lessee shall not accept, directly or indirectly, more
than three (3) months' prepaid rent from any sublessee and said copy of the
executed sublease shall recite this restriction and sublessee's acknowledgment
of the same.
C. In the case of any other proposed encumbrance
or proposed transfer, a full and complete executed copy of all documents to
effectuate the encumbrance or transfer, which documents shall incorporate
directly or by reference all of the provisions of this Lease.
Lessee immediately and irrevocably assigns to the
Port, as security for Lessee's obligations under this Lease, all rent from any
subletting of all or a part of the Premises as permitted by this Lease, and the
Port, as assignee and as attorney-in-fact for Lessee, or a receiver for Lessee
appointed on the Port's application, may collect such rent and apply it toward
Lessee's obligations under this Lease; provided, however, that, until the
occurrence of an act of default by Lessee, Lessee shall have the right to
collect such rent.
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Lessee agrees that it shall immediately notify the
Port in writing of any cancellation or surrender of any sublease. No
modification of any sublease, assignment or other transfer after the Port's
initial consent shall be effective without the prior written approval of the
Port as evidenced by resolution of its Board of Port Commissioners.
20. HAZARDOUS SUBSTANCES; FUMES AND ODORS; DISPOSAL OF GARBAGE;
ANNOYING AND INJURIOUS CONDUCT: No offensive or dangerous trade, business or
occupation shall be carried on within the Premises, and nothing shall be done
on the Premises, other than as is provided for in the use provisions of this
lease, which will increase the rate of or suspend the insurance on the Premises
or other structures of the Port; and no machinery or apparatus shall be used or
operated on the Premises which will in any way injure the Premises or adjacent
buildings; provided, however, that nothing in this Section shall preclude
Lessee from bringing, keeping or using on or about the Premises materials,
supplies, equipment and machinery as are appropriate customary in carrying on
its said business, or from carrying its business, in all respects as is
generally usual, so long as Lessee at all times is in full compliance with the
attached Hazardous and Toxic Substances Exhibit "D" and all laws, regulations,
permits, licenses and any other approvals or authorizations relating to Toxic
Materials.
Lessee agrees to conduct its operations upon the premises so
as to reduce to the minimum that is reasonably practicable the emanation from
the Premises of fumes and odors; provided that the Port acknowledges that some
fumes and odors are normal in Lessee's use as described in Paragraph 3 hereof.
Lessee agrees to handle and dispose of its trash, garbage and
refuse in a sanitary manner and not to pile any boxes, cartons, barrels, trash,
debris or refuse in or about the Premises. Lessee shall provide its own
facilities within the Premises for the cleaning of garbage cans and shall make
adequate provision upon the Premises in order that no refuse, containers,
boxes, cartons or the like will be visible from any direction outside the
Premises.
Lessee shall not, without the advance written consent of the
Port's Executive Director, install any exterior decorations or painting or
install any radio or television antennae, loudspeakers, sound amplifiers, or
any devices on the exterior walls of the Premises. No loudspeakers, radios or
other means of broadcasting to be heard outside the Premises shall be used by
Lessee. Anything in the immediately preceding two sentences to the contrary
notwithstanding; Lessee shall be entitled to install an exterior paging system
and various antennae on the exterior of the Premises, so long as the same do
not unreasonably interfere with Airport operations or operation by Airport
tenants or Airport users, are installed and operated in compliance with all
applicable statutes and regulations, and are approved in advance by the Port
(which approval shall not be unreasonably delayed or denied).
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Lessee shall not use any false or misleading advertising
relating to activities on the Premises, or engage in any unfair trade practices
injurious to other tenants of the Port.
21. DEFAULTS: It is mutually covenanted and agreed and this Lease
is made upon the condition that if the rents or other sums which Lessee herein
agrees to pay, or any part thereof, shall be unpaid on the date the same shall
become due and payable, or if default be made in any of the other terms,
agreements, conditions or covenants herein contained on the part of Lessee, or
should Lessee abandon or cease to use the Premises for purposes required by
Paragraph 3 of this Lease at any time except when prevented by fire,
earthquake, wars, strike, governmental intervention, or other similar reason
beyond its control, then and in any such event, at its option, the Port may
declare this Lease forfeited, whereupon the Port may exercise all rights of
entry and re-entry upon the demised Premises.
Lessee shall not be considered to be in default for purposes
of this Paragraph 21 until the expiration of ten (10) days (in the case of a
failure in the payment of rent or other sums herein provided to be made by
Lessee) or 30 days (in all other instances) after written notice by the Port to
Lessee and if, during such ten (10) or thirty (30) day period, as the case may
be, such failure or condition in violation of the provisions of this Lease
shall have been cured or obviated by Lessee, then upon payment, performance or
satisfaction of such term, covenant or condition, any right of the Lessor to
terminate this Lease or re-enter upon the demised Premises by reason of such
failure shall cease.
If any condition (except failure to pay rent or other sums)
which would entitle the Port to declare a default is of such nature that it
cannot be remedied within thirty (30) days, such declaration of default,
termination and right of re-entry, or exercise of other rights of Lessor, shall
be postponed as long as the Lessee shall have commenced the elimination of such
condition within said thirty (30) days and shall then be continuously and
diligently proceeding reasonably and in good faith to cure the same.
In the event that the Port terminates this Lease and Lessee's
right to possession of the Premises, in the manner provided by law, the Port
shall be entitled to recover from Lessee possession of the premises and the
following:
(a) the worth at the time of award of the unpaid rent and
sums equivalent to rent required to be paid by Lessee under the Lease that had
been earned at the time of termination;
(b) the worth at the time of award of the amount by which
the unpaid rent and sums equivalent to rent required to be paid by Lessee under
this Lease that would have been earned after termination until the time of
award exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided;
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(c) the worth at the time of award of the amount by which
the unpaid rent and sums equivalent to rent required to be paid by Lessee under
this Lease for the balance of the term after the time of award exceeds the
amount of such rental loss that Lessee proves could be reasonably avoided; and
(d) other amounts permitted by law including, but not
limited to, the costs and expenses incurred by the Port (i) in retaking
possession of the Premises, (ii) in cleaning and making repairs of and
alterations to the Premises reasonably necessary to return the Premises to good
condition for uses permitted by this Lease and in otherwise preparing the
Premises for reletting, (iii) in removing, transporting, and storing any of
Lessee's property left at the Premises although the Port shall have no
obligation to remove, transport, or store any of such property, and (iv) in
reletting the Premises, including, but not limited to, brokerage commissions,
advertising costs, and attorneys' fees.
The "worth at the time of award" of the amounts referred to in
items (a) and (b) immediately above is computed by allowing interest at the
maximum rate permitted by law. The "worth at the time of award" of the amount
referred to in item (c) immediately above is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%).
22. RIGHT OF ENTRY: In any and all cases in which provision is
made herein for the termination of this Lease, except by forfeiture, or for
exercise by the Port of right of entry or re-entry upon the Premises, or in
case of abandonment or vacating of the Premises by Lessee, and the Port may not
elect to invoke a forfeiture of said Lease, the Port may enter upon the
Premises and remove any and all persons and/or property whatsoever situated
upon the Premises, and place all or any portion of said property, except such
property as may be forfeited to the Port, in storage for account of and at the
expense of Lessee; and in such case the Port may relet the Premises upon such
terms as to it may seem fit, and if a sufficient sum shall not thus be realized
after paying expense of such reletting and collecting to satisfy the rent and
other sums herein agreed to be paid, Lessee agrees to satisfy and pay any
deficiency, and to pay expenses of such reletting and collecting. Lessee
hereby exempts and agrees to save harmless the Port from any cost, loss or
damage arising out of or caused (except to the extent caused by the active
negligence of the Port or its officers, agents, employees or contractors) by
any such entry or re-entry upon said Premises and/or the removal of persons
and/or property and storage of such property by the Port or its agents.
23. SURRENDER AND HOLDING OVER: Lessee covenants that at the
expiration of the term of this Lease or upon its earlier termination it will
quit and surrender the Premises in good state and condition, reasonable wear
and tear and damage by the elements excepted given the nature and age of the
improvements and subject to the provisions of Paragraph 9 hereof. The Port
shall have the right upon such termination to enter upon and take possession of
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all the Premises. Should Lessee with the Port's consent hold over the use of
the Premises after this Lease has been terminated in any manner, such holding
over shall be deemed merely a tenancy from month to month and at a rent to be
fixed from time to time by the Port based on the fair rental value of the
Premises, payable monthly in advance, but otherwise on the same terms and
conditions as herein set forth; provided, however, that rent may be fixed by
the Port from time to time by giving to Lessee at least thirty (30) days' prior
written notice of said rent.
It is understood and agreed that nothing contained in this
Lease shall give Lessee any right to occupy the Premises at any time after
expiration of the term of this Lease or its earlier termination, and that this
Lease shall not create any right in Lessee for relocation assistance or payment
from the Port upon expiration of the term of this Lease or upon its earlier
termination or upon the termination of any holdover tenancy pursuant to this
paragraph. Lessee acknowledges and agrees that upon such expiration or
termination, it shall not be entitled to, and expressly hereby waives, any
relocation assistance or payment pursuant to the provisions of Title 1,
Division 7, Chapter 16, of the Government Code of the State of California
(Sections 7260 et seq.) and pursuant to any other law or regulation effective
now or at any time in the future with respect to any relocation of its business
or activities upon the expiration of the term of this Lease or upon its earlier
termination or upon the termination of any holdover tenancy pursuant to this
paragraph.
24. DUTY TO GUARD GOODS: Lessee shall assume the sole
responsibility for the guarding and safekeeping of and risk of loss to all
property, stock merchandise and equipment stored or located upon or used in
connection with the said Premises.
25. WAIVERS: No waiver by either party at any time of any of the
terms, conditions or covenants or agreements of this Lease or of any forfeiture
shall be deemed or taken as a waiver at any time thereafter of the same or of
any other term, condition or covenant or agreement herein contained, nor of the
strict and prompt performance thereof. No delay, failure or omission of the
Port to re-enter the Premises or to exercise any right, power or privilege, or
option, arising from any default, nor any subsequent acceptance of rent then or
thereafter accrued shall impair any such right, power, privilege or option or
be construed a waiver of any such default or relinquishment thereof, or
acquiescence therein, and no notice by the Port shall be required to restore or
revive time as of the essence after waiver by the Port of default in no one or
more instance. No option, right, power, remedy or privilege of the Port shall
be construed as being exhausted by the exercise thereof in one or more
instances. It is agreed that each and all of the rights, powers, options or
remedies given to the Port by this Lease are cumulative, and no one of them
shall be exclusive of the other or exclusive of any remedies provided by law,
and that exercise of one right, power, option or remedy by the Port shall not
impair its rights to any other right, power, option or remedy.
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26. RIGHT TO INSPECT PREMISES: The Port or its duly authorized
representatives, or agents and other persons for it, may enter upon the
Premises at any and all reasonable times and upon reasonable prior notice
(except in emergencies) during the term of this Lease for the purpose of
determining whether or not Lessee is complying with the terms and conditions
hereof or for any other purpose incidental to rights of the Port. The Port
shall not unreasonably interfere with the use and occupancy of Lessee or
sublessees during such entry.
27. AGENT FOR SERVICE OF PROCESS: It is expressly agreed and
understood that if Lessee is not a resident of this state, or is an association
or partnership without a member or partner resident of this state, or is a
foreign corporation, then in any such event Lessee shall file with the Port a
designation of either (a) a natural person residing in the County of Alameda,
State of California, giving the person's name, residence and business address
or (b) a corporation, giving a copy of the corporation's certificate filed in
accordance with California Corporations Code Section 1505, as Lessee's agent
for the purpose of service of process in any court action between Lessee and
the Port arising out of or based upon this Lease, and the delivery to such
agent of a copy of any process in any such action shall constitute valid
service upon such Lessee; and it is further expressly agreed, covenanted and
stipulated that if for any reason service of such process upon such agent is
not possible, then in such event Lessee may be personally served with such
process out of this state, and that such service shall constitute valid service
upon such Lessee; and it is further expressly agreed that Lessee is amenable to
the process so served, submits to the jurisdiction of the court so acquired,
and waives any and all objection and protest thereto.
28. RIGHTS OF THE UNITED STATES OF AMERICA: It is understood and
agreed that the United States of America has, and may hereafter acquire,
additional rights relating to the use, operation and maintenance of the
Airport, and that this Lease shall be subordinate to such rights and to the
provisions of any existing or future agreement between the United States
Government and the Port affecting said Airport, provided always, however, that,
subject to Paragraph 31 of this Agreement ("Eminent Domain Proceedings")
nothing herein shall prejudice any right of Lessee to obtain just compensation
from the United States Government for the taking of Lessee's interests under
this Lease, or any part thereof.
29. AIRPORT SECURITY: It is understood and agreed that, if the
Premises afford access onto apron, taxiways, runways, or other restricted air
operations areas of the Airport, or if all or part of the Premises consist of
such areas, Lessee shall, at its own cost and expense, take whatever steps are
reasonably necessary to prevent or deter persons and vehicles from unauthorized
access to such areas from any portion of the Premises or from any area or
through any entryway over which Lessee has control or temporary control, and
take such further actions as may be required to ensure compliance with all
regulations of the Federal Aviation Administration or other governmental
agencies having jurisdiction,
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<PAGE> 39
including the Port, relative to airport security regarding the Premises,
including but not limited to employee screening requirements. Lessee shall at
all times exercise reasonable control over any person or vehicle visiting the
Premises or escorted by Lessee in the Premises or in any said air operations
areas, and all the hold harmless and indemnity provisions contained in
Paragraphs 3 and 17 of this Lease shall apply in respect to any act or omission
of any said person or vehicle or any act or omission of any persons issued an
access badge by or at the request of Lessee. Lessee shall promptly reimburse
the Port the amount of any civil penalty or fine that may be assessed against
the Port by any governmental agency for violation of airport security rules or
regulations which violation is caused by Lessee's failure to comply with this
Paragraph 29. Lessee shall promptly reimburse the Port the amount of any civil
penalty or fine that may be assessed against the Port by any governmental
agency for violation of airport security rules or regulations which violation
is caused by Lessee's failure to comply with this paragraph.
30. FORCE MAJEURE: In the event that Lessee or the Port is
delayed, directly or indirectly, from the performance of any act or thing
required to be done or performed under the terms or conditions hereof by acts
of God, accidents, fire, floods, inclement weather, governmental action,
restrictions, priorities or allocations of any and all kinds, strikes or labor
difficulties of any and all kinds, shortages of or delay in the delivery of
materials, acts of war, riot and civil commotion, or by any other cause beyond
the control of Lessee or the Port, as the case may be, such failure shall not
be deemed to be a breach of this Lease or a violation of any such covenants or
conditions and the time within which Lessee or the Port must perform any shall
be extended by a period of time equal to the period of delay arising from any
of such causes. It is understood and agreed that there shall be no abatement
of, or delay in the commencement of, payment of any sum due to the Port under
this Lease except as expressly provided in this Lease.
31. EMINENT DOMAIN PROCEEDINGS:
31.1. TOTAL TAKING: If the whole of the Premises should be
taken by any public or quasi-public authority under the power or threat of
eminent domain for any public use or purported public use, then, in such event,
on the earlier of the date title to the Premises vests in such public or
quasi-public authority, or the date on which said public or quasi-public agency
takes possession of the Premises, this Lease shall terminate with respect to
the Port's and Lessee's future obligations hereunder, but said termination
shall not affect the Port's and Lessee's rights to any compensation or damages
for, on the account of, or arising out of such taking. For any period of time
prior to termination during which Lessee (involuntarily on account of such
taking or any proceedings related thereto) does not have full use of the
Premises, the Monthly Rent due hereunder shall be equitably reduced. In the
event of such a taking, the Port shall be entitled to receive all sums in the
award of damages and compensation
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<PAGE> 40
arising by reason of such taking except that Lessee shall be entitled to
receive an amount therefrom equal to the fair market value of Lessee's
leasehold interest in the Premises (as of the date of valuation of said
taking).
31.2. PARTIAL TAKING; TERMINATION: If a substantial portion
of the Premises should be taken so as to impair materially the use of the
Premises as contemplated by the Lease, then on the earlier of the date title to
such portion of the Premises vests in such public or quasi-public agency, or
the date on which such public or quasi-public agency takes possession of such
portion of the Premises and Lessee no longer has full possession of such
portion, this Lease shall terminate with respect to the Port's and LESSEE'S
future obligations hereunder, but said termination shall not affect the Port's
or Lessee's rights to any compensation or damages for, on account of, or
arising out of such taking. For any period of time prior to termination during
which Lessee (involuntarily on account of such taking or any proceedings
related thereto) does not have full use of the Premises, the Monthly Rent due
hereunder shall be equitably reduced. In the event of such a taking, the Port
shall be entitled to receive all sums in the award of damages and compensation
arising by reason of such taking except that lessee shall be entitled to
receive an amount therefrom equal to the fair market value of Lessee's
leasehold interest in the Premises. "Compensation and damages" for the purpose
of this Paragraph 31.2 shall include all compensation and damages including
severance damages without and before any reduction for any benefit to the
remainder.
31.3. PARTIAL TAKING; NO TERMINATION; RECONSTRUCTION: If a
taking shall occur which does not result in termination of this Lease as
provided in Paragraphs 31.1 and 31.2 above, but which requires the portion of
the Premises not so taken to be reconstructed and restored so as to be
constituted an architecturally complete unit suitable for use by Lessee, all
compensation and damages payable for or on account of such taking shall be
payable to Lessee and shall be used to reconstruct and restore the portion of
the Premises not so taken to an architecturally complete unit suitable for use
by Lessee; provided, however, that the Lessee's and/or Lender's obligation so
to reconstruct and restore the Premises shall be limited solely to the amount
of such compensation and damages made available to them pursuant to this
Paragraph 31.3, and the Monthly Rent payable by Lessee hereunder shall be
equitably reduced during the time Lessee does not have full use of the Premises
as a result of such taking to account for the reduced economic value to Lessee,
if any, occasioned by reason of such taking. The balance of any compensation
and damages remaining after the reconstruction and restoration contemplated by
this Paragraph 31.3 shall be distributed to the Port, except that Lessee shall
be entitled to receive an amount therefrom equal to the fair market value of
Lessee's leasehold interest in the portion of the Premises taken.
31.4. PARTIAL TAKING; NO TERMINATION: NO RECONSTRUCTION: If
a taking shall occur which does not result in a
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<PAGE> 41
termination of this Lease as provided in Paragraphs 31.1 and 31.2 above, and
which does not require any portion of the Premises not so taken to be
reconstructed and restored so as to constitute an architecturally complete unit
suitable for use by Lessee, the proceeds shall be distributed as per the last
sentence of Paragraph 31.3.
31.5. TAKING OF LEASEHOLD ESTATE: No taking of Lessee's
leasehold estate in the Premises or any part thereof without a taking of the fee
shall terminate or give Lessee the right to surrender this Lease, nor excuse the
taker of such leasehold estate, including any successor in interest thereto,
from full performance of the covenants for the payment of rent and other charges
or any other obligations hereunder capable of performance by the taker of such
leasehold estate, including any successor in interest thereto, after any such
taking, but in such case, all compensation and damages payable for or on account
of such taking shall be payable to and be the sole property of Lessee. During
any period of time that Lessee is not in possession of the Premises, or any
portion thereof, as a result of the taking of any portion of its leasehold
estate hereunder, but only during such period of time, (1) Lessee shall not be
obligated to pay or in any way be liable for the payment of any rental or to
perform any of the other obligations or covenants otherwise to be performed by
it hereunder with respect to, but only with respect to the portion of the
Premises affected by such taking, (2) the Port shall look solely to the taker of
such leasehold interest, including the successors in interest thereto and any
party then in possession of all or such portions of the Premises affected by
such taking for the payment of rental and the performance of the other
obligations and covenants hereunder with respect to such portion of the
Premises, and (3) as between Port and Lessee, Port shall not forfeit or
terminate this Lease for breach by the taker of such leasehold interest,
including its successors in interest thereto and any party then in possession,
of any obligation or covenant hereunder, including the obligation to pay rental.
In the event any such taking of Lessee's leasehold estate in the entire Premises
for a period less than the then remaining term of this Lease, Lessee shall have
the right upon giving ninety (90) days' prior written notice to the Port (such
notice to be given within ninety (90) days after the effective date of such
taking) to cancel its remaining rights and obligations under this Lease which
cancellation shall not affect the rights and obligations of the taker of such
leasehold estate; provided that this right of Lessee to so cancel its rights and
obligations under this Lease shall only exist and apply in the event the
remaining term of this Lease available to Lessee following the conclusion of the
period of said taking is less than two (2) years including the option periods
available to Lessee under Paragraph 2.3 hereof.
31.6. RELOCATION BENEFITS AND GOODWILL: Anything contained
in this Paragraph 31 to the contrary notwithstanding, all compensation,
damages, reimbursements or other benefits payable to Lessee or Lessee's
subtenants, licensees and concessionaires for or in connection with any
relocation, displacement, inability to relocate, loss of business or loss of
goodwill resulting from or
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in connection with any taking covered by this Paragraph 31 shall be payable to
and be the sole property of Lessee or Lessee's subtenants, licensees and
concessionaires, as appropriate.
31.7. TRADE FIXTURES AND EQUIPMENT: In the event of any
taking of all or any portion of the Premises, Lessee shall be entitled to
receive all compensation and damages arising from such taking and payable for
or on account of Lessee's trade fixtures and equipment at any time located on
the portion of the Premises so taken, except that compensation and damages for
those trade fixtures that pursuant to Paragraph 9 are to remain with the
Premises on surrender shall be distributed the same as distribution of
compensation and damages for improvements under Paragraphs 31.1 through 31.5.
31.8. REDUCTION IN MONTHLY RENT; ARBITRATION: If the
parties cannot agree upon the amount of any reduction of Monthly Rent, as may
be contemplated by this Paragraph 31, the same shall be determined by
arbitration conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association (the "Arbitration Rules"), and judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction. The arbitration shall be by a panel of three (3) arbitrators
chosen in accordance with the Arbitration Rules, one of whom must be an
attorney at law actively engaged in the practice thereof for at least ten (10)
years. The arbitrators shall have no power to modify any of the provisions of
this Lease and their jurisdiction is limited accordingly. Each party hereby
consents to the entry of judgment by any court having jurisdiction in
accordance with the decision of the arbitration panel. No change in the
Arbitration Rules which would deprive a party of the rights to be represented
by counsel, to present evidence, or to cross-examine witnesses presented by the
other party shall be effective in any arbitration proceeding arising out of
this agreement. Any arbitration provided for herein shall be conducted in the
County of Alameda.
31.9. PORT'S RESERVATION OF POWER OF EMINENT DOMAIN: Lessee
acknowledges the Port's reserved power upon payment of just compensation to
exercise its power of eminent domain as to the leasehold estate created
hereunder; provided, however, that the foregoing acknowledgment shall not be
deemed or construed to prejudice or waive any rights of Lessee to challenge or
object to any attempt by the Port so to exercise such power.
32. WAIVER OF CLAIMS: The Lessee hereby waives any claim against
the City of Oakland, and the Board of Port Commissioners, its officers, agents
or employees, for damage or loss caused by any claim, suit or proceedings
directly or indirectly attacking the validity of this Lease or any part thereof
or right granted thereby or asserting any right or interest in the Premises
inconsistent with rights granted to Lessee by this Lease, or by any judgment or
award in any suit or proceedings instituted by a party other than the Port
directly or indirectly attacking the validity of this Lease, or any part
thereof, or by any judgment or
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award in any suit or proceeding declaring this Lease null, void or voidable, or
delaying the same, or any part thereof, from being carried out; provided,
however, that such waiver shall not apply or run to any damage or loss in any
way caused by any suit or proceeding directly or indirectly attacking the
validity of this Lease which suit or proceeding is based in whole or in part
upon an alleged "conflict of interest" of any elected or appointed official,
officer, agent or employee of the City of Oakland or the Board of Port
Commissioners of the Port of Oakland, including any "conflict of interest" or
other matter alleged to violate or violating California Government Code
Sections 1090 or 1092. The Port and Lessee each agree that it shall not in any
way attempt to have this Lease declared null or void, and that it shall
reasonably cooperate with the other to defend the validity of this Lease and of
the rights and obligations granted by this Lease.
33. RESERVATION OF AIRCRAFT EASEMENT: Lessee releases from any
present or future liability whatsoever and covenants not to sue the Port for
damages or any other relief based directly or indirectly upon noise, light,
vibrations, smoke, air currents, electronic or other emissions or lawful flight
(including overflight of the Premises) occurring as a result of lawful aviation
or airport operations at or otherwise associated with the Metropolitan Oakland
International Airport, said release and covenant to include, but not be limited
to claims (known or unknown) for damages for physical or emotional injuries,
discomfort, inconvenience, property damage, death, interference with use and
enjoyment of property, nuisance, or inverse condemnation or for injunctive or
other extraordinary or equitable relief. It is further agreed that the Port
shall have no duty to avoid or mitigate such damages by, without limitation,
setting aside or condemning buffer lands, rerouting air traffic, erecting sound
or other barriers, establishing curfews, noise or other regulations, relocating
airport facilities or operations or taking other measures, except to the
extent, if any, that such actions are validly required by governmental
authority.
The Port reserves from the Premises an easement for flight of
aircraft in or adjacent to the airspace above the Premises and for the
existence and imposition over, on and upon said Premises of noise, light,
vibrations, smoke, air currents, electronic or other emissions, discomfort,
inconvenience, interference with use and enjoyment, and any consequent
reduction in market value which may occur directly or indirectly as a result of
aviation, airport or operations at or otherwise associated with use of the
Metropolitan Oakland International Airport. Lessee accepts the Premises
subject to the risks and activities hereinabove described.
34. EXTENSIONS OF TIME: The Port shall have the right to grant
reasonable extensions of time to Lessee for any purpose or for the performance
of any obligation of Lessee hereunder.
35. SUCCESSORS: Each and every of the provisions, agreements,
terms, covenants and conditions herein contained to be
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performed, fulfilled, observed and kept shall be binding upon the successors and
assigns of the parties hereto, and the rights hereunder, and all rights,
privileges and benefits arising under this Lease and in favor of either party
shall be available in favor of the successors and assigns thereof, respectively;
provided no assignment by or through Lessee in violation of the provisions of
this Lease shall vest any rights in such assignee or successor.
36. BOARD OF PORT COMMISSIONERS: The term "Board of Port
Commissioners" as used in this Lease shall mean the department of the City of
Oakland presently operating under such name and as presently constituted, or
any successor thereof.
37. TIME OF ESSENCE: Time is hereby expressly declared to be of
the essence of this Lease.
38. NOTICES: Any notice required or permitted to be given Lessee
may be given to it at P.O. Box 6069, Oakland, CA 94603-0069; provided, however,
that if Lessee shall give notice in writing to the Port of any change in said
address, then and in such event such notice shall be given to Lessee at the
changed address specified in such notice. Any notice permitted or required to
be served upon the Port may be served upon it at P.O. Box 2064, Oakland,
California 94604, Attn: Manager of Airport Properties; provided, however, that
if the Port shall give notice in writing to Lessee of any change in said
address, then and in such event such notice shall be given to the Port at such
substituted address. Any notices, statements and billings hereunder may be
served upon a party personally or by United States mail and shall be deemed to
be given and received, except where a specific provision expressly provides
that a notice shall be actually received, on the earlier of the date of actual
receipt or the fifth business day following the mailing.
39. EQUAL OPPORTUNITY; NONDISCRIMINATION: In furtherance of the
Port's long-standing policy to insure that equal employment opportunity is
achieved and nondiscrimination is guaranteed in all Port-related activities it
is expressly understood and agreed with respect to Lessee's activities upon the
premises.
(a) That Lessee shall not discriminate against any
employee or applicant for employment because of race, color, religion, sex,
national origin, age, physical handicap, or veteran's status. Lessee shall
take affirmative action to ensure that applicants and employees are treated
fairly. Such action shall include, but not be limited to the following:
employment, upgrading, demotion, or transfer; recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship. Lessee
agrees to post in conspicuous places, available to employees and applicants for
employment, notices to be provided by the Port's Equal Opportunity Employment
Officer setting forth the provisions of this paragraph.
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(b) That Lessee shall, in all solicitations or
advertisements for employees placed by or on behalf of Lessee state that all
qualified applicants will receive consideration for employment without regard
to race, color, religion, sex, national origin, age, physical handicap, or
veteran's status.
(c) That Lessee will send to each labor union or
representative of workers with which he has a collective bargaining agreement
or other contract or understanding, a notice, to be provided by the Port's
Equal Opportunity Employment Officer, advising the labor union or workers'
representative of Lessee's commitments under this paragraph, and shall post
copies of the notice in conspicuous places available to employees and
applicants for employment.
(d) That Lessee shall not discriminate by segregation or
otherwise against any person or persons because of race, color, religion, sex,
age, national origin, physical handicap, or veteran's status in furnishing, or
by refusing to furnish, to such person or persons the use of any public
facility upon the demised premises, including any and all services, privileges,
accommodations, and activities provided thereby.
(e) Lessee assures that it will undertake an affirmative
action program as required by 14 CFR Part 152, Subpart E, to insure that no
person shall on the grounds of race, creed, color, national origin or sex be
excluded from participating in any employment activities covered in 14 CFR Part
152, Subpart E, as issued on February 7, 1980, or as subsequently amended by
the United States Department of Transportation, Federal Aviation
Administration. Lessee further assures that no person shall be excluded on
these grounds from participating in or receiving the services or benefits of
any program or activity covered by this Subpart. Lessee assures that it will
require that its covered suborganizations provide assurances to Lessee that
they similarly will undertake affirmative action programs and that they will
require assurances from their suborganizations, as required by 14 CFR Part 152,
Subpart E, to the same effect.
(f) That Lessee shall maintain work force records showing
male, female and minority employees by job category and similar information
with respect to new hires and shall permit the Port's Equal Opportunity
Employment officer to inspect such records at all reasonable times and not less
than annually and shall submit a summary of such information annually on a form
provided by the Port.
(g) That if Lessee has fifteen (15) or more employees,
Lessee shall within ninety (90) days of the effective date of this Agreement
provide the Chief Executive Officer or his designee with a copy of its
affirmative action program outlining the steps the tenant will undertake to
promote effective utilization of minorities, women, handicapped persons, and
veterans approved by an appropriate federal or state agency or by the Port or
an affirmative action program required as a result of a court ordered
NATIONAL AIRMOTIVE CORPORATION
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consent decree. Thereafter any change(s) in Lessee's affirmative action
program shall be forwarded to the Port within thirty (30) days of its adoption.
Such submissions shall be accorded the same level of confidentiality as
provided for by the state or federal regulations or court order under which it
was originally submitted.
(h) That Lessee's noncompliance with the provision of
this clause shall constitute a material breach of this Agreement. In the event
of a breach of any of the above-stated nondiscrimination and affirmative action
covenants, the Port shall have the right to consider but not be limited to the
following:
(i) Terminate this Agreement and to re-enter and possess
said land and the facilities thereon, and to hold the same as if this Agreement
had never been made without liability therefor; or
(ii) Seek judicial enforcement of said covenants.
(iii) The Port shall assist Lessee in preparing the
required affirmative action program to secure equal employment opportunities
whenever such assistance would be beneficial, and shall be available to advise
and counsel Lessee in the implementation of Lessee's Affirmative Action
Program.
40. EMPLOYMENT RESOURCES DEVELOPMENT PROGRAM: Lessee shall
cooperate in implementing the goals of the Port's Employment Resources
Development Program, hereinafter called the "ERDP", as set forth in Port
Resolution No. 26291, as amended. Lessee understands the Port's ERDP seeks to
address the needs of Port tenants for a qualified work force and the needs of
Oakland's chronically unemployed and underemployed for employment, by
identifying employment opportunities, by providing employment training and
counselling for persons seeking such opportunities and by facilitating the
employment of those persons qualified to fill the jobs identified.
The Port shall assist tenants and businesses operating on Port
property with the identification of qualified Oakland residents for employment
opportunities developed by the ERDP.
41. QUIET POSSESSION: Lessee, upon performing its obligations
hereunder, and subject to the provisions of Paragraph 32 of this Lease, shall
have the quiet and undisturbed possession of the demised Premises through the
term of this Lease.
42. ATTORNEYS' FEES AND COSTS: If the Lessee or the Port commences
any action or proceeding against the other arising out of or in connection with
this Lease, the prevailing party shall be entitled to have and recover from the
losing party reasonable attorneys' fees and costs of suit.
43. LEASE THE ENTIRE AGREEMENT; OTHER AGREEMENTS: The Lessee agrees
that as of the effective date of this Lease the provisions of this written
Lease constitute the entire agreement between the Lessee and the Port regarding
the demised Premises and the parties'
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rights and obligations with respect thereto. The parties hereto agree that any
other leases or agreements regarding the demised Premises existing as of the
effective date of this Lease are hereby terminated as of said effective date;
provided, however, that any obligations or liabilities arising prior to the
termination shall survive such termination. No representation, covenant or
other matter oral or written, that is not expressly set forth in this Lease
shall be a part of, modify or affect this Lease; provided, however, that this
Lease may be modified if the modification is in writing and authorized by
ordinance or resolution of the Board of Port Commissioners.
44. SEVERABILITY: The unenforceability, invalidity or illegality of
any provision of this Lease shall not render the other provisions
unenforceable, invalid or illegal, except when the rights of the Port or Lessee
are materially affected.
45. APPLICABLE LAW AND VENUE: This Lease shall be construed and
interpreted in accordance with the laws of the State of California. All
disputes that cannot be settled amicably by the parties shall be determined by
a competent state court in California, which state court shall be the only
agency with any authority to determine any such dispute; provided that this
provision is not intended to preclude access to appropriate Federal Courts in
disputes involving exclusive Federal Court jurisdiction.
46. REAL ESTATE BROKERS: Lessee and the Port each represent that
it has not had dealings with any real estate broker, finder or other similar
person, with respect to this Lease in any manner. Lessee and the Port each
shall hold harmless the other from all damages resulting from any claims that
may be asserted against the other by any broker, finder or other similar person
with whom it has or purportedly has dealt.
47. AGREEMENT IN MULTIPLE COPIES: This Lease is executed in
multiple copies, each copy of which shall be deemed an original.
48. COVENANT AGAINST CONTINGENT FEES: Lessee warrants that no
person or agency has been employed or retained to solicit or obtain the
contract upon an agreement or understanding for a contingent fee, except a bona
fide employee or agency. For breach or violation of this warranty, the Port,
at its option, may annul the contract or deduct from the contract price or
otherwise recover from Lessee the full amount of the contingent fee.
"Bona fide agency," as used in this Section means an established
commercial or selling agency, maintained by Lessee for the purpose of securing
business, that neither exerts nor proposes to exert improper influence to
solicit or obtain Port contracts nor holds itself out as being able to obtain
any Port contract or contracts through improper influence.
"Bona fide employee," as used in this Section, means a person,
employed by Lessee and subject to Lessee's supervision and control as to time,
place, and manner of performance, who neither
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exerts nor proposes to exert improper influence to solicit or obtain Port
contracts nor holds itself out as being able to obtain any Port contract or
contracts through improper influence.
"Contingent Fee," as used in this Section, means any
commission, percentage, brokerage, or other fee that is contingent upon the
success that a person or concern has in securing a Port contract.
"Improper influence," as used in this Section, means any
influence that induces or tends to induce a Port Commissioner, employee or
officer to give consideration or to act regarding a Port contract on any basis
other than the merits of the matter.
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IN WITNESS WHEREOF, the parties hereto have caused these presents to
be executed the day and year first above written.
CITY OF OAKLAND, a municipal cor-
poration, acting by and through
its Board of Port Commissioners,
By_____________________________
President
Attest_________________________
Secretary
NATIONAL AIRMOTIVE CORPORATION,
a California corporation,
By_____________________________
THOMAS P. MORJIG
PRESIDENT AND CHIEF OPERATING OFFICER
(Print Name and Title)
Attest______________________________
MICHAEL A. PERFETTO
EXECUTIVE DIRECTOR, ADMINISTRATION
(Print Name and Title)
Approved as to form and
legality this 25th day
of January, 1991.
______________________________
Port Attorney
Port Ordinance No. 3018
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D-606
Corporation--President/Secretary
STATE OF CALIFORNIA )
) SS.
COUNTY OF ALAMEDA )
On this 27th day of December, in the year 1990, before me, Karen S.
Marshall, a Notary Public in and for such County and State, personally appeared
THOMAS P. MORJIG, personally known to me to be the President and Chief
Operating Officer, and MICHAEL A. PERFETTO, known to me to be the Executive
Director, Administration of National Airmotive Corporation, the Corporation
that executed the within Instrument, known to me to be the persons who executed
the within Instrument, on behalf of the Corporation herein named, and
acknowledged to me that such Corporation executed the within Instrument
pursuant to its by-laws or a resolution of its Board of Directors.
WITNESS my hand and official seal.
______________________________
NOTARY PUBLIC in and for said
County and State
<PAGE> 51
[PORT OF OAKLAND EXHIBIT A MAP]
<PAGE> 52
[PORT OF OAKLAND EXHIBIT "A1"]
<PAGE> 53
March 5, 1990
8708122.45
Port of Oakland
LEGAL DESCRIPTION
PARCEL ONE
MAIN BUILDING
All that real property situate in the City of Oakland, County of Alameda State
of California, being portions of Tide Land Lots 20, 21, 28, 29, Section 20,
T.2S., R.3W., M.D.B. & M., as shown on Sale Map No. 10 of the Salt Marsh and
Tide Lands, which is filed in Book 17 of maps at page 30, Alameda County
Records, more particularly described as follows:
PARCEL ONE
COMMENCING at the northwesterly building corner (the wall line intersection, not
the column line) of building L-815 which is situated in the easterly quadrant of
the intersection of Grumman Street and Lockhead Street, at the North Field Area
of the Oakland Metropolitan Airport (as both streets existed in January 1990)
thence, parallel with the southwesterly line of building L-815, N 33 degrees 53'
14" W, ten feet to the back of the sidewalk on the southerly side of Grumman
Street; thence, along the back of said sidewalk, S 56 degrees 06' 46" W, twenty
three feet to the intersection of the back of the northwesterly sidewalk line of
Lockhead Street with the back of the southeasterly sidewalk line of Grumman
Street, which is the Point of Beginning; thence, along the back of sidewalk line
of Lockhead Street, S 33 degrees 53' 14" E, 303.50 feet to intersect the
southwesterly prolongation of the southerly side of a concrete retaining wall;
thence, parallel with and ten feet southerly of the wall line of building L-815
and along said retaining wall, N 56 degrees 06' 46" E, 330 feet to intersect a
cyclone fence, thence along the cyclone fence, S 33 degrees 53' 14" E, 92.5 feet
to an angle point in the cyclone fence; thence continuing along the cyclone
fence N 56 degrees 25' 52" E, 270 feet to intersect the Port of Oakland fence
line that runs parallel with Doolittle Drive, thence along said fence line, N 33
degrees 53' 14" W, 397.5 feet to intersect a cyclone fence which is on line with
the northeasterly prolongation of the back of sidewalk line of Grumman Street;
thence along said fence and along said back of sidewalk, S 56 degrees 06' 46" W,
600 feet to the Point of Beginning.
Containing 207,277 square feet more or less.
Secondary location reference to the Point of Beginning is hereby made in the
event some or all of the controlling monumentation within this description is
destroyed. Commencing at Port of Oakland Survey Control Monument A-29; thence S
29 degrees 53' 13" E, 1799.49 feet to Port of Oakland Survey Control Monument
A-27; thence N 1 degree 38' 52" E, 470.44 feet to, the Point of Beginning;
thence, along the back of sidewalk line of Lockhead Street, S 33 degrees 53' 14"
E, 303.50 feet, this reference being made to allow this description to be
incorporated within the California Coordinate System at such time as said Port
of Oakland Survey Control Monuments are integrated within said system.
Subject to a reservation for the existing water main and electrical conduits
that cross the hereinabove described parcel from a point on the southeastern
boundary of the parcel that is approximately 105 feet from the most eastern
corner to a point on the northwestern boundary approximately 98 feet from the
most northern corner.
PORT/31
NATIONAL AIRMOTIVE CORPORATION
MAIN BUILDING LEASE Exhibit "B"
<PAGE> 54
March 5, 1990
8708122.45
Port of Oakland
LEGAL DESCRIPTION
PARCEL TWO
PARKING
PARCEL TWO
All that real property situate in the City of Oakland, County of Alameda, State
of California, being portions of Tide Land Lots 20, 21, 28, 29, Section 20,
T.2S., R.3W., M.D.B. & M., as shown on Sale Map No. 10 of the Salt Marsh and
Tide Lands, which is filed in Book 17 of maps at page 30, Alameda County
Records, more particularly described as follows:
COMMENCING at the northwesterly building corner (the wall line intersection,
not the column line) of building L-815 which is situated in the easterly
quadrant of the intersection of Grumman Street and Lockhead Street, at the
North Field Area of the Oakland Metropolitan Airport (as both streets existed
in January 1990) thence, parallel with the southwesterly line of building
L-815, N 33 degrees 53' 14" W, ten feet to the back of the sidewalk on the
southerly side of Grumman Street; thence along said back of sidewalk and the
southwesterly projection thereof S 56 degrees 06' 46" W, 58 feet to the Point of
Beginning; thence N 33 degrees 53' 14" W, 33.00 feet, thence S 56 degrees 06'
46", W, 210.00 feet; thence S 33 degrees 53' 14" E, 410.00; thence N 56 degrees
06' 46" E, 210.00 feet; thence N 33 degrees 53' 14" W, 377.00 feet to the Point
of Beginning.
Containing 86,100 square feet more or less.
The Basis of Bearings for this description is Parcel One, as described herein.
PORT/32
[STATE OF CA SEAL]
NATIONAL AIRMOTIVE CORPORATION EXHIBIT "B"
MAIN BUILDING LEASE PAGE 2 of 2
<PAGE> 55
IRREVOCABLE LETTER OF CREDIT
Irrevocable and Transferable
Letter of Credit #____________________
Amount: U.S. $____________________
To: Port of Oakland Airport Properties
9532 Earhart Road
Oakland, California 94621 ______________, 199_____
Attention: Manager, Airport Properties Department
Gentlemen:
For the account of [Lessee's Name], a California _______________
Partnership, we hereby issue in your favor our Irrevocable Letter of Credit
for U.S. $____________________.
The amount of this credit is available to you by your drafts on us at
sight accompanied by the following statement signed by you.
"I certify that the amount of our drawing is due the Port of Oakland
pursuant to the terms of the Lease dated ____________________, 198_ ______
between the Port of Oakland and [Lessee's Name], a [description of Lessee]."
Drafts must clearly specify the number of this credit and be presented
at our counters at __________________________________ in Oakland, California
(or in San Francisco, California) not later than the close of business on
________________19______, or such later date as this credit shall have been
extended to.
This credit shall be deemed automatically extended without amendment
for additional periods of one year from the present or any future expiration
date unless thirty (30) days prior to any such date we notify you and [Lessee's
Name) by registered mail that we elect not to consider the letter of credit
renewed for any such additional period. You may then draw on us at sight with
your statement certifying that the amount drawn covers [Lessee's Name]S'
outstanding obligation to you.
NATIONAL AIRMOTIVE CORPORATION EXHIBIT "C"
MAIN BUILDING LEASE PAGE 1 OF 2
<PAGE> 56
This Letter of Credit is subject to the "Uniform Custom and Practice
for Documentary Credits" (1983 Revision) , International Chamber of Commerce
Publication No. 290.
We engage with you that drafts drawn under and in compliance with the
terms of this credit will be duly honored by us on delivery of documents as
specified.
Very truly yours,
________________________________________
Authorized Signature and Title
NATIONAL AIRMOTIVE CORPORATION EXHIBIT "C"
MAIN BUILDING LEASE PAGE 2 OF 2
<PAGE> 57
HAZARDOUS AND TOXIC SUBSTANCES
(1) General
Lessee shall not cause or permit any Toxic Materials
(as hereinafter defined) to be brought upon, remain, kept or used in or about
the Premises or other Port property, by Lessee, its agents, employees,
contractors or invitees, without the prior written consent of Port. The Port
shall not unreasonably withhold such consent so long as Lessee demonstrates to
Port's reasonable satisfaction that such Toxic Materials, and the quantities
thereof, are necessary or useful to Lessee's business and will be used, kept
and stored in a manner that complies with all Laws (as hereinafter defined).
