<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 1997
REGISTRATION NO. 333-18647
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRST AVIATION SERVICES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
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:
<TABLE>
<S> <C>
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>
------------------------
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: [ ]
------------------------
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.
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- --------------------------------------------------------------------------------
<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
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION OR LOCATION
------------------------------------------------ ------------------------------------------
<C> <S> <C>
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................................... *
</TABLE>
- ---------------
* 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 JANUARY 24, 1997
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY (2)
- ------------------------------------------------------------------------------------------------
Per Share $ $ $
- ------------------------------------------------------------------------------------------------
Total(3) $ $ $
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(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 by API
Combs concurrent with the closing of the Offering (the "API Combs Acquisition").
All references to "Allison" refer to the Allison Engine Company, a subsidiary of
Rolls Royce USA. Unless otherwise indicated, 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.
The Company is one of the leading suppliers of aircraft engine and other
aircraft parts to the general aviation industry in the U.S. On a pro forma
basis, including the API Combs Acquisition, the Company had net sales of $105.9
million and income before extraordinary item of $4.4 million for the nine month
period ended October 31, 1996, and net sales of $122.6 million and income before
extraordinary item of $0.7 million for the twelve 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: (i) the Allison engines that power the Lockheed Martin
C-130 "Hercules" cargo aircraft, the most popular cargo aircraft in the world;
(ii) the engines employed on most light helicopters; and (iii) industrial
turbine engines primarily used for power cogeneration and gas transmission.
Management believes that 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. See
"Business -- Industry Trends." 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 servicing of certain types of engines and
components. 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 was formed to acquire Old API. API Combs signed a definitive
Asset Purchase Agreement with AMR Combs on November 25, 1996 to purchase certain
assets of 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 to 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
fixed base operators ("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 Old API is an attractive acquisition because of a
number of characteristics and opportunities the Company believes that Old API
provides, including:
- An efficient centralized parts distribution system
- Historically high revenue growth
- Opportunities to cross-market NAC's and Old 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
<TABLE>
<S> <C>
Common Stock offered by the Company............. 3,900,000 shares
Common Stock to be outstanding after the
Offering(1)................................... 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.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JANUARY 31, 1996 NINE MONTHS ENDED OCTOBER 31, 1996
------------------------------------------ -------------------------------------------
PRO FORMA(2) PRO FORMA(2)
HISTORICAL --------------------- HISTORICAL ---------------------
------------------- AS -------------------- AS
COMPANY(3) OLD API ADJUSTMENTS ADJUSTED COMPANY OLD API ADJUSTMENTS ADJUSTED
---------- ------- ----------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $ 92,857 $29,676 $ 99 $122,632 $ 76,776 $29,078 $ 49 $105,903
Cost of sales............ 81,199 24,748 -- 105,947 65,606 24,333 -- 89,939
Gross profit............. 11,658 4,928 99 16,685 11,170 4,745 49 15,964
Selling, general and
administrative
expenses............... 8,578 4,836 545 13,959 6,163 4,258 669 11,090
Income (loss) from
operations............. 3,080 92 (446) 2,726 5,007 487 (620) 4,874
Income (loss) before
extraordinary item..... $ (1,060) $ (548) $ 2,353 $ 745 $ 2,388(4) $ (61) $ 2,036 $ 4,363
Income before
extraordinary item per
common share(3)........ $ 0.08 $ 0.43 $ 0.49
Weighted average number
of shares.............. 8,894(5) 5,291 8,894(5)
</TABLE>
<TABLE>
<CAPTION>
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(3) 1996(3) 1995(3) 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
Income (loss) before
extraordinary item..... (5,620) (3,023)(6) 2,021 (1,291) (1,060) 861 (1,699) 2,388(4)
Net income (loss)(3)..... $(5,620) $ (2,690) $ 2,021 $(1,291) $(1,060) $ 861 $(1,699) $ 1,524
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
OCTOBER 31, 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(7)
------- --------------
<S> <C> <C>
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
</TABLE>
- ---------------
(1) Excludes 150,000 shares of Common Stock of the Company which are subject to
options granted to Rajesh Sharma, the Chief Operating Officer of NAC, which
are exercisable as of the date hereof, 250,000 shares reserved for future
grants under the Company's Stock Option Plan, and 250,000 shares reserved
for future grants under the Company's Employee Stock Purchase Plan.
(2) On November 25, 1996, API Combs entered into a definitive agreement to
acquire 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.
(3) 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. The results of
operations for these periods are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TEN MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, 1996 JANUARY 31, 1996 OCTOBER 31, 1995
--------------------------- ----------------------------- ----------------------------
FIRST FIRST FIRST
NAC AVIATION NAC AVIATION NAC AVIATION
2/1/95- 6/1/95- 4/1/95- 6/1/95- 2/1/95- 6/1/95-
5/31/95 1/31/96 TOTAL 5/31/95 1/31/96 TOTAL 5/31/95 10/31/95 TOTAL
------- ------- ------- -------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................. $24,338 $68,519 $92,857 $10,896 $68,519 $79,415 $24,338 $42,833 $67,171
Cost of sales......................... 23,809 57,390 81,199 10,463 57,390 67,853 23,809 35,713 59,522
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.......................... 529 11,129 11,658 433 11,129 11,562 529 7,120 7,649
Selling general and administrative
expenses............................ 3,229 5,349 8,578 1,160 5,349 6,509 3,229 3,371 6,600
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations......... (2,700) 5,780 3,080 (727) 5,780 5,053 (2,700) 3,749 1,049
Interest expense...................... 644 2,605 3,249 287 2,605 2,892 644 1,659 2,303
Other income (expense)................ (801) -- (801) -- -- -- (801) -- (801)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before tax and
extraordinary item.................. (4,145) 3,175 (970) (1,014) 3,175 2,161 (4,145) 2,090 (2,055)
Income tax expense (benefit).......... (1,210) 1,300 90 -- 1,300 1,300 (1,210) 854 (356)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary
item................................ $(2,935) $ 1,875 $(1,060) $(1,014) $ 1,875 $ 861 $(2,935) $ 1,236 $(1,699)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Due to the change in ownership and equity structure, income (loss) per
share data for these periods cannot be presented meaningfully.
(4) 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."
(5) Excludes warrants to purchase 538,890 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 AMC 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 Old API, 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 the API Combs Acquisition. 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. 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 $64.1 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 military
8
<PAGE> 11
personnel have led to decisions by the military to outsource, in certain
instances, engine repairs and 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 may purchase parts directly from Allison for resale instead of being
obligated to purchase parts from an authorized distributor. 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 AND RELATED LEGAL PROCEEDINGS
FAA regulations require that aircraft engines operated commercially in the
U.S. 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
9
<PAGE> 12
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 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, prior to the acquisition by the Company, 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 ("DOJ") 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."
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
10
<PAGE> 13
factors may be unrelated to the operating performance of the Company, and may
adversely affect the price of the Common Stock.
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 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 U.S. 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.
11
<PAGE> 14
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 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.
In addition, Mr. Sharma, the Chief Operating Officer of NAC, will have fully
vested options to purchase 150,000 shares of the Company's Common Stock with an
exercise price of $.01 per share. Such options will, based on an assumed initial
public offering price of $11.00 per share, represent an aggregate unrealized
gain of $1,648,500. See "Dilution" and "Principal Stockholders." Purchasers of
the Common Stock offered hereby will incur immediate and substantial dilution of
$6.26 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
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<PAGE> 15
"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.
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 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 Old API is $11,000,000, subject to further payment
or reduction on a dollar-for-dollar basis depending upon whether the net value
of assets as of the acquisition closing (as determined in accordance with GAAP
principles) is greater or less than $10,500,000, respectively. 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 1,293,335 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
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<PAGE> 17
$22.6 million will be used to reduce the outstanding balance under NAC's credit
facility. The total balance 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
attributable to its Common Stock was $3,583,000, or $0.74 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
attributable to its Common Stock at October 31, 1996, as adjusted for the
Offering, would have been $41,480,000 or $4.74 per share, representing an
immediate increase in net tangible book value of $4.00 per share to existing
stockholders and an immediate dilution of $6.26 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..................... $0.74(1)
Increase in net tangible book value attributable to new
investors.................................................... 4.00
-----
Pro forma net tangible book value after the Offering............ $ 4.74
------
Dilution to new investors......................................... $ 6.26
======
</TABLE>
- ---------------
(1) Computed by reducing total assets of $59,036,000 at October 31, 1996 by
$360,000 (the amount of intangible assets), subtracting total liabilities of
$53,326,000, subtracting the preferred stock plus accumulated dividends,
$1,837,000, adding the proceeds from the exercise of the outstanding
warrants, $70,000, 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>
The foregoing table assumes no exercise of the 150,000 outstanding stock
options. If all such options had been exercised, there would have been an
immediate dilution of $6.34 per share. See "Management -- Executive Compensation
and Employment Agreements."
16
<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 assumes that all outstanding warrants to
purchase the Company's Common Stock have been exercised in full. The number of
outstanding shares of Common Stock reflected in the table excludes 150,000
shares of Common Stock of the Company which are subject to options exercisable
as of the date hereof, 250,000 shares reserved for future grants under the
Company's Stock Option Plan, and 250,000 shares reserved for future grants under
the Company's Employee Stock Purchase Plan. 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........ 49 88
Additional paid-in capital....................................... 612 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 twelve 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 the purchase price of Old API 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
TWELVE MONTHS ENDED JANUARY 31, 1996
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL(1) PRO FORMA
------------------------------------------- -------------------------
FIRST ACQUISITION
NAC AVIATION AND
2/1/95- 6/1/95- OFFERING AS
5/31/95 1/31/96 COMPANY OLD API ADJUSTMENTS ADJUSTED
------- -------- ----------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $24,338 $68,519 $92,857 $29,676 $ 99(2a) $122,632
Cost of sales.................. 23,809 57,390 81,199 24,748 -- 105,947
------- ------- ------- -------- ------- --------
Gross profit................... 529 11,129 11,658 4,928 99 16,685
Selling, general and
administrative expenses...... 3,229 5,349 8,578 4,836 545(2b) 13,959
------- ------- ------- -------- ------- --------
Income (loss) from
operations................... (2,700) 5,780 3,080 92 (446) 2,726
------- ------- ------- -------- ------- --------
Other (income) expense:
Interest expense............. 644 2,605 3,249 643 (3,093)(2c) 799
Other........................ 801 -- 801 (3) -- 798
------- ------- ------- -------- ------- --------
Total other (income)
expense.............. 1,445 2,605 4,050 640 (3,093) 1,597
------- ------- ------- -------- ------- --------
Income (loss) before provision
for income taxes............. (4,145) 3,175 (970) (548) 2,647 1,129
Income tax expense (benefit)... (1,210) 1,300 90 -- 294(2d) 384
------- ------- ------- -------- ------- --------
Income (loss) before
extraordinary item........... $(2,935) $ 1,875 $(1,060) $ (548) $ 2,353 $ 745
======= ======= ======= ======== ======= ========
Income per share............... $ 0.08
========
Shares used in computation of
net income per share......... 8,894
========
</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(1) AND
------------------- OFFERING
COMPANY OLD API 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 4,258 669(2b) 11,090
------- ------- ------- --------
Income from operations...................... 5,007 487 (620) 4,874
------- ------- ------- --------
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) 2,036 4,363
Income tax expense.......................... -- -- -- --
------- ------- ------- --------
Income (loss) before extraordinary item..... $ 2,388 $ (61) $ 2,036 $ 4,363
======= ======= ======= ========
Income per share............................ $ 0.49
========
Shares used in computation of net income per
share..................................... 8,894
========
</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) 30,522
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 twelve 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 twelve
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 include certain amounts, aggregating $825 and $634 for the
twelve months ended January 31, 1996 and the nine months ended
October 31, 1996, respectively, for selling, general and
administrative expenses to properly reflect costs the company
would have borne as a public entity. Selling, general and
administrative expenses for the twelve months ended January 31,
1996 have been reduced by $326 to reflect the reduced depreciation
expense resulting from the write-down of fixed assets in the NAC
acquisition as if it had occurred at the beginning of the year. In
addition, the adjustment reflects amortization of $46 and $35 for
the twelve 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 $3,093 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) $192 and $160, respectively,
related to the repayment of $2,800 of the Company's term debt; (ii)
$503 and $315, respectively, related to the repayment of $1,845 of
subordinated debt; (iii) $1,761 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.
(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 34% for the twelve 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
22
<PAGE> 25
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 1,293,335
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 1,293,335 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) 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(2) -- -- -- -- -- (864)(3)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ $(5,620) $(2,690) $ 2,021 $(1,291) $(1,060) $ 861 $(1,699) $ 1,524
======= ======= ======= ======= ======= ======= ======= =======
Dividend on preferred
stock(4)................... 99
-------
Net income (loss) applicable
to common stockholder...... 1,425
=======
Net income per common share:
Income before extraordinary
item per common share.... $ 0.43
Extraordinary item per
common share............. $ (0.16)(3)
-------
Net income per common
share.................... $ 0.27
=======
Weighted average number of
shares..................... 5,291
</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. The results of
operations for these periods are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TEN MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, 1996 JANUARY 31, 1996 OCTOBER 31, 1995
----------------------------- ----------------------------- ----------------------------
FIRST FIRST FIRST
NAC AVIATION NAC AVIATION NAC AVIATION
2/1/95- 6/1/95- 4/1/95- 6/1/95- 2/1/95- 6/1/95-
5/31/95 1/31/96 TOTAL 5/31/95 1/31/96 TOTAL 5/31/95 10/31/95 TOTAL
------- --------- ------- -------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $24,338 $68,519 $92,857 $10,896 $68,519 $79,415 $24,338 $42,833 $67,171
Cost of sales....................... 23,809 57,390 81,199 10,463 57,390 67,853 23,809 35,713 59,522
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........................ 529 11,129 11,658 433 11,129 11,562 529 7,120 7,649
Selling general and administrative
expenses.......................... 3,229 5,349 8,578 1,160 5,349 6,509 3,229 3,371 6,600
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations....... (2,700) 5,780 3,080 (727) 5,780 5,053 (2,700) 3,749 1,049
Interest expense.................... 644 2,605 3,249 287 2,605 2,892 644 1,659 2,303
Other income (expense).............. (801) -- (801) -- -- -- (801) -- (801)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before tax and
extraordinary item................ (4,145) 3,175 (970) (1,014) 3,175 2,161 (4,145) 2,090 (2,055)
Income tax expense (benefit)........ (1,210) 1,300 90 -- 1,300 1,300 (1,210) 854 (356)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary
item.............................. $(2,935) $ 1,875 $(1,060) $(1,014) $ 1,875 $ 861 $(2,935) $ 1,236 $(1,699)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Due to the change in ownership and equity structure, income (loss) per
share data for these periods cannot be presented meaningfully.
(2) Represents an extraordinary benefit of $333 due to the utilization of net
operating loss carry forwards.
(3) Represents an extraordinary charge of $864, or $0.16 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."
(4) 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
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 of 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
increasing efficiency through the leveling of production schedules, 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 goods sold, including
inventory obsolescence, warranty and related costs, production variances and
scrap costs. These other costs of goods 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.
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<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 and extraordinary
item........................................ 3.3 (2.7) (1.0) (3.0) 3.1
Income tax expense (benefit).................. 1.1 (1.1) 0.1 (0.5) --
----- ----- ----- ----- -----
Net income (loss) before extraordinary item... 2.2% (1.6)% (1.1)% (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
27
<PAGE> 30
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 the Predecessor.
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, NAC 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, or 11.5%, to $81.2 million during the
twelve months ended January 31, 1996. 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
28
<PAGE> 31
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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<PAGE> 32
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 the Predecessor.
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, the fiscal year ended
March 31, 1995 and the two months ended May 31, 1995 was $(4.2) million, $0.8
million, $(3.9) million and $1.8 million, respectively. Cash used for investing
during these same periods was $1.0 million, $13.6 million, $3.3 million and $0.3
million, respectively. Cash generated (utilized) by financing activities during
these same periods was $5.2 million, $12.9 million, $7.2 million and $(1.5)
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
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<PAGE> 33
net worth as well as certain interest coverage ratios and minimum backlog
levels. The Company is currently in 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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<PAGE> 34
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 income before extraordinary item of
$4.4 million for the nine month period ended October 31, 1996, and net sales of
$122.6 million and income before extraordinary item of $0.7 million for the
twelve month period ended January 31, 1996.
Through NAC, the Company provides repair and overhaul services for several
engine types, including: (i) the Allison engines that power the Lockheed Martin
C-130 "Hercules" cargo aircraft, the most popular cargo aircraft in the world;
(ii) the engines employed on most light helicopters; and (iii) 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
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<PAGE> 35
services to general aviation aircraft operators on an as needed basis. FBOs and
other maintenance operators 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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<PAGE> 36
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," and has 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 new
contracts scheduled to commence in early 1997. The Company's new contracts for
repair and overhaul of the PT6 engine are with AGES (relating to overhaul of PT6
engines for the U.S. Government's C-12 program) and the Saudi Ministry of
Defense, and are for terms of five and three years, respectively, although there
are no minimum volume commitments from the respective customers in either
contract. 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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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."
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<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 and Shipping. 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.
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<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.
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<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. During the ten
month period ended January 31, 1996, revenues from the FMS program administered
by the U.S. government represented 18% of NAC's operating revenues. During the
nine month period ended October 31, 1996, revenues from System Control
Technologies represented 15% of NAC's operating revenues. System Control
Technologies administers contracts on behalf of many of the same foreign
governments for which NAC previously did work under NAC's contract with the
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<PAGE> 43
U.S. government pursuant to the FMS program prior to the expiration of the
contract in October 1995. Except for the aforementioned, no single customer
accounted for more than 10% of its net sales.
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; 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., Avteam 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
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<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 492 persons were employed on a
full-time basis by the Company of which 91 were employed by API Combs. 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>
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<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
43
<PAGE> 46
("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 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 (the "Superfund Site") contacted NAC
and alleged that NAC was responsible for a share of the clean-up costs pursuant
to CERCLA. NAC has been designated as a potentially responsible party by the EPA
for costs associated with cleanup of the Superfund Site, and as such, as with
each of the other potentially responsible parties, is potentially liable on a
joint and several basis for the entire clean-up cost for the Superfund Site. 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
44
<PAGE> 47
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 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 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."
45
<PAGE> 48
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(1)
Robert L. Kirk........... 67 Director(1)
Charles Ryan............. 46 Director(1)
</TABLE>
- ---------------
(1) Messrs. Friedman, 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 is and 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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<PAGE> 49
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 400,000. 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
48
<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 of 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 (May 1, 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 API Combs 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.
49
<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
50
<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.
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 as
a reduction in Mr. Sharma's base salary or benefits other than in connection
with an across-the-board reduction in salaries and/or benefits for similarly
situated employees of the Company or pursuant to the Company's standard
retirement policies. 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.
The Company has granted to Mr. Sharma, the Chief Operating Officer of NAC,
options to purchase 3% of the outstanding capital stock of NAC. Subject to
consummation of the Offering, these options will be deemed to have been granted
under the Company's Plan and may be exercised to purchase 150,000 shares of the
Company's Common Stock at an exercise price of $.01 per share. Mr. Sharma has
agreed that he will not sell any shares of Common Stock acquired upon the
exercise of his options for a period of 180 days following the Offering and
that, thereafter, he will not, during any three month period sell a number of
shares that exceeds (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 weeks preceding the sale. The Company will pay
Mr. Sharma a bonus of $200,000 upon consummation of the Offering.
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<PAGE> 54
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 3,556,665 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 1,832,225 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, 538,890 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.
The Company believes that the terms of the two advisory services agreements
and the sublease agreement between the Company and First Equity are at least as
favorable as the terms which would have been obtained by the Company from an
unaffiliated third-party.
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<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>
FAS Inc., a wholly owned subsidiary of
First Equity Development, Inc......... 3,556,665(3) 73.3% -- 3,556,665 40.6%
One Omega Drive
Box 4660
Stamford, Connecticut 06907
Canpartners Investments IV, LLC......... 1,293,335 26.7% --(1) 1,293,335 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
708,335 shares, or 8.1%. Canyon Partners Incorporated is the Managing Member
of Canpartners. Mr. Friedman, Mitchell R. Julis and R. Christian B. Evenson
are the sole shareholders and directors of Canyon Partners 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 1,293,335 shares shown as owned by Canpartners. Mr. Friedman is a
Vice President of Canpartners and is a shareholder and director of Canyon
Partners 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.
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<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 3,556,665 shares of Common Stock issued
and outstanding, held by one entity. Canpartners owns warrants to purchase up to
1,293,335 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 1,293,335 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 3,556,665 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."
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<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 3,556,665 Restricted Shares
held by FAI will become eligible for sale under Rule 144, subject to the volume
limitations described below, and the 1,293,335 Restricted Shares held by
Canpartners will become eligible for sale under Rule 144 upon the second
anniversary of the consummation of the Offering.
An aggregate of 150,000 shares of Common Stock are subject to outstanding
options granted to Mr. Sharma. See "Management -- Executive Compensation and
Employment Agreements." Pursuant to Rule 701 promulgated under the Securities
Act, the shares of Common Stock currently subject to such options will be
available for sale in the public market upon exercise. Mr. Sharma has, however,
agreed that he will not sell any shares of Common Stock acquired upon the
exercise of his options to purchase shares of the Company's Common Stock for a
period of 180 days following the Offering and that, thereafter, he will not,
during any three month period sell a number of shares that exceeds (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 weeks
preceding the sale.
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."
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<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 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
January 22, 1997
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
------- ------- -------
Stockholders' 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,
3,556,665 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 PREDECESSOR
------------ -----------
TWO-MONTH EIGHT-MONTH SIX-MONTH FOUR-MONTH FIVE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, JANUARY 31, JULY 31, MAY 31, OCTOBER 31, OCTOBER 31,
1995 1996 1996 1995 1995 1996
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................. $10,896 $ 68,519 $ 52,354 $24,338 $ 42,833 $ 76,776
Cost of sales......................... 10,463 57,390 44,608 23,809 35,713 65,606
------- --------- --------- ------- --------- ---------
Gross profit.......................... 433 11,129 7,746 529 7,120 11,170
Selling, general and administrative
expenses............................ 1,160 5,349 4,186 3,229 3,371 6,163
------- --------- --------- ------- --------- ---------
Income (loss) from operations......... (727) 5,780 3,560 (2,700) 3,749 5,007
Interest expenses..................... 287 2,605 1,849 644 1,659 2,619
Other expenses........................ -- -- -- 801 -- --
------- --------- --------- ------- --------- ---------
Income (loss) before provision
(benefit) for income taxes and
extraordinary item.................. (1,014) 3,175 1,711 (4,145) 2,090 2,388
Provision (benefit) for income
taxes............................... -- 1,300 -- (1,210) 854 --
------- --------- --------- ------- --------- ---------
Income (loss) before extraordinary
item................................ (1,014) 1,875 1,711 (2,935) 1,236 2,388
Extraordinary item:
Loss on early extinguishment of
debt............................. -- -- (864) -- -- (864)
------- --------- --------- ------- --------- ---------
Net income (loss)..................... (1,014) 1,875 847 (2,935) 1,236 1,524
Dividends on preferred stock.......... -- 88 66 -- 55 99
------- --------- --------- ------- --------- ---------
Net income (loss) applicable to common
stockholders........................ $(1,014) $ 1,787 $ 781 $(2,935) $ 1,181 $ 1,425
======= ========= ========= ======= ========= =========
Net income (loss) per common share:
Income (loss) before extraordinary
item applicable to common
stockholders..................... $ 0.32 $ 0.30 $ 0.21 $ 0.43
Extraordinary item.................. -- (0.16) -- (0.16)
--------- --------- --------- ---------
Net income (loss) applicable to
common stockholders.............. $ 0.32 $ 0.14 $ 0.21 $ 0.27
========= ========= ========= =========
Shares used in computation of net
income (loss) applicable to common
stockholders........................ 5,529,721 5,440,349 5,529,721 5,291,395
========= ========= ========= =========
</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 3,556,665 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 3,556,665 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 3,556,665 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 3,556,665 $ 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 PREDECESSOR
------------ EIGHT-MONTH -----------
TWO-MONTH PERIOD SIX-MONTH FOUR-MONTH FIVE-MONTH NINE-MONTH
PERIOD ENDED ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, JANUARY 31, JULY 31, MAY 31, OCTOBER 31, OCTOBER 31,
1995 1996 1996 1995 1995 1996
------------ ----------- ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ (1,014) $ 1,875 $ 847 $ (2,935) $ 1,236 $ 1,524
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization........... 400 947 577 1,056 612 800
Extraordinary item, loss on early
extinguishment of debt................ -- -- 864 -- -- 864
Deferred income taxes................... 129 664 -- (911) 282 --
Termination of executive defined benefit
plan.................................. -- (548) -- -- (548) --
Changes in assets and liabilities:
Receivables........................... 1,860 (13,460) 3,835 3,236 (10,518) 5,451
Inventories........................... (605) (1,744) (2,038) 2,081 (2,522) (3,438)
Prepaid expenses and other assets..... (341) 947 (691) 630 1,044 (758)
Accounts payable...................... 821 12,587 (7,180) (1,843) 11,107 (6,438)
Accrued liabilities................... 578 58 (990) 403 752 (1,134)
Other noncurrent liabilities.......... (10) (567) (878) 358 (664) (1,073)
-------- --------- -------- -------- -------- ---------
Net cash provided by (used in) operating
activities.............................. 1,818 759 (5,654) 2,075 781 (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) (442) (688) (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) (436) (13,460) (1,027)
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash........................... -- -- (1,039) -- -- (544)
Borrowings on long-term debt.............. 10,703 103,891 95,351 24,489 28,737 121,138
Payments on long-term debt................ (12,191) (92,955) (87,979) (26,000) (18,091) (115,267)
Sale of preferred stock................... -- 1,650 -- -- 1,650 --
Sale of common stock...................... -- 551 -- -- 551 --
Repayment of other noncurrent
liabilities............................. (54) (275) (160) (128) (168) (98)
-------- --------- -------- -------- -------- ---------
Net cash (used in) provided by financing
activities.............................. (1,542) 12,862 6,173 (1,639) 12,679 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 $ 631 $ 982 $ 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...................... 0.30 0.21
</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 $4,447. 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 four month period ended May 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 period ended October 31, 1996, the four month
period ended May 31, 1995 and the five month period ended October 31, 1995, as
well as 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 1,832,225 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 1,293,335. 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 1,293,335 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 $ 4,046
Differences in the financial statement and income tax basis of
fixed assets................................................. 2,441 2,304
Attributes subject to IRC sec. 382............................. 503 377
Net operating loss carryforwards............................... 251 191
Other.......................................................... 222 211
------- -------
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
F-15
<PAGE> 79
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)
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>
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. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
AUDITORS
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
F-16
<PAGE> 80
FIRST AVIATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)
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.
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 400,000 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 $350 for assistance
rendered in connection with the offering and $250 for its services with regard
to the Old API acquisition.
In January 1997, the Company expects to grant a key employee of NAC,
options to acquire 150,000 shares of NAC's common stock. Subject to consummation
of an initial public offering by the Company, these options may be exercised to
acquire 150,000 shares of the Company's common stock. The options carry an
exercise price of $.01 per share, vest immediately, and expire ten years from
the date of grant. In addition to the option grant, the employee will also
receive a bonus of $200 upon consummation of an initial public offering. The
Company expects to record a pre-tax charge of approximately $1,850 in January
1997 as a result of the above transaction.
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)
Plan assets............................................................... --
--------
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 entitled to indemnification for such expenses.
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
Holladay-Tyler Printing Inc. ("Holladay") 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 Holladay
at $200.40 per share;
2) 1,800 shares of its then-existing Series A Preferred Stock to
Holladay 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+ Authorized Maintenance Center Agreement, effective as of November 14, 1994, by and
between NAC and Allison Engine Company (Model 501)
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
10.27 Authorized Maintenance Center Agreement, effective as of November 30, 1994, by and
between NAC and Allison Engine Company (Model 250)
10.28 Authorized Maintenance Center Agreement, effective as of December 31, 1995, by and
between NAC and Allison Engine Company (Model 570/571)
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)
</TABLE>
II-4
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------------------------------------------------------------------
<C> <S>
24.1 + Power of Attorney
27.1 + Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
(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 Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Stamford, County of Fairfield, State of Connecticut, on the 23rd day of
January, 1997.
FIRST AVIATION SERVICES INC.
By: JOHN A. MARSALISI
--------------------------------------
John A. Marsalisi
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to 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>
* Chairman of the Board January 23, 1997
-----------------------------------
Aaron P. Hollander
* Chief Executive Officer and Director January 23, 1997
----------------------------------- (Principal Executive Officer)
Michael C. Culver
* Chief Operating Officer and Director January 23, 1997
-----------------------------------
John F. Risko
JOHN A. MARSALISI Chief Financial Officer and Director January 23, 1997
----------------------------------- (Principal Financial and Accounting
John A. Marsalisi Officer)
*By: JOHN A. MARSALISI
-----------------------------------
John A. Marsalisi
Attorney-in-Fact
</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 April 1, 1994
Allowance for Doubtful Trade
Receivables.......................... $500,000 $ 30,600 -- $ 30,600 $500,000
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 PAGE
------- ------------------------------------------------------------------------- ------------
<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+ Authorized Maintenance Center Agreement, effective as of November 14,
1994, by and between NAC and Allison Engine Company (Model 501)..........
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 PAGE
------- ------------------------------------------------------------------------- ------------
<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.............................................................
10.27 Authorized Maintenance Center Agreement, effective as of November 30,
1994, by and between NAC and Allison Engine Company (Model 250)..........
10.28 Authorized Maintenance Center Agreement, effective as of December 31,
1995, by and between NAC and Allison Engine Company (Model 570/571)......
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........................................................
27.1 + Financial Data Schedule..................................................
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 10.9
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of
November 25, 1996, is made by and between AMR Combs, Inc., a Delaware
corporation ("Seller"), and Aircraft Parts International Combs, Inc., a
Delaware corporation ("Purchaser").
W I T N E S S E T H
WHEREAS, Seller, through its Aircraft Parts International operating
unit, is engaged in the business of distributing new and remanufactured aircraft
parts; and
WHEREAS, Purchaser desires to purchase from Seller, and Seller desires
to sell to Purchaser, all of the assets of Seller's Aircraft Parts International
operating unit (the "Business"), upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.01 Purchase and Sale of Assets. Upon the terms and subject to the
conditions set forth in this Agreement, Seller agrees to sell, convey, assign,
transfer and deliver to Purchaser, and Purchaser agrees to purchase and acquire
from Seller, at the Closing, all of the following (the "Assets"):
(a) Seller's trade fixtures, equipment and tangible assets,
whether owned or leased pursuant to the Assumed Leases (as hereinafter defined),
including furniture, machinery, tools, furnishings, supplies and other tangible
personal property used in the Business, wherever located (including any property
held by employees, salesmen or other representatives of the Business),
including, but not limited to, the items set forth on Schedule 1.1(a) (the
"Equipment");
(b) all of Seller's good and saleable inventories of supplies
and products of the Business as of the Closing, wherever located (including any
inventories held by employees, salesmen or other representatives of the
Business), including, but not limited to, finished goods, work-in-process, raw
materials, supply inventories, spare parts, replacement parts, cores, goods in
transit, returns, labels, packaging, containers and other inventories (the
"Inventories");
(c) all of Seller's backlog of orders for products sold in the
Business not invoiced or shipped prior to the Closing;
<PAGE> 2
(d) all of Seller's accounts and notes receivable from
customers (including affiliates of Seller) and others for products sold in the
Business and all other rights of Seller to payment for goods sold in the
Business, whether or not they have been earned by performance or have been
written off or reserved against as a bad debt or doubtful account, together with
any unpaid interest accrued thereon from the respective obligors and all
instruments and other documents of title representing any of the foregoing and
any and all other receivables of any and every nature whatsoever;
(e) all of Seller's right, title and interest in the motor
vehicles listed on Schedule 1.1(e) (the "Vehicles");
(f) that certain 1979 Cessna T206, U.S. Registration No.
N735FM (the "Purchased Aircraft");
(g) all of Seller's intellectual property rights, including,
but not limited to, customer and vendor lists and files, trade secrets,
copyrights, proprietary and technical information, know-how and other trade
rights and intangible assets, including all goodwill associated therewith,
together with all rights to, and applications, licenses and franchises for, any
of the foregoing, relating to the Business (the "Intellectual Property Rights");
(h) all of Seller's right, title and interest in, to and under
(i) each of the leases, subleases, licenses and other agreements under which
Seller uses or has the right to use tangible personal property set forth on
Schedule 1.1(h) and the lease relating to the Leased Facility (as hereinafter
defined) (collectively, the "Assumed Leases") and (ii) each of the contracts and
agreements set forth on Schedule 1.1(h) (the "Assumed Contracts"), and all
rights (including rights of refund and offset), privileges, deposits, claims,
causes of action and options relating or pertaining to the Assumed Leases and
the Assumed Contracts or any thereof;
(i) to the extent legally transferable, all of the licenses,
approvals, certificates, permits and authorizations from any federal, state,
local or foreign governmental or regulatory body or authority (each, a
"Governmental Authority") relating to the Business, including, but not limited
to, those set forth on Schedule 1.1(i) (the "Permits");
(j) all of Seller's right, title and interest in and to the
names "Aircraft Parts International" and "API" and any names derived from or
bearing a resemblance thereto and any related trademarks, trade names, logos,
service marks and other trade rights currently owned or used by Seller
exclusively in connection with the Business, including all goodwill associated
therewith (the "Corporate Name" and together with the Intellectual Property
Rights, the "Intellectual Property");
(k) all of Seller's current, active and existing records,
files and papers pertaining to the Business, including literature, contract
forms, technical data, graphic materials, pricing and information manuals,
drawings, patterns, designs, sales literature or other sales aids, and
2
<PAGE> 3
other data related to the Business (the "Records"), it being understood that for
this purpose "current, active and existing" shall include at least any of the
foregoing currently existing and used by Seller within the last six years;
(l) all prepaid rentals, other prepaid expenses, bonds,
deposits and financial assurance requirements and other current assets
attributable to the Business;
(m) to the extent transferable, all claims of Seller against
third parties of any nature arising out of the operation of the Business,
including, but not limited to, claims against manufacturers of products sold by
the Business; provided, however, that to the extent Seller incurs liabilities to
third parties in respect of the operation of the Business prior to Closing
which, but for this provision would give rise to a claim by Seller against a
supplier or suppliers of the Business for reimbursement, Seller shall retain the
right to pursue such claims to the extent of such liabilities; and
(n) all other or additional privileges, rights, interests,
properties and assets of Seller of every kind and description, wherever located,
used or intended for use in connection with, or that are necessary to the
continued conduct of, the Business as presently being conducted.
1.02 Excluded Assets. Purchaser shall not acquire from the Seller any
assets not described in Section 1.01.
1.03 Assumption of Liabilities. At the Closing, Purchaser shall assume
and agree to pay, perform and discharge all of the following (the "Assumed
Liabilities"):
(a) the liabilities, duties and obligations of Seller to be
performed after the Closing under the Assumed Leases and the Assumed Contracts;
(b) obligations for the completion of open and unfilled
customer orders of the Business that are outstanding as of the close of business
on the Closing Date and which were received in the ordinary course of business
consistent with past practices;
(c) the accounts payable of the Business as of the Closing
(including those payable to affiliates of Seller) to the extent incurred in the
ordinary course of business and reflected on the Closing Balance Sheet (as
hereinafter defined);
(d) the liabilities of Seller, if any, represented by accrued
expenses for utilities and for wages and bonuses for those employees who are
employed by Seller as of the Closing to the extent reflected on the Closing
Balance Sheet; and
(e) Purchaser's share of ad valorem or similar taxes to be
prorated pursuant to Section 2.05.
3
<PAGE> 4
1.04 Excluded Liabilities. Purchaser shall not assume or otherwise be
responsible for any liability or obligation of Seller, whether or not relating
to the Business, other than the Assumed Liabilities. Without limiting the
generality of the foregoing, Purchaser shall not assume (a) any liabilities
relating to the current or long term portion of funded debt of the Business, if
any, (b) except as otherwise provided in Subsection 1.03(d), any obligations or
liabilities arising prior to the Closing Date from or relating to the employment
or termination of employment of any person with respect to the Business,
including, but not limited to, any obligations or liabilities arising from or
relating to any employee benefit plans or arrangements, (c) any Taxes (as
hereinafter defined) with respect to the ownership, operation or use of the
Business or the Assets prior to the Closing, other than Purchaser's share of ad
valorem or similar taxes as set forth in Section 2.05 hereof and transfer taxes,
if any, as set forth in Section 2.04 hereof, (d) any workman's compensation
claim arising prior to the Closing Date, and any workman's compensation claim
arising after the Closing Date for an incident that occurred prior to the
Closing Date, and (e) any product liability claim arising prior to the Closing
Date, and any product liability claim arising after the Closing Date for work
performed by Seller prior to the Closing Date.
