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As filed with the Securities and Exchange Commission on December 10, 1999
Registration No. 333-75169
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------
AMENDMENT NO. 5
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------------
AVIATION HOLDINGS GROUP, INC.
(Name of Small Business Issuer in Its Charter)
--------------------------------
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Delaware 5008 22-2945898
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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15675 Northwest 15th Avenue
Miami, Florida 33169
(305) 624-6700
(Address and telephone number of
Principal Executive Officers and Principal Place of Business)
Joseph J. Nelson, President
AVIATION HOLDINGS GROUP, INC.
15675 Northwest 15th Avenue
Miami, Florida 33169
(305) 624-6700
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Agent For Service)
with copy to:
Lawrence D. Rovin, Esq.
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 S. Broad Street
Philadelphia, PA 19102
(215) 568-6060
-----------------------------------
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ]
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 10, 1999
PROSPECTUS
AVIATION HOLDINGS GROUP, INC.
750,000 Units, each Unit Consisting of Two
Shares of Common Stock and a Class A Warrant to
Purchase One Share of Common Stock
Aviation Holdings Group is offering up to a maximum of 750,000 units at
the purchase price of $___ per unit. Each unit is comprised of two shares of
common stock and one Class A Warrant. Each Class A Warrant is exercisable into
one share of common stock at the purchase price of $2.85. The Class A Warrants
shall be exercisable for a period of three years upon registration with the
Securities and Exchange Commission and shall be redeemable by us at $.01 per
Class A Warrant if the market value of a share of common stock exceeds $5.50.
The shares of common stock and Class A Warrants that make up each unit may not
be separated or sold separately until 45 days after the date of issuance. We
expect that the initial public offering price for the units will be between
$5.00 and $6.00 per unit.
M.S. Farrell & Co., Inc., will serve as the underwriter for this public
offering and will purchase 750,000 units for resale to the public. We have
granted an option to the underwriter, exercisable for a period of 30 days after
the date of this prospectus, to purchase up to an additional 75,000 units from
us at the public offering price set forth in this prospectus less the
underwriting discounts and commissions. The underwriter may exercise this
option only for the purpose of filling orders for units in excess of 750,000
units, if any.
Prior to August 2, 1999, shares of our common stock were sold on the OTC
Bulletin Board under the trading symbol "AHGI" pursuant to the provisions of
Rule 15c2-11 promulgated under the Securities Exchange Act of 1934. Since
August 2, 1999, several broker/dealers have continued to submit quotations in
the National Quotation Bureau's Pink Sheets.
Investing in units involves certain risks. See "Risk Factors" on pages 3
to 6.
Offering of Units Per Unit Total
----------------- -------- -----
o Public Offering Price ........................... $____ $____
o Underwriting Discounts and Commissions .......... $____ $____
o Proceeds to the Company ......................... $____ $____
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
M.S. FARRELL & CO., INC.
Prospectus dated ____________, 1999
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TABLE OF CONTENTS
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Page
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PROSPECTUS SUMMARY ....................................................................... 1
SELECTED FINANCIAL INFORMATION ........................................................... 2
RISK FACTORS ............................................................................. 3
The Underwriter Has Limited Underwriting Experience ................................... 3
We Are In Default Under Our Credit Facility ........................................... 3
We Have A Limited Operating History On Which To Evaluate An Investment In
This Offering ........................................................................ 3
We May Fail To Obtain Additional Funding If Needed .................................... 3
A Downturn In The Airline Industry Would Adversely Affect Our Business ................ 3
Consolidation In The Aircraft Parts Industry Could Reduce Our Market Share ............ 4
Stricter Government Regulations Could Reduce The Value Of Our Inventory And/Or
Require Significant Expenditures ..................................................... 4
Our Planned Expansion Into The Jet Engine Business Will Subject Us To Additional Risks
Our Operating Results Could Be Adversely Affected By Fluctuations In Demand ........... 4
Our Business May Subject Us To Expensive Product Liability Claims ..................... 4
Our Business Could be Adversely Affected if our Customers or Suppliers Encounter
Year 2000 Problems ................................................................... 5
We Maintain Bank Account Balances in Excess of Insured Amounts ........................ 5