Lessee's obligations under the provisions in this Exhibit shall apply
notwithstanding the party, known or unknown, responsible for the Toxic
Materials, except solely in the case where the Toxic Materials are brought upon
the Premises by the Port or the Port's agents. Lessee shall be solely
responsible to assure that no person brings Toxic Materials onto the Premises.
(2) Compliance With Laws
Lessee shall comply, at its sole cost, with all
federal, state and local laws, statutes, ordinances, codes, regulations and
orders relating to the receiving, handling, use, storage, accumulation,
transportation, generation, spillage, migration, discharge, release and
disposal of any flammable, combustible, explosive, infectious, corrosive,
caustic, irritant, strong sensitizing, carcinogenic or radioactive materials,
hazardous wastes, toxic substances or related materials, including without
limitation, substances defined as "hazardous substances," "hazardous
materials," or "toxic substances" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. S9601, et seq.;
the Hazardous Materials Transportation Act, 49 U.S.C. S1801, et seq.; the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. S6901, et seq.;
the Clean Water Act, 33 U.S.C. S466, et seq.; the Safe Drinking Water Act, 14
U.S.C. S1401, et seq.; the Superfund Amendment and Reauthorization Act of 1986,
Public Law 99-499, 100 Stat. 1613; the Toxic Substances Control Act, 15 U.S.C.
S2601, et seq., as amended; those substances defined as "hazardous waste" or
"extremely hazardous waste," "restricted hazardous waste" "hazardous substance"
in the Hazardous Waste Control Act, S25100 et seq. of the California Health
and Safety Code; and those materials and substances similarly described in
the Federal
Hazardous Toxic Substances Exhibit "D"
NATIONAL AIRMOTIVE CORPORATION Page 1 of 6
<PAGE> 58
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 136 et seq., as
amended; the Atomic Energy Act of 1954, 42 U.S.C. Section 2011 et seq. , as
amended; the Porter Cologne Water Quality Control Act, Section 1300 et seq. of
the California Health and Safety Code; and in the regulations adopted and
publications promulgated pursuant to said laws (hereinafter collectively
referred to as the "Laws"). Such materials and substances are sometimes
collectively referred to in the Lease, including this Exhibit, as "Toxic
Materials." Lessee shall become aware of the content of such Laws and all other
laws regulating Toxic Materials as enforced by, but not limited to, the Bay Area
Air Quality Management District, Alameda County Health Department, California
Regional Water Quality Control Board, California Department of Health Services
and all state and Federal offices enforcing regulations concerning occupational
safety and health. It shall be the sole obligation of Lessee to obtain any
permits and approvals required pursuant to the Laws.
(3) Disclosure
In addition to Lessee's obligation pursuant to the
Lease and this Exhibit to secure Port consent, at the commencement of this
Lease and during the month of January of each year through and including the
year following the termination or expiration of this Lease, Lessee shall
disclose to Port, in writing, the names and amounts of all Toxic Materials,
whether solid, liquid or gaseous in form, which was stored, used or disposed of
on the Premises, or which Lessee intends to store, use or dispose of on the
Premises for the year prior to and following the date of each such disclosure.
(4) Business Plan
If Lessee's business conducted within the Premises
requires the establishment and implementation of a business plan pursuant to
California Health and Safety Code Section 25500 et seq. concerning the handling
of hazardous materials, Lessee shall, prior to occupying the Premises, give
written notification to Port that Lessee's business is subject to the business
plan requirement of the Code and that the business is in compliance with the
Code. A copy of the plan shall be delivered to Port with such notification.
(5) Indemnity
Lessee shall be solely responsible for and shall
indemnify, protect, defend and hold harmless Port and its agents, employees,
representatives, directors and officers (collectively hereinafter referred to
as the "Indemnitees") from and against any and all claims, costs, penalties,
fines, losses (including without limitation, (i) diminution in value of the
Premises and
Hazardous Toxic Substances Exhibit "D"
NATIONAL AIRMOTIVE CORPORATION Page 2 of 6
<PAGE> 59
of any other Port property; (ii) damages for the loss or restriction on use of
rentable or usable space or of any amenity of the Premises, or any other Port
property; (iii) damages arising from any adverse impact on marketing of space in
the Premises or other Port property; and (iv) sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees), liabilities, attorneys' fees,
damages, injuries, causes of action, judgments, taxes and expenses which arise
during or after the term of this Lease as a result of the receiving, handling,
use, storage, accumulation, transportation, generation, spillage, migration,
discharge, release or disposal of Toxic Materials in, upon or about the
Premises, or other Port property, by Lessee or its agents, employees,
contractors, licensees or invitees. This indemnification of the Indemnitees by
Lessee includes, without limitation, any and all costs incurred in connection
with any investigation of site conditions and any cleanup, remediation, removal
or restoration work required by any federal, state or local governmental agency
or political subdivision because of Toxic Materials present in the soil,
subsoils, groundwater or elsewhere in, on, under or about the Premises or other
Port property. This indemnification by Lessee under this Paragraph shall
survive the termination of this Lease.
(6) Cleanup
If Lessee or its agents, employees, contractors,
licensees, or invitees or any other parties (except the Indemnitees) causes
contamination or deterioration of water or soil resulting in a level of
contamination greater than the maximum levels established from time to time
during the term of this Lease by any governmental authority having jurisdiction
over such contamination, then Lessee shall promptly take any and all action
necessary to clean up such contamination in the manner as required by law. If
Lessee fails to take such action, Port may, but shall not be obligated to, take
such action. In such event, all costs incurred by Port with respect to such
cleanup activities shall be for the account of Lessee.
(7) Notices and Consent
Lessee shall immediately provide Port with telephonic
notice, which shall later be confirmed by written notice, of any and all
accumulation, spillage, discharge, release and disposal of Toxic Materials
onto or within the Premises or other Port property and any injuries or damages
resulting directly or indirectly therefrom. Prior to Lessee introducing any
Toxic Materials onto the Premises, and regardless of whether such introduction
is required to be reported to applicable governmental authorities, Lessee shall
request Port's written consent thereto as provided in item (1) hereinabove.
Further,
Hazardous Toxic Substances Exhibit "D"
NATIONAL AIRMOTIVE CORPORATION Page 3 of 6
<PAGE> 60
Lessee shall deliver to Port each and every notice or order received from
governmental agencies concerning Toxic Materials and the possession, use and/or
disposal thereof promptly upon receipt of each such notice or order.
(8) Storage and Use of Toxic Materials
Subject to the Permitted Uses as defined elsewhere in
this Lease, Lessee shall store in appropriate leakproof containers, or in any
other manner approved or prescribed by law, any and all Toxic Materials
permitted within the Premises pursuant to this Lease, which if discharged or
emitted into the atmosphere, upon the ground or into or on any body of water
does or may (1) pollute or contaminate the same, or (2) adversely affect the
(a) health, safety or welfare of persons, whether on the Premises or elsewhere,
or (b) the condition, use or enjoyment of the Premises, or any real or personal
property whether on the Premises or anywhere else. There shall be no ponding
or surface storage whatsoever of Toxic Materials within the Premises or within
any other Port property.
(9) Disposal of Toxic Materials
Notwithstanding anything to the contrary contained in
this Exhibit or elsewhere in the Lease, Lessee shall not dispose of any Toxic
Material, regardless of the quantity or concentration, within the drains and
plumbing facilities within the Premises, or other property of Port. The
disposal of Toxic Material shall be in approved containers and removed from the
Premises only by duly licensed carriers. If Lessee becomes aware of or
suspects the presence of any hazardous substance existing within or coming onto
the Premises or other Port property, or of any release of a hazardous substance
that has come to be located on or beneath the Premises or other Port property,
Lessee shall immediately give written notice of such condition to Port as
required by California Health and Safety Code Section 25359.7
(10) Safety
Lessee shall maintain Material Safety and Data Sheets
for each and every Toxic Material brought into the Premises. Such information
shall be kept current at all times and shall be kept in a place accessible to
Port at any time for inspection and in the event of an emergency.
Hazardous Toxic Substances Exhibit "D"
NATIONAL AIRMOTIVE CORPORATION Page 4 of 6
<PAGE> 61
(11) Fees, Taxes and Fines
Lessee shall pay, prior to delinquency, any and all
fees, taxes (including excise taxes) and fines which are charged upon or
incident to any activities on or related to Toxic materials, and shall not
allow such obligations to become a lien or charge against the Premises or upon
Port.
(12) Delivery of Documentation
Lessee shall deliver to Port true and correct copies
of the following documents (hereinafter referred to as the "Documents") related
to the handling, storage, disposal and emission of Toxic Materials,
concurrently with the receipt from or submission to a governmental agency:
Permits; approvals; reports and correspondence;
storage and management plans; documents relating to taxes for
toxic materials; notice of violations of any Laws; plans
relating to the installation of any storage tanks to be
installed in, under or around the Premises (provided, said
installation of tanks shall only be permitted after Port has
given Lessee its written consent to do so, which consent may
be withheld in Port's sole discretion); and all closure plans
or any other documents required by any and all federal, state
and local governmental agencies and authorities for any
storage tanks or other facilities installed in, on or under
the Premises.
Lessee is not required, however, to provide Port with
any portion(s) of the Documents containing information of a proprietary nature
which, in and of itself, does not contain a reference to any Toxic Materials or
hazardous activities are not otherwise identified to Port in such Document,
unless any such Document names Port as an "Owner" or "Operator" of the facility
in which Lessee is conducting its business. It is not the intent of this
paragraph, unless necessary for the Port to comply with the law or to enforce
provisions of this Lease or otherwise secure the Port's rights, to provide Port
with information which could be detrimental to Lessee's business should such
information become possessed by Lessee's competitors.
Hazardous Toxic Substances Exhibit "D"
NATIONAL AIRMOTIVE CORPORATION Page 5 of 6
<PAGE> 62
(13) Expiration of Term of Lease
On or before the expiration of this Lease, Lessee
shall take any and all action required to be taken under the Laws in order to
(i) surrender the Premises to Port in a condition which would be completely
free of any and all Toxic Materials, and (ii) close or remove, in accordance
with law, any storage tanks in, on or under the Premises. Lessee shall submit
to Port any and all closure plans relating to the closure or removal of any
storage tanks as required by law; provided however, that Lessee shall complete
such closure within a reasonable time after the delivery of such closure plans
to Port, but in no event shall completion of such closure or removal be later
than the termination date of this Lease.
(14) Prohibited Substances
The following substances are prohibited from being
brought into the Premises, the Building or onto the improved Area:
Arsines Etching solutions
Asbestos Fluorocarbons
Chlorocarbons Freon
Dioxins, including dioxin precursors and
intermediates. Anything contained in the California
List of Extremely Hazardous Chemicals.
Hazardous Toxic Substances Exhibit "D"
NATIONAL AIRMOTIVE CORPORATION Page 6 of 6
<PAGE> 63
AFFIRMATIVE ACTION PLAN FOR LESSEE
I. AFFIRMATIVE ACTION POLICY STATEMENT
Lessee has issued the following policy statement delineating the
policy of Lessee regarding its commitment to equal employment opportunity,
nondiscrimination and affirmative action, and such policy will be fully
implemented to the extent practicable at the time of actual occupancy of the
building by Lessee.
Equal Employment Opportunity Statement
It is the policy of Lessee, personally subscribed to and supported by
its principals, that there shall be no unlawful discrimination against an
employee or applicant for employment, because of race, color, religious creed,
national origin, ancestry, sex, marital status, physical handicap, non
job-related medical condition, age or veteran status. This policy includes,
but is not limited to, the following: hiring, upgrading, recruitment,
recruitment advertising, selection, training, demotion, transfer, compensation,
lay-off or termination, or any other term or condition of employment. To
implement this policy, Lessee has an affirmative action program which is
supported by all of Lessee's managers and supervisors, and which Lessee shall
fully implement as appropriate during the Lease term. To assure that equal
opportunity and affirmative action efforts are properly carried out, Lessee at
all times shall have an Equal Opportunity Coordinator; provided, however, that
the principals of Lessee shall be responsible for proper implementation of the
Affirmative Action Plan.
II. RESPONSIBILITIES AND DUTIES OF EEO COORDINATOR
In addition to the Equal Opportunity Coordinator's regular duties, it
is the Coordinator's responsibility to: (1) develop equal opportunity and
affirmative action procedures and communication techniques; (2) assist
supervisors and managers in identifying and solving problems relating to equal
opportunity; (3) maintain an open-door policy to all employment problems which
may be raised by employees or applicants for employment; (4) design and
implement a system of periodic monitoring and reporting Lessee's equal
opportunity efforts, including monitoring of selection procedures and regular
review and validation of any selection requirements and tests which are found
to impact adversely on minorities or women; (5) keep informed, and keep senior
management informed, on equal opportunity developments (6) act as a liaison
with equal opportunity enforcement agencies (7) ensure that all managers and
supervisors comply with this
Affirmative Action Plan Exhibit "E"
NATIONAL AIRMOTIVE LEASE
<PAGE> 64
policy and implement Lessee's nondiscrimination and affirmative action program;
(8) train employees, including supervisory and management personnel, to create
a favorable climate for an effective equal opportunity program; (9) ensure that
all of the Lessee's facilities are desegregated; (10) conduct a periodic audit
to ensure notices are properly displayed; (11) review the qualifications of
all employees to ensure that minority and female employees are given full
opportunity for promotions or transfer; (12) encourage employees including
minorities and females to participate in all company-sponsored social and
recreational events, educational and training programs; (13) communicate to
supervisors that their performance is being evaluated on their equal employment
opportunity and affirmative action efforts and results as well as other
criteria; (14) ensure that supervisors take action to prevent discriminatory
harassment of employees.
III. COMMUNICATION OF POLICY
Lessee is desirous of ensuring that all employees and other persons
are fully informed of its commitment to equal opportunity. Accordingly, Lessee
will undertake the following steps to disseminate the policy both internally
and externally:
INTERNAL DISSEMINATION
A. Lessee's Equal Employment Opportunity/Affirmative Action
Policy shall be contained in Lessee's policy guide books or employee handbook,
whichever may exist.
B. Lessee shall publicize at least once each year its EEO Policy
in newsletters and/or magazines which are intended for the general reading of
management and employees.
C. A policy statement and Federally-required Equal Employment
Opportunity notice will be posted on Lessee's bulletin boards in areas where
employees or applicants congregate.
D. Lessee shall communicate to all employees its EEO policy and
program through regular meetings during which managers and supervisors will
discuss Lessee's EEO policies and programs, individual responsibilities and
review progress.
E. Applications for employment shall include a statement regarding
nondiscrimination.
Affirmative Action Plan
NATIONAL AIRMOTIVE LEASE E-2
<PAGE> 65
External Dissemination
A. Recruiting services through which Lessee hires, and each labor
union or workers' representative with which it has a collective bargaining
agreement or other employment-related contract, shall be informed through
meetings or by written notification of the Lessee's policies regarding equal
opportunity. Lessee will encourage the above actively to recruit and refer
minority and female applicants.
B. All advertisements for employment will state that Lessee is an
equal opportunity employer.
C. When employees are featured in marketing campaigns, employee
handbooks or similar publications under Lessee's control, both nonminorities
and minorities will be pictured where practicable.
D. An Equal Opportunity clause will be inserted by Lessee in all
future labor union agreements, purchase orders and all other contracts relative
to this Lease.
IV. GOALS AND TIMETABLES
A. Identification of Underutilizations
For each of its EEO job categories, Lessee will identify any
underutilizations of minorities and women by:
1. Identifying the number and percentage of minority and
women employees by ethnic groups in division, office or department by job
classification and by EEO-1 categories for which Lessee has employees.
2. Analyzing the availability of promotable minority and
female employees and preparing a list of such persons, if any, by present job
classification.
3. Comparing the data described above with the most
recent relevant labor force availability data for persons in the particular job
group or comparable occupational category(ies) for County of Alameda.
4. Identifying those job categories where minorities
and/or women are present in Lessee's work force at levels below their
availability to the relevant labor force for County of Alameda.
Affirmative Action Plan
NATIONAL AIRMOTIVE LEASE E-3
<PAGE> 66
B. Identification of Goals and Timetables
For each of its EEO job categories where minorities and/or
women are present in Lessee's work force at levels below their availability in
the County of Alameda, Lessee will establish annual goals to correct such
underutilizations. Goals will also be set to correct deficiencies in applicant
flow, hiring, promotions, training, etc.
Lessee's timetable for reaching its goals will be based on
realistic estimates of attrition and applicant availability. In addition,
consideration will be given to the following:
1. The availability of promotable and transferable
minorities and women within Lessee's work force;
2. The existence of training institutions capable of
training Lessee's minority and women employees to acquire requisite skills to
be qualified for promotions and/or transfers as they become available; and
3. The degree of training which Lessee is reasonably
capable of providing for its minority and women employees.
Upon achievement of parity with the relevant labor
force in Alameda County for each ethnic group, sex and EEO job category, Lessee
shall take the steps described in item A above and this item B with respect to
the long range goal described in item C below.
C. Long Range Goals
The long range goals are to achieve parity with the relevant
labor force in the City of Oakland for each ethnic group, sex and EEO-1 job
category.
D. Nature of Goals
The goals described in item A, B and C above are not inflexible
quotas, but rather are objectives to be pursued by mobilization of available
resources and by a good faith effort to fulfill the letter and spirit of
Lessee's equal opportunity employment policy. The anticipated expansion,
contraction, and turnover of and in the work force, along with the
qualifications for respective jobs, will be considered in determining goals.
Affirmative Action Plan
NATIONAL AIRMOTIVE LEASE E-4
<PAGE> 67
V. PLAN OF ACTION
Lessee will make a good faith effort to achieve the goals timetable
indicated above. These efforts will include, but are not necessarily limited
to the following actions:
A. Lessee will make every good faith effort to ensure that all
job descriptions and job specifications accurately reflect job functions.
B. Every good faith effort will be made to ensure that the
qualifications do not constitute intentional or inadvertent discrimination
against minorities or women.
C. Prompt notice of all Lessee's job openings will be made to
Port's Employment Resources Development Program, employment agencies, clearing
houses, and referral groups. The notice shall state among other things, the
nature of the job, general job qualifications, salary level when applicable,
and that minorities, women and Oakland residents are encouraged to apply.
D. Lessee will actively encourage minority and female employees
to refer applicants for its job openings.
E. Lessee will make every good faith effort to cooperate with
local community programs designed to improve the employment of minorities and
females.
F. Lessee will make every good faith effort to ensure that
preemployment screening and selection procedures are not discriminatory and
that they do not have an adverse impact on the hiring of any minorities or
women.
G. Lessee will maintain applicant flow data to ensure minorities
and women are not being discriminated against.
H. Lessee will develop reports to monitor the progress of the
affirmative action program on a semi-annual basis.
I. Due to Lessee's size, it may generally be unable to conduct
internal job-related training and if so, then, as a result, Lessee will seek the
most qualified applicant to fill each available position within its
organization. However, Lessee in good faith will, as a part of its continuous
monitoring system, consider the feasibility of internal job-related training.
However, Lessee in good faith will, as a part of its continuous
monitoring system, consider the feasibility of internal job-related training.
Affirmative Action Plan
NATIONAL AIRMOTIVE LEASE E-5
<PAGE> 68
Lessee's affirmative action and nondiscriminatory plan compliance will
be updated and revised periodically (at least annually) in light of experience,
revised laws and regulations and their interpretations, and better
understanding of effective approaches which will assure truly equal opportunity
for all. The initial set of goals and timetables established pursuant to this
Plan shall be forwarded to the Executive Director within ninety (90) days after
Lessee's occupancy of the Premises for purposes of Lessee's conducting
management, leasing or general administrative functions. Each updated plan,
including each updated set of goals and timetables, will be forwarded to the
Executive Director within thirty (30) days after their adoption. The initial
set of goals and timetables, and each updated plan and updated set of goals and
timetables, shall be consistent with the goals and objectives of this Plan.
Any questions relating to details of this Plan should be referred to
Lessee's Equal Opportunity Coordinator.
Affirmative Action Plan
NATIONAL AIRMOTIVE LEASE E-6
<PAGE> 1
EXHIBIT 10.17
04/30/91 PBH:JEV (NATAIR.LSE)
06/25/91 PBH:MLJ (NATAIR.LSE)
07/25/91 PBH:MLJ (NATAIR.LSE)
08/29/91 PBH:JEV
FIRST SUPPLEMENT TO LEASE
THIS FIRST SUPPLEMENT TO LEASE, made and entered into this 22nd day of
November 1991, by and between the CITY OF OAKLAND, a municipal corporation,
acting by and through its Board of Port Commissioners, hereinafter called the
"Port" or "Lessor", and NATIONAL AIRMOTIVE CORPORATION, a California
corporation, a wholly owned subsidiary of TRITON GROUP, LTD., a Delaware
corporation,
W I T N E S S E T H:
WHEREAS, the Port and NATIONAL AIRMOTIVE CORPORATION, a California
corporation, a wholly owned subsidiary of TRITON GROUP, LTD., a Delaware
corporation, have heretofore made and entered into that certain Lease dated the
23rd day of January, 1991, (the "Lease"); and
WHEREAS, the parties desire to amend said Lease to enlarge the demised
premises by approximately 28,455 square feet for additional rent and to permit
the United States Postal Service ("Postal Service") the exclusive use of 1,800
square feet (10 parking spaces) during certain hours for the duration of the
lease term between the Postal Service and the Port; now, therefore,
IT IS HEREBY AGREED as follows:
1. Paragraph 1 of said Lease shall be and the same is hereby
amended to revise Exhibits "A" and "B" of said Lease to add thereto the
additional Exhibits "A-2" and "B-1" attached to this First Supplement to Lease
and by reference made a part hereof and of said Lease, thereby expanding the
demised premises to include certain additional area (such additional area at
times referred to herein as "Additional Premises").
NATIONAL AIRMOTIVE CORPORATION
(MAIN BUILDING) PAGE 1
<PAGE> 2
2. Paragraph 1 of said Lease shall be and the same is hereby
further amended to add the following final paragraph to read in full as follows:
"Upon ninety (90 days) prior written notice to Lessee, the
Port shall retain the right to delete from the Premises and
all provisions of this Lease an area not to exceed 20' by 210'
on the east side of the Premises, as shown in Exhibit "B-2"
attached to this First Supplemental to Lease and by reference
made a part hereof and of said Lease."
2. Paragraph 3.1 of said Lease shall be and hereby is amended to
renumber Paragraph 3.1 as Paragraph 3.1(i) and to add the following new
Paragraph 3.1(ii) to read in full as follows:
"(ii) Lessee shall provide exclusive use to Postal Service of
1,800 square feet of parking (10 parking spaces) in Lessee's
parking lot during the hours 1800 to 0600 throughout the term
of the lease between the Postal Service and the Port,
including options to extend contained therein. Reasonable
ingress and egress from the parking spaces shall be included.
This Paragraph 3.1(ii) shall cease to have effect and shall be
null and void if the Second Amendment to Lease between the
Port and the Postal Service has not been executed by both
parties by November 30, 1991."
4. Paragraph 4. 1 of said Lease shall be and hereby is amended to
renumber Paragraph 4.1(i) as Paragraph 4.1(i)(a) said Paragraph 4.1(i)(a) shall
be amended to read in full as follows:
"(a) Commencement of term to February 28, 1991, Nine Thousand
Six Hundred Sixty-Eight and 80/100 Dollars ($9,668.80), and thereafter
to January 31, 1995, Nine Thousand Seven Hundred Ninety-Nine and
88/100 Dollars ($9,799.88)."
5. The following new Paragraph 4.1(i)(b) and (i)(c) shall be
added to read in full as follows:
"(i)(b) With respect to the Additional Premises, from the
effective date of the First Supplement to Lease to January 31,
1995, One Thousand Sixty-seven and 06/100 Dollars ($1,067.06).
(i)(c) Adjustments to monthly rent set forth in the remainder
of this Paragraph 4 shall apply to the monthly rental payable
for the entire Premises,
NATIONAL AIRMOTIVE CORPORATION
(MAIN BUILDING) PAGE 2
<PAGE> 3
including the Additional Premises, as described in Paragraph 1
hereof."
6. Paragraph 4.2 of said Lease shall be and hereby is amended to
renumber Paragraph 4.2 as Paragraph 4.2(i) and to add the following new
Paragraph 4.2(ii) to read in full as follows:
"(ii) As additional consideration to the Port for entering
into this First Supplement to Lease, and not as security for
Lessee's performance under this Lease as supplemented, Lessee
shall unconditionally pay to the Port upon Lessee's execution
of the First Supplement to Lease, the following retroactive
rental on the Additional Premises receipt of which will be
acknowledged in writing by the Port: for the period November
22, 1990 through the effective date of the First
Supplement.........$1,067.06 per month."
7. Paragraph 4.5 of said Lease shall be and the same is hereby
amended to increase the Deposit to $18,134.
8. This Supplement shall take effect thirty (30) days from and
after the final adoption of the ordinance authorizing execution of this First
Supplement to Lease.
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NATIONAL AIRMOTIVE CORPORATION
(MAIN BUILDING) PAGE 3
<PAGE> 4
9. In all other respects said Lease, dated the 23rd day of
January 1991, as herein amended, is hereby ratified, confirmed and approved.
IN WITNESS WHEREOF, the parties hereto thereunto duly authorized, have
executed this Agreement the day and year first above written.
CITY OF OAKLAND, a municipal
corporation, acting by and
through its Board of Port
Commissioners,
By [SIG]
--------------------------
Executive Director
Attest [SIG]
----------------------
Secretary of the Board
NATIONAL AIRMOTIVE
CORPORATION,
a California corporation,
a wholly owned subsidiary
of TRITON GROUP, LTD., a
Delaware corporation,
By JOHN P. VIBOCH
--------------------------
JOHN P. VIBOCH
SENIOR VICE PRESIDENT
& CFO
--------------------------
Print Name and Title
Attest MICHAEL A. PERFETTO
----------------------
MICHAEL A. PERFETTO
EXECUTIVE DIRECTOR,
[SEAL] ADMINISTRATION
--------------------------
Print Name and Title
Approved as to form and
legality this 18th day
of March 1992.
[SIG]
- ----------------------------------
Port Attorney
Port Ordinance No. 3072
NATIONAL AIRMOTIVE CORPORATION
(MAIN BUILDING) PAGE 4
<PAGE> 5
August 30, 1990
#8708122.55
Port of Oakland
LEGAL DESCRIPTION
PARKING EXTENSION
All that real property situated in the City of Oakland, County of Alameda,
State of California, being portions of Tide Land Lots 21, 28, 29, Section 20,
T.2S., R.3W., M.D.B. & N. as shown on Sale Map No. 10 of the Salt Marsh and
Tide Lands, which is filed in Book 17 of maps at page 30, Alameda County
Records, more particularly described as follows:
COMMENCING at the northwesterly building corner (the wall line intersection,
not the column line) of building L-815 which is situated in the easterly
quadrant of the intersection of Grumman Street and Lockheed Street, at the
North Field Area of the Oakland Metropolitan Airport (as both streets existed
in October 1990) thence, parallel with the southwesterly line of building
L-815, N 33 degrees 53' 14" W, ten feet to the back of the sidewalk on the
southerly side of Grumman Street; thence along said back of sidewalk and the
southwesterly projection thereof S 56 degrees 06' 46" W, 58.00 feet to a point
on the southwesterly side of Lockheed Street; thence S 33' 53" 14" E, 377.00
feet to THE POINT OF BEGINNING; thence, continuing along an extension of said
line S 33 degrees 53' 14" E, 135.50 feet to intersect with the northwesterly
line of the proposed Langley Street; thence along said line S 56 degrees 06'
46" W, 210.00 feet; thence N 33 degrees 53' 14" W, 135.50 feet; thence N 56
degrees 06' 46" E, 210.00 feet to the Point of Beginning.
Containing 28,455 square feet, more or less.
Secondary location reference to the Point of Beginning is hereby made in the
event some or all of the controlling monumentation within this description is
destroyed. Commencing at Port of Oakland Survey Control Monument A-29; thence
S 29 degrees 53' 13" E, 1799.49 feet to Port of Oakland Survey Control Monument
A-27; thence N 54 degrees 42' 51" E, 234.49 feet to the Point of Beginning;
thence along the northwest line of the existing parking area N 33 degrees 53'
14" W, 377.00 feet, this reference being made to allow this description to be
incorporated within the California Coordinate System of 1983 at such time as
said Port of Oakland Survey Control Monuments are integrated within said
system.
PORT.43
[SEAL]
<PAGE> 6
[MAP -- PORT OF OAKLAND]
<PAGE> 1
EXHIBIT 10.18
L E A S E
BETWEEN
PORT OF OAKLAND
AND
NATIONAL AIRMOTIVE CORPORATION
DATED
JANUARY 23, 1991
NATIONAL AIRMOTIVE CORP.
TEST CELLS LEASE
<PAGE> 2
I N D E X
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1 Lease and Description of the Property 2
1.1 Lessee's Right of First Refusal
on Entire Premises 2
2 Effective Date; Term; Option to Extend Term 2
2.1 Effective Date 2
2.2 Term 3
2.3 Option to Extend Term 3
3 Use of Premises 6
3.1 Required and Permitted Uses 6
3.2 Special Noise Limitations 6
3.3 Removal of Adjacent Outside Test Stand 6
3.4 Compliance with Law; Indemnity 7
4 Rental; Monthly Rental Adjustment; Performance
Deposit 8
4.1 Monthly Rent 8
4.2 Delinquency Charge 11
4.3 Accord and Satisfaction 12
4.4 Performance Deposit 12
5 Standard of Service; Rates and Charges 13
6 Condition of Property 13
7 Improvements to the Premises 14
7.1 Improvements by the Port 14
7.2 Improvements by the Lessee 14
8 Maintenance of Improvements 14
8.1 Prevailing Wage Requirements 15
9 Title to Improvements 19
</TABLE>
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TEST CELLS LEASE Page 1 of 4
<PAGE> 3
I N D E X
<TABLE>
<CAPTION>
Section Page
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<S> <C> <C>
10 Signs; Outside Displays 19
11 Utility Easements 20
12 Utilities 20
13 Taxes and Assessments 21
14 Fire Insurance 21
15 Damage or Destruction of Premises 22
16 Fire Extinguishers 23
17 Indemnification, Hold Harmless and Liability
Insurance 23
17.1 Indemnification and Hold Harmless 23
17.2 Liability Insurance 23
18 No Liens; Mortgage of Leasehold and Protection
of Lender 24
19 Assignment and Subletting 25
20 Hazardous Substances; Fumes and Odors; Disposal
of Garbage; Annoying and Injurious Conduct 29
21 Defaults 30
22 Right of Entry 32
23 Surrender and Holding Over 32
24 Duty to Guard Goods 33
25 Waivers 33
26 Right to Inspect Premises 33
27 Agent for Service of Process 33
28 Rights of the United States of America 34
29 Airport Security 34
30 Force Majeure 35
</TABLE>
NATIONAL AIRMOTIVE CORPORATION Table of Contents
TEST CELLS LEASE Page 2 of 4
<PAGE> 4
I N D E X
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
31 Eminent Domain Proceedings 35
31.1 Total Taking 35
31.2 Partial Taking; Termination 35
31.3 Partial Taking; No Termination;
Reconstruction 36
31.4 Partial Taking; No Termination;
No Reconstruction 36
31.5 Taking of Leasehold Estate 36
31.6 Relocation Benefits and Goodwill 37
31.7 Trade Fixtures and Equipment 37
31.8 Reduction in Monthly Rent; Arbitration 38
31.9 Port's Reservation of Power of Eminent
Domain 38
32. Waiver of Claims 38
33. Reservation of Aircraft Easement 39
34. Extensions of Time 39
35. Successors 39
36. Board of Port Commissioners 39
37. Time of Essence 40
38. Notices 40
39. Equal Opportunity; Nondiscrimination 40
40. Employment Resources Development Program 42
41. Quiet Possession 42
42. Attorneys' Fees and Costs 42
43. Lease the Entire Agreement; Other Agreements 42
44. Severability 43
</TABLE>
NATIONAL AIRMOTIVE CORPORATION Table of Contents
TEST CELLS LEASE Page 3 of 4
<PAGE> 5
I N D E X
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
45. Applicable Law and Venue 43
46. Real Estate Brokers 43
47. Agreement in Multiple Copies 43
48. Covenant Against Contingent Fees 43
Exhibits
- --------
A Sketch of Property
B Legal Description
C Irrevocable Letter of Credit
D Hazardous and Toxic Substances
E Affirmative Action Plan for Lessee
</TABLE>
NATIONAL AIRMOTIVE CORPORATION Table of Contents
TEST CELLS LEASE Page 4 of 4
<PAGE> 6
L E A S E
THIS LEASE, entered into this 23rd day of January 1991, by and between
the CITY OF OAKLAND, a municipal corporation (the "City"), acting by and
through its Board of Port Commissioners, hereinafter called the "Port" or
"Lessor", and NATIONAL AIRMOTIVE CORPORATION, a California corporation, a
wholly owned subsidiary of TRITON GROUP, LTD., a Delaware corporation,
hereinafter called the "Lessee",
W I T N E S S E T H:
WHEREAS, the City of Oakland is the owner in fee of that certain
property located in the Port Area of the City of Oakland at the Metropolitan
Oakland International Airport ("Airport") consisting of approximately 95,256
square feet of land, said property being referred to hereinafter as either "the
Property" or the "Premises"; and
WHEREAS, the Port is vested with the complete and exclusive power, and
it is the Port's duty for and on behalf of the City with respect to the Port
Area, to make provisions for the needs of commerce, shipping and navigation of
the port, to promote and develop the port, and in the exercise of such power
and fulfillment of such duty, to enter into any lease of City-owned properties
in the Port Area upon such terms and conditions as the Board of Port
Commissioners shall prescribe; and
WHEREAS, the Port desires to develop, alter and improve the Property
in order to provide for improvements and facilities which will service and
enhance the Airport and the commerce, shipping and navigation in the Port Area;
and
WHEREAS, the Port has determined that the Airport and the commerce,
shipping and navigation of the port will be promoted and enhanced by leasing
the Property to Lessee for the uses and purposes set forth in this Lease;
NOW, THEREFORE, for the better promotion of commerce, shipping and
navigation and the development of the port and the Airport, and for and in
consideration of the faithful performance of the Port and Lessee of the terms,
covenants and conditions hereof and of the payments herein provided to be made
by Lessee, the Port and Lessee hereby agree as follows:
NATIONAL AIRMOTIVE CORPORATION
TEST CELLS LEASE - 1 -
<PAGE> 7
1. LEASE AND DESCRIPTION OF THE PROPERTY: The Port has leased and
demised, and by these presents does lease and demise unto Lessee, and Lessee by
these presents does lease, hire and take from the Port the Property which is
located in the "Port Area" of the City of Oakland, County of Alameda, State of
California, and more particularly described and depicted in Exhibit "A"
attached hereto and by this reference incorporated herein. The Property
together with the improvements thereon from time to time are sometimes
hereinafter referred to as the "Premises".
This Lease is subject to (1) all easements, covenants, conditions,
restrictions, reservations, rights of way, liens, encumbrances and other
matters of record, including without limitation those shown on Exhibit "B"
attached hereto (2) all matters discoverable by physical inspection of the
Property or that would be discovered by an accurate survey of the Property and
(3) all matters known to Lessee or of which Lessee has notice, constructive or
otherwise.
1.1. LESSEE'S RIGHT OF FIRST REFUSAL ON ENTIRE PREMISES:
The Port hereby grants to Lessee three (3) rights of first refusal to extend
the term of this Lease for five (5) year periods each, the first to occur on
February 1, 2015 the second to occur on February 1, 2020, and the third to
occur on February 1, 2025 ("Right of First Refusal Dates") when the term of
this Lease as specified in section 2.2 expires. In the event the Port
determines on the Right of First Refusal Date that the Premises as shown on
Exhibit "A" attached hereto should be leased, licensed or assigned to a third
party, the Port shall prior to leasing, licensing or assigning said Premises to
a third party give Lessee fifteen (15) days' prior written notice of its intent
to so lease, license or assign said Premises together with the term of such
lease, license or assignment and the rental and/or other consideration to be
received from the third party for such lease, license or assignment and Lessee
may thereafter within fifteen (15) days of the Port's notice give notice to the
Port of its intention to lease, license or assign the Premises for the same
term and rental and/or other consideration as that set forth in the Port's
notice. It is understood and agreed that Lessee's right of first refusal as
above set forth shall not be applicable in instances in which the Port itself
develops or redevelops the Premises for its own use or common Airport use or
for the ultimate use by third parties. In the event Lessee so exercises its
right to so lease the Premises, said Lease shall be effective thirty (30) days
after the date of the Port's said notice and if Lessee does not so exercise its
right within fifteen (15) days of the Port's notice, Lessee's right to exercise
its option to lease the Premises shall immediately expire.
2. EFFECTIVE DATE; TERM; OPTION TO EXTEND TERM:
2.1. EFFECTIVE DATE: This Lease shall become effective
upon the effective date of the ordinance authorizing the Lease. However, if
said ordinance does not become effective immediately upon the expiration of
thirty (30) days from and after the date of
NATIONAL AIRMOTIVE CORPORATION
TEST CELLS LEASE - 2 -
<PAGE> 8
its final passage because of the referendum process then this Lease shall not
become effective except by mutual written agreement of the Port and Lessee.
2.2. TERM: The term of this Lease shall commence upon the
first day of the first full calendar month after the effective date of this
Lease and shall terminate on January 31, 2015.
2.3 OPTION TO EXTEND TERM: The Port hereby grants to
Lessee three (3) five-year options to rent all of its leased property at Fair
Market Rental Value, commencing February 1, 2015, upon each and all of the
following terms and conditions:
(i) Lessee must lease approximately 100,000
square feet parcel immediately adjacent to the northeast of Building No. L-815
hereinafter referred to as Parcel A (as shown on Exhibit "A" to the Main
Building Lease of even date herewith during the first four (4) years from the
effective date (as set forth in Section 2.1) of this Lease.
(ii) Lessee must commence and complete within two
(2) years from the effective date of this Lease (as set forth in Section 2.1)
the acquisition of all necessary permits for the construction of a 60,000
square foot shop/warehouse building on Parcel A.
(iii) Lessee must commence and complete within four
(4) years from the effective date of this Lease (as set forth in Section 2.1)
construction of a 60,000 square foot shop/warehouse building on Parcel A at a
minimum cost of Two million and no/100 ($2,000,000.00) to Lessee.
(iv) Lessee gives to the Port and the Port
receives written notice of the exercise of the option to extend this Lease for
said additional term no earlier than 12 months and no later than 6 months prior
to the time that the option period would commence if the option were exercised.
If said notification of the exercise of the option is not so given and
received, this option shall automatically expire.
(v) Lessee shall have no right to exercise the
option, notwithstanding any provision of this Lease to the contrary, (a) during
the time commencing from the date the Port gives to Lessee a notice of default
pursuant to this Lease and continuing until the default alleged in said notice
of default is cured, or (b) during the time commencing on the day after a
monetary obligation to the Port is due from Lessee and unpaid (without any
necessity for notice thereof to Lessee) and continuing until the obligation is
paid. The period of time within which Lessee may exercise the option shall not
be extended or enlarged by reason of Lessee's inability to exercise because of
the foregoing provisions.
NATIONAL AIRMOTIVE CORPORATION
TEST CELLS LEASE - 3 -
<PAGE> 9
Lessee may exercise this option upon timely
satisfaction or occurrence of all of the above terms and conditions, and upon
failure of timely satisfaction or occurrence of any one or more of such terms
and conditions, the Port without liability may terminate this option by
resolution adopted by the Board of Port Commissioners. Lessee agrees that
there shall be no waiver or release from the complete and timely satisfaction
of each and every term and condition unless and until the Port at its sole
discretion and by resolution expressly so provides.
(vi) In the event that Lessee exercises its option
and extends the term of this Lease, the Monthly Rent herein provided to be paid
by Lessee on or before the first day of each calendar month during said
remaining term, shall be adjusted to the fair market rental value of the
Property (for land, building and leasehold improvements); provided, that in no
event shall the adjusted Monthly Rent be less than the theretofore existing
Monthly Rent. Pending the final determination of the adjusted Monthly Rent
Lessee shall continue to pay to the Port the amount of the Monthly Rent payable
for the preceding period; and if the adjusted Monthly Rent as finally so
determined should exceed the amount of Monthly Rent for the previous period,
Lessee shall pay to the Port the accrued excess amount then due within 30 days
after the Port sends to Lessee a written request therefore.
The parties shall have ninety (90) days
before the Rent Adjustment Date in which to agree on the adjusted Monthly Rent.
If the parties agree on the adjusted Monthly Rent during that period, they
immediately shall execute and acknowledge an amendment to this Lease stating
the adjusted Monthly Rent.
If the parties are unable to agree on the
adjusted Monthly Rent within that period, then within 10 days after the
expiration of that period each party, at its cost and by giving notice to the
other party, shall appoint a real estate appraiser to appraise and submit an
opinion of the fair market rental value of the Property expressed in terms of
an adjusted Monthly Rent. If a party does not appoint an appraiser within 10
days after the other party has given notice of the name of its appraiser, the
single appraiser appointed shall be the sole appraiser and that appraiser's
opinion of the fair market rental value of the Property shall be the adjusted
Monthly Rent. If the two appraisers are appointed by the parties as stated in
this Section, they shall meet promptly and attempt to select a third appraiser
meeting the qualifications stated in this Section within 10 days after the last
day the two appraisers are appointed. If they are unable to agree on the third
appraiser, either of the parties to this Lease by giving 10 days' notice to the
other party may apply to the presiding judge of the Alameda County Superior
Court for the selection of a third appraiser who meets the qualifications
stated in this Section. Each of the parties shall bear one half of the cost
of appointing the third appraiser and one half of the third appraiser's fee.
The third appraiser, however selected, shall be
NATIONAL AIRMOTIVE CORPORATION
TEST CELLS LEASE - 4 -
<PAGE> 10
a person who has not previously acted in any capacity for either party.
Within 60 days after the selection of the
third appraiser, each of the appraisers shall submit to each party the
appraiser's report and opinion of the fair market rental value of the Property
expressed in terms of adjusted Monthly Rent.
From among the opinions of adjusted Monthly
Rent submitted, the median opinion shall be identified, such other opinion
which is closest to said median shall be added to said median, and the average
of said two opinions shall be the adjusted Monthly Rent; provided, that in no
event shall the adjusted Monthly Rent be less than the theretofore existing
Monthly Rent.
In forming an opinion of the adjusted Monthly
Rent, the appraiser or appraisers shall consider a similar use for the Property
with regard to the restrictions on use of the Property contained in this Lease.
All appraisers appointed shall hold the MAI
designation of the American Institute of Real Estate Appraisers or its
successor organization.
(vii) The Port and Lessee promptly shall execute
and acknowledge an appropriate amendment to this Lease memorializing exercise
of the option hereunder which the Port shall then record.
In the event Lessee has so extended the term
of this Lease for an initial five (5) year period Lessee shall have a further
option to extend the term of this Lease for an additional five (5) year period
commencing upon February 1, 2020, subject to the same terms and conditions set
forth above in items (iv) through (vii). In the event that Lessee has so
extended the term of this Lease for an additional five (5) year period Lessee
shall have a further option to extend the term of this Lease for an additional
five (5) year period commencing upon February 1, 2025, subject to the same
terms and conditions set forth above in items (iv) through (vii).
The options granted herein shall not extend
the term of this Lease beyond January 31, 2030, and if Lessee elects to
exercise the options granted herein, Lessee's Rights of First Refusal granted
pursuant to Paragraph 1.1 shall immediately terminate. If Lessee has not
exercised the first option, then the second and third options shall be void.
Lessee hereby expressly agrees that it may
exercise the options granted herein only upon the timely satisfaction of the
conditions set forth in items (i) and (ii) above in addition to those items set
forth in items (iii), (iv) (v) and (vi) and upon failure of timely
satisfaction or occurrence of any one or more of such terms and conditions
particularly
NATIONAL AIRMOTIVE CORPORATION
TEST CELLS LEASE - 5 -
<PAGE> 11
conditions (i) and (ii), the Port without liability may terminate the options
granted herein by resolution.
3. USE OF PREMISES:
3.1. REQUIRED AND PERMITTED USES: The Property shall be
used by Lessee for the construction, maintenance and operation thereon by
Lessee of a complete aircraft engine service test cell facility. The Property
may also be used for other uses and purposes incidental and reasonably related
to such hereinabove specified uses.