1.05 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of AMR Combs, Inc., 4255 Amon Carter
Boulevard, Fort Worth, Texas, simultaneously with the closing of an initial
public offering of shares of common stock of First Aviation Services Inc., the
parent of Purchaser (the "Closing Date"); provided, however, that if Purchaser
shall not have obtained insurance covering the Business by such date or if the
closing of such initial public offering shall not have occurred on or prior to
January 15, 1997, the parties hereto shall mutually agree on a Closing Date
prior to March 15, 1997.
1.06 Instruments of Transfer; Further Assurances. In order to
consummate the transactions contemplated hereby, at the Closing Seller shall
execute and deliver to Purchaser (a) a general bill of sale and assignment
relating to the Assets other than the Assumed Leases, the Assumed Contracts and
the Purchased Aircraft in the form attached hereto as Exhibit A (the "Bill of
Sale"), (b) an aircraft bill of sale covering the Purchased Aircraft in the form
attached hereto as Exhibit B and an AC Form 8050-2 bill of sale (together, the
"Aircraft Bill of Sale"), (c) an assignment and assumption agreement relating to
the Assumed Leases and the Assumed Contracts in the form attached hereto as
Exhibit C (the "Assignment and Assumption Agreement") and (d) documents of title
with respect to the Vehicles; and Purchaser shall execute and deliver to Seller
the Assignment and Assumption Agreement. At the Closing, and at all times
thereafter as may be necessary, Seller shall execute and deliver to Purchaser
such other instruments of transfer as shall be reasonably necessary to vest in
Purchaser title to the Assets and to comply with the purposes and intent of this
Agreement, and Purchaser and Seller shall execute and deliver such other
instruments as shall be reasonably necessary or appropriate to evidence the
assignment by Seller and the assumption by Purchaser of the Assumed Leases, the
Assumed Contracts and any other liabilities to the extent provided in Section
1.03.
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ARTICLE II
PURCHASE PRICE
2.01 Purchase Price. At the Closing, Purchaser shall pay to Seller by
wire transfer of immediately available funds to the account of Seller at The
Chase Manhattan Bank, New York, New York, ABA 021000021 for American Airlines,
Inc., Account No. 910-1-019884 as the purchase price for the Assets (the
"Purchase Price") the amount of $11,000,000, subject to adjustment as set forth
in Section 2.02.
2.02 Purchase Price Adjustment.
(a) As soon as practicable, but in any event within 90 days,
after the Closing Date, Purchaser will prepare and deliver to Seller an
unaudited balance sheet of the Business as at the Closing Date (the "Closing
Balance Sheet"). The Closing Balance Sheet shall reflect the Assets and the
Assumed Liabilities, and with respect to such items shall be prepared in
accordance with Generally Accepted Accounting Principles ("GAAP"), using the
same accounting methods, policies, practices and procedures with consistent
classifications, judgments and valuation and estimation methodologies as used in
the preparation of the Financial Statements (as hereinafter defined). Seller
shall provide Purchaser with full access to the books and records of the
Business necessary for Purchaser to prepare the Closing Balance Sheet, and
Purchaser shall provide Seller with full access to the books, records and work
papers used by Purchaser in preparing the Closing Balance Sheet. Based upon the
Closing Balance Sheet and in a manner consistent as to methodology used in
determining reserves as that used in the determination of the $10,500,000
estimated net asset value referred to in Subsection 2.02(b) hereof, Seller and
Purchaser shall jointly determine, within 15 days of delivery of the Closing
Balance Sheet to Seller, the book value of the Assets excluding all liabilities
other than the Assumed Liabilities, as at the Closing Date (the "Net Asset
Value"). If Purchaser and Seller have not agreed on the Net Asset Value within
such 15-day period, Purchaser shall cause its independent public accountants to
meet with Seller's independent public accountants in an attempt to resolve any
differences, other than differences concerning the value of the cores in the
Inventory. If such independent public accountants are unable to resolve the
differences, then the issues in dispute shall be submitted to a third firm of
independent public accountants selected by Seller's and Purchaser's independent
public accountants for resolution, and the determination of such third firm of
independent public accountants shall be final and binding upon the parties.
Notwithstanding anything to the contrary set forth above, if Purchaser
and Seller do not agree on the value of the cores in the Inventory, then MB
Valuations shall be engaged for the purpose of performing a valuation of such
cores based on an orderly liquidation appraisal. The determination of MB
Valuations shall be final and binding upon the parties and shall be reflected in
the computation of Net Asset Value.
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(b) If the Net Asset Value as determined in accordance with
Section 2.02(a) is greater than $10,500,000, Purchaser shall pay to Seller
within five days of such determination in immediately available funds the amount
of such excess. If the Net Asset Value as determined in accordance with Section
2.02(a) is less than $10,500,000, Seller shall pay to Purchaser within five days
of such determination in immediately available funds the amount of such
shortfall.
(c) All fees and expenses incurred in connection with the
preparation of the Closing Balance Sheet shall be borne by Purchaser.
2.03 Allocation of Purchase Price. On or before the Closing Date,
Purchaser and Seller shall prepare a schedule (the "Allocation Schedule")
reasonably acceptable to both parties setting forth the proportion of the
consideration to be allocated to each of the Assets purchased pursuant to this
Agreement. Purchaser and Seller shall report the purchase and sale of the Assets
in their respective federal, state, local or foreign tax returns in accordance
with such Allocation Schedule and will complete at Closing Internal Revenue
Service Form 8594 based upon such Allocation Schedule and will adjust such Form,
if necessary, to reflect the Closing Balance Sheet.
2.04 Transfer Taxes. Purchaser shall provide Seller with a Tennessee
exemption certificate stating that Purchaser is purchasing the Inventories for
resale, and such other exemption certificates as Seller may reasonably request.
Purchaser and Seller will divide equally any documentary transfer taxes and
sales, use or other taxes imposed by reason of the transfer of the Purchased
Aircraft and the Vehicles, and any deficiency, interest or penalty asserted with
respect thereto.
2.05 Proration of Taxes. Seller and Purchaser shall each pay its
respective pro rata portion of all personal and real property taxes, ad valorem
taxes, use taxes and assessments relating to the Assets prorated to the Closing
Date based upon the number of days in the applicable taxable period during which
the Assets were owned by Seller. Purchaser shall pay such sums to the
appropriate taxing authorities when due, prior to becoming delinquent. Purchaser
shall promptly forward to Seller after receipt copies of any such taxes and
assessments and Seller shall pay to Purchaser Seller's pro rata portion of such
tax or assessment. Seller shall retain liability for sales taxes relating to
sales of products of the Business prior to the Closing. Purchaser agrees to pay
such sales tax on behalf of Seller when due following the Closing in the manner
set forth above in this Section 2.05.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser that:
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3.01 Organization; Power and Authority. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite corporate power and authority to carry on its
business as it is now being conducted. Seller is duly qualified or otherwise
authorized to do business as a foreign corporation and is in good standing in
each jurisdiction set forth in Schedule 3.01.
3.02 Authorization. Seller has full corporate power and authority to
execute and deliver this Agreement and the other agreements, documents and
instruments contemplated hereby to which Seller is a party. The execution,
delivery and performance of this Agreement and the other agreements, documents
and instruments contemplated hereby to which Seller is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action on the part of Seller.
This Agreement has been, and each other agreement, document and instrument
contemplated hereby to which Seller is a party will be, on or prior to the
Closing Date, duly executed and delivered by Seller, and constitute, or upon
execution and delivery will constitute, the valid, legal and binding obligations
of Seller, enforceable against Seller in accordance with their respective terms,
except as may be limited by bankruptcy, reorganization, fraudulent conveyance,
insolvency and similar laws of general application relating to or affecting the
enforcement of rights of creditors and subject to general principles of equity
and, with respect to Section 1.01 of that certain Stockholders Agreement to be
entered into among Seller, Purchaser and the parent of Purchaser, judicial
discretion as to the reasonableness thereof.
3.03 Conflicts; Defaults. Neither the execution and delivery of this
Agreement and the other agreements, documents and instruments contemplated
hereby to which Seller is or will be a party nor the consummation by Seller of
the transactions contemplated hereby or thereby, will (a) result in a violation
or breach of the Certificate of Incorporation, as amended, or the Bylaws, as
amended, of Seller or, subject to obtaining the Required Consents (as
hereinafter defined), any agreement, indenture or other instrument to which
Seller is a party or under which Seller is bound or to which any of the Assets
is subject, (b) result in the creation or imposition of any lien, charge or
encumbrance upon any of the Assets or (c) violate any law, statute, judgment,
decree, injunction, order, writ, rule or regulation of any Governmental
Authority having jurisdiction over the Business or the Assets.
3.04 Consents. Except for those set forth on Schedule 3.04 (the
"Required Consents"), no authorization, consent, approval, permit, license of,
or filing with, any Governmental Authority, any lender or lessor or any other
person or entity is required to authorize, or is required in connection with,
the execution, delivery and performance by Seller of this Agreement or any other
agreement, document or instrument contemplated hereby.
3.05 Financial Statements. Seller has furnished to Purchaser the
audited balance sheet of the Business and the related audited statements of
income, retained earnings and changes in financial position of the Business for
the year ended December 31, 1995, including the notes thereto (the "Year End
Audited Financial Statements"), and the audited balance sheet and related
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audited statements of income, retained earnings and changes in financial
position of the Business for the nine-month period ended September 30, 1996 (the
"Nine Month Audited Financial Statements" and together with the Year End Audited
Financial Statements, the "Financial Statements"). The Financial Statements
fairly present the financial condition and results of operations of the Business
as of the dates and for the periods indicated (subject to year-end adjustments
consistent with GAAP with respect to the Nine Month Audited Financial
Statements) and have been prepared in accordance with GAAP applied on a
consistent basis with prior periods.
3.06 Liabilities and Obligations. Except for those incurred in the
ordinary course of business since the date of the Financial Statements or as set
forth on Schedule 3.06, the Financial Statements reflect all liabilities of
Seller relating to the Business of the type required by GAAP to be reflected or
disclosed in the Financial Statements and arising out of transactions effected
or events occurring on or prior to the date thereof. All reserves shown in the
Financial Statements are appropriate, reasonable and sufficient to provide for
losses thereby contemplated. Except as set forth in the Financial Statements, or
incurred in the ordinary course of business since the date thereof, Seller with
respect to the Business is not liable upon or with respect to, or obligated in
any other way to provide funds in respect of or to guarantee or assume in any
manner, any debt, obligation, liability or dividend of any person, corporation,
association, partnership, joint venture, trust or other entity, and Seller knows
of no basis for the assertion of any other claims or liabilities of any nature
or in any amount which, singularly or in the aggregate, are material.
3.07 Changes in Circumstances. Except as set forth on Schedule 3.07,
since September 30, 1996, Seller has not, except in the ordinary course of
business:
(a) suffered any change that has had a material adverse effect
on the Assets or the Business;
(b) contracted for, financed or paid any single capital
expenditure relating to the Business in excess of $5,000 or total capital
expenditures relating to the Business in excess of $10,000;
(c) mortgaged, pledged or subjected any of the Assets to any
lien, lease, security interest or other charge or encumbrance, other than
Permitted Liens (as hereinafter defined);
(d) made credit sales relating to the Business other than in
the ordinary course of business consistent with past practices with respect to
the size of each credit sale, the credit history of customers making purchases
on credit and the terms and conditions of the sales;
(e) suffered any damage or destruction to or loss of any
Assets (whether or not covered by insurance), or lost or terminated employees,
customers or suppliers, where such
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damage, loss or termination has had or could have a material adverse effect on
the Assets or the Business;
(f) acquired or disposed of any Assets or incurred, assumed or
guaranteed any indebtedness for borrowed money or other liabilities or
obligations to pay money relating to the Business except (i) the disposal or
trade-in of machinery, vehicles and equipment in connection with the replacement
thereof in the ordinary course of business and consistent with past practices,
(ii) the purchase or sale of inventory in the ordinary course of business and
consistent with past practices, (iii) the incurrence of trade payables in the
ordinary course of business and (iv) guaranties, indebtedness, liabilities and
obligations incurred in the ordinary course of business consistent with past
practices and that have not and will not, individually or in the aggregate, have
a material adverse effect on the Assets or the Business;
(g) written up, written down or written off the carrying value
of any of the Assets;
(h) changed the costing system or depreciation methods of
accounting for the Assets;
(i) forgiven, compromised, canceled, released, permitted to
lapse or waived any rights or claims that, individually or in the aggregate, are
or could be material to the Assets or the Business;
(j) entered into, terminated or agreed to any modifications or
amendments to any of the Assumed Leases or Assumed Contracts that, individually
or in the aggregate, have had or could have a material adverse effect on the
Assets or the Business, other than renewals or extensions thereof in the
ordinary course of business;
(k) increased the wages, salary or compensation, or granted
any other benefit to any officer, employee or agent of the Business; or
(l) entered into or terminated any other commitment or
transaction or experienced any other event that has had or could have a material
adverse effect on the Assets or the Business.
3.08 Title to the Assets. Seller has good and marketable title to the
Assets, free and clear of all liens, claims and encumbrances of any nature
("Liens") except for the following (collectively, the "Permitted Liens"): (a)
Liens for taxes not yet due or delinquent and non-delinquent statutory liens
arising other than by reason of Sellers' default, (b) statutory Liens of
landlords and Liens of carriers, warehousemen, mechanics, materialmen and
similar Liens arising by operation of law in the ordinary course of business for
amounts the payment of which is either not delinquent or is being contested in
good faith, (c) any interest or title of a lessor under any of the Assumed
Leases and (d) the Liens set forth on Schedule 3.08 hereto.
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3.09 Leased Facility and Accessory Shop. The only real property used in
the Business is the "Demised Premises" as defined in, and leased pursuant to,
that certain Net Lease, dated January 23, 1995, between Seller and Farnsworth
Industrial Properties, L.P. (the "Leased Facility"), and certain space in
Seller's fixed base operation in Memphis, Tennessee (the "Memphis FBO") used by
the Business as an accessory shop (the "Accessory Shop"). Seller holds a valid
and existing leasehold estate in the Leased Facility free and clear of all Liens
other than (i) Permitted Liens and (ii) easements and restrictions which do not
adversely affect the use thereof by the Business or the value thereof. No
termination rights have been exercised or, to the best of Seller's knowledge,
threatened by any party with respect to the lease for the Leased Facility.
Seller has no knowledge of any condemnation proceedings having been instituted
or threatened against the Leased Facility or the Accessory Shop. There are no
unpaid assessments (governmental or otherwise) for sewers, water, paving,
electrical power or other improvements and no such assessments are threatened.
The Leased Facility and the Accessory Shop are zoned in a manner to permit their
current use in the operation of the Business. The Leased Facility (including,
but not limited to, the roof, heating and air conditioning systems, duct work
and other structural components of such building) is in sufficient condition,
working order and repair appropriate to its age and design and is not in need of
repairs in excess of $10,000 in the aggregate. All water, gas, electrical,
steam, compressed air, telecommunication, sanitary and storm sewage lines and
systems and other similar systems or utilities serving the Leased Facility and
the Accessory Shop are installed and operating and are sufficient to enable the
Leased Facility and Accessory Shop to continue to be used and operated in the
manner currently being used and operated.
3.10 Inventory and Equipment; Condition of Assets. Seller has, and upon
consummation of the transactions contemplated by this Agreement, Purchaser will
acquire, good title to the Inventory and Equipment (other than the Equipment
being leased pursuant to the Assumed Leases), free and clear of any Liens, other
than the Permitted Liens. Seller holds valid and existing leaseholds in all of
the Equipment leased pursuant to the Assumed Leases, in each case under a valid
and enforceable lease. The Leased Facility, the Equipment, the Vehicles and the
Purchased Aircraft are in good condition and repair, normal wear and tear
excepted, are adequate for their intended use in the Business in the ordinary
course of business and conform in all material respects with all applicable
ordinances, regulations and other laws and there are no known latent defects
therein. The Inventories are in good and merchantable condition and are not
obsolete or defective except for Inventory that is obsolete or not sellable in
the ordinary course of business (a) that has been written down to an amount not
in excess of market value or (b) for which reserves have been provided in the
Financial Statements.
3.11 Assumed Leases and Assumed Contracts. Each of the Assumed Leases
and the Assumed Contracts is in full force and effect and is valid, binding and
enforceable against Seller in accordance with its terms, and all sums payable or
receivable thereunder are current, no notice of default or termination is
outstanding, no uncured default on the part of Seller, or, to the best of
Seller's knowledge, any other party thereto exists thereunder, and, to the best
of Seller's knowledge, no event has occurred and no condition exists which, with
the giving of
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notice or lapse of time or both, would constitute such a default. None of the
Assumed Leases or the Assumed Contracts has been amended or modified except as
set forth on Schedule 1.1(h). Seller does not currently contemplate, nor does
Seller have knowledge that any other person or entity currently contemplates,
any material amendment or change to any Assumed Lease or Assumed Contract.
Seller has not received notice of any plan or intention of any other party to
any Assumed Lease or Assumed Contract to exercise any right to cancel or
terminate such Assumed Lease or Assumed Contract, and knows of no fact that
would justify the exercise of such right. Seller has made available or delivered
to Purchaser complete and correct copies of all Assumed Leases and Assumed
Contracts.
3.12 Intellectual Property. Seller is not under any obligation to pay
any royalties or similar payments to any person or business in connection with
the use or right to use any Intellectual Property. To the best of Seller's
knowledge, in its conduct of the Business Seller has not infringed and is not
now infringing the proprietary rights belonging to any person or business, and,
to the best of Seller's knowledge, there is no infringement by others of any
Intellectual Property owned by Seller.
3.13 Corporate Name. There are no actions, suits or proceedings pending
or threatened against or, to the best of Seller's knowledge, affecting Seller
that may result in any impairment of the right of Seller to use the Corporate
Name. The use of the Corporate Name does not infringe the rights of any third
party nor is it confusingly similar to the corporate name of any third party.
After the Closing Date, no person or business other than Purchaser will be
authorized, directly or indirectly, to use the Corporate Name.
3.14 Permits and Licenses; Compliance with Law. Except to the extent
not transferrable, the Permits constitute all necessary governmental licenses,
franchises, permits, approvals, authorizations and rights, whether federal,
state or local, that are necessary for Seller to engage in the Business and
that, if not possessed, would have a material adverse effect on the Assets or
the Business. There are no existing violations of any such Permits, or of any
other applicable federal, state or local law, statute, ordinance, order or
regulation the failure to comply with which would have a material adverse effect
on the Business or the Assets or the ability of Seller to perform its
obligations under this Agreement or the other agreements, documents and
instruments contemplated hereby to which Seller is a party.
3.15 Litigation. Except as set forth on Schedule 3.15, Seller is not a
party to, and the Assets and the Business are not the subject of, any pending
or, to the best of Seller's knowledge, threatened litigation, action, suit,
proceeding, claim, investigation or administrative proceeding by or with another
party, nor, to the best of Seller's knowledge, does there exist any basis for
any litigation, action, suit or proceeding to which Seller (or following the
Closing, Purchaser) could be a party which, if adversely determined, would have
a material adverse effect on the Assets or the Business or which questions or
otherwise affects the validity of this Agreement or any action taken or to be
taken or documents executed or to be executed pursuant to or in connection with
the provisions of this Agreement, nor is there any judgment, decree, injunction,
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rule or order of any Governmental Authority outstanding against Seller having,
or which may have, a material adverse effect on the Assets or the Business.
3.16 Taxes. There are no liens for Taxes upon the Assets except for
statutory Liens for Taxes not yet due or delinquent. All material tax returns
required to be filed by Seller with respect to the Business have been timely
filed with the appropriate taxing authorities (after giving effect to any valid
extensions). None of the assets or properties of the Business is an asset or
property that is or will be required to be treated as being (a) owned by any
person (other than Seller) pursuant to the provisions of Section 168(f)(8) of
the Internal Revenue Code of 1954, as amended and in effect immediately before
the enactment of the Tax Reform Act of 1986 (the "1954 Code"), or (b) tax exempt
use property within the meaning of Section 168(h)(1) of the 1954 Code. As used
in this Agreement, "Taxes" (and all derivations thereof) means all federal,
state and local sales, use, property, payroll, excise, fuel, environmental,
customs or other similar type of tax, duty or fee or payment in lieu of tax,
duty or fee (other than taxes measured upon net income), as well as any related
amounts of interest or penalties, imposed by any Governmental Authority with
respect to the ownership, operation or use of the Business or the Assets.
3.17 Certain Employee Items. Schedule 3.17 sets forth a complete list
of all employees of the Business and the present compensation (cash and
non-cash) for each. Seller is not a party to any labor or collective bargaining
agreement relating to the Business and there are no labor or collective
bargaining agreements which pertain to any employees of the Business. No labor
organization, collective bargaining representative or group represents or, to
the best of Seller's knowledge, claims to represent any employees of the
Business. There is no labor strike, dispute, work stoppage, slow down or lockout
pending or, to the best of Seller's knowledge, threatened against or affecting
the Business and, to the best of Seller's knowledge, no union organizational
campaign is in progress and no question concerning representation exists. There
are no unfair labor practice charges, grievances or complaints pending or, to
the best of Seller's knowledge, threatened by or on behalf of any employee or
group of employees of the Business which, if individually or collectively
resolved against the Business might have a material adverse effect on the Assets
or the Business. There are no complaints or charges pending or, to the best of
Seller's knowledge, threatened to be filed with any federal, state or local
court, governmental agency or arbitrator based on, arising out of, in connection
with, or otherwise relating to employment by the Business. Seller is in
compliance with all laws and orders relating to the employment of labor,
including all such laws and orders relating to wages, hours, collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding and/or social
security taxes and any similar tax.
3.18 Employee Benefit Plans and Arrangements. Schedule 3.18 lists all
of Seller's employee benefit plans, as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), relating to
employees of the Business, including, without limitation, executive compensation
plans, employee retirement plans, pension trusts, profit-sharing, bonus or stock
purchase plans, medical plans, life insurance plans, disability plans,
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severance pay plans, or other employee benefit plans for such employees
(collectively, the "Plans"). With respect to the Plans, Seller has delivered to
Purchaser copies of summary plan descriptions.
Schedule 3.18 identifies each such Plan intended to be a qualified plan
under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code").
Except as otherwise set forth on Schedule 3.18, Seller has not participated in,
maintained or contributed to any "multiemployer employee welfare benefit plan"
or "multiemployer employee pension benefit plan" and no employees of Seller are
covered by any such multiemployer employee welfare benefit plan or multiemployer
employee pension benefit plan. For purposes of this Section 3.18, a
"multiemployer employee welfare benefit plan" is a plan covering more than one
employer and that is negotiated with one or more unions, and a "multiemployer
employee pension benefit plan" is a plan described in Section 4001(a)(3) of
ERISA.
3.19 Environmental Matters. Except as disclosed on Schedule 3.19:
(a) the operations of the Business have been and are in
compliance with all Environmental Laws (as hereinafter defined), except for such
non-compliance which would not have a material adverse effect on the Assets or
the Business;
(b) no judicial or administrative proceedings are pending or,
to the best of Seller's knowledge, threatened against Seller relating to the
Business, the Leased Facility or the Accessory Shop that allege the violation of
or seek to impose liability pursuant to any Environmental Law, and, to the best
of Seller's knowledge, there are no investigations pending or threatened against
the Leased Facility, the Accessory Shop or Seller with respect to the Business,
which could give rise to material Environmental Costs and Liabilities (as
hereinafter defined);
(c) there are no facts, circumstances or conditions relating
to, arising from or attributable to the Business, the Leased Facility or the
Accessory Shop or, to the best of Seller's knowledge, adjacent properties that
are reasonably likely to give rise to material Environmental Costs and
Liabilities; and
(d) Seller has given Purchaser copies of all environmentally
related audits, assessments, studies, reports, analyses and results of
investigations of the Leased Facility and the Accessory Shop that are in
Seller's possession, custody or control.
For purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Costs and Liabilities" means any and all
losses, liabilities, obligations, damages, fines, penalties, judgments, actions,
claims, costs and expenses (including, without limitation, fees, disbursements
and expenses of legal counsel, experts, engineers and consultants and the costs
of investigation and feasibility studies and clean up, remove, treat, or
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in any other way address any Hazardous Materials) arising from or under any
Environmental Law.
"Environmental Laws" means any applicable federal, state,
local or foreign laws (including common law), statute, code, ordinance, rule,
regulation or other legal requirement relating to the environment, natural
resources or public and employee health and safety, and includes, but is not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (42 U.S.C. Section 9601 et seq.) (CERCLA), the Hazardous Material
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. et seq), the Clean Air Act (33 U.S.C. Section 2601 et seq), the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et seq.), the
Oil Pollution Act of 1990 (33 U.S.C. Section 2701 et seq.) and the Occupational
Safety and Health Act (24 U.S.C. Section 651 et seq.) as such laws have been
amended or supplemented, and the regulations promulgated pursuant thereto, and
all analogous state or local statutes.
"Hazardous Materials" means any substance, material or waste
which is regulated by any Governmental Authority, including, without limitation,
any material, substance or waste which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste,"
"restricted hazardous waste," "toxic waste" or "toxic substance" under any
provision of Environmental Law, which includes, but is not limited to,
petroleum, petroleum products, asbestos, urea formaldehyde and polychlorinated
biphenyls.
3.20 Insurance. The Assets are insured by Seller under valid and
enforceable policies, issued by insurers of recognized responsibility in amounts
and against such risks and losses as are customary in the industry in which the
Business operates. Seller has provided Purchaser with true and complete copies
of such policies.
3.21 Brokers, Finders and Agents. Seller is not directly or indirectly
obligated to anyone as a broker, finder, agent or in any other similar capacity
in connection with this Agreement or the transactions contemplated hereby.
3.22 Full Disclosure. No representation or warranty of Seller contained
in this Agreement or any other agreement, document or instrument between the
parties hereto contemplated hereby contains an untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained herein or therein misleading
3.23 Purchased Aircraft. The Purchased Aircraft is airworthy and
current with respect to all airworthiness directives and mandatory and
recommended service bulletins.
3.24 The Assets. Except for certain assets which are not transferable
or which arise by virtue of the ownership of Seller by AMR Corporation, all of
which assets are set forth on
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Schedule 3.24, the Assets, whether owned or leased, constitute all of the
assets, whether real, personal, tangible or intangible, used by Seller to carry
on the business as presently conducted.
3.25 Receivables. All of Seller's accounts and notes receivable from
customers and others for products sold in the Business have arisen as a result
of sales made in the ordinary course of business and consistent with past
practices, and Seller has no reason to believe that such accounts and notes
receivable will not be paid in full as and when due.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
4.01 Organization; Power and Authority. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite corporate power and authority to carry on its
business as it is now being conducted.
4.02 Authorization. Purchaser has full corporate power and authority to
execute and deliver this Agreement and the other agreements, documents and
instruments contemplated hereby to which Purchaser is a party. The execution,
delivery and performance of this Agreement and the other agreements, documents
and instruments contemplated hereby to which Purchaser is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action on the part of
Purchaser. This Agreement has been, and each other agreement, document and
instrument contemplated hereby to which Purchaser is a party will be, on or
prior to the Closing Date, duly executed and delivered by Purchaser, and
constitute, or upon execution and delivery will constitute, the valid, legal and
binding obligations of Purchaser, enforceable against Purchaser in accordance
with their respective terms, except as may be limited by bankruptcy,
reorganization, fraudulent conveyance, insolvency and similar laws of general
application relating to or affecting the enforcement of rights of creditors and
subject to general principles of equity.
4.03 Conflicts; Defaults. Neither the execution and delivery of this
Agreement and the other agreements, documents and instruments contemplated
hereby to which Purchaser is or will be a party nor the consummation by
Purchaser of the transactions contemplated hereby or thereby, will (a) result in
a violation or breach of the Certificate of Incorporation or the Bylaws of
Purchaser or any agreement, indenture or other instrument to which Purchaser is
a party or under which Purchaser is bound or (b) violate any law, statute,
judgment, decree, injunction, order, writ, rule or regulation of any
Governmental Authority having jurisdiction over Purchaser.
4.04 Consents. No authorization, consent, approval, permit, license of,
or filing with, any Governmental Authority, any lender or lessor or any other
person or entity is required to
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authorize, or is required in connection with, the execution, delivery and
performance of this Agreement or any other agreement, document and instrument
contemplated hereby by Purchaser, other than FAA repair station authority and
those permits or licenses which will be obtained prior to Closing.
4.05 Financial. Purchaser shall have at the Closing equity and/or debt
financing in an amount sufficient to pay the Purchase Price and consummate the
transactions contemplated by this Agreement and the other agreements, documents
and instruments contemplated hereby.
4.06 Brokers, Finders and Agents. Purchaser is not directly or
indirectly obligated to anyone as a broker, finder, agent or in any similar
capacity in connection with this Agreement or the transactions contemplated
hereby.
ARTICLE V
COVENANTS OF SELLER
5.01 Access to Information. Seller shall provide Purchaser and
Purchaser's representatives reasonable access to the Assets and to Seller's
books and records relating to the Assets and the Business, wherever located,
allow Purchaser and its representatives to make such audits, inspections and
tests (including environmental inspections and tests) thereof as Purchaser may
reasonably request and cause its officers and advisors to furnish Purchaser and
its representatives with such financial and operating data and other information
with respect to the Assets and the Business as Purchaser may from time to time
reasonably request. Seller shall also permit Purchaser to meet with and
interview employees, customers and suppliers of the Business for the purpose of
permitting Purchaser to become familiar with and to better understand the Assets
and the Business.
5.02 Conduct of Business Pending Closing. Prior to the Closing, except
as otherwise permitted or required by this Agreement or with the prior written
consent of Purchaser, Seller shall:
(a) operate the Business only in the ordinary course and, with
respect to the Business, will not introduce any new method of management or
operation or incur any obligation or liability, absolute or contingent, other
than those incurred in the ordinary course of business consistent with past
practices;
(b) use its reasonable efforts, consistent with the manner in
which the Business is currently operated, to preserve the Assets, the Leased
Facility and the Business intact and to retain the present employees, customers
and suppliers of the Business to the extent profitable;
(c) not take any action that could have a material adverse
effect on the Assets, the Leased Facility or the Business or take or fail to
take any action that would cause or permit
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the representations made in Article III hereof to be inaccurate at the time of
Closing or preclude Seller from making such representations and warranties at
and as of the time of Closing;
(d) to the extent related to the Assets or the Business, not
contract for, finance or pay any single capital expenditure in excess of $5,000
or total capital expenditures in excess of $10,000;
(e) not mortgage, pledge or subject any of the Assets or the
Leased Facility to any Lien, lease, security interest or other charge or
encumbrance, other than Permitted Liens;
(f) in respect of the Business, not make credit sales other
than in the ordinary course of business consistent with past practices with
respect to the size of each credit sale, the credit history of customers making
purchases on credit and the terms and conditions of the sales;
(g) not acquire or dispose of any of the Assets or incur,
assume or guaranty any indebtedness for borrowed money or other liabilities or
obligations to pay money relating to the Business, except for the incurrence of
trade and other payables in the ordinary course of business;
(h) not write up, write down or write off the carrying value
of any of the Assets;
(i) not enter into, terminate or agree to any modifications or
amendments to any Assumed Leases or Assumed Contracts;
(j) not materially increase or modify the wages, salary or
compensation of, or grant any additional benefit to any officer, employee or
agent of the Business;
(k) not enter into, terminate, modify or supplement any
collective bargaining agreement relating to employees of the Business; and
(l) not modify or terminate (i) that certain Domestic New
Aircraft/Sales and Service Center and Parts Distribution Agreement, dated
January 1, 1996 (the "Piper Distribution Agreement"), between Seller and The New
Piper Aircraft, Inc. ("Piper"), as amended, or (ii) its distribution arrangement
with Cessna Aircraft Company ("Cessna").
5.03 Notice of Material Adverse Change. Seller shall promptly inform
Purchaser in writing of any material adverse change in the condition of the
Assets or the Business. Notwithstanding the disclosure to Purchaser of any such
material adverse change, Seller shall not be relieved of any liability for, nor
shall the providing of such notice by Seller to Purchaser be deemed a waiver by
Purchaser of, the breach of any representation or warranty of Seller contained
in this Agreement.
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5.04 Consents. Seller shall use its reasonable efforts to obtain prior
to the Closing the Required Consents, including all necessary consents relating
to the assignment of each of the Assumed Leases and the Assumed Contracts, and
shall make prior to the Closing all material filings, give all material notices
and otherwise comply in all material respects with all governmental laws, rules
and regulations which are required on the part of Seller in order to enter into
and perform this Agreement and the other agreements, documents and instruments
contemplated hereby to which Seller is a party.
5.05 Reasonable Efforts to Satisfy Conditions. Seller shall use its
reasonable efforts to cause the Purchaser's conditions to closing set forth in
Article VIII to be satisfied to the extent that the satisfaction of such
conditions is in the control of Seller.
5.06 Benefit Plans. Seller shall satisfy all of its obligations under
the Plans.
5.07 Environmental Permits. Seller shall cooperate with Purchaser to
assist Purchaser in identifying all licenses, authorizations, permissions or
other permits required by or pursuant to Environmental Laws (collectively,
"Environmental Permits") necessary to operate the Business as of the Closing
Date and will, where permissible, transfer existing Environmental Permits of
Seller to Purchaser or, where permissible, assist in obtaining new Environmental
Permits for Purchaser.
5.08 No Solicitation. Provided that this Agreement has not been
terminated in accordance with the terms hereof, prior to the Closing, Seller
shall not, and shall not permit any of its affiliates, officers, directors,
employees or agents to, directly or indirectly, solicit, participate in or
initiate discussions or negotiations with, or provide any information to, any
person (other than Purchaser) concerning any sale of assets or other transaction
involving transfer of the Business. In the event that Seller or any of its
affiliates, officers, directors or agents receives any bona fide proposal with
respect to any such transaction, Seller shall provide Purchaser with prompt
notice of the terms of such proposal.
5.09 Noncompete. For a period commencing on the Closing Date and ending
on the date on which Seller ceases to own any shares of capital stock of
Purchaser, Seller shall not and shall cause its affiliates not to (i) cause,
induce or encourage any material customer, supplier, manufacturer or licensor of
the Business at the time of Closing, or any other person that has a business
relationship with Seller which is material to the Business at the time of
Closing, to terminate or change any such relationship in a manner which would be
adverse to the Business, or (ii) conduct, participate or engage, directly or
indirectly, in a business which offers aircraft parts for sale throughout the
United States of America. It is understood and agreed that the foregoing shall
not prevent Seller from offering aircraft parts for sale in connection with the
operation of aircraft maintenance facilities, including sales of parts that are
not installed at such facilities, provided that Seller and its affiliates
neither engage in advertising nor employ salesmen to promote such sales of
aircraft parts and that such sales in the aggregate are not material to the
Business as it exists on the Closing Date. If Seller sells any or all of its
fixed base
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operations to a party other than Purchaser, Seller shall cause such purchaser to
agree to honor Seller's obligations under this Section 5.09 until the date on
which Seller ceases to own any shares of capital stock of Purchaser.
5.10 The New Piper Aircraft, Inc.. Subject to Purchaser's continued
compliance with its covenant set forth in Section 6.05, Seller agrees that,
until the date on which Seller ceases to own any shares of the capital stock of
Purchaser:
(a) although Seller is under no obligation to continue or
renew the Piper Distribution Agreement, Seller shall not, without Purchaser's
prior written consent, modify, amend or renew such agreement if such,
modification, amendment or renewal would be on terms less favorable to Purchaser
or to the Business than the terms which are then in effect; and
(b) if Seller determines to discontinue its Piper
distributorship business, Seller shall enter into good faith negotiations with
Purchaser for the sale of such business before it negotiates with any other
party.
5.11 Cessna Aircraft Company. Subject to Purchaser's continued
compliance with its covenant set forth in Section 6.05, Seller agrees that,
until the date on which Seller ceases to own any shares of the capital stock of
Purchaser:
(a) although Seller is under no obligation to continue or
renew its distributorship arrangement with Cessna, at any time Seller retains
its distributorship relationship with Cessna, Seller shall serve as the
representative for the Business with Cessna, and will continue to allow
Purchaser to purchase Cessna products from Seller in a manner consistent with
current purchases by the Business of such products from Seller, and Seller shall
not, without Purchaser's prior written consent, modify, amend or renew its
agreement with Cessna if such modification, amendment or renewal would be on
terms less favorable to Purchaser or to the Business than the terms which are
then in effect; and
(b) if Seller determines to discontinue its Cessna
distributorship business, Seller shall enter into good faith negotiations with
Purchaser for the sale of such business before it negotiates with any other
party.
