UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
- ----- 1934 (No Fee Required)
For the year ended January 31, 2000
___ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (No Fee Required)
For the transition period from___________ to ____________
Commission File Number 0-2199
First Aviation Services Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1419064
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15 Riverside Avenue
Westport, Connecticut 06880-4214
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (203) 291-3300
(Office of the Secretary)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days or for such short period that the registrant was subject to such filing
requirements. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. ___
The aggregate market value of the voting stock held by non-affiliates as of
April 17, 2000 was approximately $10,581,316
The number of shares outstanding of the registrant's common stock as of April
17, 2000 was 7,680,481 shares.
Documents incorporated by reference:
First Aviation's Proxy Statement for the June 6, 2000 Annual Meeting
of Stockholders is incorporated herein by reference into Part III hereof
<PAGE>
PART I
Item 1. Business
- -----------------
General
First Aviation Services Inc. ("First Aviation" or the "Company") is a
worldwide leader in supplying aircraft parts and components to the aviation
industry worldwide, as well as providing the aerospace industry third party
logistics and inventory management services. The Company is the fastest growing
distributor and third party logistics provider in the aerospace industry.
First Aviation was formed in March 1995 to acquire the stock of
National Airmotive Corporation (NAC). The acquisition was completed on June 1,
1995. On November 1, 1999, the Company consummated the sale of the stock of NAC
to Rolls-Royce North America, Inc. for $73 million, pursuant to a Stock Purchase
Agreement between First Aviation Services Inc. and Rolls-Royce North America,
Inc. dated as of September 9, 1999. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
On March 5, 1997, the Company completed an initial public offering of
3,900,000 shares of common stock, $0.01 par value per share (the "Offering").
From a portion of the net proceeds from the Offering, Aerospace Products
International Inc. (formerly Aircraft Parts International Combs, Inc.), a
majority owned subsidiary of the Company ("API"), acquired substantially all of
the assets and assumed certain of the liabilities of Aircraft Parts
International Inc. ("API Combs") from AMR Combs, Inc. ("AMR Combs"). API
distributes aircraft parts and components for over 130 manufacturers. API
Technologies, API's licensed repair station, offers brake and starter generator
overhaul services, and also is an authorized hose assembly manufacturing
facility. Through API, the Company distributes and supplies aircraft parts and
components to the aviation industry worldwide. API also provides inventory
management and logistics services to the aerospace industry.
The Company's executive offices are located at 15 Riverside Avenue in
Westport, Connecticut, 06880. Further information about the Company can be found
on the worldwide web at www.firstaviation.com. The Company can be reached via
e-mail at [email protected]. The executive officers of the Company are
Michael C. Culver, Gerald E. Schlesinger, John A. Marsalisi and Philip C.
Botana. The information required to be furnished with respect to these executive
officers is set forth in, and incorporated by reference from, Part III, Item 10
of this Annual Report on Form 10-K.
Safe Harbor Statement Under the Private Securities Litigation Reform Act 1995.
Information included in this Annual Report on Form 10-K may contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are not statements of
historical facts, but rather reflect the Company's current expectations
concerning future events and results. Such forward-looking statements, including
those concerning the Company's expectations, involve known and unknown risks,
uncertainties and other factors, some of which are beyond the Company's control,
that may cause the Company's actual results, performance or achievements, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. In evaluating such statements as well as the future prospects of the
Company, specific consideration should be given to various factors, including
the Company's ability to obtain parts from its principal suppliers on a timely
basis, market conditions, the ability to consummate suitable acquisitions, and
other items that are beyond the Company's control and may cause actual results
to differ from management's expectations. In evaluating such forward looking
statements, as well as the future prospects of the Company, specific
consideration should be given to the various factors discussed in this Annual
Report on Form 10-K.
Industry Overview
The Company believes that the current annual worldwide market for new
and used spare engine parts and spare aircraft parts is approximately $50.0
billion, of which $5.0 billion is supplied to the general aviation market. The
aviation parts and components market is highly-fragmented with a limited number
of large, well-capitalized companies, including original equipment
manufacturers, selling a broad range of spare parts, and numerous smaller
competitors serving niche markets. API serves the general aviation sector of
this market, as well as airlines, fixed base operators ("FBOs"), business
aviation, helicopter and recreational operators.
2
<PAGE>
Aviation Parts Sales and Logistics. The Company, through API,
represents more than 130 manufacturers and distributes approximately 80,000 new
and factory reconditioned parts and components, selling to professional aircraft
maintenance organizations, aircraft operators, including fleet operators and
airlines, and FBOs. The parts are approved by the Federal Aviation
Administration ("FAA") and are acquired from small, specialized manufacturers as
well as major original equipment manufacturers such as Aviation Products,
Goodyear Tire and Rubber, Michelin Aircraft Tire, Federal Mogul, B.F. Goodrich
Aerospace, General Electric Lighting, Scott Aviation, Textron Lycoming, Teledyne
Continental Motors, Parker Hannifin, Marathon Power Technologies, Barry
Controls, The New Piper Aircraft, Inc. and Cessna Aircraft Company. Most of
these suppliers are committed to servicing aftermarket customers solely through
wholesale distributors such as API. Distributors add value to commonly available
products by offering immediate availability, broad product lines, technical
assistance and other value added services, such as logistics and inventory
management services. API does not have any long-term agreements or commitments
from the original equipment manufacturers from whom it purchases parts and is
dependent upon these manufacturers for access to parts for resale.
Competition in the parts and components distribution market is
generally based on availability of product, service, price and quality,
including parts traceability. API's major competitors include Aviall, Inc.,
Satair A/S, AAR Corporation, Raytheon Aircraft, and Cessna Aircraft Company (a
subsidiary of Textron). There also is substantial competition, both domestically
and overseas, from companies who focus on regional/niche markets, or on market
segments of secondary interest. Examples of these companies include Superior Air
Parts, Inc., Avteam and Omaha Aircraft Supply.
Increasing Consolidation. The Company believes that customers are
increasingly seeking the services of larger, more sophisticated, technologically
capable and better-capitalized service providers. In order to reduce the costs
associated with carrying and managing inventory, satisfy increased governmental
regulatory scrutiny, streamline buying decisions and assure quality, aircraft
and fleet operators are seeking to reduce their number of suppliers, including
parts and component providers, and are using third parties to manage their parts
and components inventories. Operators also have become more sensitive to quick
turnaround times. As a result, the Company believes that aircraft and fleet
operators increasingly select those service providers that are capable of
providing a range of high quality, efficient and timely services at a reasonable
price. 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 range of services will benefit from this consolidation trend. During the
past few years, a number of service providers have consolidated or combined
their operations. This is a trend that the Company believes will continue.
Principal Suppliers
API has five suppliers from whom approximately 45% and 47% of its total
parts and components were purchased during the years ended January 31, 2000 and
1999, respectively.
Sales and Marketing
Parts and Component Distribution. New and serviceable parts are sold to
parts resellers, regional and major airlines, FBO's, and business aviation,
helicopter and recreational operators. The Company uses regional sales managers,
inside salespersons, outbound telephone salespersons, independent contract
representatives, and associated distributors in its sales and marketing efforts.
ISO/9002 Certification. In March 1999, the Company's Memphis, Tennessee
facility obtained ISO/9002 certification.
Customers
The Company currently has over 4,500 customers. The Company is not
reliant upon any single customer.
3
<PAGE>
Regulation
Through regulatory bodies such as the FAA, the Joint Airworthiness
Administration and the Department of Defense (the "DOD"), governments around the
world require all aircraft and engines to follow defined maintenance programs 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 FAA procedures. The Company has certifications from the FAA covering its
repair and overhaul facilities. The DOD requires that parties providing parts
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 periodically must 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, including its own API Technologies, 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.
The Company believes it is in material compliance with applicable regulations.
See Item 3, "Legal Proceedings".
Environmental Matters and Proceedings
The Company's operations are subject to federal, state and local
environmental laws and related regulation by government agencies, including the
United States Environmental Protection Agency, The United States Department of
Transportation 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 potentially significant
compliance burdens and risks on the Company. The Company believes that it is in
material compliance with all federal, state, and local laws and regulations
governing its operations. The Company does not anticipate that any material
capital expenditures will be required during the next fiscal year in order to
maintain compliance with the federal, state and local laws and regulations.
Employees
As of January 31, 2000, approximately 189 persons were employed on a
full-time basis by the Company. None of the Company's employees are covered by
collective bargaining agreements. The Company believes that its relationship
with its employees is good.
Item 2. Properties
- -------------------
The Company operates within the following facilities:
<TABLE>
<CAPTION>
Square Lease
Location Entity Description Footage Expiration
- -------- ------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Westport, CT First Aviation Executive offices 3,000 2007
Memphis, TN API Distribution/sales 88,000 2013
Calgary, Canada API Ltd. Sales 3,200 2003
Montreal, Canada API Ltd. Sales 7,160 2003
Clark Air Force Base,
Philippines API Asia Pacific Inc. Distribution/sales 22,235 2010
</TABLE>
4
<PAGE>
Item 3. Legal Proceedings
- --------------------------
During the quarter ended October 31, 1999, API Ltd. established a sales
and distribution facility in Montreal, Canada. Several of the initial employees
were individuals previously employed by a competitor of API Ltd. The competitor
commenced litigation against API Ltd. and the individuals.
On November 17, 1999, API Ltd. and AAR International, Inc. filed a
consent to a limited injunction with the Superior Court for the District of
Montreal in the Province of Quebec, Canada whereby both parties acknowledged the
return to AAR of certain materials possessed by the individuals hired by API
Ltd., and agreed that API Ltd. would refrain from directly soliciting certain
potential customers in the Canadian market, would avoid making any reference to
the hiring of the individuals in general advertisements, and would pay a
reasonable approximation of the plantiff's expenses incurred in connection with
the matter. The injunction, along with the restrictions on API Ltd.'s marketing
operations, expired on March 16, 2000. The limitations did not have a material
affect upon the Company's ability to service the Canadian market.
The Company's business exposes it to possible claims for personal
injury, death or property damage that may result from a failure of certain parts
serviced by the Company or spare parts and components 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 parts and components that
it sells. The Company maintains what it believes is adequate liability insurance
to protect it from such claims.
The Company is involved in certain other claims and lawsuits that are
incidental to its operations. Management does not believe that the ultimate
resolution of any such claims will have a material adverse effect on the
Company's consolidated business, financial condition, results of operations or
cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
Market Information. The Company's common stock trades on The NASDAQ
Stock Market under the symbol FAVS. The table below sets forth the quarterly
high and low sales prices for the Company's common stock as reported on the
NASDAQ Composite Tape since February 1, 1998.
<TABLE>
<CAPTION>
Year Ended Year Ended
January 31, 2000 January 31, 1999
- ---------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
High Low High Low
---- --- ---- ---
First Quarter 5 1/8 3 3/32 First Quarter 7 1/4 5 1/2
Second Quarter 6 5/8 4 3/4 Second Quarter 6 1/62 4 7/32
Third Quarter 6 7/8 4 5/8 Third Quarter 5 7/8 4 1/8
Fourth Quarter 6 3/8 4 3/4 Fourth Quarter 5 4 1/16
</TABLE>
Holders. As of April 17, 2000, there were approximately 26 holders of
record of the Company's common stock.
Dividends. 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 expansion, the ability of its
subsidiaries to pay dividends or otherwise make cash payments or advances to it,
and restrictions, if any, under any current or future debt obligations, as well
as other factors that the Board of Directors deems relevant. In addition, API's
credit facility prohibits the payment of cash dividends except with the
applicable lender's consent.
5
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
The selected financial data set forth below should be read in
conjunction with the "Consolidated Financial Statements and related Notes",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial information included herein.
<TABLE>
<CAPTION>
Year Ended January 31,
------------------------------------------------------------
(All amounts in thousands, except per share amounts) 2000 1999 1998 1997 (1)
------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Results of Operations Data:
Net sales $ 81,243 $ 59,666 $ 44,003 $ -
Gross profit 16,228 11,792 8,233 -
Net income (loss) from continuing operations 167 (1,011) 397 (43)
Net income (loss) from discontinued operation (1) 5,170 (703) 4,854 638
Net income from gain on sale of subsidiary (1) 10,193 - - -
------------- ------------ ------------ ---------------
Net income (loss) 15,530 (1,714) 5,251 595
Dividends on preferred stock (2) - - 11 132
------------- ------------ ------------ ---------------
Net income (loss) available to common stockholders $ 15,530 $ (1,714) $ 5,240 $ 463
============= ============ ============ ===============
Basic net income (loss) from continuing operations $ 0.02 $ (0.11) $ 0.05 $ (0.01)
Basic net income (loss) per common share $ 1.74 $ (0.19) $ 0.62 $ 0.13
============= ============ ============ ===============
Weighted average shares outstanding 8,909 8,973 8,432 3,557
Net income (loss) from continuing operations - assuming
dilution $ 0.02 $ (0.11) $ 0.04 $ (0.01)
Net income per common share - assuming dilution $ 1.72 $ (0.19) $ 0.60 $ 0.09
============= ============ ============ ===============
Weighted average shares outstanding - assuming dilution 9,006 8,973 8,698 5,194
Balance Sheet Data:
Working capital $ 57,445 $ 40,665 $ 44,266 $ 21,546
Total assets 86,392 79,319 68,913 42,724
Short-term debt 163 22,908 - -
Current portion of long-term debt - - - 1,100
Long-term debt, less current portion 7,900 - 13,866 32,794
Other long-term liabilities 1,156 1,292 1,041 2,119
Series A Preferred Stock - - - 1,650
Total stockholders' equity $ 54,143 $ 44,381 $ 45,957 $ 6,281
</TABLE>
Notes to Selected Financial Data
(1) API was acquired on March 5, 1997. The financial information presented is
from the date of purchase. Results of operations would not have been
significantly different had the acquisition occurred on February 1, 1997,
the beginning of the Company's fiscal year. Prior to the date of
acquisition, for the year ended January 31, 1997, the Company's operations
consisted principally of NAC, which has been reclassified as a discontinued
operation and reported separately. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and "Liquidity
and Capital Resources".
(2) The calculation of net income per common share requires the deduction from
net income of undeclared preferred stock dividends. Accumulated but
undeclared preferred stock dividends were $132 for the year ended January
31, 1997.
6
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Safe Harbor Statement Under the Private Securities Litigation Reform Act 1995.
- ------------------------------------------------------------------------------
Information included in this Annual Report on Form 10-K may contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are not statements of
historical facts, but rather reflect the Company's current expectations
concerning future events and results. Such forward-looking statements, including
those concerning the Company's expectations, involve known and unknown risks,
uncertainties and other factors, some of which are beyond the Company's control,
that may cause the Company's actual results, performance or achievements, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. In evaluating such statements as well as the future prospects of the
Company, specific consideration should be given to various factors, including
the Company's ability to obtain parts from its principal suppliers on a timely
basis, market conditions, the ability to consummate suitable acquisitions, and
other items that are beyond the Company's control and may cause actual results
to differ from management's expectations. In evaluating such forward looking
statements, as well as the future prospects of the Company, specific
consideration should be given to the various factors discussed in this Annual
Report on Form 10-K.
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, and selected
financial data of the Company included elsewhere in this Annual Report on Form
10-K.
General
The Company's net sales consist of sales of parts and components,
component overhaul services, and provision of third party logistics and
inventory management services. Net sales are recorded when parts and components
are shipped or when logistics and management services have been provided.
On November 1, 1999, the Company consummated the sale of the stock of
NAC to Rolls-Royce North America, Inc. for $73 million, pursuant to a Stock
Purchase Agreement between First Aviation Services Inc. and Rolls-Royce North
America, Inc. dated as of September 9, 1999 (the "Agreement"). Pursuant to the
transaction, Rolls-Royce North America, Inc. acquired substantially all of the
assets and assumed certain liabilities of NAC, excluding income tax and
intercompany liabilities and debt. The sales price may be increased or decreased
by an amount not to exceed $3 million based upon the change in net assets, as
defined in the Agreement, from a target amount to October 31, 1999, the day
immediately preceding the closing date. The amount of the adjustment, currently
estimated to be $1.8 million, is subject to audit, and is expected to be
finalized during the year ending January 31, 2001. NAC has been accounted for as
a discontinued operation. All amounts reported herein have been restated to
reflect NAC as a discontinued operation.
In March 1997, API acquired substantially all of the assets and assumed
certain of the liabilities of API Combs. The adjusted purchase price was $10.6
million in cash, including expenses of approximately $0.5 million that were
incurred in connection with the acquisition. The acquisition was accounted for
under the purchase method of accounting as of the closing date. The purchase
price, including acquisition costs, was allocated to the assets and liabilities
of API based upon their relative fair values. The excess of purchase price paid
over the value of the net assets acquired was included in goodwill in the
accompanying consolidated balance sheets. The consolidated financial statements
of the Company since March 5, 1997 reflect the impact of the results of
operations of API as well as the purchase price allocation.
In conjunction with the acquisition, AMR Combs purchased 10,407 shares
of API Series A Cumulative Convertible Preferred Stock, $0.001 par value, at a
price of $100 per share. Total proceeds to the Company were $1,041. This
transaction has been accounted for as minority interest in the accompanying
consolidated balance sheets. Dividends of $4.00 per share are payable quarterly
on the preferred stock. Dividends of $42, $42 and $38 were paid during the years
ended January 31, 2000, 1999 and 1998, respectively, and have been reflected as
minority interest in subsidiary in the accompanying consolidated statements of
operations. The Preferred Stock is convertible into ten percent of the common
stock of API as of the date of the conversion.
7
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the
percentages of the Company's net sales that certain income and expense items
represent.
<TABLE>
<CAPTION>
Year Ended January 31,
-------------- ------------- --------------
2000 1999 1998
-------------- ------------- --------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 80.0 80.3 81.3
-------------- ------------- --------------
Gross profit 20.0 19.7 18.7
Selling, general and administrative expenses 17.6 17.2 15.8
Corporate expenses 2.0 3.5 1.4
Non-recurring charge 0.5 1.3 -
-------------- ------------- --------------
Income (loss) from operations (0.1) (2.3) 1.5
Interest income 0.9 - 0.1
Interest expense and other (0.8) (0.5) (0.1)
-------------- ------------- --------------
Income (loss) from continuing operations before
income taxes - (2.8) 1.5
Income tax expense (benefit) (0.2) (1.1) 0.6
-------------- ------------- --------------
Net income (loss) from continuing operations 0.2 (1.7) 0.9
Net income from discontinued operation 6.4 (1.2) 11.0
Net income from gain on sale of subsidiary 12.5 - -
-------------- ------------- --------------
Net income (loss) 19.1% (2.9)% 11.9%
============== ============= ==============
</TABLE>
Year ended January 31, 2000 compared to year ended January 31, 1999
Net sales
Net sales for the year ended January 31, 2000 increased $21.6 million,
or 36.2%, to $81.2 million from $59.7 million for the year ended January 31,
1999. Net sales increased as a result of increased market share, international
expansion and growth in the logistics services business. Price reductions by
competitors seeking to regain market share have and are expected to continue to
affect the rate of growth and profit margins in the near term. The Company
expects to continue to expand into new markets, add additional product lines,
and invest in new product offerings, including the logistics and inventory
management businesses.
Cost of sales
Costs of sales for the year ended January 31, 2000 increased $17.1
million, or 35.8%, to $65.0 million from $47.9 million for the year ended
January 31, 1999. The increase in cost of sales was due to the increase in net
sales.
Gross profit
Gross profit for the year ended January 31, 2000 increased by $4.4
million, or 37.6%, to $16.2 million from $11.8 million for the year ended
January 31, 1999. Gross margin increased to 20.0% from 19.8%. During the fourth
quarter of the year ended January 31, 2000 the Company earned $1.0 million from
consulting services provided to one customer. Without this transaction gross
margin would have been 19.0%.
Selling, general and administrative expenses
Selling, general and administration expenses for the year ended January
31, 2000 increased $4.0 million, or 38.9%, to $14.3 million from $10.3 million
for the year ended January 31, 1999. The increase is attributable to and
proportional to the growth in net sales and gross profit. The Company's
anticipated expansion of its international operations into the Philippines and
Europe, the addition of senior personnel for certain business segments and the
expenditures required for the
8
<PAGE>
development of a business to business e-commerce site will result in the
continued growth of selling, general and administrative costs.
Corporate expenses
Corporate expenses for the year ended January 31, 2000 decreased $0.5
million to $1.7 million from $2.1 million for the year ended January 31, 1999.
The decrease was due principally to a credit of $0.4 million recorded by the
Company upon the sale of NAC for retainer fees previously paid and expensed.
Non-recurring charge
During the year ended January 31, 2000 the Company recorded a
non-recurring charge of $0.4 million for the cost of litigation related to the
opening of a new sales facility in Montreal, Canada. During the year ended
January 31, 1999 the Company recorded a non-recurring charge of $0.8 million for
the costs incurred in connection with terminated acquisitions.
Interest income and interest expense
Interest income earned during the year ended January 31, 2000 was
derived from investing the proceeds from the sale of NAC in short term
investments. Interest expense for the year ended January 31, 2000 increased to
$0.6 million from $0.3 million for the year ended January 31, 1999 due to an
increase in the average borrowings under the Company's credit facilities to
support the Company's growth and fund capital improvements.
Benefit for income taxes
The Company recorded a tax benefit of $0.2 million for the year ended
January 31, 2000. The benefit recorded principally was the result of a reduction
of valuation reserves that positively impacted the effective income tax rate.
Due to the results of operations and the gain from the sale of NAC the
utilization of deferred tax benefits was assured. The effective rate for the
year ended January 31, 1999 was 40%, which approximates the statutory rate for
federal and state income taxes combined.
Net income (loss) from continuing operations
For the year ended January 31, 2000 the Company earned $0.2 million
from continuing operations compared to a net loss of $1.0 million for the year
ended January 31, 1999. The increase was due principally to increased sales and
gross profit for the current year, a reduction in corporate expenses and the
non-recurring charge, an increase in net interest income and the realization of
tax benefits for the year ended January 31, 2000.
Income from discontinued operation
For the year ended January 31, 2000, the Company had net income from
the discontinued operation of $5.2 million compared to a net loss of $0.7
million for the year ended January 31, 1999. The increase in net income was due
to a combination of increased sales and gross profit, the absence of any charges
for restructuring and a lower effective income tax rate. During the year ended
January 31, 1999, NAC had recorded pre-tax restructuring charges of $5.4 million
to restructure and streamline operations, and for costs of certain litigation.
Net income from gain on sale of subsidiary
On November 1, 1999 the Company consummated the sale of NAC, as
described in General, above. As a result of the sale the Company recorded a net
gain of $10.2 million in the year ended January 31, 2000.
Net income
The Company had net income of $15.5 million for the year ended January
31, 2000, as compared to a net loss of $1.7 million for the year ended January
31, 1999. The increase in net income was due to the reasons described above.
9
<PAGE>
Year ended January 31, 1999 compared to year ended January 31, 1998
Net sales
Net sales for the year ended January 31, 1999 increased $15.7 million,
or 35.6%, to $59.7 million from $44.0 million for the year ended January 31,
1998. Net sales increased as compared to the prior year due to increased market
share and as a result of the inclusion of twelve months of sales for the year
ended January 31, 1999, as compared to eleven months for the year ended January
31, 1998.
Cost of sales
Costs of sales for the year ended January 31, 1999 increased $12.1
million, or 33.8%, to $47.9 million from $35.8 million for the year ended
January 31, 1998. The increase in cost of sales was due to the increase in net
sales.
Gross profit
Gross profit for the year ended January 31, 1999 increased by $3.6
million, or 43.2%, to $11.8 million from $8.2 million for the year ended January
31, 1998. Gross margin increased to 19.8% from 18.7%. The increase was due to
volume related efficiencies and increased management focus initiated subsequent
to the acquisition of API.
Selling, general and administrative expenses
Selling, general and administration expenses for the year ended January
31, 1999 increased $3.3 million, or 47.3%, to $10.3 million from $7.0 million
for the year ended January 31, 1998. The increase is attributable to and
proportional to the Company's growth in net sales and gross profit. In addition,
selling, general and administration expenses increased due to the operation of
API's new facility in Memphis, additional marketing costs to pursue new business
opportunities, and costs related to Canadian expansion.
Corporate expenses
Corporate expenses for the year ended January 31, 1999 increased $1.5
million to $2.1 million from $0.6 million for the year ended January 31, 1998.
The increase was due principally to the establishment of a corporate management
team.
Non-recurring charge
During the year ended January 31, 1999 the Company recorded a
non-recurring charge of $0.8 million to cover the costs incurred in connection
with terminated acquisitions. No non-recurring charge was incurred during the
year ended January 31, 1998.
Interest income and interest expense
Interest expense for the year ended January 31, 1999 was $0.3 million.
In April 1998 the Company entered into a revolving line of credit to fund the
Company's growth and fund capital improvements. The expense was incurred from
borrowings against the new revolving line of credit.
Benefit for income taxes
The Company's effective income tax rate for the years ended January 31,
1999 and 1998, respectively, was 40%.
Net income (loss) from continuing operations
For the year ended January 31, 1999 the Company incurred a net loss
from continuing operations of $1.0 million, compared to net income of $0.4
million for the year ended January 31, 1998. The loss was due principally to
additional costs for management, advertising and other expenditures incurred to
support the Company's rapid growth, and the non-recurring charge that was
incurred during the year ended January 31, 1999.
10
<PAGE>
Income from discontinued operation
For the year ended January 31, 1999 the Company incurred a net loss of
$0.7 million from the discontinued operation, compared to net income of $4.9
million for the year ended January 31, 1998. The loss was due to pre-tax
restructuring charges of $5.4 million taken during the year ended January 31,
1999. The restructuring charges were recorded to restructure and streamline
operations, and for costs of certain litigation.
Net income
The Company incurred a net loss of $1.7 million for the year ended
January 31, 1999, as compared to net income of $5.2 million for the year ended
January 31, 1998. The decrease in net income was due to the reasons described
above.
Liquidity and Capital Resources
The Company's cash provided by (used in) operations for the years ended
January 31, 2000, 1999, and 1998 was $2.8 million, $(3.0) million, and $(2.2)
million, respectively. Cash provided by (used in) investing activities during
these same periods, including acquisitions and divestitures, was $67.9 million,
$(6.0) million, and $(13.0) million, respectively, while cash provided by (used
in) financing activities was $(20.7) million, $8.9 million, and $15.4 million,
respectively. Cash provided by investing activities for the year ended January
31, 2000 includes the $73.0 million of proceeds from the sale of NAC.
First Aviation's aggregate capital expenditures for the years ended
January 31, 2000, 1999 and 1998 were $5.1 million, $6.1 million, and $2.4
million, respectively, exclusive of acquisition costs of API. For fiscal year
2001 the Company will require liquidity to fund the Company's continuing growth
and overseas expansions, and for capital expenditures. Management expects to
fund these requirements from cash on hand, cash flows from operations and from
borrowings.