3.2 SPECIAL NOISE LIMITATIONS: Lessee agrees that the
noise emitted from the operation of the engine test cell facility constructed
on the Property shall not exceed the following levels when measured at a
distance of 100 feet from the test cell facility:
Daytime 0700 hours - 1900 hours: 78-dBA
Nighttime 1900 hours - 0700 hours: 70-dBA
Lessee further agrees that the noise emitted from the engine test cell
facility shall not exceed the levels for the octave bands indicated in the
following table when measured at a distance of 100 feet from the test cell:
<TABLE>
<CAPTION>
Octave Band
Frequency Cycles Daytime Level Nighttime Level
Per Second (0700-1900 Hours) (1900-0700 Hours)
---------- ------------------ -----------------
<S> <C> <C> <C> <C>
63 90 dB 82 dB
125 89 dB 81 dB
250 81 dB 73 dB
500 72 dB 64 dB
1000 69 dB 61 dB
2000 65 dB 57 dB
4000 55 dB 47 dB
8000 52 dB 44 dB
</TABLE>
Provided that, if the emitted noise contains a strong
audible pure tone, then the maximum permitted noise level for the octave band
which contains the pure tone frequency shall be reduced by five dB; and
Provided further that, when adjacent Airport property
is developed in the future, the Port reserves the right to review and
reasonably reduce the permitted noise emissions from the test cell facility.
3.3 OUTSIDE TEST CELL: With regard to the outdoor test
cell, known as Test Cell No. 2, the Port will notify Lessee in writing of any
violation of noise restrictions. If the violation is not corrected within
thirty (30) days, the Port will give Lessee
NATIONAL AIRMOTIVE CORPORATION
TEST CELLS LEASE - 6 -
<PAGE> 12
a sixty (60) days notice to cease its operation. This test cell shall be used
during daylight hours only and shall not be used on weekends.
Lessee agrees for itself, its successors and assigns
that it will not make use of the Premises in any manner which might interfere
with the landing and taking off of aircraft from the Airport or otherwise
constitute a hazard. In the event the aforesaid covenant is breached, the Port
reserves the right to enter upon the Premises and cause the abatement of such
interference at the expense of the Lessee.
This Lease and all the provisions hereof shall be
subject to whatever right the United States Government now has, or in the
future may have or acquire, affecting the control, operation, regulation and
taking over of the Airport or the exclusive or nonexclusive use of the Airport
by the United States during the time of war or national emergency.
It is understood and agreed that this Lease to use
the Premises, as provided herein, extends only to the Premises and does not
extend to the use of or access to the ramps, taxiways, landing areas, or any
other area of the Airport except as provided in Paragraph 1; provided, however,
that Lessee may use said facilities in common with others and in compliance
with all applicable laws and regulations. It is also understood and agreed
that nothing herein contained shall be construed to grant or authorize the
granting of an exclusive right within the meaning of Section 308(a) of the
Federal Aviation Act of 1958 (49 U.S.C. 1349(a)).
3.4. COMPLIANCE WITH LAW; INDEMNITY: Lessee shall not use
or permit the Premises, or any part thereof, to be used in whole or in part for
any purpose other than as hereinabove set forth except with the prior written
consent of the Port evidenced by resolution of its Board of Port Commissioners,
nor for any use in violation of any present or future laws, ordinances, general
rules or regulations at any time applicable thereto of any public or
governmental authority having jurisdiction over the premises, including the
City of Oakland and its Board of Port Commissioners, relating to filling of or
discharges into the water, sanitation or the public health, safety or welfare.
Lessee hereby expressly agrees at all times during the term of this Lease, at
its own cost, to maintain and operate the Premises in a clean, wholesome and
sanitary condition, and Lessee shall at all times faithfully obey and comply
with all laws, rules and regulations applicable thereto adopted by federal,
state, local or other governmental bodies or departments or officers thereof
and applicable to the Premises; provided, however, that Lessee may reasonably
and in good faith contest any such law, rule or regulation through appropriate
proceedings, and, during such contest, Lessee need not comply therewith,
provided further, that Lessee shall at all times reasonably protect the
interest of the Port under this Lease, shall indemnify the Port for all Port
expenses (exclusive of general
NATIONAL AIRMOTIVE CORPORATION
TEST CELLS LEASE - 7 -
<PAGE> 13
office and administrative expense) actually and reasonably incurred as a result
of said contest, and shall promptly comply with any such contested law, rule or
regulation if any such contest is resolved against Lessee.
Lessee agrees to indemnify and save harmless the Port
and Port officers, employees and agents from any penalties or charges
(including, without limitation, reasonable attorneys' fees and reasonable legal
expenses incurred by the Port in connection with such penalties or charges)
imposed on the Port for any violation by Lessee or by Lessee's licensees,
sublessees or invitees, of any and all laws, ordinances and regulations
applicable to Lessee's use of the Premises and which violation is not solely
the result of acts or omissions on the part of the Port or its officers, agents
or employees.
4. RENTAL; MONTHLY RENTAL ADJUSTMENT; PERFORMANCE DEPOSIT:
4.1. MONTHLY RENT: The monthly rent for the specified
periods of the term will be as follows:
(i) Commencement of term to January 31, 1995, Two
Thousand Fifty-Eight and 01/100 Dollars
($2,058.01).
(ii) Monthly rent shall be adjusted effective the
1st day of February 1995 by the percentage
increase, if any, in the Consumer Price Index
published immediately before February 1, 1995
from that index published before February 1,
1990; provided, however, that in no event
shall monthly rent ever be less than said
monthly rent for the immediate preceding five
(5) year period; provided further, however,
that in no event shall use of the CPI
adjustment procedure result in an increase of
the then effective monthly rent greater than
35% for the immediately preceding five year
period ("CPI Adjusted Minimum Rent").
"Consumer Price Index", as used herein, and
notwithstanding any other provision of this
Lease to the contrary, as used elsewhere in
this Lease, shall mean the Consumer Price
Index for Urban Wage Earners and Clerical
Workers, All Items, San Francisco-Oakland
(1982-84 equals 100), of the Bureau of Labor
Statistics of the United States Department of
Labor, or the official successor of said
Index. If said Index is changed so that the
base year differs from the base year used in
the last index published prior to the
commencement of the term of this Lease, the
former Index shall be converted to the new
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Index in accordance with the conversion
factor published by the United Stated
Department of Labor Bureau of Labor
Statistics. If the Index is discontinued or
revised during the term of this Lease, such
other government index or computation with
which it is replaced, as determined by said
Department or said Bureau, or, failing such
determination, such other government index or
computation which is most similar to said
Index as determined by the Port, shall be
used in order to obtain substantially the
same result as would be obtained if the index
had not been discontinued or revised;
provided, that in the event the parties are
unable to agree upon such other government
index or computation, it shall be selected by
arbitration pursuant to the rules of the
American Arbitration Association.
(iii) On February 1, 2000, the monthly rent herein
provided to be paid by Lessee on or before
the first day of each calendar month until
January 31, 2005, shall be adjusted to the
fair market rental value of the land only;
provided, that in no event shall the adjusted
monthly rent be less than the thereto-fore
existing monthly rent. Pending the final
determination of the adjusted monthly rent
Lessee shall continue to pay to the Port the
amount of the monthly rent payable for the
preceding period; and if the adjusted monthly
rent as finally so determined should exceed
the amount of monthly rent for the previous
period, Lessee shall pay to the Port the
accrued excess amount then due within thirty
(30) days after the Port sends to Lessee a
written request therefore.
The parties shall have ninety (90) days
before the rent adjustment date in which to
agree on the adjusted monthly rent. If the
parties agree on the adjusted monthly rent
during that period, they immediately shall
execute and acknowledge an amendment to this
Lease stating the adjusted monthly rent.
If the parties are unable to agree on the
adjusted monthly rent within that period,
then within ten (10) days after the
expiration of that period, each party, at its
cost and by giving notice to the other party,
shall appoint a real estate appraiser to
appraise and submit an opinion of the fair
market rental value of the Property expressed
in
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terms of an adjusted monthly rent. If a
party does not appoint an appraiser within
ten (10) days after the other party has given
notice of the name of its appraiser, the
single appraiser appointed shall be the sole
appraiser and the appraiser's opinion of the
fair market rental value of the Property
shall be the adjusted monthly rent. If the
two appraisers are appointed by the parties
as stated in this section, they shall meet
promptly and attempt to select a third
appraiser meeting the qualifications stated
in this Section within ten (10) days after
the last day the two appraisers are
appointed. If they are unable to agree on
the third appraiser, either of the parties to
this Lease by giving ten (10) days' notice to
the other party may apply to the presiding
judge of the Alameda County Superior Court
for the selection of a third appraiser who
meets the qualifications stated in this
section. Each of the parties shall bear one
half of the cost of appointing the third
appraiser and one half of the third
appraiser's fee. The third appraiser,
however selected, shall be a person who has
not previously acted in any capacity for
either party.
Within sixty (60) days after the selection of
the third appraiser, each of the appraisers
shall submit to each party the appraiser's
report and opinion of the fair market rental
value of the Property expressed in terms of
adjusted monthly rent.
From among the opinions of adjusted monthly
rent submitted, the median opinion shall be
identified, such other opinion which is
closest to said median shall be added to said
median, and the average of said two opinions
shall be the adjusted monthly rent; provided,
that in no event shall the adjusted monthly
rent be less than the theretofore existing
monthly rent.
In forming an opinion of the adjusted monthly
rent, the appraiser or appraisers shall
consider a similar use for the Property with
regard to the restrictions on use of the
Property contained in this Lease.
All appraisers appointed shall hold the MAI
designation of the American Institute of Real
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Estate Appraisers or its successor
organization.
(v) Monthly rent shall be adjusted effective the
first day of February 2005, and the first day
of February 2010, by the percentage increase,
if any, in the Consumer Price Index published
immediately prior to the Adjustment Dates
from that index published for the
corresponding index reporting period Sixty
(60) months previous; provided, however, that
in no event shall monthly rent ever be less
than said monthly rent for the immediate
preceding five (5) year period; provided
further, however, that in no event shall use
of the CPI adjustment procedure result in an
increase of the then effective monthly rent
greater than thirty-five percent (35%) for
any Adjustment Date for the immediately
preceding five year period ("CPI Adjusted
Minimum Rent").
"Consumer Price Index", as used herein, and
not-withstanding any other provision of this
Lease to the contrary, as used elsewhere in
this Lease, shall mean the same as Consumer
Price Index as defined in Section (ii)
hereinabove.
4.2 DELINQUENCY CHARGE: Any payment of Monthly Rent or
any other sums (said sums herein deemed to be rent in addition to Monthly Rent)
that remains due and unpaid under the terms of this Lease for a period of
thirty (30) days after it becomes due and payable shall be subject to a
delinquency charge, for violation of this Lease and as liquidated damages, a
sum equal to ten percent (10%) per annum of such rental or such other sums
until payment of said rental or such other sums have been received by the Port.
Unpaid delinquency charges that accrue shall be compounded monthly. The Port
shall apply any monies received from Lessee first to any accrued delinquency
charges and then to any other rental or other sums then due hereunder. The
delinquency charges provided by this Paragraph 4.2 are in addition to all other
remedies that the Port may have that are provided by this Lease or otherwise by
law to enforce payment of any rental or other sum that has become due and has
not been paid.
4.3. ACCORD AND SATISFACTION: No payment by Lessee or
receipt by the Port of a lesser amount of Monthly Rent or any other sum due
hereunder, shall be deemed to be other than on account of the earliest due rent
or payment, nor shall any endorsement or statement on any check or any letter
accompanying any such check or payment be deemed an accord and satisfaction,
and the Port may accept such check or payment and pursue any other remedy
available
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in this Lease, at law or in equity. The Port may accept any partial payment
from Lessee without invalidation of any contractual notice required to be given
herein (to the extent such contractual notice is required) and without
invalidation of any notice required to be given pursuant to California Code of
Civil Procedure Section 1161, et seq., or of any successor statute thereto.
4.4. PERFORMANCE DEPOSIT: The Port acknowledges that it
has on hand as of the date of commencement of this Lease a performance deposit
from Lessee in the amount of $5,135. Such sum is hereinafter referred to as
the "Deposit."
Any Deposits required by this Lease shall be evidenced by
cash, multiple maturity certificates of deposits payable to the Port or an
irrevocable letter of credit in the form of Exhibit "C" attached hereto and by
this reference incorporated herein.
Interest on certificates of deposit shall be payable to Lessee
by the issuer of the same. The Port shall not be required to pay or credit
Lessee with any interest on any deposit. The issuing bank shall provide that a
certificate of deposit or an irrevocable letter of credit is payable in San
Francisco or Oakland. The irrevocable letter of credit shall be confirmed by
and payable at the counters of a bank in San Francisco or Oakland. If despite
Lessee's good faith best efforts Lessee is unable to secure such a provision,
the Port will accept a letter of credit without such provisions but in that
case unless the Port receives a written extension of the letter of credit at
least thirty (30) days before the end of the term of the letter of credit, the
Port without notice to Lessee may negotiate the letter of credit and retain all
proceeds as a cash deposit pursuant to the terms of this Paragraph 4.4.
The Deposit shall be retained by the Port as a performance
deposit and will be returned to Lessee within ninety (90) days of termination
of its occupancy hereunder, except to the extent that the Deposit is required
to pay the cost of all or any combination of the following: (i) replacement of
any improvements or items which were, during the term hereof, the property of
the Port and which have been removed or otherwise misplaced during the term of
this Lease, (ii) repair, restoration and cleaning of the Premises necessary to
put them in condition required by Paragraphs 8 and 23 of this Lease, except for
repair, restoration and cleaning not caused by Lessee's negligence and caused
by (a) ordinary wear and tear given the nature and age of the improvements at
the date of termination or (b) any casualty, fire, the elements or act of God,
or (iii) the payment of any outstanding charges or liabilities incurred by
Lessee to the Port pursuant to any of the provisions of this Lease. In the
event the Port is required to use the Deposit or any portion thereof during the
term of this Lease for the purposes hereinabove set forth, Lessee shall deposit
with the Port an additional sum evidenced as hereinabove provided sufficient to
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restore the Deposit to the amount thereof immediately prior to such required
use.
The required Deposit shall be adjusted as of each Minimum
Monthly Rent Adjustment Date so that the Deposit equals at all times two (2)
times the Monthly rent. In no event shall the Deposit at any time be
decreased.
Each increase in the Deposit shall be submitted to the Port
within thirty (30) days after the date that the Port gives to Lessee written
notice of the Port's final determination of the adjusted Deposit, and Lessee
shall deposit with the Port any additional sums necessary to increase the
Deposit as hereinabove set forth on or before the expiration of such thirty
(30) days period.
The Deposit or any remaining portion thereof shall be returned
to Lessee within 90 days of the termination of this Lease after deduction of
any amounts therefrom for payment of the items specified above for which
deduction from the Deposit is allowable. The payment of the Deposit by Lessee
shall not limit Lessee's liability to the Port for the payment of charges due
to the Port by Lessee in excess of the amount of the Deposit.
5. STANDARD OF SERVICE RATES AND CHARGES: Lessee agrees
to furnish or cause to be furnished good, prompt and efficient service at the
Airport to furnish said service on a fair, reasonable and reasonably
nondiscriminatory basis to all users thereof, and to charge fair, reasonable
and reasonably nondiscriminatory prices for each unit of sale or service;
provided, that Lessee may make reasonable and reasonably nondiscriminatory
discounts, rebates or other similar types of price reductions to volume
purchasers. Noncompliance with this provision shall constitute a material
breach of this Lease and in the event of such noncompliance, the Port shall
have the right to terminate this Lease and any estate hereby created without
liability therefor or at the election of the Port or the United States, either
or both of said Governments shall have the right to judicially enforce this
provision.
6. CONDITION OF PROPERTY: The taking of possession of
the Property by Lessee shall in itself constitute acknowledgment that said
Property is in good and tenantable condition. Lessee agrees to accept said
Property in its then existing condition, "as is", and that the Port shall not
be obligated to make any repairs, improvements, alterations or additions
thereto, except as expressly provided in Paragraph 7 of this Lease. Lessee
acknowledges that it has made a sufficient investigation of the conditions of
the Property existing immediately prior to the execution of this Lease,
including without limitation the condition of the soil, and is satisfied that
said Property will safely and feasibly support the type of improvements to be
maintained by Lessee upon said Property.
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7. IMPROVEMENTS TO THE PREMISES:
7.1. IMPROVEMENTS BY THE PORT: The Port is not obligated
to construct or install any improvements on or off of the property.
7.2. IMPROVEMENTS BY THE LESSEE: The layout,
specifications, detailed plans and architectural plans of all improvements to
be constructed upon the Property and adjacent thereto shall be subject to the
prior written approval of the Port.
Lessee, or its licensed contractor, also shall secure at no
cost to the Port all other necessary permits, including, but not limited to,
building permits and any necessary approvals and permits from the San Francisco
Bay Conservation and Development Commission. Lessee agrees to comply with all
terms and conditions of permits whether secured by Lessee or the Port.
Lessee shall be responsible for the repair of any Port or
other facilities which are damaged as a result of Lessee's construction
activities.
It is understood and agreed that if the Port consents to
Lessee's installation of a fire alarm system in the Premises which is the
subject of this Agreement, Lessee agrees to notify the Port in writing within
thirty (30) days of said installation and to install a proper fire alarm system
which complies with all ordinances, rule(s) and regulations of the City of
Oakland and Port of Oakland, including but not limited to, connecting said
system to the Port of Oakland's Airport Operations Center's fire alarm
annunciator panel or such other fire alarm annunciator panel as the Port may
designate. Lessee's failure to comply with the terms and conditions of this
Paragraph will constitute a material breach of this Agreement subject to the
default provisions of Paragraph 21 hereof.
8. MAINTENANCE OF IMPROVEMENTS: Lessee agrees that
during the entire term of this Lease, at its own cost and expense, it shall
keep and maintain the Premises, in first-class order, repair and condition.
Lessee shall perform, at its own cost and expense, any and all maintenance,
repairs, rehabilitation or reconstruction thereto, whether required by
structural failure or deterioration or by operations of Lessee or otherwise.
The Port shall have no maintenance repair, rehabilitation or reconstruction
obligations of any kind with respect to the Premises.
It is recognized that because of the length of the term of this
Lease it may be necessary for Lessee to perform certain substantial maintenance,
repair, rehabilitation or reconstruction (hereinafter collectively referred to
as "repair" or "repairs") of the Improvements in order to ensure that the
Premises are kept in first-class order, repair and condition.
"First-class order, repair and condition," as used herein,
shall mean the maintenance, repair, renovation or re-
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placement of buildings, equipment, furniture, fixtures, landscaping and
appurtenances necessary to keep the Premises in efficient and attractive
condition, given the nature and age of the Improvements at any time during the
term of this Lease. The Port and Lessee do not intend by the immediately
preceding sentence that a property item is not first-class merely because of
ordinary and reasonable wear and tear that does not materially and
substantially reduce the attractiveness and utility of the item given the
nature and age of the Improvements at any time during the term of this Lease
If Lessee for a period of forty-five (45) days after written
notice from the Port shall fail, neglect or refuse to perform, or commence and
continuously and diligently proceed in good faith to complete, any required
repair or maintenance, the Port may perform such repair or maintenance and
Lessee shall reimburse the Port within thirty (30) days after receipt of notice
from the Port demanding payment for the cost thereof, including the Port's
administrative overhead. In performing such repair, the Port shall interfere
as little as reasonably possible with Lessee's operations on the Premises. The
making of such repairs or performance of maintenance by the Port shall in no
event be construed as a waiver of the duty of Lessee to make repairs or perform
maintenance as herein provided.
Lessee may make alterations, additions, or betterments to the
Premises only after complete plans and specifications therefor have been
submitted to and approved by the Port and after securing, at no cost to the
Port, all the necessary building, electrical and other plumbing permits from
the Port, the City of Oakland and other appropriate governmental agencies. In
addition, Lessee shall maintain, at its expense, all equipment, furnishings and
trade fixtures upon the Premises required for the maintenance and operation of
a business of the type to be conducted pursuant to Paragraph 3 hereof.
Lessee hereby expressly waives the right to make repairs at
the expense of Lessor and the benefit of the provisions of Sections 1941 and
1942 of the Civil Code of the State of California relating thereto.
8.1. PREVAILING WAGE REQUIREMENTS: Lessee agrees that in
the performance of work under this Lease, Lessee shall comply with:
(a) The Public Work Prevailing Wage Requirements,
which are the applicable prevailing wage requirements of California Labor Code
Sections 1720, et seq. and Port Ordinance No. 1606, as amended, and which
generally apply to construction, costing more than $1,000.00, which is made on
or to Port property and the cost of which is paid for in whole or in part by
the Port's advance or reimbursement to Lessee or by credit against rent or
other sums due the Port; and
(b) The Private Work Prevailing Wage Requirements
of this Lease generally apply to all construction, other than
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construction to which the Public Work Prevailing Wage Requirements apply, which
is made on or to Port property, costing more than $50,000.00.
"Construction" as used herein shall apply to construction,
alteration, demolition or repair work, and the laying of carpet and maintenance
work, provided, that Private Work Prevailing Wage Requirements shall not apply
to maintenance work. "Construction" includes all construction of building core
and shell, tenant improvements and public works that are within the customary
jurisdiction of the construction trades and crafts, whether performed on- or
off-site. Off-site work, performed by Materialmen, as defined under California
Law, is not included in the term "Construction".
The Private Work Prevailing Wage Requirements shall not apply
to tenant improvements costing less than $50,000.00, nor to tenant improvements
for which the initial building permit for such work is issued more than one
year after the certificate of occupancy is approved on the core and shell. The
$50,000.00 cost shall be adjusted annually pursuant to the CPI.
The following provisions of this subsection apply only if, and
to the extent that, the prevailing wage requirements are applicable.
The prevailing wage requirements shall apply to the employees
of any employer including the Lessee, any tenant of Lessee, any general
contractor or subcontractor or other contractor engaged in construction of
Improvements for the Lessee, including their successors and assignees, but
shall not apply to supervisory or managerial personnel or to persons employed
in the rental, operation or (in the case of Private Work Prevailing Wage
Requirements only) maintenance of the Premises.
The Lessee shall cause the provisions of this subsection to be
incorporated into each contract and subcontract, and lease agreement which
would be subject to this subsection. In the event the provisions are not so
incorporated, the Lessee shall be liable to the worker in any action or
proceeding for the difference between the prevailing wage rate required to be
paid and the amount actually paid to the worker, including costs and attorney
fees, as if the Lessee were the actual employer.
The prevailing wage requirements of this subsection will be
monitored and enforced by the Port. In addition to any other rights provided
by California law to recover compensation, a worker that has been paid less
than the prevailing wage rates shall have a right to commence an action or
proceeding against the employer of the worker for the difference between the
prevailing wage rates and the amount paid to such worker for each calendar day
or portion thereof for which the worker was paid less than the compensation
required to be paid under the provisions of this subsection. No issue other
than that of the liability of the
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employer for the amount of unpaid wages allegedly due shall be determined in
such action or proceeding, and the burden shall be on the employer to establish
that the amounts demanded are not due. A worker recovering any or all of the
wages claimed to be due shall recover his costs and attorney fees in securing
such recovery. Nothing in this section shall preclude its enforcement by the
California Division of Labor Standards Enforcement.
Nothing in this lease shall prevent the employment of any
number of properly registered apprentices, as defined in Chapter 4, Division 3
of the Labor Code. Every such apprentice shall be paid not less than the
standard wage paid to apprentices under the regulations of the crafts or trade
at which he is employed, and shall be employed only at the work of the craft or
trade to which he is registered. The employment and training of each
apprentice shall be in accordance with the provisions of the apprenticeship
standards and apprentice agreements under which he is in training.
Lessee agrees that, any action by Lessee or its assignee
against the Port for the recovery of penalties or forfeitures shall be
commenced, and written notice thereof shall be actually received by the Port,
within the ninety-day period after the Port's Chief Engineer notifies Lessee in
writing that the Chief Engineer has determined that the work is complete.
Lessee agrees that such suit on the Lease for alleged breach thereof in not
making an advance or reimbursement or in not permitting a credit to rent or
other sums due the Port is the exclusive remedy of Lessee or the Lessee's
assignee with reference to such penalties or forfeitures. Lessee or Lessee's
assignee may bring such suit without permission of the Port, but the suit shall
be limited to the recovery of the penalties or forfeitures without prejudice to
Lessee or Lessee's assignee's rights in other matters affecting the Lease.
Lessee agrees that no other issues shall be presented to the court in such case
and the burden shall be on the plaintiff to establish plaintiff's right to the
penalties or forfeitures withheld or to be withheld.
Lessee agrees that to the extent that Lessee is required to
comply with the prevailing wage requirements, Lessee shall assure that all
workers are paid the prevailing rate of per diem wages, and travel and
subsistence payments (defined in applicable collective bargaining agreements
filed in accordance with Section 1773.8 of the California Labor Code) , in
effect on the date of the Port's first approval of a building permit or other
approval of the work. Copies of the applicable prevailing rate of per diem
wages are on file at the Port's principal office and will be made available to
any interested party on request. Lessee agrees to post a copy of the
prevailing rate of per diem wages at each job site.
Lessee, as a penalty to the Port, shall forfeit twenty-five
dollars ($25) for each calendar day, or portion thereof (or such other sum as
specified from time to time by Section 1775
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of the California Labor code), for each worker paid less than the applicable
prevailing rates for such work or craft in which such worker is employed. The
difference between such prevailing wage rates and the amount paid to each
worker for each calendar day or portion thereof for which each worker was paid
less than the prevailing wage rate shall be paid to each worker by Lessee.
To the extent that there is insufficient money due Lessee as
an advance, reimbursement or credit to cover all penalties forfeited and
amounts due and in all cases where the Lease does not provide for a money
payment by the Port to Lessee, and except in cases where enforcement authority
is vested in the State pursuant to Section 1775 of the California Labor Code,
the Port not later than ninety (90) days after the filing of a valid notice of
completion in the office of the Alameda County Recorder or not later than
ninety (90) days after the Port's acceptance of the work, whichever last
occurs, may maintain an action in any court of competent jurisdiction to
recover the penalties and the amounts due provided for herein. Lessee agrees
that no issue other than that of the liability of Lessee for the penalties
allegedly forfeited and amounts due shall be determined in such action, and the
burden shall be upon Lessee to establish that the penalties and amounts
demanded in such action are not due. Out of any money withheld or recovered or
both there shall first be paid the amount due each worker and if insufficient
funds are withheld or recovered or both to pay each worker in full the money
shall be prorated among all such workers.
Lessee agrees to keep or cause to be kept by each contractor
and subcontractor an accurate payroll record for each worker employed on work
covered by this Paragraph showing all of the information specified in
subsection (a) of Section 1776 of the California Labor Code. All such payroll
records shall be certified, available for inspection and filed in accordance
with the procedures specified in subsections (b)-(e) inclusive of Section 1776
of the California Labor Code. In the event of noncompliance with the foregoing
requirements concerning payroll records which continues for more than ten (10)
days after the Port gives to Lessee written notice specifying in what respects
Lessee must comply, Lessee shall forfeit as a penalty to the Port for each
worker twenty-five dollars ($25) for each calendar day, or portion thereof,
until strict compliance is effectuated.
Lessee shall be responsible for complying with Section 1777.5
of the California Labor Code concerning apprenticeable occupations, with
respect to all work covered by that section.
Except where the context otherwise requires, the definitions
of terms and phrases contained in the State prevailing wage law, Sections 1720
et seq. of the California Labor Code, and in the implementing administrative
regulations, shall apply to the same terms and phrases which are used in the
prevailing wage requirements of this subsection.
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9. TITLE TO IMPROVEMENTS: Title to all structures, buildings and
any and all other permanent improvements constructed, erected or placed upon
the demised premises by either the Port or the Lessee, and additions or
improvements made thereto, shall vest in and become the property of the Port
upon completion thereof and shall be surrendered with the Premises as part
thereof upon termination of this Lease; provided, that the Port, at its option,
may upon prior written notice require Lessee to remove at Lessee's expense,
improvements or portions of improvements constructed, erected or placed upon
the Premises by Lessee during the term of this Lease or any improvements or
portions of improvements built by Lessee prior to the commencement of this
Lease, including but not limited to Building Nos. L-900 and L-914, and the new
Test Cell Facility and if the Port so notifies Lessee of its exercise of its
right to require such removal Lessee shall complete said removal with all
reasonable dispatch but in no event shall said removal completion exceed thirty
(30)days after termination of this Lease. Lessee may, at the termination of
this Lease, if Lessee is not then in default under any provision of this Lease,
remove its machinery, boilers, equipment, movable partitions and other trade
fixtures placed upon the demised premises by it; provided, that in such event
Lessee shall repair any damage caused by such removal and, provided further,
that usual and customary lighting, plumbing, wall-to-wall carpeting, window
coverings, air conditioning and heating fixtures shall remain upon the Premises
and be surrendered therewith upon termination of this Lease. Upon termination
of this Lease, Lessee shall remove all equipment, furniture, furnishings and
trade fixtures from the Premises unless otherwise agreed by the Port.
Lessee agrees and hereby makes the irrevocable and binding
election not to take for federal income tax purposes investment tax credits or
depreciation on assets financed with the proceeds of tax exempt Port bonds or
notes, unless the Port otherwise expressly agrees in advance in writing signed
by the Port's Chief Executive Officer. Lessee also agrees at the Port's
request from time to time to execute such additional documents reasonably
requested by the Port or its bond counsel to effectuate and/or evidence said
agreement and election. This agreement and election, and the obligation to
execute said documents relative thereto is binding on each successor or
assignee of Lessee.
10. SIGNS; OUTSIDE DISPLAYS: Lessee shall not install, paint,
inscribe or place any signs or placards upon the exterior of the Premises or
upon the interior of the Premises if intended to be viewed from the exterior
thereof, without the prior written consent of the Port. The Port agrees not
unreasonably to withhold or delay consent to such signs which state the name of
the tenant or tenants or the type of businesses conducted on the Premises and
that otherwise comply with the applicable Port sign policies for the Airport.
Lessee agrees, at its own expense, to remove or paint over to the satisfaction
of the Port promptly upon termination of this Lease any and all signs or
placards installed, painted, inscribed or placed by it in or upon the interior
or exterior of
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the Premises; and should Lessee fail to so remove or paint over such signs or
placards, the Port may do so at the expense of Lessee and Lessee shall
reimburse the Port for the cost thereof upon demand.
11. UTILITY EASEMENTS: The Port reserves to itself, and reserves
the right to grant to others in the future, nonexclusive utility easements
over, under, through, across or on the Property in locations that will not
unreasonably interfere with Lessee's use of the Premises. Any interference
during the installation of utility facilities shall be temporary, and all work
on the Premises shall proceed expeditiously. Lessee shall be given reasonable
notice before commencement of any work on the Premises.
The Port also reserves and retains (i) any and all existing
rights of way for storm drains, sewer outfalls, for gas and other pipelines,
for water mains, for hydrants, for electrical cables and wires, (ii) the right
to locate in, upon or across said Premises in a location or locations which
will not interfere with Lessee's use and enjoyment of said Premises, other such
conduits, lines and mains as may be deemed necessary by the Port for its uses,
the uses of other tenants of the Port or the United States of America in
connection with the latter's use and enjoyment of premises in the vicinity,
including, but not limited to, the installation and maintenance of a Federal
Aviation Administration radio transmitter in an upper level storage space of
approximately one thousand five hundred square feet of the hangar with related
antennas installed on the structural roof members of the hangar and (iii) the
right by its own employees, agents or designees to enter the Premises to
maintain, repair and replace all of said facilities.
In the event the installation or maintenance of such utilities
in such easements causes any damage to the Premises, or any portion thereof, or
to any other buildings, structures or facilities located upon the Property, the
same shall be repaired by the Port at its expense, if not so repaired by the
party installing and maintaining the utility facility.
12. UTILITIES: Lessee shall pay for all water, gas, heat,
electricity, fuel, power, telephone service, and other utilities, as well as
janitor or watchman services and mechanical fire alarm or security services,
which may be furnished to Lessee. In the event the Port by arrangement with
Lessee provides or pays for any utility services, Lessee shall pay the Port for
such services or reimburse to the Port such payment not later than the first
day of the calendar month following Lessee's receipt from the Port of a billing
statement for said services or reimbursement.
In cases where arrangements have been made between Lessee and the Port
for the Port to furnish and deliver gas, electricity or water, the Port will
exercise reasonable diligence and care to furnish and deliver the same;
provided, however, that the Port does not guarantee the continuity or
sufficiency of such supply. The
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Port will not be liable for interruptions or shortages or insufficiency of
supply or any loss or damage of any kind or character occasioned thereby if the
same is caused by accident, act of God, fire, strikes, riots, war, inability to
secure a sufficient supply from the utility company furnishing the Port, or any
other cause except such as arises from the Port's failure to exercise
reasonable diligence. It is understood that Lessee shall take such steps as
Lessee may consider necessary to protect Lessee's equipment from any damage
that may be caused to such equipment in the event of failure or interruption of
any such utility services. Whenever the Port shall find it necessary for the
purpose of making repairs or improvements to any utility supply system it shall
maintain, it shall have the right to suspend temporarily the delivery of gas,
electricity or water, but in all such cases reasonable notice of such
suspension will be given to Lessee, and the making of such repairs or
improvements will be prosecuted as rapidly as practicable and, if possible, so
as to cause the least amount of inconvenience to Lessee.
13. TAXES AND ASSESSMENTS: The property interests created by this
Lease may be subject to property taxation and the Lessee hereunder in whom the
possessory interest is vested may be subject to the payment of property taxes
levied on such interest. Lessee agrees to pay before delinquency all lawful
taxes, assessments, fees or charges which at any time may be levied by the
state, county, city or any tax or assessment levying body upon any activity
carried on under this Lease, any interest in this Lease or any possessory right
which Lessee may have in or to any property covered hereby by reason of its use
or occupancy thereof or otherwise, as well as all lawful taxes, assessments,
fees and charges on goods, merchandise, fixtures, appliances, equipment and
property owned by Lessee in or about said Premises.
Lessee may at no cost to the Port reasonably contest the legal
validity or amount of any taxes, assessments, or charges for which Lessee is
responsible under this Lease, and institute such proceedings as Lessee
considers necessary; provided, however, that Lessee shall at all times protect
the Port and the Premises from foreclosure of any lien, and that the Port shall
not be required to join in any proceeding or contest brought by Lessee.
14. FIRE INSURANCE: Lessee shall maintain at all times during the
term of this Lease fire legal liability coverage in not less than the sum of
$100,000.00 or in such other sums specified from time to time by the Port.
"All Risk" property insurance in the amount of full insurable
replacement cost of the buildings and improvements. The Port of Oakland shall
be named as Loss Payee.
Lessee shall obtain from its insurers under all policies of
insurance maintained under this Paragraph by Lessee at any time during the term
of this Lease endorsements providing a waiver all rights of subrogation which
the insurer may have against the
NATIONAL AIRMOTIVE CORPORATION
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<PAGE> 27
Port. Lessee hereby waives any right which it may have against the Port on
account of any loss or damage occasioned to Lessee arising from any risk
covered by the insurance that Lessee is required to carry under this Paragraph
or covered by any other insurance maintained by Lessee insuring the Premises,
its contents or other of Lessee's personal property on or about the Premises.
A certificate or certificates evidencing Lessee's said fire
legal liability and furniture or fixture insurance shall be filed with the
Secretary of the Board of Port Commissioners prior to the commencement of the
term of this Lease, and said certificate or certificates shall provide that
such insurance coverage will not be canceled or reduced without at least 30
days' prior written notice to said Secretary. At least 30 days prior to the
expiration of such policy or policies a certificate or certificates showing
that such insurance coverage has been renewed or extended shall be filed with
said Secretary.
If any such coverage is canceled or reduced, Lessee shall
within 15 days after receipt of written notice from the Port of such
cancellation or reduction in coverage file with the Secretary of said Board a
certificate showing that the required insurance has been reinstated or provided
through another insurance company or companies. Upon failure to so file such
certificate, the Port may without further notice and at its option either (1)
notwithstanding the provisions of Paragraph 21 of this Lease cause this Lease
to be forfeited and exercise such other rights as it may have in the event of
Lessee's default; or (2) procure such insurance coverage at Lessee's expense
and Lessee shall promptly reimburse the Port for such expense.
15. DAMAGE OR DESTRUCTION OF PREMISES: In the event that, during
the term of this Lease, the demised Premises shall be damaged or destroyed by
fire, earthquake, act of God or other cause to an extent in excess of fifty
percent (50%) of the aggregate of the then value thereof, either party shall
have the right, upon giving sixty (60) days' written notice to the other party
(such notice to be given within sixty (60) days after such damage or
destruction) , to cancel and annul this Lease except when such damage or
destruction is caused by the negligence or fault of Lessee. In the event the
said damage to the Premises does not exceed fifty percent (50%) of said value,
Lessee hereby agrees with due diligence to restore the demised Premises to the
extent insurance proceeds are available for such restoration to a good and
tenantable condition.
16. FIRE EXTINGUISHERS: Lessee agrees at its own expense to
provide and keep on the premises fire extinguishers of such number, type and
material as may be prescribed from time to time by the regulations of the Board
of Port Commissioners, the Fire Prevention Bureau of the City of Oakland or
other competent authority.
17. INDEMNIFICATION, HOLD HARMLESS AND LIABILITY INSURANCE:
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17.1. INDEMNIFICATION AND HOLD HARMLESS: It is an express
condition of this Lease that the Port, the Board of Port Commissioners, and its
officers, employees and agents shall be free from any and all liabilities and
claims for damages and/or suits for or by reason of any death or deaths of or
any injury or injuries to any person or persons or damages to property of any
kind whatsoever, whether the person or property of Lessee, its agents or
employees, or third persons, from any cause or causes whatsoever while in or
upon the Premises or any part thereof during the term of this Lease or
occasioned by any occupancy or use of the Premises or any activity carried on
by Lessee in connection therewith, and Lessee hereby covenants and agrees to
indemnify and to save harmless the Port from all liabilities, charges, expenses
(including reasonable counsel fees) and costs on account of or by reason of any
such death or deaths, injury or injuries, liabilities, claims, suits or losses,
however occurring or damages growing out of the same; provided, however, that
this sentence shall not apply to death or deaths, injury or injuries,
liabilities, claims, suits or losses in any way caused by (i) any actively
negligent or intentional or willful actions or omissions of the Port or its
agents, officers or employees, or (ii) any passively negligent actions or
omissions on the part of the Port or its agents, officers or employees in any
situation or set of circumstances where Lessee was not passively or actively
negligent with respect to the same situation or set of circumstances.
17.2. LIABILITY INSURANCE: Lessee shall maintain in force
during the term of this Lease Premises and Operations coverage, including
personal injury, broad form property damage, blanket contractual, completed
operations, independent contractors coverage, aircraft liability, hangar
keepers liability and owned and nonowned and hired automobiles, with such
coverage and limits as may be reasonably requested by the Port from time to
time, but in no event for less than the sum of FIVE MILLION DOLLARS
($5,000,000) combined single limit, except that the blanket contractual,
completed operations and hangarkeepers liability insurance shall have limits of
not less than ONE MILLION DOLLARS ($1,000,000); and Lessee agrees that the Port
shall be named as an additional insured under such liability insurance policy
or policies. Fire Legal Liability insurance in the amount of ONE HUNDRED
THOUSAND ($100,000) will also be required.
All such policies shall be endorsed with a
severability of interest or cross-liability endorsement, reading generally as
follows:
CROSS-LIABILITY - In the event of one of the assureds
incurring liability to any other of the assureds, this policy
shall cover the assured against whom claim is or may be made
in the same manner as if separate policies had been issued to
each assured. Nothing contained herein shall operate to
increase underwriters' limit of liability.
NATIONAL AIRMOTIVE CORPORATION
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<PAGE> 29
A certificate or certificates, in a form reasonably
satisfactory to the Port, evidencing such insurance coverage shall be filed
with the Secretary of the Board of Port Commissioners prior to the commencement
of the term of this Lease, and said certificate(s) shall provide that such
insurance coverage will not be canceled or reduced without at least thirty (30)
days' prior written notice to the Secretary of said Board. Prior to the
expiration of any such policy, a certificate showing that such insurance
coverage has been renewed or extended shall be filed with the Secretary of said
Board; provided that in the event a policy renewal certificate is not
reasonably available to Lessee prior to said expiration Lessee may file with
the Port on a temporary basis a policy binder of other satisfactory evidence of
insurance coverage renewal and shall file the insurance certificate with the
Port as soon as the same is available from the insurance carrier. If such
coverage is canceled or reduced, Lessee shall, within fifteen (15) days after
receipt of written notice from the Port of such cancellation or reduction in
coverage but in no event later than the effective date of cancellation or
reduction, file with the Secretary of said Board a certificate showing that the
required insurance has been reinstated or provided through another insurance
company or companies. Upon failure to so file such certificate, the Port may
without further notice and at its option either (1) exercise the Port's rights
as provided in Paragraph 21 of this Lease ("Defaults") , or (2) procure such
insurance coverage at Lessee's expense and Lessee shall promptly reimburse the
Port for such expense.
18. NO LIENS; MORTGAGE OF LEASEHOLD AND PROTECTION OF LENDER:
Except as otherwise expressly provided in this Lease, Lessee shall pay for all
labor done and materials furnished in the repair, replacement, development or
improvement of the Property by Lessee and shall keep the Premises, and Lessee's
possessory interest in the Premises, free and clear of any lien or encumbrance
of any kind whatsoever created by Lessee.
If any such lien is so filed, Lessee shall promptly either
cause such lien to be released of record or diligently contest the claim
relating to such lien, provided that if such contest is resolved against
Lessee, Lessee shall promptly cause such lien to be released of record, and if
Lessee fails so to do, the Port shall have the right and option, but not the
duty, to pay or otherwise discharge, stay or prevent the execution of any
judgment or lien or both. If the Port exercises such option, the Port shall
not be deemed to have waived the Port's right to declare a default of this
Lease pursuant to Paragraph 21 hereof, and Lessee shall reimburse the Port for
all sums expended in connection with any such judgment or lien, or both,
including the Port's reasonable attorneys' fees and costs, together with any
delinquency charge provided for in Paragraph 4.2 of this Lease, and said
reimbursement shall be due and payable ten (10) days from the date the Port
gives to Lessee written notice of any such payments, fees or costs.
NATIONAL AIRMOTIVE CORPORATION
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<PAGE> 30
19. ASSIGNMENT AND SUBLETTING: Except as hereinafter in this
Paragraph 19 expressly provided, Lessee shall not, either directly or
indirectly, voluntarily or involuntarily, assign, hypothecate, encumber or
transfer this Lease or any interest therein or right granted thereby or sublet
the whole or any part of the Premises, or license the use of same, or suffer
any other person or entity to occupy, use or manage (except management by
Lessee's employees) the same, in whole or in part, without the prior written
consent of the Port evidenced by resolution of its Board of Port Commissioners.
The Port shall not unreasonably withhold its consent to an assignment or
subletting. Neither this Lease nor any interest therein or right granted
thereby shall be assignable or transferable in proceedings in attachment,
garnishment or execution against Lessee, or in voluntary or involuntary
proceedings in bankruptcy or insolvency or receivership taken by or against
Lessee or by any process of law and possession of the whole or any part of the
demised premises shall not be divested from Lessee in such proceedings or by
any process of law, without the prior written consent of the Port evidenced by
resolution of its Board of Port Commissioners. Except as hereinafter provided,
no occupancy or use of the demised Premises or exercise of any right granted by
this Lease by any prospective transferee, sublessee, or assignee shall occur
before the Port's written consent to the transfer, sublease, or assignment
which consent shall not be unreasonably withheld; provided that the Port shall
not be deemed unreasonable in withholding its consent if the proposed transfer,
assignment or sublease will involve the relocation of an existing Airport
tenant, will result in reduced percentage rental to the Port, or will result in
Lessee's receipt of a higher rental than Lessee is paying to the Port on a
prorata square foot basis for the Premises area involved in the transfer,
assignment or sublease in which latter event the Port may require Lessee to pay
to the Port as additional minimum rental a portion of the amount by which the
rental paid by said transferee, assignee or sublessee exceeds the Monthly
Rental then paid by Lessee to the Port on a prorata square foot basis. Any
breach of the provisions of this Paragraph shall constitute a default and shall
cause this Lease to terminate immediately at the option of the Port without
further notice to Lessee. Lessee shall not be deemed to be in default if
Lessee causes an attachment or execution to be removed within fifteen (15) days
of levy, or if Lessee causes an involuntary proceeding in bankruptcy to be
dismissed or receiver to be removed within thirty (30) days of the date of
commencement of said proceeding or appointment of said receiver.