5.12 Sale of the Memphis FBO. Seller agrees that, until the date on
which Seller ceases to own any shares of the capital stock of Purchaser:
(a) if Seller determines to sell the Memphis FBO, other than
in connection with the sale of all or substantially all of the fixed based
operations owned by Seller and its affiliates, Seller shall enter into good
faith negotiations with Purchaser for the sale of such facility before it
negotiates with any other party; and
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(b) if the Memphis FBO is sold to a party other than
Purchaser, Seller shall cause such purchaser to honor Seller's obligations under
Sections 5.10 and 5.11 hereto.
5.13 FAA Repair Station Authority. Until such time as the Federal
Aviation Administration issues repair station authority to Purchaser, Seller
shall maintain its current repair station authority with respect to the Business
and shall permit Purchaser to operate under such repair station authority.
5.14 Employee Related Obligations. Seller shall satisfy all employee
related costs and obligations of Seller, including the payment of bonuses to
employees for the year ended December 31, 1996 if earned or awarded pursuant to
Seller's existing bonus plans.
5.15 The Purchased Aircraft. Purchaser shall be permitted to conduct a
pre-Closing inspection of the Purchased Aircraft.
5.16 The New Piper Aircraft, Inc. and Cessna Aircraft Company. Seller
shall comply with all terms and obligations set forth in the Piper Distribution
Agreement and in Seller's distributorship agreement with Cessna, including, but
not limited to, obligations concerning the use of forms, compliance with
policies, procedures and manuals, timely payment, maintenance of adequate
inventory and insurance coverage. Seller further agrees to indemnify Purchaser
from and against any and all liabilities, losses, costs, expenses, damages,
penalties, assessments, demands, claims and causes of action incurred by
Purchaser which arise from a failure of Seller to comply with the terms of this
Section 5.16, unless such failure is caused by the failure of Purchaser to
comply with the terms of Section 6.05 of this Agreement. The provisions of this
Section 5.16 shall terminate at such time as Seller ceases to own any shares of
the capital stock of Purchaser, provided that such termination shall not affect
any claims by Purchaser for indemnification in respect of any period prior to
such termination.
5.17 Receivables. All duly presented receivables from Seller or its
affiliates to the Business arising prior to the Closing and transferred to
Purchaser pursuant hereto shall be paid in the ordinary course of business, but
in any event within 30 days after the Closing.
ARTICLE VI
COVENANTS OF PURCHASER
6.01 Retention of Records. Purchaser shall retain all Records which
purchaser receives from Seller for the entire period required by the Internal
Revenue Service, the Department of Labor, the Federal Aviation Administration or
any other Governmental Authority for which Seller is required to retain records.
After the Closing, Seller and its representatives shall have reasonable access
to all such Records during normal business hours. In addition, Purchaser shall,
upon reasonable request of Seller, furnish to Seller, without charge, copies of
any such Records.
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6.02 Filings; Notices. Purchaser shall make prior to the Closing all
material filings, give all material notices and otherwise comply in all material
respects with all governmental laws, rules and regulations which are required on
the part of Purchaser in order to enter into and perform this Agreement and the
other agreements, documents and instruments contemplated hereby to which
Purchaser is a party.
6.03 Reasonable Efforts to Satisfy Conditions. Purchaser shall use its
reasonable efforts to cause the Seller's conditions to closing set forth in
Article IX to be satisfied to the extent that the satisfaction of such
conditions is in the control of Purchaser.
6.04 Financing. Purchaser shall have at the Closing equity and/or debt
financing in an amount sufficient to pay the Purchase Price and consummate the
transactions contemplated by this Agreement and the other agreements, documents
and instruments contemplated hereby.
6.05 The New Piper Aircraft, Inc. and Cessna Aircraft Company.
Purchaser shall comply with all terms and obligations of general application or
applicable to the distribution of parts set forth in the Piper Distribution
Agreement and in Seller's distributorship agreement with Cessna as if Purchaser
were a named party thereto, including, but not limited to, obligations
concerning the use of forms, compliance with policies, procedures and manuals,
timely payment, maintenance of adequate inventory and insurance coverage.
Purchaser further agrees to indemnify Seller from and against any and all
liabilities, losses, costs, expenses, damages, penalties, assessments, demands,
claims and causes of action incurred by Seller which arise from a failure of
Purchaser to comply with the terms of this Section 6.05, unless such failure is
caused by the failure of Seller to comply with the terms of Section 5.16 of this
Agreement. Purchaser further agrees that, if the Business is sold to a party
other than Seller, Purchaser shall cause such purchaser to agree to honor
Purchaser's obligations under this Section 6.05. The provisions of this Section
6.05 shall terminate at such time as Seller ceases to own any shares of the
capital stock of Purchaser, provided that such termination shall not affect any
claims by Seller for indemnification in respect of the period prior to such
termination.
ARTICLE VII
ADDITIONAL AGREEMENTS OF SELLER AND PURCHASER
7.01 Confidentiality. Prior to the Closing, Seller and Purchaser shall
keep this Agreement and its terms confidential, except as set forth in Section
7.02. In the event that the transactions contemplated by this Agreement are not
consummated for any reason whatsoever, the parties hereto agree not to disclose
or use any confidential information they may have concerning the business or
affairs of the other party, except for information which is required by law to
be disclosed. Confidential information includes, but is not limited to, customer
lists and files, prices and costs, business and financial records, information
relating to personnel, contracts, liabilities and litigation. Should the
transactions contemplated hereby not be consummated, upon the request of either
party to this Agreement, the other party shall return
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to the requesting party all confidential information received from such party in
connection with this transaction. Notwithstanding the foregoing, the parties may
disclose the terms of this Agreement and the transactions contemplated hereby
and the information concerning the Business and the Assets to their respective
affiliates, employees, attorneys and accountants, and Purchaser may also
disclose such information to existing and prospective lenders, to the extent
reasonably necessary to consummate the transactions contemplated hereby and upon
advising them of the confidential nature of such information.
7.02 Public Announcements. Prior to the Closing, each of Seller and
Purchaser agrees to use its reasonable efforts to consult with the other before
issuing any press releases or otherwise making any public statements with
respect to the transactions contemplated by this Agreement and, except as Seller
or Purchaser or their respective affiliates may deem necessary in order to
comply with legal or stock exchange requirements, shall not issue any such press
release, make any such public statement or file any report prior to the other
party approving such press release, public statement or report.
7.03 Certain Employee Matters. Purchaser shall offer employment to the
active employees of Seller listed on Schedule 3.17 hereto, other than those
employees who are on disability or other leave of absence as of the Closing (the
"Employees"), and Seller will use reasonable efforts to cause the Employees to
make their employment services available to Purchaser. Employment will be
offered to the Employees at the same base salary or hourly wage rate at which
Seller employed such Employees as of the Closing. Purchaser agrees to honor
accrued vacation time accumulated and vested by the Employees and to determine
eligibility for benefits of the Employees and their dependents under Purchaser's
health insurance without reference to "pre-existing condition" exceptions.
Seller shall cooperate with Purchaser to ensure that Purchaser is provided after
the Closing Date with all relevant information necessary for reporting employee
withholding taxes and handling other employee matters. Purchaser and Seller
intend that, notwithstanding anything in this Section 7.03, the Employees shall
not be third party beneficiaries of this Agreement.
Purchaser shall establish, within 30 days after the Closing Date, a
401(k) plan which is intended to qualify under Section 401 of the Code and shall
take all actions required to so qualify such plan (including preservation of
Section 411(d)(6) of the Code protected benefits). Seller shall cause all
contributions and other allocations with respect to the period prior to the
Closing Date to be paid to the individual accounts of the Employees under its
401(k) plan prior to the last day of the month following the Closing Date (the
"Valuation Date"). Seller shall cause the value of the individual accounts
(vested and unvested) of Employees under its 401(k) plan as of the Valuation
Date to be transferred, in cash, outstanding plan loans to Employees or other
property acceptable to Purchaser, to Purchaser's 401(k) plan within ten business
days thereafter, as such value may be equitably adjusted for earnings, losses
and distributions with respect to such accounts from the Valuation Date to the
actual date of transfer. Purchaser shall preserve all rights, benefits and
features contained in Seller's 401(k) plan. If any Employee terminates
employment with Purchaser and thereby forfeits any portion of his or her
individual
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retirement account attributable to the amount transferred from Seller's 401(k)
plan, Purchaser shall pay in cash to Seller an amount equal to the value of such
forfeited portion as of the end of the plan year in which such forfeiture
occurs.
7.04 Bulk Transfer Laws. Prior to the Closing, Seller and Purchaser
will comply in all material respects with any applicable bulk transfer laws.
7.05 Non Solicitation of Employees. For a period of three years from
the date of this Agreement, neither Seller nor Purchaser shall, nor shall it
allow its affiliates to, cause, induce or encourage any employees of the other,
whether employed in the Business or not, to become employees of itself. This
Agreement shall survive any termination of this Agreement, unless specifically
agreed by mutual written consent of Seller and Purchaser.
ARTICLE VIII
PURCHASER'S CONDITIONS TO CLOSING
Except as may be waived in writing by Purchaser, the obligations of
Purchaser hereunder are subject to the fulfilment at or prior to Closing of each
of the following conditions:
8.01 Representations and Warranties. The representations and warranties
of Seller contained herein and in each of the agreements, documents and
instruments executed pursuant hereto shall have been true and correct in all
material respects as of the date of this Agreement, and shall be true and
correct in all material respects at the Closing Date with the same force and
effect as if such representations and warranties had been made at and as of the
Closing Date.
8.02 Covenants. Seller shall have performed and complied in all
material respects with all agreements, covenants or conditions required by this
Agreement or any of the agreements, documents or instruments executed pursuant
hereto to be performed and complied with by Seller prior to Closing.
8.03 No Material Adverse Change. No material adverse change in the
Assets or the Business shall have occurred after the date of this Agreement and
prior to the Closing; provided, however, that should a material adverse change
in the prospects of the Business occur, Purchaser and Seller shall attempt to
negotiate a mutually acceptable resolution which allows them to complete the
Closing. For purposes of this Section 8.03, Purchaser and Seller acknowledge and
agree that any variance in the revenue, earnings, or results of operations of
the Business from projections thereof provided to or created by Purchaser shall
not in and of itself constitute a material adverse change in the Business.
8.04 Proceedings. No action, proceeding or order by any court or
Governmental Authority shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated by this Agreement.
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8.05 Delivery of Instruments. Seller shall have executed and delivered
to Purchaser the Bill of Sale, the Aircraft Bill of Sale, the Assignment and
Assumption Agreement and such other conveyance documents as are required by
Section 1.05.
8.06 Stock Purchase Agreement and Stockholders Agreement. Seller shall
have executed and delivered to Purchaser a stock purchase agreement in
substantially the form of Exhibit D hereto (the "Stock Purchase Agreement") and
a stockholders agreement in substantially the form of Exhibit E hereto (the
"Stockholders Agreement").
8.07 Sublease Agreement. Seller and Purchaser shall have entered into a
sublease agreement relating to the Accessory Shop leasing to Purchaser the
Accessory Shop for a period of six months from the Closing Date, and on a
month-to-month basis for an additional period of six months thereafter, at a
monthly rental of $879.
8.08 Consents. Seller shall have delivered to Purchaser all Required
Consents.
8.09 Combs License Agreement. Seller shall have executed and delivered
to Purchaser a license agreement (the "Combs License Agreement") granting
Purchaser (a) the right for a period commencing on the Closing Date and ending
on the later of (i) the second anniversary of this Agreement or (ii) the date on
which AMR Corporation ceases to own, directly or indirectly, a majority of the
capital stock of AMR Combs, Inc. to use the name "AMR Combs" in conjunction with
the names "Aircraft Parts International" or "API" and (b) the right for a period
commencing on the Closing Date and ending on the date on which Seller ceases to
own any shares of the capital stock of Purchaser to use the name "Combs" in
conjunction with the names "Aircraft Parts International" or "API."
8.10 Parts Purchase Agreement. Seller shall have executed and delivered
to Purchaser a purchase agreement (the "Parts Purchase Agreement"), on terms
mutually acceptable to the parties, pursuant to which Seller shall agree to
purchase goods from Purchaser after the Closing.
8.11 Officer's Certificate. Seller shall have delivered to Purchaser a
certificate executed by an executive officer of Seller dated the Closing Date
confirming the matters set forth in Sections 8.01 and 8.02 and certifying that
the transactions contemplated hereby and the execution, delivery and performance
of this Agreement and the documents, agreements and instruments contemplated
hereby to which Seller is or will be a party have been duly authorized by all
necessary corporate action of Seller.
8.12 The New Piper Aircraft Company, Inc.. Piper shall have consented
to Purchaser acquiring and operating the Business and shall have agreed to
continue to supply parts to the Business under the terms of the Piper
Distribution Agreement.
ARTICLE IX
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SELLER'S CONDITIONS TO CLOSING
9.01 Representations and Warranties. The representations and warranties
of Purchaser contained herein and in each of the agreements, documents and
instruments executed pursuant hereto shall have been true and correct in all
material respects as of the date of this Agreement, and shall be true and
correct in all material respects at the Closing Date with the same force and
effect as if such representations and warranties had been made at and as of the
Closing Date.
9.02 Covenants. Purchaser shall have performed and complied in all
material respects with all agreements, covenants or conditions required by this
Agreement or any of the agreements, documents or instruments executed pursuant
hereto to be performed and complied with by Purchaser prior to Closing.
9.03 Proceedings. No action, proceeding or order by any court or
Governmental Authority shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated by this Agreement.
9.04 Payment of the Purchase Price. Purchaser shall have delivered to
Seller the Purchase Price.
9.05 Release from Real Property Lease. Seller shall have entered into a
termination and release agreement with the owner of the Leased Facility
terminating Seller's obligations in respect of the lease of the Leased Facility.
9.06 Delivery of Instruments. Purchaser shall have executed and
delivered to Seller the Assignment and Assumption Agreement and such other
assumption documents as are required to be executed and delivered by Purchaser
pursuant to Section 1.06.
9.07 Stock Purchase Agreement and Stockholders Agreement. Purchaser
shall have executed and delivered to Seller the Stock Purchase Agreement and the
Stockholders Agreement.
9.08 Combs License Agreement. Purchaser shall have executed and
delivered to Seller the AMR Combs License Agreement.
9.09 Parts Purchase Agreement. Purchaser shall have executed and
delivered to Seller the Parts Purchase Agreement.
9.10 Exemption Certificates. Purchaser shall have provided Seller with
a Tennessee exemption certificate stating that Purchaser is purchasing the
Inventories for resale, and such other exemption certificates as Seller may
reasonably request.
9.11 Officer's Certificate. Purchaser shall have delivered to Seller a
certificate executed by an executive officer of Purchaser dated the Closing Date
confirming the matters set
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forth in Sections 9.01 and 9.02 and certifying that the transactions
contemplated hereby and the execution, delivery and performance of this
Agreement and the documents, agreements, and instruments contemplated hereby to
which Purchaser is or will be a party have been duly authorized by all necessary
corporate action of Purchaser.
ARTICLE X
INDEMNIFICATION
10.01 Seller's Indemnification Obligations. Subject to the terms and
conditions of this Article X, Seller agrees to indemnify, defend and hold
harmless Purchaser and its officers, directors, stockholders, agents, attorneys
and affiliates (each a "Purchaser Indemnified Party") from and against any and
all Damages (as hereinafter defined) asserted against or incurred by such
Purchaser Indemnified Party by reason of or resulting from:
(a) a breach by Seller of any representation, warranty,
covenant, obligation or agreement contained herein or in any agreement, document
or instrument executed pursuant hereto;
(b) any product liability or breach of warranty claims
relating to products sold by Seller prior to the Closing, and all general
liability claims arising out of or relating to the Business prior to the
Closing, whether any such claims are asserted prior to or after the Closing;
(c) any obligation or liability under or related to any
employee benefit plans of Seller;
(d) any and all liabilities and obligations of Seller not
expressly assumed by Purchaser pursuant to this Agreement or the agreements,
documents and instruments executed pursuant hereto; and
(e) any and all Environmental Cost and Liabilities based upon,
attributable to, arising out of or resulting from Seller's operation of the
Leased Facility, the Accessory Shop or the Business to the extent relating to
operations, activities or events that occurred prior to the Closing with respect
to the Leased Facility and the Business, and at any time, other than during the
post-Closing period during which Purchaser is subleasing the Accessory Shop,
with respect to the Accessory Shop.
For purposes of this Article X, "Damages" means any and all
liabilities, losses, costs, expenses, damages, penalties, assessments, demands,
claims and causes of action, including, without limitation, reasonable
attorneys' fees and expenses and court costs, incurred by any Purchaser
Indemnified Party.
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10.02 Purchaser's Indemnification Obligations. Subject to the terms and
conditions of this Article X, Purchaser agrees to indemnify, defend and hold
harmless Seller and its officers, directors, stockholders, agents, attorneys and
affiliates (each a "Seller Indemnified Party") from and against any and all
Damages asserted against or incurred by such Seller Indemnified Party by reason
of or resulting from:
(a) a breach by Purchaser of any representation, warranty,
covenant, obligation or agreement contained herein or in any agreement, document
or instrument executed pursuant hereto;
(b) the failure of Purchaser to pay, perform and discharge
when due any Assumed Lease or Assumed Contract; and
(c) any other claims arising out of or relating to the
operation of the Business or the ownership of the Assets after the Closing.
10.03 Conditions to Indemnification. The respective obligations and
liabilities of the indemnifying parties to the parties to be indemnified under
Sections 10.01 and 10.02 hereof with respect to claims arising from the
assertion of liability by third parties shall be subject to the following terms
and conditions:
(a) Promptly after receipt of notice of commencement of any
action evidenced by service of process or other legal pleading, or within 30
days (or such shorter period as may be necessary in order that the rights of the
indemnifying party will not be prejudiced) after the assertion in writing of any
other claim by a third party, the party to be indemnified shall give the
indemnifying party written notice thereof together with a copy of such claim,
process or other legal pleading, and the indemnifying party shall have the right
to undertake the defense thereof by representatives of its own choosing and at
its own expense; provided, however, that the party to be indemnified may
participate in the defense with counsel of its own choice at its own expense.
(b) If the indemnifying party, by the 30th day after its
receipt of notice of any such claim (or, if earlier, by the fifth day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does not
notify the party to be indemnified that it has elected to defend against such
claim, the party to be indemnified will have the right to undertake the defense,
compromise or settlement of such claim on behalf of and for the account and risk
of the indemnifying party and at the indemnifying party's expense, subject to
the right of the indemnifying party to assume the defense of such claim at any
time prior to settlement, compromise or final determination thereof. The party
to be indemnified will notify the indemnifying party of any proposed settlement
no later than three days before such settlement is effected.
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(c) Anything in this Section 10.03 to the contrary
notwithstanding, the indemnifying party shall not settle any claim without the
consent of the party to be indemnified unless such settlement involves only the
payment of money and the claimant provides to the party to be indemnified, in
form and substance satisfactory to that party, a release from all liability in
respect of such claim. If the settlement of the claim involves more than the
payment of money, the indemnifying party shall not settle the claim without the
prior written consent of the party to be indemnified.
(d) The party to be indemnified and the indemnifying party
will each cooperate with all reasonable requests of the other.
(e) The failure of a party seeking indemnification hereunder
to provide any notice required hereunder shall not relieve the indemnifying
party from any liability it would otherwise have hereunder, except to the extent
that the indemnifying party has been materially prejudiced thereby.
10.04 Limitation of Claims.
(a) No claim for indemnification may be made by a Purchaser
Indemnified Party or a Seller Indemnified Party pursuant to this Article X for
Damages relating to breaches of any of the representations and warranties
contained herein unless and until such time as all claims of parties seeking
indemnification against a party hereunder exceed $50,000 in the aggregate, at
which time any and all claims of such party for indemnification for such Damages
in excess of such amount may be asserted.
(b) No claim for indemnification for Damages relating to
breaches of any of the representations or warranties contained herein may be
made by Purchaser or Seller pursuant to this Article X after the first
anniversary of the Closing Date and no claim for indemnification for Damages
relating to matters other then breaches of any representations or warranties may
be made by Purchaser or Seller pursuant to this Article X after the fifth
anniversary of the Closing Date, provided that the foregoing shall not limit in
any respect the ability of Purchaser or Seller to make any other claim
hereunder, including, without limitation, a claim for breach of any covenant or
agreement contained herein.
10.05 Indemnification for Negligent Indemnity. The indemnification
provided in this Article X shall remain operative and in full force and effect
whether or not negligence on the part of the indemnified party is alleged or
proven.
10.06 Reimbursement. If the indemnifying party shall undertake the
defense, compromise or settlement of a claim pursuant to this Article X and it
is later determined that such claim was not a claim for which the indemnifying
party is required to indemnify the indemnified party under this Article X, the
indemnified party shall reimburse the indemnifying
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party for all of the indemnifying parties costs and expenses with respect to
such defense, compromise or settlement, including reasonable attorneys' fees and
expenses.
ARTICLE XI
TERMINATION
11.01 Termination. This Agreement and the transactions contemplated
hereby may be terminated at any time on or before the Closing (except with
respect to (e) below):
(a) by mutual written consent of Seller and Purchaser;
(b) by Purchaser, if there has been a material
misrepresentation or breach of warranty in the representations and warranties of
Seller herein, or if there has been any material failure on the part of Seller
to comply with its obligations hereunder, and such misrepresentation, breach or
failure to comply is not or cannot be cured by March 15, 1997 and has not been
waived;
(c) by Seller, if there has been a material misrepresentation
or breach of warranty in the representations and warranties of Purchaser herein,
or if there has been any material failure on the part of Purchaser to comply
with its obligations hereunder, and such misrepresentation, breach or failure to
comply is not or cannot be cured by March 15, 1997 and has not been waived;
(d) by Purchaser or Seller, if the conditions precedent to
their respective obligations to close the transactions contemplated by this
Agreement have not been satisfied or waived by March 15, 1997, unless such
failure of satisfaction is due to the failure of the terminating party to
perform or observe the covenants, agreements and conditions hereof to be
performed or observed by it prior to the Closing;
(e) by Purchaser or Seller upon written notice of termination
to the other at any time after December 15, 1996, if at or prior to the delivery
of such notice of termination (i) Purchaser shall not have informed Seller that
Purchaser and Industry Publications have entered into a modification of those
certain letter agreements, dated May 4, 1995 and October 17, 1995, between
Seller and Industry Publications which incorporates terms and conditions
satisfactory to Purchaser and (ii) Purchaser shall not have informed Seller that
it waives the applicability of this Section 11.01(e). At such time as Purchaser
informs Seller as contemplated in clause (i) or (ii) above, the right of
termination as provided in this Section 11.01(e) shall cease to be available to
Purchaser or Seller; or
(f) by Purchaser or Seller, if the consummation of the
transactions contemplated hereby would violate any law, non-appealable final
order, decree or judgement of any court or Governmental Authority having
competent jurisdiction.
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11.02 Effect of Termination. No termination of this Agreement, whether
pursuant to Section 11.01 or otherwise, shall affect the right of Purchaser or
Seller, as the case may be, to pursue any and all rights it may have against the
other. Unless specifically agreed by mutual written consent of Seller and
Purchaser, no termination of this Agreement shall affect the obligations of the
parties set forth in Section 7.01 or Section 7.05.
ARTICLE XII
MISCELLANEOUS
12.01 Survival of Representations and Warranties. Purchaser and Seller
agree that the representations and warranties of the parties contained herein
shall continue in full force and effect after the Closing for a period of one
year from the Closing Date, at which time they shall expire.
12.02 Definition of "Seller's Knowledge" and "Material Adverse Effect".
As used herein, any reference made "to the best of Seller's knowledge" means the
actual knowledge of Robert Anderson, Paul Baioni, Ray Fitzgerald, Glen Golden,
Peter LaSalle, Peter Arnett or Bill Moltenbrey, each an officer or employee of
Seller or Aircraft Parts International. As used herein, any reference to
"material adverse effect," "material adverse change" or words of similar
construction on the Assets or Business shall mean a material adverse effect on
the condition (financial or otherwise), revenues, earnings, results of
operations, prospects, properties or liabilities of the Assets or the Business.
12.03 Expenses. Except as agreed in Section 2.02(c) of this Agreement
and with respect to the fees and expenses incurred in the preparation of the
Financial Statements, which shall be divided equally between Seller and
Purchaser, each of the parties hereto shall pay the fees and expenses of its own
counsel, accountants, financial advisors or other experts, and all expenses
incurred by such party incident to the negotiation, preparation, execution,
consummation and performance of this Agreement and the transactions contemplated
hereby, whether or not the transactions contemplated by this Agreement are
consummated.
12.04 Notices. All notices, requests and other communications under
this Agreement shall be in writing (including a writing delivered by facsimile
transmission) and shall be deemed to have been duly given if delivered
personally, or sent by either certified or registered mail, return receipt
requested, postage prepaid, by overnight courier guaranteeing next day delivery,
or by telecopier (with telephonic or machine confirmation by the sender),
addressed as follows (or to such other address, including facsimile number, as
shall have been designated by the recipient in writing):
(a) If to Seller: AMR Combs, Inc.
4255 Amon Carter Blvd.
MD 4239
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Fort Worth, Texas 76155
Attn: President
Telecopy: (817) 967-9213
With a required copy to: AMR Services Corporation
4255 Amon Carter Blvd.
MD 4240
Fort Worth, Texas 76155
Attn: General Counsel
Telecopy: (817) 963-4847
(b) If to Purchaser: Aircraft Parts International Combs, Inc.
3778 Distriplex Drive North
Memphis, Tennessee 38118-7299
Attn: President and Chief Operating Officer
Telecopy: (901) 375-2626
With a required copy, prior First Aviation Services, Inc.
to May 1, 1997, to: One Omega Drive
Stamford, Connecticut 06907
Attn: President and Chief Operating Officer
Telecopy: (203) 359-7901
and, after May 1, 1997: First Aviation Services, Inc.
15 Riverside Drive
Westport, Connecticut
Attn: President
and, prior to May 1, 1997: First Equity Development, Inc.
One Omega Drive
Stamford, Connecticut 06907
Attn: President
Telecopy: (203) 359-7901
and, after May 1, 1997: First Equity Development, Inc.
15 Riverside Drive
Westport, Connecticut
Attn: President
With a required copy to: Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attn: Frederick S. Green, Esq.
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Telecopy: (212) 310-8007
All such notices, requests and other communications shall be deemed to have been
received on the date of delivery thereof (if delivered by hand), on the third
Business Day after the mailing thereof (if mailed), on the next day after the
sending thereof (if by overnight courier) and when receipt is confirmed as
provided above (if telecopied).
12.05 Waivers, Amendments and Remedies. No amendment or waiver of any
provision of this Agreement, nor consent to any departure therefrom, shall be
effective unless the same shall be in writing and signed by an officer of each
party hereto, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No failure on
the part of a party hereto to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies provided in this Agreement are
cumulative and, unless otherwise expressly provided herein, not exclusive of any
remedies provided by law.
12.06 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
Neither party hereto shall assign its rights hereunder or any interest herein
without the prior written consent of the other party hereto, except that
Purchaser may assign its rights hereunder to any wholly owned subsidiary, parent
company or wholly owned subsidiary of a parent company.
12.07 Exhibits and Schedules. The Exhibits and Schedules attached
hereto or referred to herein are incorporated herein and made a part hereof for
all purposes. As used herein, the expression "this Agreement" means this
document and such Exhibits and Schedules.
12.08 Governing Law. THIS AGREEMENT, AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HERETO, SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS.
12.09 Captions. The captions, headings and arrangements used in this
Agreement are for convenience only and do not in any way affect, limit or
amplify the provisions hereof.
12.10 Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable; this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof; and the remaining provisions of
this Agreement shall remain in full force and effect and shall not be affected
by the illegal, invalid or unenforceable provision or its severance from this
Agreement.
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12.11 Entirety. This Agreement contains the entire agreement and
understanding between the parties with respect to the matters addressed herein
and supersedes all prior representations, inducements, promises or agreements,
oral or otherwise, which are not embodied herein.
12.12 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original for all purposes and all
of which shall be deemed collectively to be one agreement.
12.13 Attorneys' Fees. If any action or proceeding is commenced by any
party hereto for the purpose of enforcing any provision of this Agreement, the
prevailing party to such action or proceeding may receive as part of any award,
judgment, decision or other resolution of such action or proceeding its costs
and attorneys' fees as determined by the person making such award, judgment,
decision or resolution. Should any claim hereunder be settled short of the
commencement of any such action or proceeding, including arbitration, the
parties to such settlement shall be entitled to include as part of the damages
alleged to have been incurred reasonable costs of attorneys or other
professionals in investigation or counseling on such claim.
12.14 Third Party Beneficiaries. Nothing contained herein, express or
implied, is intended to confer upon any person other than the parties hereto and
their successors in interest and permitted assigns any rights or remedies under
or by reason of this Agreement, except as otherwise expressly provided in this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to execute and deliver this Agreement as of the date
first written above.
AIRCRAFT PARTS INTERNATIONAL
COMBS, INC.
By: /s/ AARON HOLLANDER
-------------------------------
Name: Aaron Hollander
Title: CEO and Director
AMR COMBS, INC.
By: /s/ ROBERT P. ANDERSON
-------------------------------
Name: Robert P. Anderson
Title: President
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Exhibit E to
Asset Purchase Agreement
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of _______,
1996, is made by and among Aircraft Parts International Combs, Inc., a Delaware
corporation (the "Company"), First Aviation Services Inc., a Delaware
corporation ("Parent"), and AMR Combs, Inc., a Delaware corporation ("Combs").
W I T N E S S E T H
WHEREAS, the Company is a newly formed corporation all of the
outstanding capital stock of which is owned by Parent; and
WHEREAS, Combs has agreed to purchase 11,000 shares (the "Preferred
Shares") of the Company's Class A Convertible Preferred Stock, $ 0.001 par value
(the "Class A Preferred Stock"), which are convertible into 11,000 shares of the
Company's Class A Common Stock, $0.001 par value ("Common Stock"), pursuant to
the terms of that certain Stock Purchase Agreement, dated as of _______, 1996
(the "Stock Purchase Agreement"), between the Company and Combs (the Preferred
Shares and shares of Common Stock into which the Preferred Shares are
convertible being herein referred to as the "Shares"); and
WHEREAS, Combs is willing to purchase the Preferred Shares pursuant to
the Stock Purchase Agreement if the Company and Parent execute and deliver this
Agreement; and
WHEREAS, as an inducement to Combs to purchase the Preferred Shares,
the Company and Parent desire to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DISPOSITION OF SHARES
1.01 Restriction on Disposition by Combs. During the Restricted Period
(as hereinafter defined), Combs shall not sell, assign, transfer, give,
encumber, pledge or in any way dispose of any Shares without the prior written
consent of the Company, except (a) to an individual, partnership, corporation or
other entity which, directly or indirectly, controls, is controlled by or is
under common control with Combs and that agrees to be bound by the terms of this
Agreement, or (b) as otherwise provided in this Agreement. Subject to the terms
of this Agreement, Combs shall be
<PAGE> 36
entitled to exercise all rights of ownership of the Shares. As used herein, the
Restricted Period shall begin on the date of this Agreement and continue for
three years from the date hereof; provided that the expiration of the Restricted
Period shall be extended if the sale by Combs of the Shares would in the
reasonable opinion of the Company have a material adverse effect on the business
of the Company until such time as such sale of Shares by Combs would not have a
material adverse effect on such business, for up to two additional years;
provided, however, that the resulting impact of the payment for the Shares on
the cash flow and balance sheet of the Company and otherwise on the financial
condition of the Company, assuming the exercise of the Put Option (as
hereinafter defined) promptly following the expiration of the Restricted Period,
shall not be considered to have a material adverse effect on the business of the
Company.
1.02 Right of First Refusal.
(a) After the expiration of the Restricted Period and provided
that Combs at the time retains its Put Option set forth in Article III, if Combs
shall desire to sell or otherwise dispose of all or part of the Shares pursuant
to a bona fide offer from any third party (a "Third Party Offer"), it shall give
the Company and Parent written notice (the "Notice") of such intention. The
Notice shall include an offer (the "Offer") to sell such Shares to the Company
upon the terms and conditions described below. The Notice shall also include a
copy of the written Third Party Offer stating its terms and conditions,
including the number and price per share of the Shares to be purchased, the
method of payment and the proposed closing date (which shall in no event be
sooner than the end of the 30-day period described in Subsection 1.02(b)).
(b) The Company shall have 30 days from the date it receives
the Notice to accept or reject the Offer in writing. If the Company accepts the
Offer, the acceptance shall set forth the arrangements for closing, which shall
occur no later than the date proposed by the Third Party Offer. The Company, or
a third party designated by the Company, shall have the right to purchase all of
the Shares to be transferred for the purchase price set forth in the Third Party
Offer (or a sum of money equal in value to the total consideration to be paid
thereunder). If a portion of the consideration consists of property other than
cash, in determining the value of the total consideration, such property shall
be given its fair market value, as determined in accordance with the procedures
for determining fair market value set forth in Section 3.03(b), as of the time
the Company exercises its right to purchase such Shares.
(c) Upon the expiration of the 30-day period, or upon the
earlier receipt of rejection of the Offer in writing by the Company, Combs shall
be released from its obligations under this Agreement as to the Shares subject
to the Offer. Combs will have 90 days to sell the Shares pursuant to the Third
Party Offer. If Combs does not sell such securities within such 90 day period,
it shall not thereafter sell such Shares without first complying with the
provisions of this Section 1.02. Combs shall remain subject to this Agreement to
the extent it retains any of the Shares, including those Shares subject to the
Offer.
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<PAGE> 37
ARTICLE II
CO-SALE RIGHTS
2.01 Restriction on Disposition by Parent. During the term of this
Agreement, Parent shall not sell, assign, transfer, give, encumber, pledge or in
any way dispose of any shares of the capital stock of the Company ("Capital
Stock") owned by it, except (a) to an individual, partnership, corporation or
other entity which, directly or indirectly, controls, is controlled by or is
under common control with Parent and that agrees to be bound by the terms of
this Agreement or (b) as provided in this Article II; provided, however, that
none of the provisions of this Article II shall apply to any sale by Parent of
shares of Capital Stock in an underwritten public offering, so long as Combs has
had an opportunity to participate in such underwritten public offering pursuant
to the registration rights set forth in Article IV of this Agreement. Any
purported sale, assignment or transfer in violation of this Article II shall be
void and ineffectual.
2.02 Co-Sale Right.
(a) If at any time Parent intends to sell, assign or transfer
any shares of Capital Stock to any third party, unless the procedures set forth
in Section 2.04 are complied with, the transferee of such shares of Capital
Stock must first agree to be bound by the terms and conditions of this Agreement
and Parent shall give Combs written notice (the "Co-Sale Notice") of such
intention to sell, assign or transfer shares of Capital Stock. The Co-Sale
Notice shall include (i) a statement of Parent's bona fide intention to sell,
assign or transfer shares of Capital Stock; (ii) the name and address of the
prospective transferee (the "Buyer"); (iii) the number of shares of Capital
Stock to be sold or transferred; (iv) the terms and conditions of the
contemplated sale or transfer; (v) the purchase price in cash that the Buyer
will pay for such shares of Capital Stock; (vi) the expected closing date of the
transaction; and (vii) such other information as Combs may reasonably request to
facilitate its decision as to whether or not to exercise the rights granted by
this Article II.
(b) Combs may elect to participate in the contemplated sale or transfer
by delivering to Parent a written notice (the "Election Notice") within 30 days
after receipt of such Co-Sale Notice setting forth the election of Combs to
exercise its right of co-sale. Combs may elect to sell or transfer in the
contemplated transaction any or all of the Shares. Promptly after receipt of the
Election Notice exercising such right, Parent will request the Buyer to amend
its offer to provide for the Buyer's purchase, upon the same terms and
conditions as those contained in the Co-Sale Notice, of all of the Shares
elected to be sold by Combs (the "Co-Sale Shares"). If the Buyer is unwilling to
amend its offer to purchase all of the Co-Sale Shares in addition to the shares
of Capital Stock described in the related Co-Sale Notice and Parent desires to
proceed with the sale, the total number of shares that such Buyer is willing to
purchase will be allocated between Parent and Combs such that the percentage of
Combs' total Shares to be sold by Combs to Buyer is equal to the percentage
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<PAGE> 38
of Parent's total shares of Capital Stock to be sold by Parent to Buyer. All
Capital Stock sold or transferred by Parent and Combs with respect to a single
Co-Sale Notice will be sold or transferred to the Buyer in a single closing on
the terms described in the Co-Sale Notice, and each such share will receive the
same per share consideration. If the Buyer, for whatever reason, declines to
purchase any shares from Combs, then Parent will not be permitted to sell,
assign or transfer any shares of Capital Stock to such Buyer.
2.03 No Prejudice to Put Option. Nothing contained in this Article II
shall limit, impair or restrain in any way the rights of Combs to exercise the
Put Option (as hereinafter defined).