As previously described, on November 1, 1999 the Company consummated
the sale of the stock of NAC for $73.0 million. Simultaneous with the closing of
the sale of NAC on November 1, 1999, the Company utilized a portion of the
proceeds from the sale to repay the entire outstanding balance of the NAC
revolving line of credit and terminated NAC's credit agreement. The Company has
invested the remaining proceeds from the sale in commercial paper and
certificates of deposit with maturities when purchased of three months or less.
On November 3, 1999, the Company announced that its Board of Directors
had authorized a repurchase program of up to 1,000,000 shares of the Company's
common stock. On December 15, 1999, the Company announced that its Board of
Directors had authorized an additional repurchase program of up to 500,000
shares of the Company's common stock, and on March 23, 2000, the Board of
Directors authorized an additional repurchase program of up to 160,000 shares,
for a total authorization of up to 1,660,000 shares. The repurchases were to be
funded from a portion of the proceeds from the sale of NAC, and may be made from
time-to-time in open market transactions, block purchases, privately negotiated
transactions or otherwise at prevailing prices. No time limit was established
for the completion of the program.
Through January 31, 2000 the Company had repurchased a total of
1,000,000 shares of its common stock at an aggregate cost of approximately $5.9
million, or $5.87 per share. On March 24, 2000, the Company purchased an
additional 458,818 share block of its common stock for approximately $2.3
million, or $4.94 per share. After this transaction, repurchases under the
program totaled 1,458,818 shares at an aggregate cost of approximately $8.1
million, or approximately $5.58 per share. Approximately 200,000 shares still
may be repurchased under this program.
On March 30, 2000, API entered into a new $20 million commercial
revolving loan and security agreement with Hudson United Bank. Borrowings under
the credit facility bear interest equal to the LIBOR rates plus 1.5% and are
limited to specified percentages of eligible trade receivables and inventories
at API. The credit agreement contains a number of covenants, including
restrictions on mergers, consolidations and acquisitions, the incurrence of
indebtedness, transactions with affiliates, the creation of liens, and
limitations on capital expenditures. The credit agreement also requires API to
maintain minimum levels of net worth and specified interest expense coverage
ratios, and restricts the payment of dividends on API's common stock.
Substantially all of API's assets are pledged as collateral under the revolving
credit facility. Borrowings under the facility are guaranteed by First Aviation.
The agreement expires May 1, 2001. This facility replaced an expiring $10
million facility that had outstanding borrowings of $7.9 million at an interest
rate of 7.4% at January 31, 2000. The new facility will give the Company
additional financial capacity and greater flexibility that is better suited to
the Company's size and liquidity needs.
11
<PAGE>
In conjunction with the API acquisition, First Aviation, API and AMR
Combs entered into a Stockholders Agreement. Pursuant to this agreement, AMR
Combs agreed that it would not sell its shares of the Preferred Stock or the
shares of API common stock into which such Preferred shares are convertible
(collectively the "API Acquisition Shares") for a minimum period of three years.
API has the right to redeem the API Acquisition Shares at any time. Subject to
certain terms and conditions, AMR Combs has the right to cause the Company to
repurchase the API Acquisition Shares commencing three years after the closing
of the API acquisition. The redemption price is equal to the fair market value
of the API Acquisition Shares as determined by an independent appraisal. The
Stockholders Agreement also contains 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 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 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 to
a third party, and (iv) piggyback and demand registration rights granted to AMR
Combs with respect to the API Acquisition Shares. The demand registration rights
became exercisable in March 2000. If API 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 may elect to treat the demand as an
exercise by AMR Combs of its put option with respect to the API Acquisition
Shares. The Company has no plans to cause API to conduct a public offering of
its securities.
On March 5, 1999 AMR Combs was acquired by Signature Flight Support, an
affiliate of BBA Group Plc.
The Company believes that its cash on hand and cash flow from
operations, combined with borrowings available under its new line of credit,
will be sufficient to meet its current and anticipated cash operating
requirements, including scheduled interest payments, working capital needs,
capital expenditures and preferred dividend requirements through the year ending
January 31, 2001. The Company currently is in compliance with all of its debt
covenants.
Year 2000
In prior years the Company discussed the nature and progress of its plans to
become Year 2000 ready. In 1999 the Company completed its remediation and
testing of its systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems, and believes
those systems successfully responded to the Year 2000 date change. Costs in
connection with remediating its systems were not significant. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
internal systems or services of third parties. The company will continue to
monitor its mission critical computer applications and those of its suppliers
and vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
Inflation
The Company does not believe that the relatively moderate levels of
inflation which have been experienced in the United States has had or will have
a significant effect on its revenues or operations.
Item 7A. Quantative and Qualitative Disclosures about Market Risks
- -------------------------------------------------------------------
The Company's Canadian operations utilize the Canadian dollar as their
functional currency. Foreign currency translation and transaction gains and
losses are included in earnings. Foreign currency transaction exposure relates
primarily to foreign currency denominated trade receivables and the transfer of
foreign currency from subsidiaries to the parent company. The Company has sale
transactions denominated in Canadian dollars in Canada. Currency transaction
exposures are not hedged. Unrealized currency translation gains and losses are
recognized each month upon translation of the foreign subsidiaries' balance
sheets to U.S. dollars. Translation and transaction gains and losses have not
been significant.
Borrowings of the Company are denominated in U.S. dollars. Management
believes that the carrying amount of the Company's borrowings approximates fair
value because the interest rates are variable and reset frequently.
12
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
See Index to Financial Statements, which appears on page F-1 hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- ------------------------------------------------------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information regarding the directors of First Aviation is set forth under the
caption "Directors" in the Company's Proxy Statement for its 2000 Annual Meeting
of Stockholders, which is incorporated herein by reference. Information
regarding compliance with Section 16 (a) of the Exchange Act is set forth under
the caption "Section 16 (a) Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement for its 2000 Annual Meeting of Stockholders.
The Company's executive officers, their ages and backgrounds are as
follows:
Michael C. Culver, 49, has served as President and Chief Executive
Officer of the Company since March 1995. Mr. Culver also serves as Chairman of
API. In June 1995 Mr. Culver became a director of NAC, a former wholly owned
subsidiary of the Company. In August 1996 he became NAC's Chairman and in June
1997 he became its Chief Executive Officer. Mr. Culver's relationship with NAC
terminated with the Company's sale of NAC on November 1, 1999. In 1985 Mr.
Culver co-founded First Equity Development Inc. ("First Equity"), an aerospace
investment and advisory firm, and has served as Co-Managing Director since
that time.
Gerald E. Schlesinger, 55, became Senior Vice President upon his
employment by the Company in June 1997. From November 1993 to June 1997, Mr.
Schlesinger was affiliated with the SK Group and served as its Managing
Principal. The SK Group provides consulting and management advisory services to
its clients. Prior to November 1993, Mr. Schlesinger served as Executive
Vice-President, CFO and CIO for Butler Aviation.
John A. Marsalisi, 44, has served as Chief Financial Officer of the
Company since March 1995. He has been an officer of First Equity since May 1996.
From May 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.
Philip C. Botana, 55, became a Vice President upon his employment by
the Company in June 1998. From July 1997 Mr. Botana served as Vice President of
Operations for Bombardier Aerospace-Business Jet Solutions. From May 1994 to
June 1997, Mr. Botana was the President of Botana & Company, an aviation
consulting firm. Prior to May 1994, Mr. Botana was a Senior Vice President of
Signature Flight Support.
Item 11. Executive Compensation
- --------------------------------
Information regarding compensation of the Company's directors and executive
officers is set forth under the caption "Compensation of Directors and Executive
Officers" in the Company's Proxy Statement for its 2000 Annual Meeting of
Stockholders, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information regarding share ownership by certain beneficial owners and the
Company's directors and executive officers is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement for its 2000 Annual Meeting of Stockholders, which is
incorporated herein by reference.
13
<PAGE>
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Information regarding certain relationships and related transactions of the
Company is set forth under the caption "Certain Relationships and Related
Transactions" in the Company's Proxy Statement for its 2000 Annual Meeting of
Stockholders, which is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a)(1) Financial Statements and Schedules
----------------------------------
See Index to Consolidated Financial Statements, which appears on Page
F-1 hereof
(2) Financial Statement Schedule II - Valuation and Qualifying Accounts,
which appears on Page F-20 hereof.
(b) Form 8-K
--------
Form 8-K dated November 4, 1999 relating to the consummation of the
sale of NAC.
Form 8-K dated November 10, 1999 relating to the Company's announcement
of its share repurchase program.
Form 8-K dated December 17, 1999 relating to the Company's increase in
its share repurchase program.
(c) Exhibits
--------
Exhibit
Number Description of Exhibit
- ------- ----------------------
3.1(a) Restated Certificate of Incorporation of the Company
3.2(a) Restated Bylaws of the Company
10.1(a) Form of Director Indemnification Agreement between the Company
and each of its directors
10.9(a) Asset Purchase Agreement, dated November 25, 1996, by and
between AMR Combs and API
10.12 Employment Agreement, dated as of December 2, 1999, by and
between John A. Marsalisi and the Company
10.14(a) Stock Incentive Plan
10.15(a) Employee Stock Purchase Plan
10.20 Employment Agreement, dated as of December 2, 1999, by and
between Michael C. Culver and the Company
10.21(a) Investment Advisory Services Agreement Relating to the API
Acquisition, dated as of September 30, 1996, by and between
First Equity and First Aviation
10.22(a) 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 March 24, 2000, by and between First
Equity Development Inc. and its affiliates and First Aviation
Services Inc. regarding pursuit of acquisition opportunities
10.24(a) Amended and Restated Registration Rights Agreement, dated as
of February 21, 1996, by and between the Company and FAS Inc.
14
<PAGE>
10.29(a) Registration Rights Agreement, dated as of February 21, 1997,
by and between the Company and Canpartners
10.30(a) Sublease Agreement, dated as of December 31, 1996, between
First Equity and the Company
10.38(b) Loan and Security Agreement, dated April 23, 1998 by and
between API and Fleet National Bank
10.39(b) Amendment to the First Aviation Services Stock Incentive Plan
10.40 Engagement Letter between First Equity Development Inc. and
its affiliate, FED Securities Inc., and First Aviation
Services Inc. dated March 24, 2000
10.41(c) Employment Agreement dated June 1, 1998 by and between Philip
C. Botana and the Company
10.42 Employment Agreement dated December 2, 1999 by and between
Gerald E. Schlesinger and the Company
10.43 Commercial Revolving Loan and Security Agreement dated March
30, 2000 by and between Hudson United Bank and Aerospace
Products International, Inc.
10.44 Guaranty, dated as of March 30, 2000, between First Aviation
Services Inc. and Hudson United Bank
10.45 Executive Change of Control Agreement dated as of December 2,
1999 by and between First Aviation Services Inc. and Gerald E.
Schlesinger
10.46 Executive Change of Control Agreement dated as of December 2,
1999 by and between First Aviation Services Inc. and John A.
Marsalisi
10.47(d) Stock Purchase Agreement between First Aviation Services Inc.
and Rolls-Royce North America, Inc. dated as of September 9,
1999
21.1(a) List of Subsidiaries
23.1 Consent of Ernst & Young LLP, independent auditors
27.1 Financial Data Schedule for the years ended January 31, 2000
27.2 Financial Data Schedule for the years ended January 31, 1999
27.3 Financial Data Schedule for the years ended January 31, 1998
(a) Incorporated by reference and filed as an Exhibit to the Company's
Registration Statement on Form S-1 (No. 333-18647), as amended.
(b) Incorporated by reference and filed as an Exhibit to the Company's Annual
Report on Form 10K for the year ended January 31, 1998.
(c) Incorporated by reference and filed as an Exhibit to the Company's Annual
Report on Form 10K for the year ended January 31, 1999.
(d) Incorporated by reference and filed as an Appendix to the Company's
Information Statement on Form 14C filed on October 12, 1999.
[Signature page follows]
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has fully caused this report to be signed
on its behalf by the undersigned thereunto duly authorized on April 28, 2000.
FIRST AVIATION SERVICES INC.
By: /s/ John A. Marsalisi
-----------------------
John A. Marsalisi
Chief Financial Officer
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Aaron P. Hollander Chairman of the Board April 28, 2000
--------------------------
Aaron P. Hollander
/s/ Michael C. Culver Chief Executive Officer and April 28, 2000
-------------------------- Director (Principal Executive Officer)
Michael C. Culver
/s/ John A. Marsalisi Chief Financial Officer and April 28, 2000
-------------------------- Director (Principal Financial and
John A. Marsalisi Accounting Officer)
/s/ Joshua S. Friedman Director April 28, 2000
--------------------------
Joshua S. Friedman
/s/ Robert L. Kirk Director April 28, 2000
--------------------------
Robert L. Kirk
/s/ Charles B. Ryan Director April 28, 2000
--------------------------
Charles B. Ryan
</TABLE>
16
<PAGE>
First Aviation Services Inc.
Consolidated Financial Statements
For the years ended January 31, 2000, 1999, and 1998
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors...................................................................................F2
Consolidated Financial Statements:
Consolidated Balance Sheets......................................................................................F3
Consolidated Statements of Operations............................................................................F4
Consolidated Statements of Stockholders' Equity..................................................................F5
Consolidated Statements of Cash Flows.........................................................................F6-F7
Notes to 2000 Consolidated Financial Statements..............................................................F8-F19
Schedule II - Valuation and Qualifying Accounts.................................................................F20
</TABLE>
F1
<PAGE>
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, 2000 and 1999, and the consolidated statements
of operations, stockholders' equity, and cash flows for the three years ended
January 31, 2000. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Aviation
Services Inc. as of January 31, 2000 and 1999, and the consolidated results of
its operations and its cash flows for the three years ended January 31, 2000 in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Stamford, Connecticut
March 31, 2000
F2
<PAGE>
First Aviation Services Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
January 31,
2000 1999
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 50,104 $ 149
Trade receivables, net of allowance for doubtful accounts
of $820 and $312, respectively 13,810 9,559
Inventories, net of allowance for obsolete and slow moving
inventory of $414 and $304, respectively 14,142 12,201
Deferred income taxes 1,284 2,638
Prepaid expenses and other 1,298 1,508
Net assets of subsidiary held for sale - 48,256
--------- ---------
Total current assets 80,638 74,311
Plant and equipment, net 3,980 3,168
Goodwill, net 1,774 1,840
--------- ---------
$ 86,392 $ 79,319
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 8,264 $ 4,274
Accrued compensation and related expenses 3,156 650
Other accrued liabilities 4,752 891
Accrued litigation costs - 2,840
Income taxes payable 6,858 2,083
Short term debt 163 22,908
--------- ---------
Total current liabilities 23,193 33,646
Revolving line of credit 7,900 -
Minority interest 1,041 1,041
Obligations under capital leases 115 251
--------- ---------
Total liabilities 32,249 34,938
Stockholders' equity
Common stock, $0.01 par value, 25,000,000 shares authorized, 8,133,997
and 9,001,896 shares outstanding at January 31, 2000 and
1999, respectively 91 90
Additional paid-in capital 38,615 38,515
Retained earnings 21,306 5,776
--------- ---------
60,012 44,381
--------- ---------
Less: Treasury stock, at cost (5,869) -
--------- ---------
Total stockholders' equity 54,143 44,381
--------- ---------
Total liabilities and stockholders' equity $ 86,392 $ 79,319
========= =========
</TABLE>
See accompanying notes.
F3
<PAGE>
First Aviation Services Inc.
Consolidated Statements of Operations
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Year ended January 31,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 81,243 $ 59,666 $ 44,003
Cost of sales 65,015 47,874 35,770
---------- ---------- ----------
Gross profit 16,228 11,792 8,233
Selling, general and administrative expenses 14,258 10,263 6,968
Corporate expenses 1,652 2,105 599
Non-recurring charge 410 800 -
---------- ---------- ----------
Income (loss) from operations (92) (1,376) 666
Interest income 723 1 34
Interest expense (612) (269) -
Minority interest in subsidiary (42) (42) (38)
---------- ---------- ----------
Income (loss) before provision for income taxes (23) (1,686) 662
Provision (benefit) for income taxes (190) (675) 265
---------- ---------- ----------
Net income (loss) from continuing operations 167 (1,011) 397
Income from discontinued operation, net of provision (benefit) for
income taxes of $1,037, $(25) and $1,269 for the years ended
January 31, 2000, 1999 and 1998, respectively 5,170 (703) 4,854
Gain from sale of subsidiary, net of provision for income taxes of $5,829 10,193 - -
---------- ---------- ----------
Net income (loss) 15,530 (1,714) 5,251
Dividends on preferred stock - - 11
---------- ---------- ----------
Net income (loss) available to common stockholders $ 15,530 $ (1,714) $ 5,240
========== ========== ==========
Basic net income (loss) per common share:
Basic net income (loss) from continuing operations $ 0.02 $ (0.11) $ 0.05
Basic net income (loss) from discontinued operation 0.58 (0.08) 0.57
Basic net income from gain on sale of subsidiary 1.14 - -
---------- ---------- ----------
Basic net income (loss) per common share $ 1.74 $ (0.19) $ 0.62
========== ========== ==========
Weighted average common shares outstanding 8,908,756 8,972,953 8,432,234
========== ========== ==========
Net income (loss) per common share - assuming dilution
Net income (loss) from continuing operations - assuming dilution $ 0.02 $ (0.11) $ 0.04
Net income (loss) from discontinued operation - assuming dilution 0.57 (0.08) 0.56
Net income from gain on sale of subsidiary - assuming dilution 1.13 - -
---------- ---------- ----------
Net income (loss) per common share - assuming dilution $ 1.72 $ (0.19) $ 0.60
========== ========== ==========
Weighted average common shares outstanding - assuming dilution 9,005,677 8,972,953 8,698,400
========== ========== ==========
</TABLE>
See accompanying notes
F4
<PAGE>
First Aviation Services Inc.
Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------------------------------------- Additional
Number of Number of Paid-in Retained
Shares Amount Shares Amount Capital Earnings
--------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 31, 1997 33,000 $ 1,650 3,556,665 $ 36 $ 2,125 $ 2,470
Payment of preferred stock dividends (231)
Conversion of preferred stock (33,000) (1,650) 165,000 1 1,649 -
Issuance of common stock in initial
public offering - - 3,900,000 39 34,438 -
Exercise of warrants to purchase common
stock - - 1,293,335 13 57 -
Shares issued under qualified plans - - 13,925 - 109 -
Net income - - - - - 5,251
------- ---------- ---------- -------- ---------- ----------
Balances at January 31, 1998 - - 8,928,925 89 38,378 7,490
Exercise of stock options to purchase
common shares - - 40,000 1 - -
Shares issued under qualified plans - - 32,971 - 137 -
Net (loss) - - - - - (1,714)
------- ---------- ---------- -------- ---------- ----------
Balances at January 31, 1999 9,001,896 90 38,515 5,776
Exercise of stock options to purchase
common shares - - 110,000 1 - -
Shares issued under qualified plans - - 22,101 - 100 -
Cost of shares repurchased - - (1,000,000) - - -
Net income - - - - - 15,530
------- ---------- ---------- -------- ---------- ----------
Balances at January 31, 2000 - $ - 8,133,997 $ 91 $ 38,615 $ 21,306
======= ========== ========== ======== ========== ==========
<CAPTION>
Sub- Treasury
Total Stock Total
---------- --------- ----------
<S> <C> <C> <C>
Balances at January 31, 1997 $ 6,281 $ - $ 6,281
Payment of preferred stock dividends (231) - (231)
Conversion of preferred stock - - -
Issuance of common stock in initial
public offering 34,477 - 34,477
Exercise of warrants to purchase common
stock 70 - 70
Shares issued under qualified plans 109 - 109
Net income 5,251 - 5,251
---------- --------- ----------
Balances at January 31, 1998 45,957 - 45,957
Exercise of stock options to purchase
common shares 1 - 1
Shares issued under qualified plans 137 - 137
Net (loss) (1,714) - (1,714)
---------- --------- ----------
Balances at January 31, 1999 44,381 - 44,381
Exercise of stock options to purchase
common shares 1 - 1
Shares issued under qualified plans 100 - 100
Common shares repurchased - (5,869) (5,869)
Net income 15,530 - 15,530
---------- --------- ----------
Balances at January 31, 2000 $ 60,012 $ (5,869) $ 54,143
========== ========= ==========
</TABLE>
See accompanying notes.
F5
<PAGE>
First Aviation Services Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended January 31,
2000 1999 1998
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) from continuing operations $ 167 $(1,011) $ 397
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 846 533 262
Deferred income taxes 1,354 (257) 448
Changes in assets and liabilities:
Trade receivables (4,251) (2,728) (1,381)
Inventories (1,941) (4,630) (1,624)
Prepaid expenses and other 210 (187) (316)
Accounts payable 3,990 487 340
Accrued litigation costs (2,840) 2,840 -
Accrued compensation and related expenses, and
and other accrued liabilities 298 56 (1,609)
Income taxes payable 4,775 (693) 874
------- ------- --------
Net cash provided by (used in) operating activities of
continuing operations 2,608 (5,590) (2,609)
Net cash provided by operating activities of
discontinued operation 218 2,607 419
------- ------- --------
Net cash provided by (used in) operating activities 2,826 (2,983) (2,190)
Cash flows from investing activities
Proceeds from sale of sale of subsidiary 73,000 - -
Purchases of plant and equipment and other assets (1,592) (2,213) (468)
Proceeds from disposals of plant and equipment - 14 -
Purchase of assets from former owners, including acquisition costs - - (10,636)
Purchases of plant and equipment of discontinued operation (3,530) (3,842) (1,907)
------- ------- --------
Net cash provided by (used in) investing activities 67,878 (6,041) (13,011)
</TABLE>
See accompanying notes
F6
<PAGE>
First Aviation Services Inc.
Consolidated Statements of Cash Flows (continued)
(in thousands)
<TABLE>
<CAPTION>
Year ended January 31,
2000 1999 1998
------- ------ --------
<S> <C> <C> <C>
Cash flows from financing activities
Net borrowings / (repayments) on NAC revolving line of credit (13,895) 41 (15,628)
Net borrowings / (repayments) on API line of credit (950) 8,850 -
Principal payments on capital lease obligations (136) (93) -
Repurchases of common stock for treasury (5,869) - -
Repayments of term loans - - (2,650)
Repayments of subordinated note - - (1,750)
Sale of preferred stock of subsidiary - - 1,041
Payment of dividends on preferred stock - - (231)
Proceeds from issuance of common stock in initial public offering - - 39,000
Expenses relating to initial public offering - - (4,523)
Proceeds from exercise of common stock warrants and issuance
of stock under employee stock purchase plan 101 138 179
-------- ------ --------
Net cash provided by (used in) financing activities (20,749) 8,936 15,438
-------- ------ --------
Net change in cash and cash equivalents 49,955 (88) 237
Cash at the beginning of the year 149 237 -
-------- ------ --------
Cash and cash equivalents at the end of the year 50,104 149 237
======== ====== ========
Supplemental cash flow disclosures:
Cash paid for:
Interest $ 575 $ 224 $ -
======== ====== ========
Income taxes $ 90 $ 600 $ -
======== ====== ========
Acquisition of equipment through capital lease $ - $ 495 $ -
======== ====== ========
</TABLE>
See accompanying notes
F7
<PAGE>
First Aviation Services Inc.
Notes to 2000 Consolidated Financial Statements
(in thousands, except share amounts)
1. Business and Basis of Presentation
First Aviation Services Inc., through its subsidiaries, Aerospace Products
International Inc. ("API"), Aircraft Products International Ltd. (API Ltd.), and
AeroV.Com Inc. (collectively, "First Aviation" or the "Company"), is one of the
leading suppliers of aircraft parts and components to the aviation industry
worldwide, and is a provider of third party logistics and inventory management
services to the aerospace industry. The Company is headquartered in Westport,
Connecticut.
The accompanying consolidated financial statements include the accounts of First
Aviation Services Inc. and its subsidiaries. Significant intercompany balances
and transactions have been eliminated in consolidation.
First Aviation was formed in March 1995 to acquire the capital stock of National
Airmotive Corporation ("NAC").
On November 1, 1999, the Company consummated the sale of the stock of NAC to
Rolls-Royce North America, Inc. for $73 million in cash, pursuant to a Stock
Purchase Agreement between First Aviation Services Inc. and Rolls-Royce North
America, Inc. dated as of September 9, 1999 (the "Agreement"). Accordingly, NAC
has been accounted for as a discontinued operation for all years presented in
the accompanying consolidated financial statements and its net assets, the
results of its operations and cash flows through the date of sale, and the net
gain on the sale have been reported separately (Note 8).
On March 5, 1997, the Company completed an initial public offering of 3,900,000
shares of common stock, $0.01 par value per share (the "Offering"). The Company
received net proceeds of approximately $34.5 million after deducting expenses of
approximately $4.5 million. The net proceeds were used for, among other things,
the repayment of term and subordinated debt, a pay down of the Company's credit
facility (for a total debt reduction of $22.6 million), payment of accrued
dividends on preferred stock ($0.2 million), and the acquisition of API's
business from AMR Combs Inc. ("AMR Combs") ($10.6 million - see below).
Immediately prior to the closing of the Offering, the following transactions
were completed: (i) all outstanding shares of the Series A Preferred Stock of
the Company were converted into 165,000 shares of common stock at the offering
price, (ii) all outstanding warrants to purchase 1,293,335 shares of the
Company's common stock were exercised in full, (iii) the Company's certificate
of incorporation was amended to increase the authorized common stock of the
Company to 25,000,000 shares, and (iv) a 6.4549-to-1 stock split with respect to
common stock was effected. Accordingly, all common share amounts have been
restated to give effect to the 6.4549-to-1 stock split.
With the closing of the Offering, the Company acquired certain assets and
assumed certain liabilities of API's business from AMR Combs for an adjusted
purchase price of $10.6 million, including expenses of approximately $0.5
million that were incurred in connection with the acquisition. The acquisition
was accounted for under the purchase method of accounting as of the closing
date. The purchase price, including acquisition costs, was allocated to the
assets and liabilities of API based upon their relative fair values. The excess
of purchase price paid over the value of the net assets acquired is included in
goodwill in the accompanying consolidated balance sheets. The consolidated
financial statements of the Company since March 5, 1997 reflect the impact of
the results of operations of API as well as the purchase price allocation. The
results of operations of the Company would not have been significantly different
had the acquisition taken place as of February 1, 1997, the beginning of the
Company's fiscal year.
F8
<PAGE>
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Net Sales
Sales are recorded net of discounts, allowances and commissions, and are
recorded when the product is shipped. Revenues from services provided such as
logistics management services are recorded as earned.