An assignment within the meaning of this Paragraph 19 shall
include, but is not limited to, the following:
A. If Lessee is other than a corporation, the transfer
of the Lease or any of Lessee's interests therein to a corporation that is not
wholly owned or controlled by Lessee;
B. If Lessee consists of more than one person or entity,
or a combination of a person or persons and an entity or
NATIONAL AIRMOTIVE CORPORATION
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<PAGE> 31
entities, a purported assignment, voluntary, involuntary, or by operation of
law of any interest in the Lease from one or more such persons or entities, to
any other person or persons or entity or entities whether or not such other
person or persons or entity or entities are Lessees;
C. If Lessee is a partnership, a withdrawal or change,
voluntary, involuntary, or by operation of law, of any general partner, or the
dissolution of the partnership;
D. If Lessee is a corporation, any dissolution, merger,
consolidation, or other reorganization of Lessee, or the sale or other transfer
of a controlling percentage of the capital stock of Lessee, or the sale of more
than fifty percent (50%) of the value of the assets of Lessee whether in one
conveyance or cumulatively in the aggregate in more than one conveyance. The
phrase "controlling percentage" means the ownership of, and the right to vote,
stock possessing at least fifty percent (50%) of the total combined voting
power of all classes of Lessee's capital stock issued, outstanding, and
entitled to vote for the election of directors. This subparagraph D shall not
apply to National Airmotive Corporation or to a corporation the stock of which
is traded through an exchange or over the counter or to any transfer,
distribution or contribution of a controlling percentage of the capital stock
of Lessee (i) by any corporate shareholder of Lessee to one or more of its own
shareholders, or (ii) by any shareholder of Lessee to another corporation the
capital stock of which such shareholder owns a controlling percentage, except
that in such events said Lessee shall give the Port written notice of such
transfers, distribution and contribution.
The Port's consent to or waiver of its option to terminate
this Lease in the event of a default on account of any assignment, transfer,
occupation or use requiring prior written Port consent shall not be construed
or deemed to be a waiver of the restrictions hereinabove contained or to be a
consent to or waiver of objections to any subsequent assignment, transfer or
occupation or use by another person. The Port's consent to a proposed
assignment shall not be deemed effective unless and until there is filed with
the Port's Chief Executive Officer or his designee fully executed and complete
copies of all documents used to effectuate the assignment and a document in
recordable form signed by the assignee whereby assignee expressly shall assume
all covenants and conditions of this Lease.
Lessee and the Port acknowledge and agree that the rights
retained by and granted to the Port pursuant to this Paragraph constitute a
material part of the consideration for entering into this Lease and constitute
a material and substantial inducement to the Port to enter into this Lease at
the rental, for the terms, and upon the other covenants and conditions
contained in this Lease, and that the acceptability of Lessee, and of any
sublessee, assignee or other transferee of any right or interest in this Lease,
involves the exercise of broad discretion by the Port
NATIONAL AIRMOTIVE CORPORATION
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<PAGE> 32
in promoting commerce, navigation and shipping in the Port Area of the City of
Oakland. Therefore, Lessee agrees that it shall not be unreasonable for the
Port to withhold its consent to an assignment, sublease or other transfer by
Lessee in the event that the Port makes the reasonable, good faith
determination that the making of such proposed assignment, sublease or other
transfer is not in accordance with this Lease, or that the proposed assignee,
sublessee or other transferee will not use the Premises for purposes consistent
with the Charter of the City of Oakland or will not otherwise maintain and/or
operate the Premises in the manner provided in this Lease.
No subletting or assignment, even with the Port's consent,
shall relieve Lessee of its rental or other obligations to be performed by
Lessee hereunder, and Lessee shall continue to be liable as a principal and not
as a guarantor or surety, to the same extent as though no assignment or
subletting had been made.
It is expressly understood and hereby agreed that if Lessee
assigns or subleases all or a portion of the premises the Port shall be
entitled to fifty percent (50%) of the "bonus value" or rental income in excess
of the rent then paid by Lessee. Bonus value shall be defined herein as the
present worth of the difference between market rent and contract rent.
Lessee agrees that as a condition to the Port's consideration
of any request by Lessee for each proposed sublease, assignment or other
transfer that Lessee shall deliver to the Port a nonrefundable processing fee
of not less than One Hundred Dollars ($100.00). The Port's Manager of Airport
Properties Department, or such other Port representative designated from time
to time by the Port's Chief Executive Officer, may within ten (10) days of
receipt of said fee give to Lessee notice that said fee shall be increased by a
sum, not to exceed an additional Four Hundred Dollars ($400.00), that said
Manager of Airport Properties Department or such other designated
representative may in his discretion determine is necessary to cover the
anticipated Port administrative costs and expenses, including labor, in
processing and investigating Lessee's request. Lessee agrees that unless and
until said fee, and any request for such additional fee, is delivered to the
Port, Lessee shall be deemed to have made no request to the Port to assign or
sublease. The minimum and maximum fees shall be adjusted upon the commencement
of each successive year of this Lease, in the same percentage as the change in
last Consumer Price Index published prior to the date of each succeeding
one-year period from the last such index published prior to the commencement of
the term of this Lease; provided that in no event shall the adjusted fees be
less than the theretofore existing fees. "Consumer Price Index," as used
herein, shall mean the Consumer Price Index for Urban Wage Earners and Clerical
Workers, All Items, San Francisco-Oakland (1967 equals 100), of the Bureau of
Labor Statistics of the United States Department of Labor, or the official
successor of said Index. If said Index is changed so that the base year
differs from the base year used in the last indexed
NATIONAL AIRMOTIVE CORPORATION
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<PAGE> 33
published prior to the commencement of the term of this Lease, the former Index
shall be converted to the new Index in accordance with the conversion factor
published by the United States Department of Labor, Bureau of Labor Statistics.
If said Index is discontinued or revised during the term of this Lease, such
other government index or computation with which it is replaced, as determined
by said Department or said Bureau, or, failing such determination, such other
government index or computation which is most similar to said Index, shall be
used in order to obtain substantially the same result as would be obtained if
said Index had not been discontinued or revised.
In addition, the parties hereto each agree that Lessee's
request for consent to any proposed sublease, assignment or other transfer
shall not be deemed to have been submitted to the Port unless and until Lessee,
except as and to the extent excused in writing by the Port's Manager of Airport
Properties Department, shall have submitted to the Port, in writing, the
following information and documents:
A. The name of the proposed subtenant, assignee or other
transferee.
B. The nature of proposed subtenant's or assignee's
business to be carried on in the Premises.
C. Each of the terms and provisions of the proposed
sublease, assignment or transfer, including without limitation the full
consideration for such sublease, assignment or transfer.
D. A balance sheet of the proposed subtenant or assignee
as of a date within at least ninety (90) days of the request for the Port's
consent.
E. Statements of income or profit and loss of the
proposed subtenant for the two (2) year period preceding the request for the
Port's consent.
F. A statement in reasonable detail as to the business
experience of the proposed subtenant or assignee during the five (5) year
period preceding the request for the Port's consent.
G. Such other information and documents relating to the
proposed sublessee's or assignee's business, experience, finances as the Port
may reasonably request.
It is understood and agreed that the Port's consent to a
requested sublease, assignment or other transfer, if said consent in the Port's
sole discretion is granted, shall not be granted unless and until the Port
receives each of the following:
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<PAGE> 34
A. In the case of a proposed assignment, a full and
complete executed copy of all documents to effectuate the assignment, together
with a document in recordable form whereby the proposed assignee shall
expressly assume all the covenants and condition of this Lease.
B. In the case of a proposed sublease, a full and
complete copy of the executed sublease, which sublease shall contain a
provision satisfactory to the Port, requiring sublessee to attorn to the Port
if Lessee defaults under this Lease and if the sublessee is notified of
Lessee's default and instructed to make sublessee's rental payments to the
Port.
Lessee shall not accept, directly or indirectly, more
than three (3) months' prepaid rent from any sublessee and said copy of the
executed sublease shall recite this restriction and sublessee's acknowledgment
of the same.
C. In the case of any other proposed encumbrance or
proposed transfer, a full and complete executed copy of all documents to
effectuate the encumbrance or transfer, which documents shall incorporate
directly or by reference all of the provisions of this Lease.
Lessee immediately and irrevocably assigns to the
Port, as security for Lessee's obligations under this Lease, all rent from any
subletting of all or a part of the Premises as permitted by this Lease, and the
Port, as assignee and as attorney-in-fact for Lessee, or a receiver for Lessee
appointed on the Port's application, may collect such rent and apply it toward
Lessee's obligations under this Lease; provided, however, that, until the
occurrence of an act of default by Lessee, Lessee shall have the right to
collect such rent.
Lessee agrees that it shall immediately notify the
Port in writing of any cancellation or surrender of any sublease. No
modification of any sublease, assignment or other transfer after the Port's
initial consent shall be effective without the prior written approval of the
Port as evidenced by resolution of its Board of Port Commissioners.
20. HAZARDOUS SUBSTANCES; FUMES AND ODORS; DISPOSAL OF GARBAGE;
ANNOYING AND INJURIOUS CONDUCT: No goods, merchandise or material shall be
kept, stored or sold in or on the Premises, no dangerous trade, business or
occupation shall be carried on therein or thereon, and nothing shall be done on
the Premises, other than as is provided for in Paragraph 3 of this Lease, which
will increase the rate of or suspend the insurance upon other structures of the
Port; and no machinery or apparatus shall be used or operated on the Premises
which will in any way injure the Premises or adjacent buildings; provided,
however, that nothing in this Paragraph 20 contained shall preclude Lessee from
bringing, keeping or using on or about the Premises materials, supplies,
equipment and machinery as are appropriate or customary in carrying on its
NATIONAL AIRMOTIVE CORPORATION
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<PAGE> 35
said business, or from carrying on its business in all respects as is generally
usual.
Lessee agrees to conduct its operations upon the Premises so
as to reduce to the minimum that is reasonably practicable the emanation from
the Premises of fumes and odors; provided that the Port acknowledges that some
fumes and odors are normal in Lessee's use as described in Paragraph 3 hereof.
Lessee agrees to handle and dispose of its trash, garbage and
refuse in a sanitary manner and not to pile any boxes, cartons, barrels, trash,
debris or refuse in or about the Premises. Lessee shall provide its own
facilities within the Premises for the cleaning of garbage cans and shall make
adequate provision upon the Premises in order that no refuse, containers,
boxes, cartons or the like will be visible from any direction outside the
Premises.
Lessee shall not, without the advance written consent of the
Port's Executive Director, install any exterior decorations or painting or
install any radio or television antennae, loudspeakers, sound amplifiers, or
any devices on the exterior walls of the Premises. No loudspeakers, radios or
other means of broadcasting to be heard outside the Premises shall be used by
Lessee. Anything in the immediately preceding two sentences to the contrary
notwithstanding; Lessee shall be entitled to install an exterior paging system
and various antennae on the exterior of the Premises, so long as the same do
not unreasonably interfere with Airport operations or operation by Airport
tenants or Airport users, are installed and operated in compliance with all
applicable statutes and regulations, and are approved in advance by the Port
(which approval shall not be unreasonably delayed or denied).
Lessee shall not use any false or misleading advertising
relating to activities on the Premises, or engage in any unfair trade practices
injurious to other tenants of the Port.
21. DEFAULTS: It is mutually covenanted and agreed and this Lease
is made upon the condition that if the rents or other sums which Lessee herein
agrees to pay, or any part thereof, shall be unpaid on the date the same shall
become due and payable, or if default be made in any of the other terms,
agreements, conditions or covenants herein contained on the part of Lessee, or
should Lessee abandon or cease to use the Premises for purposes required by
Paragraph 3 of this Lease at any time except when prevented by fire,
earthquake, wars, strike, governmental intervention, or other similar reason
beyond its control, then and in any such event, at its option, the Port may
declare this Lease forfeited, whereupon the Port may exercise all rights of
entry and re-entry upon the demised Premises.
Lessee shall not be considered to be in default for purposes
of this Paragraph 21 until the expiration of ten (10) days (in the case of a
failure in the payment of rent or other sums herein provided to be made by
Lessee) or 30 days (in all other
NATIONAL AIRMOTIVE CORPORATION
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instances) after written notice by the Port to Lessee and if, during such ten
(10) or thirty (30) day period, as the case may be, such failure or condition
in violation of the provisions of this Lease shall have been cured or obviated
by Lessee, then upon payment, performance or satisfaction of such term,
covenant or condition, any right of the Lessor to terminate this Lease or
re-enter upon the demised Premises by reason of such failure shall cease.
If any condition (except failure to pay rent or other sums)
which would entitle the Port to declare a default is of such nature that it
cannot be remedied within thirty (30) days, such declaration of default,
termination and right of re-entry, or exercise of other rights of Lessor, shall
be postponed as long as the Lessee shall have commenced the elimination of such
condition within said thirty (30) days and shall then be continuously and
diligently proceeding reasonably and in good faith to cure the same.
In the event that the Port terminates this Lease and Lessee's
right to possession of the Premises, in the manner provided by law, the Port
shall be entitled to recover from Lessee possession of the premises and the
following:
(a) the worth at the time of award of the unpaid rent and
sums equivalent to rent required to be paid by Lessee under the Lease that had
been earned at the time of termination;
(b) the worth at the time of award of the amount by which
the unpaid rent and sums equivalent to rent required to be paid by Lessee under
this Lease that would have been earned after termination until the time of
award exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided;
(c) the worth at the time of award of the amount by which
the unpaid rent and sums equivalent to rent required to be paid by Lessee under
this Lease for the balance of the term after the time of award exceeds the
amount of such rental loss that Lessee proves could be reasonably avoided; and
(d) other amounts permitted by law including, but not
limited to, the costs and expenses incurred by the Port (i) in retaking
possession of the Premises, (ii) in cleaning and making repairs of and
alterations to the Premises reasonably necessary to return the Premises to good
condition for uses permitted by this Lease and in otherwise preparing the
Premises for reletting, (iii) in removing, transporting, and storing any of
Lessee's property left at the Premises although the Port shall have no
obligation to remove, transport, or store any of such property, and (iv) in
reletting the Premises, including, but not limited to, brokerage commissions,
advertising costs, and attorneys' fees.
The "worth at the time of award" of the amounts referred to in
items (a) and (b) immediately above is computed by allowing
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interest at the maximum rate permitted by law. The "worth at the time of
award" of the amount referred to in item (c) immediately above is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).
22. RIGHT OF ENTRY: In any and all cases in which provision is
made herein for the termination of this Lease, except by forfeiture, or for
exercise by the Port of right of entry or re-entry upon the Premises, or in
case of abandonment or vacating of the Premises by Lessee, and the Port may not
elect to invoke a forfeiture of said Lease, the Port may enter upon the
Premises and remove any and all persons and/or property whatsoever situated
upon the Premises, and place all or any portion of said property, except such
property as may be forfeited to the Port, in storage for account of and at the
expense of Lessee; and in such case the Port may relet the Premises upon such
terms as it may seem fit, and if a sufficient sum shall not thus be realized
after paying expense of such reletting and collecting to satisfy the rent and
other sums herein agreed to be paid, Lessee agrees to satisfy and pay any
deficiency, and to pay expenses of such reletting and collecting. Lessee
hereby exempts and agrees to save harmless the Port from any cost, loss or
damage arising out of or caused (except to the extent caused by the active
negligence of the Port or its officers, agents, employees or contractors) by
any such entry or re-entry upon said Premises and/or the removal of persons
and/or property and storage of such property by the Port or its agents.
23. SURRENDER AND HOLDING OVER: Lessee covenants that at the
expiration of the term of this Lease or upon its earlier termination it will
quit and surrender the Premises in good state and condition, reasonable wear
and tear and damage by the elements excepted given the nature and age of the
improvements and subject to the provisions of Paragraph 9 hereof. The Port
shall have the right upon such termination to enter upon and take possession of
all the Premises. Should Lessee with the Port's consent hold over the use of
the Premises after this Lease has been terminated in any manner, such holding
over shall be deemed merely a tenancy from month to month and at a rent to be
fixed from time to time by the Port based on the fair rental value of the
Premises, payable monthly in advance, but otherwise on the same terms and
conditions as herein set forth; provided, however, that rent may be fixed by
the Port from time to time by giving to Lessee at least thirty (30) days' prior
written notice of said rent.
It is understood and agreed that nothing contained in this
Lease shall give Lessee any right to occupy the Premises at any time after
expiration of the term of this Lease or its earlier termination, and that this
Lease shall not create any right in Lessee for relocation assistance or payment
from the Port upon expiration of the term of this Lease or upon its earlier
termination or upon the termination of any holdover tenancy, pursuant to this
paragraph. Lessee acknowledges and agrees that upon such expiration or
termination, it shall not be entitled to,
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and expressly hereby waives, any relocation assistance or payment pursuant to
the provisions of Title 1, Division 7, Chapter 16, of the Government Code of
the State of California (Sections 7260 et seq.) and pursuant to any other law
or regulation effective now or at any time in the future with respect to any
relocation of its business or activities upon the expiration of the term of
this Lease or upon its earlier termination or upon the termination of any
holdover tenancy pursuant to this paragraph.
24. DUTY TO GUARD GOODS: Lessee shall assume the sole
responsibility for the guarding and safekeeping of and risk of loss to all
property, stock merchandise and equipment stored or located upon or used in
connection with the said Premises.
25. WAIVERS: No waiver by either party at any time of any of the
terms, conditions or covenants or agreements of this Lease or of any forfeiture
shall be deemed or taken as a waiver at any time thereafter of the same or of
any other term, condition or covenant or agreement herein contained, nor of the
strict and prompt performance thereof. No delay, failure or omission of the
Port to re-enter the Premises or to exercise any right, power or privilege, or
option, arising from any default, nor any subsequent acceptance of rent then or
thereafter accrued shall impair any such right, power, privilege or option or
be construed a waiver of any such default or relinquishment thereof, or
acquiescence therein, and no notice by the Port shall be required to restore or
revive time as of the essence after waiver by the Port of default in one or
more instances. No option, right, power,, remedy or privilege of the Port
shall be construed as being exhausted by the exercise thereof in one or more
instances. It is agreed that each and all of the rights, powers, options or
remedies given to the Port by this Lease are cumulative, and no one of them
shall be exclusive of the other or exclusive of any remedies provided by law,
and that exercise of one right, power, option or remedy by the Port shall not
impair its rights to any other right, power, option or remedy.
26. RIGHT TO INSPECT PREMISES: The Port or its duly authorized
representatives, or agents and other persons for it, may enter upon the
Premises at any and all reasonable times and upon reasonable prior notice
(except in emergencies) during the term of this Lease for the purpose of
determining whether or not Lessee is complying with the terms and conditions
hereof or for any other purpose incidental to rights of the Port. The Port
shall not unreasonably interfere with the use and occupancy of Lessee or
sublessees during such entry.
27. AGENT FOR SERVICE OF PROCESS: It is expressly agreed and
understood that if Lessee is not a resident of this state, or is an association
or partnership without a member or partner resident of this state, or is a
foreign corporation, then in any such event Lessee shall file with the Port a
designation of either (a) a natural person residing in the County of Alameda,
State of California, giving the person's name, residence and business address
or (b) a corporation, giving a copy of the corporation's
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certificate filed in accordance with California Corporations Code Section 1505,
as Lessee's agent for the purpose of service of process in any court action
between Lessee and the Port arising out of or based upon this Lease, and the
delivery to such agent of a copy of any process in any such action shall
constitute valid service upon such Lessee; and it is further expressly agreed,
covenanted and stipulated that if for any reason service of such process upon
such agent is not possible, then in such event Lessee may be personally served
with such process out of this state, and that such service shall constitute
valid service upon such Lessee; and it is further expressly agreed that Lessee
is amenable to the process so served, submits to the jurisdiction of the court
so acquired, and waives any and all objection and protest thereto.
28. RIGHTS OF THE UNITED STATES OF AMERICA: It is understood and
agreed that the United States of America has, and may hereafter acquire,
additional rights relating to the use, operation and maintenance of the
Airport, and that this Lease shall be subordinate to such rights and to the
provisions of any existing or future agreement between the United States
Government and the Port affecting said Airport, provided always, however, that,
subject to Paragraph 31 of this Agreement ("Eminent Domain Proceedings")
nothing herein shall prejudice any right of Lessee to obtain just compensation
from the United States Government for the taking of Lessee's interests under
this Lease, or any part thereof.
29. AIRPORT SECURITY: It is understood and agreed that, if the
Premises afford access onto apron, taxiways, runways, or other restricted air
operations areas of the Airport, or if all or part of the Premises consist of
such areas, Lessee shall, at its own cost and expense, take whatever steps are
reasonably necessary to prevent or deter persons and vehicles from unauthorized
access to such areas from any portion of the Premises or from any area or
through any entryway over which Lessee has control or temporary control, and
take such further actions as may be required to ensure compliance with all
regulations of the Federal Aviation Administration or other governmental
agencies having jurisdiction, including the Port, relative to airport security
regarding the Premises, including but not limited to employee screening
requirements. Lessee shall at all times exercise reasonable control over any
person or vehicle visiting the Premises or escorted by Lessee in the Premises
or in any said air operations areas, and all the hold harmless and indemnity
provisions contained in Paragraphs 3 and 17 of this Lease shall apply in
respect to any act or omission of any said person or vehicle or any act or
omission of any persons issued an access badge by or at the request of Lessee.
Lessee shall promptly reimburse the Port the amount of any civil penalty or
fine that may be assessed against the Port by any governmental agency for
violation of airport security rules or regulations which violation is caused by
Lessee's failure to comply with this paragraph.
30. FORCE MAJEURE: In the event that Lessee or the Port is
delayed, directly or indirectly, from the performance of any act or
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thing required to be done or performed under the terms or conditions hereof by
acts of God, accidents, fire, floods, inclement weather, governmental action,
restrictions, priorities or allocations of any and all kinds, strikes or labor
difficulties of any and all kinds, shortages of or delay in the delivery of
materials, acts of war, riot and civil commotion, or by any other cause beyond
the control of Lessee or the Port, as the case may be, such failure shall not
be deemed to be a breach of this Lease or a violation of any such covenants or
conditions and the time within which Lessee or the Port must perform any such
act shall be extended by a period of time equal to the period of delay arising
from any of such causes. It is understood and agreed that there shall be no
abatement of, or delay in the commencement of, payment of any sum due to the
Port under this Lease except as expressly provided in this Lease.
31. EMINENT DOMAIN PROCEEDINGS:
31.1. TOTAL TAKING: If the whole of the Premises should be
taken by any public or quasi-public authority under the power or threat of
eminent domain for any public use or purported public use, then, in such event,
on the earlier of the date title to the Premises vests in such public or
quasi-public authority, or the date on which said public or quasi-public agency
takes possession of the Premises, this Lease shall terminate with respect to
the Port's and Lessee's future obligations hereunder, but said termination
shall not affect the Port's and Lessee's rights to any compensation or damages
for, on the account of, or arising out of such taking. For any period of time
prior to termination during which Lessee (involuntarily on account of such
taking or any proceedings related thereto) does not have full use of the
Premises, the Monthly Rent due hereunder shall be equitably reduced. In the
event of such a taking, the Port shall be entitled to receive all sums in the
award of damages and compensation arising by reason of such taking except that
Lessee shall be entitled to receive an amount therefrom equal to the fair
market value of Lessee's leasehold interest in the Premises (as of the date of
valuation of said taking).
31.2. PARTIAL TAKING; TERMINATION: If a substantial portion
of the Premises should be taken so as to impair materially the use of the
Premises as contemplated by the Lease, then on the earlier of the date title to
such portion of the Premises vests in such public or quasi-public agency, or
the date on which such public or quasi-public agency takes possession of such
portion of the Premises and Lessee no longer has full possession of such
portion, this Lease shall terminate with respect to the Port's and Lessee's
future obligations hereunder, but said termination shall not affect the Port's
or Lessee's rights to any compensation or damages for, on account of, or
arising out of such taking. For any period of time prior to termination during
which Lessee (involuntarily on account of such taking or any proceedings
related thereto) does not have full use of the Premises, the Monthly Rent due
hereunder shall be equitably reduced. In the event of such a
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taking, the Port shall be entitled to receive all sums in the award of damages
and compensation arising by reason of such taking except that Lessee shall be
entitled to receive an amount therefrom equal to the fair market value of
Lessee's leasehold interest in the Premises. "Compensation and damages" for
the purpose of this Paragraph 31.2 shall include all compensation and damages
including severance damages without and before any reduction for any benefit to
the remainder.
31.3. PARTIAL TAKING; NO TERMINATION; RECONSTRUCTION: If a
taking shall occur which does not result in termination of this Lease as
provided in Paragraphs 31.1 and 31.2 above, but which requires the portion of
the Premises not so taken to be reconstructed and restored so as to be
constituted an architecturally complete unit suitable for use by Lessee, all
compensation and damages payable for or on account of such taking shall be
payable to Lessee and shall be used to reconstruct and restore the portion of
the Premises not so taken to an architecturally complete unit suitable for use
by Lessee; provided, however, that the Lessee's and/or Lender's obligation so
to reconstruct and restore the Premises shall be limited solely to the amount
of such compensation and damages made available to them pursuant to this
Paragraph 31.3, and the Monthly Rent payable by Lessee hereunder shall be
equitably reduced during the time Lessee does not have full use of the Premises
as a result of such taking to account for the reduced economic value to Lessee,
if any, occasioned by reason of such taking. The balance of any compensation
and damages remaining after the reconstruction and restoration contemplated by
this Paragraph 31.3 shall be distributed to the Port, except that Lessee shall
be entitled to receive an amount therefrom equal to the fair market value of
Lessee's leasehold interest in the portion of the Premises taken.
31.4. PARTIAL TAKING; NO TERMINATION; NO RECONSTRUCTION: If
a taking shall occur which does not result in a termination of this Lease as
provided in Paragraphs 31.1 and 31.2 above, and which does not require any
portion of the Premises not so taken to be reconstructed and restored so as to
constitute an architecturally complete unit suitable for use by Lessee, the
proceeds shall be distributed as per the last sentence of Paragraph 31.3.
31.5. TAKING OF LEASEHOLD ESTATE: No taking of Lessee's
leasehold estate in the Premises or any part thereof without a taking of the
fee shall terminate or give Lessee the right to surrender this Lease, nor
excuse the taker of such leasehold estate, including any successor in interest
thereto, from full performance of the covenants for the payment of rent and
other charges or any other obligations hereunder capable of performance by the
taker of such leasehold estate, including any successor in interest thereto,
after any such taking, but in such case, all compensation and damages payable
for or on account of such taking shall be payable to and be the sole property
of Lessee. During any period of time that Lessee is not in possession of the
Premises, or
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any portion thereof, as a result of the taking of any portion of its leasehold
estate hereunder, but only during such period of time, (1) Lessee shall not be
obligated to pay or in any way be liable for the payment of any rental or to
perform any of the other obligations or covenants otherwise to be performed by
it hereunder with respect to, but only with respect to the portion of the
Premises affected by such taking, (2) the Port shall look solely to the taker of
such leasehold interest, including the successors in interest thereto and any
party then in possession of all or such portions of the Premises affected by
such taking for the payment of rental and the performance of the other
obligations and covenants hereunder with respect to such portion of the
Premises, and (3) as between Port and Lessee, Port shall not forfeit or
terminate this Lease for breach by the taker of such leasehold interest,
including its successors in interest thereto and any party then in possession,
of any obligation or covenant hereunder, including the obligation to pay rental.
In the event any such taking of Lessee's leasehold estate in the entire Premises
for a period less than the then remaining term of this Lease, Lessee shall have
the right upon giving ninety (90)days' prior written notice to the Port (such
notice to be given within ninety (90) days' after the effective date of such
taking) to cancel its remaining rights and obligations under this Lease which
cancellation shall not effect the rights and obligations of the taker of such
leasehold estate; provided that this right of Lessee to so cancel its rights and
obligations under this Lease shall only exist and apply in the event the
remaining term of this Lease available to Lessee following the conclusion of the
period of said taking is less than years including the option periods
available to Lessee under Paragraph 2.3 hereof.
31.6. RELOCATION BENEFITS AND GOODWILL: Anything contained
in this Paragraph 31 to the contrary notwithstanding, all compensation,
damages, reimbursements or other benefits payable to Lessee or Lessee's
subtenants, licensees and concessionaires for or in connection with any
relocation, displacement, inability to relocate, loss of business or loss of
goodwill resulting from or in connection with any taking covered by this
Paragraph 31 shall be payable to and be the sole property of Lessee or Lessee's
subtenants, licensees and concessionaires, as appropriate.
31.7. TRADE FIXTURES AND EQUIPMENT: In the event of any
taking of all or any portion of the Premises, Lessee shall be entitled to
receive all compensation and damages arising from such taking and payable for
or on account of Lessee's trade fixtures and equipment at any time located on
the portion of the Premises so taken, except that compensation and damages for
those trade fixtures that pursuant to Paragraph 9 are to remain with the
Premises on surrender shall be distributed the same as distribution of
compensation and damages for improvements under Paragraphs 31.1 through 31.5.
31.8. REDUCTION IN MONTHLY RENT; ARBITRATION: If the
parties cannot agree upon the amount of any reduction of Monthly Rent, as may
be contemplated by this Paragraph 31, the same shall
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be determined by arbitration conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "Arbitration
Rules"), and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction. The arbitration shall be by a panel of three
(3) arbitrators chosen in accordance with the Arbitration Rules, one of whom
must be an attorney at law actively engaged in the practice thereof for at least
ten (10) years. The arbitrators shall have no power to modify any of the
provisions of this Lease and their jurisdiction is limited accordingly. Each
party hereby consents to the entry of judgment by any court having jurisdiction
in accordance with the decision of the arbitration panel. No change in the
Arbitration Rules which would deprive a party of the rights to be represented by
counsel, to present evidence, or to cross-examine witnesses presented by the
other party shall be effective in any arbitration proceeding arising out of this
agreement. Any arbitration provided for herein shall be conducted in the County
of Alameda.
31.9. PORT'S RESERVATION OF POWER OF EMINENT DOMAIN: Lessee
acknowledges the Port's reserved power upon payment of just compensation to
exercise its power of eminent domain as to the leasehold estate created
hereunder; provided, however, that the foregoing acknowledgment shall not be
deemed or construed to prejudice or waive any rights of Lessee to challenge or
object to any attempt by the Port so to exercise such power.
32. WAIVER OF CLAIMS: The Lessee hereby waives any claim against
the City of Oakland, and the Board of Port Commissioners, its officers, agents
or employees, for damage or loss caused by any claim, suit or proceedings
directly or indirectly attacking the validity of this Lease or any part thereof
or right granted thereby or asserting any right or interest in the Premises
inconsistent with rights granted to Lessee by this Lease, or by any judgment or
award in any suit or proceedings instituted by a party other than the Port
directly or indirectly attacking the validity of this Lease, or any part
thereof, or by any judgment or award in any suit or proceeding declaring this
Lease null, void or voidable, or delaying the same, or any part thereof, from
being carried out; provided, however, that such waiver shall not apply or run to
any damage or loss in any way caused by any suit or proceeding directly or
indirectly attacking the validity of this Lease which suit or proceeding is
based in whole or in part upon an alleged "conflict of interest" of any elected
or appointed official, officer, agent or employee of the City of Oakland or the
Board of Port Commissioners of the Port of Oakland, including any "conflict of
interest" or other matter alleged to violate or violating California Government
Code Sections 1090 or 1092. The Port and Lessee each agree that it shall not in
any way attempt to have this Lease declared null or void, and that it shall
reasonably cooperate with the other to defend the validity of this Lease and of
the rights and obligations granted by this Lease.
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33. RESERVATION OF AIRCRAFT EASEMENT: Lessee releases from any
present or future liability whatsoever and covenants not to sue the Port for
damages or any other relief based directly or indirectly upon noise, light,
vibrations, smoke, air currents, electronic or other emissions or lawful flight
(including overflight of the Premises) occurring as a result of lawful aviation
or airport operations at or otherwise associated with the Metropolitan Oakland
International Airport, said release and covenant to include, but not be limited
to claims (known or unknown) for damages for physical or emotional injuries,
discomfort, inconvenience, property damage, death, interference with use and
enjoyment of property, nuisance, or inverse condemnation or for injunctive or
other extraordinary or equitable relief. It is further agreed that the Port
shall have no duty to avoid or mitigate such damages by, without limitation,
setting aside or condemning buffer lands, rerouting air traffic, erecting sound
or other barriers, establishing curfews, noise or other regulations, relocating
airport facilities or operations or taking other measures, except to the
extent, if any, that such actions are validly required by governmental
authority.
The Port reserves from the Premises an easement for flight of
aircraft in or adjacent to the airspace above the Premises and for the
existence and imposition over, on and upon said Premises of noise , light,
vibrations, smoke, air currents, electronic or other emissions, discomfort,
inconvenience, interference with use and enjoyment, and any consequent
reduction in market value which may occur directly or indirectly as a result of
aviation, airport or operations at or otherwise associated with use of the
Metropolitan Oakland International Airport. Lessee accepts the Premises
subject to the risks and activities hereinabove described.
34. EXTENSIONS OF TIME: The Port shall have the right to grant
reasonable extensions of time to Lessee for any purpose or for the performance
of any obligation of Lessee hereunder.
35. SUCCESSORS: Each and every of the provisions, agreements,
terms, covenants and conditions herein contained to be performed, fulfilled,
observed and kept shall be binding upon the successors and assigns of the
parties hereto, and the rights hereunder, and all rights, privileges and
benefits arising under this Lease and in favor of either party shall be
available in favor of the successors and assigns thereof, respectively;
provided no assignment by or through Lessee in violation of the provisions of
this Lease shall vest any rights in such assignee or successor.
36. BOARD OF PORT COMMISSIONERS: The term "Board of Port
Commissioners" as used in this Lease shall mean the department of the City of
Oakland presently operating under such name and as presently constituted, or
any successor thereof.
37. TIME OF ESSENCE: Time is hereby expressly declared to be of
the essence of this Lease.
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38. NOTICES: Any notice required or permitted to be given Lessee
may be given to it at P.O. Box 6069, Oakland, CA 94603-0069; provided,
however, that if Lessee shall give notice in writing to the Port of any change
in said address, then and in such event such notice shall be given to Lessee at
the changed address specified in such notice. Any notice permitted or required
to be served upon the Port may be served upon it at P.O. Box 2064, Oakland,
California 94604, Attn: Manager of Airport Properties; provided, however, that
if the Port shall give notice in writing to Lessee of any change in said
address, then and in such event such notice shall be given to the Port at such
substituted address. Any notices, statements and billings hereunder may be
served upon a party personally or by United States mail and shall be deemed to
be given and received, except where a specific provision expressly provides
that a notice shall be actually received, on the earlier of the date of actual
receipt or the fifth business day following the mailing.
39. EQUAL OPPORTUNITY; NONDISCRIMINATION: In furtherance of the
Port's long-standing policy to insure that equal employment opportunity is
achieved and nondiscrimination is guaranteed in all Port-related activities it
is expressly understood and agreed with respect to Lessee's activities upon the
premises.
(a) That Lessee shall not discriminate against any
employee or applicant for employment because of race, color, religion, sex,
national origin, age, physical handicap, or veteran's status. Lessee shall
take affirmative action to ensure that applicants and employees are treated
fairly. Such action shall include, but not be limited to the following:
employment, upgrading, demotion, or transfer; recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship. Lessee
agrees to post in conspicuous places, available to employees and applicants for
employment, notices to be provided by the Port's Equal Opportunity Employment
Officer setting forth the provisions of this paragraph.
(b) That Lessee shall, in all solicitations or
advertisements for employees placed by or on behalf of Lessee state that all
qualified applicants will receive consideration for employment without regard
to race, color, religion, sex, national origin, age, physical handicap, or
veteran's status.
(c) That Lessee will send to each labor union or
representative of workers with which he has a collective bargaining agreement
or other contract or understanding, a notice, to be provided by the Port's
Equal Opportunity Employment Officer, advising the labor union or workers'
representative of Lessee's commitments under this paragraph, and shall post
copies of the notice in conspicuous places available to employees and
applicants for employment.
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(d) That Lessee shall not discriminate by segregation or
otherwise against any person or persons because of race, color, religion, sex,
age, national origin, physical handicap, or veteran's status in furnishing, or
by refusing to furnish, to such person or persons the use of any public
facility upon the demised premises, including any and all services, privileges,
accommodations, and activities provided thereby.
(e) Lessee assures that it will undertake an affirmative
action program as required by 14 CFR Part 152, Subpart E, to insure that no
person shall on the grounds of race, creed, color, national origin or sex be
excluded from participating in any employment activities covered in 14 CFR Part
152, Subpart E, as issued on February 7, 1980, or as subsequently amended by
the United States Department of Transportation, Federal Aviation
Administration. Lessee further assures that no person shall be excluded on
these grounds from participating in or receiving the services or benefits of
any program or activity covered by this Subpart. Lessee assures that it will
require that its covered suborganizations provide assurances to Lessee that
they similarly will undertake affirmative action programs and that they will
require assurances from their suborganizations, as required by 14 CFR Part 152,
Subpart E, to the same effect.
(f) That Lessee shall maintain work force records showing
male, female and minority employees by job category and similar information
with respect to new hires and shall permit the Port's Equal Opportunity
Employment Officer to inspect such records at all reasonable times and not less
than annually and shall submit a summary of such information annually on a form
provided by the Port.
(g) That if Lessee has fifteen (15) or more employees,
Lessee shall within ninety (90) days of the effective date of this Agreement
provide the Executive Director or his designee with a copy of its affirmative
action program outlining the steps the tenant will undertake to promote
effective utilization of minorities, women, handicapped persons, and veterans
approved by an appropriate federal or state agency or by the Port or an
affirmative action program required as a result of a court ordered consent
decree. Thereafter any change(s) in Lessee's affirmative action program shall
be forwarded to the Port within thirty (30) days of its adoption. Such
submissions shall be accorded the same level of confidentiality as provided for
by the state or federal regulations or court order under which it was
originally submitted.
(h) That Lessee's noncompliance with the provision of
this clause shall constitute a material breach of this Agreement. In the event
of a breach of any of the above-stated nondiscrimination and affirmative action
covenants, the Port shall have the right to consider but not be limited to the
following:
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(i) Terminate this Agreement and to re-enter and possess
said land and the facilities thereon, and to hold the same as if this Agreement
had never been made without liability therefor; or
(j) Seek judicial enforcement of said covenants.
(k) The Port shall assist Lessee in preparing the
required affirmative action program to secure equal employment opportunities
whenever such assistance would be beneficial, and shall be available to advise
and counsel Lessee in the implementation of Lessee's Affirmative Action Program.
40. EMPLOYMENT RESOURCES DEVELOPMENT PROGRAM: Lessee shall
cooperate in implementing the goals of the Port's Employment Resources
Development Program, hereinafter called the "ERDP", as set forth in Port
Resolution No. 26291, as amended. Lessee understands the Port's ERDP seeks to
address the needs of Port tenants for a qualified work force and the needs of
Oakland's chronically unemployed and underemployed for employment, by
identifying employment opportunities, by providing employment training and
counselling for persons seeking such opportunities and by facilitating the
employment of those persons qualified to fill the jobs identified.
The Port shall assist tenants and businesses operating on
Port property with the identification of qualified Oakland residents for
employment opportunities developed by the ERDP.
41. QUIET POSSESSION: Lessee, upon performing its obligations
hereunder, and subject to the provisions of Paragraph 32 of this Lease, shall
have the quiet and undisturbed possession of the demised Premises through the
term of this Lease.
42. ATTORNEYS' FEES AND COSTS: If the Lessee or the Port commences
any action or proceeding against the other arising out of or in connection with
this Lease, the prevailing party shall be entitled to have and recover from the
losing party reasonable attorneys' fees and costs of suit.
43. LEASE THE ENTIRE AGREEMENT; OTHER AGREEMENTS: The Lessee
agrees that as of the effective date of this Lease the provisions of this
written Lease constitute the entire agreement between the Lessee and the Port
regarding the demised Premises and the parties' rights and obligations with
respect thereto. The parties hereto agree that any other leases or agreements
regarding the demised premises existing as of the effective date of this Lease
are hereby terminated as of said effective date; provided, however, that any
obligations or liabilities arising prior to the termination shall survive such
termination. No representation, covenant or other matter oral or written, that
is not expressly set forth in this Lease shall be a part of, modify or affect
this Lease; provided, however, that this Lease may be modified if the
modification is in writing and authorized by ordinance or resolution of the
Board of Port Commissioners.
NATIONAL AIRMOTIVE CORPORATION
TEST CELLS LEASE - 42 -
<PAGE> 48
44. SEVERABILITY: The unenforceability, invalidity or illegality
of any provision of this Lease shall not render the other provisions
unenforceable, invalid or illegal, except when the rights of the Port or Lessee
are materially affected.
45. APPLICABLE LAW AND VENUE: This Lease shall be construed and
interpreted in accordance with the laws of the State of California. All
disputes that cannot be settled amicably by the parties shall be determined by
a competent state court in California, which state court shall be the only
agency with any authority to determine any such dispute; provided that this
provision is not intended to preclude access to appropriate Federal Courts in
disputes involving exclusive Federal Court jurisdiction.
46. REAL ESTATE BROKERS: Lessee and the Port each represent that
it has not had dealings with any real estate broker, finder or other similar
person, with respect to this Lease in any manner. Lessee and the Port each
shall hold harmless the other from all damages resulting from any claims that
may be asserted against the other by any broker, finder or other similar person
with whom it has or purportedly has dealt.
47. AGREEMENT IN MULTIPLE COPIES: This Lease is executed in
multiple copies, each copy of which shall be deemed an original.
48. COVENANT AGAINST CONTINGENT FEES: Lessee warrants that no
person or agency has been employed or retained to solicit or obtain the
contract upon an agreement or understanding for a contingent fee, except a bona
fide employee or agency. For breach or violation of this warranty, the Port,
at its option, may annul the contract or deduct from the contract price or
otherwise recover from Lessee the full amount of the contingent fee.
"Bona fide agency," as used in this Section means an
established commercial or selling agency, maintained by Lessee for the purpose
of securing business, that neither exerts nor proposes to exert improper
influence to solicit or obtain Port contracts nor holds itself out as being
able to obtain any Port contract or contracts through improper influence.
"Bona fide employee," as used in this Section, means a person,
employed by Lessee and subject to Lessee's supervision and control as to time,
place, and manner of performance, who neither exerts nor proposes to exert
improper influence to solicit or obtain Port contracts nor holds itself out as
being able to obtain any Port contract or contracts through improper influence.
"Contingent Fee," as used in this Section, means any
commission, percentage, brokerage, or other fee that is contingent upon the
success that a person or concern has in securing a Port contract.
"Improper influence," as used in this Section, means any
influence that induces or tends to induce a Port Commissioner,
NATIONAL AIRMOTIVE CORPORATION
TEST CELLS LEASE - 43 -
<PAGE> 49
employee or officer to give consideration or to act regarding a Port contract
on any basis other than the merits of the matter.
IN WITNESS WHEREOF, the parties hereto have caused these presents to
be executed the day and year first above written.
CITY OF OAKLAND, a municipal corporation,
acting by and through its
Board of Port Commissioners,
By /s/ SIG
-----------------------------------------
President
Attest /s/ SIG
-----------------------------------------
Secretary
NATIONAL AIRMOTIVE CORPORATION,
a California corporation,
By /s/ THOMAS P. MORJIG
-----------------------------------------
THOMAS P. MORJIG
PRESIDENT AND CHIEF OPERATING OFFICER
-----------------------------------------
(Print Name and Title)
Attest /s/ MICHAEL A. PERFETTO
-----------------------------------------
MICHAEL A. PERFETTO
EXECUTIVE DIRECTOR, ADMINISTRATION
-----------------------------------------
(Print Name and Title)
Approved as to form and
legality this 25th day
of January, 1991.