2.04 Drag Along. If at any time Parent intends to sell, assign or
transfer shares of Capital Stock owned by Parent to an Unaffiliated Third Party
(as hereinafter defined) in a bona fide arm's length transaction, then, upon the
written request of Parent (the "Sale Request") Combs shall be obligated to, and
shall (a) sell, transfer and deliver to such Unaffiliated Third Party the
percentage of Combs' total Shares that is equal to the percentage of the
Parent's total shares of Capital Stock that is being sold by Parent to Buyer at
the same price per share and on the same terms as are applicable to shares being
sold by Parent, and upon request, if stockholder approval of the transaction is
required, Combs will vote the Shares, if permitted to vote, in favor thereof. As
used in this Section 2.04, an Unaffiliated Third Party is a person, corporation,
partnership or other entity that does not own a majority of the capital stock of
or control Parent, that Parent does not own a majority of the Capital Stock of
or control, or that a person, corporation, partnership or other entity which
owns a majority of the capital stock of or controls Parent does not own a
majority of the capital stock of or control.
ARTICLE III
PUT/CALL
3.01 Put Option. The Company hereby grants to Combs an option to sell
to the Company, and the Company is obligated to purchase from Combs under such
option (the "Put Option"), all, but not less than all, of the Shares at the
Option Price (as hereinafter defined). The Put Option may be exercised at any
time after the first to occur of the following (the "Put Option Period"):
(a) the expiration of the Restricted Period;
(b) Parent ceases to directly own or control 51% of the
Capital Stock of the Company;
(c) the sale in one or more related transactions of all or a
material portion of the assets, business or revenue or income generating
operations of the Company or any substantial change in the type of business
conducted by the Company; or
4
<PAGE> 39
(d) the failure of the Company or Parent to perform in any
material respect any of its material obligations under this Agreement.
The Put Option shall expire upon the closing of an underwritten public
offering of shares of Common Stock of the Company registered under the
Securities Act of 1933, as amended, other than on Form S-4, S-8 or other limited
purpose form (a "Qualified Public Offering").
3.02 Call Option. Combs hereby grants to the Company an option to
purchase from Combs, and Combs is obligated to sell to the Company under such
option (the "Call Option"), all, but not less than all, of the Shares at the
Option Price. The Call Option may be exercised at any time before the closing of
a Qualified Public Offering.
3.03 Option Price. If Combs exercises the Put Option or the Company
exercises the Call Option, the per share price (the "Option Price") to be paid
to Combs pursuant to this Article III will be equal to the fair market value of
the Shares as determined by an independent investment banking or accounting firm
or any other professional person or firm qualified to determine the fair market
value of shares of common stock (an "Appraiser") that is mutually acceptable to
the Company and Combs; if, however, the parties cannot so agree on an Appraiser
within 10 days after the date Combs or the Company, as the case may be, gives
notice of the exercise of its option, then each of the Company and Combs shall
designate an Appraiser, and such two Appraisers shall agree upon and designate a
third Appraiser, which third Appraiser shall thereupon determine the fair market
value of the shares of Common Stock. Each party shall bear the costs of the
Appraiser designated by it, and if only one Appraiser is necessary, or if a
third Appraiser is necessary, the costs of such Appraisers shall be paid by
Combs upon exercise of the Put Option or by the Company upon exercise of a Call
Option.
In determining the fair market value of the Shares, (a) upon the
exercise of the Call Option by the Company or upon the exercise of the Put
Option by Combs on or after the fifth anniversary of this Agreement, the
Appraiser shall not consider the minority interest represented by or lack of
control exercised by the Shares but shall include all other relevant factors,
including, without limitation, the existence or absence of a public market for
the Shares, and (b) upon the exercise of the Put Option by Combs prior to the
fifth anniversary of this Agreement, the Appraiser shall discount by 20% the
fair market value of the Shares to reflect the minority interest represented by
and lack of control exercised by the Shares.
3.04 Exercise of Options. An option may be exercised by the exercising
party giving written notice to the non-exercising party of the exercising
party's election to exercise the option, which notice shall set forth the date
of the Option Closing (as defined below), which shall be not more than 30 days
after the date of such notice.
3.05 Option Closing. The closing for the purchase and sale of
the Shares upon exercise of the Put Option or the Call Option will take place at
the offices of the Company on the date
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<PAGE> 40
specified in the notice of exercise (the "Option Closing"). At an Option Closing
upon exercise of the Put Option, the Company will deliver to Combs one-twelfth
of the Option Price in cash and a promissory note providing for the payment of
the remainder of the Option Price in eleven equal consecutive monthly
installments of principal commencing one month from the Option Closing with
interest on the outstanding principal payable monthly at the prime rate of
interest as reported by the Wall Street Journal on the date of the Option
Closing plus two percent. Upon final payment of the principal of the promissory
note, Combs will deliver the certificate or certificates evidencing the Shares
being purchased, duly endorsed in blank, and pending such delivery Combs will
hold such certificate or certificates as collateral securing the payment of such
promissory note pursuant to a pledge agreement in customary form to be executed
by Combs and Purchaser upon issuance of such promissory note. At an Option
Closing upon exercise of the Call Option, Combs will deliver the certificate or
certificates evidencing the Shares being purchased, duly endorsed in blank, and
in consideration therefor, the Company will deliver to Combs the Option Price,
which will be payable in cash.
3.06 Certain Remedies. If the Company defaults in its obligation to
purchase the Shares upon exercise of the Put Option or the Call Option, in
addition to any other rights or remedies of Combs, the unpaid portion of the
Option Price shall bear interest at the lesser of (a) 18% per annum or (b) the
highest rate permitted by applicable law. The Company will, upon the request of
Combs, execute and deliver to Combs a promissory note in form and substance
satisfactory to Combs evidencing such obligation to pay the unpaid portion of
the Option Price.
ARTICLE IV
REGISTRATION RIGHTS
4.01 Registration.
(a) If, at any time, the Company proposes to file a
registration statement (on any form other than Form S-4, Form S-8 or other
limited purpose form) relating to any of its Capital Stock or other securities
under the Securities Act of 1933, as amended (the "Securities Act"), whether or
not for sale for its own account, the Company will promptly, but in any event no
less than 30 days prior to the initial filing of such registration statement,
deliver written notice of such intention to Combs setting forth the type of
securities proposed to be registered, the intended method of disposition, the
maximum proposed offering price, commissions and discounts in connection
therewith and other relevant information. Such notice must indicate that Combs
has piggyback registration rights pursuant to Section 4.01(a) of this Agreement.
If Combs so requests within 20 days after such notification, the Company hereby
agrees to include in such registration statement the Shares requested to be so
included and to use its reasonable efforts to register such Shares so that such
Shares may be sold at such times and in such manner as Combs shall determine. If
the proposed registration by the Company is, in whole or in part, an
underwritten public offering of securities of the Company, any request pursuant
to this Section 4.01(a) to register may specify that
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the Shares be included in the underwriting (i) on the same terms and conditions
as the shares of Capital Stock, if any, otherwise being sold through
underwriters under such registration, or (ii) on terms and conditions comparable
to those normally applicable to offerings of common stock in reasonably similar
circumstances in the event that no shares of Common Stock, other than the
Shares, are being sold through underwriters under such registration.
Notwithstanding any of the foregoing, the Company shall have the right, for any
reason and in its sole discretion, to postpone or cancel any proposed
registration of its Capital Stock or other securities of which the Company has
previously given Combs notice pursuant to this Section 4.01(a).
If (i) a registration pursuant to this Section 4.01(a)
involves an underwritten offering of Common Stock, whether or not for sale by
the Company, to be distributed on a firm commitment basis by or through one or
more underwriters of recognized standing upon underwriting terms that are
typical for such a transaction and (ii) the managing underwriter of such
underwritten offering informs the Company and Combs by letter of its reasonable
belief that the effect of including all or part of the Shares so requested to be
included in the registration statement will materially adversely affect the sale
of the shares of Common Stock proposed to be sold by the Company and
shareholders of the Company (other than management) having contractual
registration rights, then the number of Shares that Combs may have included in
such registration shall be reduced (and the number of shares of Common Stock to
be sold by other selling shareholders shall also be reduced) to a number
determined by multiplying (x) the total number of shares held by all selling
shareholders having contractual registration rights (including Combs) which the
managing underwriter is willing to have included in such registration, times (y)
a fraction, the numerator of which is the number of Shares which Combs (or such
other selling shareholder, as the case may be) requested to be included in such
registration statement and the denominator of which is the number of all shares
(including the Shares) which all the selling shareholders having contractual
registration rights (other than management) have requested to be included in
such registration.
(b) Upon the request of Combs at any time after the expiration of the
Restricted Period but upon not more than one occasion, the Company shall
promptly file and use its reasonable efforts to cause to become effective an
appropriate registration statement under the Securities Act covering such number
of Shares as Combs shall request and to register the sale of such Shares so that
such Shares may be sold at such times and in such manner as Combs shall
determine; provided, however, that if the Company has not previously closed a
Qualified Public Offering, the Company may elect to consider such demand an
exercise by Combs of the Put Option for such Shares pursuant to Article III
hereof, in which case the provisions of such Article III shall apply and the
provisions of this Article IV shall not apply. Registrations under this Section
4.01(b) shall be on such appropriate registration form of the Securities and
Exchange Commission (the "Commission") (i) as shall be selected by Combs and
(ii) as shall permit the disposition of such Shares in accordance with the
method or methods of disposition desired by Combs. The Company agrees to include
in any such registration statement all information which Combs shall reasonably
request. The Company may register other shares of Capital Stock of the Company
pursuant to such registration statement if the inclusion of such shares would
not materially adversely affect the sale of the Shares proposed to be
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sold by Combs. If the registration pursuant to this Section 4.01(b) involves an
underwritten offering, the underwriter or underwriters shall be selected by the
Company but shall be reasonably acceptable to Combs. If Combs requests
registration of the Shares pursuant to this Section 4.01(b), the Company may
delay the effectuation of such registration for a reasonable period of time, but
not more than 120 days, (x) as is necessary to prepare audited financial
statements of the Company for its most recently completed fiscal year or other
audited financial statements reasonably required to effectuate an acquisition,
financing or other corporate development or (y) if the Company would be required
to divulge in such registration statement the existence of any fact relating to
a proposed acquisition, financing or other material corporate development not
otherwise required to be disclosed.
4.02 Rule 144 Availability. Notwithstanding the foregoing, the Company
will not be obligated to register any Shares as to which counsel reasonably
acceptable to Combs renders an opinion in form and substance reasonably
satisfactory to Combs to the effect that such Shares are freely saleable without
limitation as to volume, manner of sale or otherwise under Rule 144 under the
Securities Act.
4.03 Costs and Expenses. All costs and expenses in connection with the
registration of any Shares under this Agreement or the performance of the
Company's obligations under this Agreement, including without limitation all
registration, filing, stock exchange and NASD fees; all fees and expenses of
complying with securities or blue sky laws; word processing, duplicating and
printing expenses (including such number of any preliminary and final
prospectuses as may be reasonably requested); fees and disbursements of counsel
for the Company, counsel responsible for qualifying the Shares under blue sky
laws and of independent accountants (including the expenses of any special
audits or comfort letters required by or incident to such registration) and
other experts of the Company; all expenses in connection with the transfer and
delivery of the Shares; and all fees and disbursements of underwriters
(excluding any commissions or discounts relating to the Shares) customarily paid
by issuers or sellers of securities, shall be borne by the Company; provided,
however, that the Company shall not be obligated to pay any underwriting
commissions or discounts relating to the Shares.
4.04 Certain Obligations of the Company. In connection with any
registration filings effected under Section 4.01(a) or 4.01(b) hereof, the
Company will:
(a) Promptly prepare, file and use its reasonable efforts to cause to
become effective the registration statement and such amendments and supplements
to the registration statement and the prospectus used in connection therewith as
may be necessary to keep the registration statement effective for such period of
time as Combs so requests to permit disposition of all of such registered Shares
(provided such period does not exceed 180 days) and to comply with the
provisions of the Securities Act and applicable state securities laws with
respect to the disposition of the Shares covered by the registration statement.
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(b) Give Combs, and its counsel and accountants, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and give them access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of Combs' counsel, to conduct a reasonable
investigation.
(c) Notify Combs as to the filing of the registration statement, and
each amendment or supplement thereto, and of each prospectus, and each amendment
or supplement thereto.
(d) Notify Combs immediately, and confirm the notice in writing, (i)
when the registration statement becomes effective, (ii) of the issuance by the
Commission of any stop order or of the initiation, or the threatening, of any
proceedings for that purpose, (iii) of the receipt by the Company of any
notification with respect to the suspension of qualification of the Shares for
sale in any jurisdiction or of the initiation, or the threatening, of any
proceedings for that purpose and (iv) of the receipt of any comments, or
requests for additional information, from the Commission or any state regulatory
authority. If the Commission or any state regulatory authority shall enter such
a stop order or order suspending qualification at any time, the Company will
promptly use its reasonable efforts to obtain the lifting of such order.
(e) During any time when a prospectus is required to be delivered under
the Securities Act in connection with the distribution of the Shares, use its
reasonable efforts to comply with all requirements imposed upon it by the
Securities Act and by the rules and regulations promulgated thereunder, so far
as necessary to permit the continuance of sales of or dealings in the Shares
pursuant to a prospectus complying with Section 10(a)(3) of the Securities Act.
If at any time when a prospectus relating to the Shares is required to be
delivered under the Securities Act and any event shall have occurred as a result
of which, in the opinion of counsel for the Company or, with respect to
statements relating to Combs or Combs' method of distributing the Shares,
counsel for Combs, the prospectus relating to the Shares as then amended or
supplemented 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, or if it is necessary at any time to amend such prospectus
to comply with the Securities Act and the rules and regulations of the
Commission promulgated thereunder, the Company will promptly notify Combs and
promptly prepare and file with the Commission an appropriate amendment or
supplement in form satisfactory to Combs.
(f) Use its reasonable efforts at or prior to the time the registration
statement becomes effective to register or qualify the Shares for offering and
sale under the securities laws relating to the offering or sale of securities in
such jurisdictions as Combs may reasonably designate and to continue the
qualifications in effect so long as required for purposes of the sale of the
Shares; provided, however, that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Company would be required to
qualify generally to do business as a foreign corporation
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wherein it would not but for the requirements of this subsection (f) be
obligated to be so qualified. In each jurisdiction where such qualification
shall be effected, the Company will, unless Combs agrees that such action is not
at the time necessary or advisable, file and make such statements or reports at
such times as are or may reasonably be required by the laws of such
jurisdiction.
(g) Make generally available to its security holders as soon as
practicable, but not later than the first day of the fifteenth full calendar
month following the effective date of the registration statement, an earnings
statement which shall satisfy the provisions of Section 11(a) of the Securities
Act and any applicable rules and regulations of the Commission thereunder
covering a period of at least twelve months beginning after the effective date
of the registration statement.
(h) Use the Company's reasonable efforts to cause the independent
certified public accountants of the Company to deliver to Combs, and to the
underwriters if the Shares are being sold through underwriters, letters on the
date that the registration statement becomes effective and on the date the
Shares are delivered to the underwriters for sale pursuant to such registration
or, if the Shares are not being sold through underwriters, on the date that the
registration statement becomes effective, stating that they are independent
certified public accountants within the meaning of the Securities Act and the
rules and regulations of the Commission thereunder, and that, in their opinion,
the financial statements and other financial data of the Company included in the
registration statement or prospectus, or any amendment or supplement thereto,
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act, and such other financial matters as the
underwriter, if any, or Combs may reasonably request.
(i) After the effective date of such registration statement, prepare,
and promptly notify Combs of the proposed filing of, and promptly file with the
Commission, each and every amendment or supplement thereto or to any prospectus
forming a part thereof as may be necessary to make statements therein not
misleading in any material respect;
(j) Furnish to Combs, as soon as available, copies of any such
registration statement and each preliminary or final prospectus, or supplement
or amendment prepared pursuant thereto, all in such quantities as Combs may from
time to time reasonably request in order to facilitate the public sale or other
disposition of the Shares;
(k) Use its reasonable efforts to list all Shares covered by the
registration statement on any securities exchange on which any of the securities
of the same class as the Shares is then listed.
(l) Enter into an underwriting agreement in customary form with the
representative of the underwriters if the offering is an underwritten public
offering, make such representations and warranties to any underwriter of the
Shares and to the holders thereof, and use the Company's reasonable efforts to
cause the Company's counsel to render, at the time or times of the letters
referred to in subparagraph (h) above, such opinions to such underwriters, if
any, and to Combs, as such underwriter or Combs may reasonably request.
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(m) Enter into such agreements and take such other actions as Combs
shall reasonably request in order to expedite or facilitate the disposition of
the Shares.
4.05 Hold-Back Agreement. If any of the Shares are covered by a
registration statement filed pursuant to Section 4.01(a) or 4.01(b) hereof,
Combs agrees, upon the request of the Company or the underwriters, if such
registration statement is filed in connection with an underwritten offering, not
to effect any public sale or distribution of securities of the Company,
including a sale pursuant to Section 144 under the Securities Act (except as
part of such registration), without the prior written consent of the Company or
underwriters, as the case may be, during the 30 days prior to, and for such
period of time after it sells the securities under the registration statement
(not to exceed 180 days from the effective date of such registration) as the
Company or underwriters may specify.
4.06 Underwriting Agreement; Furnishing Information. The right of Combs
to participate in an underwritten public offering of the Company's securities
shall be conditioned on Combs entering into an underwriting agreement in
customary form with the underwriter or underwriters for the offering, if any.
Furthermore, it shall be a condition precedent to the obligations of the Company
to take any action pursuant to Article IV of this Agreement that Combs furnish
to the Company such information regarding itself, the Shares held by it and the
intended method of disposition of the Shares as shall be required to effect the
registration of the Shares. In that connection, Combs shall be required to
represent to the Company that all information which is given is both complete
and accurate in all material respects.
4.07 Indemnification.
(a) The Company hereby agrees to indemnify and hold harmless Combs and
each other person, if any, who controls Combs within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and each underwriter who participates in the offering of such securities,
against all losses, liabilities, claims, damages and expenses (including, but
not limited to, reasonably attorney's fees and any and all expenses reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any litigation), joint or several, to which such holder or
controlling person or underwriter may become subject under the Securities Act or
otherwise, insofar as such loss, liability, claim, damage or expense (or actions
in respect thereof whether commenced or threatened) arises out of or is based
upon any untrue statement or alleged untrue statement of any material fact
contained in (i) any registration statement covering the Shares, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or in an
amendment or supplement thereto or (ii) any application or other document or
communication (in this Section 4.04 collectively called "application") executed
by or on behalf of the Company or based upon written information furnished by or
on behalf of the Company filed in any jurisdiction in order to qualify the
Shares under the securities laws thereof or filed with the Commission, or arises
out of or is based upon the omission or alleged omission to state therein a
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<PAGE> 46
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; provided, however, that the Company shall not be obligated to
indemnify Combs in any such case to the extent that any such loss, liability,
claim, damage or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission relating to Combs or
Combs' method of distributing the Shares that was made in reliance upon, and in
conformity with, written information furnished by Combs specifically for use in
the registration statement, or any amendment or supplement thereto, or any
application, as the case may be. The indemnification provided for in this
subparagraph (a) shall be in addition to any liability which the Company may
otherwise have.
(b) By requesting Shares to be covered by any registration statement in
accordance with this Agreement, Combs agrees to indemnify and hold harmless the
Company, each of its directors and each of its officers who have signed said
registration statement, and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, to the same extent as the
indemnification by the Company provided for in subsection (a) above, but only
with respect to untrue or alleged untrue statements or omissions or alleged
omissions, if any, relating to Combs or Comb's method of distributing the Shares
made in such registration statement, prospectus contained therein, or amendment
or supplement thereto, or in any application, in reliance upon, and in
conformity with, written information furnished by Combs to the Company
specifically for use in the registration statement, in the prospectus contained
therein, or any amendment or supplement thereto, or any application, as the case
may be; provided, however, that the liability of Combs shall not exceed the
amount of net proceeds received by it pursuant to the registration statement
from which the loss, liability, claim, damage or expense arose.
(c) Promptly after the receipt by an indemnified party under
subparagraph (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect hereof is to be made against the
indemnifying party under such subparagraph, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party,
provided, however, if the defendants in any action include both the indemnified
party and the indemnifying party and the indemnified party or parties shall have
been advised by its counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties (it being understood, however, that the
indemnifying party shall not be liable for the fees and expenses of more than
one separate counsel, which, in the case of subparagraph (a) above, shall be
designated by Combs and which, in the case of subparagraph (b)
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<PAGE> 47
above, shall be designated by the Company and which in either case shall be
reasonably acceptable to the other). After notice from the indemnifying party to
such indemnified party of its election so to assume the defense of any such
action, the indemnifying party shall not be liable to such indemnified party
under subparagraph (a) or (b) above for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than the reasonable costs of investigation, unless (i) the indemnified party
shall have employed counsel in accordance with the proviso in the immediately
preceding sentence, (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party within a reasonable time after the notice
of commencement of the action, or (iii) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party. The indemnification required by this Section 4.04 shall be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or losses, liabilities, claims, damages or expenses
are incurred.
(d) If the indemnification provided for in this Agreement is
unavailable to an indemnified party under subparagraph (a) or (b) above in
respect of any losses, liabilities, claims, damages or expenses (or actions in
respect thereof) referred to therein as a result of a final judicial
determination that such indemnification cannot be enforced, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative fault of
the Company and Combs in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or Combs and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the provisions of this subparagraph (d), Combs shall
not be required to contribute any amount in excess of the amount by which the
net proceeds received by it pursuant to the registration statement from which
such loss, liability, claim, damage or expense arose exceed the amount of any
damages which Combs has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. 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.
4.08 Exchange Act Registration. After the filing of an initial public
offering, the Company agrees to maintain registration of its Common Stock under
the Securities Act, to timely file and maintain all required reports and other
filings with the Commission, and to take such action as may from time to time be
necessary to enable Combs to be able to sell the Shares pursuant to Rule 144
promulgated by the Commission under the Securities Act.
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ARTICLE V
PREEMPTIVE RIGHTS TO PURCHASE ADDITIONAL SHARES
5.01 Combs' Preemptive Rights. If at any time the Company proposes to
issue, sell or otherwise transfer to Parent or to any individual, partnership,
corporation of other entity which, directly or indirectly, controls, is
controlled by or is under common control with Parent or the Company any shares
of the Company's Capital Stock, securities convertible into or exchangeable for
shares of Capital Stock or any rights or options to purchase shares of Capital
Stock in a transaction to which the provisions of Section 6(d) of the
Certificate of Designation relating to the Class A Preferred Stock (the
"Certificate of Designation") do not apply (a "Proposed Issuance"), then:
(a) The Company shall give Combs written notice of the
Proposed Issuance at least 30 days prior to the date of the Proposed Issuance.
Such notice shall set forth the terms and conditions of the Proposed Issuance.
Combs shall have the right to subscribe for the purchase from the Company, on
the same terms and conditions as those set forth in the notice, of up to its pro
rata share of the securities to be issued in the Proposed Issuance. Combs' pro
rata share for purposes of this Section 5.01 is the ratio that the number of
shares of Common Stock owned by Combs and into which the shares of Preferred
Stock owned by Combs could be converted immediately prior to the Proposed
Issuance bears to the sum of (i) the total number of shares of Common Stock then
outstanding, plus (ii) the number of shares of Common Stock issuable upon
conversion or exchange of outstanding securities convertible into or
exchangeable for shares of Common Stock and exercise of all outstanding rights
or options to purchase shares of Common Stock.
(b) The right of Combs set forth in this Section 5.01 shall
expire, with respect to a particular Proposed Issuance, 30 days after the notice
described in Subsection 5.01(a) above has been received by Combs. If such right
has expired, the Company will have 90 days to sell the securities not elected to
be purchased by Combs at the same price and upon the terms specified in the
notice described in Subsection 5.01(a). If the Company does not sell such
securities within such 90 day period, it shall not thereafter issue or sell such
securities without first complying with the provisions of this Article V.
ARTICLE VI
VOTING
6.01 Voting. Combs agrees that, during the term of this Agreement, if
pursuant to the Delaware General Corporation Law or other applicable law the
shares of Preferred Stock are entitled to vote on a matter and if such matter
does not affect the rights, privileges or obligations of the Preferred Stock
under this Agreement or the Certificate of Designation, Combs will vote and will
cause its affiliates to vote such shares of Preferred Stock as directed by
Parent.
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ARTICLE VII
COVENANTS OF THE COMPANY
The Company covenants and agrees that from and after the date of this
Agreement the Company will comply with each of the covenants contained in this
Article VII, unless the prior written consent of Combs is first obtained:
7.01 Inspection. At all reasonable times during normal business hours,
the Company will permit representatives of Combs to visit and inspect the
offices, warehouse and other facilities and properties of the Company to examine
books of account, operational records and reports and inventories and to discuss
the Company's business, operations and financial affairs with appropriate
officers or other personnel of the Company. The Company will provide such
representatives with any additional information, opinions, certificates and
documents, in addition to those herein mentioned, relating to the operation of
the Company as may be reasonably requested.
7.02 Accounting and Financial Statements: Reports. The Company will
maintain proper books of records and accounts in which full, true and correct
entries in accordance with generally accepted accounting principles will be made
of all dealings and transactions in relation to its business and activities. The
Company will deliver to Combs the following:
(a) As soon as practicable, but in any event within 90 days,
after the end of the Company's fiscal year, a balance sheet of the Company at
the end of such fiscal year, an income statement, a cash flow statement and a
statement of changes in stockholders' equity of the Company for such fiscal
year, all in accordance with generally accepted accounting principles
consistently applied. Each yearly statement submitted pursuant to this Section
7.02(b) shall be in reasonable detail and certified by a "big six" accounting
firm or such other independent certified public accounting firm as may be
selected by the Company and approved in writing by Combs as fairly representing
the financial condition and results of operations of the Company.
(b) As soon as practicable, but in any event within 30 days,
after the end of each fiscal year, copies of projections of cash flow and the
balance sheet of the Company, all estimated for the then-current fiscal year,
all in accordance with generally accepted accounting principles consistently
applied and representing the best estimate of the Company based on available
information.
(c) As soon as practicable, but in any event within five days,
after filing or mailing, copies of all reports, applications, registration
statements and amendments thereto, prospectuses, proxy materials and other
documents filed by the Company with the Commission or any governmental
department, bureau, commission or agency succeeding to the functions of the
Commission or mailed to the stockholders of the Company, and of all original or
supplemental
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listing applications filed with any national securities exchange on which the
Company's Common Stock may then be listed.
(d) Such other financial data and operational information as
may be reasonably requested by Combs.
7.03 Preservation of Corporate Existence. The Company will preserve and
maintain its corporate existence, rights, franchises and privileges in Delaware
and will qualify and remain qualified as a foreign corporation in every
jurisdiction in which such qualification is necessary in view of the business
and operation of the Company or the ownership of its assets, except where such
failure to qualify would not have a material adverse effect on the Company or
Combs.
7.04 Payment of Taxes and Accounts. The Company will pay or cause to be
paid all taxes, assessments and governmental charges or levies imposed upon it
or upon its income, profits or properties before the same shall become
delinquent, and will pay its accounts; provided, however, that (unless and until
foreclosure, distraint, sale or similar proceedings have been commenced) nothing
herein shall require the Company to pay or cause to be paid any such tax,
assessment, charge, levy or account so long as the validity thereof shall be
contested in good faith by appropriate proceedings and the Company has set aside
on its books and maintained adequate reserves with respect thereto. The Company
and Combs understand and agree that the Company may be considered part of a
consolidated group and nothing herein is intended to preclude the Company from
filing tax returns as part of a consolidated group or from entering into a tax
sharing agreement with other members of such a group.
7.05 Change in Corporate Structure. The Company will not, without the
written consent of Combs, amend or permit to be amended its Certificate of
Incorporation or Bylaws in any manner that would conflict with this Agreement or
adversely affect the rights and privileges of the Preferred Stock.
7.06 AMR Combs-Grand Rapids, Inc. and Bombardier. For so long as and to
the extent that, because of Combs' ownership interest in the Company, the
failure of the Company to comply with any term of either that certain
Non-Competition Agreement, dated as of _____, 1996, between AMR Combs-Grand
Rapids, Inc. and AMR Services Corporation or that certain Non-Compete and
Non-Solicitation Agreement, dated as of February 1, 1995, among AMR Corporation,
Combs, AMR Services Corporation, Learjet Inc., Bombardier Corporation and
Bombardier Inc. would cause Combs or any of its affiliates to be in breach of
either such agreement, the Company agrees to comply with the terms of each such
applicable agreement.
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ARTICLE VIII
MISCELLANEOUS
8.01 Enforcement. No shares of Capital Stock shall be transferred on
the books of the Company and no sale, assignment, transfer, pledge or other
disposition thereof shall be effective unless and until the terms and provisions
of this Agreement are complied with, and in case of the violation of this
Agreement by the attempted transfer of shares of Capital Stock without
compliance with the terms and provisions hereof, such sale, assignment,
transfer, pledge or other disposition shall be invalid and of no effect and the
party who is not attempting to transfer the shares of Capital Stock shall have
the right to compel the party who is attempting to transfer shares of Capital
Stock in violation of this Agreement, and/or any purported transferee, to
transfer and deliver the same in accordance with this Agreement.
8.02 Endorsement on Certificates. The certificates representing the
Shares shall bear a legend indicating the existence of this Agreement and the
restrictions imposed hereby.
8.03 Confidentiality. Combs, on the one hand, and the Company and
Parent, on the other hand, acknowledge that the nature of their affiliation
pursuant to the Stock Purchase Agreement and this Agreement necessarily involves
the sharing of confidential information. Therefore, during the Restricted
Period, Combs and the Company and Parent each agree not to, and to cause their
respective affiliates, employees, attorneys and accountants not to, disclose any
confidential information they may have concerning the business or affairs of the
other party, except for such information which is required by law to be
disclosed. Confidential information includes, but is not limited to, customer
lists and files, prices and costs, business and financial records, information
relating to personnel, contracts, liabilities and litigation; provided, however,
that confidential information shall not include information that is or becomes
publicly available other than as a result of acts in violation of this
Agreement.
8.04 Specific Performance. The parties hereto recognize that the Shares
cannot be readily purchased or sold on the open market and that it is to the
benefit of the Company, Parent and Combs for the terms and provisions hereof to
be carried out; and for those and other reasons, the parties hereto would be
irreparably damaged if this Agreement is not specifically enforced in the event
of a breach hereof. If any controversy concerning the rights or obligations to
purchase or sell any shares of Capital Stock arises, the parties hereto hereby
agree that remedies at law might be inadequate and that, therefore, such rights
and obligations, and this Agreement, shall be enforceable by specific
performance. The remedy of specific performance shall not be an exclusive
remedy, but shall be cumulative of all other rights and remedies of the parties
hereto at law, in equity or under this Agreement.
17
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8.05 Termination of this Agreement. This Agreement shall continue
until, and shall terminate immediately upon, (a) execution of a written
agreement of termination by the Company, Parent and Combs or (b) any time that
Combs owns less than 51% of the Specified Shares. As used herein, "Specified
Shares" shall mean the total number of Shares purchased by Combs pursuant to the
Stock Purchase Agreement minus all Shares sold, assigned or transferred by Combs
pursuant to Section 2.04.
8.06 Notices. All notices, requests and other communications under this
Agreement shall be in writing (including a writing delivered by facsimile
transmission) and shall be deemed to have been duly given if delivered
personally, or sent by either certified or registered mail, return receipt
requested, postage prepaid, by overnight courier guaranteeing next day delivery,
or by telecopier (with telephonic or machine confirmation by the sender),
addressed as follows (or to such other address, including facsimile number, as
shall have been designated by the recipient in writing):
(a) If to the Company: Aircraft Parts International Combs, Inc.
3778 Distriplex Drive North
Memphis, Tennessee 38118-7299
Attn: President and Chief Operating Officer
Telecopy: (901) 375-2626
With required copies to: Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attn: Frederick S. Green, Esq.
Telecopy: (212) 310-8007
and, prior to May 1, 1997: First Equity Development, Inc.
One Omega Drive
Stamford, Connecticut 06907
Attn: President
Telecopy: (202) 359-7901
and, after May 1, 1997: First Equity Development, Inc.
15 Riverside Drive
Westport, Connecticut
Attn: President
18
<PAGE> 53
(b) If to Parent, prior
to May 1, 1997, to: First Aviation Services, Inc.
One Omega Drive
Stamford, Connecticut 06907
Attn: President and Chief Operating Officer
Telecopy: (203) 359-7901
and, after May 1, 1997: First Aviation Services, Inc.
15 Riverside Drive
Westport, Connecticut
Attn: President
With required copies to: Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attn: Frederick S. Green, Esq.
Telecopy: (212) 310-8007
and, prior to May 1, 1997: First Equity Development, Inc.
One Omega Drive
Stamford, Connecticut 06907
Attn: President
Telecopy: (202) 359-7901
and, after May 1, 1997: First Equity Development, Inc.
15 Riverside Drive
Westport, Connecticut
Attn: President
(c) If to Combs: AMR Combs, Inc.
4255 Amon Carter Blvd.
MD 4239
Fort Worth, Texas 76155
Attn: President
Telecopy: (817) 967-9213
With a required copy to: AMR Services Corporation
4255 Amon Carter Blvd.
MD 4240
Fort Worth, Texas 76155
Attn: General Counsel
Telecopy: (817) 963-4847
19
<PAGE> 54
All such notices, requests and other communications shall be deemed to have been
received on the date of delivery thereof (if delivered by hand), on the third
Business Day after the mailing thereof (if mailed), on the next day after the
sending thereof (if by overnight courier) and when receipt is confirmed as
provided above (if telecopied).
8.07 Waivers and Amendments. No amendment or waiver of any provision of
this Agreement, nor consent to any departure therefrom, shall be effective
unless the same shall be in writing and signed by an officer of each party
hereto, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No failure on the part of
a party hereto to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right.
8.08 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Neither party hereto shall assign its rights hereunder or any interest
herein without the prior written consent of the other party hereto.
8.09 Governing Law. THIS AGREEMENT, AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HERETO, SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS.
8.10 Captions. The captions, headings and arrangements used in this
Agreement are for convenience only and do not in any way affect, limit or
amplify the provisions hereof.
8.11 Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable; this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof; and the remaining provisions of
this Agreement shall remain in full force and effect and shall not be affected
by the illegal, invalid or unenforceable provision or its severance from this
Agreement.
8.12 Entirety. This Agreement contains the entire agreement and
understanding between the parties with respect to the matters addressed herein
and supersedes all prior representations, inducements, promises or agreements,
oral or otherwise, which are not embodied herein.
8.13 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original for all purposes and all
of which shall be deemed collectively to be one agreement.
20
<PAGE> 55
8.14 Attorneys' Fees. If any action or proceeding is commenced by any
party hereto for the purpose of enforcing any provision of this Agreement, the
prevailing party to such action or proceeding may receive as part of any award,
judgment, decision or other resolution of such action or proceeding its costs
and attorneys' fees as determined by the person making such award, judgment,
decision or resolution. Should any claim hereunder be settled short of the
commencement of any such action or proceeding, including arbitration, the
parties to such settlement shall be entitled to include as part of the damages
alleged to have been incurred reasonable costs of attorneys or other
professionals in investigation or counseling on such claim.
21
<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to execute and deliver this Agreement as of the date
first written above.
AIRCRAFT PARTS INTERNATIONAL
COMBS, INC.
By: _____________________________
Name: __________________________
Title: ___________________________
FIRST AVIATION SERVICES INC.
By: _____________________________
Name: __________________________
Title: ___________________________
AMR COMBS, INC.
By: _____________________________
Name: __________________________
Title: ___________________________
22
<PAGE> 1
Exhibit 10.11
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "AGREEMENT") is
dated as of December 20, 1996, between First Aviation Services Inc., a Delaware
corporation (the "COMPANY"), and John F. Risko, an individual (the "EXECUTIVE").
WITNESSETH:
WHEREAS, the Company believes that the Executive is a valued
employee of the Company and wishes to ensure his continued employment with the
Company and document the terms of the Executive's employment by the Company.
WHEREAS, the Company also has determined that it is in the
best interests of the Company and its shareholders to reinforce and encourage
the continued attention and dedication of certain key members of the Company's
management, including the Executive, to their assigned duties without
distraction in uncertain circumstances arising from the possibility of a change
in control of the Company.
NOW, THEREFORE, taking into account the foregoing and in
consideration of the mutual promises and conditions contained herein, the
parties hereto agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company employs the Executive and the
Executive hereby accepts employment as the Chief Operating Officer of the
Company and as the Chief Executive Officer of National Airmotive Corporation,
("NAC"), which is a wholly-owned subsidiary of the Company, upon the terms and
conditions hereinafter set forth.
1.2 Term. The employment of the Executive by the Company under
the terms and conditions of this Agreement will commence on the date hereof and
continue, subject to Article IV hereof, for a period of three years ("EMPLOYMENT
TERM").
1.3 Executive Duties. As the Company's Chief Operating Officer
and as NAC's Chief Executive Officer, the Executive shall perform such duties as
are requested by and shall report directly to the Company's Board of Directors.