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 generally are
supported by foreign credit insurance. The Company performs ongoing credit
evaluations of its customers and maintains allowances which management believes
are adequate for potential credit losses.
Export sales to unaffiliated customers were approximately 9%, 5% and 7% of net
sales for the years ended January 31, 2000, 1999 and 1998, respectively. The
majority of export sales activities were to the following geographic areas:
Canada, Mexico, and Europe.
Stock Based Compensation
The Company recognizes compensation expense on stock option grants to the extent
a difference exists between the exercise price of the stock option and the fair
market value per share at the date of grant.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits, money market funds,
certificates of deposits and short-term commercial paper with maturities when
purchased of three months or less.
Inventories
Inventories consist of general aircraft parts and components and are stated at
the lower of cost or market, with cost determined using the first-in, first-out
and specific identification methods. 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.
Plant and Equipment
Plant and equipment are stated at cost, less allowances for accumulated
depreciation. Additions and improvements that materially increase the productive
capacity or extend the useful life of an asset are added to the cost of the
asset. 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 useful lives of the assets, which ranges from 3 to 15 years.
Leasehold improvements are amortized over the shorter of the estimated life of
the improvement or the term of the related lease.
F9
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Goodwill
The excess of purchase price over the fair value of the net assets acquired is
amortized using the straight-line method over a thirty-year period. Accumulated
amortization was $192 and $126, respectively at January 31, 2000 and 1999.
Noncurrent Assets
The Company records impairment losses on long-lived assets when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. No asset impairments were recorded during the years
ended January 31, 2000, 1999 and 1998, respectively.
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
API has five suppliers from whom approximately 45% and 47% of its total parts
and components were purchased during the years ending January 31, 2000 and 1999,
respectively. Accounts payable to these vendors totaled $1,737 and $1,302 at
January 31, 2000 and January 31, 1999, respectively. An inability to maintain
timely access to parts and components from these vendors on commercially
reasonable terms would have a material adverse effect on the Company's
consolidated business, financial condition and results of operations.
Reclassifications
Certain amounts in the accompanying consolidated financial statements have been
reclassified to conform to the current year's presentation.
F10
<PAGE>
3. Plant and Equipment
Plant and equipment consist of the following:
<TABLE>
<CAPTION>
January 31,
----------------------------------
2000 1999
----------------------------------
<S> <C> <C>
Machinery and equipment $ 918 $ 800
Building and other leasehold improvements 725 512
Office furniture, fixtures and equipment 3,832 2,566
Construction-in-process 89 59
------------- ------------
5,564 3,937
Less: accumulated depreciation (1,584) (769)
------------- ------------
$ 3,980 $ 3,168
============= ============
</TABLE>
4. Related Parties
During the quarter ended October 31, 1998, the Company, upon the authorization
of the independent members of the Board of Directors, entered into a two-year
advisory agreement with a related party, First Equity Development Inc. ("First
Equity"). Pursuant to the terms of this agreement, First Equity provides the
Company with investment and financial advisory services relating to potential
acquisitions and other financial transactions. The agreement may be terminated
by either party upon 30-days written notice. The Company will pay a fee to First
Equity upon the successful completion of certain transactions (the "Success
Fee"), and will reimburse First Equity for its out-of-pocket expenses. The
amount of the Success Fee will be established by the independent members of the
Board of Directors and will be dependent upon a variety of factors, including,
but not limited to, the scope of the services to be provided and the size and
type of transaction. The agreement required the Company to pay First Equity a
$30 monthly retainer effective February 1, 1998, the date that First Equity
began providing services to the Company. Up to one year's worth of retainer fees
paid can be applied as a credit against any Success Fee, subject to certain
limitations. During each of the years ended January 31, 2000 and 1999, the
Company paid First Equity retainer fees of $360, for a total of $720. Upon the
consummation of the sale of NAC (Note 8), the Company paid First Equity a
Success Fee of $945. The Success Fee was net of $360 of retainer fees previously
paid and expensed by the Company. The gross amount of the fee was charged
against net income from gain on the sale of subsidiary while the amount
previously expensed was credited against corporate expenses in the fourth
quarter of the year ended January 31, 2000. The original agreement expired
February 1, 2000 but was renewed for an additional two-years on substantially
the same terms and conditions.
In 1997 the Company entered into a ten-year sublease with an affiliate for
office space. The lease is cancelable upon six months notice by either party.
The Company has the option of renewing the sublease for two additional five-year
periods. Lease payments under the lease totaled $102, $98 and $50, respectively,
for the years ended January 31, 2000, 1999 and 1998.
F11
<PAGE>
5. Short Term Debt and Revolving Line of Credit
<TABLE>
<CAPTION>
January 31,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Short Term Debt
API short term revolving line of credit $ - $ 8,850
NAC revolving line of credit - 13,895
Current portion of obligations under capital leases 163 163
------------- ------------
$ 163 $ 22,908
============= ============
Revolving Line of Credit
Revolving line of credit $ 7,900 $ -
============= ============
</TABLE>
On April 23, 1998, API entered into a one-year $10,000 bank revolving credit
facility. The term of the credit facility previously had been extended until
December 31, 1999. On December 1, 1999, the term was extended further until
March 30, 2000. Advances under the credit facility bear interest based upon
certain market rates plus a premium. Borrowings are limited to specified
percentages of eligible accounts receivable and inventories of API. The credit
agreement contains a number of covenants, including restrictions on mergers,
consolidations and acquisitions, the incurrence of indebtedness, transactions
with affiliates, the creation of liens, and limitations on capital expenditures.
The credit agreement also requires API to maintain minimum levels of net worth
and specified interest expense coverage ratios, and restricts the payment of
dividends on API's common stock. Substantially all of API's trade receivables,
inventory and equipment are pledged as collateral under the revolving credit
facility. Borrowings under this credit line bore interest at 7.4% and 6.4% at
January 31, 2000 and 1999, respectively.
On March 30, 2000, API entered into a new $20 million commercial revolving loan
and security agreement. Borrowings under this credit facility bear interest
equal to the LIBOR rate plus 1.5% and are limited to specified percentages of
eligible trade receivables and inventories of API. The credit agreement contains
a number of covenants, including restrictions on mergers, consolidations and
acquisitions, the incurrence of indebtedness, transactions with affiliates, the
creation of liens, and limitations on capital expenditures. The credit agreement
also requires API to maintain minimum levels of net worth and specified interest
expense coverage ratios, and restricts the payment of dividends on API's common
stock. Substantially all of API's assets are pledged as collateral under the
revolving credit facility. Borrowings under the facility are guaranteed by First
Aviation. The agreement expires May 1, 2001. As a result of this new long term
agreement, borrowings under API's previous line of credit were reclassified to
long term as of January 31, 2000.
NAC previously had entered into a credit agreement that provided for borrowings
of up to a total of $40,000, principally through a revolving credit facility.
Borrowings under NAC's revolving credit facility bore interest at the LIBOR rate
plus 3% (7.45% at January 31, 1999). Borrowings were limited to specified
percentages of eligible accounts receivable and inventories of NAC. The NAC
credit agreement also allowed for the issuance of letters of credit. At January
31, 1999, NAC was contingently liable for $1,991 under letters of credit, with
$31 of cash being restricted as security against an outstanding letter of
credit. The restricted cash was included in net assets of subsidiary held for
sale in the accompanying consolidated balance sheets. Simultaneous with the
closing of the sale of NAC on November 1, 1999, (Note 8), the Company utilized a
portion of the proceeds from the sale to repay the entire outstanding balance of
the NAC revolving line of credit and terminated NAC's credit agreement.
Management believes that the carrying amount of the Company's borrowings
approximates fair value because the interest rate is variable and resets
frequently.
F12
<PAGE>
6. Accrued Litigation Costs
During the fourth quarter of the year ended January 31, 1999, the Company
recorded a $3.1 million pre-tax charge for costs incurred in connection with the
successful defense of the Company and its Directors from claims brought by Mr.
John F. Risko, a former director and manager. The claims were initiated in June
1997 against the Company, certain directors, NAC and certain affiliates. The
charge included legal fees incurred through the conclusion of the trial and out
of pocket costs, including expert testimony and the cost of defending against an
appeal by the plaintiff. The charge is included in net income (loss) from
discontinued operation for the year ended January 31, 1999 in the accompanying
consolidated statements of operations.
In March 1999, a jury decided in favor of the Company, certain directors, NAC
and the affiliates. The Plaintiff's allegations of wrongful termination, breach
of contract, and various actions of fraud, deceit and misrepresentation were
dismissed. The plaintiff had sought various damages as well as common shares of
the Company.
During the quarter ended July 31, 1999, the Company and the former director and
manager settled the appeal. No additional charges above the amount previously
provided were incurred by the Company as a result of the settlement. The accrual
balance was eliminated through charges against the accrual, primarily for legal
fees.
The Company continues to pursue recovery of the costs incurred in connection
with this litigation in accordance with the terms and conditions of a Directors
and Officers insurance policy maintained by the Company. The amount of recovery,
if any, is not ascertainable at this time.
7. Stockholders' Equity
On November 3, 1999, the Company announced that its Board of Directors had
authorized a repurchase program of up to 1,000,000 shares of the Company's
common stock. On December 15, 1999, the Company announced that its Board of
Directors had authorized an additional repurchase program of up to 500,000
shares of the Company's common stock, and on March 23, 2000, the Board of
Directors authorized an additional repurchase program of up to 160,000 shares,
for a total authorization of up to 1,660,000 shares. The repurchases were to be
funded from a portion of the proceeds from the sale of NAC, and may be made from
time-to-time in open market transactions, block purchases, privately negotiated
transactions or otherwise at prevailing prices. No time limit has been
established for the completion of the program.
At January 31, 2000, the Company had issued 9,133,997 of its common shares.
Through January 31, 2000 the Company had repurchased a total of 1,000,000 shares
of its common stock, resulting in 8,133,997 common shares outstanding at January
31, 2000. The aggregate cost of the common share repurchases was approximately
$5,869, or $5.87 per share. On March 24, 2000, the Company purchased an
additional 458,818 share block of its common stock at a cost of $4.94 per share,
for a total of $2,267. After this transaction, repurchases under the program
totaled 1,458,818 shares at an aggregate cost of $8,136, or approximately $5.58
per share. Approximately 200,000 shares still may be repurchased under this
program.
Certain of the Company's directors elected to receive their compensation for the
years ended January 31, 2000, 1999 and 1998, in the form of shares of the
Company's common stock. The fair value of the shares at the date of issuance is
charged to expense with a corresponding credit to common stock and additional
paid-in capital.
The Company has an Employee Stock Purchase Plan ("ESPP"). Under the ESPP,
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 semi-annual
offering period or the fair market value of the stock at the end of the offering
period. For the years-ended January 31, 2000 and 1999, the Company issued 13,008
and 20,194 shares to employees under the ESPP, respectively.
The Company also has a stock option plan (the "Plan"). The Plan provides for the
grant of incentive stock options, nonqualified stock options, stock appreciation
rights and stock purchase rights. A total of 800,000 shares of common stock have
been reserved for issuance under the Plan. During the year ended January 31,
2000, 102,500 options were granted to various employees of the Company at an
exercise price of $4.50 per share. During the year ended January 31, 1999,
88,250 options were granted to various employees of the Company at exercise
prices
F13
<PAGE>
ranging from $5.00 to $6.00 per share. During the years ended January 31, 2000
and 1999, respectively, 110,000 and 40,000 options were exercised and 101,950
and 57,700 options were forfeited. At January 31, 2000 and 1999, respectively,
252,500 and 361,950 options were outstanding under the Plan.
The stock options vest over two to four-year periods, beginning one year after
the date of the grant, and expire ten years after issuance. Since the exercise
price of all of the options granted during the years ended January 31, 2000,
1999 and 1998 was at or above the fair market value per share at the dates of
grant, no compensation expense relating to stock options was recorded.
The Company is required to disclose the fair value, as defined, of options
granted to employees and the related compensation expense. The fair value of the
stock options granted was estimated at the date of grant using a Black-Scholes
option pricing model. The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected stock
price volatility. In management's opinion, because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
The fair value of the options granted during the years ended January 31, 2000
and 1999 was determined using a risk-free interest rate of 5.15% and 6.0%,
dividend yields of 0%, an average volatility factor of 0.398 and 0.516, and
weighted average expected lives of two to four years, respectively. Under these
assumptions the weighted average fair value of each option granted during the
years ended January 31, 2000 and 1999 was approximately $1.81 and $1.90,
respectively, and the pre-tax additional pro forma compensation expense that
would have been recorded is approximately $155 and $246, or $0.01 and $0.02 per
share, respectively. The weighted average remaining contractual life of all
stock options is approximately 8.28 years.
In conjunction with the API acquisition, AMR Combs purchased from API 10,407
shares of API Series A Cumulative Convertible Preferred Stock, $0.001 par value
(the "Preferred Stock"), at a price of $100 per share. Total adjusted proceeds
to the Company were $1,041. This transaction has been accounted for as minority
interest in the accompanying consolidated balance sheets. Dividends are payable
on a quarterly basis on the Preferred Stock at an annual rate of $4.00 per
share. Dividends of $42, $42, and $38 were paid during the years ended January
31, 2000, 1999 and 1998, respectively, and have been reflected as minority
interest in subsidiary in the accompanying consolidated statements of
operations. The Preferred Stock is convertible into ten percent of the common
stock of API as of the date of conversion.
Also in conjunction with the API acquisition, First Aviation, API and AMR Combs
entered into a Stockholders Agreement. Pursuant to this agreement, AMR Combs
agreed that it would not sell its shares of the Preferred Stock or the shares of
API common stock into which such Preferred Stock are convertible (collectively
the "API Acquisition Shares") for a minimum period of three years. API has the
right to redeem the API Acquisition Shares at any time. Subject to certain terms
and conditions, AMR Combs has the right to cause the Company to repurchase the
API Acquisition Shares commencing three years after the closing of the API
acquisition. The redemption price is equal to the fair market value of the API
Acquisition Shares as determined by an independent appraisal. The Stockholders
Agreement also contains 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 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 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 to a third party; and
(iv) piggyback and demand registration rights granted to AMR Combs with respect
to the API Acquisition Shares. The demand registration rights became exercisable
in March 2000. If API 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 may elect to treat the demand as an exercise by AMR
Combs of its put option with respect to the API Acquisition Shares. There are no
plans to cause API to conduct a public offering of its securities.
On March 5, 1999, AMR Combs was acquired by Signature Flight Support, an
affiliate of BBA Group Plc.
F14
<PAGE>
8. Sale of NAC
Pursuant to the Agreement to sell NAC, Rolls-Royce North America, Inc. acquired
substantially all of the assets and assumed certain liabilities of NAC,
excluding income tax liabilities, debt, amounts due to parent (First Aviation)
and any contingent liabilities resulting from the Company's liquidation of its
former defined benefit plan. The sales price may be increased or decreased by an
amount not to exceed $3 million based upon the change in net assets, as defined
in the Agreement, from a target amount to October 31, 1999, the day immediately
preceding the closing date. The amount of the adjustment, currently estimated to
be approximately $1.8 million, is subject to audit and will be finalized during
the year ended January 31, 2001.
Summarized balance sheet and results of operations information for NAC is as
follows. Balance sheet information includes only those assets sold and the
liabilities assumed by the purchaser.
<TABLE>
<CAPTION>
October 31 January 31,
1999 1999
--------------- ---------------
<S> <C> <C>
Trade receivables, net $ 17,162 $ 18,174
Inventories, net 34,489 39,556
Other current assets 2,974 690
--------------- ---------------
Total current assets 54,625 58,420
Accounts payable (12,977) (13,599)
Other current liabilities (2,717) (4,170)
--------------- ---------------
Net current assets 38,931 40,651
Plant and equipment, net, and other assets 10,474 7,605
--------------- ---------------
Net assets of subsidiary held for sale $ 49,405 $ 48,256
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
Nine months Year ended
ended -------------------------------
October 31, January 31, January 31,
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ 85,400 $ 94,074 $ 109,640
Earnings before interest and taxes 7,458 820 7,717
Net interest expense 1,251 1,548 1,520
-------------- -------------- --------------
Earnings before income taxes 6,207 (728) 6,197
Net income $ 5,170 $ (703) $ 4,854
============== ============== ==============
</TABLE>
Pursuant to the Agreement, First Aviation is liable, subject to certain
limitations, for any losses incurred by NAC related to environmental matters.
NAC is liable for the initial $1 million of such losses (the "Environmental
Threshold"). Any losses above the Environmental Threshold will be shared, with
First Aviation assuming 80% of the losses. First Aviation's maximum liability
for such losses cannot exceed $5 million in the aggregate. First Aviation shall
have liability for only those claims for losses where notice of the claim is
submitted on or prior to the third anniversary of the closing date.
F15
<PAGE>
8. Sale of NAC (continued)
First Aviation also is liable, subject to certain limitations, for certain
non-income tax and non-environmental related losses (as specified in the
Agreement) that may be incurred by NAC subsequent to the Sale. NAC is liable for
the initial $1 million of such losses (the "Basic Threshold"). Any losses above
the Basic Threshold will be borne by First Aviation. First Aviation's maximum
liability for such losses cannot exceed $5 million in the aggregate. First
Aviation shall have no liability for any claims for losses not submitted prior
to March 1, 2001.
With respect to income taxes, First Aviation is liable, without limitation, for
any and all income taxes that may be imposed upon NAC for all taxable periods
ending on or prior to the closing date.
The Company believes that none of the indemnification provisions will lead to a
claim that would have a material adverse impact upon the Company. However,
depending on the amount and timing, unfavorable resolution of any of these
potential claims could have a material effect on the Company's consolidated
financial position, results of operations or cash flows in a particular period.
Both First Aviation and Rolls-Royce are liable, without limitation, for any
losses incurred relating to any breach of any representation or warranty made in
the Agreement, and for any loss that occurs relating to matters specifically
retained by the parties.
The Company has accrued for certain costs relating to the sale of NAC.
Transaction costs and other costs directly relating to the sale, approximately
$3.7 million, excluding the estimated net asset adjustment and liabilities under
NAC's liquidated pension plan (see below), were charged against net income from
gain on sale of subsidiary. Certain of the costs will be paid upon the final
determination of the sales price and net asset adjustment. These costs have been
included in accrued compensation and related expenses ($2.3 million) and other
accrued liabilities ($1.4 million) in the accompanying consolidated balance
sheets.
On July 28, 1997, the Company replaced NAC's qualified defined benefit
retirement plan (the "NAC Plan") with a defined contribution savings plan,
qualified under Section 401(k) of the Internal Revenue Code. The Company
previously had purchased guaranteed annuities for all retirees who were
receiving benefits under the NAC Plan and provided for distributions in cash or
rollovers to an IRA or other qualified retirement plan for all other
participants in the NAC Plan. The Company used an outside consulting firm for
assistance in calculating the amount of benefits or distributions due, and in
liquidating the NAC Plan. The Company believes that the NAC Plan was liquidated
according to regulatory guidelines.
In 1998, the Pension Benefit Guarantee Corporation ("PBGC") audited the
liquidation of the NAC Plan. The PBGC disagreed with certain of the assumptions
used by the consultants in calculating benefits due to the participants. As a
result, the PBGC assessed the Company approximately $500, excluding interest. In
June 1999, the PBGC rejected the Company's appeal and confirmed its finding. The
Company also is liable for interest on the assessment, which the Company
estimates to be approximately $100. Accordingly, the Company has provided $600
pre-tax to cover the liability related to this matter. The charge was classified
against net income from gain on sale of subsidiary in the accompanying
consolidated statements of operations.
9. Non-Recurring Charge
During the third quarter ended October 31, 1999, API Ltd. established a sales
facility in Montreal, Canada. Several of the initial employees were individuals
previously employed by a competitor of API Ltd. The competitor commenced
litigation against API Ltd. and the individuals. On November 17, 1999, API Ltd.
and the competitor filed with the court a consent to a limited injunction that
affected API Ltd.'s marketing operations in Canada. As a result of the consent
and settlement, the Company recorded a pre-tax non-recurring charge of $410 in
the quarter ended October 31, 1999 to cover the estimated cost of the
settlement, including legal fees related to the matter. As part of the
settlement, the limited injunction terminated on March 16, 2000.
During the fourth quarter ended January 31, 1999, the Company recorded a pre-tax
charge of $800 to record costs in connection with terminated acquisitions. Costs
incurred included legal, advisory and accounting fees, bank charges, travel and
lodging.
F16
<PAGE>
10. Income Taxes
The provision (benefit) for income taxes on continuing operations is as follows:
<TABLE>
<CAPTION>
Year ended January 31,
-------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal $ 236 $ (530) $ 235
State 30 30 30
-------------- -------------- --------------
266 (500) 265
Deferred:
Federal (370) (150) -
State (86) (25) -
-------------- -------------- --------------
(456) (175) -
-------------- -------------- --------------
Total provision (benefit) (190) (675) 265
============== ============== ==============
</TABLE>
A reconciliation between income tax provision (benefit) computed at the U.S.
federal statutory rate and the effective rate reflected in the consolidated
statements of operations is as follows:
<TABLE>
<CAPTION>
Year ended January 31,
-------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Provision (benefit) at federal statutory rate (34.0)% (34.0)% 34.0%
State tax provision, net of federal benefit (161.0) 1.2 3.0
Change in valuation allowance (1,065.0) (10.4) -
Foreign losses with no income tax benefit 385.0 - -
Non-deductible items and other 48.9 3.2 3.0
-------------- -------------- --------------
(826.1)% (40.0)% 40.0%
============== ============== ==============
</TABLE>
Deferred tax assets and liabilities result from temporary differences in the
recognition of income and expenses for tax and financial statement purposes.
These differences are set forth below:
<TABLE>
<CAPTION>
January 31,
-------------------------------------
2000 1999
--------------- ----------------
<S> <C> <C>
Financial statement accruals not currently deductible for
income tax purposes $ 1,284 $ 3,758
Differences in the financial statement and income tax bases
of plant and equipment - 770
Net operating loss and tax credit carry forwards - 928
Other - 436
--------------- ---------------
1,284 5,892
Valuation allowance - (3,254)
--------------- ---------------
Net deferred income tax assets $ 1,284 $ 2,638
=============== ===============
</TABLE>
F17
<PAGE>
10. Income Taxes (continued)
Due to the level of taxable income generated by operations in the fiscal year
ended January 31, 2000 and the sale of NAC, utilization of the deferred tax
benefit at January 31, 2000 is considered to be more likely than not, and
therefore, a valuation reserve is not required.
The Company believes that based on a number of factors, including the nature of
the temporary differences, the timing of their utilization and the level of tax
operating losses, realization of deferred tax assets at January 31, 1999 was not
considered to be more likely than not, and, therefore, a valuation allowance was
provided.
11. Employee Benefits Plan
API maintains a defined contribution savings plan, qualified under Section
401(k) of the Internal Revenue Code, that covers substantially all of its
full-time employees. The savings plan allows employees to defer up to 15 percent
of their salary, with the Company partially matching employee contributions.
Employees vest in the Company contribution ratably over three years. The Company
expensed $102, $99 and $48 in the years ended January 31, 2000, 1999 and 1998,
respectively, related to the savings plan.
12. Net Income (Loss) per Common Share
The following sets forth the denominator used in the computation of basic
earnings per share and earnings per share - assuming dilution.
<TABLE>
<CAPTION>
Years ended January 31,
2000 1999 1998
--------------- --------------- --------------
<S> <C> <C> <C>
Denominator for basic net income (loss) per common share -
weighted average shares 8,908,756 8,972,953 8,432,234
Effect of dilutive warrants and employee stock options 96,921 - 266,166
--------------- --------------- --------------
Denominator for net income (loss) per common share -
assuming dilution - adjusted weighted average shares
and assumed conversions 9,005,677 8,972,953 8,698,400
=============== =============== ==============
</TABLE>
For the year ended January 31, 1999, the denominator used in the calculation of
net loss per common share from continuing operations - assuming dilution was the
same as the denominator used for basic loss per common share because the effect
of warrants and options would have been antidilutive.
Stock options to purchase shares of common stock at an exercise price of $5 and
$6 per share for the year ended January 31, 1999 and at exercise prices ranging
from $5 to $10 per share for the year ended January 31, 1998 were issued to
employees during the respective fiscal years but were not included in the
computation of net income (loss) per common share - assuming dilution because
the exercise price of the options was greater than the average market price of
the common stock during the applicable period and, therefore, the effect would
have been antidilutive.
F18
<PAGE>
13. Commitments and Contingencies
Commitments
The Company leases certain warehouse facilities, equipment and office space.
Certain 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 that are based on the consumer price index. Future minimum rental
payments under operating leases that have initial noncancelable lease terms in
excess of one year as of January 31, 2000 are as follows:
<TABLE>
<S> <C>
Fiscal year 2001 $ 469
Fiscal year 2002 468
Fiscal year 2003 464
Fiscal year 2004 435
Fiscal year 2005 410
Thereafter 3,429
----------
$ 5,675
==========
</TABLE>
Rental expense under noncancelable operating leases amounted to $515, $467, and
$300 for the years ended January 31, 2000, 1999, and 1998, respectively.
Contingencies
In the ordinary course of business, the Company is subject to many levels of
governmental inquiry and investigation. Among the agencies that oversee the
Company's business activities are the Federal Aviation Administration, the
Department of Transportation and the Environmental Protection 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 consolidated
financial position, results of operations or its ability to conduct business. In
the normal conduct of its business, the Company also is 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 consolidated financial
position. The Company maintains what it believes is adequate liability insurance
to protect it from such claims. However, depending on the amount and timing,
unfavorable resolution of any of these matters could have a material effect on
the Company's consolidated financial position, results of operations or cash
flows in a particular period.
F19
<PAGE>
Schedule II - Valuation and Qualifying Accounts
First Aviation Services Inc. and Consolidated Subsidiaries
(amounts in thousands)
<TABLE>
<CAPTION>
Balance at Balance as
beginning of end of
of period Additions Deductions period
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Description:
Year ended January 31, 1998
Allowance for doubtful accounts $ - - - $ -
Year ended January 31, 1999
Allowance for doubtful accounts $ - 425 113 (a) $ 312
Year ended January 31, 2000
Allowance for doubtful accounts $ 312 597 89 (a) $ 820
Year ended January 31, 1998
Slow moving and obsolete inventory $ - 18 - $ 18
Year ended January 31, 1999
Slow moving and obsolete inventory $ 18 286 - $ 304
Year ended January 31, 2000
Slow moving and obsolete inventory $ 304 155 45 (b) $ 414
</TABLE>
(a) Write off of uncollectible accounts.
(b) Write off of excess and obsolete inventory.