/s/ STANLEY P. HERBERT
- ----------------------------------
Port Attorney
Port Ordinance No. 3019
NATIONAL AIRMOTIVE CORPORATION
TEST CELLS LEASE - 44 -
<PAGE> 50
D-606
Corporation--President/Secretary
STATE OF CALIFORNIA )
) SS.
COUNTY OF ALAMEDA )
On this 27th day of December, in the year 1990, before me, Karen S.
Marshall, a Notary Public in and for such County and State, personally appeared
THOMAS P. MORJIG, personally known to me to be the President and Chief
Operating Officer, and MICHAEL A. PERFETTO, known to me to be the Executive
Director, Administration of National Airmotive Corporation, the Corporation
that executed the within Instrument, known to me to be the persons who executed
the within Instrument, on behalf of the Corporation herein named, and
acknowledged to me that such Corporation executed the within Instrument pursuant
to its by-laws or a resolution of its Board of Directors.
WITNESS my hand and official seal.
/s/ KAREN S. MARSHALL
---------------------------------
[SEAL] NOTARY PUBLIC in and for said
County and State
<PAGE> 51
MAP -- PORT OF OAKLAND
EXHIBIT A
<PAGE> 52
March 5, 1990
8708122.45
Port of Oakland
LEGAL DESCRIPTION
TEST SITE
All that real property situate in the City of Oakland, County of Alameda, State
of California, being a portion of Tide Land Lot 10, Section 20, T.2S., R.3W.,
M.D.B. & M., as shown on Sale Map No. 10 of the Salt Marsh and Tide Lands,
which is filed in Book 17 of maps at page 30, Alameda County Records, more
particularly described as follows:
COMMENCING at Port of Oakland Survey Control Monument A-27 (uncoordinated as of
3-5-90) thence, on an assumed bearing, N 29 degrees 53' 13" W, 1799.49 feet to
Port of Oakland Survey Control Monument A -29; thence N 42 degrees 47' 29" W,
226.23 feet to a one inch diameter steel pin, with a two inch by two inch square
head, designated as "Mon. B"; thence N 76 degrees 57' 11" E, 38.81 feet to the
corner of a cyclone fence, which is the Point of Beginning; thence around the
perimeter of the cyclone fence (as such fence existed in February 1990 and being
witnessed by the aerial photograph excluded herein as Exhibit "C") the following
courses:
N 34 degrees 20' 17" W, 225.0 feet;
N 55 degrees 39' 43" E, 2.0 feet;
N 34 degrees 20' 17" W, 290.0 feet;
S 55 degrees 39' 43" W, 209.0 feet;
S 34 degrees 20' 17" E, 100.0 feet;
S 55 degrees 39' 43" W, 30.0 feet;
S 34 degrees 20' 17" E, 10.0 feet;
N 55 degrees 39' 43" E, 30.0 feet;
S 34 degrees 20' 17" E, 155.0 feet;
N 55 degrees 39' 43" E, 40.0 feet;
S 68 degrees 01' 41" E, 10.8 feet;
S 34 degrees 20' 17" E, 213.0 feet;
N 55 degrees 39' 43" E, 27.0 feet;
S 34 degrees 20' 17" E, 28.0 feet;
N 55 degrees 39' 43" E, 134.0 feet to the Point of Beginning.
Containing 95,256 square feet, more or less.
TOGETHER with a 30 foot wide strip adjacent and contiguous to the northwestern
and southwestern boundaries of the hereinabove described area designated as the
Fire Safety Easement.
RESERVING to the Port or its assigns the rights of ingress-egress over the
northeastern 30 feet of the hereinabove described area for emergency vehicles
or airport maintenance, said area being a portion of the former Earhart Road
which is presently closed to traffic.
PORT.33
EXHIBIT B
[SEAL]
/s/ FORREST A. REED
<PAGE> 53
IRREVOCABLE LETTER OF CREDIT
Irrevocable and Transferable
Letter of Credit #__________
Amount: U.S. $______________
To: Port of Oakland Airport Properties
9532 Earhart Road
Oakland, California 94621 _____________, 199__
Attention: Manager, Airport Properties Department
Gentlemen:
For the account of [Lessee's Name], a California __________________
Partnership, we hereby issue in your favor our Irrevocable Letter of Credit
for U.S. $___________.
The amount of this credit is available to you by your drafts on us at
sight accompanied by the following statement signed by you.
"I certify that the amount of our drawing is due the Port of Oakland
pursuant to the terms of the Lease dated _________, 198___ between the Port of
Oakland and [Lessee's Name], a [description of Lessee]."
Drafts must clearly specify the number of this credit and be presented
at our counters at _________________, in Oakland, California (or in San
Francisco, California) not later than the close of business on ____________,
19____, or such later date as this credit shall have been extended to.
This credit shall be deemed automatically extended without amendment
for additional periods of one year from the present or any future expiration
date unless thirty (30) days prior to any such date we notify you and [Lessee's
Name] by registered mail that we elect not to consider the letter of credit
renewed for any such additional period. You may then draw on us at sight with
your statement certifying that the amount drawn covers [Lessee's Name]S'
outstanding obligation to you.
NATIONAL AIRMOTIVE CORPORATION Exhibit "C"
TEST CELLS LEASE Page 1 of 2
<PAGE> 54
This Letter of Credit is subject to the "Uniform Custom and Practice
for Documentary Credits" (1983 Revision), International Chamber of Commerce
Publication No. 290.
We engage with you that drafts drawn under and in compliance with the
terms of this credit will be duly honored by us on delivery of documents as
specified.
Very truly yours,
__________________________________
Authorized Signature and Title
NATIONAL AIRMOTIVE CORPORATION Exhibit "C"
TEST CELLS LEASE Page 2 of 2
<PAGE> 55
HAZARDOUS AND TOXIC SUBSTANCES
(1) General
Lessee shall not cause or permit any Toxic Materials
(as hereinafter defined) to be brought upon, remain, kept or used in or about
the Premises or other Port property, by Lessee, its agents, employees,
contractors or invitees, without the prior written consent of Port. The Port
shall not unreasonably withhold such consent so long as Lessee demonstrates to
Port's reasonable satisfaction that such Toxic Materials, and the quantities
thereof, are necessary or useful to Lessee's business and will be used, kept
and stored in a manner that complies with all Laws (as hereinafter defined).
Lessee's obligations under the provisions in this Exhibit shall apply
notwithstanding the party, known or unknown, responsible for the Toxic
Materials, except solely in the case where the Toxic Materials are brought upon
the Premises by the Port or the Port's agents. Lessee shall be solely
responsible to assure that no person brings Toxic Materials onto the Premises.
(2) Compliance With Laws
Lessee shall comply, at its sole cost, with all
federal, state and local laws, statutes, ordinances, codes, regulations and
orders relating to the receiving, handling, use, storage, accumulation,
transportation, generation, spillage, migration, discharge, release and
disposal of any flammable, combustible, explosive, infectious, corrosive,
caustic, irritant, strong sensitizing, carcinogenic or radioactive materials,
hazardous wastes, toxic substances or related materials, including without
limitation, substances defined as "hazardous substances," "hazardous
materials," or "toxic substances" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et
seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq.; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section
6901 et seq.; the Clean Water Act, 33 U.S.C. Section 466, et seq.; the Safe
Drinking Water Act, 14 U.S.C. Section 1401, et seq.; the Superfund Amendment and
Reauthorization Act of 1986, Public Law 99-499, 100 Stat. 1613; the Toxic
Substances Control Act, 15 U.S.C. Section 2601, et seq., as amended; those
substances defined as "hazardous waste," "extremely hazardous waste,"
"restricted hazardous waste" or "hazardous substance" in the Hazardous Waste
Control Act, Section 25100 et seq. of the California Health and Safety Code; and
those materials and substances similarly described in the Federal
Hazardous Toxic Substances Exhibit "D"
NATIONAL AIRMOTIVE CORPORATION Page 1 of 6
<PAGE> 56
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 136 et seq., as
amended; the Atomic Energy Act of 1954, 42 U.S.C. Section 2011 et seq., as
amended; the Porter Cologne Water Quality Control Act, Section 1300 et seq. of
the California Health and Safety Code; and in the regulations adopted and
publications promulgated pursuant to said laws (hereinafter collectively
referred to as the "Laws"). Such materials and substances are sometimes
collectively referred to in the Lease, including this Exhibit, as "Toxic
Materials." Lessee shall become aware of the content of such Laws and all other
laws regulating Toxic Materials as enforced by, but not limited to, the Bay Area
Air Quality Management District, Alameda County Health Department, California
Regional Water Quality Control Board, California Department of Health Services
and all state and Federal offices enforcing regulations concerning occupational
safety and health. It shall be the sole obligation of Lessee to obtain any
permits and approvals required pursuant to the Laws.
(3) Disclosure
In addition to Lessee's obligation pursuant to the
Lease and this Exhibit to secure Port consent, at the commencement of this
Lease and during the month of January of each year through and including the
year following the termination or expiration of this Lease, Lessee shall
disclose to Port, in writing, the names and amounts of all Toxic Materials,
whether solid, liquid or gaseous in form, which was stored, used or disposed of
on the Premises, or which Lessee intends to store, use or dispose of on the
Premises for the year prior to and following the date of each such disclosure.
(4) Business Plan
If Lessee's business conducted within the Premises
requires the establishment and implementation of a business plan pursuant to
California Health and Safety Code Section 25500 et seq. concerning the handling
of hazardous materials, Lessee shall, prior to occupying the Premises, give
written notification to Port that Lessee's business is subject to the business
plan requirement of the Code and that the business is in compliance with the
Code. A copy of the plan shall be delivered to Port with such notification.
(5) Indemnity
Lessee shall be solely responsible for and shall
indemnify, protect, defend and hold harmless Port and its agents, employees,
representatives directors and officers (collectively hereinafter referred to as
the "Indemnitees") from and against any and all claims, costs, penalties,
fines, losses (including without limitation, (i) diminution in value of the
Premises and
Hazardous Toxic Substances Exhibit "D"
NATIONAL AIRMOTIVE CORPORATION Page 2 of 6
<PAGE> 57
of any other Port property; (ii) damages for the loss or restriction on use of
rentable or usable space or of any amenity of the Premises, or any other Port
property; (iii) damages arising from any adverse impact on marketing of space
in the Premises or other Port property; and (iv) sums paid in settlement of
claims, attorneys' fees, consultant fees and expert fees), liabilities,
attorneys' fees, damages, injuries, causes of action, judgments, taxes and
expenses which arise during or after the term of this Lease as a result of the
receiving, handling, use, storage, accumulation, transportation, generation,
spillage, migration, discharge, release or disposal of Toxic Materials in, upon
or about the Premises, or other Port property, by Lessee or its agents,
employees, contractors, licensees or invitees. This indemnification of the
Indemnitees by Lessee includes, without limitation, any and all costs incurred
in connection with any investigation of site conditions and any cleanup,
remediation, removal or restoration work required by any federal, state or
local governmental agency or political subdivision because of Toxic Materials
present in the soil, subsoils, groundwater or elsewhere in, on, under or about
the Premises or other Port property. This indemnification by Lessee under this
Paragraph shall survive the termination of this Lease.
(6) Cleanup
If Lessee or its agents, employees, contractors,
licensees, or invitees or any other parties (except the Indemnitees) causes
contamination or deterioration of water or soil resulting in a level of
contamination greater than the maximum levels established from time to time
during the term of this Lease by any governmental authority having jurisdiction
over such contamination, then Lessee shall promptly take any and all action
necessary to clean up such contamination in the manner as required by law. If
Lessee fails to take such action, Port may, but shall not be obligated to, take
such action. In such event, all costs incurred by Port with respect to such
cleanup activities shall be for the account of Lessee.
(7) Notices and Consent
Lessee shall immediately provide Port with telephonic
notice, which shall later be confirmed by written notice, of any and all
accumulation, spillage, discharge, release and disposal of Toxic Materials
onto or within the Premises or other Port property and any injuries or damages
resulting directly or indirectly therefrom. Prior to Lessee introducing any
Toxic Materials onto the Premises, and regardless of whether such introduction
is required to be reported to applicable governmental authorities, Lessee shall
request Port's written consent thereto as provided in item (1) hereinabove.
Further,
Hazardous Toxic Substances Exhibit "D"
NATIONAL AIRMOTIVE CORPORATION Page 3 of 6
<PAGE> 58
Lessee shall deliver to Port each and every notice or order received from
governmental agencies concerning Toxic Materials and the possession, use
and/or disposal thereof promptly upon receipt of each such notice or order.
(8) Storage and Use of Toxic Materials
Subject to the Permitted Uses as defined elsewhere in
this Lease, Lessee shall store in appropriate leakproof containers, or in any
other manner approved or prescribed by law, any and all Toxic Materials
permitted within the Premises pursuant to this Lease, which if discharged or
emitted into the atmosphere, upon the ground or into or on any body of water
does or may (1) pollute or contaminate the same, or (2) adversely affect the
(a) health, safety or welfare of persons, whether on the Premises or elsewhere,
or (b) the condition, use or enjoyment of the Premises, or any real or personal
property whether on the Premises or anywhere else. There shall be no ponding
or surface storage whatsoever of Toxic Materials within the Premises or within
any other Port property.
(9) Disposal of Toxic Materials
Notwithstanding anything to the contrary contained in
this Exhibit or elsewhere in the Lease, Lessee shall not dispose of any Toxic
Material, regardless of the quantity or concentration, within the drains and
plumbing facilities within the Premises, or other property of Port. The
disposal of Toxic Material shall be in approved containers and removed from the
Premises only by duly licensed carriers. If Lessee becomes aware of or
suspects the presence of any hazardous substance existing within or coming onto
the Premises or other Port property, or of any release of a hazardous substance
that has come to be located on or beneath the Premises or other Port property,
Lessee shall immediately give written notice of such condition to Port as
required by California Health and Safety Code Section 25359.7
(10) Safety
Lessee shall maintain Material Safety and Data Sheets
for each and every Toxic Material brought into the Premises. Such information
shall be kept current at all times and shall be kept in a place accessible to
Port at any time for inspection and in the event of an emergency.
Hazardous Toxic Substances Exhibit "D"
NATIONAL AIRMOTIVE CORPORATION Page 4 of 6
<PAGE> 59
(11) Fees, Taxes and Fines
Lessee shall pay, prior to delinquency, any and all
fees, taxes (including excise taxes) and fines which are charged upon or
incident to any activities on or related to Toxic materials, and shall not
allow such obligations to become a lien or charge against the Premises or upon
Port.
(12) Delivery of Documentation
Lessee shall deliver to Port true and correct copies
of the following documents (hereinafter referred to as the "Documents") related
to the handling, storage, disposal and emission of Toxic Materials,
concurrently with the receipt from or submission to a governmental agency:
Permits; approvals; reports and correspondence;
storage and management plans; documents relating to taxes for
toxic materials; notice of violations of any Laws; plans
relating to the installation of any storage tanks to be
installed in, under or around the Premises (provided, said
installation of tanks shall only be permitted after Port has
given Lessee its written consent to do so, which consent may
be withheld in Port's sole discretion); and all closure plans
or any other documents required by any and all federal, state
and local governmental agencies and authorities for any
storage tanks or other facilities installed in, on or under
the Premises.
Lessee is not required, however, to provide Port with
any portion(s) of the Documents containing information of a proprietary nature
which, in and of itself, does not contain a reference to any Toxic Materials or
hazardous activities which are not otherwise identified to Port in such
Document, unless any such Document names Port as an "Owner" or "Operator" of
the facility in which Lessee is conducting its business. It is not the intent
of this paragraph, unless necessary for the Port to comply with the law or to
enforce provisions of this Lease or otherwise secure the Port's rights, to
provide Port with information which could be detrimental to Lessee's business
should such information become possessed by Lessee's competitors.
Hazardous Toxic Substances Exhibit "D"
NATIONAL AIRMOTIVE CORPORATION Page 5 of 6
<PAGE> 60
(13) Expiration of Term of Lease
On or before the expiration of this Lease, Lessee
shall take any and all action required to be taken under the Laws in order to
(i) surrender the Premises to Port in a condition which would be completely
free of any and all Toxic Materials, and (ii) close or remove, in accordance
with law, any storage tanks in, on or under the Premises. Lessee shall submit
to Port any and all closure plans relating to the closure or removal of any
storage tanks as required by law; provided however, that Lessee shall complete
such closure within a reasonable time after the delivery of such closure plans
to Port, but in no event shall completion of such closure or removal be later
than the termination date of this Lease.
(14) Prohibited Substances
The following substances are prohibited from being
brought into the Premises, the Building or onto the Improved Area:
Arsines Etching solutions
Asbestos Fluorocarbons
Chlorocarbons Freon
Dioxins, including dioxin precursors and
intermediates. Anything contained in
the California List of Extremely Hazardous
Chemicals.
Hazardous Toxic Substances Exhibit "D"
NATIONAL AIRMOTIVE CORPORATION Page 6 of 6
<PAGE> 61
AFFIRMATIVE ACTION PLAN FOR LESSEE
I. AFFIRMATIVE ACTION POLICY STATEMENT
Lessee has issued the following policy statement delineating the
policy of Lessee regarding its commitment to equal employment opportunity,
nondiscrimination and affirmative action, and such policy will be fully
implemented to the extent practicable at the time of actual occupancy of the
building by Lessee.
Equal Employment Opportunity Statement
It is the policy of Lessee, personally subscribed to and supported by
its principals, that there shall be no unlawful discrimination against an
employee or applicant for employment, because of race, color, religious creed,
national origin, ancestry, sex, marital status, physical handicap, non
job-related medical condition, age or veteran status. This policy includes,
but is not limited to, the following: hiring, upgrading, recruitment,
recruitment advertising, selection, training, demotion, transfer, compensation,
lay-off or termination, or any other term or condition of employment. To
implement this policy, Lessee has an affirmative action program which is
supported by all of Lessee's managers and supervisors, and which Lessee shall
fully implement as appropriate during the Lease term. To assure that equal
opportunity and affirmative action efforts are properly carried out, Lessee at
all times shall have an Equal Opportunity Coordinator; provided, however, that
the principals of Lessee shall be responsible for proper implementation of the
Affirmative Action Plan.
II. RESPONSIBILITIES AND DUTIES OF EEO COORDINATOR
In addition to the Equal Opportunity Coordinator's regular duties, it
is the Coordinator's responsibility to: (1) develop equal opportunity and
affirmative action procedures and communication techniques; (2) assist
supervisors and managers in identifying and solving problems relating to equal
opportunity; (3) maintain an open-door policy to all employment problems which
may be raised by employees or applicants for employment; (4) design and
implement a system of periodic monitoring and reporting Lessee's equal
opportunity efforts, including monitoring of selection procedures and regular
review and validation of any selection requirements and tests which are found
to impact adversely on minorities or women; (5) keep informed, and keep senior
management informed, on equal opportunity developments; (6) act as a liaison
with equal opportunity enforcement agencies; (7) ensure that all managers and
supervisors comply with this
Affirmative Action Plan Exhibit "E"
NATIONAL AIRMOTIVE LEASE
<PAGE> 62
policy and implement Lessee's nondiscrimination and affirmative action program;
(8) train employees, including supervisory and management personnel, to create
a favorable climate for an effective equal opportunity program; (9) ensure that
all of the Lessee's facilities are desegregated; (10) conduct a periodic audit
to ensure notices are properly displayed; (11) review the qualifications of all
employees to ensure that minority and female employees are given full
opportunity for promotions or transfer; (12) encourage employees including
minorities and females to participate in all company-sponsored social and
recreational events, educational and training programs; (13) communicate to
supervisors that their performance is being evaluated on their equal employment
opportunity and affirmative action efforts and results as well as other
criteria; (14) ensure that supervisors take action to prevent discriminatory
harassment of employees.
III. COMMUNICATION OF POLICY
Lessee is desirous of ensuring that all employees and other persons
are fully informed of its commitment to equal opportunity. Accordingly, Lessee
will undertake the following steps to disseminate the policy both internally
and externally:
Internal Dissemination
A. Lessee's Equal Employment Opportunity/Affirmative Action
Policy shall be contained in Lessee's policy guide books or employee handbook,
whichever may exist.
B. Lessee shall publicize at least once each year its EEO Policy
in newsletters and/or magazines which are intended for the general reading of
management and employees.
C. A policy statement and Federally-required Equal Employment
Opportunity notice will be posted on Lessee's bulletin boards in areas where
employees or applicants congregate.
D. Lessee shall communicate to all employees its EEO policy and
program through regular meetings during which managers and supervisors will
discuss Lessee's EEO policies and programs, individual responsibilities and
review progress.
E. Applications for employment shall include a statement
regarding non-discrimination.
Affirmative Action Plan E-2
NATIONAL AIRMOTIVE LEASE
<PAGE> 63
External Dissemination
A. Recruiting services through which Lessee hires, and each labor
union or workers' representative with which it has a collective bargaining
agreement or other employment-related contract, shall be informed through
meetings or by written notification of the Lessee's policies regarding equal
opportunity. Lessee will encourage the above actively to recruit and refer
minority and female applicants.
B. All advertisements for employment will state that Lessee is an
equal opportunity employer.
C. When employees are featured in marketing campaigns, employee
handbooks or similar publications under Lessee's control, both nonminorities
and minorities will be pictured where practicable.
D. An Equal Opportunity clause will be inserted by Lessee in all
future labor union agreements, purchase orders and all other contracts relative
to this Lease.
IV. GOALS AND TIMETABLES
A. Identification of Underutilizations
For each of its EEO job categories, Lessee will identify any
underutilizations of minorities and women by:
1. Identifying the number and percentage of minority and
women employees by ethnic groups in division, office or department by job
classification and by EEO-1 categories for which Lessee has employees.
2. Analyzing the availability of promotable minority and
female employees and preparing a list of such persons, if any, by present job
classification.
3. Comparing the data described above with the most
recent relevant labor force availability data for persons in the particular job
group or comparable occupational category(ies) for County of Alameda.
4. Identifying those job categories where minorities
and/or women are present in Lessee's work force at levels below their
availability to the relevant labor force for County of Alameda.
Affirmative Action Plan E-3
NATIONAL AIRMOTIVE LEASE
<PAGE> 64
B. Identification of Goals & Timetables
For each of its EEO job categories where minorities and/or
women are present in Lessee's work force at levels below their availability in
the County of Alameda, Lessee will establish annual goals to correct such
underutilizations. Goals will also be set to correct deficiencies in applicant
flow, hiring, promotions, training, etc.
Lessee's timetable for reaching its goals will be based on
realistic estimates of attrition and applicant availability. In addition,
consideration will be given to the following:
1. The availability of promotable and transferable
minorities and women within Lessee's work force;
2. The existence of training institutions capable of
training Lessee's minority and women employees to acquire requisite skills to
be qualified for promotions and/or transfers as they become available; and
3. The degree of training which Lessee is reasonably
capable of providing for its minority and women employees.
Upon achievement of parity with the relevant labor force in
Alameda County for each ethnic group, sex and EEO job category, Lessee shall
take the steps described in item A above and this item B with respect to the
long range goal described in item C below.
C. Long Range Goals
The long range goals are to achieve parity with the relevant
labor force in the City of Oakland for each ethnic group, sex and EEO-1 job
category.
D. Nature of Goals
The goals described in item A, B and C above are not
inflexible quotas, but rather are objectives to be pursued by mobilization of
available resources and by a good faith effort to fulfill the letter and spirit
of Lessee's equal opportunity employment policy. The anticipated expansion,
contraction, and turnover of and in the work force, along with the
qualifications for respective jobs, will be considered in determining goals.
Affirmative Action Plan E-4
NATIONAL AIRMOTIVE LEASE
<PAGE> 65
V. PLAN OF ACTION
Lessee will make a good faith effort to achieve the goals timetable
indicated above. These efforts will include, but are not necessarily limited
to the following actions:
A. Lessee will make every good faith effort to ensure that all
job descriptions and job specifications accurately reflect job functions.
B. Every good faith effort will be made to ensure that the
qualifications do no constitute intentional or inadvertent discrimination
against minorities or women.
C. Prompt notice of all Lessee's job openings will be made to
Port's Employment Resources Development Program, employment agencies, clearing
houses, and referral groups. The notice shall state, among other things, the
nature of the job, general job qualifications, salary level when applicable,
and that minorities, women and Oakland residents are encouraged to apply.
D. Lessee will actively encourage minority and female employees
to refer applicants for its job openings.
E. Lessee will make every good faith effort to cooperate with
local community programs designed to improve the employment of minorities and
females.
F. Lessee will make every good faith effort to ensure that
pre-employment screening and selection procedures are not discriminatory and
that they do not have an adverse impact on the hiring of any minorities or
women.
G. Lessee will maintain applicant flow data to ensure minorities
and women are not being discriminated against.
H. Lessee will develop reports to monitor the progress of the
affirmative action program on a semi-annual basis.
I. Due to Lessee's size, it may generally be unable to conduct
internal job-related training and if so, then, as a result, Lessee will seek
the most qualified applicant to fill each available position within its
organization. However, Lessee in good faith will, as a part of its continuous
monitoring system, consider the feasibility of internal job-related training.
However, Lessee in good faith will, as a part of its
continuous monitoring system, consider the feasibility of internal job-related
training.
Affirmative Action Plan E-5
NATIONAL AIRMOTIVE LEASE
<PAGE> 66
Lessee's affirmative action and nondiscriminatory plan
compliance will be updated and revised periodically (at least annually) in
light of experience, revised laws and regulations and their interpretations,
and better understanding of effective approaches which will assure truly equal
opportunity for all. The initial set of goals and timetables established
pursuant to this Plan shall be forwarded to the Executive Director within
ninety (90) days after Lessee's occupancy of the Premises for purposes of
Lessee's conducting management, leasing or general administrative functions.
Each updated plan, including each updated set of goals and timetables, will be
forwarded to the Executive Director within thirty (30) days after their
adoption. The initial set of goals and timetables, and each updated plan and
updated set of goals and timetables, shall be consistent with the goals and
objectives of this Plan.
Any questions relating to details of this Plan should be
referred to Lessee's Equal Opportunity Coordinator.
Affirmative Action Plan E-6
NATIONAL AIRMOTIVE LEASE
<PAGE> 1
EXHIBIT 10.19
STANDARD INDUSTRIAL LEASE -- NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. PARTIES. This Lease, dated, for reference purposes only, November 26,
1986, is made by and between RPM INVESTMENTS, INC., a California corporation
(herein called "Lessor") and HELI-DYNE, INC., a California corporation (herein
called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Los Angeles State of California
commonly known as 2508 Palm Drive, Signal Hill and described in Exhibit "A"
attached hereto and by this reference incorporated herein. Said real property
including the land and all improvements herein, is herein called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for ten years commencing on
February 15, 1987 and ending on February 14, 1997 unless sooner terminated
pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if
for any reason Lessor cannot deliver possession of the Premises to Lessee on
said date, Lessor shall not be subject to any liability therefor, nor shall
such failure affect the validity of this Lease or the obligations of Lessee
hereunder or extend the term hereof, but in such case, Lessee shall not be
obligated to pay rent until possession of the Premises is tendered to Lessee.
See Sec. 3.2 of Rider
3.3 EARLY POSSESSION. See Sec. 3.3 of Rider
4. RENT. See Section 4 of Rider
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$9,600.00 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may
use, apply or retain all or any portion of said deposit for the payment of any
rent or other charge in default or for the payment of any other sum to which
Lessor may become obligated by reason of Lessee's default, or to compensate
Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so
uses or applies all or any portion of said deposit, Lessee shall within ten
(10) days after written demand therefor deposit cash with Lessor in an amount
sufficient to restore said deposit to the full amount hereinabove stated and
Lessee's failure to do so shall be a material breach of this Lease. If the
monthly rent shall, from time to time, increase during the term of this Lease,
Lessee shall thereupon deposit with Lessor additional security deposit so that
the amount of security deposit held by Lessor shall at all times bear the same
proportion to current rent as the original security deposit bears to the
original monthly rent set forth in paragraph 4 hereof. Lessor shall not be
required to keep said deposit separate from its general accounts. If Lessee
performs all of Lessee's obligations hereunder, said deposit, or so much thereof
as has not theretofore been applied by Lessor, shall be returned, without
payment of interest or other increment for its use, to Lessee (or, at Lessor's
option, to the last assignee, if any, of Lessee's interest hereunder) at the
expiration of the term hereof, and after Lessee has vacated the Premises. No
trust relationship is created herein between Lessor and Lessee with respect to
said Security Deposit.
6. USES.
6.1 USE. The Premises shall be used for any lawful purpose, subject
to the terms set forth in Sections 6.4 through 6.7 of Rider or any other use
which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease term commences, but without regard to
alterations made by Lessee or the use for which Lessee will use the Premises,
does not violate any covenants or restrictions of record, or any applicable
building code, regulation or ordinance in effect on such Lease term
commencement date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such
violation. In the event Lessee does not give to Lessor written notice of the
violation of this warranty within six months from the date that the Lease term
commences, the correction of same shall be the obligation of the Lessee at
Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be
of no force or effect if, prior to the date of this Lease, Lessee was the owner
or occupant of the Premises, and, in such event, Lessee shall correct any such
violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements in effect during the term or any part of the term hereof,
regulating the use by Lessee of the Premises. Lessee shall not use nor permit
the use of the Premises in any manner that will tend to create waste or a
nuisance or, if there shall be more than one tenant in the building containing
the Premises, shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises other than constructed
by Lessee shall be in good operating condition on the Lease commencement date.
In the event that it is determined that this warranty has been violated, then
it shall be the obligation of Lessor, after receipt of written notice from
Lessee setting forth with specificity the nature of the violation, to promptly,
at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises,
and any covenants or restrictions of record, and accepts this Lease subject
thereto and to all matters disclosed thereby and by any exhibits attached
hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made
any representation or warranty as to the present or future suitability of the
Premises for the conduct of Lessee's business.
(c) See Sec. 6.3 of Rider.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition
and repair the Premises and every part thereof, structural and non structural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including,
without limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), foundations, ceilings, roofs (interior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping, driveways, parking lots, fences and signs located on the Premises
and sidewalks and parkways adjacent to the Premises.
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as when received, ordinary wear and tear excepted, clean and free of
debris. Lessee shall repair any damage to the Premises occasioned
INITIALS: /s/ [SIG]
-------------------
(c) American Industrial Real Estate Association 1980 NET __________________
<PAGE> 2
by the installation or removal of Lessee's trade fixtures, furnishings and
equipment. Notwithstanding anything to the contrary otherwise stated in the
Lease, Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, air conditioning, plumbing, and
fencing on the premises in good operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's
obligations under this Paragraph 7, or under any other paragraph of this Lease,
Lessor may at its option (but shall not be required to) enter upon the Premises
after ten (10) days prior written notice to Lessee (except in the case of an
emergency, in which case no notice shall be required), perform such obligations
on Lessee's behalf and put the same in good order, condition and repair and the
cost thereof together with interest thereon at the maximum rate then allowable
by law shall become due and payable as additional rental to Lessor together
with Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor
under Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warranty), Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises nor the building located thereon nor the equipment therein, whether
structural or non structural, all of which obligations are intended to be that
of the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit
of any statute now or hereinafter in effect which would otherwise afford Lessee
the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the premises in good order, condition and
repair.
7.5 ALTERATIONS AND ADDITIONS. See Section 6.4(c) of Rider.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, or Utility Installations in, on
or about the Premises, except for nonstructural alterations not exceeding
$2,500 in cumulative costs during the term of this Lease. In any event, whether
or not in excess of $2,500 in cumulative cost, Lessee shall make no change or
alteration to the exterior of the Premises nor the exterior of the building(s)
on the Premises without Lessor's prior written consent. As used in this
Paragraph 7.5 the term "Utility Installation" shall mean carpeting, window
coverings, air lines, power panels, electrical distribution systems, lighting
fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may
require that Lessee remove any or all of said alterations, improvements,
additions or Utility Installations at the expiration of the term, and restore
the Premises to their prior condition. Lessor may require Lessee to provide
Lessor, at Lessee's sole cost and expense, a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such improvements,
to insure Lessor against any liability for mechanic's and materialmen's liens
and to insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, Lessor may require that Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility
installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in
written form, with proposed detailed plans. If Lessor shall give its consent,
the consent shall be deemed conditioned upon Lessee acquiring a permit to do so
from appropriate governmental agencies, the furnishing of a copy thereof to
Lessor prior to the commencement of the work and the compliance by Lessee of
all conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or
for use in the Premises, which claims are or may be secured by any mechanics'
or materialmen's lien against the Premises or any interest therein. Lessee
shall give Lessor not less than ten (10) days' notice prior to the commencement
of any work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall,
in good faith, contest the validity of any such lien, claim or demand, then
Lessee shall, at its sole expense defend itself and Lessor against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof against the Lessor or the Premises, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in
Paragraph 7.5(a), all alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall become the
property of Lessor and remain upon and be surrendered with the Premises at the
expiration of the term. Notwithstanding the provisions of this Paragraph
7.5(d), Lessee's machinery and equipment, other than that which is affixed to
the Premises so that it cannot be removed without material damage to the
Premises, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of Paragraph 7.2. See Paragraph 7.5(e) of Rider.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term
"insuring party" shall mean the party who has the obligation to obtain the
Property Insurance required hereunder. The insuring party shall be designated
in Paragraph 46 hereof. In the event Lessor is the insuring party, Lessor
shall also maintain the liability insurance described in paragraph 8.2 hereof,
in addition to, and not in lieu of, the insurance required to be maintained by
Lessee under said paragraph 8.2, but Lessor shall not be required to name
Lessee as an additional insured on such policy. Whether the insuring party is
the Lessor or the Lessee, Lessee shall, as additional rent for the Premises,
pay the cost of all insurance required hereunder, except for that portion of
the cost attributable to Lessor's liability insurance coverage in excess of
$1,000,000 per occurrence. If Lessor is the insuring party Lessee shall,
within ten (10) days following demand by Lessor, reimburse Lessor for the cost
of the insurance so obtained.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit, Bodily Injury and Property Damage insurance insuring Lessor and Lessee
against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be a combined single limit policy in an amount not less than $500,000 per
occurrence. The policy shall insure performance by Lessee of the indemnity
provisions of this Paragraph 8. The limits of said insurance shall not,
however, limit the liability of Lessee hereunder.
8.3 PROPERTY INSURANCE.
(a) The insuring party shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or
damage to the Premises, in the amount of the full replacement value thereof,
excluding Foundations footings and basements, as the same may exist from time
to time, which replacement value is now $1,000,000, but in no event less than
the total amount required by lenders having liens on the Premises, against all
perils included within the classification of fire, extended coverage,
vandalism, malicious mischief, flood (in the event same is required by a lender
having a lien on the Premises), and special extended perils ("all risk" as such
term is used in the insurance industry). Said insurance shall provide for
payment of loss thereunder to Lessor or to the holders of mortgages or deeds of
trust on the Premises. The insuring party shall, in addition, obtain and keep
in force during the term of this Lease a policy of rental value insurance
covering a period of one year, with loss payable to Lessor, which insurance
shall also cover all real estate taxes and insurance costs for said period. A
stipulated value or agreed amount endorsement deleting the coinsurance
provision of the policy shall be procured with said insurance as well as an
automatic increase in insurance endorsement causing the increase in annual
property insurance coverage by 2% per quarter. If the insuring party shall
fail to procure and maintain said insurance the other party may, but shall not
be required to, procure and maintain the same, but at the expense of Lessee.
If such insurance coverage has a deductible clause, the deductible amount shall
not exceed $1,000 per occurrence, and Lessee shall be liable for such
deductible amount.
(b) If the Premises are part of a larger building, or if the
Premises are part of a group of buildings owned by Lessor which are adjacent to
the Premises, then Lessee shall pay for any increase in the property insurance
of such other building or buildings if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(c) If the Lessor is the insuring party the Lessor will not
insure Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide". The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancellable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be
done anything which shall invalidate the insurance policies referred to in
Paragraph 8.3. If Lessee does or permits to be done anything which shall
increase the cost of the insurance policies referred to in Paragraph 8.3, then
Lessee shall forthwith upon Lessor's demand reimburse Lessor for any
additional premiums attributable to any act or omission or operation of Lessee
causing such increase in the cost of insurance. If Lessor is the insuring
party, and if the insurance policies maintained hereunder cover other
improvements in addition to the Premises, Lessor shall deliver to Lessee a
written statement setting forth the amount of any such insurance cost increase
and showing in reasonable detail the manner in which it has been computed.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release
and relieve the other, and waive their entire right of recovery against the
other for loss or damage arising out of or incident to the perils insured
against under paragraph 8.3, which perils occur in, on or about the Premises,
whether due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in
this Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor
from and against any and all claims arising from Lessee's use of the Premises,
or from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any obligation
on Lessee's part to be performed under the terms of this Lease, or arising from
any negligence of the Lessee, or any of Lessee's agents, contractors, or
employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon, and in case any action or proceeding be brought
against Lessor by reason of any such claim. Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel satisfactory to Lessor.
Lessee, as a material part of the consideration to Lessor, hereby assumes all
risk of damage to property or injury to persons, in, upon or about the
Premises arising from any cause and Lessee hereby waives all claims in respect
thereof against Lessor.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Lessee. Lessee's employees, invitees, customers, or any other
person in or about the Premises, nor shall Lessor be liable for injury to the
person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether the said damage or injury results
from conditions arising upon the Premises or upon other portions of the
building of which the Premises are a part, or from other sources or places and
regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible to Lessee. Lessor shall not be liable for
any damages arising from any act or neglect of any other tenant, if any, of the
building in which the Premises are located.
INITIALS: /s/ [Illegible]
/s/ [Illegible]
NET - 2 -
<PAGE> 3
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost of repairs is less
than 50% of the then replacement cost of the Premises. "Premises Building
Partial Damage" shall herein mean damage or destruction to the building of ??
the Premises are a part to the extent that the cost of repair is less than 50%
of the then replacement cost of such building as a whole.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or
more of the then replacement cost of the Premises. "Premises Building Total
Destruction" shall herein mean damage or destruction to the building of which
the Premises are a part to the extent that the cost of repair is 50% or more of
the then replacement cost of such building as a whole.
(c) "Insured Loss" shall herein mean damage or destruction
which was caused by an event required to be covered by the insurance described
in paragraph 8.
9.2 PARTIAL DAMAGE -- INSURED LOSS. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is an Insured Loss and which falls into the classification of
Premises Partial Damage or Premises Building Partial Damage, then Lessor shall,
at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment
or tenant improvements unless the same have become a part of the Premises
pursuant to Paragraph 7.5 hereof as soon as reasonably possible and this Lease
shall continue in full force and effect. Notwithstanding the above, if the
Lessee is the insuring party, and if the insurance proceeds received by Lessor
are not sufficient to effect such repair, Lessor shall give notice to Lessee of
the amount required in addition to the insurance proceeds to effect such
repair. Lessee shall contribute the required amount to Lessor within ten days
after Lessee has received notice from Lessor of the shortage in the insurance.
When Lessee shall contribute such amount to Lessor, Lessor shall make such
repairs as soon as reasonably possible and this Lease shall continue in full
force and effect. Lessee shall in no event have any right to reimbursement for
any such amounts so contributed.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6 and 9.9, if at any time during the term of this
Lease there is damage which is not an insured Loss and which falls within the
classification of Premises Partial Damage or Premises Building Partial Damage,
unless caused by a negligent or willful act of Lessee (in which event Lessee
shall make the repairs at Lessee's expense), Lessor may at Lessor's option
either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
this occurrence of such damage of Lessor's intention to cancel and terminate
this Lease, as of the date of the occurrence of such damage. In the event
Lessor elects to give such notice of Lessor's intention to cancel and terminate
this Lease, Lessee shall have the right within ten (10) days after the receipt
of such notice to give written notice to Lessor of Lessee's intention to repair
such damage at Lessee's expense, without reimbursement from Lessor, in which
event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does
not give such notice within such 10-day period this Lease shall be cancelled
and terminated as of the date of the occurrence of such damage.
9.4 TOTAL DESTRUCTION. If at any time during the term of this
Lease there is damage, whether or not an insured Loss, (including destruction
required by any authorized public authority), which falls into the
classification of Premises Total Destruction or Premises Building Total
Destruction, this Lease shall automatically terminate as of the date of such
total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of
this Lease there is damage, whether or not an Insured Loss, which falls within
the classification of Premises Partial Damage, Lessor may at Lessor's option
cancel and terminate this Lease as of the date of occurrence of such damage by
giving written notice to Lessee of Lessor's election to do so within 30 days
after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than 20 days after the occurrence of
an Insured Loss falling within the classification of Premises Partial Damage
during the last six months of the term of this Lease. If Lessee duly exercises
such option during said 20 day period, Lessor shall, at Lessor's expense,
repair such damage as soon as reasonably possible and this Lease shall continue
in full force and effect. If Lessee fails to exercise such option during said
20 day period, then Lessor may at Lessor's option terminate and cancel this
Lease as of the expiration of said 20 day period by giving written notice to
Lessee of Lessor's election to do so within 10 days after the expiration of said
20 day period, notwithstanding any term or provision in the grant of option to
the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3,
and Lessor or Lessee repairs or restores the Premises pursuant to the
provisions of this Paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within 90 days after such obligations shall accrue, in
addition to _____ other rights or _____ Lessee may have Lessee may at Lessee's
option cancel and terminate this Lease by giving Lessor written notice of
Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to this Paragraph 9, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security
deposit as has not theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease. See
Paragraphs 9.9 and 9.10 of Rider.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessee shall pay the real property tax, as
defined in paragraph 10.2, applicable to the Premises during the term of this
Lease. All such payments shall be made at least ten (10) days prior to the
delinquency date of such payment. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes paid
by Lessee shall cover any period of time prior to or after the expiration of
the term hereof, Lessee's share of such taxes shall be equitably prorated to
cover only the period of time within the tax fiscal year during which this
Lease shall be in effect, and Lessor shall reimburse Lessee to the extent
required. If Lessee shall fail to pay any such taxes, Lessor shall have the
right to pay the same, in which case Lessee shall repay such amount to Lessor
with Lessee's next rent installment together with interest at the maximum rate
then allowable by law.
10.2 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, as against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, as against Lessor's right to rent or other income
therefrom, and as against Lessor's business of leasing the Premises. The term
"real property tax" shall also include any tax, fee, levy, assessment or charge
(i) in substitution of, partially or totally, any tax, fee, levy, assessment or
charge hereinabove included within the definition of "real property tax," or
(ii) the nature of which was hereinbefore included within the definition of
"real property tax," or (iii) which is imposed for a service or right not
charged prior to June 1, 1978, or, if previously charged, has been increased
since June 1, 1978, or (iv) which is imposed as a result of a transfer, either
partial or total, of Lessor's interest in the Premises or which is added to a
tax or charge hereinbefore included within the definition of real property tax
by reason of such transfer, or (v) which is imposed by reason of this
transaction, any modifications or changes hereto, or any transfers hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within 10 days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. See Section 12.1 of Rider.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignees assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Lessee or any successor of Lessee in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees
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of Lessee without notifying Lessee or any successor of Lessee and without
obtaining its or their consent thereto and such action shall not relieve Lessee
of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet
the Premises or request the consent of Lessor to any assignment or subletting
and Lessee shall request the consent of Lessor for any act Lessee proposes
to do then Lessee shall pay Lessor's reasonable attorney's fees incurred in
connection therewith, such attorney's fees not to exceed $750 for each such
request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee.
(a) The vacating or abandonment of the Premises by Lessee.
See Paragraph 13.1(a) of Rider.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due where
such failure shall continue for a period of three days after written notice
thereof from Lessor to Lessee in the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee, other than described in paragraph (b) above, where such failure
shall continue for a period of 30 days after written notice thereof from Lessor
to Lessee, provided, however, that if the nature of Lessee's default is such
that more than 30 days are reasonably required for its cure, then Lessee shall
not be deemed to be in default if Lessee commenced such cure within said 30-day
period and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within 60
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.1(d) is
contrary to any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case
this Lease shall continue in effect whether or not Lessee shall have abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent
as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due
at the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within a reasonable
time, but in no event later than thirty (30) days after written notice by
Lessee to Lessor and to the holder of any first mortgage or deed of trust
covering the Premises whose name and address shall have theretofore been
furnished to Lessee in writing, specifying wherein Lessor has failed to perform
such obligation; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days are required for performance then Lessor
shall not be in default if Lessor commences performance within such 30-day
period and thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor
from exercising any of the other rights and remedies granted hereunder. In the
event that a late charge is payable hereunder, whether or not collected, for
three (3) consecutive installments of rent, then rent shall automatically
become due and payable quarterly in advance, rather than monthly,
notwithstanding paragraph 4 or any other provision of this Lease to the
contrary.