The Executive agrees to devote his full business time (with allowances for
vacations and sick leave) and attention and best efforts to the affairs of the
Company and its subsidiaries and affiliates
1
<PAGE> 2
during the Employment Term, except that Executive shall be permitted to continue
his affiliation with, and work for, First Equity Development, Inc. so long as
such affiliation and work does not, in any material way, interfere with
Executive's duties as an officer of both the Company and NAC. Executive shall
not, while an employee of the Company, directly or indirectly, be engaged
(including as a stockholder, proprietor, general partner, limited partner,
trustee, consultant, employee, director, officer, lender investor or otherwise)
in any business or activity that is competitive with that of the Company or any
of its subsidiaries.
ARTICLE II
COMPENSATION AND BENEFITS
2.1 Annual Salary. During the Employment Term, the Company
shall pay to the Executive a base salary at the rate of One Hundred Eighty
Thousand Dollars ($180,000) per year (the "ANNUAL SALARY"), payable in
substantially equal biweekly installments. The Company will review annually and
may, in the sole discretion of the Board of Directors, increase such base salary
in light of the Executive's performance, inflation in cost of living or other
factors.
2.2 Benefits. During the Employment Term, the Executive shall
be eligible for participation in and covered by any and all such performance,
bonus, profit sharing, incentive, stock option, and other compensation plans and
such medical, dental, disability, life, and other insurance plans and such other
benefits generally available to other employees of the Company in similar
employment positions, on the same terms as such employees, subject to meeting
applicable eligibility requirements (collectively referred to herein as the
"COMPANY BENEFIT PLANS").
2.3 Reimbursement of Expenses. The Executive shall be entitled
to receive prompt reimbursement of all reasonable expenses incurred by the
Executive in performing services hereunder, including all reasonable expenses of
travel, entertainment and living expenses while away from home on business at
the request of, or in the service of, the Company or NAC, provided that such
expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company.
2.4 Vacation and Holidays. The Executive shall be entitled to
an annual vacation leave of three (3) weeks at full pay or such greater vacation
benefits as may be provided for by the Company's vacation policies applicable to
senior executives of the Company. Up to a maximum of one week of vacation time
may be accumulated and carried over from one year to the next. Executive shall
be entitled to such holidays as are established by the Company for all
employees.
2
<PAGE> 3
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. Executive shall not, during Executive's
employment by the Company or thereafter, at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to either the Company's or NAC's
business, operations, marketing data, business plans, strategies, employees,
negotiations and contracts with other companies, or any other subject matter
pertaining to the business of either the Company or NAC or any of their
respective clients, customers, consultants, or licensees, known, learned, or
acquired by Executive during the period of Executive's employment by the Company
(collectively "CONFIDENTIAL INFORMATION"), except as may be necessary in the
ordinary course of performing Executive's particular duties as an employee of
the Company.
3.2 Return of Confidential Material. Executive shall promptly
deliver to the Company on termination of Executive's employment by the Company,
whether or not for Cause and whatever the reason, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, drawings,
blueprints, rolodexes, computer files and records, Confidential Information and
any other documents of a confidential nature belonging to either the Company or
NAC, including all copies of such materials which Executive may then possess or
have under Executive's control. Upon termination of Executive's employment by
the Company, Executive shall not take any document, data, or other material of
any nature containing or pertaining to the proprietary information of either the
Company or NAC.
3.3 Prohibition on Solicitation of Customers; Noncompetition.
During the term of Executive's employment by the Company, and for a period of
six months thereafter, Executive shall not, directly or indirectly, either for
Executive or for any other person or entity, solicit any person or entity to
terminate such person's or entity's contractual and/or business relationship
with either the Company or NAC, nor shall Executive interfere with or disrupt or
attempt to interfere with or disrupt any such relationship. In addition, for a
period of six months following the term of Executive's employment by the
Company, Executive shall not, directly or indirectly, be engaged (including as a
stockholder, proprietor, general partner, limited partner, trustee, consultant,
employee, director, officer, lender investor or otherwise) in any business or
activity as of the date of termination of employment that is competitive with
that of the Company or any of its subsidiaries activities within the United
States. None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or
Independent Contractors After Termination. During the term of Executive's
employment by the Company and for a period of six months following the
termination of Executive's
3
<PAGE> 4
employment by the Company, Executive will not solicit any of the employees,
agents, or independent contractors of either the Company or NAC to leave the
employ of the Company or NAC for a competitive company or business. However,
Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with either the Company or NAC
after a period of 120 days have elapsed since the termination date of such
employee, agent or independent contractor. None of the foregoing shall be deemed
a waiver of any and all rights and remedies the Company may have under
applicable law.
3.5 Right to Injunctive and Equitable Relief. Executive's
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably or
adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
3.6 Survival of Obligations. Executive agrees that the terms
of this Article III and Article V hereof shall survive the term of this
Agreement and the termination of Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 Definitions. For purposes of this Article IV, the
following definitions shall be applicable to the terms set forth below:
(a) Cause. "CAUSE" shall mean only the following: (i)
failure by the Executive to perform his duties hereunder or
those duties which may, from time to time, be reasonably
requested by the Board of Directors of the Company (other than
such failure resulting from the Executive's incapacity due to
physical or mental illness); (ii) misconduct by the Executive
which is materially injurious to the Company; (iii) conviction
of or pleading no contest to a felony or other crime of moral
turpitude; (iv) habitual drunkenness by the Executive; (v)
action by the Executive beyond the scope of his employment, as
such scope is set by the Board of Directors
4
<PAGE> 5
of the Company or NAC from time to time (vi) a material breach
of this Agreement by the Executive.
(b) Disability. "DISABILITY" shall mean a physical or
mental incapacity as a result of which the Executive becomes
unable to continue the proper performance of his duties
hereunder (reasonable absences because of sickness for up to
three (3) consecutive months excepted). A determination of
Disability shall be subject to the certification of a
qualified medical doctor agreed to by the Company and the
Executive or, in the event of the Executive's incapacity to
designate a doctor, the Executive's legal representative. In
the absence of agreement between the Company and the
Executive, each party shall nominate a qualified medical
doctor and the two doctors so nominated shall select a third
doctor, who shall make the determination as to Disability.
4.2 Termination by Company. The Executive's employment
hereunder may be terminated by the Company immediately for Cause. Subject to the
other provisions contained in this Agreement, the Company may terminate this
Agreement for any reason other than Cause upon thirty (30) days' written notice
to Executive. The effective date of termination ("EFFECTIVE DATE") shall be
considered to be thirty (30) days subsequent to written notice of termination;
however, the Company may elect to have Executive leave both the Company and NAC
immediately.
4.3 Severance Benefits Received Upon Termination.
(a) If at any time the Executive's employment is
terminated by the Company for Cause, the Company shall pay the
Executive his base salary through the end of the month during
which such termination occurs (or at the Executive's election,
the rate in effect on the first day of the month preceding the
month in which the date of termination occurs) plus credit for
any accrued vacation and the Company shall thereafter have no
further obligations under this Agreement to the Executive or
his or her dependents, beneficiaries or estate; provided,
however, that the Company will continue to honor any
obligations that may have been accrued under then existing
Company Benefit Plans or any other agreements or arrangements
applicable to the Executive.
(b) If at any time the Executive's employment is
terminated by the Company without Cause or as a result of
death or Disability, then the Company shall:
(1) pay to the Executive within seven days
following the date of termination the pro rata share
of his "MONTHLY BASE SALARY" (defined as the result
of (i) the Annual Salary divided by (ii) twelve (12))
in effect on the date of the termination through the
end of the
5
<PAGE> 6
month during which such termination occurs, plus
payment for any vacation earned but not taken;
(2) pay to the Executive for termination of
his rights thereunder a lump sum, in cash, within
seven business days following the date of
termination, an amount equal to six months salary
based upon the Executive's current Monthly Base
Salary; and
(3) provide Executive with such insurance
coverage as is then required by COBRA or any similar
then applicable law.
4.4 No Obligation to Mitigate Damages; No Effect on Other
Contractual Rights.
(a) The Executive shall not be required to mitigate
damages or the amount of any payment provided for under this
Agreement by seeking other employment or otherwise, nor shall
the amount of any payment provided for under this Agreement be
reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of
termination, or otherwise.
(b) The provisions of this Agreement, and any payment
or benefit provided for hereunder, shall not reduce any
amounts otherwise payable, or in any way diminish the
Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Company
Benefit Plan, employment agreement or other contract, plan or
arrangement.
(c) Executive may terminate this Agreement upon 30
days written notice to the Company and upon such termination
the Company shall make the payment provided for in Section
4.3(b)(1) hereof and no further payments shall be required to
be made by the Company to Executive.
ARTICLE V
GENERAL PROVISIONS
5.1 Notice. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: First Aviation Services Inc.
6
<PAGE> 7
One Omega Drive
Stamford, Connecticut 06907
Attn: Aaron Hollander, Chairman
If to the Executive: Mr. John F. Risko
National Airmotive Corporation
7200 Earhart Road
Oakland, California
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
5.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut without regard
to conflicts of law principles. Executive hereby agrees to submit to the
exclusive jurisdiction of the courts in and of the State of Connecticut, and
consents that service of process with respect to all courts in and of the state
of Connecticut may be made by registered mail to Executive at his address for
notices specified herein.
5.4 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.5 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
5.6 Legal Fees and Expenses. Should any party institute any
action or proceeding to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or of any provision
hereof, or for a declaration of rights hereunder, the prevailing party in any
such action or proceeding shall be entitled to receive from the other party all
costs and expenses, including reasonable attorneys' fees, incurred by the
prevailing party in connection with such action or proceeding.
7
<PAGE> 8
5.7 Entire Agreement. This Agreement constitutes the entire
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended by
the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.8 Assignment. Subject to the provisions of Article V hereof,
this Agreement and the rights, duties, and obligations hereunder may not
assigned or delegated by any party without the prior written consent of the
other party. Notwithstanding the foregoing provisions of this Section 5.8, the
Company may assign or delegate its rights, duties, and obligations hereunder to
any person or entity which succeeds to all or substantially all of the business
of the Company through merger, consolidation, reorganization, or other business
combination or by acquisition of all or substantially all of the assets of the
Company; provided that such person assumes the Company's obligations under this
Agreement in accordance with Section 5.1.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
FIRST AVIATION SERVICES INC.,
a Delaware corporation
By: /s/ JOHN A. MARSALISI
_________________________________
Title: Chief Financial Officer
John F. Risko,
an individual
/S/ JOHN F. RISKO
____________________________________
8
<PAGE> 1
Exhibit 10.12
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "AGREEMENT") is
dated as of December 20, 1996, between First Aviation Services Inc., a Delaware
corporation (the "COMPANY"), and John A. Marsalisi, an individual (the
"EXECUTIVE").
WITNESSETH:
WHEREAS, the Company believes that the Executive is a valued
employee of the Company and wishes to ensure his continued employment with the
Company and document the terms of the Executive's employment by the Company.
WHEREAS, the Company also has determined that it is in the
best interests of the Company and its shareholders to reinforce and encourage
the continued attention and dedication of certain key members of the Company's
management, including the Executive, to their assigned duties without
distraction in uncertain circumstances arising from the possibility of a change
in control of the Company.
NOW, THEREFORE, taking into account the foregoing and in
consideration of the mutual promises and conditions contained herein, the
parties hereto agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company employs the Executive and the
Executive hereby accepts employment as the Chief Financial Officer of the
Company and as the Chief Financial Officer of National Airmotive Corporation,
("NAC"), which is a wholly-owned subsidiary of the Company, upon the terms and
conditions hereinafter set forth.
1.2 Term. The employment of the Executive by the Company under
the terms and conditions of this Agreement will commence on the date hereof and
continue, subject to Article IV hereof, for a period of three years ("EMPLOYMENT
TERM").
1.3 Executive Duties. As the Company's Chief Financial Officer
and as NAC's Chief Financial Officer, the Executive shall perform such duties as
are requested by and shall report directly to the Company's Board of Directors.
The Executive agrees to devote his full business time (with allowances for
vacations and sick leave) and attention and best efforts to the affairs of the
Company and its subsidiaries and affiliates
<PAGE> 2
during the Employment Term, except that Executive shall be permitted to continue
his affiliation with, and work for, First Equity Development, Inc. so long as
such affiliation and work does not, in any material way, interfere with
Executive's duties as an officer of both the Company and NAC. Executive shall
not, while an employee of the Company, directly or indirectly, be engaged
(including as a stockholder, proprietor, general partner, limited partner,
trustee, consultant, employee, director, officer, lender investor or otherwise)
in any business or activity that is competitive with that of the Company or any
of its subsidiaries.
ARTICLE II
COMPENSATION AND BENEFITS
2.1 Annual Salary. During the Employment Term, the Company
shall pay to the Executive a base salary at the rate of One Hundred Fifty-Five
Thousand Dollars ($155,000) per year (the "ANNUAL SALARY"), payable in
substantially equal biweekly installments. The Company will review annually and
may, in the sole discretion of the Board of Directors, increase such base salary
in light of the Executive's performance, inflation in cost of living or other
factors.
2.2 Benefits. During the Employment Term, the Executive shall
be eligible for participation in and covered by any and all such performance,
bonus, profit sharing, incentive, stock option, and other compensation plans and
such medical, dental, disability, life, and other insurance plans and such other
benefits generally available to other employees of the Company in similar
employment positions, on the same terms as such employees, subject to meeting
applicable eligibility requirements (collectively referred to herein as the
"COMPANY BENEFIT PLANS").
2.3 Reimbursement of Expenses. The Executive shall be entitled
to receive prompt reimbursement of all reasonable expenses incurred by the
Executive in performing services hereunder, including all reasonable expenses of
travel, entertainment and living expenses while away from home on business at
the request of, or in the service of, the Company or NAC, provided that such
expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company.
2.4 Vacation and Holidays. The Executive shall be entitled to
an annual vacation leave of three (3) weeks at full pay or such greater vacation
benefits as may be provided for by the Company's vacation policies applicable to
senior executives of the Company. Up to a maximum of one week of vacation time
may be accumulated and carried over from one year to the next. Executive shall
be entitled to such holidays as are established by the Company for all
employees.
2
<PAGE> 3
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. Executive shall not, during Executive's
employment by the Company or thereafter, at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to either the Company's or NAC's
business, operations, marketing data, business plans, strategies, employees,
negotiations and contracts with other companies, or any other subject matter
pertaining to the business of either the Company or NAC or any of their
respective clients, customers, consultants, or licensees, known, learned, or
acquired by Executive during the period of Executive's employment by the Company
(collectively "CONFIDENTIAL INFORMATION"), except as may be necessary in the
ordinary course of performing Executive's particular duties as an employee of
the Company.
3.2 Return of Confidential Material. Executive shall promptly
deliver to the Company on termination of Executive's employment by the Company,
whether or not for Cause and whatever the reason, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, drawings,
blueprints, rolodexes, computer files and records, Confidential Information and
any other documents of a confidential nature belonging to either the Company or
NAC, including all copies of such materials which Executive may then possess or
have under Executive's control. Upon termination of Executive's employment by
the Company, Executive shall not take any document, data, or other material of
any nature containing or pertaining to the proprietary information of either the
Company or NAC.
3.3 Prohibition on Solicitation of Customers; Noncompetition.
During the term of Executive's employment by the Company, and for a period of
six months thereafter, Executive shall not, directly or indirectly, either for
Executive or for any other person or entity, solicit any person or entity to
terminate such person's or entity's contractual and/or business relationship
with either the Company or NAC, nor shall Executive interfere with or disrupt or
attempt to interfere with or disrupt any such relationship. In addition, for a
period of six months following the term of Executive's employment by the
Company, Executive shall not, directly or indirectly, be engaged (including as a
stockholder, proprietor, general partner, limited partner, trustee, consultant,
employee, director, officer, lender investor or otherwise) in any business or
activity as of the date of termination of employment that is competitive with
that of the Company or any of its subsidiaries activities within the United
States. None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or
Independent Contractors After Termination. During the term of Executive's
employment by the Company and for a period of six months following the
termination of Executive's
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employment by the Company, Executive will not solicit any of the employees,
agents, or independent contractors of either the Company or NAC to leave the
employ of the Company or NAC for a competitive company or business. However,
Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with either the Company or NAC
after a period of 120 days have elapsed since the termination date of such
employee, agent or independent contractor. None of the foregoing shall be deemed
a waiver of any and all rights and remedies the Company may have under
applicable law.
3.5 Right to Injunctive and Equitable Relief. Executive's
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably or
adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
3.6 Survival of Obligations. Executive agrees that the terms
of this Article III and Article V hereof shall survive the term of this
Agreement and the termination of Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 Definitions. For purposes of this Article IV, the
following definitions shall be applicable to the terms set forth below:
(a) Cause. "CAUSE" shall mean only the following: (i)
failure by the Executive to perform his duties hereunder or
those duties which may, from time to time, be reasonably
requested by the Board of Directors of the Company (other than
such failure resulting from the Executive's incapacity due to
physical or mental illness); (ii) misconduct by the Executive
which is materially injurious to the Company; (iii) conviction
of or pleading no contest to a felony or other crime of moral
turpitude; (iv) habitual drunkenness by the Executive; (v)
action by the Executive beyond the scope of his employment, as
such scope is set by the Board of Directors
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of the Company or NAC from time to time (vi) a material breach
of this Agreement by the Executive.
(b) Disability. "DISABILITY" shall mean a physical or
mental incapacity as a result of which the Executive becomes
unable to continue the proper performance of his duties
hereunder (reasonable absences because of sickness for up to
three (3) consecutive months excepted). A determination of
Disability shall be subject to the certification of a
qualified medical doctor agreed to by the Company and the
Executive or, in the event of the Executive's incapacity to
designate a doctor, the Executive's legal representative. In
the absence of agreement between the Company and the
Executive, each party shall nominate a qualified medical
doctor and the two doctors so nominated shall select a third
doctor, who shall make the determination as to Disability.
4.2 Termination by Company. The Executive's employment
hereunder may be terminated by the Company immediately for Cause. Subject to the
other provisions contained in this Agreement, the Company may terminate this
Agreement for any reason other than Cause upon thirty (30) days' written notice
to Executive. The effective date of termination ("EFFECTIVE DATE") shall be
considered to be thirty (30) days subsequent to written notice of termination;
however, the Company may elect to have Executive leave both the Company and NAC
immediately.
4.3 Severance Benefits Received Upon Termination.
(a) If at any time the Executive's employment is
terminated by the Company for Cause, the Company shall pay the
Executive his base salary through the end of the month during
which such termination occurs (or at the Executive's election,
the rate in effect on the first day of the month preceding the
month in which the date of termination occurs) plus credit for
any accrued vacation and the Company shall thereafter have no
further obligations under this Agreement to the Executive or
his or her dependents, beneficiaries or estate; provided,
however, that the Company will continue to honor any
obligations that may have been accrued under then existing
Company Benefit Plans or any other agreements or arrangements
applicable to the Executive.
(b) If at any time the Executive's employment is
terminated by the Company without Cause or as a result of
death or Disability, then the Company shall:
(1) pay to the Executive within seven days
following the date of termination the pro rata share
of his "MONTHLY BASE SALARY" (defined as the result
of (i) the Annual Salary divided by (ii) twelve (12))
in effect on the date of the termination through the
end of the
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month during which such termination occurs, plus
payment for any vacation earned but not taken;
(2) pay to the Executive for termination of
his rights hereunder a lump sum, in cash, within
seven business days following the date of
termination, an amount equal to six months salary
based upon the Executive's current Monthly Base
Salary; and
(3) provide Executive with such insurance
coverage as is then required by COBRA or any similar
then applicable law.
4.4 No Obligation to Mitigate Damages; No Effect on Other
Contractual Rights.
(a) The Executive shall not be required to mitigate
damages or the amount of any payment provided for under this
Agreement by seeking other employment or otherwise, nor shall
the amount of any payment provided for under this Agreement be
reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of
termination, or otherwise.
(b) The provisions of this Agreement, and any payment
or benefit provided for hereunder, shall not reduce any
amounts otherwise payable, or in any way diminish the
Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Company
Benefit Plan, employment agreement or other contract, plan or
arrangement.
(c) Executive may terminate this Agreement upon 30
days written notice to the Company and upon such termination
the Company shall make the payment provided for in Section
4.3(b)(1) hereof and no further payments shall be required to
be made by the Company to Executive.
ARTICLE V
GENERAL PROVISIONS
5.1 Notice. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
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If to the Company: First Aviation Services Inc.
One Omega Drive
Stamford, Connecticut 06907
Attn: Aaron Hollander, Chairman
If to the Executive: Mr. John A. Marsalisi
First Aviation Services Inc.
One Omega Drive
Stamford, Connecticut 06907
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
5.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut without regard
to conflicts of law principles. Executive hereby agrees to submit to the
exclusive jurisdiction of the courts in and of the State of Connecticut, and
consents that service of process with respect to all courts in and of the state
of Connecticut may be made by registered mail to Executive at his address for
notices specified herein.
5.4 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.5 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
5.6 Legal Fees and Expenses. Should any party institute any
action or proceeding to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or of any provision
hereof, or for a declaration of rights hereunder, the prevailing party in any
such action or proceeding shall be entitled to receive from the other party all
costs and expenses, including reasonable attorneys' fees, incurred by the
prevailing party in connection with such action or proceeding.
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5.7 Entire Agreement. This Agreement constitutes the entire
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended by
the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.8 Assignment. Subject to the provisions of Article V hereof,
this Agreement and the rights, duties, and obligations hereunder may not
assigned or delegated by any party without the prior written consent of the
other party. Notwithstanding the foregoing provisions of this Section 5.8, the
Company may assign or delegate its rights, duties, and obligations hereunder to
any person or entity which succeeds to all or substantially all of the business
of the Company through merger, consolidation, reorganization, or other business
combination or by acquisition of all or substantially all of the assets of the
Company; provided that such person assumes the Company's obligations under this
Agreement in accordance with Section 5.1.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
FIRST AVIATION SERVICES INC.,
a Delaware corporation
By: /s/ Michael C. Culver
_________________________________
Title: Chief Executive Officer
John A. Marsalisi,
an individual
/s/ John A. Marsalisi
------------------------------------
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EXHIBIT 10.15
FIRST AVIATION SERVICES INC.
EMPLOYEE STOCK PURCHASE PLAN
1. DEFINITIONS.
(a) "Base Pay" means a Qualified Employee's gross pay for a 40-hour
week, including overtime payments, bonuses and sales commission, but excluding
relocation or attributed types of compensation, and other special payments, fees
or allowances.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended and as
it may be amended from time to time.
(d) "Committee" has the meaning set forth in Section 13 hereof.
(e) "Common Stock" means the Common Stock of the Company, $0.01 par
value per share.
(f) "Company" means First Aviation Services Inc., a Delaware
corporation, and its successors.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and as it may be amended from time to time.
(h) "Exercise Date" has the meaning set forth in Section 4(a) hereof.
(i) "Fair Market Value" means the average of the high and low price of
the Common Stock on the NASDAQ National Market System as reported and published
in the Western Edition of The Wall Street Journal, or if there is no trading of
the Common Stock on the date in question, then the average of the high and low
price of the Common Stock, as so reported and published, on the next preceding
date on which there was trading in the Common Stock; provided, however, that the
Committee, in determining such Fair Market Value, may utilize such other
exchange, market or other factors affecting value of the Common Stock as it may
deem appropriate.
(j) "Grant Date" has the meaning set forth in Section 4(a) hereof.
(k) "Option Price" has the meaning set forth in Section 5(b) hereof.
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(l) "Participant" means a Qualified Employee who elects to participate
in this Plan during a Plan Year.
(m) "Personal Representative" means the person or persons who, upon the
death or Total Disability of a Participant, shall have acquired, on behalf of
the Participant by legal proceeding or under the laws of descent and
distribution or otherwise, the right to exercise the Participant's rights under,
or to receive the benefits specified in, this Plan.
(n) "Plan" means this First Aviation Services Inc. Employee Stock
Purchase Plan, as it may be amended from time to time.
(o) "Plan Year" means the 12-month term of options under this Plan,
commencing on January 1 and ending on December 31 of each year; provided,
however that the first Plan Year shall be a ten month term commencing on March
1, 1997 and ending on December 31, 1997.
(p) "Qualified Employee" means any employee of the Company or any
Subsidiary who has completed 12 months of continuous service with the Company or
a Subsidiary as of the Grant Date and who is customarily employed for more than
20 hours per week and more than five months in a calendar year. Notwithstanding
the foregoing, the term "Qualified Employee" does not include any employee who,
immediately after the option is granted, owns (within the meaning of Sections
423(b)(3) and 424(d) of the Code) stock representing 5% or more of the total
combined voting power or value of all classes of stock of the Company or a
Subsidiary.
With respect to employees of Aircraft Parts International
("API") who became employees of the Company upon the Company's acquisition of
API from AMR Combs, Inc., continuous service with the Company or a Subsidiary
shall include, for purposes of determining status as a Qualified Employee only,
such employees' continuous employment with API prior to becoming employed by the
Company.
(q) "Retirement" means the voluntary termination of employment of a
Participant who either (i) is at least 55 years of age and has completed at
least ten (10) years of service with the Company or a Subsidiary, or (ii) is a
least 65 years of age.
(r) "Subsidiary" means any corporation or other entity, at least a
majority of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Company.
(s) "Total Disability" means the total and permanent physical or mental
disability of a Participant, evidenced by an inability to engage in any
substantial gainful activity, as determined by the Committee.
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All references herein to the masculine shall also be references to the
feminine or neuter as appropriate.
2. PURPOSE, SUMMARY. The purpose of this Plan is to assist Qualified
Employees in acquiring a stock ownership interest in the Company pursuant to a
plan which is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code. Under this Plan, Participants are deemed to have been
granted options to purchase shares of Common Stock. Participants designate a
certain amount of their Base Pay to be set aside during the Plan Year for the
purpose of purchasing Common Stock. At the end of 12 months, the Participants
are deemed to have exercised their options using the funds set aside for them
and the Company issues share certificates to them. The plan is intended, among
other things, to provide an additional incentive to Participants, through the
ownership of Common Stock, to achieve business goals that would increase stock
values and to remain in the employ of the Company or a Subsidiary.
3. STOCK SUBJECT TO THIS PLAN. Subject to the provisions of Section 10
hereof (relating to adjustments upon changes in capitalization), the total
number of shares available under this Plan is 250,000 shares of Common Stock.
Such shares may be authorized but unissued shares.
4. GRANT OF OPTIONS.
(a) IN GENERAL. Commencing May 1, 1997 and continuing while
this Plan remains in force, the Company will offer options to purchase shares of
Common Stock under this Plan to all Participants. The options will be deemed to
have been granted as of January 1 (or May 1 for the 1997 calendar year) of each
year (the "Grant Date"). The term of each option shall be 12 months (10 months
for the 1997 calendar year), the last day of which shall be December 31, (the
"Exercise Date"). The number of shares subject to each option and deemed to be
purchased by each Participant shall be the quotient, rounded down to the nearest
whole number, of (i) the aggregate payroll deductions authorized by each
Participant in accordance with Section 4(b) below made during the Plan Year,
divided by (ii) the Option Price. The grant of options hereunder is subject to
the approval of the Plan by the shareholders of the Company. If shareholder
approval is not received by or before December 15, 1997, this Plan shall be
deemed to be terminated and the options granted hereunder shall have no effect
but instead shall be null and void.
(b) ELECTION TO PARTICIPATE; PAYROLL DEDUCTION AUTHORIZATION.
Except as provided in Section 4(d) below, a Qualified Employee may participate
in this Plan only by means of payroll deductions. Each Qualified Employee who
elects to participate in this Plan shall deliver to the Company, no later than
the December 15 next preceding a Grant Date (or April 10 for the 1997 calendar
year, or the next business day following such December 15 (or April 10) if such
day is not a business day), a written payroll deduction authorization in a form
approved by the Company pursuant to which he gives
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notice of his election to participate in this Plan as of the next following
Grant Date, and whereby he designates a stated amount to be deducted from his
Base Pay on each payday during the next Plan Year and credited to his account
under this Plan ("Account"). The stated amount to be deducted from a
Participant's Base Pay may not be less than $10.00 per pay period. The aggregate
stated amount for any Plan Year may not exceed either of the following: (i) ten
percent of the Participant's Base Pay during the Plan Year; or (ii) an amount
which will result in noncompliance with the $25,000 limitation stated in Section
4(c) below. Payroll deduction authorizations may not be changed during the Plan
Year. In the event the number of shares of Common Stock subject to options
during a Plan Year exceeds the number of shares then available under this Plan,
the available shares shall be allocated among the Participants in proportion to
the balance of their Accounts at the end of the Plan Year, and any amounts
credited to their Accounts after giving effect to shares purchased that year
shall be refunded to the Participants.
(c) $25,000 LIMITATION. No Participant shall be deemed to have
been granted an option under this Plan which would permit his rights to purchase
Common Stock under this Plan or any other employee stock purchase plan of the
Company or any Subsidiary to accrue at a rate which exceeds $25,000 of Fair
Market Value of Common Stock (determined as of the Grant Date of such option)
for each calendar year such option is outstanding. For purposes of this
subsection (c), the right to purchase Common Stock under an option accrues when
the option (or any portion thereof) becomes exercisable, and the right to
purchase Common Stock which has accrued during one Plan Year may not be carried
over to any subsequent Plan Year.
(d) LEAVES OF ABSENCE. During leaves of absence approved by
the Company and meeting the requirements of Regulation Section 1.421-7(h)(2)
under the Code, a Participant may continue participation in this Plan by making
cash payments to the Company on the Company's normal paydays equal to the
reduction in his payroll deduction attributable to his leave.
5. EXERCISE OF OPTIONS.
(a) IN GENERAL. On December 31 of each Plan Year, each
Participant automatically and without any act on his part will be deemed to have
exercised his option to the extent that the balance then credited to his Account
is sufficient to purchase whole shares of Common Stock at the Option Price. The
Company shall promptly refund to the Participant any balance remaining in his
Account, without interest thereon, after giving effect to the purchase of such
whole shares.
(b) "OPTION PRICE" DEFINED. The Option Price per share to be
paid by each Participant upon exercise of his option shall be an amount equal to
85% of the Fair Market Value of Common Stock on the Grant Date or on the
Exercise Date (or the date of the Participant's Retirement, death or Total
Disability if any such event occurs), whichever amount is less.
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(c) DELIVERY OF SHARE CERTIFICATES. Subject to Section 5(d)
below, the Company will deliver to each Participant a certificate issued in the
Participant's name for the number of shares with respect to which his option was
exercised. The Company will deliver the certificate as soon as practicable
following the Exercise Date.
(d) GOVERNMENT REGULATIONS. This Plan, the granting of options
under this Plan and the issuance of Common Stock pursuant hereto are subject to
all applicable federal and state laws, rules and regulations and to such
approvals by any regulatory or governmental agency which may, in the opinion of
counsel for the Company, be necessary or advisable in connection therewith.
Without limiting the generality of the foregoing, no options may be granted
under this Plan, and no shares may be issued by the Company, unless and until,
in each such case, all legal requirements applicable to the grant or issuance
have, in the opinion of counsel to the Company, been complied with. In
connection with the issuance of Common Stock hereunder, the Participant shall,
if requested by the Company, give assurances satisfactory to counsel to the
Company in respect of such matters as the Company may deem desirable to assure
compliance with all applicable legal requirements.
6. WITHDRAWAL FROM THIS PLAN.
(a) IN GENERAL. Any Participant may completely withdraw from
this Plan at any time. A Participant who desires to withdraw from this Plan must
deliver to the Company a notice of withdrawal in a form approved by the Company.
Promptly following the time when the notice of withdrawal is delivered, the
Company will refund to the Participant the amount of the balance of his Account,
without interest thereon, and the Participant's payroll deduction authorization,
interest in this Plan and option under this Plan shall thereupon terminate.
(b) ELIGIBILITY FOLLOWING WITHDRAWAL. A Participant who has
withdrawn from this Plan shall again be eligible to participate in this Plan
upon expiration of the Plan Year during which the Participant withdrew.
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF EMPLOYMENT OTHER THAN BY RETIREMENT, DEATH
OR TOTAL DISABILITY. If the employment of a Participant by the Company or a
Subsidiary terminates during a Plan Year other than by reason of Retirement,
death or Total Disability, his participation in this Plan automatically and
without any act on his part shall terminate as of the date of the termination of
the Participant's employment. The Company promptly will refund to the
Participant the amount of the balance of his Account, without interest thereon,
and thereupon his interest in and option under this Plan shall terminate.
Nothing in this Plan shall prevent the Company or any Subsidiary from
terminating any Participant's employment.
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(b) TERMINATION BY RETIREMENT. If a Participant's employment
terminates during a Plan Year because of Retirement of the Participant, the
Participant may, at his election by written notice to the Company, either (i)
exercise his option as of his Retirement date, in which event the Company shall
apply the balance of his Account to the purchase, at the Option Price, of whole
shares of Common Stock and refund the excess, if any, or (ii) request payment of
the balance of his Account, in which event the Company promptly shall make such
payment, without interest thereon, and thereupon his interest in and option
under this Plan shall terminate. If the Participant elects to exercise his
option, the date of his Retirement shall be deemed to be the Exercise Date for
the purpose of computing the Option Price.
(c) TERMINATION BY DEATH OR TOTAL DISABILITY. If a Participant
dies or suffers a Total Disability during a Plan Year, the Participant or his
Personal Representative, as the case may be, by written notice to the Company,
may either (i) exercise the Participant's option as of the date of death or
Total Disability, in which event the Company shall apply the balance of his
Account to the purchase, at the Option Price, of whole shares of Common Stock
and refund the excess, if any, or (ii) request payment of the balance of the
Participant's Account, in which event the Company promptly shall make such
payment to the Participant or his Personal Representative, and thereupon the
Participant's interest in and option under this Plan shall terminate. If the
option is exercised, the date of death or Total Disability shall be deemed to be
the Exercise Date for the purpose of computing the Option Price. If the Company
does not receive such notice within 90 days of the date of Participant's death
or Total Disability, the Participant or his Personal Representative shall be
conclusively presumed to have elected alternative (ii) above and requested the
payment of the balance of the Participant's Account.
8. RESTRICTION UPON ASSIGNMENT. An option granted under this Plan shall
not be transferable otherwise than by will or the laws of descent and
distribution pursuant to Section 7(c) hereof, and is exercisable during the
Participant's lifetime only by the Participant (or his Personal Representative
in the event of the Participant's Total Disability). The Company will not
recognize any assignment or purported assignment by a Participant of his option
or of any rights under his option or under this Plan.
9. NO RIGHTS AS SHAREHOLDER. With respect to shares of Common Stock
subject to an option, a Participant shall not be deemed to be a shareholder and
shall not have any of the rights or privileges of a shareholder until a
certificate for shares of Common Stock has been issued to the Participant
following the exercise of his option.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If the outstanding
shares of Common Stock are increased, decreased or changed into, or exchange
for, a different number or kind of shares or securities of the Company through a
reorganization or merger in which the Company is the surviving entity, or
through a combination, recapitalization, reclassification, stock split, stock
dividend, stock consolidation or
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otherwise, an appropriate adjustment shall be made in the number and kind of
shares that may be issued under this 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, this Plan shall terminate, and any outstanding options
shall terminate and the Company thereupon will promptly refund the balance of
the Participants' Accounts to the Participants, without interest thereon, unless
(i) the Committee shall determine, in its sole and absolute discretion, that any
or all options under this Plan shall accelerate and become immediately
exercisable or (ii) provision shall be made in connection with such transaction
for the assumption of options theretofore granted hereunder, or the substitution
for such options or new options covering the stock of a successor employer
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to number and kind of shares and prices. If the Committee determines to
accelerate any or all of the options, the acceleration date designated by the
Committee shall be deemed to be the Exercise Date for the purpose of computing
the option price of the accelerated option.
In so adjusting Common Stock to reflect such changes, or in
determining that no such adjustment is necessary, the Committee may rely upon
the advice of independent counsel and accountants of the Company, and the
determination of the Committee shall be conclusive. No fractional shares of
stock shall be issued under this Plan on account of any such adjustment.
11. USE OF FUNDS; NO INTEREST PAID. All amounts withheld from
Participants' paychecks hereunder and credited to their Accounts will be
included in the general funds of the Company free of any trust or other
restriction and may be used by the Company for any corporate purpose. Under no
circumstances shall interest on such amounts be paid to any Participant or
credited to his Account.
12. AMENDMENT OF THIS PLAN. The Board may amend, suspend or terminate
this Plan at any time and from time to time; provided, however, that, if any
amendment would (i) materially increase the benefits accruing to Participants
under this Plan, (ii) materially increase the aggregate number of shares of
Common Stock that may be issued under this Plan, or (iii) materially modify the
requirements as to eligibility for participation in this Plan, then to the
extent required under Section 423 of the Code or any other applicable law, or
deemed necessary or advisable by the Board, such amendment shall be subject to
shareholder approval. Notwithstanding anything else contained herein, the Board
shall have the right to designate from time to time the Subsidiaries whose
employees may be eligible to participate in the Plan and such designations shall
not constitute an amendment to the Plan requiring shareholder approval in
accordance with Treasury Regulation Section 1.423-2(c)(4).