The Units, Common Stock And Warrants Will Be Subject To Certain Limitations
Upon Trading Activities .............................................................. 5
The Warrants May Not Be Exercisable If We Do Not Maintain A Current Prospectus
And Registrations .................................................................... 6
We May Be Able To Redeem The Class A Warrants At A Time Adverse To The Interest
Of A Class A Warrant Holder .......................................................... 6
WHERE YOU CAN GET MORE INFORMATION ....................................................... 6
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ........................................ 6
DILUTION ................................................................................. 7
USE OF PROCEEDS .......................................................................... 8
MARKET PRICE OF THE COMMON STOCK ......................................................... 9
DIVIDEND POLICY .......................................................................... 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ................................................................... 10
BUSINESS ................................................................................. 17
MANAGEMENT ............................................................................... 25
PRINCIPAL STOCKHOLDERS ................................................................... 29
CERTAIN TRANSACTIONS ..................................................................... 30
DESCRIPTION OF SECURITIES ................................................................ 32
UNDERWRITING ............................................................................. 34
LEGAL MATTERS ............................................................................ 35
EXPERTS .................................................................................. 35
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ii
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PROSPECTUS SUMMARY
Aviation Holdings Group
Aviation Holdings Group is a holding company and currently has no
operations other than ownership of 96% of the outstanding capital stock of
Aviation Holdings International. We specialize in the sale, lease, exchange and
purchase of technical spare parts for fixed-wing commercial jet transport
aircraft manufactured by Boeing, McDonnell Douglas, Airbus and Lockheed.
Technical spares are aircraft or engine parts affecting the performance of an
aircraft or engine. We also provide our customers with inventory management
services. We intend to pursue opportunities involving the purchase, sale and
lease of jet turbine engines, jet turbine aircraft and related aviation
industry equipment.
Our operations are in the United States. However, we also conduct
operations in Europe and South America, and in China and other parts of Asia.
Our executive offices are located at 15675 Northwest 15th Avenue, Miami,
Florida 33169. Our telephone number is (305) 624-6700. We also have offices in
Beijing and Hong Kong, China.
The Offering
The following table excludes 255,750 shares of common stock reserved for
issuance upon the exercise of stock options outstanding as of November 30, 1999
under our Stock Option Plan and 494,250 shares of common stock available for
the future grant of stock options and other equity securities under the Stock
Option Plan. This table also excludes 200,000 shares of common stock reserved
for issuance to Joseph Nelson on the exercise of options granted under the
terms of his employment agreement. See "Management." This table also excludes
325,000 shares issuable upon exercise of outstanding warrants. See "Description
of Securities--Outstanding Warrants."
Common Stock Currently
Outstanding............. 4,219,315 shares of common stock
Securities Offered by the
Company................. 750,000 units, each unit consisting of two shares
of common stock and one Class A Warrant, for an
aggregate of 1,500,000 shares of common stock and
750,000 Class A Warrants.
Common Stock to be
Outstanding after the
Offering................ 5,719,315 shares of common stock
Dividend Policy.......... We intend to retain all future earnings to fund
the development and growth of our business.
Therefore, we do not currently anticipate paying
cash dividends. See "Dividend Policy."
Use of Proceeds by the
Company................. To fund our financial commitment to the SYNOR-A
joint venture, to purchase additional inventory, to
retire indebtedness, to purchase jet turbine
engines, to fund acquisitions and for general
corporate purposes. See "Use of Proceeds."
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SELECTED FINANCIAL INFORMATION
Set forth below is the historical selected financial information with
respect to Aviation Holdings Group for the fiscal years ended December 31, 1997
and December 31, 1998, and for the nine months ended September 30, 1998 and the
nine months ended September 30, 1999. Information for the fiscal year ended
December 31, 1998 and the nine months ended September 30, 1998 reflects
operations of Aviation Holdings International from May 1998 through December
31, 1998 and September 30, 1998, respectively.