13.5 IMPOUNDS. In the event that a late charge is payable
hereunder, whether or not collected, for three (3) installments of rent or any
other monetary obligation of Lessee under the terms of this Lease, Lessee shall
pay to Lessor, if Lessor shall so request, in addition to any other payments
required under this Lease, a monthly advance installment, payable at the same
time as the monthly rent, as estimated by Lessor, for real property tax and
insurance expenses on the Premises which are payable by Lessee under the terms
of this Lease. Such fund shall be established to insure payment when due,
before delinquency, of any or all such real property taxes and insurance
premiums. If the amounts paid to Lessor by Lessee under the provisions of this
paragraph are insufficient to discharge the obligations of Lessee to pay such
real property taxes and insurance premiums as the same become due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums necessary to
pay such obligations. All moneys paid to Lessor under this paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a default in the obligations of Lessee to perform under this Lease,
then any balance remaining from funds paid to Lessor under the provisions of
this paragraph may, at the option of Lessor, be applied to the payment of any
monetary default of Lessee in lieu of being applied to the payment of real
property tax and insurance premiums.
14. CONDEMNATION.
14.1 CONDEMNATION. If the Premises or any portion thereof are taken
under the power of eminent domain, or sold under the threat of the exercise of
said power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than 10% of the floor
area of the building on the Premises, or more than 25% of the land area of the
Premises which is not occupied by any building, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing only within ten (10)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent shall be
reduced in the proportion that the floor area of the building taken bears to
the total floor area of the building situated on the Premises. No reduction of
rent shall occur if the only area taken is that which does not have a building
located thereon. Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any award for loss or damage to Lessee's trade fixtures
and removable personal property. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of
severance damages received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
Lessee shall pay any amount in excess of such severance damages required to
complete such repair. See Paragraph 14 of Rider.
15. BROKER'S FEE. See Section 15 of Rider.
(c) Lessor agrees to pay said fee not only on behalf of Lessor
but also on behalf of any person, corporation, association, or other entity
having an ownership interest in said real property or any part thereof, when
such fee is due hereunder. Any transferee of Lessor's interest in this Lease,
whether such transfer is by agreement or by operation of law, shall be deemed
to have assumed Lessor's obligation under this Paragraph 15. Said broker shall
be a third party beneficiary of the provisions of this Paragraph 15.
16. ESTOPPEL CERTIFICATE.
16.1 LESSEE'S CERTIFICATE (a) Lessee shall at any time upon not
less than ten (10) days' prior written notice from Lessor execute, acknowledge
and deliver to Lessor a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature
of such modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the rent and other charges are paid in
advance if any, and (ii) acknowledging that there are not, to Lessee's
knowledge, any uncured defaults on the part of Lessor hereunder, or specifying
such defaults if any are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such
statement within such time shall be a material breach of this Lease or shall be
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conclusive upon Lessee that (i) this Lease is in full force and effect without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth. See
Paragraph 16.2 of Rider.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only
the owner or owners at the time in question of the fee title or a lessee's
interest in a ground lease of the Premises, and except as expressly provided in
Paragraph 15, in the event of any transfer of such title or interest Lessor
herein named (and in case of any subsequent transfers then the grantor) shall
be relieved from and after the date of such transfer of all liability as
respects Lessor's obligations thereafter to be performed, provided that any
funds in the hands of Lessor or the then grantor at the time of such transfer,
in which Lessee has an interest, shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law from the date due. Payment of such interest shall
not excuse or cure any default by Lessee under this Lease provided, however,
that interest shall not be payable on late charges incurred by Lessee nor on
any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under
the terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior agreement or understanding pertaining to any such matter shall be
effective.* This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification. Except as otherwise stated in
this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in Paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employees or agents of any of said persons has made any oral
or written warranties or representations to Lessee relative to the condition or
use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable
laws and regulations in effect during the term of this Lease except as
otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall
be in writing and may be given by personal delivery or by certified mail, and
if given personally or by mail, shall be deemed sufficiently given if addressed
to Lessee or to Lessor at the address noted below the signature of the
respective parties, as the case may be. Either party may by notice to the
other specify a different address for notice purposes except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for notice purposes.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession
of the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions
of this Lease pertaining to the obligations of Lessee, but all options and
rights of first refusal, if any, granted under the terms of this Lease shall be
deemed terminated and be of no further effect during said month to month
tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
Paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure
to execute such documents within 30 days after written demand shall constitute
a material default by Lessee hereunder.
31. ATTORNEY'S FEES. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to
enter the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders, or lessees, and making
such alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee. See Paragraph 32 of Rider.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without
Lessor's prior written consent except that Lessee shall have the right, without
the prior permission of Lessor to place ordinary and usual for rent or sublet
signs thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Premises.
* except for the agreements between PER and each of the Brokers and that certain
Indemnity Agreement dated November 21, 1986 by and among PER, Lessee MBA, and
that certain letter of agreement dated 12/4/86 by and among PER, RPM and
LESSEE.
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40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so long
as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure to
do so shall constitute a material breach of this Lease. See Paragraph 42 of
Rider.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. INSURING PARTY. The insuring party under this lease shall be the
Lessee.
47. Rider-Exhibits. Attached to this Lease is a Rider and Exhibits "A",
"B", "C", and D". Said Rider and Exhibits constitute a part of this Lease and
by this reference are incorporated in this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL
AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
Executed at______________________ RPN INVESTMENTS, INC.
---------------------------------
on ______________________________ a California corporation
Address _________________________ By /s/ MARK R. MINSKY
------------------------------
_________________________________ Mark R. Minsky, President
Executed at______________________ By /s/ PHILIP R. GRAF
------------------------------
on ______________________________ Philip R. Graf, Vice President
Address _________________________ "LESSOR" (Corporate seal)
_________________________________ HELI-DYNE, INC.
---------------------------------
a California corporation
By /s/ JORGE DELATORRIENTE
-------------------------------
Jorge DeLaTorriente, President
By /s/ LYNN CARLSON
-------------------------------
Lynn Carlson, Vice President
"LESSEE" (Corporate seal)
For these forms write or call the American Industrial Real Estate Association,
345 South Figueroa St. M-1, Los Angeles, CA 90071
(213) 687-8777
Form 204n 780
<PAGE> 7
LEGAL DESCRIPTION
[PAGE ILLEGIBLE]
EXHIBIT "A"
Page 1 of 1
<PAGE> 8
GUARANTY OF LEASE [LOGO]
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
WHEREAS RPM INVESTMENTS, INC., a California corporation, hereinafter
referred to as "Lessor", and HELI-DYNE, INC., a California corporation,
hereinafter referred to as "Lessee", are about to execute a document entitled
"Lease" dated , 1986 concerning the premises commonly known as
2508 Palm Drive, Signal Hill, California wherein Lessor will lease the premises
to Lessee and
WHEREAS Mr. Jorge DeLaTorriente, and Mr. Lynn Carlson hereinafter
referred to as "Guarantors" have a financial interest in Lessee, and
WHEREAS Lessor would not execute the Lease if Guarantors did not
execute and deliver to Lessor this Guarantee of Lease.
NOW THEREFORE, for and in consideration of the execution of the
foregoing Lease by Lessor and as a material inducement to Lessor to execute said
Lease, Guarantors hereby jointly, severally, unconditionally and irrevocably
guarantee the prompt payment by Lessee of all rentals and all other sums payable
by Lessee under said Lease and the faithful and prompt performance by Lessee of
each and every one of the terms, conditions and covenants of said Lease to be
kept and performed by Lessee.
It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between Lessor
and Lessee, or by a course of conduct, and said Lease may be assigned by Lessor
or any assignee of Lessor without consent or notice to Guarantors and that this
Guaranty shall thereupon and thereafter guarantee the performance of said Lease
as so changed, modified, altered or assigned.
This Guaranty shall not be released, modified or affected by failure or
delay on the part of Lessor to enforce any of the rights or remedies of the
Lessor under said Lease, whether pursuant to the terms thereof or at law or in
equity.
No notice of default need be given to Guarantors, if being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which Lessor may proceed forthwith and immediately against
Lessee or against Guarantors following any breach or default by Lessee or for
the enforcement of any rights which Lessor may have as against Lessee pursuant
to or under the terms of the within Lease or at law or in equity.
Lessor shall have the right to proceed against Guarantors hereunder
following any breach or default by Lessee without first proceeding against
Lessee and without previous notice to or demand upon either Lessee or
Guarantors.
Guarantors hereby waive (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protest, (c) all right to assert or plead
any statute of limitations as to or relating to this Guaranty and the Lease, (d)
any right to require the Lessor to proceed against the Lessee or any other
Guarantor or any other person or entity liable to Lessor, (e) any right to
require Lessor to apply to any default any security deposit or other security it
may hold under the Lease, (f) any right to require Lessor to proceed under any
other remedy Lessor may have before proceeding against Guarantors, (g) any right
of subrogation.
Guarantors do hereon subordinate all existing or future indebtedness of
Lessee to Guarantors to the obligations owed to Lessor under the Lease and this
Guaranty.
Any married woman who signs this Guaranty expressly agrees that recourse
may be had against her separate property for all of her obligations hereunder.
The obligations of Lessee under the Lease to execute and deliver
estoppel statements and financial statements, as therein provided, shall be
deemed to also require the Guarantors hereunder to do and provide the same
relative to Guarantors.
The term "Lessor" whenever hereinabove used refers to and means the
Lessor in the foregoing Lease specifically named and also any assignee of said
Lessor, whether by outright assignment or by assignment for security, and also
any successor to the interest of said Lessor or of any assignee in such Lease or
any part thereof, whether by assignment or otherwise. So long as the Lessor's
interest in or to the leased premises or the rents, issues and profits
therefrom, or in, to or under said Lease, are subject to any mortgage or deed or
trust or assignment for security, no acquisition by Guarantors of the Lessor's
interest in the leased premises or under said Lease shall affect the continuing
obligation of Guarantors under this Guaranty which shall nevertheless continue
in full force and effect for the benefit of the mortgagee, beneficiary, trustee
or assignee under such mortgage, deed of trust or assignment, or any purchase at
sale by judicial foreclosure or under private power of sale, and of the
successors and assigns of any such mortgagee, beneficiary, trustee, assignee or
purchaser.
The term "Lessee" whenever hereinabove used refers to and means the
Lessee in the foregoing Lease specifically named and also any assignee or
sublessee of said Lease and also any successor to the interests of said Lessee,
assignee or sublessee of such Lease or any part thereof whether by assignment,
sublease or otherwise.
In the event any action be brought by said Lessor against Guarantors
hereunder to enforce the obligation of Guarantors hereunder, the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be issued by the court.
This guaranty, all acts and transactions hereunder and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
according to the laws of the State of California. As part of the consideration
for Lessor's executing the Lease, Guarantor hereby agrees that all actions or
proceedings arising directly or indirectly hereunder may, at the option of the
Lessor, be litigated in Courts having situs within the state named in the
previous sentence, and Guarantor hereby expressly consents to the jurisdiction
of any local, state or federal court located within said state, and consents
that service of process in such action or proceeding may be made by personal
service upon Guarantor wherever Guarantor may be then located, or by certified
or registered mail directed to Guarantor at his/its last known address.
Guarantor agrees to execute and deliver to Lessor a written confirmation
of the continuation of this guaranty with respect to and following any
assignment of, or subletting under, the Lease.
Executed at___________________________ /s/ JORGE DELATORRIENTE
-------------------------
Jorge DeLaTorriente
on ___________________________________
Address ______________________________ /s/ LYNN CARLSON
-------------------------
______________________________________ Lynn Carlson
GUARANTORS
EXHIBIT "B"
Page 1 of 1
<PAGE> 9
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. PARTIES. This Lease dated for reference purposes only, November 26,
1986 is made by and between HELI-DYNE, INC., a California corporation (herein
called "Lessor") and RICHARD YOUNG (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
that certain real property situated in the County of Los Angeles, State of
California, commonly known as Unit 9, 2508 Palm Drive, Signal Hill, CA 90807,
and measuring 1400 square feet. Said real property including the land and all
improvements thereon, is herein called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for five years
commencing on February 15, 1987 and ending on February 14, 1992 unless sooner
terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date,
if for any reason Lessor cannot deliver possession of the Premises to Lessee on
said date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case Lessee shall not be obligated to pay
rent until possession of the Premises is tendered to Lessee, provided, however,
that if Lessor shall not have delivered possession of the Premises within sixty
(60) days from said commencement date, Lessee may, at Lessee's option, by notice
in writing to Lessor within ten (10) days thereafter, cancel this Lease, in
which event the parties shall be discharged from all obligations hereunder. If
Lessee occupies the Premises prior to said commencement date, such occupancy
shall be subject to all provisions hereof, such occupancy shall not advance the
termination date, and Lessee shall pay rent for such period at the initial
monthly rates set forth below.
4. RENT. Lessee shall pay to Lessor as rent for the Premises equal
monthly payments of $140.00, in advance, on the first day of each month of the
term hereof. Lessee shall pay Lessor upon the execution hereof $140.00 as rent
for February 15, 1986 through February 28, 1987. See Section 17 of this Lease
regarding Rent Escalation. Rent for any period during the term hereof which is
for less than one month shall be a pro rata portion of the monthly installment.
Rent shall be payable in lawful money of the United States to Lessor at the
address stated herein or to such other persons or at such other places as
Lessor may designate in writing.
6. USE.
6.1 USE. The Premises shall be used for any lawful purpose and for
no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its existing
state, but without regard to the use for which Lessee will use the Premises,
does not violate any applicable building code, regulation or ordinance at the
time this Lease is executed. In the event it is determined that this warranty
has been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any
such violation. In the event Lessee does not give to Lessor written notice of
the violation of this warranty within 1 year from the commencement of the term
of this Lease, it shall be conclusively deemed that such violation did not exist
and the correction of the same shall be the obligation of the Lessee.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Lessee of
the Premises. Lessee shall not use nor permit the use of the Premises in any
manner that will tend to create waste or a nuisance or, if there shall be more
than one tenant in the building containing the Premises, shall tend to disturb
such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
Lessee hereby accepts the Premises in their condition existing as of the date of
the execution hereof, subject to all applicable zoning, municipal, county and
state laws, ordinances and regulations governing and regulating the use of the
Premises, and accepts this Lease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto. Lessee acknowledges that neither
Lessor nor Lessor's agent has made any representation or warranty as to the
suitability of the Premises for the conduct of Lessee's business.
7. MAINTENANCE REPAIRS AND ALTERATIONS.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
6.2(a) and 9 and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's agents, employees, or invitees in which event
Lessee shall repair the damage. Lessor, at Lessor's expense, shall keep in good
order, condition and repair the foundations, exterior walls and the exterior
roof of the Premises. Lessor shall have no obligation to make repairs under
this Paragraph 7.1 until a reasonable time after receipt of written notice of
the need for such repairs.
Subject to the provisions of Paragraphs 6.2(a), 7 and 9, Lessee/Lessor,
at Lessor's expense shall keep in good order, condition and repair the Premises
and every part thereof (whether or not the damaged portion of the Premises or
the means of repairing the same are reasonably or readily accessable to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
heating, airconditioning, ventilating, electrical and lighting facilities and
equipment within the Premises, fixtures, interior walls and interior surface of
exterior walls, ceilings, windows, doors, plate glass, and skylights, located
within the Premises, and all landscaping, driveways, parking lots, fences and
signs located in the Premises and all sidewalks and parkways adjacent to the
Premises.
EXHIBIT "C" Initials: ______
Page 1 of 6
GROSS ______
(c) American Industrial Real Estate Association 1977
<PAGE> 10
(c) On the last day of the term hereof or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, broom clean, ordinary wear and tear excepted. Lessee shall repair
any damage to the Premises occasioned by the removal of its trade fixtures,
furnishings and equipment pursuant to Paragraph 7.3(d), which repair shall
include the patching and filling of holes and repair of structural damage.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, or Utility Installations in, on
or about the Premises, except for nonstructural alterations not exceeding $1,000
in cost. As used in this Paragraph 7.3 the term "Utility Installation" shall
mean bus ducting, power panels, wiring, fluorescent fixtures, space heaters,
conduits, airconditioning and plumbing. Lessor may require that Lessee remove
any or all of said alterations, improvements, additions or Utility Installations
at the expiration of the term, and restore the Premises to their prior
condition. Lessor may require Lessee to provide Lessor at Lessee's sole cost
and expense, a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such improvements to insure Lessor against any
liability for mechanic's and materialmen's liens and to insure completion of the
work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of such.
(b) Any alterations, improvements, additions or Utility
Installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall,
in good faith, contest the validity of any such lien, claim or demand, then
Lessee shall, at its sole expense defend itself and Lessor against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof against the Lessor or the Premises, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in
Paragraph 7.3(a), all alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall become the
property of Lessor and remain upon and be surrendered with the Premises at the
expiration of the term. Notwithstanding the provisions of this Paragraph
7.3(d), Lessee's machinery and equipment, other than that which is affixed to
the Premises so that it cannot be removed without material damage to the
Premises, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of Paragraph 7.2(c).
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit, Bodily Injury and Property Damage Insurance insuring Lessor and Lessee
against any liability arising out of the ownership use, occupancy or maintenance
of the Premises and all areas appurtenant thereto. Such insurance shall be a
combined single limit policy in an amount not less than $500,000. The policy
shall contain cross liability endorsements and shall insure performance by
Lessee of the indemnity provisions of this Paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder. In the
event that the Premises constitute a part of a larger property said insurance
shall have a Lessor's Protective Liability endorsement attached thereto. If
Lessee shall fail to procure and maintain said insurance Lessor may, but shall
not be required to, procure and maintain the same, but at the expense of Lessee.
Not more frequently than each 5 years, if, in the reasonable opinion of Lessor,
the amount of liability insurance required hereunder is not adequate, Lessee
shall increase said insurance coverage as required by Lessor. Provided, however
that in no event shall the amount of the liability insurance increase be more
than fifty percent greater than the amount thereof during the preceding five
years of the term of this lease. However, the failure of Lessor to require any
additional insurance coverage shall not be deemed to relieve Lessee from any
obligations under this Lease.
8.2 PROPERTY INSURANCE.
(a) Lessor shall obtain and keep in force during the term of
this Lease a policy or policies of insurance covering loss or damage to the
Premises, but not Lessee's fixtures, equipment or tenant improvements in the
amount of the full replacement value thereof, providing protection against all
perils included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk) but not plate glass
insurance. In addition, the Lessor shall obtain and keep in force, during the
term of this Lease, a policy of rental income insurance covering a period of six
months, with loss payable to Lessor which insurance shall also cover all real
estate taxes and insurance costs for said period. In the event that the
Premises contains sprinklers then the insurance coverage shall include sprinkler
leakage insurance.
8.3 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of B plus or better as set
forth in the most current issue of "Best Insurance Guide". Lessee shall deliver
to Lessor copies of policies of liability insurance required under Paragraph 8.1
or certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Lessor. No such policy shall be cancellable or
subject to coverage or other modification except after ten (10) days prior
written notice to Lessor. Lessee shall, within ten (10) days prior to the
expiration of such policies, furnish Lessor with renewals or "binders" thereof
or Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee upon demand. Lessee shall not do or permit to
be done anything which shall invalidate the insurance policies referred to in
Paragraph 8.2.
8.4 WAIVER OF SUBROGATION. Lessee and Lessor each hereby waives any
and all rights of recovery against the other, or against the officers,
employees, agents and representatives of the other, for loss of or damage to
such waiving party or its property or the property of others under its control,
where such loss or damage is insured against under any insurance policy in force
at the time of such loss or damage. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver or subrogation is contained in this
Lease.
8.5 INDEMNITY. Lessor shall indemnify and hold harmless Lessor from
and against any and all claims arising from Lessee's use of the Premises or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee or any of Lessee's agents, contractors or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon and in case any action or proceeding be brought against Lessor by reason
of any such claim, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material part
of the consideration to Lessor, hereby assumes all risk of damage to property or
injury to persons, in, upon or about the Premises arising from any cause and
Lessee hereby waives all claims in respect thereof against Lessor.
8.6 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE OR DESTRUCTION.
9.1 PARTIAL DAMAGE-INSURED. Subject to the provisions of
Paragraphs 9.3 and 9.4, if the Premises are damaged and such damage was caused
by a casualty covered under an insurance policy required to be maintained
pursuant to Paragraph 8.2, Lessor shall at Lessor's expense repair such damage
as soon as reasonably possible and this Lease shall continue in full force and
effect but Lessor shall not repair or replace Lessee's fixtures, equipment or
tenant improvements.
9.2 PARTIAL DAMAGE-UNINSURED. Subject to the provisions of
Paragraphs 9.3 and 9.4, if at any time during the term hereof the Premises are
damaged, except by a negligent or willful act of Lessee (in which event Lessee
shall make the repairs, at its expense) and such damage was caused by a casualty
not covered under an insurance policy required to be maintained by Lessor
pursuant to Paragraph 8.2, Lessor may at Lessor's option either (i) repair such
damage as soon as reasonably possible at Lessor's expense, in which event this
Lease shall continue in full force and effect or (ii) give written notice to
Lessee within thirty (30) days after the date of the occurrence of such damage
of Lessor's intention to cancel and terminate this Lease as of the date of the
occurrence of such damage in the event Lessor elects to give such notice of
Lessor's intention to cancel and terminate this Lease. Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's expense
without reimbursement from Lessor, in which event this Lease shall continue in
full force and effect and Lessee shall proceed to make such repairs as soon as
reasonably possible. If Lessee does not give such notice within such 10-day
period this lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
<PAGE> 11
[ILLEGIBLE]
insurance required to be maintained by Lessor pursuant to Paragraph 8.2
(including any total destruction required by any authorized public authority)
this Lease shall automatically terminate as of the date of such total
destruction.
9.4 DAMAGE NEAR END OF TERM. If the Premises are partially
destroyed or damaged during the last six months of the term of this Lease,
Lessor may, at Lessor's option, cancel and terminate this Lease as of the date
of occurrence of such damage by giving written notice to Lessee of Lessor's
option to do so within 30 days after the date of occurrence of such damage.
9.5 ABATEMENT OF RENT: LESSEE'S REMEDIES.
(a) If the Premises are partially destroyed or damaged and
Lessor or Lessee repairs or restores them pursuant to the provisions of this
Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within 90 days after such obligations shall accrue,
Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor
written notice of Lessee's election to do so at any time prior to the
commencement of such repair or restoration, in such event this Lease shall
terminate as of the date of such notice.
9.6 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to this Paragraph 9, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security
deposit as has not theretofore been applied by Lessor.
9.7 WAIVER. Lessee waives the provisions of California Civil Code
Sections 1932(2) and 1933(4) which relate to termination of leases when the
thing leased is destroyed and agrees that such event shall be governed by the
terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX. Lessor shall pay all real property taxes
applicable to the Premises.
10.2 DEFINITION OF "REAL PROPERTY" TAX. As used herein, the term
"real property tax" shall include any form of assessment, license fee,
commercial rental tax, levy, penalty, or tax (other than inheritance or estate
taxes), imposed by any authority having the direct or indirect power to tax,
including any city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement district thereof, as
against any legal or equitable interest of Lessor in the Premises or in the real
property of which the Premises are a part, as against Lessor's right to rent or
other income therefrom, or as against Lessor's business of leasing the Premises
or any tax imposed in substitution, partially or totally, of any tax previously
included within the definition of real property tax, or any additional tax the
nature of which was previously included within the definition of real property
tax.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within 10 days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which [SEE RIDER]. Any attempted
assignment, transfer, mortgage, encumbrance or subletting without such consent
shall be void, and shall constitute a breach of this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which is solely owned by Lessee,
provided that said assignee assumes, in full, the obligations of Lessee under
this Lease. Any such assignment shall not, in any way, affect or limit the
liability of Lessee under the terms of this Lease even if after such assignment
or subletting the terms of this Lease are materially changed or altered without
the consent of Lessee, the consent of whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or
their consent thereto and such action shall not relieve Lessee of liability
under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $750.00 for each such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three days after written notice
thereof from Lessor to Lessee.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee, other than described in paragraph (b) above, where such failure
shall continue for a period of 30 days after written notice hereof from Lessor
to Lessee, provided, however, that if the nature of Lessee's default is such
that more than 30 days are reasonably required for its cure, then Lessee
shall not be deemed to be in default if Lessee commenced such cure within said
30-day period and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement for the
benefit of creditors; (ii) the filing by or against Lessee of a petition to
have Lessee adjudged a bankrupt or a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Lessee, the same is dismissed within 60 days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within 30 days, or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days.
(e) The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's
fees, and any real estate commission actually paid, the worth at the time of
award by the court having jurisdiction thereof of the amount by which the
unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could be
reasonably avoided; that portion of the leasing commission paid by Lessor
pursuant to Paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent
as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the State of California.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation,
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and thereafter
diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, Lessee shall pay to Lessor a late charge equal to 6% of
such overdue amount. The
EXHIBIT "C" Initials: ______
PAGE 3 OF 6
GROSS -3- ______
<PAGE> 12
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payments. Lessee
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount to prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation") this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
improvements on the premises of more than 25% of the land area of the Premises
which is not occupied by any improvements is taken by condemnation, Lessee may
at Lessee's option to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice within ten (10) days after condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with
the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining except that the rent shall be reduced in the
proportion that the floor area taken bears to the total floor area of the
building situated on the Premises. Any award for the taking of all or any part
of the Premises under the power of eminent domain or any payment made under the
threat of the exercise of such power shall be the property of Lessor whether
such award shall be made as compensation to diminution in value of the
leasehold or for the taking of the fee or as severance damages provided,
however, that Lessee shall be entitled to an award for loss or damage to
Lessee's trade fixtures and removable personal property. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of severance damages received by Lessor in connection with such
condemnation repay any damage to the Premises caused by such condemnation
except to the extent that Lessee has been reimbursed therefor by the condemning
authority Lessee shall pay any amount in excess of such severance damages
required to complete such repair.
16. GENERAL PROVISIONS.
16.1 ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days'
prior written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date to which the rent and other charges are paid in advance, if any,
and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured
defaults on the part of Lessor hereunder, or specifying such defaults if any
are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises.
(b) Lessee's failure to deliver such statement within such time
shall be conclusive upon Lessee (i) that this Lease is in full force and effect
without modification except as may be represented by Lessor, (ii) that there
are no uncured defaults in Lessor's performance and (iii) that not more than
one month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance or refinance the Premises, or any
part thereof, Lessee hereby agrees to deliver to any lender designated by
Lessor such financial statements of Lessee as may be reasonably required by
such lender. Such statements shall include the past three years financial
statements of Lessee. All such financial statements shall be received by
Lessor in confidence and shall be used only for the purposes herein set forth.
16.2 LESSOR'S LIABILITY. The term "Lessor" as used herein shall
mean only the owner or owners at the time in question of the fee title or a
lessee's interest in a ground lease of the Premises, and except as expressly
provided in Paragraph 15, in the event of any transfer of such title or
interest, Lessor herein named (and in case of any subsequent transfers the
then grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall,
subject as aforesaid, be binding on Lessor's successors and assigns, only
during their respective periods of ownership.
16.3 SEVERABILITY. The invalidity of any provision of this Lease
as determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
16.4. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Lessor not paid when due shall bear interest at 10%
per annum from the date due. Payment of such interest shall not excuse or cure
any default by Lessee under this Lease, provided, however, that interest shall
not be payable on late charges incurred by Lessee nor on any amounts upon which
late charges are paid by Lessee.
16.5 TIME OF ESSENCE. Time is of the essence.
16.6 CAPTIONS. Article and paragraph captions are not a part hereof.
16.7 INCORPORATION OF PRIOR AGREEMENTS, AMENDMENTS. This Lease
contains all agreements of the parties with respect to any matter mentioned
herein. No prior agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only signed by the
parties in interest at the time of the modification. Except as otherwise
stated in this Lease Lessee hereby acknowledges that neither the real estate
broker listed in Paragraph 15 hereof nor any cooperating broker on this
transaction nor the Lessor on any employees or agents of any of said persons
has made any oral or written warranties or representations to Lessee relative
to the condition or use by Lessee of said Premises and Lessee acknowledges that
Lessee assumes all responsibility regarding the Occupational Safety Health Act,
the legal use and adaptability of the Premises and the compliance thereof with
all applicable laws and regulations in effect during the term of this Lease
except as otherwise specifically stated in this Lease.
16.8 NOTICES. Any notice required or permitted to be given
hereunder shall be in writing and may be given by personal delivery or by
certified mail and if given personally or by mail, shall be deemed sufficiently
given if addressed to Lessee or to Lessor at the address noted below the
signature of the respective parties as the case may be. Either party may by
notice to the other specify a different address for notice purposes except that
upon Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice purposes. A copy of all notices required or
permitted to be given to Lessor hereunder shall be concurrently transmitted to
such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
16.9 WAIVERS. No waiver by Lessor of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Lessee of the same or any other provision. Lessor's consent to or approval of
any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
rent so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such rent.
16.10 RECORDING. Lessee shall not record this Lease without Lessor's
prior written consent, and such recordation shall, at the option of Lessor,
constitute a non-curable default of Lessee hereunder. Either party shall,
upon request of the other, execute, acknowledge and deliver to the other a
"short form" memorandum of this Lease for recording purposes.
16.11 HOLDING OVER. If Lessee remains in possession of the Premises
or any part thereof after the expiration of the term hereof without the express
written consent of Lessor, such occupancy shall be a tenancy from month to month
at a rental in the amount of the last monthly rental plus all other charges
payable hereunder, and upon all the terms hereof applicable to a month-to-month
tenancy.
16.12 CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
16.13. COVENANTS AND CONDITIONS. Each provision of this Lease
performable by Lessee shall be deemed both a covenant and a condition.
16.14 BINDING EFFECT, CHOICE OF LAW. Subject to any provisions
hereof restricting assignment or subletting by Lessee and subject to the
provisions of Paragraph 16.2, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State of California.
16.15 SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation for security
now or hereafter placed upon the real property of which the Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate such
subordination or to make this Lease prior to the lien of any mortgage deed of
trust or ground lease, as the case may be, and failing to do so within ten (10)
days after written demand, does hereby make, constitute and irrevocably appoint
Lessor as Lessee's attorney in fact and in Lessee's name, place and stead, to do
so.
16.16 ATTORNEY'S FEES. If either party or the broker named herein
brings an action to enforce the terms hereof or declare rights hereunder the
prevailing party in any such action, on trial or appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
16.17 LESSOR'S ACCESS. Lessor and Lessor's agents shall have the
right to enter the Premises at reasonable times for the purpose of inspecting
the same, showing the same to prospective purchasers, lenders or lessees, and
making such alterations, repairs, improvements or additions to the Premises or
to the building of which they are a part as Lessor may deem necessary or
desirable. Lessor may at any time place on or about the Premises any ordinary
"For Sale" signs and Lessor may at any time during the last 120 days of the
term hereof place on or about the Premises any ordinary "For Lease" signs, all
without rebate of rent or liability to Lessee.
EXHIBIT "C"
Page 4 of 6
Initials: ______
______
<PAGE> 13
16.19 MERGER. The voluntary or other surrender of this Lease by Lessee
or a mutual cancellation thereof or a termination by Lessor shall not work a
merger and shall at the option of Lessor terminate all or any existing
subtenancies or may at the option of Lessor operate as an assignment to Lessor
of any or all of such subtenancies.
16.20 CORPORATE AUTHORITY. If Lessee is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the Bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. If Lessee is a corporation Lessee shall within thirty (30) days
after execution of this Lease deliver to Lessor a certified copy of a resolution
of the Board of Directors of said corporation authorizing or ratifying the
execution of this Lease.
16.21 CONSENTS. Wherever in this Lease, other than Paragraph 12, the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld
16.22 GUARANTOR. In the event that there is a guarantor of this Lease,
said guarantor shall have the same obligations as Lessee under Paragraphs 16.1
and 16.20 of this Lease.
16.23 QUIET POSSESSION. Upon Lessee paying the fixed rent reserved
hereunder and observing and performing all of the covenants, conditions and
provisions on Lessee's part to be observed and performed hereunder, Lessee shall
have quiet possession of the Premises for the entire term hereof subject to all
of the provisions of this Lease.
16.24 OPTIONS. In the event that the Lessee, under the terms of this
Lease, has any option to extend the term of this Lease, or any option to
purchase the premises or any right of first refusal to purchase the premises or
other property of Lessor, then each of such options and rights are personal to
Lessee and may not be exercised or be assigned, voluntarily or involuntarily, by
or to any one other than Lessee except that it may be exercised by or assigned
to any of the entities described in paragraph 12.2 hereof for whom Lessee does
not need the consent of Lessor to assign this Lease. In the event that Lessee
hereunder has any multiple options to extend this Lease a later option to extend
the lease cannot be exercised unless the prior option has been so exercised. No
option may be exercised at a time when the Lessee is in default under its
obligations under this Lease.
16.25 MULTIPLE TENANT BUILDING. In the event that the Premises are part
of a larger building or group of buildings then Lessee agrees that it will abide
by, keep and observe all reasonable rules and regulations which Lessor may make
from time to time for the management, safety, care and cleanliness of the
building and grounds, the parking of vehicles and the preservation of good order
therein as well as for the convenience of other occupants and tenants of the
building. Further, Lessee will promptly pay its prorata share, as reasonably
determined by Lessor, of any maintenance or repair of such portion of the
Premises or such portion of the property of which the Premises are a part, which
are common areas or used by Lessee and other occupants thereof. The violations
of any such rules and regulations, or the failure to pay such prorata share of
costs, shall be deemed a material breach of this Lease by Lessee.
16.26 ADDITIONAL PROVISIONS. Attached hereto is an addendum containing
Section 17 which constitutes a part of this Lease.
The parties hereto have executed this Lease at the place and on the
dates specified immediately adjacent to their respective signatures.
If this Lease has been filled in it has been prepared for submission to
your attorney for his approval. No representation or recommendation is made by
the real estate broker or its agents or employees as to the legal sufficiency,
legal effect, or tax consequences of this Lease or the transaction relating
thereto.
Executed at HELI-DYNE, INC.,
------------------------- --------------------------------
a California corporation
on By: /s/ JORGE DELA TORRIENTE
---------------------------------- --------------------------------
Jorge DeLa Torriente, President
Address By: /s/ LYNN CARLSON
----------------------------- --------------------------------
Lynn Carlson, Vice President
______________________________________ "LESSOR" (Corporate seal)
Executed at
------------------------- --------------------------------
Richard Young
on By: /s/ RICHARD YOUNG
---------------------------------- --------------------------------
Address By:
----------------------------- --------------------------------
______________________________________ "LESSEE" (Corporate seal)
For these forms write the Form 103g 477
American Industrial Real Estate Association
350 S. Figueroa Street, Los Angeles, California 90071
EXHIBIT "C"
Page 5 of 6
<PAGE> 14
[LOGO]
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
Dated October
By and Between HELI-DYNE, INC., a California corporation,
as Lessor and RICHARD YOUNG, as Lessee
17. RENT ESCALATIONS
(a) On August 1, 1989, only the monthly rent payable under paragraph 4
of the attached Lease shall be adjusted by the increase, if any, from the date
this Lease commenced, in the Consumer Price Index of the Bureau of Labor
Statistics of the U.S. Department of Labor for Urban Wage Earners and Clerical
Workers, Los Angeles-Long Beach-Anaheim, California (1967=100). "All Items",
herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph (a) of this
Addendum shall be calculated as follows: the rent payable for the first month of
the term of this Lease, as set forth in paragraph 4 of the attached Lease, shall
be multiplied by a fraction the numerator of which shall be the C.P.I. of the
calendar month during which the adjustment is to take effect, and the
denominator of which shall be the C.P.I. for the calendar month in which the
original Lease term commences. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall such new monthly rent be less
than the rent payable for the month immediately preceding the date for rent
adjustment.
(c) Pending receipt of the required C.P.I. and determination of the
actual adjustment, Lessee shall pay an estimated adjusted rental, as reasonably
determined by Lessor by reference to the then available C.P.I. information.
Upon notification of the actual adjustment after publication of the required
C.P.I., any overpayment shall be credited against the next installment of rent
due, and any underpayment shall be immediately due and payable by Lessee.
Lessor's failure to request payment of an estimated or actual rent [ILLEGIBLE]
adjustment shall not constitute a waiver of the right to any adjustment
provided for in the Lease or this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the C.P.I. shall be used
to make such calculation. In the event that Lessor and Lessee cannot agree on
such alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
(e) In no event shall the monthly rent calculated pursuant to the terms
of this Section 17 be less than 1.0768 times greater, nor more than 1.213 times
greater than the monthly rent payable for the month immediately preceding the
date for rent adjustment.
Initials: ______ Initials: _____
______ _____
RENT ESCALATIONS Form RE-3-383
EXHIBIT "C"
Page 6 of 6
<PAGE> 15
LEGAL DESCRIPTION
- -----------------
PARCEL #1
[ILLEGIBLE]
PARCEL #2
[ILLEGIBLE]
ATTACHMENT I
TO
EXHIBIT "D"
<PAGE> 16
SECURED PROMISSORY NOTE
$________________________ ________________, 19___
Original Principal Amount Los Angeles, California
FOR VALUE RECEIVED, HELI-DYNE, INC., a California corporation
("Borrower"), promises to pay to the order of ___________, a
____________________ ("Lender"), or order, at such place as the holder of this
Secured Promissory Note (this "Note") may from time to time designate, the
principal sum of $_______________ plus Stated Interest as provided below.
1. Commencing on the date of this Note, the unpaid principal
balance from time to time outstanding under this Note, shall bear stated
interest ("Stated Interest") at an annual rate equal to the commercial loan
rate announced from time to time by Bank of America, N.T. & S.A., at its Los
Angeles main Office as its "Reference Rate", or any comparable successor rate
set by the Bank of America or by any successor to Bank of America, plus 2% (the
"Stated Rate"). The Stated Rate that shall be in effect for the first three
calendar years of the term of this Note shall be computed based on the
Reference Rate on the date that Borrower gives notice of Borrower's intention
to exercise the option granted to Borrower under Paragraph 50 of that certain
Standard Industrial Lease--Net dated as of November 26, 1996 by and between RPM
INVESTMENTS, INC., a California corporation as Lessor, and Borrower, as Lessee.
The Stated Rate under this Note shall be adjusted on the first day of the
fourth calendar year dating from the date of this Note and on the first day of
every third calendar year thereafter during the term of this Note based on the
Reference Rate on each such adjustment date. Any adjusted interest rate so
calculated shall stay in effect until the next adjustment date. Stated
Interest shall be computed on the basis of actual days elapsed divided by a
360-day year.
2. Stated Interest shall be due and payable in monthly
installments, commencing on the first day of the calendar month following the
date of this Note, and continuing on the first day of each calendar month
thereafter until the date which is 15 calendar years from the date of this Note
(the "Maturity Date"), at which time the entire amount of principal and any
accrued but unpaid Stated Interest and all other sums due under this Note shall
be paid in full.
3. Borrower agrees that Lender may, without notice to Borrower
and without affecting the liability of the Borrower, accept additional or
substitute security for this Note, or release any security or any party liable
for this Note, including any guarantor of this Note, or extend or renew this
Note.
4. Borrower shall have the right to prepay in whole or in part
the principal balance of this Note together with any unpaid Stated Interest
accrued thereon, from time to time prior to the Maturity Date.
ATTACHMENT II
to
EXHIBIT "D"
1
<PAGE> 17
5. This Note is secured by a Deed of Trust and Assignment of
Rents (the "Deed of Trust") covering the real property located in the City of
Signal Hill, County of Los Angeles, State of California, and legally described
therein (the "Property"), an Assignment of Rents, Income and Profits covering
the Property (the "Assignment of Rents"), a Continuing Guaranty (the
"Guaranty") all dated of even date herewith and executed by the Borrower in
favor of Lender (collectively, the "Loan Documents"). The Deed of Trust
contains, among other things, the following provision:
"In order to induce Beneficiary to make the loan secured
hereby, Trustor agrees that, in the event of any transfer of the Trust
Estate without the prior written consent of Beneficiary, Beneficiary
shall have the absolute right at its option, without prior demand or
notice, to declare all sums secured hereby immediately due and
payable. Consent to one such transaction shall not be deemed to be a
waiver of the right to require consent to future or successive
transactions. Beneficiary may grant or deny such consent in its sole
discretion and, if consent should be given, any such transfer shall be
subject to this Deed of Trust, and any such transferee shall assume
all obligations hereunder and agree to be bound by all provisions
contained herein. Such assumption shall not, however, release Trustor
or any maker or guarantor of the Note from any liability thereunder
without the prior written consent of Beneficiary. As used herein,
"transfer" includes the sale, agreement to sell, transfer or
conveyance of the Trust Estate, or any portion thereof or interest
therein, whether voluntary, involuntary, by operation of law or
otherwise, the execution of any installment land sale contract or
similar instrument affecting all or a portion of the Trust Estate, or
the lease of all or substantially all of the Trust Estate. "Transfer"
shall also include the transfer, assignment or conveyance of legal or
beneficial ownership of more than 50% of the voting stock of Trustor.
"Transfer" shall not include the leasing of individual office or
commercial units or other rentable area on the Premises".
6. If Borrower shall fail to make any payment of Stated Interest
or principal, including the payment due upon the Maturity Date, within 10 days
after the date the same is due and payable, a late charge shall be immediately
due and payable. Borrower recognizes that default in making the payments herein
agreed to be paid when due will result in the holder of this Note incurring
additional expense in servicing the Loan, in loss to the holder of the use of
the money due,
ATTACHMENT II
to
EXHIBIT "D"
2
<PAGE> 18
and in frustration to the holder in meeting its other commitments. Borrower
agrees that, if for any reason, it fails to pay any such Stated Interest or
principal amounts due under this Note within 10 days after the date when due,
holder shall be entitled to damages for the detriment caused thereby, but that
it is extremely difficult and impractical to ascertain the amount of such
damages. Borrower therefore agrees to pay, in addition to the other interest
provided on this Note, a sum equal to five cents for each one dollar of each
such delinquent payment, as a reasonable estimate of the damages to the holder,
which sum Borrower agrees to pay on demand.
7. All amounts payable under this Note are payable in lawful
money of the United States. Checks shall constitute payment only when
collected, provided that receipt of a check which is in fact collected shall be
deemed to constitute payment upon receipt of the check. All payments on this
Note shall be applied first to interest and then to principal.
8. Upon any default under this Note, under the Loan Documents, or
any other instrument or agreement securing this Note, after the expiration of
any applicable cure period expressly described therein, Lender may, at its
option and without notice, declare the entire unpaid principal sum of this Note
together with all accrued Stated Interest immediately due and payable.
9. Borrower agrees to pay all costs of collection when incurred,
including, but not limited to, attorneys' fees. If any suit or action is
instituted to enforce this Note, Borrower promises to pay, in addition to the
costs and disbursements otherwise allowed by law, such sum as the court may
adjudge as attorneys' fees in such suit or action.
10. Borrower and all endorsers, guarantors and all persons liable
or to become liable on this Note, waive presentment, protest and demand, notice
of protest, demand, dishonor and nonpayment of this Note and any and all other
notices or matters of a like nature, and consent to any and all renewals and
extensions of the time of payment of this Note. Such parties agree further
that, at any time and from time to time, without notice, the terms of payment
of this Note may be modified, or the security described in any documents at any
time securing this Note may be released in whole or in part, or increased,
changed or exchanged by agreement between the Lender and any owner of the real
or personal property or collateral affected by the Loan Documents securing this
Note, without in any way affecting the liability of any party to this Note or
any person liable or to become liable with respect to any indebtedness
evidenced by this Note.
11. This Note shall be governed by and construed in accordance
with California law.
12. All agreements between Borrower and Lender are expressly
limited, so that in no contingency or event whatsoever, whether by reason of
advancement of the proceeds hereof, acceleration of maturity of the unpaid
principal balance hereof, or otherwise, shall the amount paid or agreed to be
paid to Lender for the use, forbearance or detention of
ATTACHMENT II
to
EXHIBIT "D"
3
<PAGE> 19
the money to be advanced under this Note exceed the highest lawful rate
permissible under the applicable usury law.