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13. ADMINISTRATION BY COMMITTEE; RULES AND REGULATIONS. This Plan shall
be administered by a committee composed of not less than two directors of the
Company (the "Committee"), each of whom shall be a "disinterested person" as
such term is defined in Rule 16b-3(c)(2)(i) under the Exchange Act or any
successor provision of the Exchange Act so that the Committee members are
qualified to administer this Plan under such provision. Each member shall serve
for a term commencing on a date specified by the Board and continuing until he
dies or resigns or is removed from office by the Board. The Committee shall have
the power to make, amend and repeal rules and regulations for the interpretation
and administration of this Plan consistent with the qualification of this Plan
under Section 423 of the Code and consistent with Rule 16b-3 under the Exchange
Act.
14. TERM; APPROVAL BY SHAREHOLDERS. No option may be granted during any
period of suspension nor after termination of this Plan, and in no event may any
option be granted under this Plan after the date on which all of the Common
Stock available under this Plan has been purchased.
This plan shall be submitted for the approval of the Company's
shareholders within 12 months after the date of the Board's initial adoption of
this Plan and shall be effective upon its approval by the shareholders;
provided, however, effectiveness of this Plan shall be conditioned upon
consummation of a public offering of the Company's Common Stock on or before
March 15, 1997.
15. EFFECT UPON OTHER PLANS. The adoption of this Plan shall not affect
any other compensation or incentive plans in effect for the Company or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of the
Company or any Subsidiary (a) to establish any other forms of incentives or
compensation for employees of the Company or any Subsidiary or (b) to grant or
assume options otherwise than under this Plan in connection with any proper
corporate purpose.
16. HEADINGS. Headings are provided herein for convenience only and
shall not serve as a basis for interpretation or construction of this Plan.
17. GOVERNING LAW. This Plan shall be governed by, and construed and
enforced in accordance with, the laws of the State of California. If any
provisions shall be held by a court of competent jurisdiction to be invalid and
unenforceable, the remaining provisions of this Plan shall continue to be fully
effective.
8
<PAGE> 1
Exhibit 10.20
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "AGREEMENT") is
dated as of December 20, 1996, between First Aviation Services Inc., a Delaware
corporation (the "COMPANY"), and Michael C. Culver, an individual (the
"EXECUTIVE").
WITNESSETH:
WHEREAS, the Company believes that the Executive is a valued
employee of the Company and wishes to ensure his continued employment with the
Company and document the terms of the Executive's employment by the Company.
WHEREAS, the Company also has determined that it is in the
best interests of the Company and its shareholders to reinforce and encourage
the continued attention and dedication of certain key members of the Company's
management, including the Executive, to their assigned duties without
distraction in uncertain circumstances arising from the possibility of a change
in control of the Company.
NOW, THEREFORE, taking into account the foregoing and in
consideration of the mutual promises and conditions contained herein, the
parties hereto agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company employs the Executive and the
Executive hereby accepts employment as the Chief Executive Officer of the
Company and as the Chief Executive Officer of Aircraft Parts International,
Combs ("API"), which is a wholly-owned subsidiary of the Company, upon the terms
and conditions hereinafter set forth.
1.2 Term. The employment of the Executive by the Company under
the terms and conditions of this Agreement will commence on the date hereof and
continue, subject to Article IV hereof, for a period of three years ("EMPLOYMENT
TERM").
1.3 Executive Duties. As the Company's Chief Operating Officer
and as API's Chief Executive Officer, the Executive shall perform such duties as
are requested by and shall report directly to the Company's Board of Directors.
The Executive agrees to devote his full business time (with allowances for
vacations and sick leave) and attention and best efforts to the affairs of the
Company and its subsidiaries and affiliates
<PAGE> 2
during the Employment Term, except that Executive shall be permitted to continue
his affiliation with, and work for, First Equity Development, Inc. so long as
such affiliation and work does not, in any material way, interfere with
Executive's duties as an officer of both the Company and API. Executive shall
not, while an employee of the Company, directly or indirectly, be engaged
(including as a stockholder, proprietor, general partner, limited partner,
trustee, consultant, employee, director, officer, lender investor or otherwise)
in any business or activity that is competitive with that of the Company or any
of its subsidiaries.
ARTICLE II
COMPENSATION AND BENEFITS
2.1 Annual Salary. During the Employment Term, the Company
shall pay to the Executive a base salary at the rate of One Hundred Eighty
Thousand Dollars ($180,000) per year (the "ANNUAL SALARY"), payable in
substantially equal biweekly installments. The Company will review annually and
may, in the sole discretion of the Board of Directors, increase such base salary
in light of the Executive's performance, inflation in cost of living or other
factors.
2.2 Benefits. During the Employment Term, the Executive shall
be eligible for participation in and covered by any and all such performance,
bonus, profit sharing, incentive, stock option, and other compensation plans and
such medical, dental, disability, life, and other insurance plans and such other
benefits generally available to other employees of the Company in similar
employment positions, on the same terms as such employees, subject to meeting
applicable eligibility requirements (collectively referred to herein as the
"COMPANY BENEFIT PLANS").
2.3 Reimbursement of Expenses. The Executive shall be entitled
to receive prompt reimbursement of all reasonable expenses incurred by the
Executive in performing services hereunder, including all reasonable expenses of
travel, entertainment and living expenses while away from home on business at
the request of, or in the service of, the Company or API, provided that such
expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company.
2.4 Vacation and Holidays. The Executive shall be entitled to
an annual vacation leave of three (3) weeks at full pay or such greater vacation
benefits as may be provided for by the Company's vacation policies applicable to
senior executives of the Company. Up to a maximum of one week of vacation time
may be accumulated and carried over from one year to the next. Executive shall
be entitled to such holidays as are established by the Company for all
employees.
2
<PAGE> 3
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. Executive shall not, during Executive's
employment by the Company or thereafter, at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to either the Company's or API's
business, operations, marketing data, business plans, strategies, employees,
negotiations and contracts with other companies, or any other subject matter
pertaining to the business of either the Company or API or any of their
respective clients, customers, consultants, or licensees, known, learned, or
acquired by Executive during the period of Executive's employment by the Company
(collectively "CONFIDENTIAL INFORMATION"), except as may be necessary in the
ordinary course of performing Executive's particular duties as an employee of
the Company.
3.2 Return of Confidential Material. Executive shall promptly
deliver to the Company on termination of Executive's employment by the Company,
whether or not for Cause and whatever the reason, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, drawings,
blueprints, rolodexes, computer files and records, Confidential Information and
any other documents of a confidential nature belonging to either the Company or
API, including all copies of such materials which Executive may then possess or
have under Executive's control. Upon termination of Executive's employment by
the Company, Executive shall not take any document, data, or other material of
any nature containing or pertaining to the proprietary information of either the
Company or API.
3.3 Prohibition on Solicitation of Customers; Noncompetition.
During the term of Executive's employment by the Company, and for a period of
six months thereafter, Executive shall not, directly or indirectly, either for
Executive or for any other person or entity, solicit any person or entity to
terminate such person's or entity's contractual and/or business relationship
with either the Company or API, nor shall Executive interfere with or disrupt or
attempt to interfere with or disrupt any such relationship. In addition, for a
period of six months following the term of Executive's employment by the
Company, Executive shall not, directly or indirectly, be engaged (including as a
stockholder, proprietor, general partner, limited partner, trustee, consultant,
employee, director, officer, lender investor or otherwise) in any business or
activity as of the date of termination of employment that is competitive with
that of the Company or any of its subsidiaries activities within the United
States. None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or
Independent Contractors After Termination. During the term of Executive's
employment by the Company and for a period of six months following the
termination of Executive's
3
<PAGE> 4
employment by the Company, Executive will not solicit any of the employees,
agents, or independent contractors of either the Company or API to leave the
employ of the Company or API for a competitive company or business. However,
Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with either the Company or API
after a period of 120 days have elapsed since the termination date of such
employee, agent or independent contractor. None of the foregoing shall be deemed
a waiver of any and all rights and remedies the Company may have under
applicable law.
3.5 Right to Injunctive and Equitable Relief. Executive's
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably or
adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
3.6 Survival of Obligations. Executive agrees that the terms
of this Article III and Article V hereof shall survive the term of this
Agreement and the termination of Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 Definitions. For purposes of this Article IV, the
following definitions shall be applicable to the terms set forth below:
(a) Cause. "CAUSE" shall mean only the following: (i)
failure by the Executive to perform his duties hereunder or
those duties which may, from time to time, be reasonably
requested by the Board of Directors of the Company (other than
such failure resulting from the Executive's incapacity due to
physical or mental illness); (ii) misconduct by the Executive
which is materially injurious to the Company; (iii) conviction
of or pleading no contest to a felony or other crime of moral
turpitude; (iv) habitual drunkenness by the Executive; (v)
action by the Executive beyond the scope of his employment, as
such scope is set by the Board of Directors of the Company or
API from time to time (vi) a material breach of this Agreement
by the Executive.
4
<PAGE> 5
(b) Disability. "DISABILITY" shall mean a physical or
mental incapacity as a result of which the Executive becomes
unable to continue the proper performance of his duties
hereunder (reasonable absences because of sickness for up to
three (3) consecutive months excepted). A determination of
Disability shall be subject to the certification of a
qualified medical doctor agreed to by the Company and the
Executive or, in the event of the Executive's incapacity to
designate a doctor, the Executive's legal representative. In
the absence of agreement between the Company and the
Executive, each party shall nominate a qualified medical
doctor and the two doctors so nominated shall select a third
doctor, who shall make the determination as to Disability.
4.2 Termination by Company. The Executive's employment
hereunder may be terminated by the Company immediately for Cause. Subject to the
other provisions contained in this Agreement, the Company may terminate this
Agreement for any reason other than Cause upon thirty (30) days' written notice
to Executive. The effective date of termination ("EFFECTIVE DATE") shall be
considered to be thirty (30) days subsequent to written notice of termination;
however, the Company may elect to have Executive leave both the Company and API
immediately.
4.3 Severance Benefits Received Upon Termination.
(a) If at any time the Executive's employment is
terminated by the Company for Cause, the Company shall pay the
Executive his base salary through the end of the month during
which such termination occurs (or at the Executive's election,
the rate in effect on the first day of the month preceding the
month in which the date of termination occurs) plus credit for
any accrued vacation and the Company shall thereafter have no
further obligations under this Agreement to the Executive or
his or her dependents, beneficiaries or estate; provided,
however, that the Company will continue to honor any
obligations that may have been accrued under then existing
Company Benefit Plans or any other agreements or arrangements
applicable to the Executive.
(b) If at any time the Executive's employment is
terminated by the Company without Cause or as a result of
death or Disability, then the Company shall:
(1) pay to the Executive within seven days
following the date of termination the pro rata share
of his "MONTHLY BASE SALARY" (defined as the result
of (i) the Annual Salary divided by (ii) twelve (12))
in effect on the date of the termination through the
end of the month during which such termination
occurs, plus payment for any vacation earned but not
taken;
5
<PAGE> 6
(2) pay to the Executive for termination of
his rights thereunder a lump sum, in cash, within
seven business days following the date of
termination, an amount equal to six months salary
based upon the Executive's current Monthly Base
Salary; and
(3) provide Executive with such insurance
coverage as is then required by COBRA or any similar
then applicable law.
4.4 No Obligation to Mitigate Damages; No Effect on Other
Contractual Rights.
(a) The Executive shall not be required to mitigate
damages or the amount of any payment provided for under this
Agreement by seeking other employment or otherwise, nor shall
the amount of any payment provided for under this Agreement be
reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of
termination, or otherwise.
(b) The provisions of this Agreement, and any payment
or benefit provided for hereunder, shall not reduce any
amounts otherwise payable, or in any way diminish the
Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Company
Benefit Plan, employment agreement or other contract, plan or
arrangement.
(c) Executive may terminate this Agreement upon 30
days written notice to the Company and upon such termination
the Company shall make the payment provided for in Section
4.3(b)(1) hereof and no further payments shall be required to
be made by the Company to Executive.
ARTICLE V
GENERAL PROVISIONS
5.1 Notice. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: First Aviation Services Inc.
One Omega Drive
Stamford, Connecticut 06907
Attn: Aaron Hollander, Chairman
6
<PAGE> 7
If to the Executive: Mr. Michael C. Culver
First Aviation Services Inc.
One Omega Drive
Stamford, Connecticut 06907
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
5.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut without regard
to conflicts of law principles. Executive hereby agrees to submit to the
exclusive jurisdiction of the courts in and of the State of Connecticut, and
consents that service of process with respect to all courts in and of the state
of Connecticut may be made by registered mail to Executive at his address for
notices specified herein.
5.4 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.5 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
5.6 Legal Fees and Expenses. Should any party institute any
action or proceeding to enforce this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or of any provision
hereof, or for a declaration of rights hereunder, the prevailing party in any
such action or proceeding shall be entitled to receive from the other party all
costs and expenses, including reasonable attorneys' fees, incurred by the
prevailing party in connection with such action or proceeding.
5.7 Entire Agreement. This Agreement constitutes the entire
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended by
the parties as the final expression of their agreement with respect to such
terms as are included in this
7
<PAGE> 8
Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement
constitutes the complete and exclusive statement of its terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving this
Agreement.
5.8 Assignment. Subject to the provisions of Article V hereof,
this Agreement and the rights, duties, and obligations hereunder may not
assigned or delegated by any party without the prior written consent of the
other party. Notwithstanding the foregoing provisions of this Section 5.8, the
Company may assign or delegate its rights, duties, and obligations hereunder to
any person or entity which succeeds to all or substantially all of the business
of the Company through merger, consolidation, reorganization, or other business
combination or by acquisition of all or substantially all of the assets of the
Company; provided that such person assumes the Company's obligations under this
Agreement in accordance with Section 5.1.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
FIRST AVIATION SERVICES INC.,
a Delaware corporation
By: /s/ JOHN A. MARSALISI
_________________________________
Title: Chief Financial Officer
Michael C. Culver,
an individual
/s/ MICHAEL C. CULVER
____________________________________
8
<PAGE> 1
Exhibit 10.21
September 30, 1996
Mr. John Marsalisi
Chief Financial Officer
First Aviation Services, Inc.
One Omega Drive CONFIDENTIAL
Stamford, CT 06907
SUBJECT: ENGAGEMENT LETTER between First Equity Development, Inc. and its
affiliate, FED Securities, Inc., and First Aviation Services, Inc.
Dear Mr. Marsalisi:
This letter will confirm the terms and conditions by which First Equity
Development, Inc. and its affiliate, FED Securities, Inc. (collectively "First
Equity"), with offices at One Omega Drive, Stamford, Connecticut, has been
engaged to serve as investment counselor and financial advisor to First Aviation
Services, Inc., Stamford, Connecticut ("First Aviation Services" or the
"Company".)
The undersigned hereby agree to the following terms and conditions:
1. Exclusive Engagement Agreement. First Aviation Services does hereby
engage First Equity as its exclusive investment counselor and
financial advisor for the purpose of acquiring control of AMR Combs
Aircraft Parts International ("API"), and for assisting in the
implementation of such acquisition. An acquisition could include the
purchase of all or part of the capital stock, debt or assets of API,
or any subsidiary or division of API (any of the above hereinafter
referred to as the "Acquisition").
Execution of this Agreement by all parties will be First Equity's
authority to proceed.
2. Services Provided. The specific services that First Equity will
provide throughout this assignment will vary depending upon the
industry's performance, competitive dynamics and general market
conditions.
3. Term. Subject to the payment obligations set forth in Section 4
below, this Agreement shall commence upon its execution by both
parties and shall remain in full force and effect thereafter until
the completion of the said acquisition, hereinafter referred to as
the "Closing."
<PAGE> 2
First Aviation Services
September 30, 1996
Page 2
4. Compensation.
(a) Commencing upon execution of this agreement by both parties and
ending at closing, First Equity will receive a fixed success fee of
Two Hundred and Fifty Thousand Dollars ($250,000.00) to be paid at
closing.
(b) All reasonable out-of-pocket expenses incurred by First Equity,
including but not limited to transportation, food, lodging,
applicable sales taxes, etc., in the performance of the services to
be rendered hereunder, shall be borne by First Aviation Services and
reimbursed to First Equity on a monthly basis. First Equity makes it
a practice of keeping its clients expenses to a minimum, while at the
same time providing its professionals with a productive working
environment. First Equity's employees travel business class on air
travel where such class of service is available, otherwise employees
travel first class.
5. Relationship. Nothing herein shall be deemed to constitute an
employment or agency relationship between First Equity and First
Aviation Services. Nevertheless, nothing contained herein shall be
deemed to preclude the creation of such relationship by separate
agreement of the parties, in writing, for a particular purpose.
Except as expressly agreed to in writing, First Equity shall not have
the authority to obligate, bind or commit First Aviation Services in
any manner whatsoever.
(a) Recognizing that transactions of the type contemplated in this
engagement sometimes result in litigation, and that First Equity's
role is advisory, First Aviation Services agrees to indemnify First
Equity (including its affiliated entities and its officers), against
claims, losses and expenses incurred (including expense of
investigation and preparation and reasonable fees and disbursements
of First Equity and such persons' counsel) arising out of any action,
claim or proceeding arising in connection with First Equity's
engagement, and if indemnification were for any reason not to be
available, to contribute to the settlement, loss or expenses involved
in the proportion that First Aviation Services' economic interest
bears to First Equity's economic interest in any transaction.
However, such indemnification and contribution shall not apply to any
claim, loss or expense which arises principally from First Equity's
gross negligence or willful misconduct in performance of its services
hereunder.
First Equity shall use due care to avoid any litigation or claims
relating to First Equity's services hereunder.
<PAGE> 3
First Aviation Services
September 30, 1996
Page 3
In the event of such claim or litigation, First Equity shall
immediately notify the Chief Financial Officer of First Aviation
Services in writing, and shall cooperate and assist First Aviation
Services in the defense and/or settlement of same. First Aviation
Services' obligation to indemnify First Equity is conditioned upon
such cooperation and assistance and First Aviation Services shall
have the complete right to defend or settle any such indemnified
claims and/or litigation. First Equity may elect to have separate
legal representation at First Equity's expense.
First Equity shall retain the right to advertise its participation in
the transaction after public disclosure of such transaction. All the
marketing and advertising produced by First Equity shall be in a form
consistent with industry practice.
6. Assignment and Termination. This Agreement shall not be assignable by
either party except affiliates or to successors to all or
substantially all of either businesses. This Agreement may be
terminated by either party on 30 days written notice. However, should
First Aviation Services terminate this Agreement prior to the Term
referred to in Section 3, First Aviation Services would be liable for
all unpaid balances.
Recognizing that First Equity introduced this transaction to the
company, should the company not complete the acquisition of API and
the company terminates this agreement, First Equity will not be
precluded from participating as an advisor or principal in the
acquisition of API.
7. Contract Interpretation. This Agreement is subject to, and will be
interpreted, in accordance with the laws of the State of Connecticut.
ACCEPTED AND APPROVED BY:
/s/ JOHN MARSALISI /s/ AARON P. HOLLANDER
- -------------------------------- ---------------------------------
John Marsalisi Aaron P. Hollander
Chief Financial Officer Managing Director
First Aviation Services, Inc. First Equity Development, Inc.
September 30, 1996 September 30, 1996
- -------------------------------- --------------------------------
Date Date
<PAGE> 1
Exhibit 10.22
September 30, 1996
Mr. John Marsalisi
Chief Financial Officer
First Aviation Services, Inc.
One Omega Drive CONFIDENTIAL
Stamford, CT 06907
SUBJECT: ENGAGEMENT LETTER between First Equity Development, Inc. and its
affiliate, FED Securities, Inc., and First Aviation Services, Inc.
Dear Mr. Marsalisi:
This letter will confirm the terms and conditions by which First Equity
Development, Inc. and its affiliate, FED Securities, Inc. (collectively "First
Equity"), with offices at One Omega Drive, Stamford, Connecticut, has been
engaged to serve as investment counselor and financial advisor to First Aviation
Services, Inc., Stamford, Connecticut ("First Aviation Services" or the
"Company").
The undersigned hereby agree to the following terms and conditions:
1. Exclusive Engagement Agreement. First Aviation Services does hereby
engage First Equity as its investment counselor and financial advisor
for the purpose of assisting the company with its initial public
offering.
Execution of this Agreement by all parties will be First Equity's
authority to proceed.
2. Services Provided. The specific services that First Equity will
provide throughout this assignment will vary depending upon the
industry's performance, competitive dynamics and general market
conditions.
3. Term. Subject to the payment obligations set forth in Section 4
below, this Agreement shall commence upon its execution by both
parties and shall remain in full force and effect thereafter until
the completion of the said offering, hereinafter referred to as the
"Closing."
<PAGE> 2
First Aviation Services
September 30, 1996
Page 2
4. Compensation.
(a) Commencing upon execution of this agreement by both parties and
ending at closing, First Equity will receive a fixed success fee of
three hundred fifty thousand ($350,000) to be paid at closing
provided that the offering raises capital in excess of Ten Million
Dollars ($10,000,000.00.)
(b) All reasonable out-of-pocket expenses incurred by First Equity,
including but not limited to transportation, food, lodging,
applicable sales taxes, etc., in the performance of the services to
be rendered hereunder, shall be borne by First Aviation Services and
reimbursed to First Equity on a monthly basis. First Equity makes it
a practice of keeping its clients expenses to a minimum, while at the
same time providing its professionals with a productive working
environment. First Equity's employees travel business class on air
travel where such class of service is available, otherwise employees
travel first class.
5. Relationship. Nothing herein shall be deemed to constitute an
employment or agency relationship between First Equity and First
Aviation Services. Nevertheless, nothing contained herein shall be
deemed to preclude the creation of such relationship by separate
agreement of the parties, in writing, for a particular purpose.
Except as expressly agreed to in writing, First Equity shall not have
the authority to obligate, bind or commit First Aviation Services in
any manner whatsoever.
(a) Recognizing that transactions of the type contemplated in this
engagement sometimes result in litigation, and that First Equity's
role is advisory, First Aviation Services agrees to indemnify First
Equity (including its affiliated entities and its officers), against
claims, losses and expenses incurred (including expense of
investigation and preparation and reasonable fees and disbursements
of First Equity and such persons' counsel) arising out of any action,
claim or proceeding arising in connection with First Equity's
engagement, and if indemnification were for any reason not to be
available, to contribute to the settlement, loss or expenses involved
in the proportion that First Aviation Services' economic interest
bears to First Equity's economic interest in any transaction.
However, such indemnification and contribution shall not apply to any
claim, loss or expense which arises principally from First Equity's
gross negligence or willful misconduct in performance of its services
hereunder.
<PAGE> 3
First Aviation Services
September 30, 1996
Page 3
First Equity shall use due care to avoid any litigation or claims
relating to First Equity's services hereunder. In the event of such
claim or litigation, First Equity shall immediately notify the Chief
Financial Officer of First Aviation Services in writing, and shall
cooperate and assist First Aviation Services in the defense and/or
settlement of same. First Aviation Services' obligation to indemnify
First Equity is conditioned upon such cooperation and assistance and
First Aviation Services shall have the complete right to defend or
settle any such indemnified claims and/or litigation. First Equity
may elect to have separate legal representation at First Equity's
expense.
First Equity shall retain the right to advertise its participation in
the transaction after public disclosure of such transaction. All the
marketing and advertising produced by First Equity shall be in a form
consistent with industry practice.
6. Assignment and Termination. This Agreement shall not be assignable by
either party except affiliates or to successors to all or
substantially all of either businesses. This Agreement may be
terminated by either party on 30 days written notice. However, should
First Aviation Services terminate this Agreement prior to the Term
referred to in Section 3, First Aviation Services would be liable for
all unpaid balances.
7. Contract Interpretation. This Agreement is subject to, and will be
interpreted, in accordance with the laws of the State of Connecticut.
ACCEPTED AND APPROVED BY:
/s/ JOHN MARSALISI /s/ AARON P. HOLLANDER
- -------------------------------- --------------------------------
John Marsalisi Aaron P. Hollander
Chief Financial Officer Managing Director
First Aviation Services, Inc. First Equity Development, Inc.
September 30, 1996 September 30, 1996
- -------------------------------- --------------------------------
Date Date
<PAGE> 1
Exhibit 10.23
First Equity Development, Inc.
One Omega Drive
Stamford, Connecticut 06907
December 20, 1996
First Aviation Services Inc.
One Omega Drive
Stamford, Connecticut 06907
Gentlemen:
This letter, when countersigned by you in the space indicated
below, will evidence the agreement of First Equity Development, Inc. ("First
Equity") and First Aviation Services Inc. ("FASI") as to the allocation of
potential investment and acquisition opportunities in the global aircraft engine
repair and overhaul market. For good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties agree as follows:
For a period of time commencing on the date of the
consummation of the initial public offering of the common stock of FASI and
ending on the fifth anniversary of such date, neither First Equity nor any
majority-owned subsidiary of First Equity shall directly or indirectly as a
principal (whether solely or jointly with others) consummate any investment in
or acquisition of (whether by way of merger, purchase of assets, acquisition of
any equity security or joint venture interest or otherwise) a majority voting or
economic 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 FASI of such intent as set forth in this
letter agreement and complying with the other terms set forth herein.
No later than twenty days prior to the time First Equity or
any majority-owned subsidiary wishes to effect a Covered Acquisition, First
Equity will furnish to the Secretary of FASI a written notice (a "Notice")
advising FASI of its desire to effect a Covered Acquisition. The Notice shall
set forth in reasonable detail the relevant information regarding the Covered
Acquisition, including a
<PAGE> 2
First Aviation Services Inc.
December 20, 1996
Page 2
description of the Covered Acquisition, the proposed consideration to be paid by
First Equity in connection therewith, a summary of the financial data relied
upon by First Equity in arriving at its determination to effect the transaction
and such other information as First Equity reasonably determines to be relevant.
The Secretary of FASI promptly shall forward the Notice to the directors of FASI
who are not as of the date of the Notice affiliated with First Equity (the
"Non-Affiliated Directors"). In addition, following the giving of a Notice,
representatives of First Equity will, at the request of the Non-Affiliated
Directors, meet with one or more of the Non-Affiliated Directors and
representatives of FASI and its legal and financial advisors to discuss the
Covered Acquisition.
Within fifteen days of the date that the Secretary of FASI
receives a Notice, the Non-Affiliated Directors will in writing advise First
Equity whether FASI is interested in effecting the Covered Acquisition for its
own account on the terms set forth in the Notice. In the event FASI is so
interested, then neither First Equity nor any of its majority-owned subsidiaries
will, without the prior consent of FASI, enter into any agreement to effect the
Covered Acquisition for a period of thirty days following the date of such
notification to First Equity. If, following the conclusion of such thirty-day
period, FASI has not entered into an agreement to effect the Covered
Acquisition, then First Equity may effect such Covered Acquisition free of the
restrictions of this letter agreement. In the event the Non-Affiliated Directors
advise First Equity that FASI is not interested in the Covered Acquisition, then
First Equity may, for a period of sixty days following the date of such
notification, enter into an agreement to effect the Covered Acquisition at a
price not below that set forth in the Notice. Following such sixty-day period
(or in the event First Equity wishes to effect the Covered Acquisition at a
price lower than the price set forth in the Notice), the provisions of this
letter agreement will once again apply to the Covered Acquisition.
Notwithstanding anything set forth in this letter agreement to
the contrary, this letter agreement shall not apply to any Covered Acquisition
which is part of an acquisition (whether by way of merger, purchase of assets,
acquisition of any equity security or joint venture interest or otherwise) of a
business (a "Target Business") if the revenue derived by the Target Business
from the business that constitutes the Covered Acquisition in the fiscal year
<PAGE> 3
First Aviation Services Inc.
December 20, 1996
Page 3
preceding such acquisition constituted less than 15% of the aggregate net sales
of the Target Business.
This letter agreement shall not be deemed in any way to apply
to advisory services performed by First Equity or its affiliates on behalf of
third parties. Except as expressly set forth herein, nothing contained in this
letter agreement shall be deemed to create any obligation on the part of First
Equity to advise FASI with respect to any Covered Acquisition or with respect to
any other investment or acquisition opportunities. Any fees that may be due and
owing to First Equity by reason of its making FASI aware of any Covered
Acquisition shall be as mutually agreed by separate agreement between FASI and
First Equity.
Notwithstanding anything set forth in this letter agreement to
the contrary, this letter agreement automatically shall terminate and First
Equity shall have no continuing obligations hereunder from and after the date
that First Equity beneficially owns less than 10% of FASI's outstanding voting
securities.
This letter agreement shall be construed, interpreted and
enforced in accordance with the laws of the state of Connecticut. This letter
agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof and may not be amended, changed or altered except
in writing by the parties hereto. All communications and notices hereunder shall
be in writing and shall be deemed to have been duly given when delivered
personally or by fax to the respective addresses and fax numbers of the parties
as designated by them from time to time.
<PAGE> 4
First Aviation Services Inc.
December 20, 1996
Page 4
If the foregoing correctly sets forth your understanding of
our agreement, please so indicate by signing in the place provided for below.
Very truly yours,
FIRST EQUITY DEVELOPMENT, INC.
By: /s/ AARON P. HOLLANDER
--------------------------------
Accepted and Agreed to:
FIRST AVIATION SERVICES INC.
By: /s/ JOHN A. MARSALISI
----------------------------
<PAGE> 1
EXHIBIT 10.25
---------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 3, 1995
BY AND AMONG
FIRST AVIATION SERVICES INC.
FE ACQUISITION SUBSIDIARY,
TRITON GROUP LTD.
AND
NATIONAL AIRMOTIVE CORPORATION
-------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
RECITALS.....................................................................
ARTICLE I - THE MERGER.............................................. 1
1.1 The Merger........................................ 1
1.2 Effective Time of the Merger...................... 1
1.3 Effect of the Merger.............................. 2
1.4 Certificate of Incorporation...................... 2
1.5 By-Laws........................................... 2
1.6 Directors......................................... 2
1.7 Officers.......................................... 3
ARTICLE II - MERGER CONSIDERATION................................... 3
2.1 Conversion of Shares.............................. 3
2.2 Merger Consideration.............................. 3
ARTICLE III - REPRESENTATIONS OF SELLER............................. 3
3.1 Organization and Authority; Execution and
Delivery................................................... 4
3.2 Existence and Good Standing....................... 4
3.3 Capital Stock..................................... 4
3.4 Financial Statements.............................. 5
3.5 Personal Property................................. 5
3.7 Material Contracts................................ 6
3.8 No Violations..................................... 7
3.9 Litigation........................................ 8
3.10 Taxes............................................. 8
3.11 [Omitted]......................................... 8
3.12 Intellectual Properties........................... 8
3.13 Compliance with Laws.............................. 9
3.14 Employee Benefit Plans............................ 9
3.15 Insurance......................................... 10
3.16 Broker's or Finder's Fees......................... 10
3.17 Books and Records................................. 11
3.18 Accounts Receivable............................... 11
3.19 Inventory......................................... 11
3.20 No Material Change................................ 11
3.21 Absence of Change or Event........................ 11
3.22 Products.......................................... 13
3.23 Environmental Matters............................. 13
3.24 Governmental Matters.............................. 14
3.25 Labor Matters..................................... 15
3.26 Disclosure........................................ 15
3.27 Notice of Developments............................ 15
ARTICLE IV - REPRESENTATIONS OF PURCHASER........................... 16
4.1 Existence and Good Standing of Purchaser.......... 16
4.2 No Restrictions................................... 16
4.3 Purchase for Investment........................... 16
4.4 Broker's or Finder's Fees......................... 16
4.5 Litigation........................................ 17
i
<PAGE> 3
ARTICLE V - CLOSING/ESCROW......................................... 17
5.1 Closing.......................................... 17
5.2 Interest......................................... 17
5.3 Escrow........................................... 17
ARTICLE VI - CONDUCT OF BUSINESS; EXCLUSIVE DEALING; REVIEW........ 18
6.1 Conduct of Business of the Company............... 18
6.2 Exclusive Dealing................................ 19
6.3 Review of the Company............................ 19
6.4 Confidentiality.................................. 19
6.5 Best Efforts..................................... 20
6.6 Notification of Certain Matters.................. 20
6.7 Permits and Approvals............................ 20
6.8 Preservation of Confidentiality.................. 21
ARTICLE VII - CONDITIONS TO PURCHASER'S OBLIGATIONS................ 21
7.1 Opinion of Seller's Counsel...................... 21
7.2 No Material Adverse Change....................... 22
7.3 Truth of Representations and Warranties.......... 22
7.4 Performance of Agreements........................ 22
7.5 No Orders; Legal Proceedings..................... 22
7.6 Consents and Approvals........................... 23
7.7 Third Party Consents and Approvals............... 23
7.8 Due Diligence.................................... 23
7.9 Financing........................................ 23
7.10 Resignation of Directors......................... 23
ARTICLE VIII - CONDITIONS TO SELLER'S OBLIGATIONS.................. 23
8.1 Opinions of Purchaser's Counsel.................. 23
8.2 Truth of Representations and Warranties.......... 23
8.3 Performance of Agreements........................ 24
8.4 No Orders; Legal Proceedings..................... 24
8.5 Consents and Approvals........................... 24
ARTICLE IX - NO SURVIVAL OF REPRESENTATIONS; EVENTS OF
TERMINATION........................................................ 24
9.1 No Survival of Representations................... 24
9.2 Events of Termination............................ 24
9.3 Effect of Termination............................ 25
9.4 Failure to Close................................. 25
ARTICLE X - MISCELLANEOUS.......................................... 26
10.1 Expenses......................................... 26
10.2 Transfer Taxes................................... 27
10.3 Governing Law.................................... 27
10.4 "Person" Defined................................. 27
10.5 Captions......................................... 27
10.6 Publicity........................................ 27
10.7 Continuation of Indemnification, Insurance....... 27
10.8 Memorandum; Disclaimer of Projections............ 28
10.9 Notices.......................................... 28
10.10 Parties in Interest.............................. 29
10.11 Counterparts..................................... 29
ii
<PAGE> 4
10.12 Entire Agreement.................................. 29
10.13 Amendments........................................ 29
10.14 Severability...................................... 29
10.15 Third Party Beneficiaries......................... 29
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made
and entered into as of this 3rd day of March 1995, by and among First Aviation
Services Inc., a Delaware corporation ("Purchaser"), FE Acquisition Subsidiary,
a California corporation and wholly owned direct or indirect subsidiary of
Purchaser ("Acquisition Sub"), Triton Group Ltd., a Delaware corporation
("Seller"), and National Airmotive Corporation, a California corporation and
wholly owned subsidiary of Seller (the "Company").
BACKGROUND
A. Seller owns all of the outstanding shares of capital stock
of the Company (the "Stock").
B. It is the intention of the parties hereto that Acquisition
Sub merge with and into the Company upon the terms and subject to the conditions
contained herein (the "Merger").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and conditions set forth in
this Agreement and in accordance with the California General Corporation Law
("CGCL"), on the Closing Date (as defined in Section 5.1 hereof), Acquisition
Sub shall be merged with and into the Company, and the separate existence of
Acquisition Sub shall thereupon cease, and the Company, as the surviving
corporation in the Merger, shall continue its corporate existence under the laws
of the State of California.
1.2 EFFECTIVE TIME OF THE MERGER. As soon as practicable
following the waiver or satisfaction of the conditions to the Closing (as
defined in Section 5.1) specified herein, an officer's certificate of each of
Acquisition Sub and the Company shall be executed in accordance with Section
1103 of the CGCL, and a duly executed agreement of merger, in substantially the
form attached hereto as Exhibit A (the "Merger Agreement"), with such officers'
certificates attached and, if applicable, a certificate of satisfaction by the
California Franchise Tax Board with respect to the Company shall be filed with
the Secretary of State of the State of California, as provided in the CGCL. The
Merger shall thereupon become
1
<PAGE> 6
effective in accordance with the CGCL, and such time is hereinafter referred to
as the "Effective Time" and the date on which the Effective Time occurs is
hereinafter referred to as the "Closing Date."
1.3 EFFECT OF THE MERGER. At the Effective Time, the separate
existence of Acquisition Sub shall cease and the Company shall thereupon and
thereafter possess all of the rights, privileges, immunities, powers, franchises
and authority, and be subject to all of the restrictions, disabilities and
duties, of each of the Acquisition Sub and the Company (collectively the
"Constituent Corporations"); and the rights, privileges, immunities, powers,
franchises and authority of each of the Constituent Corporations, and all assets
and property of every description, real, personal and mixed, and every interest
therein, wherever located, and all debts or other obligations belonging or due
to each of the Constituent Corporations on whatever account, as well as all
other things in action or belonging to each of the Constituent Corporations,
shall be vested in the Company; and all property, rights, privileges,
immunities, powers, franchises and authority of any of the Constituent
Corporations, and each and every other interest of each them, shall be
thereafter the property of the Company as they were of the Constituent
Corporations, and the title to any real estate or interest therein vested by
deed or otherwise in any Constituent Corporation shall not revert or be in any
way impaired by reason of the Merger; but all rights of creditors and all liens
upon any property of each of the Constituent Corporations shall be preserved
unimpaired, and the Company shall be liable for the debts, liabilities, duties
and obligations of each of the Constituent Corporations and any claim existing,
or action or proceeding pending, by or against each of the Constituent
Corporations may be prosecuted to judgment with right of appeal, as if the
Merger had not taken place.