F20
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is
dated as of December 2, 1999, 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 will be a
valued employee of the Company and wishes to secure his 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
of 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:
I
EMPLOYMENT
.1 Employment. The Company employs the Executive and the
Executive hereby accepts employment as Vice President and Chief Financial
Officer upon the terms and conditions hereinafter set forth.
.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").
.3 Executive Duties. As Vice President and Chief Financial
Officer of the Company, the Executive shall perform such duties as are requested
by and shall report directly to the Company's Chief Executive Officer. 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 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 the
Company. 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,
<PAGE>
officer, lender, investor or otherwise) in any business or activity that is
competitive with that of the Company, its parent or any of its subsidiaries, or
affiliates.
II
COMPENSATION AND BENEFITS
.1 Annual Salary. During the Employment Term, the Company
shall pay to the Executive a base salary at the rate of One Hundred and 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 of the Company, increase
such base salary in light of the Executive's performance, inflation in cost of
living or other factors.
.2 Benefits. Subject to the discretion of the Board of
Directors, during the Employment Term, the Executive may be permitted to
participate in and be covered under 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, as the Board of Directors shall determine, subject to meeting
applicable eligibility requirements (collectively referred to herein as the
"Company Benefit Plans").
.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, provided that such expenses
are incurred and accounted for in accordance with the policies and procedures
established by the Company.
.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.
III
CONFIDENTIALITY AND NONDISCLOSURE
.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 or any other person's
or entity's benefit any trade secrets or confidential information relating to
the Company's, its subsidiaries' or affiliates' businesses, operations,
marketing data, business plans, strategies, employees, products, prices,
negotiations and contracts with other companies, or any other subject matter
pertaining to the business of the
<PAGE>
Company or its subsidiaries or affiliates or any of their respective clients,
customers, suppliers, 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.
.2 Return of Confidential Material. Executive shall promptly
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause, 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 the Company or its subsidiaries
or affiliates, including all copies of such materials which Executive may then
possess or have under Executive's control and any notes of Executive relating
thereto whether in print-based or electronic media. Upon termination of
Executive's employment by the Company, Executive shall not retain any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company or its subsidiaries or affiliates.
.3 Prohibition on Solicitation of Customers. During the term
of Executive's employment by the Company, and for a period of six (6) 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 the Company
or its subsidiaries or affiliates, nor shall Executive interfere with or disrupt
or attempt to interfere with or disrupt any such relationship. None of the
foregoing shall be deemed a waiver of any rights and remedies the Company may
have under applicable law.
.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 employment by the Company, Executive will not solicit
any of the employees, agents, or independent contractors of the Company or its
subsidiaries or affiliates to leave the employ of the Company or its
subsidiaries or affiliates. However, Executive may solicit any employee, agent
or independent contractor who voluntarily terminates his employment with the
Company or its subsidiaries or affiliates after a period of 180 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 rights and
remedies the Company may have under applicable law.
.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. The Company and its subsidiaries and affiliates 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 and its subsidiaries and affiliates 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 or its
subsidiaries or affiliates may possess or be entitled to pursue.
Furthermore, the obligations of Executive and the rights
and remedies of the Company and its subsidiaries and affiliates 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
<PAGE>
misappropriation or theft of trade secrets or "Confidential Information". The
parties agree that all of the subsidiaries and affiliates of the Company shall
be third party beneficiaries of this Section III and be entitled to enforce
directly against Executive the provisions of this Section III to the extent that
shall be related to the businesses of such subsidiaries or affiliates.
.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.
IV
TERMINATION
.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)
continued failure by the Executive after receipt of written
notice thereof to perform his duties hereunder or those duties
which may, from time to time, be reasonably requested by the
Chief Operating Officer or the Chief Executive Officer of the
Company (other than such failure resulting from the
Executive's incapacity due to physical or mental illness), as
determined by the Board of Directors in their reasonable
discretion; (ii) misconduct by the Executive which is
materially injurious to the Company; (iii) conviction of or
pleading no contest to a felony or crime of moral turpitude;
(iv) habitual drunkenness or drug use by the Executive; (v)
failure to uphold the policies of the Company and/or action by
the Executive beyond the scope of his employment, as such
scope is set by the Chief Operating Officer or the Chief
Executive Officer of the Company 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.
.2 Termination by Company. The Executive's employment
hereunder may be terminated by the Company immediately for Cause. Subject to the
provisions contained in Section IV(.3)(b) of this Agreement, the Company may
terminate this Agreement at any time 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
<PAGE>
written notice of termination; however, the Company may elect to have Executive
leave the Company and its subsidiaries immediately upon issuance of the
aforementioned written notice.
.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 Annual Salary prorated through the end of the
month during which such termination occurs plus payment for
any vacation earned but not taken, and the Company shall
thereafter have no further obligations under this Agreement to
the Executive or his dependents, beneficiaries or estate;
provided, however, that the Company will continue to honor any
obligations that may have been accrued and vested under then
existing Company Benefit Plans or any other written and duly
authorized agreements or arrangements applicable to the
Executive. The only Agreements in effect for John A. Marsalisi
are the written Incentive Stock Option Agreement(s) previously
awarded and the Change of Control Agreement. This signed
Employment Agreement supersedes or replaces any other
agreement or arrangement applicable to this 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) following the execution of the Company's
Separation Agreement, pay to the Executive an amount
equal to six (6) months' salary based upon the
Executive's current "Monthly Base Salary" (defined as
the Annualized Salary in effect on the date of
termination divided by twelve (12)), plus payment for
any vacation earned but not taken. This payment shall
be in lieu of any amounts otherwise due Executive under
the Company's policy for severance benefits. And in
addition, the Company will continue to honor any
obligations that may have been accrued and vested under
then existing Company Benefit Plans or any other
written and duly authorized agreements or arrangements
applicable to the Executive. The six-month's base
salary will be paid co-incident with the regularly
scheduled payroll in substantially bi-weekly
installments until the end of the six-month period.
Accrued and unused vacation will be paid upon
termination.
(2) provide Executive with such insurance coverage
as is then required by COBRA or any similar then
applicable law.
.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.
<PAGE>
(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 or other contract, plan or arrangement. However,
it is expressly understood that a termination of employment in
accordance with Section 3(a) or Section 3(b) renders the
Change of Control Agreement null, void, or inoperable.
(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 IV
(.3)(a) hereof and no further payments shall be required to be
made by the Company to Executive unless the termination of
this Agreement by the Executive follows a change of control as
that term is defined in the Change of Control Agreement dated
December 2, 1999.
(d) Notwithstanding any inference to the contrary, the
benefits payable to the Executive in accordance with the
aforementioned portion of this Section IV, shall not include
incentive compensation awards based upon performance except
that which is earned, accrued and payable at the close of the
prior fiscal year.
V
GENERAL PROVISIONS
.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 Federal Express or
similar priority mail service, or United States registered mail, return receipt
requested, postage prepaid, as follows:
If to the Company:
First Aviation Services Inc.
15 Riverside Avenue
Westport, CT 06880-4214
Telephone: (203) 291-3300
Fax: (203) 291-3330
Company Counsel:
Frederick Green, Esq.
Weil Gotshal & Manges
767 Fifth Avenue
New York, NY 10153
Telephone: (212) 310-8524
Fax: (212) 310-8007
<PAGE>
If to the Executive:
John A. Marsalisi
22 White Oak Lane
Stamford, CT 06905
or to 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.
.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.
.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.
.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 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.
.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 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.
<PAGE>
.8 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be 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 WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
FIRST AVIATION SERVICES INC.
a Delaware corporation
By: /s/ Aaron P. Hollander
-----------------------
Title: Chairman
By: /s/ Michael C. Culver
----------------------
Title: Chief Executive Officer
John A. Marsalisi
an individual
/s/ John A. Marsalisi
---------------------
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is
dated as of December 2, 1999, 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 will be a
valued employee of the Company and wishes to secure his 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.
NOW, THEREFORE, taking into account the foregoing and in
consideration of the mutual promises and conditions contained herein, the
parties hereto agree as follows:
I
EMPLOYMENT
.1 Employment. The Company employs the Executive and the
Executive hereby accepts employment as President and Chief Executive Officer
upon the terms and conditions hereinafter set forth.
.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").
.3 Executive Duties. As President and Chief Executive
Officer of the Company, 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 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 the Company. 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,
<PAGE>
officer, lender, investor or otherwise) in any business or activity that is
competitive with that of the Company, its parent or any of its subsidiaries, or
affiliates.
II
COMPENSATION AND BENEFITS
.1 Annual Salary. During the Employment Term, the Company
shall pay to the Executive a base salary at the rate of Two Hundred Twenty Five
Thousand Dollars ($225,000) 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 of the Company, increase
such base salary in light of the Executive's performance, inflation in cost of
living or other factors.
.2 Benefits. Subject to the discretion of the Board of
Directors, during the Employment Term, the Executive may be permitted to
participate in and be covered under 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, as the Board of Directors shall determine, subject to meeting
applicable eligibility requirements (collectively referred to herein as the
"Company Benefit Plans").
.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, provided that such expenses
are incurred and accounted for in accordance with the policies and procedures
established by the Company.
.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.
III
CONFIDENTIALITY AND NONDISCLOSURE
.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 or any other person's
or entity's benefit any trade secrets or confidential information relating to
the Company's, its subsidiaries' or affiliates' businesses, operations,
marketing data, business plans, strategies, employees, products, prices,
negotiations and contracts with other companies, or any other subject matter
pertaining to the business of the
<PAGE>
Company or its subsidiaries or affiliates or any of their respective clients,
customers, suppliers, 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.
.2 Return of Confidential Material. Executive shall promptly
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause, 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 the Company or its subsidiaries
or affiliates, including all copies of such materials which Executive may then
possess or have under Executive's control and any notes of Executive relating
thereto whether in print-based or electronic media. Upon termination of
Executive's employment by the Company, Executive shall not retain any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company or its subsidiaries or affiliates.
.3 Prohibition on Solicitation of Customers. During the term
of Executive's employment by the Company, and for a period of six (6) 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 the Company
or its subsidiaries or affiliates, nor shall Executive interfere with or disrupt
or attempt to interfere with or disrupt any such relationship. None of the
foregoing shall be deemed a waiver of any rights and remedies the Company may
have under applicable law.
.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 employment by the Company, Executive will not solicit
any of the employees, agents, or independent contractors of the Company or its
subsidiaries or affiliates to leave the employ of the Company or its
subsidiaries or affiliates. However, Executive may solicit any employee, agent
or independent contractor who voluntarily terminates his employment with the
Company or its subsidiaries or affiliates after a period of 180 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 rights and
remedies the Company may have under applicable law.
.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. The Company and its subsidiaries and affiliates 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 and its subsidiaries and affiliates 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 or its
subsidiaries or affiliates may possess or be entitled to pursue.
Furthermore, the obligations of Executive and the rights
and remedies of the Company and its subsidiaries and affiliates 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
<PAGE>
misappropriation or theft of trade secrets or "Confidential Information". The
parties agree that all of the subsidiaries and affiliates of the Company shall
be third party beneficiaries of this Section III and be entitled to enforce
directly against Executive the provisions of this Section III to the extent that
shall be related to the businesses of such subsidiaries or affiliates.
.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.
IV
TERMINATION
.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)
continued failure by the Executive after receipt of written
notice thereof 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), as determined by the Board of Directors in
their reasonable discretion; (ii) misconduct by the Executive
which is materially injurious to the Company; (iii) conviction
of or pleading no contest to a felony or crime of moral
turpitude; (iv) habitual drunkenness or drug use by the
Executive; (v) failure to uphold the policies of the Company
and/or action by the Executive beyond the scope of his
employment, as such scope is set by the Board of Directors of
the Company 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.
.2 Termination by Company. The Executive's employment
hereunder may be terminated by the Company immediately for Cause. Subject to the
provisions contained in Section IV(.3)(b) of this Agreement, the Company may
terminate this Agreement at any time 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
<PAGE>
written notice of termination; however, the Company may elect to have Executive
leave the Company and its subsidiaries immediately upon issuance of the
aforementioned written notice.
.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 Annual Salary prorated through the end of the
month during which such termination occurs plus payment for
any vacation earned but not taken, and the Company shall
thereafter have no further obligations under this Agreement to
the Executive or his dependents, beneficiaries or estate;
provided, however, that the Company will continue to honor any
obligations that may have been accrued and vested under then
existing Company Benefit Plans or any other written and duly
authorized agreements or arrangements applicable to the
Executive. This signed Employment Agreement supersedes or
replaces any other agreement or arrangement applicable to this
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) following the execution of the Company's
Separation Agreement, pay to the Executive an amount
equal to six (6) months' salary based upon the
Executive's current "Monthly Base Salary" (defined as
the Annualized Salary in effect on the date of
termination divided by twelve (12)), plus payment for
any vacation earned but not taken. This payment shall
be in lieu of any amounts otherwise due Executive under
the Company's policy for severance benefits. And in
addition, the Company will continue to honor any
obligations that may have been accrued and vested under
then existing Company Benefit Plans or any other
written and duly authorized agreements or arrangements
applicable to the Executive. The six-month's base
salary will be paid co-incident with the regularly
scheduled payroll in substantially bi-weekly
installments until the end of the six-month period.
Accrued and unused vacation will be paid upon
termination.
(2) provide Executive with such insurance coverage
as is then required by COBRA or any similar then
applicable law.
.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.
<PAGE>
(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 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 IV
(.3)(a) hereof and no further payments shall be required to be
made by the Company to Executive.
(d) Notwithstanding any inference to the contrary, the
benefits payable to the Executive in accordance with the
aforementioned portion of this Section IV, shall not include
incentive compensation awards based upon performance except
that which is earned, accrued and payable at the close of the
prior fiscal year.
V
GENERAL PROVISIONS
.1 Notice. For purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by Federal
Express or similar priority mail service, or United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
First Aviation Services Inc.
15 Riverside Avenue
Westport, CT 06880-4214
Telephone: (203) 291-3300
Fax: (203) 291-3330
Company Counsel:
Frederick Green, Esq.
Weil Gotshal & Manges
767 Fifth Avenue
New York, NY 10153
Telephone: (212) 310-8524
Fax: (212) 310-8007
<PAGE>
If to the Executive:
Michael C. Culver
5 Ocean Reef Drive
Fairfield, CT 06430
or to 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.
.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.
.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.
.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 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.
.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 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.
<PAGE>
.8 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be 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 WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
FIRST AVIATION SERVICES INC.
a Delaware corporation
By: /s/ Aaron P. Hollander
-----------------------
Title: Chairman
By: /s/ John A. Marsalisi
----------------------
Title: Secretary
Michael C. Culver
an individual
/s/ Michael C. Culver
---------------------
March 24, 2000
First Aviation Services Inc.
15 Riverside Avenue
Westport, CT 06880-4214
Gentlemen:
This letter, when countersigned by you in the space indicated
below, will evidence the agreement of First Equity Development, Inc. and its
affiliates ("First Equity") and First Aviation Services Inc. ("FAvS") as to the
allocation of potential investment and acquisition opportunities in the
aerospace parts distribution and logistics business. For good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged, the
parties agree as follows:
For that period of time commencing on March 7, 2000 and ending
March 6, 2002, 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 aerospace
parts distribution and logistics business that is engaged anywhere in the world
(a "Covered Acquisition") without first notifying FAvS 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 FAvS a written notice (a "Notice")
advising FAvS 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 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 FAvS promptly shall forward the
Notice to the directors of FAvS 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 FAvS and its legal and financial
advisors to discuss the Covered Acquisition.
Within fifteen days of the date that the Secretary of FAvS
receives a Notice, the Non-Affiliated Directors will in writing advise First
Equity whether FAvS is interested in effecting the Covered Acquisition for its
own account on the terms set forth
<PAGE>
March 24, 2000
First Aviation Services
Page 2
in the Notice. In the event FAvS is so interested, then neither First Equity nor
any of its majority-owned subsidiaries will, without the prior consent of FAvS,
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, FAvS 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 FAvS 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
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 FAvS 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 FAvS aware of any Covered
Acquisition shall be as mutually agreed by separate agreement between FAvS 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 FAvS'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>
March 24, 2000
First Aviation Services
Page 3
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
---------------------
March 24, 2000
Mr. John A. Marsalisi
Chief Financial Officer
First Aviation Services Inc.
15 Riverside Avenue
Westport, CT 06880-4214
Re: 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 15 Riverside Avenue, Westport, Connecticut, has been
engaged to serve as investment counselor and financial advisor to First Aviation
Services Inc. ("FAvS" or the "Company").
The undersigned hereby agree to the following terms and conditions:
1. Engagement Agreement. FAvS does hereby engage First Equity as investment
counselor and financial advisor for the purpose of locating possible
acquisitions and/or mergers, (hereinafter referred to as "Acquisitions"),
negotiating such Acquisitions, assisting in locating lenders for
appropriate credit facilities, negotiating the credit facilities and
providing advice and support for the implementation of such credit
facilities, (hereinafter referred to as the "Financing") and for the
possible divestment of certain assets (hereinafter referred to as
"Divestment"). The Company agrees to refer all proposals and inquiries with
respect to any potential Acquisition, Financing and/or Divestment to First
Equity. Execution of this agreement by both parties reconfirms First
Equity's authorization to proceed.
2. Services Provided. The specific services that First Equity will continue
to provide throughout this assignment will vary depending upon specific
needs and market conditions.
First Equity believes that several aspects of its role will be particularly
important in assisting in the completion of Acquisitions, Financings and
Divestments; these include, but are not limited to, the following:
valuation analysis, assistance with due diligence, development of a
strategy to identify potential targets, lenders, investors, and acquirors,
and negotiation of transactions. First Equity will manage the day to day
aspects of the transactions, bringing in FAvS management at appropriate
points in the negotiations and discussions to make decisions, thus allowing
FAvS management to focus on operating the Company's business.
<PAGE>
FAvS Engagement Letter
March 24, 2000
Page 2
3. Term. Subject to the payment obligations set forth in Section 4 below, this
Agreement shall be considered effective as of February 1, 2000, and shall
remain in full force and effect until February 1, 2002, unless otherwise
amended or terminated as described in Paragraph 6.
4. Compensation.
(a) 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 FAvS and reimbursed to First Equity. 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.
(b) During the Term of this Agreement, First Equity will receive a retainer
of thirty thousand dollars in U.S. funds (US $30,000) per month
(hereinafter referred to as "Retainer").
(c) In the event that FAvS or any of its subsidiaries or affiliates
consummates a Financing, an Acquisition or a Divestment (hereinafter
referred to as the "Closing") and if such agreement shall occur during
the Term of this Agreement as set forth in Paragraph 3 or within six
(6) months from the end of the Term, then, upon the Closing, First
Equity shall be entitled to a fee ("Success Fee") payable in cash in
U.S. dollars at the Closing. The amount of the Success Fee shall be
subject to negotiation between First Equity and FAvS, and subject to
the approval of the independent members of the FAvS Board of Directors.
(d) The Success Fee shall be reduced by the amount of the Retainer paid
during the prior twelve months, unless deducted on a prior transaction,
however, under no circumstances shall the Retainer deducted exceed
$360,000.
In the event of an Acquisition or a Divestiture, the Success Fee will be
based on total consideration which will be deemed to include, but not be
limited to, the total value of the equity as determined by the final
purchase price paid for the equity of the Acquisition or Divestiture plus
any debt assumed by the acquiror.
In the event that the event is a Financing, then the Success Fee will be
based on the total credit facility issued to FAvS or any of its
subsidiaries or affiliates, excluding affiliates that only relate to First
Equity.
5. Relationship. Nothing herein shall be deemed to constitute an employment or
agency relationship between First Equity and FAvS. 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 FAvS in any manner
whatsoever.
<PAGE>
FAvS Engagement Letter
March 24, 2000
Page 3
Recognizing that transactions of the type contemplated in this engagement
sometimes result in litigation, and that First Equity's role is advisory,
FAvS agrees to indemnify First Equity (including its affiliated entities
and its officers, directors, agents, employees and controlling persons) to
the full extent lawful against claims, losses and expenses incurred
(including the expense of investigation, preparation and reasonable fees
and disbursements of First Equity and such persons' counsel) arising out of
First Equity's engagement as per this letter, and if indemnification were
for any reason not to be available, to contribute to the settlement, loss
or expenses involved in the proportion that FAvS' 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 from First Equity's gross negligence or willful
misconduct in the performance of its services hereunder or which relate to
matters not envisioned by this letter.
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 Executive
Officer of FAvS in writing, and shall cooperate and assist FAvS in the
defense and/or settlement of same. FAvS' obligation to indemnify First
Equity is conditioned upon such cooperation and assistance and FAvS 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.
6. Assignment, Amendment and Termination. This Agreement shall not be
assignable by either party except to successors to all or substantially all
of the business of either. Further, this Agreement shall not be amended or
terminated by either party for any reason whatsoever except with 30 days
written notice and with the prior written consent of the other party, which
consent may not be arbitrarily withheld by the party whose consent is
required. However, should FAvS terminate this Agreement prior to February
1, 2002, FAvS would be liable for any Retainers due but unpaid, any out of
pocket expenses that are due and unpaid as well as for any Success Fees
payable as per the terms defined in Section 4c.
<PAGE>
FAvS Engagement Letter
March 24, 2000
Page 4
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 A. Marsalisi /s/ Aaron P. Hollander
-------------------------------- ----------------------
John A. Marsalisi Aaron P. Hollander
Chief Financial Officer Managing Director
First Aviation Services Inc. First Equity Development Inc.
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is
dated as of December 2, 1999, between First Aviation Services Inc., a Delaware
corporation (the "Company"), and Gerald E. Schlesinger, an individual (the
"Executive").
WITNESSETH:
WHEREAS, the Company believes that the Executive will be a
valued employee of the Company and wishes to secure his 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:
I
EMPLOYMENT
.1 Employment. The Company employs the Executive and the
Executive hereby accepts employment as a Senior Vice President upon the terms
and conditions hereinafter set forth.
.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").
.3 Executive Duties. As a Senior Vice President of the
Company, the Executive shall perform such duties as are requested by and shall
report directly to the Company's Chief Executive Officer. 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 during the Employment Term. 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,
<PAGE>
officer, lender, investor or otherwise) in any business or activity that is
competitive with that of the Company, its parent or any of its subsidiaries, or
affiliates.
II
COMPENSATION AND BENEFITS
.1 Annual Salary. During the Employment Term, the Company
shall pay to the Executive a base salary at the rate of Two Hundred Twenty Five
Thousand Dollars ($225,000) 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 of the Company, increase
such base salary in light of the Executive's performance, inflation in cost of
living or other factors.
.2 Benefits. Subject to the discretion of the Board of
Directors, during the Employment Term, the Executive may be permitted to
participate in and be covered under 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, as the Board of Directors shall determine, subject to meeting
applicable eligibility requirements (collectively referred to herein as the
"Company Benefit Plans").
.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, provided that such expenses
are incurred and accounted for in accordance with the policies and procedures
established by the Company.
.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.
III
CONFIDENTIALITY AND NONDISCLOSURE
.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 or any other person's
or entity's benefit any trade secrets or confidential information relating to
the Company's, its subsidiaries' or affiliates' businesses, operations,
marketing data, business plans, strategies, employees, products, prices,
negotiations and contracts with other companies, or any other subject matter
pertaining to the business of the
<PAGE>
Company or its subsidiaries or affiliates or any of their respective clients,
customers, suppliers, 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.
.2 Return of Confidential Material. Executive shall promptly
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause, 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 the Company or its subsidiaries
or affiliates, including all copies of such materials which Executive may then
possess or have under Executive's control and any notes of Executive relating
thereto whether in print-based or electronic media. Upon termination of
Executive's employment by the Company, Executive shall not retain any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company or its subsidiaries or affiliates.
.3 Prohibition on Solicitation of Customers. During the term
of Executive's employment by the Company, and for a period of six (6) 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 the Company
or its subsidiaries or affiliates, nor shall Executive interfere with or disrupt
or attempt to interfere with or disrupt any such relationship. None of the
foregoing shall be deemed a waiver of any rights and remedies the Company may
have under applicable law.
.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 employment by the Company, Executive will not solicit
any of the employees, agents, or independent contractors of the Company or its
subsidiaries or affiliates to leave the employ of the Company or its
subsidiaries or affiliates. However, Executive may solicit any employee, agent
or independent contractor who voluntarily terminates his employment with the
Company or its subsidiaries or affiliates after a period of 180 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 rights and
remedies the Company may have under applicable law.
.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. The Company and its subsidiaries and affiliates 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 and its subsidiaries and affiliates 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 or its
subsidiaries or affiliates may possess or be entitled to pursue.
Furthermore, the obligations of Executive and the rights
and remedies of the Company and its subsidiaries and affiliates 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
<PAGE>
misappropriation or theft of trade secrets or "Confidential Information". The
parties agree that all of the subsidiaries and affiliates of the Company shall
be third party beneficiaries of this Section III and be entitled to enforce
directly against Executive the provisions of this Section III to the extent that
shall be related to the businesses of such subsidiaries or affiliates.
.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.
IV
TERMINATION
.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)
continued failure by the Executive after receipt of written
notice thereof to perform his duties hereunder or those duties
which may, from time to time, be reasonably requested by the
Chief Operating Officer or the Chief Executive Officer of the
Company (other than such failure resulting from the
Executive's incapacity due to physical or mental illness), as
determined by the Board of Directors in their reasonable
discretion; (ii) misconduct by the Executive which is
materially injurious to the Company; (iii) conviction of or
pleading no contest to a felony or crime of moral turpitude;
(iv) habitual drunkenness or drug use by the Executive; (v)
failure to uphold the policies of the Company and/or action by
the Executive beyond the scope of his employment, as such
scope is set by the Chief Operating Officer or the Chief
Executive Officer of the Company 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.
.2 Termination by Company. The Executive's employment
hereunder may be terminated by the Company immediately for Cause. Subject to the
provisions contained in Section IV(.3)(b) of this Agreement, the Company may
terminate this Agreement at any time 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
<PAGE>
written notice of termination; however, the Company may elect to have Executive
leave the Company and its subsidiaries immediately upon issuance of the
aforementioned written notice.
.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 Annual Salary prorated through the end of the
month during which such termination occurs plus payment for
any vacation earned but not taken, and the Company shall
thereafter have no further obligations under this Agreement to
the Executive or his dependents, beneficiaries or estate;
provided, however, that the Company will continue to honor any
obligations that may have been accrued and vested under then
existing Company Benefit Plans or any other written and duly
authorized agreements or arrangements applicable to the
Executive. The only Agreements in effect for Gerald E.