13. The unenforceability or invalidity of any provision or
provisions of this Note as to any persons or circumstances shall not render
that provision or those provisions unenforceable or invalid as to any other
persons or circumstances, and all provisions of this Note, in all other
respects, shall remain valid and enforceable.
14. The terms of this Note shall apply to, inure to the benefit
of, and bind all parties hereto, their heirs, legatees, devisees,
administrators, executors, personal representatives, successors and assigns.
Whenever used, the words "holder", "Lender", or "Borrower", shall be deemed to
include the respective heirs, legatees, devisees, administrators, executors,
personal representatives, successors and assigns of holder, Borrower and
Lender, as applicable.
IN WITNESS WHEREOF, Borrower has executed this Note as of the date
first above written.
"BORROWER"
HELI-DYNE, INC.,
A California corporation
By: /s/ JORGE DELATORRIENTE
---------------------------------
Jorge DeLaTorriente, President
By: /s/ LYNN CARLSON
---------------------------------
Lynn Carlson, Vice President
ATTACHMENT II
to
EXHIBIT "D"
4
<PAGE> 20
AND WHEN RECORDED MAIL TO
Name
Street
Address
City &
State
- -------------------------------- SPACE ABOVE THIS LINE FOR RECORDER'S USE ------
LONG FORM DEED OF TRUST AND ASSIGNMENT OF RENTS
THIS FORM FURNISHED BY TICOR TITLE INSURERS
CAT NO. NN01065
TO 21942 CA (1-83) (OPEN END) A.P.N. _________
- --------------------------------------------------------------------------------
This Deed of Trust, made this day of , between
, herein called Trustor,
whose address is 2508 Palm Drive, Signal Hill, California
(number and street) (city) (state) (zip)
TICOR TITLE INSURANCE COMPANY OF CALIFORNIA, a California corporation, herein
called Trustee, and
, herein called Beneficiary,
WITNESSETH: That Trustor IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS TO TRUSTEE
IN TRUST, WITH POWER OF SALE, that property in Los Angeles County, California,
described as:
[to be inserted]
TOGETHER WITH the rents, issues and profits thereof, SUBJECT, HOWEVER, to the
right, power and authority hereinafter given to and conferred upon Beneficiary
to collect and apply such rents, issues and profits.
FOR THE PURPOSE OF SECURING:
1. Performance of each agreement of Trustor herein contained. 2. Payment
of the indebtedness evidenced by one promissory note of even date herewith, and
any extension or renewal thereof, in the principal sum of $
executed by Trustor in favor of Beneficiary of order. 3. Payment of such
further sums as the then record owner of said property hereafter may borrow
from Beneficiary, when evidenced by another note (or notes) reciting it is
so secured.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR AGREES:
(1) To keep said property in good condition and repair; not to remove or
demolish any building thereon; to complete or restore promptly and in good
workmanlike manner any building which may be constructed, damaged or destroyed
thereon and to pay when due all claims for labor performed and materials
furnished therefor; to comply with all laws affecting said property, or
requiring any alterations or improvements to be made thereon; not to commit or
permit waste thereof; not to commit, suffer or permit any act upon said property
in violation of law; to cultivate, irrigate, fertilize, fumigate, prune and do
all other acts which from the character or use of said property may be
reasonably necessary, the specific enumerations herein not excluding the
general.
(2) To provide, maintain and deliver to Beneficiary fire insurance
satisfactory to and with loss payable to Beneficiary. The amount collected
under any fire or other insurance policy may be applied by Beneficiary upon any
indebtedness secured hereby and in such order as Beneficiary may determine, or
at option of Beneficiary the entire amount so collected or any part thereof may
be released to Trustor. Such application or release shall not cure or waive
any default or notice of default hereunder or invalidate any act done pursuant
to such notice.
(3) To appear in and defend any action or proceeding purporting to affect
the security hereof or the rights or powers of Beneficiary or Trustee; and to
pay all costs and expenses, including cost of evidence of title and attorney's
fees in a reasonable sum, in any such action or proceeding in which
Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to
foreclose this Deed.
(4) To pay: at least ten days before delinquency all taxes and assessments
affecting said property, including assessments on appurtenant water stock; when
due, all incumbrances, charges and liens, with interest, on said property or
any part thereof, which appear to be prior or superior hereto; all costs, fees
and expenses of this Trust.
Should Trustor fail to make any payment or to do any act as herein provided,
then Beneficiary or Trustee, but without obligation so to do and without notice
to or demand upon Trustor and without releasing Trustor from any obligation
hereof, may: make or do the same in such manner and to such extent as either
may deem necessary to protect the security hereof, Beneficiary or Trustee being
authorized to enter upon said property for such purposes; appear in and defend
any action or proceeding purporting to affect the security hereof or the rights
or powers of Beneficiary or Trustee; pay, purchase, contest or compromise any
incumbrance, charge or lien which in the judgment of either appears to be
prior or superior hereto; and, in exercising any such powers, pay necessary
expenses, employ counsel and pay his reasonable fees.
(5) To pay immediately and without demand all sums so expended by
Beneficiary or Trustee, with interest from date of expenditure at the amount
allowed by law in effect at the date hereof, and to pay for any statement
provided for by law in effect at the date hereof regarding the obligation
secured hereby any amount demanded by the Beneficiary not to exceed the maximum
allowed by law at the time when said statement is demanded.
Attachment III to Exhibit "D"
<PAGE> 21
Recording requested by and
when recorded mail to:
- -------------------------------
- -------------------------------
- -------------------------------
ASSIGNMENT OF RENTS, INCOME AND PROFITS
THIS ASSIGNMENT OF RENTS, INCOME AND PROFITS (this "Assignment") is
made as of ___________, 1986, from HELI-DYNE, INC., a California
corporation ("Assignor"), to______________________, a _________________
("Assignee").
R E C I T A L S
A. Assignor is the owner of the real property in the City of
Signal Hill, County of Los Angeles, State of California more particularly
described in Exhibit A attached hereto and incorporated herein, which real
property, together with the improvements now or hereafter thereon, is referred
to herein as the "Premises".
B. Assignee has agreed to make a loan to Assignor in the original
principal sum of $_____________ (the "Loan"). The Loan is evidenced by that
certain Secured Promissory Note of even date herewith, and any and all
renewals, rearrangements, substitutions, extensions and replacements of the
Secured Promissory Note (the "Note"). The Note is secured by a Deed of Trust
and Assignment of Rents (the "Deed of Trust"), covering the Premises of even
date herewith. The Note, the Deed of Trust, this Assignment and any and all
other documents securing or relating to the Loan are collectively referred to
in this Assignment as the "Loan Documents".
C. Assignee has required the execution of this Assignment by
Assignor as a condition to granting the Loan.
NOW, THEREFORE, in order further to secure the payment of the
indebtedness of Assignor to Assignee, and to secure the performance of all
terms, covenants and conditions of the Loan Documents, and in consideration of
the making of the Loan, Assignor does presently hereby sell, assign, transfer
and set over unto Assignee all of the rents, issues, income and profits of the
aforesaid Premises, including, without limitation, all of its right, title and
interest in, and all income from any leases, subleases, licenses, franchises or
any other agreements now or hereafter created affecting or connected with the
use, occupancy or maintenance of the Premises, all of which leases, subleases,
licenses, franchises and agreements are hereinafter referred to as "Leases",
and all of which rents, issues, profits and income are hereinafter referred to
as "Rents"; provided, however, that Assignor shall have the right to collect
all Rents due and payable under the Leases, and to
ATTACHMENT IV
to
EXHIBIT "D"
1
<PAGE> 22
invalidity or unenforceability of any one or more provisions of this Assignment
shall in no way affect any other provision.
IN WITNESS WHEREOF, Assignor has executed this Assignment as of the date first
written above.
"ASSIGNOR"
HELI-DYNE, INC.,
A California corporation
By: /s/ JORGE DELATORRIENTE
-------------------------------
Jorge DeLaTorriente, President
By: /s/ LYNN CARLSON
-------------------------------
Lynn Carlson, Vice President
ATTACH APPROPRIATE ACKNOWLEDGEMENT FORMS AT THE TIME OF EXECUTION.
ATTACHMENT IV
to
EXHIBIT "D"
6
<PAGE> 23
CERTIFICATION OF TRANSFER OF UNITED STATES
REAL PROPERTY INTEREST BY A LEGAL ENTITY
THAT IS NOT A FOREIGN PERSON FILED PURSUANT TO
U.S. TREASURY REGULATION SECTION 1.1445-2T(b)
Section 1445 of the Internal Revenue Code provides that a transferee
(buyer) of a U.S. real property interest must withhold tax if the transferor
(seller) is a foreign person. To inform the transferee that withholding of tax
is not required upon the disposition by ("Seller") of a U.S. real property
interest, the undersigned hereby certifies the following:
1. Seller is not a foreign corporation foreign partnership,
foreign trust, or foreign estate (as those terms are defined
in the Internal Revenue Code and U.S. Treasury Income Tax
Regulations) for purposes of U.S. income taxation;
2. The U.S. taxpayer identifying number of Seller is
_______________; and
3. The office address of Seller _______________________________
____________________________________________________________.
Seller understands that this certification may be disclosed to the Internal
Revenue Service by the transferee and that any false statement contained herein
could be punished by fine, imprisonment, or both.
- -----------------------------------------------------------------------------
Under penalty of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct,
and complete, and I further declare that I have authority to sign this document
on behalf of Seller.
____________________________ Dated: ____________________
Name:_______________________
Title:______________________
ATTACHMENT IV
to
EXHIBIT "D"
<PAGE> 24
PURCHASE AND SALE AGREEMENT
AND ESCROW INSTRUCTIONS
This Exhibit "D" to the Standard Industrial Lease--Net dated November
26, 1986, by and between RPM INVESTMENTS, INC., a California corporation, as
Lessor, and HELI-DYNE, INC., a California corporation, as Lessee, sets out the
terms and conditions pursuant to which Lessee may purchase the Property (as
described in Section 1 below) after timely exercise by Lessee of the option
granted in Paragraph 50 of the Lease (the "Option"). For purposes of this
Exhibit "D", Lessor shall be referred to as "Seller" and Lessee shall be
referred to as "Buyer". Any capitalized words not specifically defined in this
Purchase and Sale Agreement and Escrow Instructions (this "Agreement") shall
have the same meaning as in the Lease.
1. Agreement of Purchase and Sale.
Upon exercise of the Option, Seller agrees to sell and Buyer
agrees to buy, on the terms and subject to the conditions contained in this
Agreement, that certain improved real property in the City of Signal Hill,
County of Los Angeles, State of California, which real property is more
particularly described in Attachment I attached hereto and incorporated herein
by this reference (the "Property").
2. Purchase Price.
2.1 Definitions.
(a) As used herein the term "TI Pay-Off Amount"
shall mean the amount which would be necessary to fully repay on the Closing
Date the unpaid principal balance and any accrued unpaid interest of a ten-year
loan in the principal sum of $25,000 made on February 15, 1987, at 10% simple
interest,
EXHIBIT "D"
1
<PAGE> 25
with principal and interest payable in equal monthly installments fully
amortizing the principal over the term of the loan.
(b) As used herein, the term "Fair Market Value"
shall mean the fair market value of the Property (unencumbered by the Lease or
any subleases under the Lease) as of the date that Buyer gives notice of its
intention to exercise the Option. The Fair Market Value shall be equal to or
greater than the $1,223,125, and less than or equal to $1,700,000. The Fair
Market Value shall be agreed upon by the parties, based, among other factors,
on:
(i) The condition of the Property and the
condition of the improvements on the Property;
(ii) The value of real property similar
to the Property and/or neighboring the Property;
(iii) The zoning of the Property; and
(iv) The parties' general knowledge and
expertise about property values.
In the event that the parties are Unable to agree on a Fair Market value within
30 days after Buyer's notice of its intent to exercise the Option, Buyer and
Seller shall each, at their respective cost and expense, select and employ a
real estate appraiser who is a member of the American Institute of Real Estate
Appraisers of the National Association of Realtors to assist Buyer and Seller
in determining the Fair Market Value. In the event that the parties are unable
to agree on the Fair Market Value with the assistance of the MAI appraisers
within 60 days, then Buyer and Seller shall submit the matter for decision to
the American Arbitration Association in accordance with the then rules of the
Association. The decision of the Arbitrator regarding the Fair Market Value,
which decision
EXHIBIT "D"
2
<PAGE> 26
PURCHASE AND SALE AGREEMENT
AND ESCROW INSTRUCTIONS
This Exhibit "D" to the Standard Industrial Lease--Net dated November
26, 1986, by and between RPM INVESTMENTS, INC., a California corporation, as
Lessor, and HELI-DYNE, INC., a California corporation, as Lessee, sets out the
terms and conditions pursuant to which Lessee may purchase the Property (as
described in Section 1 below) after timely exercise by Lessee of the option
granted in Paragraph 50 of the Lease (the "Option"). For purposes of this
Exhibit "D", Lessor shall be referred to as "Seller" and Lessee shall be
referred to as "Buyer". Any capitalized words not specifically defined in this
Purchase and Sale Agreement and Escrow Instructions (this "Agreement") shall
have the same meaning as in the Lease.
1. Agreement of Purchase and Sale.
Upon exercise of the Option, Seller agrees to sell and Buyer
agrees to buy, on the terms and subject to the conditions contained in this
Agreement, that certain improved real property in the City of Signal Hill,
County of Los Angeles, State of California, which real property is more
particularly described in Attachment I attached hereto and incorporated herein
by this reference (the "Property").
2. Purchase Price.
2.1 Definitions.
(a) As used herein the term "T1 Pay-Off Amount"
shall mean the amount which would be necessary to fully repay on the Closing
Date the unpaid principal balance and any accrued unpaid interest of a ten-year
loan in the principal sum of $25,000 made on February 15, 1987, at 10% simple
interest,
EXHIBIT "D"
1
<PAGE> 27
with principal and interest payable in equal monthly installments fully
amortizing the principal over the term of the loan.
(b) As used herein, the term "Fair Market Value"
shall mean the fair market value of the Property (unencumbered by the Lease or
any subleases under the Lease) as of the date that Buyer gives notice of its
intention to exercise the Option. The Fair Market Value shall be equal to or
greater than the $1,223,125, and less than or equal to $1,700,000. The Fair
Market Value shall be agreed upon by the parties, based, among other factors,
on:
(i) The condition of the Property and the
condition of the improvements on the Property;
(ii) The value of real property similar to
the Property and/or neighboring the Property;
(iii) The zoning of the Property; and
(iv) The parties' general knowledge and
expertise about property values.
In the event that the parties are unable to agree on a Fair Market Value within
30 days after Buyer's notice of its intent to exercise the Option, Buyer and
Seller shall each, at their respective cost and expense, select and employ a
real estate appraiser who is a member of the American Institute of Real Estate
Appraisers of the National Association of Realtors to assist Buyer and Seller
in determining the Fair Market Value. In the event that the parties are unable
to agree on the Fair Market Value with the assistance of the MAI appraisers
within 60 days, then Buyer and Seller shall submit the matter for decision to
the American Arbitration Association in accordance with the then rules of the
Association. The decision of the Arbitrator regarding the Fair Market Value,
which decision
EXHIBIT "D"
2
<PAGE> 28
shall be made within 60 days of the parties' submission of evidence to the
Arbitrator, shall be binding upon Buyer and Seller. The cost of the
arbitration shall be paid equally by Buyer and Seller.
2.2 Calculation of the Purchase Price. The "Purchase
Price" as that term is used in this Agreement shall mean the sum of the Fair
Market Value plus the TI Pay-Off Amount. Upon determination of the Purchase
Price, Buyer and Seller shall sign a supplementary escrow instruction setting
forth the Purchase Price, but a failure on the part of either party to sign the
escrow instruction shall not excuse the party from its obligations under this
Agreement.
2.3 Payment of the Purchase Price. The Purchase Price
shall be paid as follows:
(a) Deposit. Buyer shall deposit into escrow a
deposit equal to 3% of the Purchase Price (the "Deposit") within three business
days after the opening of escrow, as set forth in Section 3.1, below, in the
form of cash, a cashier's check or immediately available wired funds, which
amount, together with any accrued interest, shall, upon the close of escrow, be
credited against the Purchase Price. The Deposit shall be placed in an
interest-bearing account with all interest accruing for the benefit of Buyer;
and
(b) Remainder of the Purchase Price. At least
one business day prior to the close of escrow, Buyer shall deposit into the
escrow the remainder of the Purchase Price, in the following manner:
(i) Buyer shall deposit into escrow in
the form of cash, a cashier's check, or immediately available wired funds a sum
equal to:
EXHIBIT "D"
3
<PAGE> 29
(A) The TI Pay-Off Amount; plus
(B) Buyer's share of the fees
and costs of escrow as described in Section 3.2 below; plus
(C) A sum equal to 10% of the
Fair Market Value, minus the Deposit and any interest accrued on the Deposit,
and minus the amount of the unused Security Deposit under the Lease.
(ii) Buyer shall deposit into escrow a
secured promissory note from Buyer to Seller or order in a principal amount
equal to 90% of the Fair Market Value (the "Note"). The Note shall be secured
by a first deed of trust and assignment of rents on the Property (the "Deed of
Trust"), and an assignment of leases and rents (the "Assignment"). The Note,
the Deed of Trust, and the Assignment shall be in the forms attached hereto as
Attachments II, III, and IV, respectively which by this reference are
incorporated herein. The Note shall contain the following terms and
provisions:
(A) The principal amount of the
Note shall be fully amortized over a 15-year term commencing from the Closing
Date;
(B) The Note shall bear interest
from the Close of Escrow at a variable rate which shall be 2% above the
Reference Rate set by Bank of America N.T. & S.A. at its Los Angeles Main
Office, or any successor rate set by the Bank of America or by any banking
institution which is a successor to Bank of America (the "Reference Rate").
The initial interest rate of the Note shall be computed from the Reference Rate
on the date that Buyer gives notice of its intent to exercise the Option.
Thereafter, the interest the Note bears shall be adjusted on the first day of
the fourth calendar year dating from the Closing Date, and on the first day of
every
EXHIBIT "D"
4
<PAGE> 30
third calendar year thereafter during the term of the Note, based on the
Reference Rate on any such adjustment date. Any adjusted interest rate so
calculated shall stay in effect until the next adjustment date;
(C) Interest on unpaid principal
balance and the amortized portion of principal shall be due and payable on the
first day of each calendar month during the term of the Note;
(D) The Note shall contain a "due-on-sale-or-on-transfer" clause;
(E) The Note shall contain a
provision which provides for a late charge fee equal to 5% of any delinquent
monthly payment;
(F) Buyer's obligations under the
Note shall be personally guaranteed by the Guarantors under the Lease;
(G) The Note shall permit
prepayments of all or any part of the principal at any time, without penalty;
and
(H) The Note shall contain a 10-day
grace period before payments are delinquent.
3. Escrow Provisions.
3.1 Opening of Escrow. The parties shall open escrow
with Commerce Escrow Company or another escrow company mutually satisfactory to
Buyer and Seller ("Escrow Holder"), within five business days following the
receipt by Seller of a copy of this Agreement executed by Buyer. A signed copy
of this Agreement shall be deposited with Escrow Holder. The terms of this
Agreement, together with Escrow Holder's standard general conditions and any
supplemental escrow instructions
EXHIBIT "D"
5
<PAGE> 31
required by Escrow Holder, to the extent consistent with this Agreement, shall
be the escrow instructions for the escrow. The terms of this Agreement shall
control over any inconsistent provisions of Escrow Holder's standard general
conditions. Reference in this Agreement to opening of escrow shall mean the
date on which a fully executed copy of this Agreement has been deposited with
Escrow Holder.
3.2 Fees and Costs. Seller shall pay for the cost of the
Title Policy described in Section 3.6 below. Seller shall also pay one-half of
the escrow fees, any documentary transfer tax and the recording fee for
recording the grant deed conveying title to the Property to Buyer. Buyer shall
pay one-half of the escrow fees and the recording fee for the Deed of Trust and
the Assignment. Other charges, if any, shall be paid in the manner in which
buyers and sellers of real property in Los Angeles County, California,
customarily divide such charges. If the escrow fails to close because of a
default by either' Buyer or Seller, without limiting the rights or remedies of
the other party, the defaulting party shall bear all costs and fees of escrow.
3.3 Prorations. Because Buyer shall have been occupying
the Property under a net lease, there shall be no prorations of real property
taxes, special assessments and insurance, all of which are paid by Buyer as
Lessee under this Lease. The monthly rental payable by Buyer to Seller under
this Lease for the calendar month during which escrow closes shall he prorated
on a daily basis as of the Closing Date on the basis of a 30 day month.
3.4 Title. The Property shall be conveyed to Buyer by
grant deed, free and clear of all liens, encumbrances, encroachments,
assessments and other exceptions to title except:
EXHIBIT "D"
6
<PAGE> 32
(a) Non-delinquent real property taxes;
(b) Those liens, leases, easements, charges,
encumbrances and other matters of record referenced in the preliminary title
report described in Section 4 below that shall have been approved by Buyer in
accordance with the terms of Section 4;
(c) the Lease, the Young Sublease and any other
leases, subleases, liens and encumbrances created by, with the consent, or at
the request of Buyer during the term of the Lease;
(d) The lien of the Deed of Trust; and
(e) The lien of the Assignment.
3.5 Deposits into Escrow. Prior to the close of escrow
the parties shall deposit the following items into escrow:
(a) Seller shall deposit:
(i) An executed and acknowledged grant
deed, conveying the Property to Buyer, in form satisfactory to Buyer;
(ii) An executed non-foreign person
affidavit in the form of Attachment VI attached hereto and by this reference
incorporated herein (and such further documents as may then be required by law
to excuse Buyer from any withholding obligation on account of the sale of the
Property); and
(iii) All other documents, funds or other
items required from Seller in order to close the escrow.
(b) Buyer shall deposit:
(i) The remainder of the Purchase Price
for the Property as set forth in Section 2.3(b) above
EXHIBIT "D"
7
<PAGE> 33
(provided, however, that Buyer shall receive a credit for any unused portion of
the Security Deposit under the Lease);
(ii) The Note, properly executed by
Buyer;
(iii) The Deed of Trust, properly executed
and acknowledged by Buyer;
(iv) The Guaranty, properly executed by
the Guarantors;
(v) The Assignment, properly executed
and acknowledged by Buyer; and
(vi) All other documents, funds or other
items required from Buyer in order to close the escrow.
3.6 Title Insurance. As of the close of escrow, a title
company acceptable to Buyer and Seller (the "Title Company") shall issue to
Buyer and Seller a CLTA standard joint protection coverage policy of title
insurance with liability in the amount of the purchase price, showing title to
the Property vested in Buyer, subject only to the exceptions permitted by
Section 3.4 above (the "Title Policy").
3.7 Close of Escrow. Close of escrow (signified by
recordation of all documents to be recorded pursuant to the terms of this
Agreement) shall take place on a date (the "Closing Date") which is no later
than 30 days after the option to purchase the Property is exercised by Buyer.
3.8 Actions to be Taken by Escrow Holder at Closing.
Upon the close of escrow, Escrow Holder shall do the following:
(a) Record the grant deed from Seller to Buyer;
(b) Record the Deed of Trust;
(c) Record the Assignment;
EXHIBIT "D"
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(d) Pay to Seller the cash portion of Purchase
Price deposited into escrow by Buyer pursuant to the terms of Section 2.3
above, after Escrow Holder deducts Seller's share of the expenses of escrow, as
described in Section 3.2 above;
(e) Deliver to Seller the executed Note;
(f) Deliver to Seller the executed Guaranty;
(g) Deliver to Buyer the non-foreign person
affidavit deposited in escrow by Seller; and
(h) Cause the Title Company to issue the Title
Policy to Buyer and Seller.
3.9 Failure to Close. If escrow fails to close for a
reason other than the default of Buyer or Seller under this Agreement or the
Lease, then the close of escrow shall be extended until escrow can close. If
escrow fails to close due solely to a default of Seller, then Buyer may
terminate the escrow by written notice to Escrow Holder and Seller whereupon
(a) Escrow Holder shall return the Deposit to Buyer without additional
instructions; (b) Seller shall be liable for Escrow Holder's cancellation
charges; and (c) Buyer shall have no further liability or obligations under
this Agreement but Buyer shall have such rights and remedies against Seller on
account of Seller's default as may be provided at law and in equity.
4. Condition of Title.
Seller shall furnish to Buyer a preliminary title report for
the Property ("PTR"), prepared by a mutually acceptable title company ("Title
Company"), together with copies of all items shown as exceptions in the PTR,
within 15 business days after the opening of escrow under this Agreement.
Buyer shall have until ten business days after receipt of the PTR and copies of
all documents enumerated
EXHIBIT "D"
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therein to disapprove in writing any matters (other than as stated below)
enumerated in the PTR by notice to Seller and Escrow Holder. Buyer's failure
to disapprove the PTR within said ten business days shall be deemed approval of
the PTR and the items shown as exceptions therein. Buyer may not disapprove
any of the matters described in clauses (a) through (e) of Section 3.4 above.
Seller shall have until the close of escrow to secure the removal of any such
exception to title objected to by Buyer, except for matters requiring the
payment of money, which may be cleared through the escrow at the close of
escrow. If Seller is unable to secure the removal of any such exception prior
to the Closing Date, Buyer may close escrow and bring an action for damages
against Seller for, among other damages, the diminution in value of the
Property, terminate the escrow and this Agreement and bring an action for
damages against Seller, sue Seller for specific performance and/or exercise any
other rights and remedies available to Buyer at law and in equity.
5. Buyer's Acknowledgment of the Condition of the Property.
Buyer hereby acknowledges that Buyer shall acquire the
Property and consummate the purchase and sale transaction contemplated by this
Agreement solely and exclusively on the basis of Buyer's independent
investigation, examinations, prior occupancy of the Property, the testing of
the sump in Unit 8 and the opinion of the hazardous waste engineer referred to
in the Lease. Seller makes no warranty or representation regarding the
condition of the Property.
6. Conditions to Seller's Obligation.
Seller shall have the right to terminate Buyer's right to
purchase the Property pursuant to this Agreement:
EXHIBIT "D"
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<PAGE> 36
(a) Pursuant to Paragraph 50.6(b) of the Lease;
(b) if Buyer materially breaches its obligations under
this Agreement; or
(c) if the purchase and sale of the Property contemplated
in this Agreement fails to close, due solely to a default by Buyer, within 30
days after the option is exercised by Buyer.
7. Sales Commission.
7.1 Sales Commission Defined. At the close of escrow
under this Agreement, Seller shall pay to the Brokers (as that term is defined
in Section 15.1 of the Lease) a sales commission as provided in separate
commission agreements between Seller and each of the Brokers.
7.2 Indemnifications. Seller agrees to indemnify, defend
and hold harmless Buyer and Michael Barry Associates, Inc., a California
corporation ("MBA"), and Buyer agrees to indemnify, defend and hold Seller
harmless, in the manner and to the extent set forth in that certain Indemnity
Agreement dated November 21, 1986, by and among PER and MBA, which Indemnity
Agreement is incorporated herein by this reference.
8. Liquidated Damages. THE PARTIES ARE AWARE THAT
SUBSTANTIAL DAMAGES WILL BE SUFFERED BY SELLER IN THE EVENT THAT ESCROW SHOULD
FAIL TO CLOSE DUE TO BUYER'S DEFAULT. WITH THE FLUCTUATION IN LAND VALUES, THE
UNPREDICTABLE STATE OF THE ECONOMY AND OF GOVERNMENTAL REGULATIONS, THE
FLUCTUATING MONEY MARKET FOR REAL ESTATE LOANS OF ALL TYPES, AND OTHER FACTORS
WHICH DIRECTLY AFFECT THE VALUE AND MARKETABILITY OF THE PROPERTY, IT IS
REALIZED BY THE PARTIES THAT IT WOULD BE EXTREMELY DIFFICULT AND IMPRACTICABLE,
IF NOT IMPOSSIBLE, TO ASCERTAIN WITH ANY DEGREE OF CERTAINTY PRIOR TO SIGNING
THIS
EXHIBIT "D"
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AGREEMENT THE AMOUNT OF DAMAGES THAT WOULD BE SUFFERED BY SELLER IN THE EVENT
THAT ESCROW FAILED TO CLOSE DUE TO BUYER'S DEFAULT. ACCORDINGLY, THE PARTIES
HEREBY AGREE THAT A REASONABLE ESTIMATE OF THE DAMAGES IS THE AMOUNT OF THE
DEPOSIT PLUS INTEREST ACCRUED ON THE DEPOSIT. THE PARTIES HEREBY AGREE THAT IF
ESCROW FAILS TO CLOSE DUE TO BUYER'S DEFAULT, SELLER SHALL BE ENTITLED TO THE
DEPOSIT AND THE ACCRUED INTEREST AS LIQUIDATED DAMAGES, AND ESCROW HOLDER
SHALL, UPON WRITTEN DEMAND FROM SELLER, TERMINATE THE ESCROW AND SHALL WITHOUT
FURTHER INSTRUCTION FROM EITHER PARTY PAY TO SELLER THE AMOUNT OF THE DEPOSIT
PLUS THE ACCRUED INTEREST.
Seller's Initials:____________________ Buyer's Initials:____________________
9. General Provisions.
9.1 Time of the Essence. Buyer and Seller agree that
time is of the essence of this Agreement and that all time periods set forth in
this Agreement are of the essence.
9.2 Attorneys' Fees. In any action between Buyer and
Seller seeking enforcement of any of the terms and provisions of this Agreement
or in connection with the Property, the prevailing party in such action shall
be entitled, in addition to damages, injunctive or other relief, to its
reasonable costs and expenses and reasonable attorneys' fees to be fixed by the
Court.
9.3 Notices. Any notice that any party may be required
to send under this Agreement, or which any party is permitted or may desire to
give any other party, must be given in accordance with the terms set forth in
Paragraph 23 of the Lease.
9.4 Construction. This Agreement shall be construed
according to its fair meaning and as if prepared by
EXHIBIT "D"
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both Buyer and Seller. This Agreement shall be construed in accordance with
the laws of the State of California. The headings used in this Agreement are
for convenience only and are not to be used to interpret the meaning of any of
the provisions of this Agreement. In this Agreement, wherever the context
requires, words of singular or plural number shall apply to any other number
and words of gender shall apply to any other gender.
9.5 Counterparts. This Agreement may be signed by Buyer
and Seller in counterparts, all of which counterparts shall constitute a single
document. Signature pages may be detached from the counterparts and attached
to a copy of this Agreement to form a single document.
9.6 Further Assurances. Seller and Buyer agree to
execute, acknowledge and deliver such further documents and provide one another
with such further assurances that are consistent with this Agreement as may be
necessary in order to carry out the purchase and sale of the Property pursuant
to this Agreement.
9.7 1031 Exchange. Buyer agrees to cooperate with Seller
in arranging the sale of the Property through a tax-deferred exchange under
Section 1031 of the United States Internal Revenue Code, provided that the
close of escrow is not delayed, and that Seller indemnifies, defends and holds
harmless Buyer and MBA from and against any cost, expense (including, without
limitation, reasonable attorneys' fees and costs), loss, liability, claim,
demand, damage, cause of action, suit or proceeding arising out of or in
connection with Buyer's participation in the 1031 exchange (excluding breaches
of Buyer's other obligations under this Agreement). Buyer may require Seller
to advance to Buyer its estimated attorneys'
EXHIBIT "D"
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fees and costs to be incurred from time to time as a result of Buyer's
participation in such exchange, with any unused portion of any advance to be
returned promptly to Seller.
IN WITNESS WHEREOF, this Agreement has been executed by Buyer and
Seller as of __________________, 19_____.
"Buyer"
--------------------------------
"Seller"
--------------------------------
EXHIBIT "D"
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RIDER
to
STANDARD INDUSTRIAL LEASE--NET
dated November 26, 1986
by and between
RPM INVESTMENTS, INC., a California corporation, as Lessor, and
HELI-DYNE, INC., a California corporation, as Lessee
PARAGRAPH 3. TERM.
3.2 Delay in Possession. (Continued from printed text). However,
if Lessor has not delivered possession of the Premises within 60 days from said
commencement date, Lessee may, at Lessee's option, by notice in writing to
Lessor at any time thereafter, cancel this Lease effective 30 days after the
date of Lessee's Notice; and then this Lease shall terminate and be of no
further force and effect unless Lessor delivers possession of the Premises to
Lessee prior to the expiration of the 30-day period following the notice.
3.3 Early Possession. Lessee shall have the right to occupy the
Premises upon execution of this Lease by both Lessor and Lessee. If Lessee
occupies the Premises prior to the commencement date of this Lease, such
occupancy shall be subject to all the provisions of this Lease, provided,
however, that Lessee shall have no obligation to pay rent under this Lease until
February 15, 1987, and said early occupancy shall in no event advance the
termination date of this Lease.
PARAGRAPH 4. TENANT IMPROVEMENT BUDGET - RENT.
4.1 Tenant Improvement Budget. Upon execution of this Lease by
both Lessor and Lessee, Lessor shall pay to Lessee a tenant improvement
allowance in the sum of $100,000.
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Said sum is referred to herein as the "TI Budget." Tenant may use the TI Budget
exclusively for financing the design and construction of tenant improvements at
the Premises, including payment of architectural and interior design fees,
contractor fees, permit fees, and the costs of labor, materials and equipment;
provided, however, that in no event shall any portion of the TI Budget be used
to (i) pay for furniture or other moveable items of equipment and personal
property that will not become attached to the premises as fixtures; or (ii)
finance the cost of the work to be performed by Lessee pursuant to the terms
set forth in Paragraph 6.5 of this Lease or the work to be performed by Lessor
pursuant to the terms set forth in Paragraph 48 of this Lease.
4.2 Monthly Rent. Commencing with the first payment on February
15, 1987, and on or before the first day of each calendar month during the term
of this Lease, Lessee shall pay to Lessor, as rent for the Premises during such
calendar month, the following amounts (said amounts are referred to in this
Lease as "Monthly Rent"):
(a) $9,808.25; plus
(b) The sum of $330.38, which is the amount of the monthly
debt service on a fully amortized 10-year loan in the principal sum of $25,000
at 10% simple interest per annum. The portion of the Monthly Rental in excess
of $9808.25 is sometimes referred to in this Lease as the "Debt Service Rent."
4.3 Rent Escalations. On August 15, 1989, and every 30 months
thereafter during the term of this Lease (the "Adjustment Dates"), the Monthly
Rent shall be adjusted to reflect the change in the Consumer Price Index as
finally
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published by the Bureau of Labor Statistics of U.S. Department of Labor for
Urban Wage Earners and Clerical Workers, Los Angeles--Long Beach--Anaheim,
California (1967 equals 100), "All Items" (the "CPI"). On each said dates, the
adjustment in the Monthly Rent shall be calculated as follows:
(a) The "Base Rent" for the calendar month February,
1987, shall be calculated by subtracting the Debt Service Rent for that month
from the Monthly Rent for that month. The Base Rent shall be multiplied by a
fraction the numerator of which shall be the CPI of the calendar month in which
the Adjustment Date falls, and the denominator of which shall be the CPI for
the calendar month February, 1987. The product so obtained shall be added to
the Debt Service Rent for the calendar month February, 1987, and the sum so
calculated shall constitute the Monthly Rent Payable during the 30-month period
following the Adjustment Date, provided, however, that in no event shall the
increased Monthly Rent calculated on any Adjustment Date be less than 1.0768
times greater, nor more than 1.213 times greater, than the Monthly Rent payable
for the calendar month immediately preceding the Adjustment Date. By way of
example only, if (i) during the month of February, 1987, the Monthly Rent is
$10,138.63, the Debt Service Rent therefore being $330.38 and the Base Rent
being $9,808.25; and (ii) the CPI for the calendar month February, 1987, is 200
and the CPI for the calendar month August, 1989, is 228; then the Monthly Rent
for the calendar month August, 1989 and for the 30 calendar months thereafter
shall be $11,511.79; this amount representing the sum obtained by adding the
product of $9,808.25 times 1.14, (which is a fraction whose numerator is 228
and whose denominator is 200) and $330.38.
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(b) Pending receipt from Lessor of Notice of the adjusted
Monthly Rent, Lessee shall pay Monthly Rent at the rate in effect prior to the
Adjustment Date times 1.0768. Upon calculation of the adjusted Monthly Rent,
Lessee shall, if necessary, pay Lessor the amount of any underpayments since
the Adjustment Date concurrently with the next payment of Monthly Rent due
after receipt of Lessor's notice.
(c) In the event the compilation or publication of the CPI
shall be transferred to any other governmental department, bureau or agency, or
shall be discontinued, then the index most nearly the same as the CPI shall be
used to make calculation set forth in this Paragraph 4.2(c). In the event that
Lessor and Lessee can not agree on such alternative index, then the matter
shall be submitted for decision to the American Arbitration Association in
accordance with the then rules of said association and the decision of the
Arbitrator(s) shall be binding upon Lessor and Lessee. The cost of said
Arbitrator(s) shall be paid equally by Lessor and Lessee.
4.4 Proration of Monthly Rent. The rent for any fractional
portion of a month during the term of this Lease shall be a pro rata portion of
the Monthly Rent for said month. Any such pro rata portion shall be based on a
30 day month. A similar proration will apply to the rent due in a month when
an Adjustment Date falls, between the rent due for the portion of the month
prior to the Adjustment Date and the rent due for the portion of the month
after the Adjustment Date.
4.5 Method of Payment. The Monthly Rent shall be payable, without
deduction, abatement or set off, in lawful money of the United States, to
Lessor at the address stated in
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this Lease, or at such other place as Lessor may designate in writing.
PARAGRAPH 6. USE.
6.3 Condition of Premises. (continued from printed text) On or
before the commencement date of this Lease, Lessor and Lessee shall conduct a
joint inspection of the Premises. They shall compile a punch-list of repair
work that must be performed in order to bring the Premises to the condition
described in Paragraph 6.3(a) above. Lessor shall promptly commence the work
described in the punch-list and shall complete that work within 30 days after
the Lease commencement date; provided, however, that if the work in question
reasonably would require more than 30 days to complete, Lessor shall be
required only to diligently perform the work and complete the work within a
reasonable time. It shall be conclusively presumed that Lessor has complied
with all of Lessor's obligations under this Paragraph 6.3 if Lessor has
performed all the work described in the punch-list and if Lessor has
satisfactorily cured any breaches of its warranty under Paragraph 6.3(a) of
which Lessee has notified Lessor in writing within 90 days after the Lease
commencement date.
6.4 Hazardous Waste - Storage Tanks.
(a) Lessee shall not engage in any activities upon or in
the Premises, nor bring onto, create, or dispose of upon or in the Premises, any
hazardous waste, toxic materials or infectious materials, including, but not
limited to, asbestos and asbestos by-products.
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(b) Lessee shall not engage in any activity upon or in the
Premises that violates any federal, state or local laws, rules or regulations
pertaining to hazardous, toxic or infectious materials. Lessee shall promptly,
at Lessee's sole cost and expense, take all investigatory or remedial actions
or ordered for clean-up of any contamination of the Premises created or
suffered by Lessee.
(c) Notwithstanding anything to the contrary contained in
Paragraph 7.5 of this Lease, Lessee shall not install storage tanks of any size
or shape upon or in the Premises, above or below ground, without the prior
written consent of Lessor. Lessor shall have the absolute right to condition
its consent upon Lessee's agreement to give to Lessor such assurances as
Lessor, in its absolute discretion, deems necessary to protect itself against
potential problems concerning the installation, use or removal of the storage
tanks or the contamination of the Premises as a result of the installation or
use of such storage tanks, including but not limited to the installation of a
concrete encasement for the storage tanks. Lessee shall comply, at Lessee's
sole cost and expense, with all applicable permit or registration requirements
and shall repair any damage caused by the installation, maintenance or removal
of the storage tanks, or by any spill or leakage from the tanks. Upon
termination of this Lease, Lessee shall, at its sole cost and expense:
(i) Remove any such storage tanks from the Premises;
(ii) Remove and replace any contaminated soil or materials
and compact or treat the soil or materials as then required by law;
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(iii) Remedy any ground water contamination; and
(iv) Repair any damage or change to the Premises
occasioned by the installation or removal of any of the storage tanks. If
Lessee installs a storage tank, Lessor shall have the right to employ such
experts or consultants, as Lessor may reasonably require, for ordinary and
reasonable compensation for such services, at Lessee's sole cost and expense,
to advise Lessor with respect to the installation, operation, monitoring,
maintenance, removal or restoration of the storage tanks.
(d) Lessee shall indemnify, defend and hold harmless
Lessor, its agents, employees and lenders, from any and all claims, losses,
liability, demands, damages, costs, judgments, award and expenses, including
but not limited to reasonable attorneys' fees, arising out of or in connection
with any breach of Lessee's obligations under this Paragraph 6.4.
(e) No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Paragraph 6.4, unless any such Agreement expressly sets forth
Lessor's intention to so release Lessee.
(f) Lessor acknowledges that Lessee plans to install a
"jet 'A' fuel recovery system," including underground tanks, on the Premises.
Lessor consents to installation of the system, provided that Lessee complies
with all applicable laws in installing and maintaining the equipment, and that
Lessee observes all of its obligations with respect to the system under this
Paragraph 6.4, Paragraph 7.5 and all other applicable provisions of this Lease
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(g) Lessee shall not be deemed liable under this
Paragraph 6.4 or other provisions of this Lease for matters existing prior to
the date that Lessee takes possession of the Premises, including, without
limitation, underground tanks or soils or groundwater contamination.
6.5 Use of Premises as Helicopter Landing Deck. Lessor hereby
acknowledges that Lessor is aware that Lessee may, during the term of this
Lease, modify and use portions of the Premises for use as a helicopter landing
deck. Lessor hereby consents to such modification and use, subject to the
following terms and condition:
(a) Any work done at the Premises in relation with the
design, construction, maintenance or modification of the helicopter landing
deck, including any investigations conducted regarding the feasibility of such
use, shall be done at Lessee's sole cost and expense. In no event shall any
portion of the TI Budget be used to finance any such work.
(b) The helicopter landing deck shall be designed,
constructed, maintained, modified and used in accordance with all of the terms,
covenants and conditions of this Lease and in strict compliance with all
applicable federal, state, county or local laws, ordinances, rules and
regulations. Lessee shall, at Lessee's sole cost, obtain and keep in effect
any permits necessary for the construction and use of the helicopter landing
deck.
(c) Lessee hereby acknowledges that notwithstanding any
representations and warranties contained in other Paragraphs of this Lease,
Lessor has made no representations or warranties regarding the suitability of
the Premises or the structural strength and soundness of any of the
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improvements constituting a part of the Premises with regard to the use of the
Premises or of said improvements as a helicopter landing deck.
(d) Prior to commencement of use of the Premises for
helicopter takeoffs or landings, Lessee shall obtain such additional insurance
coverages in such additional amounts as Lessee may reasonably require. Lessee
shall indemnify, defend and hold harmless Lessor, Michael Barry Associates,
Inc., its agents, employees or lenders, from any and all claims, losses,
liability, demands, damages, costs, judgments, awards and expenses, including
but not limited to reasonable attorneys' fees, arising out of or in connection
with the use of the Premises as a helicopter landing deck regardless of any
negligence or absence thereof on the part of Lessee.
6.6 Defaults by Richard Young. During such times as Richard Young
owns the real property or any interest therein or owns any interest in Lessor,
its successors and assigns, directly or indirectly, Lessee shall not be liable
for any acts or omissions of Richard Young, his agents, employees, invitees and
visitors, constituting a breach of a non-monetary obligation under this Lease.
6.7 Failure to Observe Covenants. Except as provided in Paragraph
6.6 above, Lessee's failure to observe or perform any of the covenants,
conditions or provisions set forth in this Paragraph 6 shall constitute a
material default and breach of this Lease by Lessee.
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PARAGRAPH 7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.5 Alterations and Additions. (Continued from printed text)
(e) With respect to the initial tenant improvements installed
by Lessee in the Premises, the following provisions shall apply:
(i) If Lessor does not disapprove Lessee's
submissions of plans for approval within three business days after receipt, the
plans submitted shall be deemed approved.
(ii) Lessor waives the requirement for payment and
completion bonds.
(iii) Lessor must approve any tenant improvements
listed in the edition of Black's Guide for Los Angeles County current as of the
date of the Lease, provided that the costs to be paid by Lessee do not exceed
the amounts specified in Black's Guide by more than 15 percent.