1.4 CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall remain as the Certificate of Incorporation of the Company upon
completion of the Merger until thereafter amended in accordance with applicable
law.
1.5 BY-LAWS. The By-Laws of the Acquisition Sub, as in effect
immediately prior to the Effective Time, shall become the By-Laws of the Company
upon completion of the Merger and remain the Bylaws until thereafter amended in
accordance with applicable law, the Articles of Incorporation of the Company and
such By-Laws.
1.6 DIRECTORS. At the Effective Time, the directors of the
Company immediately prior to the Effective Time shall be deemed to have
resigned. The directors of Acquisition Sub immediately before the Effective Time
shall be the directors of the Company after the Effective Time and shall hold
office until
2
<PAGE> 7
their respective successors shall be elected and qualified or as otherwise
provided in the By-Laws of the Company.
1.7 OFFICERS. The executive officers of the Company as of the
Effective Time shall remain the executive officers of the Company and shall
continue to hold office until their respective successors shall be appointed and
qualified or as otherwise provided in the By-Laws of the Company.
ARTICLE II
MERGER CONSIDERATION
2.1 CONVERSION OF SHARES. At the Effective Time:
(a) Each share of Stock, by virtue of the Merger and
without any action on the part of the holder thereof, shall be canceled and
cease to be outstanding and shall be converted into the right to receive $2.7368
per share, assuming there are 4,750,000 shares of Stock outstanding and no
interest is payable pursuant to Section 5.2 hereof.
(b) Each issued and outstanding share of capital
stock of Acquisition Sub at and as of the Effective Time shall be converted into
one share of Common Stock, $.01 par value, of the Company, one certificate for
which shall be issued to Purchaser.
2.2 MERGER CONSIDERATION.
(a) AMOUNT. Subject to the terms and conditions
hereof, the aggregate consideration payable for all shares of Stock surrendered
and canceled pursuant to the Merger is equal to Thirteen Million Dollars
($13,000,000) plus any interest payable to Seller pursuant to Section 5.2 hereof
(the "Merger Consideration").
(b) PAYMENT OF MERGER CONSIDERATION. Promptly after
the Effective Time, upon surrender of the certificates representing the Stock,
the Merger Consideration in the form of a cashier's check or wire transfer (less
any amount to be distributed to Seller in accordance with Section 7 of the
Escrow Agreement (as defined in Section 5.3 hereof)) shall be delivered to
Seller.
ARTICLE III
REPRESENTATIONS OF SELLER
Except as set forth in the disclosure schedule hereto
delivered by Seller to Purchaser on the date hereof, as may be amended in
accordance with Section 3.27 hereof (the "Disclosure Schedule"), Seller
represents and warrants as follows:
3
<PAGE> 8
3.1 ORGANIZATION AND AUTHORITY; EXECUTION AND DELIVERY. Seller
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby by Seller. The
execution, delivery and performance of this Agreement by Seller and the Company
and the consummation by Seller and the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of Seller and the Company. This Agreement has been duly executed and
delivered by Seller and the Company and the agreements of Seller and the Company
contained herein constitute the valid and binding obligations of Seller and
Company, respectively, which are enforceable against Seller and the Company in
accordance with their terms except to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditors' rights in general and except
that the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor may
be brought.
3.2 EXISTENCE AND GOOD STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Company is duly qualified or licensed as a foreign corporation to
do business, and is in good standing in under the laws of each jurisdiction in
which the nature of its business or the ownership or leasing of its properties
requires such qualification or licensing except where the failure to be so
qualified or licensed would not have a Material Adverse Effect on the Company.
As used in this Agreement, the term "Material Adverse Effect" and "Material
Adverse Change" mean, with respect to any Party, a material adverse effect or
change, as the case may be, on the financial condition, assets, liabilities
(contingent or otherwise), results of operations, business or business prospects
of the party, considered as a whole. The Company is not in material default
under or in violation of any provision of its Articles of Incorporation or
By-Laws.
3.3 CAPITAL STOCK. The Seller is the sole shareholder of the
Company. All of the outstanding shares of the Stock have been duly authorized
and validly issued and are fully paid and nonassessable. There are 4,750,000
shares of Stock issued and outstanding. Except as set forth in Schedule 3.3
attached hereto, there are no outstanding subscriptions, options, warrants,
rights, calls, commitments, conversion rights, rights of exchange, plans or
other agreements providing for the purchase, issuance or sale of any shares of
the capital stock of the Company, other than as contemplated by this Agreement.
4
<PAGE> 9
3.4 FINANCIAL STATEMENTS. Seller has or shall furnish
Purchaser with audited consolidated balance sheets of the Company (the "Balance
Sheet") as at March 31, 1994, 1993, and 1992, respectively, and the related
statements of income and cash flows for the periods then ended, accompanied by
the report of Price Waterhouse, along with an unaudited balance sheet of the
Company (the "Reference Balance Sheet"), and the related statements of income
and cash flows for the period then ended as of December 31, 1994 (the "Reference
Balance Sheet Date") and an unaudited balance sheet of the Company and the
related statements of income and cash flows for the period then ended as of
January 31, 1995. Such financial statements, including the footnotes thereto
(the "Financial Statements"), except as indicated therein and except for normal
year-end adjustments with respect to the unaudited financial statements , have
been prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP") and fairly present in all material respects the
financial condition and results of the operations of the Company and the changes
in its financial position at such dates and for such periods, except that the
unaudited financial statements do not contain all footnotes required by GAAP.
The Company has no outstanding claims, liabilities or indebtedness or any
nature, whether accrued, absolute, contingent or otherwise, and whether due, or
to become due, probable of assertion or not, which could have a Material Adverse
Effect on the Company and which are required to be reported on a balance sheet
(or in footnotes thereto) prepared in accordance with GAAP, except liabilities
(i) set forth in the Reference Balance Sheet or (ii) incurred subsequent to the
Reference Balance Sheet Date in the ordinary course of business not involving
borrowings of the Company.
3.5 PERSONAL PROPERTY.
(a) Schedule 3.5(a) sets forth: (i) the tangible
physical assets of the Company (including machinery, equipment, tools, dies,
furniture, furnishings, leasehold improvements, vehicles, buildings and
fixtures) that do not constitute real property as of a recent date and that have
a value in excess of $5,000 per item or per category of items and the location
of such items; (ii) individual refundable deposits, prepaid expenses, deferred
charges and "other assets" of the Company in excess of $10,000 in the aggregate,
as of the Reference Balance Sheet Date; and (iii) all loans or advances made by
the Company to, or any investments in, any Person in excess of $5,000, as of the
Reference Balance Sheet Date.
(b) Except as disclosed in Schedule 3.5(b), the
Company has good and valid title to all of its properties, assets and other
rights that do not constitute real property, free and clear of all encumbrances,
liens, charges or other restrictions of any kind or character, except for (a)
liens included in the balances reflected in the Balance Sheet or on Schedule
3.5, (b) liens consisting of zoning or planning restrictions, easements,
5
<PAGE> 10
permits and other restrictions or limitations on the use of real property or
irregularities in title thereto which do not materially detract from the value
of, or impair the use of, such property by the Company in the operation of its
business, (c) liens arising by operation of law, (d) liens for current taxes,
assessments or governmental charges or levies on property not yet due and
delinquent and (e) liens which do not materially affect the operation of the
business of the Company (the "Encumbrances"). Except as disclosed in Schedule
3.5(b), the Company owns, has valid leasehold interests (pursuant to leases
disclosed in Schedule 3.6) in or valid contractual rights (pursuant to contracts
disclosed in Schedule 3.7 or not required to be disclosed therein) to use, all
of the assets used in the business of the Company.
(c) The machinery, tools, equipment and other
tangible physical assets used in the business of the Company (other than items
of inventory) (i) are, with respect to the material machinery, tools, equipment
and other physical assets, in good working order, normal wear and tear excepted,
(ii) are being used or are useful in the business of the Company at its present
level of activity and (iii) are in an operating condition sufficient to conduct
the business of the Company as now being conducted.
3.6 REAL PROPERTY. Schedule 3.6 attached hereto contains a
list of all material real property leases to which the Company is a party.
Except as set forth on Schedules 3.6 and 3.8, each lease set forth in Schedule
3.6 is in full force and effect; all rents and additional rents due to date on
each such lease have been paid; in each case, the Company has received no notice
that it is in default thereunder; and there exists no event, occurrence,
condition or act (including the purchase of the Stock hereunder) which, with the
giving of notice, the lapse of time or the happening of any further event or
condition, would become a default by the Company under such lease. True and
complete copies of the leases listed on Schedule 3.6 have been delivered to
Purchaser. Except as set forth in Schedule 3.6 or 3.8, the legality, validity,
enforceability and effectiveness of each such lease will not be affected by this
Agreement or the consummation of the transactions contemplated hereby. To
Seller's and the Company's knowledge, there has been no repudiation of any
provision of any such lease by any party thereto, and there are no proceedings,
actions, claims or other matters materially and adversely affecting the
Company's use or occupancy of the leased premises.
3.7 MATERIAL CONTRACTS. Except as set forth in Schedule 3.7
the Company does not have and is not bound by any agreement, contract or
commitment limiting the freedom of the Company to engage in any line of business
or to compete with any other Person, and the Company has not violated any term
or condition of any such contract or agreement set forth in
6
<PAGE> 11
Schedule 3.7 in any material respect. Schedule 3.7 sets forth, as of a recent
date, a true and complete list of each material contract, license, lease,
indenture, franchise, permit or other agreement of the Company, if known to the
Company, which (i) involves an outstanding purchase order or sales order of the
Company of $50,000 or more in any calendar year, (ii) with respect to
indebtedness for money borrowed (other than trade payables in the ordinary and
usual course of business) or (iii) which constitutes any other liability
(including, without limitation, any guarantee, surety contract or similar
instrument), obligation or transaction and, in the case of any item referred to
in this clause (iii), is material to the Company (the items referred to in
clauses (i), (ii) and (iii) of this sentence being referred to herein as
"Material Contracts"). A true and complete copy of each Material Contract is
available to Purchaser or its representative for inspection. Except as set forth
in Schedule 3.7, each Material Contract is a valid and legally binding
obligation of the Company, is in full force and effect, all material obligations
required to be performed thereunder as of the date hereof by the Company have
been performed to date, and, to the knowledge of Seller and the Company, no
other party to any such Material Contract is in default in any material respect
under the terms thereof except for such failures to perform or defaults which
individually and in the aggregate are not material to the Company. Schedule 3.7
indicates (i) which of the customer contracts identified thereon are terminable
on notice of 60 days or less and (ii) the names of and describes all contracts
with and the appropriate percentage of business attributable to the ten largest
customers as of the Reference Balance Sheet based upon revenues for the
preceding nine-month period and ten most significant suppliers of the business
of the Company as of a recent date, and any original equipment manufacturer
suppliers of significant goods or services (other than electricity, gas,
telephone or water) to the Company with respect to which alternative sources of
supply are not readily available on comparable terms and conditions.
3.8 NO VIOLATIONS. Except as set forth in Schedule 3.8
attached hereto and assuming all filings required by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), are duly made
and the waiting period thereunder has been terminated or has expired, neither
the execution and delivery of this Agreement by Seller and the Company, nor the
consummation of the transactions contemplated hereby (a) will violate any
provision of the Articles of Incorporation or By-Laws of Seller or the Company,
(b) will violate any statute, rule, regulation, order or decree of any public
body or authority by which Seller or the Company is bound or binding upon any of
its properties or assets and (c) will conflict with, result in a violation or
breach of, or constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify or cancel, or require
any notice under any Material Contract.
7
<PAGE> 12
3.9 LITIGATION. Except as set forth in Schedule 3.9 attached
hereto, and except with regard to worker's compensation claims, there is no
action, suit or proceeding at law or in equity by any Person or any arbitration
or any administrative or other proceeding by or before any governmental or other
instrumentality or agency, pending or, to Seller's and the Company's knowledge,
threatened against the Company which would have a material adverse effect on the
business, financial condition or results of operations of the Company.
3.10 TAXES. The Company has filed or caused to be filed, or
will file or cause to be filed on or prior to the Closing Date (as defined in
Section 5.1), all federal, state, local and foreign income, gross receipts,
sales, use, property, production, payroll, franchise, withholding, employment,
social security, license, excise, transfer, gains and other tax returns or
reports required to be filed by it, and has paid or withheld, or caused to be
paid or withheld, all material taxes of any nature whatsoever, including any
related penalties, interest and liabilities (any of the foregoing being referred
to herein as a "Tax"), required to be paid as described therein, other than
where the failure to file such returns or to pay or withhold such taxes would
not have a material adverse effect on the financial condition, properties,
business or results of operations of the Company or where such Taxes are being
contested in good faith and for which adequate reserves have been established.
The Company has not made an election to be treated as a "consenting corporation"
under Section 341(f) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Company has no material deferred intercompany gain within the
meaning of the Treasury Regulations promulgated under Section 1502 of the Code.
Except as set forth in Schedule 3.10, there are no outstanding requests by the
Company for any extension of time within which to file any return or within
which to pay any Taxes shown to be due on any return. As a result of the
transactions contemplated hereby, the Company will not be obligated to make a
payment to an individual that would be a "parachute payment" to a "disqualified
Individual" as those terms are defined in Section 280G of the Code. Except as
disclosed on Schedule 3.10, (a) there are no waivers in effect of the applicable
statutory period of limitation for any Taxes of the Company for any taxable
period and (b) no deficiency assessment or proposed adjustment with respect to
any Tax liability of the Company for any taxable period is pending or, to
Seller's and the Company's knowledge, threatened. There are no tax sharing
agreements between the Company and any other party other than with Seller and a
copy of such agreement will be provided to Purchaser.
3.11 [OMITTED].
3.12 INTELLECTUAL PROPERTIES. Except as set forth in Schedule
3.12 attached hereto, the Company does not have any right, title or interest in
or to (including rights as a
8
<PAGE> 13
licensee) any domestic and foreign patents, patent applications, patent
licenses, software licenses, tradenames, trademarks, service marks, trademark
registrations and applications, or copyright registrations and applications
(collectively "Intellectual Property"), and there are no pending proceeding or
litigation or other adverse claims involving the Company with respect to
Intellectual Property.
3.13 COMPLIANCE WITH LAWS. To the actual knowledge of each of
the Company's President, Senior Vice President, and Chief Financial Officer,
except as set forth in Schedule 3.13 attached hereto, the Company has received
no written notification alleging any existing material violation of any
applicable statutes, rules, regulations (including laws, rules and regulations
respecting employment and employment practices, terms and conditions of
employment and wage and hours), ordinances, codes, orders, licenses, permits or
authorizations, including, without limitation, any applicable business,
building, zoning, antipollution, occupational safety, health or other law,
ordinance or regulation which would have a Material Adverse Effect or the
Company. To the actual knowledge of each of the Company's President, Senior Vice
President, and Chief Financial Officer, the conduct of the Company's business is
in conformity with all foreign, federal, state, local and other governmental and
regulatory requirements, except where such non-conformities, individually or in
the aggregate, do not have a Material Adverse Effect on the Company.
3.14 EMPLOYEE BENEFIT PLANS.
(a) All employee benefit plans of the Company (the
"Benefit Plans"), as that term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended, ("ERISA"), are listed in
Schedule 3.14 hereto. Seller has provided Purchaser with true and complete
copies of:
(i) each of the Benefit Plans, including all
amendments thereto, any related trust agreements, group annuity contracts,
insurance policies or other funding agreements or arrangements; and
(ii) the most recent determination letter as
to qualification under Section 401(a) or 403(a) of the Code, if any, received
from the Internal Revenue Service ("IRS") with respect to each of the Benefit
Plans.
(b) Except as disclosed in Schedule 3.14 hereto:
(i) all contributions which were due and
payable on or before the Closing Date to the Benefit Plans have been made;
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(ii) there is no "accumulated funding
deficiency," as defined in Section 412(a) of the Code, whether or not waived,
with respect to any of the Benefit Plans;
(iii) each of the Benefit Plans for which
the Company has claimed a deduction under Section 404 of the Code, if such plan
was qualified under Section 401(a) or 403(a) of the Code, has received a
favorable determination letter from the IRS as to qualification under such
section, and such favorable determination has not been modified or revoked;
(iv) Each of the Benefit Plans complies with
the material requirements of ERISA and has been administered in material
compliance with its own terms;
(v) there has been no non-exempt "prohibited
transaction", as defined in Section 4975 of the Code, with respect to any
Benefit Plan;
(vi) no Benefit Plan is a "multiemployer
plan," as defined in Section 3(37) of ERISA;
(vii) no Benefit Plan provides welfare
benefits following termination of employment, except as required by Section 601
of ERISA and under consulting agreements entered into between the Company and
five of its employees; and
(viii) neither the execution of this
Agreement nor its performance will create any obligation to make or increase the
amount of any payment to an employee of Seller, accelerate the time by which any
payment to an employee of Seller must be made, or cause any employee of Seller
to become vested in any payment or benefit, in any of theses cases whether under
a Benefit Plan or under any other plan, program or agreement.
3.15 INSURANCE. Schedule 3.15 attached hereto contains a list
of each policy and contract for property, casualty liability and workers'
compensation insurance and bond and surety arrangements maintained by the
Company. All such policies contracts and arrangements are in full force and
effect, and neither the Company nor Seller has received any notice of
termination or material increase in premiums with respect to any of such
policies. The Seller shall cause the Company to use its reasonable efforts to
keep or cause to be kept such policies contracts and arrangements (or
substantial equivalents) in such amounts duly in force until the Closing Date
and shall give Purchaser notice of any material change in such policies
contracts and arrangements. True and complete copies of such policies, contracts
and arrangements have been delivered to Purchaser.
3.16 BROKER'S OR FINDER'S FEES. No agent, broker, person or
firm acting on behalf of Seller or the Company is, or
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will be, entitled to any commission or broker's or finder's fees from any of the
parties hereto, or from any Person controlling, controlled by or under common
control with any of the parties hereto, in connection with any of the
transactions contemplated herein, except for Patricof & Co. Capital Corp.
("Patricof") and Fredericks & Associates ("Fredericks"), whose fees and expenses
will be paid by Seller.
3.17 BOOKS AND RECORDS. The Company has made and will make
available for inspection by Purchaser upon reasonable request all the books of
account, relating to the business of the Company. Such books of account of the
Company have been maintained in the ordinary course of business.
3.18 ACCOUNTS RECEIVABLE. The accounts receivable appearing on
the Reference Balance Sheet and all accounts receivable created since that date
through the Closing Date represent and will represent valid obligations (subject
to the effects of bankruptcy, insolvency, reorganization or other similar laws
affecting the rights of creditors generally) owing to the Company and are bona
fide, subject to the reserve for doubtful accounts appearing on the Reference
Balance Sheet which reserve was prepared in accordance with generally accepted
accounting principles and thus is expected based upon past experience to
adequately provide for all uncollectible receivables.
3.19 INVENTORY. Except as disclosed in Schedule 3.19, the
inventories of parts, raw materials, in-process and finished products of the
Company are in good condition, conform in all material respects with the
Company's applicable specifications and warranties, are useable or saleable in
the ordinary course of business; all in-process and finished products in such
inventories have been produced in compliance with the Company's applicable
quality control procedures. The values at which such inventories are carried are
in accordance with GAAP. The amount and mix of items in the inventories of
parts, in-process and finished products is, and will be at the Closing Date,
consistent in all material respects with the Company's past business practices.
3.20 NO MATERIAL CHANGE. Since the Reference Balance
Sheet Date, there has been no Material Adverse Change in the Company.
3.21 ABSENCE OF CHANGE OR EVENT. Except as disclosed in
Schedule 3.21 or as set forth in the Financial Statements or in the ordinary
course, since the Reference Balance Sheet Date, the Company has conducted its
business only in the ordinary course and has not:
(i) when considered as a whole, incurred any
obligation or liability, absolute, accrued, contingent or
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otherwise, whether due or to become due, required by GAAP to be disclosed on a
financial statement in excess of $50,000 in the aggregate, except liabilities or
obligations incurred in the ordinary course of business and consistent with
prior practice;
(ii) subjected to Encumbrance, any of the property,
businesses or assets, tangible or intangible, of the Company;
(iii) sold, transferred, leased to others or
otherwise disposed of any of its assets (or committed to do any of the
foregoing), including the payment of any loans owed to any affiliate, except for
inventory sold to customers or returned to vendors and payments to any
non-affiliates on account of accounts payable or scheduled payments in respect
of indebtedness for money borrowed disclosed on the Reference Balance Sheet or
in the Schedules, in each case in the ordinary course of business and consistent
with prior practice, or canceled, waived, released or otherwise compromised any
debt or claim, waived, released or otherwise compromised any debt or claim, or
any right of significant value, except in the ordinary course of business and
consistent with prior practice;
(iv) suffered any damage, destruction or loss
(whether or not covered by insurance) which has had or could have a Material
Adverse Effect on the Company;
(v) when considered as a whole, made or committed to
make any capital expenditures or capital additions or betterments in excess of
an aggregate of $50,000;
(vi) encountered any labor union organizing activity
or had any actual or threatened employee strikes, work stoppages, slow-downs or
lock-outs;
(vii) instituted any litigation, action or proceeding
before any court, governmental body or arbitration tribunal relating to it or
its property, except for litigation, actions or proceedings instituted in the
ordinary course of business and consistent with prior practice;
(viii) declared or paid any dividend or made any
other payment or distribution in respect of its capital stock, or directly or
indirectly redeemed, purchased or otherwise acquired any of its capital stock;
(ix) increased the compensation of any officer,
employee earning more than $50,000 per year or agent of the Company, directly or
indirectly, including by means of any bonus, pension plan, profit sharing,
deferred compensation, savings, insurance, retirement, or any other employee
benefit plan, except in the ordinary course of business consistent with prior
practice;
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(x) taken any action which, if taken subsequent to
the execution of this Agreement and on or prior to the Closing Date, would
constitute a breach of Seller's agreement set forth in Section 6.1(a) or (b) and
Section 6.1(i), (ii), (vi) and (vii), unless described herein.
3.22 PRODUCTS. Schedule 3.22 sets forth (i) all claims
exceeding $10,000 asserted or, to Seller's and the Company's best knowledge,
threatened at any time during the past three years against the Company in
respect of personal injury, wrongful death or property damage alleged to have
resulted from products or services provided by the Company, together with a
description of each such claim or action initiated with respect thereto and the
disposition thereof and (ii) the Company's standard warranty and disclaimers of
warranty used by the Company in connection with the products or services
provided by the Company. The Company has not experienced product recall or
warranty claims in excess of 5% of aggregate gross sales for any of the past
five years.
3.23 ENVIRONMENTAL MATTERS. To the actual knowledge of the
Company's environmental compliance officer (Roger Bastien) after consultation
with the Company's President:
(a) Except as set forth in Schedule 3.23 to this
Agreement, (A) the Company has not (i) generated, used, transported, treated,
stored, released or disposed of, or (ii) allowed or authorized anyone else to
generate, use, transport, treat, store, release or dispose of any Hazardous
Material (as defined in Section 3.23(b)) in violation of any Environmental
Requirement (as defined in Section 3.23(c)); (B) there has not been any
generation, use, transportation, treatment, storage, release or disposal of any
Hazardous Material in connection with the conduct of the business of the Company
or the use of any property or facility of the Company (the "Company Properties")
or any nearby or adjacent properties or facilities which has created or might
reasonably be expected to create any liability for violation of, or which would
require reporting to or notification of any governmental entity for violation
of, any Environmental Requirement; (C) the Company is in compliance with all
Environmental Requirements (i) regarding Hazardous Materials on or under any of
the Company Properties or (ii) which are applicable to the conduct of its
business, except where the failure to so comply would not materially impair the
conduct of the Company's business and would not have a material adverse effect
on the business, operations, properties, results of operations or financial
condition of the Company; and (D) no notice has been received by the Company
alleging that the Company is in violation in any material respect of any
Environmental Requirement.
(b) For the purposes of this Agreement, a "Hazardous
Material" is any material, chemical or substance that is defined or listed in,
or otherwise classified pursuant to, any
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applicable Environmental Requirement as a hazardous substance, hazardous
material, toxic substance or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," including, without limitation, asbestos, polychlorinated
biphenyls, urea formaldehyde foam insulation, and petroleum and drilling fluids,
produced waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal energy.
(c) For the purposes of this Agreement, an
"Environmental Requirement" is any law, statute, code, act, ordinance, order,
judgment, decree, injunction, rule, regulation, permit, license, authorization,
direction or requirement of any government, department, commission, board,
court, authority, agency, official or officer, foreseen or unforeseen, ordinary
or extraordinary relating to (i) the generation, use, storage, transportation or
disposal of any Hazardous Material or (ii) the protection of the environment,
land use or the safety, health and welfare of human, animal or plant life,
including, without limitation, the Clean Air Act, the Clean Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Hazardous Materials Transportation
Act and the Toxic Substances Control Act, each as amended or supplemented and
any analogous future or present local, state or federal statute and any
regulations promulgated pursuant thereto.
3.24 GOVERNMENTAL MATTERS. To the actual knowledge of each of
the Company's President, Senior Vice President and Chief Financial Officer, in
connection with the business and operations of the Company, neither the Company
nor any director, officer, agent, employee or other person acting on behalf of
the Company has used any corporate or other funds for unlawful contributions,
payments, gifts or entertainment, or made any unlawful expenditures relating to
political activity to government officials or others or established or
maintained any unlawful or unrecorded funds. To the actual knowledge of each of
the Company's President, Senior Vice President and Chief Financial Officer, with
respect to the business and operations of the Company, neither the Company nor
any director, officer, agent, employee or other person acting on behalf of the
Company, has accepted or received any unlawful contributions, payments, gifts or
expenditures. Schedule 3.24 lists all governmental reviews, audits,
investigations or inspections, known to Seller or the Company whether pending,
completed or threatened since January 1, 1992, which if resolved adversely to
the Company could have a material adverse effect on the business, business
prospects or financial condition of the Company or its properties or assets. The
Company is in compliance with all security and related requirements on its
contracts which are classified as confidential, secret or top secret. Schedule
3.24 describes the
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status and findings of all security compliance inspections completed since
January 1, 1992 and all on-going security investigations or inquiries relating
to the Company, any of its directors, officers or employees which are known to
Seller or the Company. To the knowledge of Seller and the Company, there have
not been any material security problems, incidents or occurrences occurring
since January 1, 1992 which involve disclosure by the Company's directors,
officers or employees of information which is classified as confidential, secret
or top secret.
3.25 LABOR MATTERS. To the Seller's and the Company's
knowledge, (a) there is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against the Company; (b) none of the Company's employees
are covered by a collective bargaining agreement or are members of a union and
no representation question exists respecting the employees of the Company and no
effort is currently threatened or under way to establish a union; or (c) there
exists no basis for the assessment of unpaid wages with respect to employees of
the Company. Schedule 3.25 sets forth a true and complete list of (i) the name
and wage rate or salary, as applicable, of all employees of the Company as of
February 15, 1995, and (ii) the name and employment status of each employee
currently on long-term or short-term disability, workers' compensation, sick
leave, personal leave, military leave or any similar leave arrangement.
3.26 DISCLOSURE. No representations or warranties by the
Company in this Agreement, including the Schedules, and no statement contained
in any document (including, without limitation, the financial statements,
certificates, or other writing furnished or to be furnished by the Company to
Purchaser or any of its representatives pursuant to the provisions hereof or in
connection with the transactions contemplated hereby) contains or will contain
any untrue statement of material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading. Each of the
Schedules is complete and correct.
3.27 NOTICE OF DEVELOPMENTS. Seller or the Company may elect
at any time to notify Purchaser of any development causing a breach of any of
the representations and warranties in Article III of this Agreement. Unless
Purchaser objects to such development by written notice to Seller and the
Company within five business days following such notice of developments, the
written notice pursuant to this Section 3.27 shall be deemed to have amended the
applicable Schedule, to have qualified the representations and warranties
contained in Article III and to have cured any misrepresentation or breach or
warranty that otherwise might have existed hereunder by reason of such
development.
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ARTICLE IV
REPRESENTATIONS OF PURCHASER
Purchaser and Acquisition Sub represent and warrant as
follows:
4.1 EXISTENCE AND GOOD STANDING OF PURCHASER. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Acquisition Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
Purchaser and Acquisition Sub each has the corporate power and authority to
make, execute, deliver and perform this Agreement and the transactions
contemplated hereby, and this Agreement has been duly authorized and approved by
all required corporate action of Purchaser and Acquisition Sub. This Agreement
is a valid and binding obligation of each of Purchaser and Acquisition Sub
enforceable against Purchaser and Acquisition Sub in accordance with its terms
except to the extent that enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights in general and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought.
4.2 NO RESTRICTIONS. Assuming all filings required by the HSR
Act are duly made and the waiting period thereunder has been terminated or
expired, the execution and delivery of this Agreement by Purchaser and
Acquisition Sub and the consummation of the transactions contemplated hereby (a)
will not violate any provision of the Articles of Incorporation or By-Laws of
Purchaser or Acquisition Sub, (b) will not violate any statute, rule,
regulation, order or decree of any public body or authority by which Purchaser
or Acquisition Sub or any of their respective properties or assets is bound and
(c) will not result in a violation or breach of, or constitute a default under,
any license, franchise, permit, indenture, agreement or other instrument to
which Purchaser or Acquisition Sub is a party, or by which Purchaser or
Acquisition Sub or any of their respective properties or assets is bound.
4.3 PURCHASE FOR INVESTMENT. Purchaser will acquire the Stock
for its own account for investment and not with a view toward any resale or
distribution thereof.
4.4 BROKER'S OR FINDER'S FEES. No agent, broker, person or
firm acting on behalf of Purchaser or Acquisition Sub is, or will be, entitled
to any commission or broker's or finder's fees from any of the parties hereto,
or from any person controlling, controlled by or under common control with any
of the parties hereto, in connection with any of the transactions
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contemplated herein except for affiliates of Purchaser, whose fees and expenses
will be paid by Purchaser.
4.5 LITIGATION. There is no action, suit or proceeding at law
or in equity by any Person or any arbitration or any administrative or other
proceeding by or before any governmental or other instrumentality, or agency,
pending or, to Purchaser's and Acquisition Sub's knowledge, threatened, seeking
to restrain, prevent or change the transactions contemplated hereby or
questioning the legality or validity of any such transactions or seeking damages
in connection with such transactions or which, individually or in the aggregate,
if adversely determined, would have an adverse effect on the ability of
Purchaser or Acquisition Sub to consummate the transactions contemplated by this
Agreement.
ARTICLE V
CLOSING/ESCROW
5.1 CLOSING. Subject to the satisfaction or waiver of the
conditions set forth in Articles VII and VIII, the closing of the Merger (the
"Closing") will be held within two (2) business days after the same at the
offices of Solomon Ward Seidenwurm & Smith, 401 B Street, Suite 1200, San Diego,
California 92101, or at such other place as the parties hereto shall by written
instrument designate, for the purposes of delivering the documents required
pursuant to the Agreement, authorizing the filing of the instruments and
certificates required under the California General Corporation Law and taking
all such other and further actions as may be required by law to make the Merger
effective. Such time and date are herein referred to as the "Closing Date."
5.2 INTEREST. If the Closing does not occur on or before March
31, 1995, Seller shall be entitled to interest on the Merger Consideration from
such date until the Closing Date at the rate of 10% per annum. Any such interest
paid to Seller shall be deemed to be an increase in the amount of the Merger
Consideration.
5.3 ESCROW. Upon the date hereof, Buyer shall deposit into an
Escrow Account with Chemical Trust Company of California (the "Escrow Agent"),
Two Hundred Fifty Thousand Dollars ($250,000) (the "Escrow Fund") to be held and
released in accordance with the terms of an Escrow Agreement in substantially
the form attached hereto as Exhibit B (the "Escrow Agreement"). The Escrow
Agreement shall be entered into within two business days hereof, by Purchaser,
Seller and the Escrow Agent.
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ARTICLE VI
CONDUCT OF BUSINESS; EXCLUSIVE DEALING; REVIEW
6.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from
the date of this Agreement to the Closing Date, Seller shall cause the Company
to conduct its operations in the ordinary course of business. Notwithstanding
the immediately preceding sentence, pending the Closing Date and except as may
be first approved by Purchaser (such approval not to be unreasonably withheld)
or as is otherwise permitted or required by this Agreement, Seller shall cause
(a) the Company's Articles of Incorporation and By-Laws to be maintained in
their respective forms on the date of this Agreement, (b) the compensation
payable or to become payable by the Company to any director, officer or employee
being paid $50,000 per year or more to be maintained at the amount existing on
the date of this Agreement, (c) the Company to refrain from making any bonus,
pension, retirement or insurance payment or arrangement to or with any such
persons except those that have been accrued or accrue in the ordinary course of
business, (d) the Company to refrain from entering into any contract or
commitment except contracts and commitments in the ordinary course of business,
(e) the Company to refrain from increasing its indebtedness for borrowed money,
except current borrowings in the ordinary course of business, (f) the Company to
refrain from canceling or waiving any claims or rights of substantial value
which individually is or in the aggregate are material to the Company, (g) the
Company to refrain from declaring or paying any dividends, (h) the Company from
lending money to or borrowing money from Seller or entering into any agreement
with Seller and (i) the Company not to agree, whether or not in writing, to do
any of the foregoing. In addition to the foregoing, from the date hereof to the
Closing Date, the Company will not, unless first approved by Purchaser (said
approval not to be unreasonably withheld): (i) terminate or fail to renew any
existing insurance coverage; (ii) terminate or fail to renew or preserve any
permits, or take any action that would jeopardize the continuance of its
material supplier or customer relationship; (iii) make any loan, guarantee or
other extension of credit, or enter into any commitment to make any loan,
guarantee or other extension of credit, to or for the benefit of any director,
officer, employee, stockholder of Seller or the Company or any of their
respective associates or affiliates; (iv) sell, transfer, mortgage, encumber or
otherwise dispose of any assets or any liabilities, except in the ordinary
course of business; (v) issue, sell, redeem or acquire for value, or agree to do
so, any debt obligations or equity securities of the Company; (vi) make any
capital expenditures or commitments with respect thereto aggregating more than
$50,000; (vii) make any material investment, by purchase contributions to
capital, property transfers, or otherwise, in any other person; or (viii) agree
to or make any commitment to take any action prohibited by this sentence or take
or omit to take any other
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action which is reasonably likely to have a material impact on the financial
condition or operations of the Company.
6.2 EXCLUSIVE DEALING. During the period from the date of this
Agreement through May 2, 1995, Seller and the Company shall not directly or
indirectly, through any officer, director, employee, agent or otherwise, (i)
participate in any negotiations or solicit, initiate or encourage submission of
inquiries, proposals or offers from any potential buyer relating to the assets
or stock of the Company or any material part thereof or (ii) enter into any
agreement pertaining thereto. The May 2, 1995 date referred to above may, at the
election of Purchaser, be extended to May 31, 1995 upon the payment of an
additional $250,000 to the Escrow Account on or before May 2, 1995 and notice
thereof to Seller.
6.3 REVIEW OF THE COMPANY. Purchaser may, prior to the Closing
Date, through its representatives (which terms shall be deemed to include its
independent accountants, lenders, and counsel), review the properties, books and
records of the Company to familiarize itself with such properties and the
business of the Company. Seller shall cause the Company to permit Purchaser and
its representatives to have reasonable access to the premises and to the books
and records (including all information to determine the "amount of unfunded
liabilities" as defined in Section 4001(a)(18) of ERISA for each Company Benefit
Plan) of the Company during normal working hours and to furnish Purchaser with
such financial and operating data and other information with respect to the
business and properties of the Company as Purchaser shall from time to time
reasonably request. From the date hereof to the Closing Date, the Company shall
furnish to Purchaser (i) as soon as available copies of all reports, renewals,
filings, certificates, statements and other documents filed with any
governmental entity; (ii) monthly and quarterly unaudited balance sheets,
statements of operations and cash flow and changes in stockholders' equity for
the Company; and (iii) such other reports prepared by the Company in the
ordinary course of its business as Purchaser may reasonably request. The Company
shall, upon request, furnish Purchaser with complete copies of all agreements,
instruments and documents set forth in the Disclosure Schedule or underlying the
Disclosure Schedule.