Schlesinger are the written Incentive Stock Option
Agreement(s) previously awarded and the Change of Control
Agreement. This signed Employment Agreement supersedes or
replaces any other agreement or arrangement applicable to this
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) following the execution of the Company's
Separation Agreement, pay to the Executive an amount
equal to six (6) months' salary based upon the
Executive's current "Monthly Base Salary" (defined as
the Annualized Salary in effect on the date of
termination divided by twelve (12)), plus payment for
any vacation earned but not taken. This payment shall
be in lieu of any amounts otherwise due Executive under
the Company's policy for severance benefits. And in
addition, the Company will continue to honor any
obligations that may have been accrued and vested under
then existing Company Benefit Plans or any other
written and duly authorized agreements or arrangements
applicable to the Executive. The six-month's base
salary will be paid co-incident with the regularly
scheduled payroll in substantially bi-weekly
installments until the end of the six-month period.
Accrued and unused vacation will be paid upon
termination.
(2) provide Executive with such insurance coverage
as is then required by COBRA or any similar then
applicable law.
.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.
<PAGE>
(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 or other contract, plan or arrangement. However,
it is expressly understood that a termination of employment in
accordance with Section 3(a) or Section 3(b) renders the
Change of Control Agreement null, void, or inoperable.
(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 IV
(.3)(a) hereof and no further payments shall be required to be
made by the Company to Executive unless the termination of
this Agreement by the Executive follows a change of control as
that term is defined in the Change of Control Agreement dated
December 2, 1999.
(d) Notwithstanding any inference to the contrary, the
benefits payable to the Executive in accordance with the
aforementioned portion of this Section IV, shall not include
incentive compensation awards based upon performance except
that which is earned, accrued and payable at the close of the
prior fiscal year.
V
GENERAL PROVISIONS
.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 Federal Express or
similar priority mail service, or United States registered mail, return receipt
requested, postage prepaid, as follows:
If to the Company:
First Aviation Services Inc.
15 Riverside Avenue
Westport, CT 06880-4214
Telephone: (203) 291-3300
Fax: (203) 291-3330
Company Counsel:
Frederick Green, Esq.
Weil Gotshal & Manges
767 Fifth Avenue
New York, NY 10153
Telephone: (212) 310-8524
Fax: (212) 310-8007
<PAGE>
If to the Executive:
Gerald E. Schlesinger
16942 Old Pond Drive
Dallas, TX 75248
or to 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.
.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.
.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.
.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 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.
.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 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.
<PAGE>
.8 Assignment. This Agreement and the rights, duties, and
obligations hereunder may not be 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 WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
FIRST AVIATION SERVICES INC.
a Delaware corporation
By: /s/ Aaron P. Hollander
-----------------------
Title: Chairman
By: /s/ Michael C. Culver
----------------------
Title: Chief Executive Officer
Gerald E. Schlesinger
an individual
/s/ Gerald E. Schlesinger
-------------------------
COMMERCIAL REVOLVING LOAN AND SECURITY AGREEMENT
BETWEEN
HUDSON UNITED BANK
AND
AEROSPACE PRODUCTS INTERNATIONAL, INC
Dated as of March 30, 2000
<PAGE>
Exhibits
--------
Exhibit "A" - $20,000,000 Commercial Revolving Promissory Note
- -----------
Exhibit "B" - Borrowing Base Certificate
- -----------
Exhibit "C" - Covenant Compliance Certificate
- -----------
Exhibit "D" - Guaranty of First Aviation Services, Inc.
- -----------
Exhibit "E" - Guaranty of Aircraft Parts International, Ltd.
- -----------
Schedules
---------
2
<PAGE>
AGREEMENT dated as of March30, 2000 between AEROSPACE PRODUCTS
INTERNATIONAL, INC., a Delaware corporation with an office at 3778 Distriplex
Drive North, Memphis, Tennessee ("Borrower") and HUDSON UNITED BANK, a state
banking corporation with an office located at 87 Post Road East, Westport,
Connecticut 06880 (the "Bank").
Recitals
--------
A. The Borrower has requested that the Bank provide the Loan to the
Borrower to be utilized by the Borrower for the satisfaction of its indebtedness
to Fleet Bank, N.A. and for working capital purposes.
B. The Bank agrees, subject to the terms and conditions contained in this
Agreement, to make the Loan available to the Borrower, based upon the Borrowing
Base.
Agreement
---------
In consideration of the Background, which is incorporated by reference and
the mutual covenants contained in this Agreement, the Borrower and the Bank, for
good and valid consideration, the receipt and sufficiency of which is hereby
acknowledged, intending to be bound legally, agree as follows:
ARTICLE I.
Definitions
-----------
1.01 Definitions. As used herein, or in any certificate, document or
report delivered pursuant to this Agreement or any of the other Loan Documents,
capitalized terms shall have the meanings set forth on the attached Schedule
"1.01".
1.02 Accounting Terms.Except as otherwise specifically set forth in
this Agreement, each accounting term used in this Agreement shall have the
meaning given to it under GAAP. Any dispute or disagreement between the Borrower
and the Bank relating to the determination of GAAP shall, in the absence of
manifest error, be conclusively resolved for all purposes hereof by the written
opinion with respect thereto, delivered to the Bank, of independent accountants
selected by the Borrower and approved by the Bank for the purposes of auditing
the periodic financial statements of the Borrower.
3
<PAGE>
ARTICLE II.
Loan Facilities
---------------
2.01 Revolving Loans Subject to the terms and conditions, and relying
upon the representations and warranties set forth in this Agreement, the Bank
agrees to make revolving loans (each a "Revolving Loan" and, collectively, the
"Revolving Loans") to the Borrower at any time until the Commitment Termination
Date, in the principal amount which shall not exceed in the aggregate at any one
time the Borrowing Base (the "Revolving Loan Commitment"). In addition to this
Agreement, the Loan shall be evidenced by the Commercial Revolving Promissory
Note of this date, a copy of which is attached hereto as Exhibit "A" (the
"Note").
(a) Procedure For Revolving Loan Borrowing. Provided that the
Revolving Loan Commitment has not been terminated as provided in this Agreement
the Borrower may borrow under the Revolving Loan Commitment by giving the Bank
irrevocable notice of a request for a Revolving Loan one (1) Business Day before
a proposed borrowing, such irrevocable notice setting forth (i) the amount of
the Revolving Loan requested, which shall not be less than $100,000.00, and (ii)
the requested Revolving Loan Borrowing Date. Such notice must be written
(including, without limitation, via facsimile transmission), accompanied by a
executed Borrowing Base Certificate in the form of Exhibit B attached hereto,
and shall be sufficient if received by 2:00 p.m. (Eastern Standard Time) on the
date on which such notice is to be given. Unless notification is otherwise
furnished by the Borrower to the Bank in a manner consistent with the
requirements of this Section 2.01(a), Revolving Loans will be made by credits to
the Borrower's deposit account maintained with the Bank.
(b) Ability to Borrow and Reborrow. Within the limits of the Borrowing
Base, so long as the Borrower is in compliance with all the terms and conditions
of this Agreement and no Default or Event of Default exists, and so long as the
Bank has not demanded payment or accelerated payment of any of the then
outstanding Revolving Loans, the Borrower may borrow, repay and reborrow
Revolving Loan funds.
(c) Absence of Demand. Termination or Default. The Bank shall not, and
shall not be obligated to, make any Advances (i) if it has demanded payment of,
accelerated payment of, or terminated the Revolving Loans due to a Default, or
the occurrence of an Event of Default, or (ii) on or after the Commitment
Termination Date.
(d) Discretion of Bank. Notwithstanding any other terms of this
Agreement, Eligible Receivables, the Borrowing Base, Eligible Inventory, and
appropriate reserve levels from the availability under the Borrowing Base, shall
be determined by the Bank from time-to-time in its sole reasonable discretion.
4
<PAGE>
2.02 Inventory Limitations. Notwithstanding anything to the contrary
contained in this Agreement, in no event shall the Bank be required to make
Revolving Loans which exceed $10,000,000 in the aggregate based on all Eligible
Inventory or which exceed $1,000,000 in the aggregate based on Eligible
Inventory of Aircraft Parts International, Ltd.
2.03 Use of Proceeds. (a) The Borrower represents that the proceeds of
the Loan will be used to satisfy the indebtedness of the Borrower to Fleet Bank,
N.A. and for general working capital purposes.
(a) The Borrower shall not apply any funds advanced under the Loan to,
or for the benefit of, any Affiliate or Subsidiary other than Aircraft Parts
International, Ltd.
ARTICLE III.
Interest And Terms
------------------
3.01 Interest Rate.
(a) The Revolving Loan shall bear and the Borrower promises to pay
interest on the terms and conditions set forth in the Note.
(b) Lawful Interest. It is the intent of the parties that the rate of
interest and all other charges to the Borrower be lawful. If for any reason the
payment of a portion of interest, fees or charges as required by this Agreement
would exceed the limit established by applicable law which a commercial Bank
such as the Bank may charge to a commercial borrower such as the Borrower, then
the obligation to pay interest or charges shall automatically be reduced to such
limit and, if any amounts in excess of such limits shall be paid, then such
amounts shall be applied to the unpaid principal amount of the Obligations of
the Borrower to Bank or refunded so that under no circumstances shall the
interest or charges required hereunder exceed the maximum rate allowed by law.
3.02 Term and Termination. Unless sooner terminated as a result of the
occurrence of an Event of Default, the Revolving Loans shall be due and payable
in full on the Maturity Date. Upon termination of the Revolving Loan Commitment,
the Borrower shall have no ability to receive, and the Bank shall have no
obligation to make any further advances under the Revolving Loan Commitment. All
of the rights, interest and remedies of the Bank and Obligations of the Borrower
under this Agreement and the other Loan Documents shall survive termination of
the Revolving Loan Commitment until all of the Obligations of the Borrower are
fully satisfied.
5
<PAGE>
3.03 Repayments Any payments made by the Borrower to the Bank shall be
credited first to late charges, costs and expenses, then to accrued and unpaid
interest and then to the outstanding principal balance.
(a) Mandatory Prepayment. If on any date the sum of Revolving Loans
outstanding exceeds the Borrowing Base, the Borrower shall, no later than the
second Business Day following such date, make prepayment of the Revolving Loans
in such amount so that the sum of Revolving Loans does not exceed the Borrowing
Base.
(b) Payments. For purposes only of computing interest hereunder, all
payments shall be applied by the Bank on the Business Day on which payment has
been received by the Bank no later than 3:00 p.m.
3.04 Unused Facility Fee. The Borrower agrees that Bank may debit the
Revolving Loan Account for the Unused Facility Fee quarterly in arrears on the
last Business Day of each calendar quarter. The Unused Facility Fee shall be
computed on the basis of the actual number of days elapsed in a year of 360
days.
ARTICLE IV.
Representations And Warranties
------------------------------
4.01 The Borrower represents and warrants to the Bank that:
(a) Organization and Qualification. The Borrower (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Delaware, (ii) has all requisite power and authority to own and operate
its properties and to carry on its business as presently conducted and as
proposed to be conducted, (iii) is qualified to do business in the state of
Tennessee and in every jurisdiction where such qualification is required, and
(iv) has the power to execute, deliver and perform its obligations under each of
the Loan Documents and each other agreement or instrument contemplated thereby
to which it is or will be a party and to borrow hereunder.
(b) Corporate Authority. The Borrower has full corporate power and
authority to enter into and perform the obligations under this Agreement, to
make the borrowings contemplated herein, to execute and deliver the Note and the
other Loan Documents and to incur the obligations provided for herein and
therein. The execution, delivery and performance by the Borrower of each of the
Loan Documents and the borrowings hereunder have been duly
6
<PAGE>
authorized by all necessary and proper corporate and, if required, stockholder
action. No other consent or approval or the taking of any other action in
respect of shareholders or of any public authority is required as a condition to
the validity or enforceability of this Agreement, the Note or any of the other
Loan Documents. The execution and delivery of this Agreement and the other Loan
Documents is for valid corporate purposes.
(c) Binding Agreements. This Agreement constitutes, and the Note and
the other Loan Documents delivered in connection herewith shall constitute,
legal, valid and legally binding obligations of the Borrower, enforceable in
accordance with their respective terms.
(d) Governmental Approvals. To the best of the Borrower's knowledge,
no action, consent or approval of, registration or filing with or any other
action by any Governmental Authority is or will be required in connection with
the transactions contemplated by this Agreement and the other Loan Documents,
except such as have been made or obtained and are in full force and effect.
(e) Litigation. Except as set forth in Schedule "4.01(e)", there are
no actions, suits, proceedings or investigations pending or, to the knowledge of
the Borrower, threatened against or affecting the Borrower or the Subsidiaries,
or any business, property or rights of any such person, before any court or
administrative agency, which either in any case or in the aggregate, if
adversely determined, would either question the validity of this Agreement, the
Note, or any other Loan Documents, or any action to be taken in connection with
the transactions contemplated hereby or result in a Material Adverse Effect.
(f) No Material Adverse Change. There has been no Material Adverse
Change since January 31, 2000.
(g) No Conflicting Law or Agreements. To the best of the Borrower's
knowledge, the execution, delivery and performance by the Borrower of this
Agreement, the Note and the other Loan Documents (i) do not violate any
provision of the certificate of incorporation or bylaws of the Borrower, (ii) do
not violate any order, decree or judgment, or any provision of any statute, rule
or regulation, (iii) do not violate or conflict with, result in a breach of or
constitute (with notice or lapse of time, or both) a default under any
shareholder agreement, stock preference agreement, mortgage, indenture or
contract to which the Borrower is a party, or by which any of its properties are
bound, or (iv) do not result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any property or assets of the
Borrower except as contemplated herein.
(h) Taxes. Except as set forth on the attached Schedule "4.01(h)",
with respect to all taxable periods of the Borrower, the Borrower has properly
prepared, executed and filed all tax returns (or extensions for filing) required
to be filed by it and has paid all federal,
7
<PAGE>
state, municipal, franchise and other taxes shown on such filed returns. Other
than a current ongoing audit of the Borrower and the Guarantor by the Internal
Revenue Service, the Borrower is not the subject of any audit. The reserves and
provisions for taxes on the books of the Borrower and each Subsidiary are
adequate for all open years and for its current fiscal period. Neither the
Borrower nor any Subsidiary knows of any proposed additional assessment or bases
for any material assessment for additional taxes (whether or not reserved
against) except taxes that are being contested in accordance with Section
6.01(e) hereof.
(i) Existence of Assets and Title Thereto. The Borrower has good and
marketable title to, or valid leasehold interests in, all its properties and
assets, including the properties and assets reflected in the financial
statements referred to above. All such properties and assets are not subject to
any mortgage, pledge, lien, lease, encumbrance, restriction or charge except
those permitted under the terms of this Agreement or as set forth in Schedule
"4.01(i)", and none of the foregoing prohibit or interfere with ownership of the
Borrower's assets or the operation of its business presently conducted thereon.
(j) Regulations G, T, U and X. The proceeds of the borrowings
hereunder will not be used, directly or indirectly, for any consumer purpose or
purchases, or for the purposes of purchasing or carrying any margin stock in
contravention of Regulations G, T, U or X promulgated by the Board of Governors
of the Federal Reserve System.
(k) Investment Company Act/Public Utility Holding Company Act. Neither
the Borrower nor any Subsidiary is (i) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940, or (ii) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
(l) Compliance. To the best of its knowledge, the Borrower is not in
default with respect to, or in violation of, any order, writ, injunction or
decree of any court or of any federal, state, municipal or other governmental
department, commission, board, bureau, agency, authority or official, or in
violation of any law, statute, rule or regulation to which it or its properties
is or are subject, where such default or violation would materially and
adversely affect the financial condition of the Borrower. The Borrower
represents that it has not received notice of any such default from any party.
To the best of its knowledge, the Borrower is not in default in the payment or
performance of any of its obligations to any third parties or in the performance
of any mortgage, indenture, lease, contract or other agreement to which it is a
party or by which any of its assets or properties are bound.
(m) Leases. The Borrower enjoys quiet and undisturbed possession under
all leases under which it is operating, and all such leases are valid and
subsisting and the Borrower is not in default under any of its leases. The
leases to which the Borrower is currently a party are set forth on the attached
Schedule "4.01(m)".
8
<PAGE>
(n) Employee Benefit Plans. The Borrower is in compliance in all
material respects with the applicable provisions of ERISA and the regulations
and published interpretations thereunder. No Reportable Event has occurred with
respect to any Plan as to which the Borrower was required to file a report with
the Pension Benefit Guaranty Corporation (hereinafter called the "PBGC"), and
the present value of all benefit liabilities under each Plan maintained by the
Borrower (based on those assumptions used to fund such plan) did not, as of the
last annual valuation date applicable thereto, exceed by a material amount the
value of the assets of such Plan. The Borrower has no unfunded liability with
respect to any Plan in contravention of ERISA.
(o) Solvency. (i) Immediately after the first Advance, the fair
salable value of the assets of the Borrower taken as a whole will exceed the
amount that will be required to be paid on or in respect of the existing debts
and other liabilities (including contingent liabilities) of the Borrower.
(ii) The Borrower does not intend to, and does not believe it
will, incur debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be received by the Borrower, and
of amounts to be payable on or in respect of debt of the Borrower). The Borrower
expects that the cash flow of the Borrower (including from asset dispositions),
after taking into account all anticipated uses of the cash of the Borrower, will
at all times be sufficient to pay all such amounts or in respect of debt of the
Borrower when such amounts are required to be paid.
(iii) The Borrower does not intend, and does not believe, that
final judgments against the Borrower in actions for money damages will be
rendered at a time when, or in an amount such that, the Borrower will be unable
to satisfy any such judgments promptly in accordance with their terms (taking
into account the maximum reasonable amount of such judgments in any such actions
and the earliest reasonable time at which such judgments might be rendered).
(p) Office. The chief executive office and principal place of business
of the Borrower, and the office where its records concerning Collateral are kept
is 3778 Distriplex Drive North, Memphis, Tennessee.
(q) Places of Business. The Borrower has no other places of business
and locates no Collateral, specifically including books and records, at any
location other than those set forth on the attached Schedule "4.01(q)".
(r) Guaranty Obligations. Intentionally deleted.
9
<PAGE>
(s) Contracts. Borrower is not in default of any material contract,
governmental or otherwise, to which the Borrower is a party, and the and there
are no contracts which the termination of which by the Borrower would require
the payment of any amount of money.
(t) Labor Matters. There are no strikes or other material labor
disputes against the Borrower pending or, to the Borrower's knowledge,
threatened such as would reasonably be expected to result in a Material Adverse
Effect. As of the Closing Date, the hours worked and payments made to employees
of the Borrower have not been in violation in any material respect of the Fair
Labor Standards Act or any other applicable law dealing with such matters. As of
the Closing Date, all payments due from the Borrower for which any claim has
been made against the Borrower on account of wages and employee health and
welfare insurance and other benefits have been paid or accrued as a liability on
the books of the Borrower. Upon request, the Company will furnish or make
available to the Banks copies of all collective bargaining agreements to which
the Borrower is a party. The consummation of the transactions contemplated by
this Agreement will not give rise to a right of termination or right of
renegotiation on the part of any union under any collective bargaining agreement
to which the Borrower is a party or by which the Borrower is bound.
(u) Stock Matters. There are no options or rights outstanding to
purchase any of the Borrower's capital stock except as set forth on the attached
Schedule "4.01(u)". The authorized capital stock of the Borrower consists of
300,000 shares of common stock, $.001 par value per share, 93,660 of which
shares are outstanding. There are no authorized shares of preferred stock except
as set forth on Schedule "4.01(u)". The record and beneficial ownership of such
capital stock of the Borrower is set forth in Schedule "4.01(u)". All of such
shares are fully paid and non-assessable, are not, and will not have been,
issued in violation of any preemptive rights.
(v) Licenses. The Borrower has all licenses, permits, approvals and
other authorization required by any government, agency or subdivision thereof,
or from any licensing entity necessary for the conduct of its business, all of
which the Borrower represents to be current, valid and in full force and effect.
(w) Insurance. All policies of insurance in effect of any kind or
nature owned by or issued to the Borrower, including (as applicable), policies
of life, fire, theft, product liability, public liability, property damage,
other casualty, malpractice, business interruption, employee fidelity, workers'
compensation, property and liability insurance are in full force and effect, and
of a nature and provide such coverage as is customarily carried by companies
engaged in similar businesses and owning or operating similar properties in the
same general areas in which the Borrower operates. The Borrower does not provide
any of its insurance through self-insurance.
10
<PAGE>
(x) Accounts. (i) Each Account is, or at the time it comes
into existence, will be, a true and correct statement of (A) the bona fide
indebtedness of each Account Debtor, and (B) the amount of the account for
merchandise sold and delivered to, or for services performed for and accepted
by, such Account Debtor, net of any charges, adjustments, discounts or other
reductions whatsoever; (ii) at the time of each borrowing hereunder, there are,
and to the best of the Borrower's knowledge after due investigation will be, no
defenses, counterclaims, discounts or setoffs that may be asserted against any
of the Eligible Receivables; and (iii) the Borrower shall be deemed to have
warranted as to each Eligible Receivable that (iv) each Account and all papers
relating thereto are genuine and in all respects are what they purport to be,
(v) each Account is valid and existing and arises out of a bona fide sale of
goods sold and delivered by the Borrower to, or in the process of being
delivered to, or out of and for actual services previously rendered by the
Borrower to the Account Debtor named in the Account, (vi) the amount of the
Account represented as owing is the correct amount actually and unconditionally
owing except for normal cash discounts and is not disputed, and except for such
normal cash discounts is not subject to any setoffs, credits, deductions or
counter changes, (vii) the Borrower is the owner of each Account free and clear
of all liens, encumbrances, right of setoff and security interests of any nature
whatsoever, and (viii) no surety bond was required or given in connection with
any account or the contract or purchase orders out of which the same arose.
(y) Financial Information. All financial information including, but
not limited to, information relating to the Accounts and Inventory submitted by
the Borrower to the Bank, whether previously or in the future, is and will be
true and correct in all material respects, and is and will be complete insofar
as may be necessary to give the Bank a true and accurate knowledge of the
subject matter.
(z) Environmental Matters. Except as disclosed in Schedule "4.01(z)",
the Borrower, and its plants and sites, have complied in all material respects
with all federal, state, local and regional statutes, ordinances, orders,
judgments, rulings and regulations relating to any matters of pollution or of
environmental regulation or control except where such failure to comply would
not result in a Material Adverse Effect. Except as disclosed in Schedule
"4.01(z)", the Borrower has not received notice of or has any knowledge of any
actual or claimed or asserted failure so to comply which alone, or together with
any other such failure is material and would result in a Material Adverse
Effect. Except as disclosed in Schedule 4.01(z)", neither the Borrower, nor any
of its Subsidiaries or its plants, or other sites manage, generate or dispose of
or during its periods of use, occupancy or operation have managed, generated or
disposed of any hazardous wastes, hazardous substances, hazardous materials,
toxic substances or toxic pollutants, as those terms are used in the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response
Compensation and Liability Act, in material violation of or in a manner which
would result in liability under such statutes or any regulations promulgated
pursuant thereto or any other applicable law except where such noncompliance
would not result in a Material Adverse Effect.
11
<PAGE>
(aa) Parent. Affiliate or Subsidiary Corporations. Except for the
Guarantor, First Aviation Services, Inc. , the Borrower has no parent
corporation and except as set forth on Schedule "4.01(aa);and except for First
Equity Group and its subsidiaries; the Borrower has no Affiliate or Subsidiary.
(ab) Intellectual Property. The Borrower owns, or is licensed to
use, all trademarks, tradenames, copyrights, technology, know-how and processes
believed to be necessary for the conduct of its business as currently conducted
except for those the failure to own or license which could not reasonably be
expected to have a Material Adverse Effect. No claim has been asserted or is
pending by any Person challenging or questioning the use of any of the foregoing
or the validity or effectiveness of any of the foregoing, nor does the Borrower
know of any valid basis for any such claim. To the best of its knowledge, the
use of the foregoing by the Borrower does not infringe on the valid intellectual
property rights of any Person, except for such claims and infringements that, in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(ac) Officers and Directors. The officers and directors of the
Borrower on the date of this Agreement are as set forth
on the attached Schedule "4.01(ac)".
(ad) No Material Misrepresentations and Omissions. No
information, report, financial statement, exhibit or schedule furnished by or on
behalf of the Borrower to the Bank in connection with the negotiation of any of
the Loan Documents or included therein or delivered pursuant thereto contained,
contains or will contain any material misstatement of fact or omitted, omits or
will omit to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were, are or will be made, not
misleading.
12
<PAGE>
ARTICLE V.
Conditions Of Lending
---------------------
5.01 Initial Advance. The Borrower agrees that the Bank's obligation
to make the initial Advance under the Revolving Loan is subject to fulfillment
by the Borrower of the following conditions precedent, all in form, scope and
substance reasonably satisfactory to the Bank and its counsel:
(a) Representations and Warranties. All of the representations,
warranties and covenants contained in this Agreement shall continue to be true
and correct in all material respects.
(b) Non-Existence of Event of Default. The Borrower shall have
complied with each and every covenant, condition precedent or condition
subsequent required hereunder and no Event of Default shall have occurred and be
continuing, no condition exists (or would exist after giving effect to the
Advances requested to be made on such date) which would constitute a Default but
for the giving of notice or passage of time or both.
(c) Borrowing Base Certificate. The Bank shall have received a fully
completed and executed Borrowing Base Certificate.
(d) Certificate of Borrower. The Bank shall have received a fully
completed and executed Compliance Certificate of Borrower in the form of Exhibit
"C" attached hereto.
(e) Evidence of Corporate Action. The Bank shall have received
certified copies of all corporate actions taken by the Borrower to authorize the
execution, delivery and performance of this Agreement, the Note, the other Loan
Documents, and the borrowings to be made hereunder, together with copies of the
Borrower's certificate of incorporation and bylaws, all amendments thereto, and
such other papers as the Bank or its counsel may reasonably require.
(f) Note. The Bank shall have received the duly executed Note drawn to
its order.
(g) Guaranties. The Bank shall have received a duly executed Guaranty
from First Aviation Services, Inc. and a duly executed Guaranty from Aircraft
Parts International, Ltd., each of which shall continue in full force and effect
without default and without repudiation,
(h) UCC-l Financing Statements. The Bank shall have received from the
Borrower (i) duly executed copies of the Financing Statements on the applicable
Form UCC-1,
13
<PAGE>
(ii) evidence of the Borrower's intended payment of the state of Tennessee
recordation tax , and (iii) such other documents as the Bank deems reasonably
necessary or proper to perfect its security interest in the Collateral.
(i) Perfection Certificate. The Bank shall have received a fully
completed and executed Perfection Certificate from the Borrower.
(j) Legal Matters. All legal matters incident to this Agreement and
the borrowing hereunder shall be reasonably satisfactory to the Bank and its
counsel, Quatrella & Rizio, LLC.
(k) Insurance. The Bank shall have received evidence of insurance in
such amounts and with such companies reasonably satisfactory to the Bank, and
the Bank shall be named as a loss payee/mortgagee on all such insurance.