(iv) At the expiration of the Lease term or sooner
termination of this Lease, Lessee shall leave in the Premises all demising
walls, T-bar ceilings, lights, bathroom fixtures, sinks, doors to suites,
flooring and wall coverings. However, Lessor may require the removal of
internal partitions and doors, non-structural, non-demising walls, room
dividers and other fixtures pursuant to Paragraph 7.5(a).
(f) Until expiration of the Lease term or sooner
termination of this Lease:
(i) all alterations, improvements, additions and
Utility Installations made by Lessee on the Premises shall be the property of
Lessee; and
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(ii) Lessee shall have the right to claim all items of
depreciation, cost recovery, deduction, credit and other tax benefits with
respect thereto.
PARAGRAPH 9. DAMAGE OR DESTRUCTION (Continued from printed text.)
9.9 Inconsequential Damages. Lessor may not terminate this lease
pursuant to Paragraph 9.3 or 9.5, and Lessor shall repair the damage to the
Premises if the damage to the Premises would cost less than $10,000 to repair.
9.10 Exercise of Option. If, pursuant to this Paragraph 9, Lessor
elects to terminate this Lease, then Lessee may elect to exercise its Option to
purchase the Premises (granted in Paragraph 50 below), provided the Option has
not expired, and in that event Lessee shall receive any insurance proceeds
payable on account of the damage or destruction. Lessee may exercise the
Option under this Paragraph 9.10 even if the Option period in Paragraph 50.3
below has not yet begun. If Lessee exercises the Option after an event of
damage or destruction, then the purchase price shall be determined based on the
Fair Market Value of the Premises immediately prior to the casualty loss.
PARAGRAPH 12. ASSIGNMENT AND SUBLETTING.
12. Limitations on Lessee's Right to Assign or Sublet.
(a) Except as provided in Paragraph 12.1(b) and Paragraph
12.2 of this Lease, Lessee shall not assign, sublet or otherwise transfer all
or part of Lessee's interest in this Lease, or in the Premises, without
obtaining the written
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consent of Lessor prior to such assignment, subletting or transfer. Lessor
shall not unreasonably withhold such consent, which consent shall be based on
all commercially reasonable factors including, but not limited to, the
following:
(i) The financial responsibility of the proposed
assignee or sublessee;
(ii) The nature of the occupancy and of the
business to be conducted on the Premises and the suitability of such business
for the Premises;
(iii) The need for, and the nature of, any
alterations of the Premises by the proposed assignee or sublessee;
(iv) The impact upon tenant mix; and
(v) The conflict, if any, with exclusive rights
granted to other tenants. Any assignment, subletting or transfer by Lessee
without the prior written consent of Lessor, whether it be voluntary or
involuntary, by operation of law or otherwise, is void and shall at the option
of Lessor terminate this Lease. A consent by Lessor to one assignment,
subletting or transfer shall not be deemed to be a consent to any subsequent
assignment, subletting or transfer.
(b) Notwithstanding the provision of Paragraph 12.1(a)
above, Lessee shall have the right to sublet a portion or portions of the
Premises, without obtaining the express prior written consent of Lessor if
subsequent to the commencement of such a proposed subletting, Lessee would be
occupying a total of at least 5,000 square feet of the Premises. The term of
any such sublease shall in no event extend beyond the term of this Lease, and
any such sublease
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shall be expressly made subject to all the terms, covenants and conditions of
this Lease.
PARAGRAPH 13. DEFAULTS; REMEDIES. (Continued from printed text).
13.1 Defaults.
(a) (Continued from printed text). Lessee shall not be
deemed to be in default under this Paragraph 13.1(a) if any portion of the
Premises is occupied by a sublessee.
PARAGRAPH 14. CONDEMNATION.
14.2 Exercise of Option. If Lessor elects to terminate this Lease
pursuant to this Paragraph 14, then Lessee may elect to exercise its Option to
purchase the Premises (granted in Paragraph 50), provided the Option has not
expired, and in that event Lessee shall receive the entire condemnation award.
Lessee may exercise the option under this Paragraph 14.2 even if the Option
period in Paragraph 50.3 below has not yet begun. If Lessee exercises the
Option after a condemnation of all or part of the Premises, then the purchase
price shall be determined based on the Fair Market Value of the Premises
immediately prior to the condemnation.
PARAGRAPH 15. LEASING COMMISSION.
15.1 Lessor's Obligation. Lessor or, at its election, Pacific
Energy Resources, a California limited partnership ("PER") shall pay to Michael
Barry Associates, Inc. ("MBA") and
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Coldwell Banker (collectively the "Brokers"), a leasing commission pursuant to
separate agreements between PER and each of the Brokers.
PARAGRAPH 16 ESTOPPEL CERTIFICATE.
16.2 Lessor's Certificate.
(a) Lessor shall at any time upon not less than 10 days
prior written notice from Lessee execute, acknowledge and deliver to Lessee a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date to which the rent and other charges are paid in advance, if any, and
(ii) acknowledging that there are not, to Lessor's knowledge, any uncured
defaults in the part of Lessee hereunder, or specifying such defaults if any
are claimed. Any such statement may be conclusively relied upon by any
prospective assignee, sublessee or encumbrancer of Lessee's leasehold estate in
the Premises.
(b) Lessor's failure to deliver such statement within
such time shall be conclusive upon Lessor (i) that this Lease is in full force
and effect, without modification except as may be represented by Lessee, (ii)
that there are no uncured defaults in Lessee's performance, and (iii) that no
more than one month's rent has been paid in advance.
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<PAGE> 54
PARAGRAPH 32. LESSOR'S ACCESS. (Continued from printed text).
The above notwithstanding, Lessor may not show the Premises to a
prospective lessee until six months prior to expiration of the Lease term.
Lessee's rights under this Paragraph 32 are subject to security regulations
promulgated by any United States government agency. Lessor shall in no event
have access to the Premises, except in an emergency involving possible personal
injury or substantial property damage, on less than one days notice and unless
accompanied by an employee of Lessee (and Lessee agrees to provide such an
escort).
PARAGRAPH 37. GUARANTY OF LEASE.
Lessee's obligation under this Lease shall be personally guaranteed by
Mr. Jorge DeLaTorriente and Mr. Lynn Carlson, who are, respectively, the
President and the Vice President of Lessee. In that connection, the guarantors
shall, concurrently with Lessee's execution of this Lease, execute and deliver
to Lessor a "Guaranty of Lease" in the form attached hereto as Exhibit "B" and
by this reference incorporated herein. The guarantors shall have the same
obligations as Lessee under this Lease.
PARAGRAPH 42. EASEMENT. (Continued from printed text). The above provisions
shall apply only after expiration of the Option. Prior to expiration of the
Option, Lessor shall grant easements, rights and dedications only with Lessee's
prior written consent which shall not be unreasonably withheld.
RIDER
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PARAGRAPH 48. REPAIR OF PREMISES.
On or before December 15, 1986, Lessor shall commence, and prior to
January 1, 1987, weather permitting, Lessor, at Lessor's sole cost and expense,
shall complete, to Lessee's reasonable satisfaction, the following:
(a) Grind and fill with concrete-like material and finish
in accordance with industry standards interior and exterior cracks in walls and
paint the exterior of the Premises in accordance with a color scheme to be
mutually agreed upon by Lessor and Lessee;
(b) Repair the roof of the Premises to code (replacing
those portions that, in the judgment of three licensed roof contractors,
selected by the parties, cannot be adequately repaired);
(c) Finish repairs, painting, and recarpeting of Unit 6
of the Premises; and
(d) Reinstall the disconnected air conditioner for Unit 6
of the Premises and bring all HVAC units up to a standard where a mutually
acceptable maintenance company is willing to enter into a maintenance contract
covering the units;
(e) Have the sump in Unit 8 inspected and tested for
contamination by hazardous waste or toxic or infectious materials; and
(f) Obtain an opinion satisfactory to Lessee in its sole
and absolute discretion from a mutually acceptable and qualified hazardous
waste engineer as to the likelihood of contamination of the Premises, the soil
or the groundwater under or about the Premises by hazardous waste or toxic or
infectious materials.
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<PAGE> 56
If it is determined that the sump in Unit 8 is contaminated by
hazardous waste or toxic or infectious materials, or Lessee determines that it
has not received a satisfactory opinion from the aforesaid hazardous waste
engineer, then Lessor and Lessee shall meet and confer. If Lessor and Lessee
cannot within fifteen (15) days after notice of contamination of the sump in
Unit 8 or receipt of an unsatisfactory opinion reach agreement regarding the
implementation of measures required to clean up the sump or obtain a
satisfactory opinion, then Lessee may cancel this Lease by written notice to
Lessor. The roof repairs shall be performed in a good and workman-like manner
by a licensed roof contractor. To the extent possible, any warranty will be
assigned to Lessee.
PARAGRAPH 49. RICHARD YOUNG SUBLEASE. As an inducement to Lessor to enter
into this Lease, Lessee hereby agrees to sublet a portion of the Premises,
consisting of approximately 1,400 square feet, to Richard Young, pursuant to
the terms set forth in the Standard Industrial Lease-- Gross attached hereto as
Exhibit "C" and by this reference incorporated herein (the "Young Sublease").
In that connection, Lessee agrees to execute the Young Sublease concurrently
with Lessee's execution of this Lease. Lessee's agreement to enter into the
Young Sublease is a material obligation of Lessee under this Lease.
PARAGRAPH 50. OPTION TO PURCHASE PREMISES.
50.1 Grant to Option. Lessor hereby grants to Lessee an exclusive
option to purchase the Premises at the purchase
RIDER
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<PAGE> 57
price, and under the terms and conditions set forth in this Paragraph 50 (the
"Option").
50.2 Purchase Price. At any time during the Option period
described in Paragraph 50.3 below, Lessee may give written notice to Lessor of
its intentions to exercise the Option. Upon such notice, the purchase price
for the Premises shall be calculated in accordance with the terms set forth in
Paragraphs 2.1 and 2.2 of the Purchase and Sale Agreement and Escrow
Instructions attached hereto as Exhibit "D" and by this reference incorporated
herein (the "Purchase Agreement"). When the purchase price has been
determined, as evidenced by a written agreement signed by the parties or a
written decision of the arbitrators pursuant to Paragraph 2.2 of the Purchase
Agreement, Lessee shall have 10 days to exercise the Option.
50.3 Option Period. The Option Period shall commence on August 15,
1991, and continue until 5:00 p.m. (Los Angeles time) February 14, 1992.
50.4 Exercise of Option. Lessee may exercise the Option solely by
execution and delivery to Lessor of three counterparts of the Purchase
Agreement; provided that Lessee may not exercise the Option if (i) Lessee is in
default of any of its material obligations under this Lease and (ii) Lessor has
given Lessee notice of the default. Lessee shall deliver the counterparts of
Purchase Agreement to Lessor in accordance with the procedures set forth in
Paragraph 23 of this Lease. Upon receipt of the Purchase Agreement, Lessor
shall execute and deliver to Lessee one counterpart of the Purchase Agreement
RIDER
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<PAGE> 58
and shall execute and deliver a second counterpart to the Escrow Holder (as
defined in the Purchase Agreement).
50.5 Automatic Termination. The Option and the rights of Lessee
with respect to Lessee's purchase of the Premises under this Paragraph 50:
(a) shall automatically and immediately terminate without
notice if Lessee fails to give notice of its intention to exercise the Option
as described in Paragraph 50.2 above within the option period described in
Paragraph 50.3, above; or
(b) shall, upon notice by Lessor to Lessee and to Escrow
Holder, terminate if Lessee breaches any of its material obligations under this
Lease at any time between the time Lessee exercises the Option and the time the
purchase and sale of the Premises is completed pursuant to the terms of the
Purchase Agreement, and fails to cure the breach prior to the first to occur of
(i) termination of the Lease by Lessor on account of default, or (ii) 30 days
after exercise of the Option. In the Event of such automatic termination,
Lessee shall, within 5 business days after Lessor's request therefor, properly
execute, acknowledge and deliver to Lessor a release, a quitclaim deed or any
other instrument required by Lessor or a title insurance company acceptable to
Lessor, to verify the termination of this Option.
50.6 Assignability of Option. The Option is not severable from the
leasehold estate created by this Lease. It may not be assigned, voluntarily or
involuntarily, to any
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person or entity other than an assignee of the entire interest of Lessee under
the Lease, made with the prior written consent of Lessor pursuant to Paragraph
12 of the Lease.
50.7 Memorandum of Option. Upon request of Lessee, Lessor shall
execute and acknowledge a recordable memorandum of the Option, in form and
substance mutually agreeable to the parties, and sufficient, when recorded in
the Official Records of Los Angeles County, to give constructive notice of the
existence of the Option to subsequent bona fide purchasers and encumbrancers of
the Premises or any interest therein. Lessee shall pay the recording fee and
documentary transfer tax payable when the memorandum is recorded. Upon
subsequent transfer of the Premises to Pacific Energy Resources, a California
Limited Partnership ("PER"), Lessor shall cause a title policy to be issued in
an amount not less than $1,000,000, naming PER and Lessee as insured parties
"as their interests may appear."
PARAGRAPH 51. ARBITRATION.
Any dispute that arises under this Lease other than ones
involving the obligation of Lessee to pay rent or make other monetary payments,
shall be determined by arbitration in accordance with the rules of the American
Arbitration Association and the provisions of California Code of Civil
Procedure Sections 1280 through 1294.2. Either party may initiate an
arbitration by giving written notice to the other party.
RIDER
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<PAGE> 60
HELI-DYNE, INC.
2508 Palm Drive
Long Beach, California 90806
April 5, 1994
Pacific Energy Resources
1065 West Seaside Way
Long Beach, California 90802
Attn: Richard Young
Re: Assignment of Lease
Dear Mr. Young:
As you are aware, California Airmotive Group, Inc., a California
corporation ("CAG"), Heli-Dyne, Inc., a California corporation ("Lessee"), and
Heli-Turbine, Incorporated, a California corporation ("HTI," together with
Lessee and CAG, the "Sellers"), have been negotiating to sell certain of their
assets to National Airmotive Corporation, a California corporation
("Assignee"). Recently, they have agreed to do so pursuant to an Asset
Purchase Agreement dated as of March 25, 1994 (the "Purchase Agreement").
Pursuant to the Purchase Agreement, the Sellers have agreed, subject to
your consent, to an assignment of all of their right, title and interest in the
Standard Industrial Lease-Net, dated as of November 26, 1986, as modified by
letter agreement dated March 9, 1993, between Pacific Energy Resources,
formerly RPM Investments, Inc. ("Lessor"), and Lessee (the "Lease," a copy of
which is attached hereto as Exhibit A) to Assignee.
By signing below where indicated, you, Lessee and Assignee agree that:
1. Lessor is the landlord under the Lease, demising certain
premises designated as 2508 Palm Drive, Long Beach, California 90806, as more
particularly described on Exhibit A of the Lease (the "Demised Premises").
2. The Lease is in full force and effect and has not been
modified, amended or supplemented in any respect, except as set forth in
Exhibit A attached hereto.
<PAGE> 61
3. Section 3.1 of the Lease is hereby amended (i) to change the
termination date of the Lease to December 31, 1998 (the "Initial Term"), and
(ii) to provide that upon the expiration of the Initial Term, Assignee shall
have the option to extend the term of the Lease for an additional five year
period, with monthly rent to be negotiated by Lessor and Assignee.
4. Rent is currently payable at the rate of $9,808.25 per month (the
"Base Rent"), plus $330.38, which represents Debt Service Rent (as defined in
the Lease). The debt underlying the Debt Service Rent portion of the Monthly
Rent (as defined in the Lease) shall be paid in full as of the February, 1997
Monthly Rent payment and thereafter Lessee shall be obligated only to pay
$9,808.15 per month as adjusted pursuant to this paragraph. The Base Rent
shall be adjusted upward on January 1 of each year remaining in the Initial
Term in accordance with the percentage increase from the previous year of the
Consumer Price Index for all Urban Consumers. Notwithstanding the preceding
sentence, such increases shall not be less than four percent (4%) nor more than
six percent (6%) each year. Section 4.3(b) of the Lease is hereby deleted in
its entirety and is of no further force and affect.
5. All rent as of March 1, 1994 has been paid in full.
6. Neither Lessor nor Lessee is in default under any of the provisions
of the Lease, and Lessor knows of no event which would, with the passage of
time and/or the giving of notice, constitute a default under the Lease.
7. Within thirty days of the date hereof, Assignee shall pay to Lessor
$7,011.12, representing one-half of the Los Angeles County property tax bill
for the Demised Premises for the 1993-1994 tax year. On or before April 10,
1994, Lessee shall pay to the appropriate taxing authority the amount of
$7,011.12, representing the balance of the Los Angeles County property tax bill
for the Demised Premises.
8. Lessor hereby cancels, releases and forever discharges the debt of
Lessee to Lessor in the amount of $39,680.02 (representing Lessee's lease
reduction amount plus accrued but unpaid interest pursuant to the letter
agreement dated March 9, 1993).
9. Lessor acknowledges that Lessee intends to assign all of its
rights, title and interest in, to and under the Lease to Assignee and that all
of the rights and benefits
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of Lessee under the Lease will inure to the benefit of Assignee. Lessor hereby
consents to such assignment, and to the extent that such consent requires
amendment of the Lease, the Lease is hereby so amended. The term "Lessee"
shall be deemed to refer to Assignee or its permitted successors and assigns.
10. In the event that a provision of this letter agreement is
inconsistent or conflicts with any of the terms or provisions of the Lease, the
provisions of this letter agreement shall control.
Please indicate your agreement by signing where indicated below.
Very truly yours,
HELI-DYNE, INC.
By: /s/ LYNN CARLSON
------------------------------
Lynn Carlson
Chief Executive Officer
NATIONAL AIRMOTIVE CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
ACCEPTED, AGREED AND ACKNOWLEDGED
THIS 7TH DAY OF APRIL, 1994:
Pacific Energy Resources
By: /s/
------------------------------
Name:
----------------------------
Title:
---------------------------
3
<PAGE> 1
EXHIBIT 10.24
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT")
which shall be effective as of December 20, 1996, is made and entered into by
and among First Aviation Services Inc., a Delaware corporation (the "COMPANY"),
and FAI Inc., a Delaware corporation (the "INVESTOR").
RECITALS
WHEREAS, the Investor is a substantial shareholder of the
Company; and
WHEREAS, the Company contemplates conducting an initial
public offering and in connection therewith, the Investor desires to have
future registration rights covering the "REGISTRABLE SECURITIES" (as such term
is defined in Section 1) of the Investor;
NOW, THEREFORE, in consideration of the foregoing
premises and the mutual covenants and agreements herein contained, the parties,
intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) the term "BONA FIDE PUBLIC OFFERING"
means an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as
amended ("1933 ACT"), covering the offer and sale of Common Stock
of the Company in which aggregate proceeds to the Company and the
Investor exceed $10,000,000;
(b) the term "COMMON STOCK" means the
Company's authorized voting common stock, $.01 par value, and any
class of securities issued in exchange for the Common Stock or
into which the Common Stock is converted;
(c) the term "HOLDER" means any person
owning of record Registrable Securities or any permitted assignee
thereof in accordance with Section 11 hereof;
(d) the term "INITIATING HOLDERS" means the
Holders of 10% or more of the Registrable Securities then
outstanding;
(e) the term "REGISTRABLE SECURITIES" means:
(i) the 551,000 shares of Common Stock of the Company owned by
the Investor as of the date hereof, and (ii)
<PAGE> 2
any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such Common Stock,
excluding in all cases, however, any shares of Common Stock that
are sold by a Holder in a transaction in which its rights under
this Agreement are not assigned;
(f) the term "REGISTRATION EXPENSES" means
all reasonable fees and disbursements of one counsel to the
Holders (selected by those holding a majority of the shares being
registered) and all expenses incurred by the Company in complying
with Sections 2, 3 and 14 hereof, including, without limitation,
all registration and filing fees, underwriters' expense
allowances, printing expenses, fees and disbursements of counsel
for the Company, blue sky fees and expenses, and the expense of
any special audits incident to or required by any such
registration (but not including the compensation of regular
employees of the Company which shall be paid in any event by the
Company);
(g) the terms "REGISTER," "REGISTERED" and
"REGISTRATION" refer to a registration effected by preparing and
filing a registration statement or similar document in compliance
with 1933 Act, and the declaration or ordering of the
effectiveness of such registration statement or document by the
Securities and Exchange Commission;
(h) the term "SELLING EXPENSES" means all
underwriting discounts and selling commissions applicable to the
sale of Registrable Securities and the fees and disbursements of
any counsel, other than the primary counsel to the Holders,
engaged by the Holders; and
(i) the number of shares of Registrable
Securities "THEN OUTSTANDING" shall be the number of shares of
Common Stock outstanding which are, and the number of shares of
Common Stock which upon issuance of then exercisable or
convertible securities will be, Registrable Securities.
2. DEMAND REGISTRATION RIGHTS.
(a) If the Company shall receive, at any
time more than 180 days after the consummation of the Company's
initial bona fide public offering, a written request from the
Initiating Holders with respect to the Registrable Securities,
that the Company file a registration statement under the 1933 Act
covering the
2
<PAGE> 3
registration of at least 5% of the Registrable Securities then
outstanding (or any lesser percentage if the anticipated
aggregate offering price, net of underwriting discounts and
commissions, would exceed $5,000,000, the Company shall promptly
give written notice of such request (together with a list of the
jurisdictions in which the Initiating Holders intend to attempt
to qualify such securities under applicable state securities
laws) to all Holders and shall as soon as practicable, subject to
the limitations of this Section 2, effect the registration under
the 1933 Act of all such Registrable Securities which the
Initiating Holders request to be registered, together with all of
the Registrable Securities of any other Holder or Holders who so
request by notice to the Company which is given within 30 days
after the notice from the Company described above.
Notwithstanding the foregoing, if the Company shall furnish to
the Initiating Holders a certificate signed by the Chief
Financial Officer of the Company stating that in the good faith
judgment of the Board of Directors it would be seriously
detrimental to the Company for a registration statement to be
filed in the near future (based on the disclosure of non-public
information material to the Company that would be required by
such registration statement), then the Company's obligation to
use its best efforts to file a registration statement shall be
deferred for a period not to exceed 60 days; provided, however,
that the Company shall not obtain such a deferral more than once
in any 12-month period.
(b) If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to this Section 2 and the
Company shall include such information in the written notice
referred to in Section 2(a). In such event, the right of any
Holder to include its Registrable Securities in such registration
shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting (unless otherwise mutually agreed
by a majority in interest of the Initiating Holders, by the
underwriter, by the Company, and by such Holder) to the extent
provided herein.
(c) All Holders proposing to distribute
their securities through such underwriting (together with the
Company as provided in Section 4(e)) shall enter into an
underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting
by a majority in interest of the Initiating Holders and
reasonably
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<PAGE> 4
acceptable to the Company. Notwithstanding any other provisions
of this Section 2, if the underwriter advises the Company in
writing that marketing factors require a limitation of the number
of shares to be underwritten, the Company shall so advise all
Holders of Registrable Securities, and the number of shares of
Registrable Securities that may be included in the registration
and underwriting shall be allocated among all Holders thereof pro
rata based on the number of shares for which registration was
requested. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation
shall be included in such registration. If any Holder of
Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the underwriter and, unless
otherwise provided, the Initiating Holders. The securities so
withdrawn shall also be withdrawn from registration. If the
underwriter has not limited the number of Registrable Securities
to be underwritten, the Company may include its securities for
its own account in such registration if the underwriter so agrees
and if the number of Registrable Securities which would otherwise
have been included in such registration and underwriting will not
thereby be limited.
(d) The Company is obligated to effect only
six demand registrations for the Holders pursuant to this Section
2.
3. PIGGY-BACK REGISTRATION RIGHTS. If, at any time
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
securities under the 1933 Act in connection with the public offering of such
securities solely for cash (other than a registration form relating to: (a)
the Company's initial bona fide public offering; (b) a registration of a stock
option, stock purchase or compensation or incentive plan or of stock issued or
issuable pursuant to any such plan, or a dividend investment plan; (c) a
registration of securities proposed to be issued in exchange for securities or
assets of or in connection with a merger or consolidation with, another
corporation; or (d) a registration of securities proposed to be issued in
exchange for other securities of the Company), the Company shall, each such
time, promptly give each Holder written notice of such registration together
with a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under applicable state securities laws. Upon the
written request of any Holder given within 30 days after receipt of such
written notice from the Company in accordance with Section 18, the Company
shall,
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<PAGE> 5
subject to the provisions of Section 7 (in the case of an underwritten
offering), cause to be registered under the 1933 Act all of the Registrable
Securities that each such Holder has requested to be registered.
4. OBLIGATIONS OF THE COMPANY. Whenever required
under this Agreement to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and
Exchange Commission ("SEC") a registration statement with respect
to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration
statement effective for up to 180 days;
(b) Prepare and file with the SEC such
amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as
may be necessary to comply with the provisions of the 1933 Act
with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish to the Holders such numbers of
copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the 1933 Act, and such other
documents as they may reasonably request in order to facilitate
the disposition of Registrable Securities owned by them;
(d) Use its best efforts to register and
qualify the securities covered by such registration statement
under the securities laws of such jurisdictions as the Company
believes shall be reasonably appropriate for the distribution of
the securities covered by the registration statement and such
jurisdictions as the Holders participating in the offering shall
reasonably request, provided that the Company shall not be
required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of
process in any such jurisdiction; and
(e) In the event of any underwritten public
offering, enter into and perform its obligations under an
underwriting agreement with terms generally satisfactory to the
managing underwriter of such offering. Each Holder participating
in such underwriting shall
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<PAGE> 6
also enter into and perform its obligations under such an
agreement.
5. FURNISH INFORMATION. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Agreement that the selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them, and
the intended method of disposition of such securities as shall be required to
effect the registration of their Registrable Securities. In that connection,
each selling Holder shall be required to represent to the Company that all such
information which is given is both complete and accurate in all material
respects.
6. EXPENSES OF REGISTRATION. All Registration
Expenses incurred in connection with any registration, qualification or
compliance pursuant to this Agreement shall be borne by the Company, and all
Selling Expenses shall be borne by the Holders of the securities so registered
pro rata on the basis of the number of shares so registered.
7. UNDERWRITING REQUIREMENTS. The right of any
Holder to "piggyback" in an underwritten public offering of the Company's
securities pursuant to Section 3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall (together with the Company and any other holders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for underwriting
by the Company. Notwithstanding any other provision of Section 3 and this
Section 7, if the underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the underwriter may
exclude some or all of the Registrable Securities from such registration and
underwriting, provided, that the Holders are allowed to participate in the
offering in the same proportion (based on the total number of securities
requested to be registered) as any other shareholder or warrant holder of the
Company existing as of the date of this Agreement participating in the
offering. Any reduction in the number of Registrable Securities included in
such registration shall be borne equally by the Holders as a group pro rata
based on the number of shares for which registration was requested. If any
Holder disapproves of the terms of any such underwriting, it may elect to
withdraw therefrom by written notice to the Company and the underwriter. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
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<PAGE> 7
8. DELAY OF REGISTRATION. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any
such registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Agreement.
9. INDEMNIFICATION. If any Registrable Securities
are included in a registration statement under this Agreement:
(a) To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the
officers, directors, partners and representatives of each Holder,
any underwriter (as defined in the 1933 Act) for such Holder and
each person, if any, who controls such Holder or underwriter
within the meaning of the 1933 Act or the Securities Exchange Act
of 1934, as amended (the "1934 ACT"), against any losses, claims,
damages, or liabilities (joint or several) to which they or any
of them may become subject under the 1933 Act, the 1934 Act or
any other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise
from or are based upon any of the following statements, omissions
or violations (collectively a "VIOLATION") (i) any untrue
statement or alleged untrue statement of a material fact
contained in any registration statement filed by the Company with
the SEC and by which Registrable Securities are registered for
sale under the 1933 Act, including any preliminary prospectus or
final prospectus contained therein or any amendments or
supplements thereto; (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading; or (iii)
any violation or alleged violation by the Company of the 1933
Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any
state securities law; and the Company will reimburse each such
Holder, officer, director or partner, underwriter or controlling
person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 9 shall not apply
to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for
any such loss, claim, damage, liability, or action to the extent
that it arises from or is based upon a violation which occurs in
reliance upon and in
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<PAGE> 8
conformity with written information furnished expressly for use
in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each
selling Holder will indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed the
registration statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, any underwriter
(within the meaning of the 1933 Act) for the Company, any person
who controls such underwriter, any other Holder selling
securities in such registration statement or any of its directors
or officers or any person who controls such Holder against any
losses, claims, damages or liabilities (joint or several) to
which the Company or any such director, officer, controlling
person, or underwriter or other such Holder or director, officer
or controlling person may become subject, under the 1933 Act, the
1934 Act or any other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect
thereto) arise from or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with
such registration; and each such Holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such
director, officer, controlling person, underwriter or controlling
person, other Holder, officer, director or controlling person in
connection with investigation or defending any such loss, claim,
damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 9 shall not apply
to amounts paid in settlement of any such loss, claim damage,
liability or action if such settlement is effected without the
consent of the Holder which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under
this Section 9(b) exceed the gross proceeds from the offering
received by the Holder.
(c) In order to provide for just and
equitable contribution in circumstances in which the
indemnification provided for in this Section 9 is applicable but
for any reason is held to be unavailable from the Company or any
Holder, the Company and the Holders participating in the
registration shall contribute to the aggregate losses, claims,
damages and liabilities (including any investigation, legal and
other expenses incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claims
asserted) to which the Company
8
<PAGE> 9
and the participating Holders may be subject in such proportion
so that the participating Holders are responsible for that
portion of the foregoing amount represented by the ratio of the
proceeds received by the participating Holders in the offering to
the total proceeds received from the offering by the Company and
all selling shareholders (other than participating Holders) and
the Company shall be responsible for the portion represented by
the ratio of proceeds received by the Company to the total
proceeds received by the Company and all selling shareholders
(other than participating Holders); provided, however, that no
person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 9(c),
each person, if any, who controls the Company or any Holder
within the meaning of the Securities Act, each officer of the
Company who shall have signed the registration statement and each
director of the Company shall have the same rights to
contribution as the Company.
(d) No settlement shall be effected without
the prior written consent of the Holders participating in a
registration unless (i) the obligations of the Company for
indemnification or contribution pursuant to this Agreement
survive and are not extinguished by reason of the settlement and
remain in full force and effect under applicable federal and
state laws, rules, regulations and orders or (ii) all claims and
actions against the participating Holders and each person who
controls a participating holder within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act are
extinguished by the settlement and the indemnifying party obtains
a full release of all claims and actions against the
participating Holders and each such control person, which release
shall be to the reasonable satisfaction of the participating
Holders.
(e) Promptly after receipt by an indemnified
party under this Section 9 of notice of the commencement of any
action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 9, notify the
indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any
other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right
9
<PAGE> 10
to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be,
in the reasonable judgment of counsel to the indemnified party,
inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement
of any such action, to the extent prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 9, but the
omission so to notify the indemnifying party will not relieve it
of any liability that it may have to any indemnified party
otherwise than under this Section 9.
(f) The obligations of the Company and the
Holders under this Section 9 shall survive through the completion
of any offering of Registrable Securities in a registration
statement made under the terms of this Agreement and otherwise.
10. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934.
With a view toward making available to the Holders the benefits of Rule 144
promulgated under the 1933 Act and any other rule or regulation of the SEC that
may at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
(a) use its best efforts to make and keep
public information available, as those terms are understood and
defined in SEC Rule 144, at all times beginning 90 days after the
effective date of the first underwritten public offering of
equity securities of the Company;
(b) use its best efforts to file with the
SEC in a timely manner all reports and other documents required
of the Company under the 1933 Act and the 1934 Act;
(c) furnish to any Holder so long as the
Holder owns any Registrable Securities, forthwith upon request:
(i) a written statement by the Company that it has complied with
the reporting requirements of Rule 144 (at any time beginning 90
days after the effective date of the first underwritten public
offering of equity securities of the Company), the 1933 Act and
the 1934 Act (at any time after it has become subject to such
reporting requirements) or that it
10
<PAGE> 11
qualifies as a Registrant where securities may be resold pursuant
to Form S-3 (at any time after it so qualifies); (ii) a copy of
the most recent annual or quarterly report of the Company and all
other reports and documents filed by the Company with the SEC;
and (iii) such other information as may be reasonably requested
in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration;
and
(d) take such action, including the
voluntary registration of its common stock under Section 12 of
the 1934 Act, as is necessary to enable the Holders to use Form
S-3 for the sale of their Registrable Securities, such action to
be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company
for the offering of its equity securities to the general public
is declared effective.
11. ASSIGNMENT OF REGISTRATION RIGHTS. The rights
to cause the Company to register Registrable Securities pursuant to this
Agreement may be assigned by a Holder to a transferee or assignee of such
securities to the extent such transferee or assignee acquires at least 10% of
the shares (as presently constituted) of Registrable Securities held by the
transferor provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; provided, however, that no such
assignment shall be effective if, immediately following the transfer, the
transferee is free to dispose of all of such securities without regard to any
restrictions imposed under the 1933 Act (including, without limitation, the
volume limitations of Rule 144 promulgated under the 1933 Act).
12. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS.
From and after the date of this Agreement, the Company shall not, without the
prior written consent of the Holders of at least a majority of the then
outstanding Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company which would: (a) allow
such holder or prospective holder to include such securities in any
registration filed under Section 2 hereof if such inclusion would adversely
affect the rights of any Holder of Registrable Securities hereunder; or (b)
permit such holder or prospective holder to require the Company to initiate any
registration of any securities of the Company prior to the earliest date upon
which the Holders may demand registration pursuant to Section 2.
11
<PAGE> 12
13. "MARKET STAND-OFF" AGREEMENT. Each Holder
hereby agrees that it shall not, to the extent requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, sell or
otherwise transfer or dispose of any Registrable Securities in a market
transaction during the 180-day period following the effective date of a
registration statement of the Company filed under the 1933 Act; provided,
however, that:
(a) such agreement shall be applicable only
to the first such registration statement of the Company which
covers securities to be sold on its behalf to the public in an
underwritten offering and to any registration in which any of the
Holders of Registrable Securities have rights to participate
under the terms of this Agreement (provided that such agreement
shall not apply to any shares which are included in any such
registration); and
(b) all officers, directors and significant
shareholders (i.e., those shareholders who beneficially own
greater than 5% of the Company's outstanding stock) of the
Company and all other persons with registration rights (whether
or not pursuant to this agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to the Registrable
Securities of each Holder (and the shares or securities of every other person
subject to the foregoing restriction) until the end of such 180-day period.
14. FORM S-3 REGISTRATION. In case the Company
shall receive request or requests from the Initiating Holders that the Company
effect a registration on Form S-3 (or any similar successor form) and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the
proposed registration, and any related qualification or
compliance, to all other Holders; and
(b) as soon as practicable, effect such
registration and all such qualifications and compliance as may be
so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Holder's or Holders'
Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any
other Holder or Holders joining in such as are specified in a
written request given within 15 days after receipt of
12
<PAGE> 13
such written notice from the Company; provided, however, that the
Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 14: (i) if
the Company is not qualified as a registrant entitled to use Form
S-3 (or the applicable successor form); or (ii) if the Holders,
together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell
Registrable Securities and any other securities at an aggregate
price to the public of less than $300,000; or (iii) if the
Company has, within the 12-month period preceding the date of
such request, already effected two registrations on Form S-3 (or
applicable successor form) for the Holders pursuant to this
Section 14; or (iv) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute
a general consent to service of process in effecting such
registration, qualification or compliance.
Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Initiating Holders. Registrations effected pursuant
to this Section 14 shall not be counted as demands for registration effected
pursuant to Section 2.
15. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES.
The Company will not take any action with respect to the Registrable Securities
which would adversely affect the ability of the Holders of Registrable
Securities to include such Registrable Securities in a registration undertaken
pursuant to this Agreement or which would adversely affect the marketability of
such Registrable Securities in any such registration, except when such
adjustments are otherwise required by law, including disclosure obligations
under federal securities laws.
16. REMEDIES. Each Holder of Registrable
Securities, in addition to being entitled to exercise all rights granted by
law, including recovery of damages, will be entitled to specific performance of
its rights under this Agreement. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy of law would be
adequate.
17. AMENDMENTS AND WAIVERS. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or
13
<PAGE> 14
consents to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of at least a majority of
the then outstanding Registrable Securities. Notwithstanding the foregoing, a
waiver or consent to departure from the provisions hereof with respect to a
matter which relates exclusively to the rights of Holders of Registrable
Securities whose securities are being sold pursuant to a registration statement
and which does not directly or indirectly affect the rights of other holders of
Registrable Securities may be given by the holders of a majority of the
Registrable Securities being sold; provided, however, that the provisions of
this sentence may not be amended, modified or supplemented except in accordance
with the provisions of the immediately preceding sentence.
18. NOTICES. All notices, demands and requests
required by this Agreement shall be in writing and shall be deemed to have been
given for all purposes (a) upon personal delivery, (b) one business day after
being sent, when sent by professional overnight courier service from and to
locations within the continental United States, or (c) five days after posting
when sent by registered or certified mail (return receipt requested), addressed
to the Company or an Investor at his, her or its address set forth on the
signature pages hereof. Any party hereto may from time to time by notice in
writing served upon the others as provided herein, designate a different
mailing address or a different person to which such notices or demands are
thereafter to be addressed or delivered.
19. SUCCESSORS AND ASSIGNS. Except as otherwise
provided herein, this Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties, including, without
limitation and without the need for an express assignment, subsequent holders
of Registrable Securities to which the registration rights granted by this
Agreement have been assigned as permitted herein.
20. COUNTERPARTS. This Agreement may be executed in
separate counterparts, each of which shall be deemed to be an original, and
when executed, separately or together, shall constitute a single original
instrument, effective in the same manner as if the parties hereto had executed
one and the same instrument.
21. CAPTIONS. Captions are provided herein for
convenience only and they are not to serve as a basis for interpretation or
construction of this Agreement, nor as evidence of the intention of the parties
hereto.
14
<PAGE> 15
22. CROSS-REFERENCES. All cross-references in this
Agreement, unless specifically directed to another agreement or document, refer
to provisions within this Agreement.
23. GOVERNING LAW. This Agreement shall be governed
by, interpreted under, and construed and enforced in accordance with the
internal laws, and not the laws pertaining to conflicts or choice of laws, of
the State of Delaware applicable to agreements made and to be performed wholly
within the State of Delaware.
24. SEVERABILITY. The provisions of this Agreement
are severable. The invalidity, in whole or in part, of any provision of this
Agreement shall not affect the validity or enforceability of any other of its
provisions. If one or more provisions hereof shall be declared invalid or
unenforceable, the remaining provisions shall remain in full force and effect
and shall be construed in the broadest possible manner to effectuate the
purposes hereof. The parties further agree to replace such void or
unenforceable provisions of this Agreement with valid and enforceable
provisions which will achieve, to the extent possible, the economic, business
and other purposes of the void or unenforceable provisions.
25. ENTIRE AGREEMENT. This Agreement contains the
entire understanding among the parties hereto with respect to the subject
matter hereof and supersedes all prior written and oral agreements,
understandings, commitments and practices between the parties, including all
prior agreements with respect to registration rights.
26. ATTORNEYS' FEES.
(a) In the event any party to this Agreement
initiates any action, suit, motion, application or other
proceeding which concerns the interpretation or enforcement of
this Agreement, the prevailing party in such action, suit,
motion, application or proceeding, or judgment creditor, shall be
entitled to recover its costs and attorneys' fees from the
non-prevailing party or judgment debtor, including costs and fees
on appeal, if any.
(b) Attorneys' fees and costs incurred by a
prevailing party in enforcing and collecting a judgment resulting
from a suit concerning this Agreement are also recoverable from
the judgment debtor as a separate item of recovery. Such
post-judgment attorneys' fees are a separate and distinct item of
recovery, severable from all other provisions of this Agreement,
including the right to prejudgment attorneys' fees as provided
15
<PAGE> 16
above in this Agreement, and this provision shall survive any
judgment and not be deemed merged into any judgment.
27. CONSIDERATION FOR APPROVALS OR WAIVERS. No
consideration shall be paid to any Holder to obtain such Holder's approval for
or waiver of any amendment of this Agreement or any matter requiring the
approval or consent of the Holders hereunder unless such consideration is also
offered to all Holders, pro rata based upon the number of Registerable
Securities held by the Holders.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement with the intent and agreement that the same shall
be effective as of the day and year first above written.
THE COMPANY:
FIRST AVIATION SERVICES INC.,
a Delaware corporation
By:___________________________
Name: ________________________
Title:________________________
Address: _____________________
_____________________
_____________________
THE INVESTOR:
FAI INC.,
a Delaware corporation
By:___________________________
Name: ________________________
Title:________________________
Address: _____________________
_____________________
_____________________
17
<PAGE> 1
EXHIBIT 11.1
FIRST AVIATION SERVICES, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Eight-month Six-month Nine-month
period ended period ended period ended
January 31 July 31 October 31
1996 1996 1996
------------ ----------- ------------
<S> <C> <C> <C>
Shares used in calculation of net income
per common share:
Weighted average common shares outstanding 3,557,000 3,557,000 3,557,000
Shares related to SAB Nos. 55, 64 and 83 1,822,721 1,286,626 1,286,626
------------ ----------- -----------
Total 5,379,721 4,843,626 4,843,626
============ =========== ===========
Income applicable to common stockholders 1,787,000 1,645,000 2,289,000
Extraordinary item -- (864,000) (864,000)
------------ ----------- ------------
Net income applicable to common stockholders $ 1,787,000 $ 781,000 $ 1,425,000
============ =========== ===========
Income applicable to common stockholders
before extraordinary item $ 0.33 $ 0.34 $ 0.47
Extraordinary item -- (0.18) (0.18)
------------ ----------- ------------
Net income applicable to common stockholders $ 0.33 $ 0.16 0.29
============ =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
National Airmotive Corporation, a California corporation
Aircraft Parts International Combs, Inc., a Delaware corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "experts" and to the
use of our report dated September 12, 1996 except Note 12 as to which the date
is December 23, 1996, in the Registration Statement (Form S-1) and related
Prospectus of First Aviation Services Inc. for the registration of 4,485,000
shares of its common stock.
Our audit also included the financial statement schedule of First
Aviation Services Inc. listed in Item 16 of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit. In our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Ernst & Young LLP
San Francisco, California
December 23, 1996
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon completion of
stockholder approval of the 6.4549 to 1 stock split and stock option and stock
purchase plans described in Note 12 to the consolidated financial statements.
San Francisco, California
December 23, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 14, 1995 relating to
the financial statements of National Airmotive Corporation, which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the year ended March 31, 1995 listed under item
16(b) of this Registration Statement when such schedule is read in conjunction
with the Financial Statements referred to in our report. The audits referred to
in such report also included this schedule. We also consent to the references to
us under the heading "Experts" and "Selected Financial Information" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Information."
/s/ PRICE WATERHOUSE LLP
San Francisco, California
December 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 8-MOS 9-MOS
<FISCAL-YEAR-END> JAN-31-1996 JAN-31-1996
<PERIOD-START> JUN-1-1995 JAN-31-1996
<PERIOD-END> JAN-31-1996 OCT-31-1996
<CASH> 1,039 544
<SECURITIES> 0 0
<RECEIVABLES> 19,553 17,937
<ALLOWANCES> 0 0
<INVENTORY> 33,245 34,645
<CURRENT-ASSETS> 56,227 55,925
<PP&E> 3,743 3,989
<DEPRECIATION> 967 1,160
<TOTAL-ASSETS> 59,395 59,036
<CURRENT-LIABILITIES> 16,552 17,155
<BONDS> 35,087 33,643
0 0
1,650 1,650
<COMMON> 36 36
<OTHER-SE> 3,347 4,024
<TOTAL-LIABILITY-AND-EQUITY> 59,395 59,036
<SALES> 68,519 76,776
<TOTAL-REVENUES> 68,519 76,776
<CGS> 57,390 65,606
<TOTAL-COSTS> 57,390 65,606
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,605 2,619
<INCOME-PRETAX> 3,175 2,388
<INCOME-TAX> 1,300 0
<INCOME-CONTINUING> 1,875 2,388
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 864
<CHANGES> 0 0
<NET-INCOME> 847 1,524
<EPS-PRIMARY> .33 .29
<EPS-DILUTED> 0 0
</TABLE>