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FISCAL YEAR ENDED NINE MONTHS ENDED
----------------------------- ------------------------------
DECEMBER 31, SEPTEMBER 30,
1997 1998 1998 1999
------------ --------------- --------------- -------------
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INCOME STATEMENT
INFORMATION
Revenue ..................................... $ 0 $ 8,365,197 $ 5,094,930 $ 9,342,749
Net Income (Loss) ........................... (57,437) (1,384,780) (1,277,567) (98,916)
Net Income (Loss) per Share ................. (0.06) (0.46) (0.49) (0.03)
Weighted Average Shares Outstanding ......... 1,046,235 3,035,856 2,610,511 3,954,459
BALANCE SHEET INFORMATION
AT END OF PERIOD
Working Capital ............................. $ 1,371,885 2,108,563
Total Assets ................................ 8,763,366 10,309,434
Total Liabilities ........................... 5,187,685 5,765,565
Minority Interest ........................... 1,186,964 364,906
Stockholders' Equity ........................ 2,388,717 4,178,963
Net Tangible Book Value Per Share ........... 0.58 0.67
</TABLE>
2
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RISK FACTORS
Investing in the units is very risky. Investors should carefully consider
the following factors in addition to the other information in this prospectus,
in evaluating an investment in Aviation Holdings Group, Inc.
The Underwriter Has Limited Underwriting Experience
M.S. Farrell & Co., Inc. has agreed to act as underwriter in connection
with our offering of units. The underwriter, its affiliates and predecessors
have engaged in only limited underwriting activities and have been the lead or
sole underwriter in only a few public offerings during the past five years.
Accordingly, the underwriter's lack of public offering experience may affect
the offering of the units and the common stock or the subsequent development of
a public trading market for the units or the common stock, and purchasers of
the units or the common stock may suffer a lack of liquidity in their
investment.
We Are In Default Under Our Credit Facility
Aviation Holdings International is required to maintain tangible net worth
of $4,250,000 under its Comerica Bank credit facility. As of September 30,
1999, Aviation Holdings International had tangible net worth (as defined by
Comerica Bank) of $3,863,176 and therefore was in default. Comerica Bank has
not declared an event of default and continues to advance funds, and we
anticipate that our receipt of the proceeds from the offering will permit us to
cure the default. However, in the event that we are unable to cure the default
or obtain replacement financing, Comerica Bank could declare an event of
default and exercise its rights as a secured lender to collect the accounts
receivable and sell the assets of Aviation Holdings International in an amount
sufficient to repay the loan. As of November 30, 1999, the outstanding balance
due to Comerica Bank was $2,125,000.
We Have A Limited Operating History On Which To Evaluate An Investment In This
Offering
We have a limited operating history on which you must base your investment
decision and are subject to all of the risks associated with development stage
enterprises. We had no significant operations prior to the acquisition of a
majority of the outstanding shares of capital stock of Aviation Holdings
International, which only commenced operations in October 1996 and has a
correspondingly limited operating history. Accordingly, we are subject to
various risks common to developing businesses, including cash flow
difficulties, competition for customers and employees and delays in
implementing business plans. We intend to expand our operations, which will
substantially increase our expenses and will likely decrease our cash flow and
earnings in the near future. Our ability to operate profitably will depend on
increasing sales, maintaining adequate profit margins and a continuing demand
for Aviation Holdings International's products and services. Our expansion
plans may have a negative impact on our profitability, at least in the short
term, as significant expenses will be incurred prior to the receipt of
additional revenues.
We May Fail To Obtain Additional Funding If Needed
Our inability to raise additional capital when needed would have an
adverse effect on our plans to expand operations, although it would not impair
current operations. We anticipate that this offering will generate net proceeds
of approximately $3,230,000. We believe that revenues from operations and net
proceeds from the offering will be sufficient to fund our operational
requirements for at least eighteen months and that the net proceeds from the
offering also will be sufficient to expand our existing business. However, we
may need to raise additional funds for acquisitions. We do not know if
additional funds will be available on acceptable terms, if at all.
A Downturn In The Airline Industry Would Adversely Affect Our Business
An economic downturn in the airline industry could have a serious negative
impact on our business. Since our customers consist primarily of commercial
airlines, original equipment manufacturers, aircraft maintenance and repair
facilities and aircraft parts distributors, our business is impacted by all of
the economic factors which affect the aircraft and airline industry. When the
airline industry experiences an economic downturn, there is typically a
corresponding reduction in demand for spare aircraft parts and related
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services which causes price reductions and increased credit risks associated
with doing business. Additionally, the price of aircraft fuel affects the spare
aircraft parts market. Older aircraft into which aircraft spare parts are most
often placed tend to be less fuel efficient and become less viable as the price
of aircraft fuel increases.