(l) Lessor's Agreement. The Bank shall have received a fully executed
Lessor's Agreement with respect to the locations where the Borrower and Aircraft
Parts International, Ltd. conducts business or locates assets .
(m) Security Agreement; Personal Property Registrations. The Bank
shall have received the fully executed Security Agreement executed by Aircraft
Parts International, Ltd., together with evidence that all applicable Personal
Property registrations have been filed in the provinces of Alberta and Quebec,
Canada.
(n) Opinion of Counsel. The Bank shall have received a written opinion
of counsel to the Borrower and each of the Guarantors in form and substance, and
accompanied by such supporting documents, as the Bank or its counsel may
reasonably require.
(o) Subordination. The Bank shall have received a fully executed
Subordination Agreement from First Aviation Services, Inc. with respect to
Indebtedness owed by the Borrower, in form and substance as the Bank or its
counsel may reasonably require.
(p) Organizational Documents/Secretary's Certificate. The Bank shall
have received from the Borrower and each Guarantor (i) copies of its
organizational documents, (ii) a certificate of its Secretary or Assistant
Secretary dated the Closing Date and certifying (A) that attached thereto is a
true and complete copy of its by-laws as in effect on the Closing Date and at
all times since a date prior to the date of the resolutions described in clause
(B) below, and (B) that attached thereto is a true and complete copy of
resolutions duly adopted by its Board of Directors authorizing the execution,
delivery and performance of the Loan Documents and the borrowings hereunder, and
that such resolutions have not been modified, rescinded or amended and are in
full force and effect, (iii) a certificate of another officer as to the
incumbency and
14
<PAGE>
specimen signature of the officer executing any Loan Documents or any other
document delivered in connection herewith on behalf of it, executing the
certificate pursuant to (ii) above, and (iv) such other documents as the Bank or
its counsel, may reasonably request.
(q) Litigation. The Bank shall have received evidence satisfactory to
it that on the Closing Date, no action, suit, litigation or similar proceedings
at law or in equity or by or before any court or governmental instrumentality or
agency shall exist (or, in the case of litigation or similar proceedings by any
government or governmental authority, be threatened) with respect to the
transactions contemplated by this Agreement which would in the reasonable
opinion of the Bank be likely to have a material adverse effect on the ability
of the Borrower to perform its obligations under any Loan Documents to which it
is a party, on the validity or enforceability of any of the Loan Documents or on
the rights, remedies or benefits available to the Bank thereunder.
(r) Material Adverse Change. The Bank shall have received evidence
satisfactory to it that there has been no Material Adverse Change since January
31, 2000.
(s) Good Standing Certificates. The Bank shall have received copies or
certificates dated as of a recent date from the Secretary of State or other
appropriate authority of such jurisdiction, evidencing the good standing of the
Borrower and each Guarantor in its state of incorporation and in the state in
which its principal business operations are located.
(t) Additional Documents. The Bank shall have received each additional
document, instrument, legal opinion or item of information reasonably requested
by it, including, without limitation, a copy of any debt instrument, security
agreement or other material contract to which the Borrower may be a party.
(u) No Change. There shall not have occurred any change, or
development or event involving a prospective change, which in any such case, in
the reasonable judgment of the Bank, has had or could be expected to have a
Material Adverse Effect.
(v) Additional Matters. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be reasonably satisfactory in form and substance to the Bank, and the Bank shall
have received such other documents and legal opinions in respect of any aspect
or consequence of the transactions contemplated hereby or thereby as it shall
reasonably request.
(w) Transaction Expenses. The Borrower shall have paid the all costs
and expenses in connection with the preparation, execution, delivery, filing,
recording, and administration of the Loan Documents, and the other documents to
be delivered under the Loan
15
<PAGE>
Documents, including, without limitation, legal fees, the cost of any appraisals
of the Collateral and all costs and expenses, if any, in connection with the
enforcement of the Loan Documents and the other documents to be delivered under
the Loan Documents. Notwithstanding the foregoing, all such costs, expenses and
fees shall be reasonable.
(x) Termination Statements. The Bank shall have received duly executed
Termination Statements on Form UCC-3 with respect to the filings in favor of
Fleet Bank, N.A.
(y) Financial Statements. The Bank shall have received the draft
financial statements for the Borrower and Guarantor for the fiscal year ended
January 31, 2000.
(z) Subordination Statements. The Bank shall have received
Subordination Statements on Form UCC-3 for all filings, if any with respect to
the indebtedness of the Borrower to First Aviation Services, Inc.
(aa) Other. The Bank shall have received such other documents as
the Bank deems necessary.
5.02 Subsequent Advances. (a) The Borrower agrees that the Bank's
obligation to make an Advance subsequent to the date of this Agreement shall be
subject to fulfillment by the Borrower of (i) the conditions precedent set forth
in Section 5.01(a), (b), (c), and (u), hereof, and (ii) the Bank's receipt of
(a) duly executed copies of the "as filed" Financing Statements on Form UCC-1,
and (b) searches evidencing the priority of the Bank's UCC filings, subject to
the liens shown on Schedule 4.01(i), all in form, scope and substance
satisfactory to the Bank and its counsel. The Borrower agrees that each request
for an Advance shall constitute a certification that no Default exists and a
reaffirmation that all representations and warranties continue to be true and
correct in all material respects on and as of the date of the Advance with the
same effect as though made as of such date, except to the extent such
representations and warranties expressly relate to an earlier date in which case
they shall be true and correct in all material respects as of such earlier date.
(b) The Borrower agrees that upon the occurrence of an Event of
Default, the making of all Advances by the Bank shall be discretionary and the
Bank shall not be required to declare a default and accelerate the Obligations.
16
<PAGE>
ARTICLE VI.
Affirmative Covenants
---------------------
The Borrower covenants and agrees with the Bank that so long as this
Agreement shall remain in effect and so long as the Note shall remain unpaid,
the Borrower will, unless the Bank shall otherwise consent in writing:
6.01. Compliance with Laws. Comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon the Borrower or upon its
property except to the extent contested in good faith.
6.02. Insurance. Maintain insurance by responsible and reputable
companies in such amounts and against such risks as are ordinarily carried by
similar businesses (including where applicable, fire, flood, liability and
extended all-risk coverage) and in amounts not less than the full replacement
value thereof (including business interruption insurance) and, in the case of
all policies insuring property in which the Bank shall have a security interest
of any kind, all such policies shall provide that the proceeds thereof shall be
payable to the Bank, as loss payee when applicable. All such policies or
certificates thereof, including all endorsements, shall be deposited with the
Bank; and such policies shall contain provisions that no such insurance may be
cancelled or decreased without thirty (30) days prior written notice to the Bank
(or such lesser period as the Bank may consent to). In the event of acquisition
of additional insurable Collateral, the Borrower shall cause such insurance
coverage to be increased or amended in such manner and to such extent, as
prudent business judgment would dictate. If the Borrower shall at any time or
times hereafter fail to obtain or maintain any of the policies of insurance
required herein, or fail to pay any premium in whole or in part relating to such
policies, the Bank may, after five (5) days written notice to the Borrower, but
shall not be obligated to, obtain or cause to be maintained insurance coverage
with respect to the Collateral, including, at the Bank's option, the coverage
provided by all or any of the policies of the Borrower and pay all or any part
of the premium therefor, without waiving any default by the Borrower, and any
sums so disbursed by the Bank shall be an additional Revolving Loan to the
Borrower by the Bank payable on demand. If the Borrower fails to do so, the Bank
shall have the right to settle and compromise claims under any of the policies
required to be maintained by the Borrower hereunder relating to the Collateral
and the Borrower shall appoint the Bank as its attorney-in-fact, with power to
demand, receive, and receipt for all monies payable with respect thereto, to
execute in the name of the Borrower or the Bank or both any proof of loss,
notice, draft or other instruments in connection with such policies or such loss
thereunder and generally to do and perform any and all acts as the Borrower, but
for this appointment, might or could perform.
17
<PAGE>
6.03. Corporate Existence; Property. The Borrower will do or cause to
be done all things necessary to preserve and keep in full force and effect the
Borrower's corporate existence, privileges, rights and franchises; at all times
maintain, preserve and protect all material franchises and trade names and
preserve all of its property used or useful in the conduct of its business
(except (i) property removed from service or replaced or (ii) Inventory consumed
or sold, in the ordinary course of business) and keep the same in good repair,
working order and condition, ordinary wear and tear excepted, and from time to
time make, or cause to be made, all repairs, renewals, replacements, betterment
and improvements in the ordinary course of business consistent with past
practices so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
6.04. Collateral Monitoring; Access to Records and Premises. Keep
adequate records and books of account, in which complete entries will be made in
accordance with GAAP consistently applied with prior years, reflecting all
financial transactions of the Borrower. At any reasonable time during normal
business hours and upon reasonable prior written notice, from time to time,
permit the Bank or any agents or representatives thereof, for the purpose of
ascertaining whether or not each and every provision hereof and of any related
documents, instrument or document is being performed and to make reasonable
examinations and make reasonable number of copies of and abstracts from the
records and books of account of, and visit, examine and inspect the properties
of, the Borrower and audit the Collateral of the Borrower and Aircraft Parts
International, Ltd. and to discuss the affairs, finances and accounts of the
Borrower and Aircraft Parts International, Ltd. with the President, the
Directors, the chief financial officer or the Borrower's management, including,
without limitation, permitting the Bank or its agents or representatives to
conduct semi-annual audits of the Borrower at the Borrower's reasonable expense;
Without limiting the generality of the foregoing, the Bank shall be allowed to
verify the Accounts and Inventory of the Borrower and Aircraft Parts
International, Ltd. and to confirm with Account Debtors the validity and amount
of Accounts; conduct field examinations; perform analyses of the Collateral;
and, such other activities as the Bank deems necessary The Bank agrees to
exercise its rights under this Section 6.04 in a manner which will not
unreasonably interfere with the business of the Borrower. Without limiting the
generality of the foregoing, the Bank may, at its option, retain an independent
accounting firm to perform a review of the Borrower's financial systems,
practices and procedures (and the reasonable fees of the expenses of such firm
will be paid by the Borrower).
6.05. Financial Statements; Reports. Furnish to the Bank:
(a) Within ten (10) days after the close of each calendar month,
monthly financial statements prepared by the Chief Financial Officer of the
Borrower;
(b) Annual budget to be submitted within thirty (30) days following
Borrower's fiscal year end;
18
<PAGE>
(c) A Borrowing Base Certificate duly executed by the Chief Financial
Officer of the Borrower to be submitted at the time of each request for an
advance of a Revolving Loan.;
(d) No later than five (5) Business Days after the end of each
calendar month an accounts receivable aging and report with respect to the
amount and value of the Borrower's and Aircraft Part's International, Ltd's
Inventory and Eligible Inventory, all in form and substance acceptable to Bank;
(e) A Covenant Compliance Certificate in the form of Exhibit C , duly
executed by the Chief Financial Officer of the Borrower to be submitted within
thirty (30) days following April 30, July 30, October 30 and January 31;
(f) Within ten (10) days of issuance, proxy statements, management
letters, reports, press releases or such other information regarding the
operations, business affairs and financial condition of the Borrower, the
Guarantors or any Subsidiary of the Borrower, or compliance with the terms of
any Loan Documents, as the Bank may reasonably request.
6.06. Notice Requirements. Furnish to Bank:
(a) Within ten (10) days, notification of any proposed or pending
change in the senior executive management or corporate structure of the
Borrower;
(b) Within thirty (30) days after the commencement thereof, notice of
all actions, suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, the
subject matter of which may result in an adverse decision affecting the Borrower
which would have a Material Adverse Effect;
(c) Within ten (10) days, notification of any Material Adverse Change
in the financial condition of the Borrower; and
(d) Within ten (10) days, of becoming aware of any Event of Default,
or any occurrence but for the giving of notice on the passage of time would
constitute an Event of Default, notification thereof in writing.
6.07. Performance. Comply with all terms and conditions of this
Agreement, the Note and the other Loan Documents.
6.08. Primary Bank. Maintain a depository account with the Bank.
19
<PAGE>
6.09. ERISA Reports. The Borrower will (a) comply in all material
respects with the provisions of ERISA applicable to any Plan maintained by the
Borrower and (b) furnish to the Bank (i) as soon as possible, and in any event
within ten (10) days after the Borrower knows or has reason to know that any
Reportable Event with respect to any Plan has occurred, a statement of the chief
financial officer of the Borrower setting forth details as to such Reportable
Event and the action which the Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event, if any, given to
the Pension Benefit Guaranty Corporation (hereinafter called the "PBGC"), and
(ii) promptly after receipt thereof, a copy of any notice the Borrower may
receive from the PBGC relating to the intention of the PBGC to terminate any
Plan or to appoint a trustee to administer the Plan.
6.10 Inventory. Allow the Bank to examine and inspect the Inventory at
reasonable times and intervals and with reasonable notice. The Borrower shall
immediately notify the Bank of any event causing material loss or depreciation
in value of Inventory and the amount of such loss or depreciation.
ARTICLE VII.
Negative Covenants
------------------
The Borrower covenants and agrees with the Bank that so long as this
Agreement shall remain in effect and so long as the Note shall remain unpaid,
the Borrower will not, directly or indirectly, without the written consent of
the Bank, which, except in the case of Sections 7.01-7.05 inclusive, shall not
be unreasonably withheld:
7.01. Tangible Net Worth. Permit the Borrower's Tangible Net Worth as
reflected on the annual audited financial statements
delivered pursuant to Section 6.05(a) hereof to be less than $10,000,000.
7.02. Capital Expenditures . For the fiscal year ending January 31,
2001 make any capital expenditures or fixed asset acquisitions in an aggregate
amount exceeding $5,000,000.00.
7.03. Use of Proceeds. Use the proceeds of the Loan for any other
purposes other than as set forth in the Recitals above.
7.04. Interest Coverage Ratio. Permit the Interest Coverage Ratio of
the Borrower to be less than the ratios set forth below:
20
<PAGE>
Period Ratio
------ -----
For the first quarter ended April 30, 2000 1.00:1
For the second quarter ended July 31, 2000 1.25:1
For the third quarter ended October31, 2000 1.50:1
For the fourth quarter ended January 31, 2001 1.75:1
For the year ending January 31, 2001 1.40:1
7.05. Liens. Except for purchase money security interests in office
equipment, create, incur, assume or suffer to exist any lien, mortgage, pledge,
assignment, security interest or other charge or encumbrance, or any other type
of preferential arrangement, of any nature whatsoever (including conditional
sales or other title retention agreements) upon or with respect to any of the
Collateral, assets, properties or receivables, now owned or hereafter acquired,
of the Borrower, except: (a) liens existing on the date hereof as set forth on
the attached Schedule 4.01(i); (b) deposits under workmen's compensation,
unemployment insurance and social security laws, or to secure statutory
obligations or appeal bonds or discharge of lien bonds, in the ordinary course
of business; (c) liens for taxes not yet due and payable, or liens for taxes
contested as permitted by Section 4.01 above; and (d) any other liens granted to
the Bank.
7.06. Borrowing. Create, incur, assume or suffer to exist any
liability for Indebtedness, except (i) Indebtedness under the Note and Loan
Documents, or (ii)existing Indebtedness in favor of the Guarantor.
7.07. Merger and Acquisition or Sale of Property. Consolidate with, be
acquired by, or merge into or with any Person, or sell, lease or otherwise
dispose of all or substantially all of its properties or any of its capital
stock, or acquire all or substantially all of the stock or property of any
person, or permit any Subsidiary to do so.
7.08. Business Changes. Materially change the nature of its business
as conducted by the Borrower on the date hereof, or alter or modify its
corporate name, structure or status (including, without limitation, its tax
status) or alter its accounting principles, treatment or recording practices,
except as permitted or required by GAAP.
7.09. Contingent Liabilities. Assume, guaranty, endorse or otherwise
become liable for any Contingent Liability of any Person, except as required by
this Agreement and by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business.
21
<PAGE>
7.10. Investment, Loan, Guaranties, Revolving Loan. Lend or advance
money, credit or property to any Person, or invest in (by capital contribution,
creation of subsidiaries or otherwise), or purchase or repurchase the stock or
indebtedness, or all or a substantial part of the assets of properties, of any
Person, or enter into any exchange of securities with any Person, or guaranty,
assume, endorse or otherwise become responsible for (directly or indirectly or
by any instrument having the effect of assuring any Person's payment or
performance or capability) the indebtedness, performance, obligations, stock or
dividends of any Person, or agree to do any of the foregoing, or permit or
suffer any Subsidiary to do so, except:
(i) endorsement of negotiable instruments for deposit or
collection in the ordinary course of business;
(ii) investments representing the indebtedness of any Person
owing as a result of the sale of goods by the Borrower or the
Borrower's Subsidiaries in the ordinary course of business;
(iii) the extension of credit to customers in the ordinary
course of business.
7.11 Change in Control. Permit a Change in Control of the Borrower
which the Bank reasonably determines would have a Material Adverse Effect on the
Borrower.
7.12 Change of Management. Intentionally Deleted.
7.13. Change Name or Location. Change the Borrower's names or conduct
the Borrower's businesses under any trade name or style other than as
hereinabove set forth or change its chief executive office, place of business or
the present locations of its business assets or records relating thereto from
the address set forth in the first paragraph of this Agreement.
7.14 Certificate of Incorporation and By-laws. Amend or otherwise
modify its certificate of incorporation or by-laws, in any way which would have
a Material Adverse Effect.
7.15. Mergers; Sales of Assets. Merge or consolidate with or sell,
assign, lease or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of their assets (whether now owned or
hereafter acquired) to, any Person or entity. The Borrower shall not sell,
assign, lease or otherwise dispose of any of their assets, except in the
ordinary course of business.
7.16. Acquisitions. Acquire the assets or stock of any other Person.
22
<PAGE>
7.17. Change in Nature of Business. Make any material change in the
nature of the business of the Borrower.
7.18. Distributions. Intentionally Deleted.
7.19. Dividend. Other than with respect to the preferred shares
described on Schedule "4.01(u)" declare or pay any cash dividend on the
Borrower's capital stock or make any other distribution with respect to the
Borrower's capital stock or redeem, retire, purchase or otherwise acquire,
directly or indirectly, for value or set apart any sum for the redemption,
retirement, purchase or other acquisition of, directly or indirectly, any share
of the Borrower's capital stock.
7.20. Sale/Leaseback. Enter into any sale/leaseback transactions.
ARTICLE VIII.
Grant Of Collateral
-------------------
8.01 Grant of Collateral. To secure the prompt payment and performance
of the Obligations, the Borrower pledges, assigns, transfers and grants to the
Bank a continuing first priority security interest in the following property of
the Borrower (collectively, the "Collateral"):
(a) All accounts (the "Accounts"), as that term is defined in the
Uniform Commercial Code as in effect from time to time in the State of Tennessee
(the "UCC"), including, without limitation, all accounts receivable, book debts
and other forms of obligations, other than forms of obligations evidenced by
Chattel Paper or Instruments, as those terms are defined below, now owned or
hereafter received or acquired by or belonging or owing to the Borrower,
including, without limitation, under any trade name, style or division thereof,
whether arising out of goods sold or services rendered by the Borrower or from
any other transaction, whether or not the same involves the sale of goods or
services by the Borrower, including, without limitation, any such obligation
which may be characterized as an account or contract right under the UCC, and
all of the Borrower's rights in, to and under all purchase orders or receipts
now owned or hereafter acquired by it for goods or services, and all of the
Borrower's rights to any goods represented by any of the foregoing, including,
without limitation, unpaid seller's rights of rescission, replevin, reclamation
or repossessed goods, and all monies due or to become due to the Borrower under
all purchase orders and contracts for the sale of goods or the performance of
services or both by the Borrower, whether or not yet earned by performance on
the part of the Borrower or in connection with any other transaction, now in
existence or hereafter occurring, including, without limitation, the right to
receive the proceeds of such purchase orders and contracts, and all collateral
security and guaranties of any kind given by any person with respect to any of
the foregoing;
23
<PAGE>
(b) All chattel paper (the "Chattel Paper"), as that term is defined
in the UCC, now owned or hereafter acquired by the Borrower;
(c) All contracts, undertakings, franchise agreements or other
agreements (collectively, the "Contracts"), other than rights evidenced by
Chattel Paper, Documents or Instruments, as those terms are defined below, in or
under which the Borrower may now or hereafter have any right, title or interest,
including, without limitation, with respect to an Account, any agreement
relating to the terms of payment or the terms of performance thereof;
(d) All documents (the "Documents"), as that term is defined in the
UCC, now owned or hereafter acquired by the Borrower;
(e) All equipment (the "Equipment"), as that term is defined in the
UCC, now or hereafter owned or acquired by the Borrower and, in any event, shall
include, without limitation, all machinery, tools, dyes, equipment, furnishings,
vehicles and computers and other electronic data processing and other office
equipment, any and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto;
(f) All general intangibles (the "General Intangibles"), as that term
is defined in the UCC, now owned or hereafter acquired by the Borrower and, in
any event, shall include, without limitation, all right, title and interest
which the Borrower may now or hereafter have in or under any Contract, all
customer lists, trademarks, rights in intellectual property, interests in
partnerships, joint ventures and other business associations, licenses, permits,
copyrights, trade secrets, proprietary or confidential information, inventions,
whether or not patented or patentable, technical information, procedures,
designs, knowledge, know-how, software, data bass, data, skill, expertise,
recipes, experience, processes, models, drawings, blueprints, catalogs,
materials and records, goodwill including, without limitation, the goodwill
associated with any trademark, trademark registration or trademark licensed
under any trademark license, claims in or under insurance policies, including
unearned premiums, uncertificated securities, deposit accounts, rights to
receive tax refunds and other payments and rights of indemnification;
(g) All instruments (the "Instruments"), as that term is defined in
the UCC, now owned or hereafter acquired by the Borrower, including, without
limitation, all Note and other evidences of indebtedness, other than instruments
that constitute, or are a part of a group or writings that constitute, Chattel
Paper;
(h) All inventory (the "Inventory"), as that term is defined in of the
UCC, wherever located, now or hereafter owned or acquired by the Borrower and,
in any event, shall include all inventory, merchandise, goods and other personal
property which are held by or on behalf of the Borrower for sale or lease or are
furnished or are to be furnished under a contract of
24
<PAGE>
service or which constitute raw materials, work in process or materials used or
consumed or to be used or consumed in the Borrower's business, or the
processing, packaging, promotion, delivery or shipping of the same, and all
finished goods, whether or not such inventory is listed on any schedules,
assignments or reports furnished to the Bank from time to time and whether or
not the same is in transit or in the constructive, actual or exclusive occupancy
or possession of the Borrower or is held by the Borrower or by others for the
Borrower's account, including, without limitation, all goods covered by purchase
orders and contracts with suppliers and all goods billed and held by suppliers
and all inventory which may be located on premises of the Borrower or of any
carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or
other persons; and
(i) All proceeds (the "Proceeds"), as that term is defined in the UCC,
and in any event including, without limitation, (i) any and all Accounts,
Chattel Paper, Instruments, cash and other proceeds payable to the Borrower from
time to time in respect of any of the foregoing collateral security, (ii) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to
the Borrower from time to time with respect to any of the collateral security,
(iii) any and all payments (in any form whatsoever) made or due and payable to
the Borrower from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the collateral
security by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority) and (iv) any and all other amounts
from time to time paid or payable under or in connection with any of the
collateral security.
ARTICLE IX.
Events Of Default
-----------------
9.01. Events of Default. The occurrence of any of the following events
shall constitute an "Event of Default" hereunder: With the exception of
subsections (i), (v) and (vi) below, the occurrence of which is a Default which
shall immediately constitute an Event of Default without notice or action by the
Bank, any of the following occurrences shall constitute a Default hereunder,
and, upon notice and declaration by the Bank to the Borrower of such Default,
shall be and constitute an Event of Default:
(i) failure, when and as the same shall become due and payable,
whether at the due date thereof or by acceleration thereof or otherwise, of the
Borrower to make any payment of interest arising under this Agreement or the
Note, which failure continues for five (5) days after written notice of such
breach or failure from the Bank or failure, when and as the same shall become
due and payable, whether at the due date thereof or at a date fixed for
prepayment thereof or by acceleration thereof or otherwise, of the Borrower to
make any payment of principal or any other principal Obligation arising under
this Agreement or the Note or the other Loan Documents or such failure by any
Guarantor or surety for any of the Obligations;
25
<PAGE>
(ii) breach of, or failure timely to perform, any of the Obligations
by the Borrower or any of the Guarantors including, without limitation, any
promise, agreement, covenant, representation or warranty contained herein, or
the Borrower's failure to perform any act, duty or obligation as required by
this Agreement or any of the other Loan Documents, which failure continues for
fifteen (15) days after written notice of such breach or failure from the Bank;
(iii) any representation or warranty made, or deemed made, in or in
connection with any of the Loan Documents or the Advances, warranty, statement
or information contained in any report, certificate, financial statement or
other instrument furnished in connection with or pursuant to any of the Loan
Documents, shall prove to have been false or misleading when so made, deemed
made or furnished (including by omission of material information);
(iv) the failure of any condition precedent or condition subsequent
contained in this Agreement;
(v) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (a) relief
in respect of the Borrower or any Subsidiary under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (b) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any Subsidiary, or (c) the winding-up or liquidation of the
Borrower or any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days, or an order or decree approving or ordering any of the
foregoing shall be entered;
(vi) the Borrower or any Subsidiary shall (a) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (b) consent to the
institution of, or fail to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described in (v) above, (c) apply for
or consent to the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Subsidiary or for a
substantial part of the property or assets of the Borrower or such Subsidiary,
(d) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (e) make a general assignment for the benefit
of creditors, (f) become unable, admit in writing its inability or fail
generally to pay its debts as they become due, or (g) take any action for the
purpose of effecting any of the foregoing;
(vii) one or more final , nonappealable judgments (including judgments
against unrelated parties for which judgments the Borrower is liable under any
agreements, including indemnification agreements) for the payment of money in an
aggregate amount in excess of
26
<PAGE>
$250,000 shall be rendered against the Borrower, any Subsidiary or any
combination thereof and the same shall remain undischarged for a period of
thirty (30) consecutive days, or any action shall be legally taken by a judgment
creditor to levy upon assets or properties of the Borrower or any Subsidiary to
enforce any such judgment;
(viii) a Reportable Event or Reportable Events, or a failure to make a
required payment (within the meaning of Section 412(n)(1) of the Code), shall
have occurred with respect to any Plan or Plans that reasonably could be
expected to result in liability of the Borrower to the PBGC or to a Plan in an
aggregate amount which would have a Material Adverse Effect and, within thirty
(30) days after the reporting of any such Reportable Event to the Bank, the Bank
shall have notified the Borrower in writing that (A) the Bank has made a
determination that, on the basis of such Reportable Event or Reportable Events
or the failure to make a required payment, there are reasonable grounds (I) for
the termination of such Plan or Plans by the PBGC, (II) for the appointment by
the appropriate United States District Court of a trustee to administer such
Plan or Plans, or (III) for the imposition of a lien in favor of a Plan, and (B)
as a result thereof an Event of Default exists hereunder; or a trustee shall be
appointed by a United States District Court to administer any Plan or Plans; or
the PBGC shall institute proceedings to terminate any Plan or Plans;
(ix) the Borrower or any of its plants or other sites have managed,
generated or disposed of any hazardous wastes, hazardous substances, hazardous
materials, toxic substances or toxic pollutants, as those terms are used in the
Resource Conservation and Recovery Act, the Comprehensive Environmental Resource
Compensation and Liability Act, the Hazardous Materials Transportation Act, the
Toxic Substance Control Act, the Clean Air Act and the Clean Water Act, in
material violation of or in a manner which would result in liability under such
statutes or any regulations promulgated pursuant thereto or any other applicable
law except where such noncompliance would not result in a Material Adverse
Effect; or
(x) the Borrower shall fail to observe or perform any other material
term, covenant, condition or agreement contained in any agreement or instrument
evidencing or governing any such Indebtedness, if the effect of any failure
referred to in this clause shall have a Material Adverse Effect;
(xi) the loss, revocation or failure to renew any license or permit
now held or hereafter acquired by the Borrower which materially affects the
ability of the Borrower to continue its operations as presently conducted;
(xii) one or more of the Security Interests shall cease to exist at
any time after the Closing Date, or any Guaranty shall cease to be in full force
and effect or any Guarantor shall contest or repudiate his obligations under the
Guaranty to which he is a party;
27
<PAGE>
(xiii) dissolution of the Borrower or any Guarantor;
(xiv) the occurrence of a Material Adverse Change in the condition of
the Borrower or any Guarantor, financial or otherwise, as determined by the Bank
in its sole and reasonable discretion.