6.4 CONFIDENTIALITY. The parties hereto acknowledge that
Purchaser (or an affiliate of Purchaser) and the Company have entered into a
Confidentiality Agreement in the form attached hereto as Exhibit C, the
"Confidentiality Agreement") and Purchaser confirms that it and its affiliates
and advisors will comply with their respective obligations thereunder.
Notwithstanding the foregoing, and the provisions of Section 10.6, after
consultation with each other, Purchaser and/or Seller (a) may issue or make a
press release, announcement or other disclosure regarding this Agreement and the
transactions contemplated hereby which it determines necessary or desirable
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under applicable law, and (b) may, at any time after the date of this Agreement,
file with the Securities and Exchange Commission a Report on Form 8-K pursuant
to the Securities Exchange Act of 1934, as amended, with respect to the
transactions contemplated by this Agreement.
6.5 BEST EFFORTS. Each of the parties agrees to use its best
efforts to take, or cause to be taken, all action to do, or cause to be done,
and to assist and cooperate with the other parties hereto in doing, all things
necessary, proper or advisable to consummate and make effective, in an
expeditious manner, the transactions contemplated by this Agreement, including,
but not limited to, (a) compliance with the HSR Act in all respects (including
the filing of a notification and report form to the extent necessary), (b) the
obtaining of all necessary waivers, consents and approvals from governmental or
regulatory agencies or authorities and the making of all necessary registrations
and filings (including, but not limited to, filings with governmental or
regulatory agencies or authorities, if any) and the taking of all reasonable
steps as may be necessary to obtain any approval or waiver from, or to avoid any
action or proceeding by, any governmental agency or authority, (c) the obtaining
of all necessary consents, approvals or waivers from third parties and (d) the
defending of any lawsuits or any other legal proceedings whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby.
6.6 NOTIFICATION OF CERTAIN MATTERS. Seller and the Company
each shall give prompt notice to Purchaser, and Purchaser shall give prompt
notice to Seller, of (i) the occurrence, or failure to occur, of any event that
would be likely to cause any representation or warranty contained in this
Agreement and made by the Seller or the Company or Purchaser or Acquisition Sub
to be untrue or inaccurate in any material respect at any time from the date of
this Agreement to the Closing Date and (ii) any failure of Purchaser or
Acquisition Sub, or Seller or the Company as the case may be, to comply with or
satisfy, in any material respect, any covenant, condition or agreement to be
complied with or satisfied by and under this Agreement. From the date hereof to
the Closing Date, the Company and the Seller shall promptly notify Purchaser of
any event of which the Company or Seller obtains knowledge which has had or may
reasonably be expected to have a material adverse effect on the business of the
Company or which as of the date hereof would have been required to be disclosed
to Purchaser.
6.7 PERMITS AND APPROVALS.
(a) Purchaser, the Company and Seller each agree to
cooperate and use their good faith efforts to obtain approvals and permits that
may be necessary or which may be reasonably
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requested by Purchaser to consummate the transactions
contemplated by this Agreement.
(b) To the extent that the approval of a third party
with respect to any contract is required in connection with the transactions
contemplated by this Agreement, the Company and Seller shall use their best
efforts to obtain such approval prior to the Closing Date and in the event that
any such approval is not obtained, the Company and the Seller each shall
reasonably cooperate with Purchaser to attempt to achieve for that Purchaser the
benefits of each such contract.
6.8 PRESERVATION OF CONFIDENTIALITY. For a period of ten (10)
years from the date of this Agreement, Seller agrees to treat all Confidential
Information (as defined below) of the Company, as confidential, to preserve the
confidentiality thereof and not to use or disclose any Confidential Information,
except disclosures to its representatives who need to know such Confidential
Information in connection with the transactions contemplated herein at any time
before or after Closing. The Company agrees that through the Closing Date it
will not use or disclose any Confidential Information, except disclosures made
to customers and vendors in the ordinary course of business and disclosures to
its representatives who need to know such Confidential Information in connection
with the transactions contemplated herein at any time before or after the
Closing. As used in this Agreement, "CONFIDENTIAL INFORMATION" means any and all
technical, manufacturing or marketing information, ideas, methods, developments,
inventions, improvements, business plans, trade secrets, scientific or
statistical data, diagrams, drawings, specifications or other proprietary
information relating thereto normally treated as confidential and proprietary by
the Company in the ordinary course of its business consistent with past
practice, together with all analyses, compilations, studies or other documents,
records or data prepared by Seller, the Company or Purchaser or their respective
representatives, as the case may be, which contain or otherwise reflect or are
generated from such information at any time before or after the Closing.
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser and Acquisition Sub to effect the
Closing shall be subject to the following conditions except to the extent waived
in writing by Purchaser and Acquisition Sub. The condition set forth in Section
7.8 shall, unless relied upon to terminate this Agreement on or before March 17,
1995, be considered waived by Purchaser.
7.1 OPINION OF SELLER'S COUNSEL. Purchaser shall have
received an opinion, dated the Closing Date, of Solomon Ward
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<PAGE> 26
Seidenwurm & Smith, counsel to Seller, to the effect and substantially in the
form set forth in Exhibit D attached hereto.
7.2 NO MATERIAL ADVERSE CHANGE. From the date of this
Agreement to the Closing Date, there shall not have been a Material Adverse
Change in the Company. The (i) failure to obtain the consent of Allison to the
change in control of the Company contemplated by the Agreement under the terms
of each of the Authorized Maintenance Center Agreement (Allison Model 501) dated
November 14, 1994, Authorized Maintenance Center Agreement (Allison Model 250)
dated December 21, 1994 and the Direct Service Dealer Agreement (Allison Model
570k) dated September 1, 1983 and any other material agreements with Allison or
(ii) failure to obtain the consent of the Port of Oakland to the change in
control of the Company contemplated by this Agreement under the Lease with the
Port of Oakland dated January 23, 1991 and the consent of the City of Oakland
under the Test Cells Lease with the City of Oakland dated January 23, 1991,
shall be considered to constitute a Material Adverse Change in the Company.
7.3 TRUTH OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Seller contained in this Agreement or in any
Schedule delivered pursuant hereto shall be true and correct in all material
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and Seller
shall have delivered to Purchaser a certificate, dated the Closing Date, to such
effect.
7.4 PERFORMANCE OF AGREEMENTS. Each and all of the agreements
of Seller to be performed at or prior to the Closing pursuant to the terms
hereof shall have been duly performed in all material respects, and Seller shall
have delivered to Purchaser a certificate, dated the Closing Date, to such
effect.
7.5 NO ORDERS; LEGAL PROCEEDINGS. No law or order shall have
been enacted, entered, issued, promulgated or enforced by any governmental
entity, nor shall any action have been instituted and remain pending or, to the
best knowledge of the Company, have been threatened and remain so by any
governmental entity at what would otherwise be the Closing Date, which prohibits
or restricts or would (if successful) prohibit or restrict the transactions
contemplated by this Agreement or which would not permit the business of the
Company as presently conducted to continue unimpaired following the Closing
Date. No governmental entity shall have notified any party to this Agreement
that consummation of the transactions contemplated by this Agreement would
constitute a violation of any laws of any jurisdiction or that it intends to
commence proceedings to restrain or prohibit such transactions or force
divesture or recision, unless such governmental entity shall have withdrawn
22
<PAGE> 27
such notice and abandoned any such proceedings prior to the time which otherwise
would have been the Closing Date.
7.6 CONSENTS AND APPROVALS. All governmental consents and
approvals materially necessary to permit or required because of the consummation
of the transactions contemplated by this Agreement shall have been received. All
time periods under the HSR Act shall have expired.
7.7 THIRD PARTY CONSENTS AND APPROVALS. All material third
party, non-governmental consents or approvals (including any consent or approval
required under a Material Contract) required under contracts and agreements
necessary to permit or required because of the consummation of the transactions
contemplated by this Agreement shall have been received.
7.8 DUE DILIGENCE. Purchaser shall have completed its due
diligence review of the Company and, in the course of such review, shall not
have discovered information which Purchaser reasonably believes has or may have
an adverse effect on the business of the Company.
7.9 FINANCING. Purchaser shall have obtained financing from a
lender or lenders in amounts sufficient to finance the transactions contemplated
hereby, and such financing shall be on terms that are reasonably acceptable to
Purchaser.
7.10 RESIGNATION OF DIRECTORS. The directors of the Company
shall have submitted their resignations in writing to the Company. Such
resignations of directors shall be effective as of the date of the Merger.
ARTICLE VIII
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller and the Company to effect the
Closing shall be subject to the following conditions, except to the extent
waived in writing by the Seller and the Company.
8.1 OPINIONS OF PURCHASER'S COUNSEL. Purchaser shall have
furnished Seller with an opinion, dated the Closing Date, of O'Melveny & Myers,
to the effect and substantially in the form set forth in Exhibit E attached
hereto.
8.2 TRUTH OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Purchaser contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date, and Purchaser shall have delivered to Seller a certificate,
dated the Closing Date, to such effect.
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<PAGE> 28
8.3 PERFORMANCE OF AGREEMENTS. Each and all of the agreements
of Purchaser to be performed at or prior to the Closing pursuant to the terms
hereof shall have been duly performed in all material respects, and Purchaser
shall have delivered to Seller a certificate, dated the Closing Date, to such
effect.
8.4 NO ORDERS; LEGAL PROCEEDINGS. No law or order shall have
been enacted, entered, issued, promulgated or enforced by any governmental
entity, nor shall any action have been instituted and remain pending or, to the
best knowledge of the Company, have been threatened and remain so by any
governmental entity at what would otherwise be the Closing Date, which prohibits
or restricts or would (if successful) prohibit or restrict the transactions
contemplated by this Agreement or which would not permit the business of the
Company as presently conducted to continue unimpaired following the Closing
Date. No governmental entity shall have notified any party to this Agreement
that consummation of the transactions contemplated by this Agreement would
constitute a violation of any laws of any jurisdiction or that it intends to
commence proceedings to restrain or prohibit such transactions or force
divesture or recision, unless such governmental entity shall have withdrawn such
notice and abandoned any such proceedings prior to the time which otherwise
would have been the Closing Date.
8.5 CONSENTS AND APPROVALS. All material governmental consents
and approvals, if any, necessary to permit or required because of the
consummation of the transactions contemplated by this Agreement shall have been
received. All time periods under the HSR Act shall have expired.
ARTICLE IX
NO SURVIVAL OF REPRESENTATIONS; EVENTS OF TERMINATION
9.1 NO SURVIVAL OF REPRESENTATIONS. Except for the
representations and warranties set forth in Sections 3.1, 3.3, 3.16 and 4.4
which shall survive until the applicable statute of limitations has expired, the
representations and warranties of Seller and Purchaser contained in this
Agreement shall not survive the Closing of the Merger. Effective upon the
Closing, each of the parties hereto expressly waives any and all rights, whether
known or unknown, to assert any claim(s) or bring any action(s) for breach by
any party hereto of any of its representations, warranties, covenants or
obligations hereunder other than the representations and warranties set forth in
Sections 3.1, 3.3, 3.16 and 4.4 hereof and the agreements set forth in Sections
10.1, 10.7 and 10.10 hereof.
9.2 EVENTS OF TERMINATION. This Agreement may be terminated:
24
<PAGE> 29
(a) by mutual written agreement of the parties hereto;
(b) by Purchaser by written notice to Seller that (i) it has
not obtained the financing (on terms that are reasonably acceptable to
Purchaser) required to complete the Merger, or (ii) the results of its
due diligence are not satisfactory to Purchaser provided that, with
respect to this clause (ii), notice thereof is given on or before March
17, 1995,
(c) by Purchaser by written notice to Seller, if the
conditions set forth in Article VII hereof shall not have been complied
with or performed on or prior to the Closing Date in any material
respect and, in either case, such noncompliance or nonperformance shall
not have been cured or eliminated (or by its nature cannot be cured or
eliminated) on or before May 2, 1995 (May 31, 1995 if Purchaser makes a
payment of an additional $250,000 to the Escrow Account on or before
May 2, 1995);
(d) by Purchaser if Seller or the Company shall have delivered
a notice to Purchaser under Section 3.27 hereof and Purchaser elects
within five business days thereof to terminate this Agreement;
(e) by Seller by written notice to Purchaser, if the
conditions set forth in Article VIII hereof shall not have been
complied with or performed on or prior to the Closing Date in any
material respect and, in either case, such noncompliance or
nonperformance shall not have been cured or eliminated (or by its
nature cannot be cured or eliminated) on or before May 2, 1995 (May 31,
1995 if Purchaser makes a payment of an additional $250,000 to the
Escrow Account on or before May 2, 1995).
9.3 EFFECT OF TERMINATION. If this Agreement shall be
terminated pursuant to Section 9.2, all further obligations of the parties
hereto under this Agreement (other than pursuant to Sections 9.4 and 10.1 and as
provided in the Confidentiality Agreement) shall terminate without further
liability or obligation of either party to the other party hereunder, except as
provided in Section 9.4 hereof.
9.4 FAILURE TO CLOSE.
(a) If (i) Purchaser fails to consummate the
transactions contemplated on its part to occur on the Closing Date, and all
conditions of the Closing set forth in Article VII (other than the conditions
specified in Sections 7.3, 7.4, 7.7, 7.8, 7.9 or 7.10) have been satisfied in
all material respects or waived, (ii) Seller elects to terminate this Agreement
pursuant to Section 9.2(e) hereof (other than as a result of a failure of the
condition specified in Section 8.4 or 8.5 hereof), (iii)
25
<PAGE> 30
Purchaser elects to terminate this Agreement pursuant to Section 9.2(c) hereof
and such termination is solely the result of a failure of a condition specified
in Sections 7.3, 7.4, 7.7, 7.8, 7.9 or 7.10 hereof and such failure does not
constitute a Material Adverse Effect with respect to the Company and there has
not been, independently thereof, a Material Adverse Change with respect to the
Company, or (iv) this Agreement is terminated by Purchaser pursuant to Section
9.2(d) hereof and the notice or notices given to Purchaser under Section 3.27
hereof independently and together do not constitute a Material Adverse Change
with respect to the Company, then Seller shall be entitled to have disbursed to
Seller the Escrow Fund, in accordance with the terms of the Escrow Agreement, as
liquidated damages, and Seller and the Company hereby agree that neither they
nor any of their affiliates shall have any further recourse of any kind against
Purchaser or Acquisition Sub.
(b) If (i) Seller fails to consummate the
transactions contemplated on its part to occur on the Closing Date, and all
conditions of the Closing set forth in Article VIII (other than the conditions
specified in Sections 8.4 or 8.5 hereof) have been satisfied in all material
respects or waived, (ii) this Agreement is terminated by Purchaser pursuant to
Section 9.2(c) hereof (unless such termination is solely the result of a failure
of a condition specified in Sections 7.3, 7.4, 7.7, 7.8, 7.9 or 7.10 hereof and
such failure does not constitute a Material Adverse Effect with respect to
Company and there has not been, independently thereof, a Material Adverse Change
with respect to the Company) (iii) this Agreement is terminated by Purchaser
pursuant to Section 9.2(d) and the notice or notices given to Purchaser under
Section 3.27 hereof independently or together constitute a Material Adverse
Change with respect to the Company, or (iv) this Agreement is terminated by
Purchaser pursuant to Section 9.2(b)(i) hereof on or before March 17, 1995, then
Purchaser shall receive the return of the Escrow Fund in accordance with the
terms of the Escrow Agreement and Purchaser's sole remedy (in addition to a
return of the Escrow Fund), which remedy only applies in the event of (i) above,
shall be to require Seller and the Company to consummate and specifically
perform the Merger in accordance with the terms of this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 EXPENSES. The parties hereto shall pay all of their own
expenses relating to the transactions contemplated including, without
limitation, the fees and expenses of their respective counsel and financial
advisors; provided, however, that Purchaser and Seller each agree to pay
one-half of the HSR Act filing fee.
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<PAGE> 31
10.2 TRANSFER TAXES. All stamp, transfer, documentary, sales,
use, registration and other such taxes and fees (including any penalties and
interest incurred in connection with this Agreement and the transactions
contemplated hereby (collectively, the "Transfer Taxes") shall be paid by
Purchaser, and Purchaser shall, at its own expense, procure any stock transfer
stamps required by, and properly file on a timely basis all necessary tax
returns and other documentation with respect to, any Transfer Tax and provide to
Seller evidence of payment of all Transfer Taxes.
10.3 GOVERNING LAW. The interpretation and construction of
this Agreement, and all matters relating hereto, shall be governed by the laws
of the State of California applicable to contracts made by California residents
and to be performed entirely within the State of California.
10.4 "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
10.5 CAPTIONS. The Article, Section and Schedule captions used
herein are for reference purposes only, and shall not in any way affect the
meaning or interpretation of this Agreement.
10.6 PUBLICITY. Except as otherwise required by law or
regulation, neither of the parties hereto shall issue any press release or make
any other public statement, in each case relating to or connected with or
arising out of this Agreement or the matters contained herein, without obtaining
the prior approval of the other party to the contents and the manner of
presentation and publication thereof. The requirements of this Section 10.6
shall be in addition to those included in the Confidentiality Agreement.
10.7 CONTINUATION OF INDEMNIFICATION, INSURANCE.
(a) Purchaser agrees that subsequent to the Closing
the Company shall continue to indemnify and hold harmless each of its present
and former directors, officers, and employees in their capacities as such (the
"Indemnified Persons"), from and against all damages actually incurred or
suffered in connection with any threatened or pending action, suit or proceeding
at law or in equity by any Person or any arbitration or any administrative or
other proceeding relating to the business of the Company to the fullest extent
permitted under the charter documents of the Company. In addition, subsequent to
the Closing Purchaser shall not, and shall not permit the Company to, amend or
modify its charter documents, except as required by law, if the effect of such
amendment or modification would be to lessen or otherwise adversely affect the
indemnification rights of the
27
<PAGE> 32
Indemnified Persons as provided therein, and Purchaser shall permit the Company
to advance expenses to each such Indemnified Person to the fullest extent so
permitted upon receipt of any undertaking required by law. If the Company
transfers all or substantially all of its properties and assets to any Person,
then and in each such case, proper provisions shall be made so that the
transferee shall assume the obligations of the Company under this Section
10.7(a).
(b) Purchaser shall cause to be maintained for a
period of three years after the Closing directors and officers liability
insurance provided that the annual cost of such insurance does not exceed
$25,000. The obligation to maintain insurance includes the obligation to
purchase all available extended reporting periods with respect to preexisting
insurance should the procurement of insurance meeting the above-described
conditions not be achieved.
(c) This Section 10.7 is intended to benefit each of
the Indemnified Persons, each of whom shall be entitled to enforce the
provisions hereof.
10.8 MEMORANDUM; DISCLAIMER OF PROJECTIONS. Seller makes no
representation or warranty to Purchaser except as specifically made in this
Agreement. In particular, the Seller makes no representation or warranty to
Purchaser with respect to (a) the information set forth in the Confidential
Memorandum distributed by Patricof in connection with the offering of the
Company or (b) any financial projection or forecast relating to the Company.
With respect to any such projection or forecast delivered by or on behalf of
Seller to Purchaser, Purchaser acknowledges that (i) there are uncertainties
inherent in attempting to make such projections and forecasts, (ii) it is
familiar with such uncertainties, (iii) it is taking full responsibility for
making its own evaluation of the adequacy and accuracy of all such projections
and forecasts so furnished to it and (iv) it shall have no claim against Seller
with respect thereto.
10.9 NOTICES. Any notice or other communications required or
permitted hereunder shall be sufficiently given if delivered in person or sent
by telecopy or by registered or certified mall, postage prepaid, addressed as
follows: if to Purchaser or Acquisition Sub, to c/o First Equity Development,
Inc., 2716 Ocean Park Boulevard, Suite 3088, Santa Monica, California 90405, FAX
(310) 557-1660, Attention: John F. Risko, and to c/o First Equity Development,
Inc., 3 River Bend Center, Box 4660, Stamford, Connecticut 06907, FAX (203)
359-7901, Attention: Michael Culver, with a copy to its counsel, O'Melveny &
Myers, 610 Newport Center Drive, Suite 1700, Newport Beach, California 92660,
FAX (714) 669-6994, Attention: J. Jay Herron, Esq.; and if to Seller or the
Company, to Triton Group Ltd., 550 West C Street, 18th Floor, San Diego,
California 92101, FAX (619)
28
<PAGE> 33
231-9170, Attention: John C. Stiska, with a copy to its counsel, Solomon Ward
Seidenwurm & Smith, 401 B Street, Suite 1200, San Diego, California 92101, FAX
(619) 231-4755, Attention: Michael Yaffa, Esq.; or such other address or number
as shall be furnished in writing by any such party, and such notice or
communication shall be deemed to have been given as of the date so delivered,
sent by telecopy or mailed.
10.10 PARTIES IN INTEREST. This Agreement may not be
transferred, assigned, pledged or hypothecated by any party hereto, other than
(i) by operation of law. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns and (ii) Purchaser and
Acquisition Sub each may assign their rights and obligations hereunder to any
entity that is wholly-owned, directly or indirectly, by Purchaser or that,
directly or indirectly, owns all of the outstanding capital stock of Purchaser
or is under common control with Purchaser.
10.11 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, all of which taken together shall constitute one instrument.
10.12 ENTIRE AGREEMENT. This Agreement, including the
Exhibits, Schedules and other documents referred to herein which form a part
hereof, including the Escrow Agreement and the Confidentiality Agreement,
contain the entire understanding of the parties hereto with respect to the
subject matter contained herein and therein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter other than the Escrow Agreement and the Confidentiality Agreement.
10.13 AMENDMENTS. This Agreement may not be changed orally,
but only by an agreement in writing signed by the parties hereto. Any provision
of this Agreement can be waived, amended, supplemented or modified by written
agreement of the parties hereto.
10.14 SEVERABILITY. In case any provision in this Agreement
shall be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
10.15 THIRD PARTY BENEFICIARIES. Except as otherwise set forth
in Sections 10.7 and 10.10, each party hereto intends that this Agreement shall
not benefit or create any right or cause of action in or on behalf of any Person
other than the parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
29
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
SELLER
TRITON GROUP LTD., a Delaware
corporation
By: /s/ MICHAEL M. EARLEY
-----------------------------
Name: Michael M. Earley
Title: President
NATIONAL AIRMOTIVE CORPORATION,
a California corporation
By: /s/ GERALD A. ROBERTS
-----------------------------
Name: Gerald A. Roberts
Title: President
PURCHASER
FIRST AVIATION SERVICES INC.,
a Delaware corporation
By: /s/ JOHN F. RISKO
-----------------------------
Name: John F. Risko
Title: Executive Vice President
FE ACQUISITION SUBSIDIARY,
a California corporation
By: /s/ JOHN F. RISKO
-----------------------------
Name: John F. Risko
Title: Executive Vice President
30
<PAGE> 1
Exhibit 10.26
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
This AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this
"Amendment") is made and entered into as of this 1st day of June 1995, by and
among First Aviation Services Inc., a Delaware corporation ("Purchaser"), FE
Acquisition Sub, a California corporation and wholly owned direct or indirect
subsidiary of Purchaser ("Acquisition Sub"), Triton Group Ltd., a Delaware
corporation ("Seller"), and National Airmotive Corporation, a California
corporation and wholly owned subsidiary of Seller (the "Company").
BACKGROUND
A. Purchaser, Acquisition Sub, Seller and Company entered into
that certain Agreement and Plan of Merger dated as of March 3, 1995 (the "Merger
Agreement").
B. Purchaser sent a letter dated May 30, 1995 to Seller
terminating the Merger Agreement (the "Termination Notice").
C. The parties desire to reinstate the Merger Agreement and to
amend certain terms and provisions contained in the Merger Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
1. All parties hereby agree that the Merger Agreement is
reinstated in full force and effect as if the Termination Letter had never been
delivered.
2. Subparagraph (a) of Section 2.2 of the Merger Agreement is
hereby deleted in its entirety and replaced with the following and a
corresponding change shall be made to the Agreement of Merger attached to the
Merger Agreement as Exhibit A.
"(a) AMOUNT. Subject to the terms and conditions hereof, the
aggregate consideration payable for all shares of Stock surrendered and
canceled pursuant to the Merger is equal to Eleven Million Two Hundred
Fifty Thousand Dollars ($11,250,000) without interest (the "Merger
Consideration")."
1
<PAGE> 2
3. Section 5.2 of the Merger Agreement is hereby deleted in
its entirety and replaced with the following:
"5.2 INTEREST. No interest shall be payable with respect to
the Merger Consideration."
4. Section 6.2 of the Merger Agreement is hereby deleted in
its entirety and replaced with the following:
"6.2 EXCLUSIVE DEALING. During the period from the date of
this Agreement through May 2, 1995, Seller and the Company shall not
directly or indirectly, through any officer, director, employee, agent
or otherwise, (i) participate in any negotiations or solicit, initiate
or encourage submission of inquiries, proposals or offers from any
potential buyer relating to the assets or stock of the Company or any
material part thereof or (ii) enter into any agreement pertaining
thereto. The May 2, 1995 date referred to above may, at the election of
Purchaser, be extended to June 7, 1995 upon the payment of an
additional $250,000 to the Escrow Account on or before May 2, 1995 and
notice thereof to Seller."
Seller hereby acknowledges that the additional $250,000 payment has been made by
Purchaser.
5. Subparagraph (c) of Section 9.2 of the Merger Agreement is
hereby deleted in its entirety and replaced with the following:
"(c) by Purchaser by written notice to Seller, if the
conditions set forth in Article VII hereof shall not have been complied
with or performed on or prior to the Closing Date in any material
respect and, in either case, such noncompliance or nonperformance shall
not have been cured or eliminated (or by its nature cannot be cured or
eliminated) on or before May 2, 1995 (June 7, 1995 if Purchaser makes a
payment of an additional $250,000 to the Escrow Account on or before
May 2, 1995);"
Seller hereby acknowledges that the additional $250,000 payment has been made by
Purchaser.
6. Subparagraph (e) of Section 9.2 of the Merger Agreement is
hereby deleted in its entirety and replaced with the following:
"(e) by Seller by written notice to Purchaser, if the
conditions set forth in Article VIII hereof shall not have been
complied with or performed on or prior to the Closing Date in any
material respect and, in either
2
<PAGE> 3
case, such noncompliance or nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or eliminated) on or
before May 2, 1995 (June 7, 1995 if Purchaser makes a payment of an
additional $250,000 to the Escrow Account on or before May 2, 1995)."
Seller hereby acknowledges that the additional $250,000 payment has been made by
Purchaser.
7. This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
8. Except as specifically set forth herein, the Merger
Agreement shall remain unmodified and in full force and effect.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and year first above written.
SELLER
TRITON GROUP LTD., a Delaware
corporation
By: /s/ MICHAEL M. EARLEY
-----------------------------
Name: Michael M. Earley
Title: President
NATIONAL AIRMOTIVE CORPORATION,
a California corporation
By: /s/ GERALD A. ROBERTS
-----------------------------
Name: Gerald A. Roberts
Title: President
PURCHASER
FIRST AVIATION SERVICES INC.,
a Delaware corporation
By: /s/ JOHN F. RISKO
-----------------------------
Name: John F. Risko
Title: Executive Vice President
FE ACQUISITION SUB,
a California corporation
By: /s/ JOHN F. RISKO
-----------------------------
Name: John F. Risko
Title: Executive Vice President
4
<PAGE> 1
EXHIBIT 10.27
(C) 1994
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 located at (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.
1
<PAGE> 2
(C) 1994
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:
2
<PAGE> 3
(C) 1994
(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 /s/ T.H. THOMASON By /s/ GERRY ROBERTS
---------------------------- ----------------------------
(Signature) (Signature)
T.H. Thomason, Vice President
Small Aircraft Engines Gerry Roberts--President
---------------------------- ------------------------------
(Typed Name and Title) (Typed Name and Title)
Date December 21, 1994 Date November 30, 1994
----------------- -----------------
Witnesses
By /s/ W.L. FESLER By /s/ JOE GHANTOUS
---------------------------- ----------------------------
(Signature) (Signature)
W.L. Fesler, Manager Joe Ghantous
250 AMC/Fleet Operations Director, Allison 250 Program
---------------------------- ------------------------------
(Typed Name and Title) (Typed Name and Title)
Date December 21, 1994 Date November 30, 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 assined 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 OFFICE(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 corrective 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
it's designee which is in excess of the Authorized Maintenance Center
needs pusuant 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 telecommunication 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:
- Parts cleaning
- Fluorescent Penetrant Inspection (FPI)
- Nondestructive Test (NDT) inspection
- Flame metal spray
- Dimensional inspection
- Static/dynamic balancing
- Grinding
- Welding
- Accessory(ies) tests (oil, fuel, pneumatic systems)
- Fundamental electronics repair (soldering pin replacement,
etc.)
- Certain machining
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- Certain Mining
- FADEC diagnostic test (as applicable to the Product)
- 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; training; 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 corrective 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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ARTICLES. 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:
- Service, Repair and Overhaul of Products, Modules and/or
Parts within the Primary Premise and/or Branch Location(s)
- Component Repair at the Primary Premise and/or Branch
Location(s)
- Inventory of Modules and Parts consistent with forecasted
Events/Event Kits
- Embodiment of Modules and Parts
- Repairs covered under Warranty
- Repairs covered under OCP/SPP
- Lease/Rental Assets
- 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(s).
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 Oil
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 tile 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 TRADING
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 tracing 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.
.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 of 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
career 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. $)
<TABLE>
<S> <C> <C>
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
</TABLE>
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. AU 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 winch 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
winch 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 a 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 sub-detail 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 Claim 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 winch 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
agree 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 collective action plan is provided, the
Authorized Maintenance Center will not only correct the deficiency
identified per the terms of the collective 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'
average 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. Authorized Maintenance Center
NATIONAL AIRMOTIVE CORPORATION
/s/ T. H. THOMASON /s/ GERRY ROBERTS
- ----------------------------------- ---------------------------------------
(Signature) (Signature)
T. H. Thomason, Vice President Gerry Roberts - President
Small Aircraft Engines
- ----------------------------------- ---------------------------------------
(Typed Name and Title) (Typed Name and Title)
Date December 21, 1994 Date November 30, 1994
------------------------------ ----------------------------------
Telephone: (317) 230-5147 Telephone: (510) 613-1001
------------------------ ----------------------------
Facsimile: (317) 230-3103 Facsimile: (510) 635-3221
------------------------ ----------------------------
Witnesses
/s/ W.L. FESLER /s/ JOE GHANTOUS
- ----------------------------------- ---------------------------------------
(Signature) (Signature)
Joe Ghantous
W.L. Fesler, Manager Director, Allison 205 Program
250 AMC/Fleet Operations
- ----------------------------------- ---------------------------------------
(Typed Name and Title) (Typed Name and Title)
Date December 21, 1994 Date November 30, 1994
------------------------------ ----------------------------------
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EXHIBIT 10.28
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 located at
(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
(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.
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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.
(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).
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(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 will not pay 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.
(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.
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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 1998. 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, subject to Allison sole unilateral decision to
renewal said Agreement with the Authorized Maintenance Center. To qualifying
Authorized Maintenance Centers, three (3) year renewal periods of an agreement
substantially like the Agreement will be available. 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:
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.
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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.
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.
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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.
ALLISON ENGINE COMPANY, INC. -----------------------------------
AUTHORIZED MAINTENANCE CENTER
By By
--------------------------- --------------------------------
(Signature) (Signature)
Nicholas J. Blaskoski
V.P. INDUSTRIAL Engines
--------------------------- -----------------------------------
(Typed Name and Title) (Typed Name and Title)
Date Date
------------------------- -------------------------------
Witnesses
By By
--------------------------- --------------------------------
(Signature) (Signature)
--------------------------- -----------------------------------
(Typed Name and Title) (Typed Name and Title)
Date Date
------------------------- -------------------------------
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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
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 Description
7.2 OCP 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
phrase, 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. Event 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
its 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 OFFICE(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 maintenance 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 corrective 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).
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1.86 INDUSTRIAL ENGINE BULLETIN (IEB), INDUSTRIAL SERVICE
LETTER (ISL), OR INDUSTRIAL REPAIR INFORMATION LETTER (IRIL)
Documents issued by Allison to provide Customers and Authorized
Maintenance Centers with information such as the following:
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 a new 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 for new
installations 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 Allison's 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
it's 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 not required to perform Field Service.
Authorized Maintenance Center is required to provide Field Service 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 Electrical systems 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).
All equipment shall be maintained in good working order and operated
under the applicable Quality System, consistent with Allison 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; training; 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 an
Authorized Campaign.
AMC shall have the right to purchase and/or manufacture a part when
Allison notifies AMC it no longer intends to supply part.
4.3 COMPONENT REPAIR
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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).
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 be allowed 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.
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. 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.
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.
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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.
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.
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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 corrective 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 IEBs,
ILS's, and IRIL's. As applicable, Allison will provide the Authorized
Maintenance Center with Manual(s) and Bulletin(s) drafts prior to or
at the time of publication.
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
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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.
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.
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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.
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 and support of its over-the-counter sales
function. 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
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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.
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.
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.
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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.
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(s).
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
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o Fuel and Oil
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.
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.
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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.
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.
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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 Center's 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 Center's 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 is not required to provide Field
Service, 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.
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
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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.
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 in a timely manner.
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), monthly usage profiles, Customer Item
provisioning data, expected over-the-counter sales 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.
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
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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 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.
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
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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.
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).
5.18.2 INFORMATION TO BE TRACED
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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 Engine serial number
o Engine hours and cycles
o Module hours and cycles
o condition
o action/disposition
o time between Overhaul (TBO) (if available)
o time since new (TSN) (if available)
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.
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)
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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
tracing 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 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.
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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.
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, represent,
Embody, lease, rent or exchange only Allison manufactured and/or
Authorized Products, Modules or Parts, as
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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. 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.
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, when available. 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 or 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. $)
<TABLE>
<S> <C>
1) Public Liability, Property Damage $20,000,000
2) All Risk Insurance $20,000,000
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
</TABLE>
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 DESCRIPTION
The Operating Cost Program (OCP) is offered for select Allison
Engine models to provide Customers with a fixed maintenance cost
per Engine operating hour. OCP allows more accurate maintenance
cost predictions and avoids the unplanned costs associated with
inherent unscheduled events.
The OCP is contracted by Allison through the OEM's and may not be
offered by the Authorized Maintenance Center directly. Certain
OCP 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.
7.3 OCP COVERAGE SUMMARY
OCP 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. 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:
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.
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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 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.
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.
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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.
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.
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
sub-details 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 a 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 sub-detail 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 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 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 requirements, 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
provisions 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'
average 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.
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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. Authorized Maintenance Center
-----------------------------
----------------------------- -----------------------------
(Signature) (Signature)
Nicholas J. Blaskoski
-----------------------------
V.P. Industrial Engines (Typed Name and Title)
----------------------------
(Typed Name and Title)
Date Date
------------------------- -------------------------
Telephone: (317) 230-4351 Telephone:
------------------- -------------------
Facsimile: (317) 230-3410 Facsimile:
------------------- -------------------
WITNESSES
----------------------------- -----------------------------
(Signature) (Signature)
----------------------------- -----------------------------
(Typed Name and Title) (Typed Name and Title)
Date Date
------------------------- -------------------------
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EXHIBIT 11.1
FIRST AVIATION SERVICES INC.
STATEMENT RECOMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Five-month Eight-month Six-month Nine-month
period ended period ended period ended period ended
October 31, January 31, July 31, October 31,
1995 1996 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares used in calculation of net income per common share:
Weighted average common shares outstanding 3,556,665 3,556,665 3,556,665 3,556,665
Shares related to SAB Nos. 55, 64 and 83 1,973,056 1,973,056 1,883,684 1,734,730
---------- ---------- ---------- ----------
Total 5,529,721 5,529,721 5,440,349 5,291,395
========== ========== ========== ==========
Income (loss) applicable to common shareholders -- 1,787,000 1,645,000 2,289,000
Extraordinary item -- -- (864,000) (864,000)
---------- ---------- ---------- ----------
Net income (loss) applicable to common shareholders $1,181,000 $1,787,000 $ 781,000 $1,425,000
========== ========== ========== ==========
Income (loss) applicable to common shareholders
before extraordinary item $ 0.21 $ 0.32 $ 0.30 $ 0.43
Extraordinary item -- -- (0.16) (0.16)
---------- ---------- ---------- ----------
Net income (loss) applicable to common shareholders $ 0.21 $ 0.32 $ 0.14 $ 0.27
========== ========== ========== ==========
</TABLE>
Page 1
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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 on the financial statements of Aircraft Parts International
dated November 15, 1996 (except Note 7 as to which the date is November 25,
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.
We consent to the reference of our Firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report on the financial statements of
First Aviation Services Inc. dated September 12, 1996 (except Note 12 as to
which the date is December 20, 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 audits 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
January 22, 1997
- -------------------------------------------------------------------------------
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.
/s/ Ernst & Young LLP
San Francisco, California
January 22, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to the 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 years
ended March 31, 1994 and 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
January 23, 1997