9.02. Remedies Upon Default. Upon the occurrence of an Event of
Default, the Bank may take either or any of the following actions, at the same
or different times:
(a) (i) terminate forthwith the Revolving Loan Commitment, and (ii)
declare the Revolving Loans then outstanding to be forthwith due and payable,
whereupon the principal of the Revolving Loans, together with accrued interest
thereon and all other Obligations, shall become forthwith due and payable,
without presentment, demand, protest, notice of protest or other notice of any
kind, all of which are waived by the Borrower, anything contained in this
Agreement or in the other Loan Documents to the contrary notwithstanding;
(b) exercise any or all of its rights or remedies permitted by
applicable law of a secured party under this Agreement or in other capacity
under the Loan Documents or applicable law;
(c) upon demand after the occurrence of an Event of Default, the Bank
shall have in any jurisdiction where enforcement hereof is sought, in addition
to all other rights and remedies which the Bank may have under law and equity,
the following rights and remedies, to the extent permitted by law, all of which
may be exercised with or without further notice to the Borrower and without a
prior judicial or administrative hearing or notice, which notice and hearing are
expressly waived by the Borrower: (i) to enforce or foreclose the liens and
security interests created under this Agreement and the Loan Documents by any
available judicial procedure or without judicial process, (ii) to enter any
premises where any Collateral may be located for the purpose of taking
possession or removing the same, (iii) to sell, assign, lease or otherwise
dispose of the Collateral or any part thereof, either at public or private sale,
in lots or in bulk, for cash, on credit or otherwise, with or without
representations or warranties, and upon such commercially reasonable terms as
shall be acceptable to the Bank, all at the Bank's sole option and as the Bank
in its sole discretion may deem advisable, (iv) to bid or become purchaser at
any such sale if public, free from any right of the Borrower of redemption after
sale, which is expressly waived by the Borrower to the extent permitted by law,
and (v) at the option of the Bank to apply or be credited with the amount of all
or any part of the outstanding amount of the Loan against the purchase price bid
by the Bank at any such sale;
(d) The Borrower will, at the Bank's request, assemble all Collateral
and make it available to the Bank at places which the Bank may reasonably select
and will make available to the Bank all premises and facilities of the Borrower
for the purpose of the Bank taking possession of
28
<PAGE>
the Collateral or of removing or putting the Collateral in salable form. If any
Collateral shall require repairing, maintenance, preparation, or the like, or is
in process or other unfinished state, the Bank shall have the right, but shall
not be obligated, to do such repairing, maintenance, preparation, processing or
completion of manufacturing for the purpose of putting the same in such salable
form as the Bank shall deem appropriate, but the Bank shall have the right to
sell or dispose of such Collateral without such processing;
(e) The net cash proceeds resulting from the collection, liquidation,
sale, lease or other disposition of Collateral shall be applied first to the
expenses, including all reasonable attorneys' and professionals' fees, of
retaking, holding, storing, processing and preparing for sale, selling,
collecting, liquidating the Collateral and then to the satisfaction of all of
the Loan application as to particular Loan or against principal or interest to
be at the Bank's sole discretion and the balance of the proceeds, if any, shall
be paid to the Borrower. The Borrower shall be liable to the Bank and shall pay
to the Bank on demand any deficiency which may remain after such sale,
disposition, collection or liquidation of the Collateral;
(f) The Bank shall not have any liability for any error or omission or
delay of any kind occurring in the liquidation of any of the Collateral,
including the settlement, collection or payment of any of the Collateral or any
instrument received in payment thereof, or any damage resulting therefrom,
provided that the Bank acts in a commercially reasonable manner in its
liquidation of the Collateral. The Borrower agrees to indemnify and hold
harmless the Bank against any claim, loss or damage arising out of the
liquidation of any of the Collateral, including the settlement, collection of
payment of any of the Collateral or any instrument received in payment thereof,
provided that the Bank acted in a commercially reasonable manner in its
liquidation of any of the Collateral; and
(g) The enumeration of the Bank's rights and remedies set forth in
this Article is not intended to be exhaustive and the exercise by the Bank of
any right or remedy shall not preclude the exercise of any other rights or
remedies, all of which shall be cumulative and shall be in addition to any other
right or remedy given hereunder or under any other agreement between the parties
or which may now or hereafter exist in law or at equity or by suit or otherwise.
The Bank's delay or failure to take action in exercising any right, power or
privilege shall not operate as a waiver thereof, and any single or partial
exercise of any such right, power or privilege shall not preclude other or
further exercise thereof or the exercise of any other right, power or privilege
or shall be construed to be a waiver of any Event of Default. No course of
dealing between the Borrower and the Bank or their employees shall be effective
to change, modify or discharge any provision of this Agreement or to constitute
a waiver of any default.
29
<PAGE>
ARTICLE X.
Miscellaneous
-------------
10.01. Modifications; Amendments. No modification, amendment or waiver
of any provision of this Agreement, the Note, or any other Loan Document, and no
consent to any departure by either party therefrom, shall in any event be
effective unless the same shall be in writing and signed by the parties hereto,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
10.02. Notices. All notices, requests, consents, demands and other
communications hereunder shall be in writing and shall be mailed by registered
or certified first class mail or delivered by an overnight courier or by
facsimile, to the respective parties to this Agreement as follows:
If to the Borrower:
AEROSPACE PRODUCTS INTERNATIONAL, INC
3778 Distriplex Drive North,
Memphis, Tennessee 38118
Attention: Marc Greenberg
With a copy to:
FIRST AVIATION SERVICES
15 Riverside Avenue
Westport, CT 06880
Attention: Aaron Hollander
If to the Bank:
HUDSON UNITED BANK
1000 MacArthur Boulevard
Mahwah, New Jersey, 07430
Attention: Corporate Affairs
30
<PAGE>
With Copy to:
HUDSON UNITED BANK
87 Post Road West
Westport, Connecticut 06880
Attention: Allison M. Knapp, Vice President
All such notices and communications shall be deemed to have been delivered on
the date of delivery thereof, one day after receipt of facsimile or on the third
business day after the mailing thereof.
10.04. Cross-Default. The Revolving Loans shall be cross-defaulted
with current and future financing accommodations extended or to be extended by
the Bank to the Borrower so that a default under any loan to the Borrower which
would permit acceleration of such other loan shall be an Event of Default
hereunder and under all of the other loans extended by the Bank.
10.05. Waiver; Remedies. No failure on the part of the Bank to
exercise, and no delay in exercising, any right under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right under any Loan Document preclude any other or further exercise thereof or
the exercise of any other right. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law.
The Borrower assents to any extension or postponement of the time of
payment or any other indulgence, to any (substitution, exchange or) release of
the Collateral, to the addition or release of any party primarily or secondarily
liable, to the acceptance of partial payments thereon and the settlement,
compromising or adjusting of any thereof, all in such manner and at such time or
times as the Bank may deem advisable. All rights and remedies of the Bank with
respect to the liabilities of the Borrower whether evidenced hereby or by any
other instrument or document, shall be cumulative and may be exercised
singularly or concurrently.
10.06. Costs, Expenses and Taxes. The Borrower agree to pay on demand
all costs and expenses in connection with the preparation, execution, delivery,
filing, recording, and administration of the Loan Documents, and the other
documents to be delivered under the Loan Documents, including, without
limitation, legal fees, the cost of any appraisals of the Collateral and all
costs and expenses, if any, in connection with the enforcement of the Loan
Documents and the other documents to be
31
<PAGE>
delivered under the Loan Documents. Notwithstanding the foregoing, all such
costs, expenses and fees shall be reasonable. In addition, the Borrower shall
pay any and all taxes (other than income taxes) and fees payable or determined
to be payable in connection with the execution, delivery, filing and recording
of the Loan Documents and the other documents to be delivered under the Loan
Documents, and the Borrower agree to save the Bank harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and fees. In the event the Bank advances any sums
under the Note, on behalf of the Borrower pursuant to the terms hereof for
expenses, fees or other sums which are otherwise payable by the Borrower, the
Borrower shall pay interest on such sums which are not paid or reimbursed to the
Bank when due at an annual rate equal to two percent (2%) in excess of the then
Note Rate under the Note.
10.07. Right of Set-Off. Upon the occurrence of any Event of Default
and the continuance thereof, the Bank is authorized at any time and from time to
time, without notice to the Borrower (any such notice being expressly waived by
the Borrower), to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by the Bank to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now or hereafter existing
under this Agreement and the Note, irrespective of whether or not the Bank shall
have made any demand under this Agreement or the Note and although such
obligations may be unmatured. The Bank agrees promptly to notify the Borrower
after any such set-off and application made by the Bank, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Bank under this Section are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
which the Bank may have.
10.08. Binding Effect; Governing Law and Jurisdiction. This Agreement
shall become effective when it shall have been executed by the Borrower and the
Bank and shall be binding upon and inure to the benefit of the Borrower, the
Bank and their respective successors and assigns, except that the Borrower shall
not have the right to assign its rights hereunder or any interest herein without
the prior written consent of the Bank. This Agreement is, and shall be deemed to
be, a contract entered into under and pursuant to the laws of the State of
Connecticut and shall be in all respects governed, construed, applied and
enforced in accordance with the laws of said State; and no defense given or
allowed by the laws of any other State or Country shall be interposed in any
action or proceeding hereon unless such defense is also given or allowed by the
laws of the State of Connecticut. The undersigned irrevocably appoints Aaron
Hollander and each and every officer of the undersigned as its attorneys upon
whom may be served any notice, process or pleading in any action or proceeding
against it arising out of or in connection with this Agreement or any other Loan
Document. The undersigned hereby consents that any action or proceeding against
it may be commenced and maintained in any court within the State of Connecticut
or in the United States District Court for the District of Connecticut or, at
the option of Bank, any court in which Bank shall initiate legal or equitable
proceedings and which has subject matter jurisdiction over the matter in
controversy, and that such action or proceeding may be commenced by service of
process on any such officer. The undersigned agrees that the courts of the State
of Connecticut and the United States District Court for the District of
Connecticut shall have jurisdiction with respect to the subject matter hereof
and the person of the undersigned. The undersigned agrees not to assert any
defense to any proceeding initiated by Bank based upon improper venue or
inconvenient forum.
32
<PAGE>
10.09. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
10.10. Compliance. The determination of the Borrower's compliance with
all financial covenants contained in this Agreement, the Note and all other Loan
Documents shall be based upon the consistent application of GAAP employed by the
Borrower as of the date of this Agreement unless otherwise subsequently and
specifically agreed to in writing by the Bank.
10.11. Survival of Representations. All representations, warranties,
covenants and agreements herein contained or made in writing in connection with
this Agreement shall survive the execution and delivery of the Note and shall
continue in full force and effect until all amounts payable on account of the
Note shall have been paid in full and this Agreement shall have terminated.
10.12. Severability. In case any one or more of the provisions
contained in this Agreement, the Note or in the other Loan Documents should be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby.
10.13. Headings. Section headings used herein are for convenience of
reference only and are not to affect the construction of, or be taken into
consideration in, interpreting this Agreement.
10.14. Sale of Participation. The Bank reserves the right to sell
participation in the Loans without the consent of the Borrower.
10.15. Entire Agreement. This Agreement, the Note and the other Loan
Documents together with all exhibits and schedules attached hereto and thereto
embody the entire agreement and understanding between the Borrower and the Bank
and supersede all prior agreements and understandings relating to the subject
matter hereof unless otherwise specifically reaffirmed or restated herein.
10.16. THE BORROWER ACKNOWLEDGES THAT THE LOANS EVIDENCED HEREBY ARE A
COMMERCIAL TRANSACTION AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER
903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE
OR FEDERAL LAW WITH
33
<PAGE>
RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE BANK MAY DESIRE TO USE, AND FURTHER
WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST
AND NOTICE OF ANY RENEWALS OR EXTENSIONS. THE BORROWER ALSO ACKNOWLEDGES THAT IT
MAKES THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY AND WITHOUT DURESS, AND
ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS
ATTORNEYS.
10.17. THE BORROWER WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT,
ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY
RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART OR THE
ENFORCEMENT OF ANY OF THE BANK'S RIGHTS. THE BORROWER ACKNOWLEDGES THAT IT MAKES
THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY AND WITHOUT DURESS, AND ONLY
AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS
ATTORNEYS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first written above.
Witnesses: AEROSPACE PRODUCTS
INTERNATIONAL, INC.
By: /s/ John Marsalisi
-------------------
John A. Marsalisi
Its Vice President
HUDSON UNITED BANK
By /s/ Allison M. Knapp
-------------------
Allison M. Knapp
Its Vice President
34
<PAGE>
STATE OF CONNECTICUT)
) ss. Fairfield
COUNTY OF FAIRFIELD )
On this the _____ day of March, 2000, before me, the undersigned
officer, personally appeared _______________________, who acknowledged himself
to be the ________ of AEROSPACE PRODUCTS INTERNATIONAL, INC., a corporation, and
that he, as such officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained and acknowledged the same to be
his free act and deed individually and as such officer, and the free act and
deed of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
-----------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires:
STATE OF CONNECTICUT)
) ss.: Fairfield
COUNTY OF FAIRFIELD )
On this the ___ day of March, 2000, before me, the undersigned
officer, personally appeared Allison M. Knapp, who acknowledged herself to be a
Vice President of HUDSON UNITED BANK and that she, as such officer, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained and acknowledged the same to be her free act and deed individually and
as such officer, and the free act and deed of the bank.
IN WITNESS WHEREOF, I hereunto set my hand.
-----------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires:
35
GUARANTY
--------
GUARANTY, dated as of March 30, 2000, between FIRST AVIATION SERVICES,
INC., a Delaware corporation with an office at 15 Riverside Avenue, Westport,
Connecticut 06880 ("Guarantor") and HUDSON UNITED BANK, a state banking
corporation with an office located at 87 Post Road East, Westport, Connecticut
06880 (the "Lender").
Recitals
--------
WHEREAS, AEROSPACE PRODUCTS INTERNATIONAL, INC., a Delaware corporation (the
"Borrower") and Lender have entered into a certain Commercial Revolving Loan and
Security Agreement dated as of March 30, 2000 (as it may be amended or modified
further from time to time, the "Loan Agreement"), providing, subject to the
terms and conditions thereof, for extensions of credit to be made by the Lender
to the Borrower for the benefit of the Borrower and the Guarantor; and
WHEREAS, it is required by the Loan Agreement, that the Guarantor execute and
deliver this Guaranty whereby the Guarantor shall guarantee the payment when due
of all principal, interest and other amounts that shall be at any time payable
by the Borrower under the Loan Agreement, the Note, and the other Loan
Documents; and
WHEREAS, in consideration of the financial and other support that the Borrower
has provided, and such financial and other support as the Borrower may in the
future provide, to Guarantor, whether directly or indirectly, and in order to
induce the Lender to enter into the Loan Agreement, the Guarantor is willing to
guarantee the obligations of the Borrower under the Loan Agreement, the Note,
and the other Loan Documents.
Definitions
-----------
Unless otherwise indicated, capitalized terms used herein shall have the
respective meanings ascribed to such terms in the Loan Agreement. As used
herein, the following words and terms shall have the following meanings:
(a) "Contingent Liability" shall mean any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise becomes, or is
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss), the debt,
obligation or other liability of any other Person (other than by endorsements of
negotiable instruments in the course of collection), or guarantees the payment
of dividends or other distributions upon the shares of any other Person. The
amount of the obligor's obligation under any Contingent Liability shall be
deemed to be the outstanding principal amount (or maximum permitted principal
amount, if larger) of the debt, obligation or other liability guaranteed thereby
(subject to any limitation set forth therein).
<PAGE>
(b) "Material Adverse Effect" means a material adverse effect on (i) the
business, operations, property or condition (financial or otherwise) of the
Guarantor taken as a whole, (ii) the ability of the Guarantor to perform its
obligations under this Guaranty or any of the other Loan Documents, or (iii) the
validity or enforceability of this Guaranty or any of the other Loan Documents
or the rights or remedies of the Bank.
(c) "Leverage Ratio" for any period shall mean the ratio of (i) Total
Liabilities to (ii) Tangible Net Worth.
(d) "Tangible Net Worth" shall mean, as at any date the sum of the Capital
Stock and paid-in surplus, plus retained earnings (or minus accumulated deficit)
of the Guarantor and its Subsidiaries on a consolidated basis minus intangible
assets (including, without limitation, franchises, patents and patent
applications, trademarks and brand names, goodwill, research and development
expenses, unamortized debt discount and expense, and all write-ups in the book
value of any asset).
(e) "Total Liabilities" shall mean at any time of determination, amount
equal to all liabilities of the Guarantor and its Subsidiaries determined on a
consolidated basis in accordance with GAAP.
Agreement
---------
In consideration of the Recitals, which are incorporated by reference and
the representations, covenants and warranties contained herein, the parties,
intending to be bound legally, agree as follows:
1. Guaranty. The Guarantor unconditionally guaranties the punctual payment
when due, whether at stated maturity, by acceleration or otherwise, of the
obligations of the Borrower under the Note and under any amendment,
modification, renewal, extension, substitution or replacement thereof or
thereto, whether for principal, interest, fees, expenses or otherwise and all
expenses incurred by the Lender in enforcing any of its rights under this
Guaranty (such obligations being referred to collectively as the "Obligations").
2. Guaranty Absolute. (a) The Guarantor guaranties that the Obligations
will be paid strictly in accordance with the terms thereof regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Lender with respect thereto.
The liability of the Guarantor under this Guaranty shall be absolute and
unconditional irrespective of:
(i) any lack of validity or enforceability of the Obligations or any
other agreement or instrument relating thereto;
2
<PAGE>
(ii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to departure from the Obligations; or
(iii) any exchange, release or non-perfection of any collateral, or
any release or amendment or waiver of or consent to departure from any other
guaranty, for any of the Obligations.
(b) This Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Obligations is rescinded
or must otherwise be returned by the Lender due to the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment had not
been made.
3. Subrogation; Contribution. The Guarantor will not exercise any rights
which it may acquire by way of subrogation under this Guaranty, by any payment
made hereunder or otherwise, until all the Obligations shall have been paid in
full. If any amount shall be paid to the Guarantor on account of such
subrogation rights or by way of contribution or indemnification at any time when
all the Obligations shall not have been paid in full, such amount shall be held
in trust for the benefit of the Lender and shall forthwith be paid to the Lender
to be credited and applied upon the Obligations, whether matured or unmatured,
in accordance with the terms of the Obligations. If the Guarantor shall make
payment to the Lender of all or any part of the Obligations and all the
Obligations shall be paid in full, the Lender will, at the Guarantor's request,
execute and deliver to the Guarantor appropriate documents, without recourse and
without representation or warranty, necessary to evidence the transfer by
subrogation to the Guarantor of an interest in the Obligations resulting from
such payment by the Guarantor.
4. Affirmative Covenants. The Guarantor covenants and agrees that so long
as this Guaranty shall remain in effect and so long as the Obligations shall
remain unpaid, the Guarantor shall:
4.1 Access to Records and Premises. Keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied with prior years, reflecting all financial transactions of
the Guarantor. At any reasonable time during normal business hours and upon
reasonable prior written notice, from time to time, permit the Lender or any
agents or representatives thereof, for the purpose of ascertaining whether or
not each and every provision hereof and of any related documents, instrument or
document is being performed and to make reasonable examinations and make
reasonable number of copies of and abstracts from the records and books of
account of, and visit, examine and inspect the properties of, the Lender and to
discuss the affairs, finances and accounts of the Lender with the President, the
Directors and the chief financial officer or the Lender's management, including,
without limitation, permitting the Lender or its agents or representatives to
conduct periodic audits of the Guarantor at the Guarantor's reasonable expense,
as often as the Lender may reasonably request, but not, in any event, more than
3
<PAGE>
once every six (6) months. The Lender agrees to exercise its rights under this
Section 4.1 in a manner which will not unreasonably interfere with the business
of the Guarantor.
4.2. Financial Statements; Reports. Furnish to the Lender:
a. Monthly, unaudited, internally prepared compilation of
consolidated results of the Guarantor and its Subsidiaries, to be
submitted on or before the twentieth (20th) day of every calendar
month;
b. Annual budget to be submitted within thirty (30) days following
Guarantor's fiscal year end;
c. Quarterly Covenant Compliance Certificates, to be submitted
within thirty (30) days following April 30, July 31, October 30
and January 31;
d. Copies of Guarantor's Form 10-K and 10-Q to be submitted within
fifteen (15) days of filing with the Securities and Exchange
Commission.
4.3. Notice Requirements. Furnish to Lender:
(a) Within five (5) days of a formal proposal made to the Board
of Directors of the Guarantor, notification of any proposed or pending
change in the senior executive management or corporate structure of
the Guarantor;
(b) Written notification within seven (7) Business Days of any
Material Adverse Change in the financial condition of the Guarantor;
and
(c) Written notification within ten (10) Business Days of
becoming aware of any Event of Default, or any occurrence but for the
giving of notice on the passage of time would constitute an Event of
Default.
4.4. Primary Bank. Maintain its primary operating accounts with the Lender.
4.5. ERISA Reports. Comply in all material respects with the provisions of
ERISA applicable to any Plan maintained by the Guarantor and furnish
to the Lender as soon as possible, and in any event within ten (10)
days after the Guarantor knows or has reason to know that any
Reportable Event with respect to any Plan has occurred, a statement of
the chief financial officer of the Guarantor setting forth details as
to such Reportable Event and the action which the Guarantor proposes
to take with respect thereto.
4.6. Litigation. Furnish to Lender within thirty (30) days after the
commencement thereof, notice of all actions, suits and proceedings
before any court or governmental
4
<PAGE>
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, the subject matter of which may result in an
adverse decision affecting the Guarantor in an amount which would have
a Material Adverse Effect.
5. Representations and Warranties. The Guarantor represents and warrants to
the Lender as follows:
(a) The Guarantor is a corporation duly organized, validly existing and in
good standing under the laws of the state indicated at the beginning of this
Guaranty.
(b) The Guarantor is qualified as a foreign corporation in each state in
which the character of its properties or the nature of its business requires.
o (c) The execution, delivery and performance by the Guarantor of this
Guaranty has been duly authorized by all necessary corporate action and does not
and will not:
(i) require any consent or approval of the stockholders of the
Guarantor;
(ii) contravene the Guarantor's certificate of incorporation or
by-laws;
(iii) violate any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to the Guarantor;
(iv) result in a breach of or constitute a default under any indenture
or loan or credit agreement or any other material agreement, lease, document or
instrument to which the Guarantor is a party or by which it or its respective
properties may be bound or affected;
(v) result in or require the creation or imposition of any mortgage,
deed of trust, pledge, lien, security interest or other charge or encumbrance of
any nature (other than arising under any document delivered to the Lender in
connection herewith) upon or with respect to any of the properties now owned or
hereafter acquired by the Guarantor; or
(vi) render the Guarantor "insolvent" within the meaning of such term
as defined in ss. 101 of Title 11 of the United States Code or ss. 2 of either
the Uniform Fraudulent Transfer Act or the Uniform Fraudulent Conveyance Act, as
each is amended from time to time
(d) The Guarantor is not in default under any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award having applicability
to the Guarantor or any indenture, agreement, lease, document or instrument to
which the Guarantor is a party or by which it or its respective properties may
be bound or affected;
(e) No authorization or approval or other action by, and no notice to or
filing with, any
5
<PAGE>
governmental authority or regulatory body is required for the due execution,
delivery and performance by the Guarantor of this Guaranty.
(f) This Guaranty is the legal, valid and binding obligation of the
Guarantor, enforceable against the Guarantor in accordance with its terms.
(h) There is no pending or threatened action or proceeding affecting the
Guarantor before any court, governmental agency or arbitrator which may
materially and adversely affect the financial condition or operations of the
Guarantor.
(i) The Guarantor has filed all federal, state and municipal tax returns
required to be filed and has paid all taxes shown thereon to be due, including
interest and penalties, or provided adequate reserves for payment thereof.
(j) No information, exhibit or report furnished by the Guarantor to the
Lender in connection with the negotiation of this Guaranty, or any other
document executed by the Guarantor, contains or contained any material
misstatement of fact or omitted to state a material fact necessary to make the
statements contained therein not misleading.
6. Covenants. The Guarantor covenants and agrees that so long as this
Guaranty shall remain in effect and so long as the Obligations shall remain
unpaid, the Guarantor will not, directly or indirectly, without the written
consent of the Lender, which in the case of Section 6.2 and 6.5, shall not be
unreasonably withheld.
6.1. Leverage Ratio. Permit the ratio of its Tangible Net Worth to its
Total Liabilities to be less than 1.25 to 1.0 for any fiscal quarter of the
Guarantor, measured quarterly.
6.2. Borrowing. Create, incur, assume or suffer to exist any liability for
Indebtedness, except Indebtedness under the Note and Loan Documents.
6.3. Merger and Acquisition or Sale of Property. Consolidate with, be
acquired by, or merge into or with any Person, or sell, lease or otherwise
dispose of all or substantially all of its properties or any of its capital
stock, or acquire all or substantially all of the stock or property of any
person, or permit any Subsidiary to do so.
6.4. Business Changes. Materially change the nature of its business as
conducted by the Guarantor and its Subsidiaries taken as a whole on the date
hereof, or alter or modify its corporate name, structure or status (including,
without limitation, its tax status) or alter its accounting principles,
treatment or recording practices, except as permitted or required by GAAP, the
SEC or NASDAQ or permit any Subsidiary so to do.
6.5. Contingent Liabilities. Assume, guaranty, endorse or otherwise become
liable for any Indebtedness or Contingent Liability of any Person, except as
required by this Agreement and
6
<PAGE>
by the endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business.
6.6. Investment, Loan, Guaranties, Revolving Loan. Intentionally Deleted.
6.7. Change of Control. Permit a Change in Control of the Borrower.
6.8. Change Name or Location. Change the Borrower's names or conduct the
Borrower's businesses under any trade name or style other than as hereinabove
set forth or change its chief executive office, place of business or the present
locations of its business assets or records relating thereto from the address
set forth in the first paragraph of this Agreement.
6.9. Certificate of Incorporation and By-laws. Amend or otherwise modify
its certificate of incorporation or by-laws, or permit any Subsidiary so to do,
in any way which would adversely and materially affect the interest of the
Lender under any of the Loan Documents or the obligations of the Guarantor or
Borrower under the Loan Documents.
7. Continuing Guaranty; Transfer of Note. This Guaranty is a continuing
guaranty and shall:
(a) remain in full force and effect until payment in full of the
Obligations and all other amounts payable under this Guaranty;
(b) be binding upon the Guarantor, its successors and assigns; and
(c) inure to the benefit of and be enforceable by the Lender, and its
respective successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), the Lender may
assign or otherwise transfer the Note or any of the Obligations held by it to
any other person or entity, and such other person or entity shall thereupon
become vested with all the rights in respect thereof granted to the Lender
herein or otherwise.
8. Amendments. No amendment or waiver of any provision of this Guaranty and
no consent to any departure by the Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by the Lender.
7
<PAGE>
9. Addresses for Notices. Any notice provided for under this Agreement
shall be in writing and shall be effective upon receipt or upon failure of the
addressee to accept delivery if and when mailed by registered or certified mail,
postage prepaid, or express parcel service, addressed to such party at such
address. Any party and any representative designated below may, by notice to the
other in the manner provided herein, change its address for receiving such
notices. All notices and consents on behalf of any party hereto shall be signed
by such party and shall be sent:
If to the Guarantor:
FIRST AVIATION SERVICES, INC.
15 Riverside Avenue
Westport, Connecticut 06880
Attention: Aaron Hollander
If to the Lender:
HUDSON UNITED BANK
87 Post Road East
Westport, Connecticut 06880
Attention: Allison Knapp, Vice President
10. Severability. If any clause or provision of this Guaranty is determined
to be illegal, invalid or unenforceable under any present or future law by the
final judgment of a court of competent jurisdiction, the remainder of this
Guaranty will not be affected thereby.
11. Headings. Section headings are for convenience of reference only, and
shall not affect the interpretation or meaning of any provision of this
Guaranty.
12. Entire Agreement. This Guaranty constitutes the entire agreement
between the parties, and supersedes all prior discussions and negotiations
relating to the subject matter hereof. The terms of this Guaranty cannot be
changed or terminated orally, and shall be deemed effective as of the date
accepted by the Lender by its duly authorized officer. This Guaranty may not be
amended or terminated except by a writing signed by the party against whom
enforcement thereof is sought.
13. Successors and Assigns. This Guaranty shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Guarantor shall not assign this Guaranty, or any
related document, or any of its rights without the prior written consent of the
Lender.
8
<PAGE>
14. Waiver; Failure or Delay not a Waiver. The Guarantor waives promptness,
diligence, notice of acceptance, notice or presentment, demand or protest and
any other notice with respect to any of the Obligations and this Guaranty and
any requirement that the Lender exhaust any right or take any action against the
Borrower or any other person or entity or any collateral.
No delay or omission by the Lender to exercise any right hereunder shall impair
any such right, and any such delay or omission shall not be construed to be a
waiver thereof. A waiver of any single breach of default hereunder shall not be
deemed a waiver of any other breach or default. Any waiver, amendment to,
consent or approval under this Guaranty by the Lender must be in writing to be
effective and must be signed by the Lender.
15. Governing Law; Consent to Jurisdiction. This Guaranty is, and shall be
deemed to be, a contract entered into under and pursuant to the laws of the
State of Connecticut and shall be in all respects governed, construed, applied
and enforced in accordance with the laws of said State; and no defense given or
allowed by the laws of any other State or Country shall be interposed in any
action or proceeding hereon unless such defense is also given or allowed by the
laws of the State of Connecticut. The undersigned irrevocably appoints Aaron
Hollander and each and every officer of the undersigned as its attorneys upon
whom may be served any notice, process or pleading in any action or proceeding
against it arising out of or in connection with this Guaranty or any other Loan
Document (as defined in the Loan Agreement). The undersigned hereby consents
that any action or proceeding against it may be commenced and maintained in any
court within the State of Connecticut or in the United States District Court for
the District of Connecticut or, at the option of Bank, any court in which Bank
shall initiate legal or equitable proceedings and which has subject matter
jurisdiction over the matter in controversy, and that such action or proceeding
may be commenced by service of process on any such officer. The undersigned
agrees that the courts of the State of Connecticut and the United States
District Court for the District of Connecticut shall have jurisdiction with
respect to the subject matter hereof and the person of the undersigned. The
undersigned agrees not to assert any defense to any proceeding initiated by Bank
based upon improper venue or inconvenient forum.
16. Other Guarantors. The Guarantor acknowledges that other individuals or
entities may also guaranty the liabilities of the Borrower (the "Other
Guarantors") and that it is unconditionally delivering this Guaranty to the
Lender. The Guarantor further acknowledges that the failure of any of the Other
Guarantors to execute and deliver their respective guaranties or the discharge
of any of the Other Guarantors of their respective guarantied obligations shall
not discharge the liability of the Guarantor.
17. THE GUARANTOR ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THE NOTE IS A
COMMERCIAL TRANSACTION AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER
903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY OTHER
STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER MAY
DESIRE TO USE, AND FURTHER, WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR
9
<PAGE>
PAYMENT, NOTICE OF NONPAYMENT, PROTEST AND NOTICE OF PROTEST, AND NOTICE OF ANY
RENEWALS OR EXTENSIONS OF THIS GUARANTY THE GUARANTOR ACKNOWLEDGES THAT IT MAKES
THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
18. THE GUARANTOR WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION,
PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO
THIS GUARANTY OR THE FINANCING TRANSACTION OF WHICH THIS GUARANTY IS A PART OR
THE DEFENSE OR ENFORCEMENT OF ANY OF THE HOLDER'S RIGHTS AND REMEDIES IN
CONNECTION THEREWITH. THE GUARANTOR ACKNOWLEDGES THAT IT MAKES THIS WAIVER
KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER EXTENSIVE CONSIDERATION OF
THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the date
and year above written.
___________________________ FIRST AVIATION SERVICES, INC
___________________________ By /s/ John A. Marsalisi
---------------------
Name: John A. Marsalisi
Its Vice President
10
<PAGE>
STATE OF CONNECTICUT )
) ss.:__________
COUNTY OF FAIRFIELD )
On this the _____ day of March, 2000, before me, the undersigned officer,
personally appeared__________, who acknowledged himself to be the ____________
of FIRST AVIATION SERVICES, INC., a Delaware corporation, and that he, as such
officer, being authorized so to do, executed the foregoing instrument for the
purposes therein contained and acknowledged the same to be his free act and deed
individually and as such officer, and the free act and deed of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
-----------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires:
11
EXECUTIVE CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement") is dated
as of December 2, 1999, by and between First Aviation Services Inc. ("FAvS" or
"the Company"), a Delaware Corporation and Gerald E. Schlesinger, an individual
(the "Executive").
WITNESSETH:
WHEREAS the Company considers it to be in the best interests
of its stockholders to foster the continuous employment of key management
personnel, and believes that the possibility of a "Change of Control" event
involving the Company and the uncertainty and questions which it may raise among
management may result in the departure or distraction of management personnel to
the detriment of the Company and its stockholders;
WHEREAS, the Board of Directors has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management, including the
Executive, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a
"Change of Control" event involving the Company;
NOW, THEREFORE, in consideration of the mutual premises set
forth below and for other good and valuable consideration, in order to induce
the Executive to remain in the employ of the Company, the Company agrees that
the Executive shall receive the severance benefits set forth in this Agreement
in the event his employment with the Company terminates subsequent to a "Change
of Control" of the Company under the circumstances described below:
I. DEFINITIONS
Definitions. For purposes of this Agreement, the
following definitions shall be applicable to the terms set forth below:
(a) Annual Salary. "Annual Salary" shall mean the Executive's
Annual Salary then in effect, pursuant to the Executive's
Employment Agreement before any deductions, exclusions,
deferrals or contributions under any Company plan or program,
but excluding, bonuses, incentive compensation, employee
benefits or any other non-salary forms of compensation.
(b) Cause. "Cause" shall mean only the following: (i)
continued failure by the Executive after receipt of written
notice thereof to perform his duties hereunder or those duties
which may, from time to time, be reasonably requested by the
Chief Operating Officer or the Chief Executive Officer of the
Company (other than such failure resulting from the
Executive's incapacity due to physical or mental illness), as
determined by the independent members of the Board of
Directors in their reasonable discretion; (ii) misconduct by
the Executive which is materially injurious to the Company;
(iii) conviction of or
<PAGE>
pleading no contest to a felony or crime of moral
turpitude; (iv) habitual drunkenness or drug use by the
Executive; (v) failure to uphold the policies of the Company
and/or action by the Executive beyond the scope of his
employment, as such scope is set by the Chief Operating
Officer or the Chief Executive Officer of the Company from
time to time; (vi) a material breach of this Agreement by the
Executive.
(c) Change of Control. A "Change of Control" shall occur if
during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors
cease for any reason to constitute less than one half of the
membership of the board, unless the election, or the
nomination for election by the Company's shareholders of each
Director first elected during such period was approved by a
vote of at least two-thirds of the Directors then still in
office who were Directors at the beginning of any such period.
II SEVERANCE PRIOR TO CHANGE OF CONTROL
If during the term of this agreement, no Change of Control has
occurred and the Executive's employment with the Company is terminated for any
reason, this agreement shall not apply and Executive shall be entitled to
receive severance if such payments are appropriate under the provisions of said
Executive's Employment Agreement with the Company, if any. In the absence of an
Employment Agreement, then said Executive shall be entitled to severance in
accordance with the Company's applicable severance policy. The Company shall not
discharge the Executive in anticipation of a Change of Control in order to avoid
the Company or its successor's obligations under this agreement.
III SEVERANCE AFTER CHANGE OF CONTROL
If during the term of this Agreement and following a Change of
Control, Executive's employment with the Company is terminated for any reason,
including his/her voluntary resignation, but other than by (i) death, (ii)
Cause, or (iii) Disability, Executive shall be entitled to receive, subject to
applicable federal, state and or local taxes and other amounts required by
governmental authorities to be withheld or deducted, the payment by the Company
of an amount equal to two times the Executive's Annual Salary as of the date of
the Change of Control. The Company shall make payment to the Executive in twelve
equal monthly installments beginning on the first day of the calendar month
following the date of such termination and on the first day of each of the next
eleven calendar months thereafter.
IV EQUALIZATION
(a) In the event it shall be determined that any payment or distribution by
the Company or any of its subsidiaries or affiliates, to or for the benefit of
the Executive in accordance with Section III above or otherwise pursuant to or
by reason of any other agreement, policy, plan, program or arrangement,
including without limitation any stock option agreement (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") (such tax, together with any interest and
penalties, being hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to
<PAGE>
receive an additional payment (an "Equalization Payment") in an amount such
that, after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax imposed
on the Equalization Payment, the Executive retains an amount of the Equalization
Payment equal to the Excise Tax imposed upon the Payment.
(b) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Equalization Payment. Such notification shall be given no later
than fifteen (15) business days after the receipt by the Executive of such a
claim by the Internal Revenue Service.
V PAYMENT
All payments made pursuant to this Agreement will be subject
to the withholding of applicable federal, state and local income taxes as well
as any governmental or court order of a competent jurisdiction.
VI VESTING OF STOCK OPTIONS
Vesting of any long-term incentive grants and awards resulting
from employment terminations, regardless of the reason for or date of such
termination, shall be governed by the long-term incentive plan document and any
grant or award agreements and shall not be affected by the terms of this
Agreement.
VII AT WILL EMPLOYMENT
The Company and the Executive acknowledge that the Executive's
employment with the Company is and shall continue to be at-will, as defined
under applicable law. If the Executive's employment terminates for any reason,
whether prior to or after a Change of Control, the Executive shall not be
entitled to any payments or benefits, other than as provided by this Agreement,
the Executive's Employment Agreement and/or as may otherwise be available in
accordance with the terms of the Company's then existing employee plans and
written policies in effect at the time of termination.
VIII TERMINATION
This Agreement shall terminate, except for any unpaid
obligations of the Company, at the earlier of December 2, 2002 or two years
following a Change of Control of the Company.
IX NO OBLIGATION TO MITIGATE
The Executive is under no obligation to mitigate damages in
the amount of any payment provided herein by seeking other employment or
otherwise.
<PAGE>
X ASSIGNMENT, SUCCESSORS
(a) Without limiting the rights of the Executive as provided
in Section III hereof, the Company shall require any successor to or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) of
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance reasonably satisfactory to the Executive, to
expressly and unconditionally assume and agree to perform this Agreement.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributes, devises and legatees. If the
Executive dies while any amounts are payable hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee, or other designee or, if there is
no such designee, to the Executive's estate.
(c) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive except by will or the laws of descent and distribution.
XI 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.
15 Riverside Avenue
Westport, CT 06880-4214
Attn: Michael C. Culver
Telephone: (203) 291-3300
Fax: (203) 291-3330
If to the Executive:
Gerald E. Schlesinger
16942 Old Pond Drive
Dallas, TX 75248
or to 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.
<PAGE>
XII MISCELLANEOUS
(a) No provisions of this Agreement may be modified, waived or
discharged except in a writing signed and dated by both parties. No waiver by
either party at any time of any breach by the other party of, or compliance
with, any condition or provision of this Agreement shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or any prior or
subsequent time.
(b) This Agreement reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous
agreements. No agreements or representations, oral or otherwise, expressed or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement.
(c) This Agreement shall be governed and construed in all
respects in accordance with the internal laws of the State of Connecticut.
(d) The invalidity or unenforceability of any provision 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.
(e) This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
(f) Any action at law or in equity under this Agreement shall
be brought in the courts of the State of Connecticut and in no other court
(whether or not jurisdiction can be established in another court). Each party to
this agreement waives the right to argue that venue is not appropriate to the
Courts of the State of Connecticut. The parties hereby knowingly, voluntarily
and intentionally waive any right that they may have to a trial by jury, this
waiver being a material inducement for the parties entering into this agreement.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors or the Executive
Committee of the Board of Directors, the Company has caused these presents to be
executed in its name on its behalf, all on the day and year first written above.
FIRST AVIATION SERVICES INC.
a Delaware corporation
By: /s/ Michael C. Culver
----------------------
Gerald E. Schlesinger
an individual
/s/ Gerald E. Schlesinger
-------------------------
EXECUTIVE CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement") is dated
as of December 2, 1999, by and between First Aviation Services Inc. ("FAvS" or
"the Company"), a Delaware Corporation and John A. Marsalisi, an individual (the
"Executive").
WITNESSETH:
WHEREAS the Company considers it to be in the best interests
of its stockholders to foster the continuous employment of key management
personnel, and believes that the possibility of a "Change of Control" event
involving the Company and the uncertainty and questions which it may raise among
management may result in the departure or distraction of management personnel to
the detriment of the Company and its stockholders;
WHEREAS, the Board of Directors has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management, including the
Executive, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a
"Change of Control" event involving the Company;
NOW, THEREFORE, in consideration of the mutual premises set
forth below and for other good and valuable consideration, in order to induce
the Executive to remain in the employ of the Company, the Company agrees that
the Executive shall receive the severance benefits set forth in this Agreement
in the event his employment with the Company terminates subsequent to a "Change
of Control" of the Company under the circumstances described below:
I. DEFINITIONS
Definitions. For purposes of this Agreement, the
following definitions shall be applicable to the terms set forth below:
(a) Annual Salary. "Annual Salary" shall mean the Executive's
Annual Salary then in effect, pursuant to the Executive's
Employment Agreement before any deductions, exclusions,
deferrals or contributions under any Company plan or program,
but excluding, bonuses, incentive compensation, employee
benefits or any other non-salary forms of compensation.
(b) Cause. "Cause" shall mean only the following:
(i) continued failure by the Executive after receipt of
written notice thereof to perform his duties hereunder or
those duties which may, from time to time, be reasonably
requested by the Chief Operating Officer or the Chief
Executive Officer of the Company (other than such failure
resulting from the Executive's incapacity due to physical or
mental illness), as determined by the independent members of
the Board of Directors in their reasonable discretion; (ii)
misconduct by the Executive which is materially injurious to
the Company; (iii) conviction of or
<PAGE>
pleading no contest to a felony or crime of moral turpitude;
(iv) habitual drunkenness or drug use by the Executive; (v)
failure to uphold the policies of the Company and/or action by
the Executive beyond the scope of his employment, as such
scope is set by the Chief Operating Officer or the Chief
Executive Officer of the Company from time to time; (vi) a
material breach of this Agreement by the Executive.
(c) Change of Control. A "Change of Control" shall occur if
during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors
cease for any reason to constitute less than one half of the
membership of the board, unless the election, or the
nomination for election by the Company's shareholders of each
Director first elected during such period was approved by a
vote of at least two-thirds of the Directors then still in
office who were Directors at the beginning of any such period.
II SEVERANCE PRIOR TO CHANGE OF CONTROL
If during the term of this agreement, no Change of Control has
occurred and the Executive's employment with the Company is terminated for any
reason, this agreement shall not apply and Executive shall be entitled to
receive severance if such payments are appropriate under the provisions of said
Executive's Employment Agreement with the Company, if any. In the absence of an
Employment Agreement, then said Executive shall be entitled to severance in
accordance with the Company's applicable severance policy. The Company shall not
discharge the Executive in anticipation of a Change of Control in order to avoid
the Company or its successor's obligations under this agreement.
III SEVERANCE AFTER CHANGE OF CONTROL
If during the term of this Agreement and following a Change of
Control, Executive's employment with the Company is terminated for any reason,
including his/her voluntary resignation, but other than by (i) death, (ii)
Cause, or (iii) Disability, Executive shall be entitled to receive, subject to
applicable federal, state and or local taxes and other amounts required by
governmental authorities to be withheld or deducted, the payment by the Company
of an amount equal to two times the Executive's Annual Salary as of the date of
the Change of Control. The Company shall make payment to the Executive in twelve
equal monthly installments beginning on the first day of the calendar month
following the date of such termination and on the first day of each of the next
eleven calendar months thereafter.
IV EQUALIZATION
(a) In the event it shall be determined that any payment or distribution by
the Company or any of its subsidiaries or affiliates, to or for the benefit of
the Executive in accordance with Section III above or otherwise pursuant to or
by reason of any other agreement, policy, plan, program or arrangement,
including without limitation any stock option agreement (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") (such tax, together with any interest and
penalties, being hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to
<PAGE>
receive an additional payment (an "Equalization Payment") in an amount such
that, after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax imposed
on the Equalization Payment, the Executive retains an amount of the Equalization
Payment equal to the Excise Tax imposed upon the Payment.
(b) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Equalization Payment. Such notification shall be given no later
than fifteen (15) business days after the receipt by the Executive of such a
claim by the Internal Revenue Service.
V PAYMENT
All payments made pursuant to this Agreement will be subject
to the withholding of applicable federal, state and local income taxes as well
as any governmental or court order of a competent jurisdiction.
VI VESTING OF STOCK OPTIONS
Vesting of any long-term incentive grants and awards resulting
from employment terminations, regardless of the reason for or date of such
termination, shall be governed by the long-term incentive plan document and any
grant or award agreements and shall not be affected by the terms of this
Agreement.
VII AT WILL EMPLOYMENT
The Company and the Executive acknowledge that the Executive's
employment with the Company is and shall continue to be at-will, as defined
under applicable law. If the Executive's employment terminates for any reason,
whether prior to or after a Change of Control, the Executive shall not be
entitled to any payments or benefits, other than as provided by this Agreement,
the Executive's Employment Agreement and/or as may otherwise be available in
accordance with the terms of the Company's then existing employee plans and
written policies in effect at the time of termination.
VIII TERMINATION
This Agreement shall terminate, except for any unpaid
obligations of the Company, at the earlier of December 2, 2002 or two years
following a Change of Control of the Company.
IX NO OBLIGATION TO MITIGATE
The Executive is under no obligation to mitigate damages in
the amount of any payment provided herein by seeking other employment or
otherwise.
<PAGE>
X ASSIGNMENT, SUCCESSORS
(a) Without limiting the rights of the Executive as provided
in Section III hereof, the Company shall require any successor to or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) of
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance reasonably satisfactory to the Executive, to
expressly and unconditionally assume and agree to perform this Agreement.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributes, devises and legatees. If the
Executive dies while any amounts are payable hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee, or other designee or, if there is
no such designee, to the Executive's estate.
(c) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive except by will or the laws of descent and distribution.
XI 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.
15 Riverside Avenue
Westport, CT 06880-4214
Attn: Michael C. Culver
Telephone: (203) 291-3300
Fax: (203) 291-3330
If to the Executive:
John A. Marsalisi
22 White Oak Lane
Stamford, CT 06905
or to 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.
<PAGE>
XII MISCELLANEOUS
(a) No provisions of this Agreement may be modified, waived or
discharged except in a writing signed and dated by both parties. No waiver by
either party at any time of any breach by the other party of, or compliance
with, any condition or provision of this Agreement shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or any prior or
subsequent time.
(b) This Agreement reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous
agreements. No agreements or representations, oral or otherwise, expressed or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement.
(c) This Agreement shall be governed and construed in all
respects in accordance with the internal laws of the State of Connecticut.
(d) The invalidity or unenforceability of any provision 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.
(e) This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
(f) Any action at law or in equity under this Agreement shall
be brought in the courts of the State of Connecticut and in no other court
(whether or not jurisdiction can be established in another court). Each party to
this agreement waives the right to argue that venue is not appropriate to the
Courts of the State of Connecticut. The parties hereby knowingly, voluntarily
and intentionally waive any right that they may have to a trial by jury, this
waiver being a material inducement for the parties entering into this agreement.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors or the Executive
Committee of the Board of Directors, the Company has caused these presents to be
executed in its name on its behalf, all on the day and year first written above.
FIRST AVIATION SERVICES INC.
a Delaware corporation
By: /s/ Michael C. Culver
----------------------
Michael C. Culver
Chief Executive Officer
John A. Marsalisi
an individual
/s/ John A. Marsalisi
---------------------
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-25915) pertaining to the Stock Incentive Plan of First Aviation
Services Inc. of our report dated March 31, 2000 with respect to the
consolidated financial statements and schedule of First Aviation Services Inc.,
as amended, included in this Form 10-K for the year ended January 31, 2000.
Stamford, Connecticut /s/ Ernst & Young LLP
April 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial information contained in the body of the accompanying 10-K and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-START> Feb-01-1999
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-31-2000
<PERIOD-END> Jan-31-2000
<CASH> 50,104
<SECURITIES> 0
<RECEIVABLES> 13,810
<ALLOWANCES> 0
<INVENTORY> 14,142
<CURRENT-ASSETS> 80,628
<PP&E> 5,564
<DEPRECIATION> 1,584
<TOTAL-ASSETS> 86,392
<CURRENT-LIABILITIES> 23,193
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 54,052
<TOTAL-LIABILITY-AND-EQUITY> 86,392
<SALES> 81,243
<TOTAL-REVENUES> 81,243
<CGS> 65,015
<TOTAL-COSTS> 65,015
<OTHER-EXPENSES> 15,952
<LOSS-PROVISION> 410
<INTEREST-EXPENSE> (111)
<INCOME-PRETAX> (23)
<INCOME-TAX> (190)
<INCOME-CONTINUING> 167
<DISCONTINUED> 15,363
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,530
<EPS-BASIC> 1.74
<EPS-DILUTED> 1.72
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial information contained in the body of the accompanying 10-K and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-START> Feb-01-1998
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-31-1999
<PERIOD-END> Jan-31-1999
<CASH> 149
<SECURITIES> 0
<RECEIVABLES> 9,559
<ALLOWANCES> 0
<INVENTORY> 12,201
<CURRENT-ASSETS> 74,311
<PP&E> 3,937
<DEPRECIATION> 769
<TOTAL-ASSETS> 79,319
<CURRENT-LIABILITIES> 33,646
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 44,291
<TOTAL-LIABILITY-AND-EQUITY> 79,319
<SALES> 59,666
<TOTAL-REVENUES> 59,666
<CGS> 47,874
<TOTAL-COSTS> 47,874
<OTHER-EXPENSES> 12,410
<LOSS-PROVISION> 800
<INTEREST-EXPENSE> 268
<INCOME-PRETAX> (1,686)
<INCOME-TAX> (675)
<INCOME-CONTINUING> (1,011)
<DISCONTINUED> (703)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,714)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial information contained in the body of the accompanying 10-K and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-START> Feb-01-1997
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-END> Jan-31-1998
<CASH> 237
<SECURITIES> 0
<RECEIVABLES> 7,154
<ALLOWANCES> 0
<INVENTORY> 7,570
<CURRENT-ASSETS> 65,924
<PP&E> 1,917
<DEPRECIATION> 942
<TOTAL-ASSETS> 68,912
<CURRENT-LIABILITIES> 8,049
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 45,868
<TOTAL-LIABILITY-AND-EQUITY> 68,912
<SALES> 44,003
<TOTAL-REVENUES> 44,003
<CGS> 35,770
<TOTAL-COSTS> 35,770
<OTHER-EXPENSES> 7,605
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (34)
<INCOME-PRETAX> 662
<INCOME-TAX> 265
<INCOME-CONTINUING> 397
<DISCONTINUED> 4,854
<EXTRAORDINARY> 0
<CHANGES> (11)
<NET-INCOME> 5,240
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.60
</TABLE>