Consolidation In The Aircraft Parts Industry Could Reduce Our Market Share
The airline industry is currently experiencing a reduction in the number
of approved parts suppliers and a consolidation of the spare parts
redistribution market. Although we presently are an "approved" supplier of 26
airlines, we cannot be certain that we will be able to maintain or expand this
status. Our revenues will be reduced if we are unable to do so. A number of
major airlines have reduced the number of "approved" suppliers during the last
few years from as many as 50 to as few as five. Airlines choose "approved"
suppliers based on a number of factors including product offerings and quality,
management reputation and experience, financial strength and cost. Also, the
reduction in the supplier base for airlines has contributed to a consolidation
in the redistribution market which is likely to continue.
Stricter Government Regulations Could Reduce The Value Of Our Inventory And/Or
Require Significant Expenditures
The aircraft parts which make up our inventory are subject to strict
regulatory standards. If stricter standards are enacted, then some of our
inventory may lose some or all of its value. Our inventory consists principally
of overhauled, serviceable, repairable and new aircraft parts that are
purchased from many sources. Before parts may be installed in an aircraft or
engine, they must meet certain standards of condition established by the United
States Federal Aviation Administration and/or similar regulatory agencies
abroad. Specific regulations vary from country to country, although regulatory
requirements in other countries generally coincide with FAA requirements. Parts
must also be traceable to sources deemed acceptable by such agencies. Although
we believe that the great majority of our inventory meets industry
requirements, some parts may not meet applicable standards or standards may
change in the future, in which case we will have to modify or scrap such parts.
Our Planned Expansion Into The Jet Engine Business Will Subject Us To
Additional Risks
Although we have made only limited purchases of turbine engines and no
purchases of turbine aircraft for resale in the past, we intend to expand these
activities in the future. These activities will involve risks not present in
our current business. Market prices and demand for this type of equipment are
subject to volatility, and we could suffer substantial losses if equipment
cannot be resold at prices above the prices we paid, or if we must hold
equipment in inventory for extended time periods. These activities will also
require us to commit substantial capital, which will come from the proceeds of
the offering. Such funds will not be available for other activities. In
addition, the equipment may need repair work, which increases the costs
associated with resale and may adversely affect our profitability.
Our Operating Results Could Be Adversely Affected By Fluctuations In Demand
Our operating results will be affected by many factors, including the
timing of orders from customers, inventory purchases in anticipation of future
sales, bulk inventory purchases, and purchases and financing requirements for
aircraft engines or aircraft and the mix of available technical spare parts
maintained, at any time, in our inventory. A significant portion of our
operating expenses are relatively fixed. Since we typically do not obtain
long-term purchase orders or commitments from our customers, we must anticipate
the future volume of orders based upon the historical purchasing patterns of
our customers and upon our discussions with them as to their future
requirements. Cancellations, reductions or delays in orders by a customer or
group of customers could have a material adverse effect on our business,
financial condition and results of operations.
Our Business May Subject Us To Expensive Product Liability Claims
Our business exposes us to possible claims for personal injury or death
which may result from a failure of equipment we sold. We believe that we have
taken adequate precautions to assure the quality and
4
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traceability of the parts we sell, and we have not had any claims for product
liability. However, we cannot be certain that we will not be the subject of
lawsuits based on the failure of parts which we sold in the marketplace. These
lawsuits may result in damage awards against us. We do not carry product
liability insurance and therefore we would be required to pay any judgment
levied against us.
Our Business Could be Adversely Affected if our Customers Encounter Year 2000
Problems
If the computer software programs and operating systems of our vendors,
customers and other third parties with whom we transact business are not "Year
2000" compliant, then our business could experience disruption and other
problems in early 2000. All of our hardware and software has been upgraded or
replaced so that it can interpret appropriately the upcoming calendar year
2000, and our computer software programs and operating systems are "Year 2000"
compliant. However, we have not fully determined the extent to which our
vendors, customers and other persons with whom we transact business have
systems which are "Year 2000" compliant. In the event that a material portion
of our suppliers or customer's suffer business disruption as the result of
"Year 2000" problems, we could be adversely affected.
We Maintain Bank Account Balances in Excess of Insured Amounts
We maintain our principal banking relationships with Comerica Bank, our
working capital lender, and Citibank. As a result, our account balances
typically exceed FDIC insurance limits. As of December 31, 1998 and September
30, 1999, these excess balances were $403,377 and $670,391, respectively. In
the event of the failure of a bank in which we have such an excess balance, we
could lose some or all of such excess.
The Units, Common Stock And Warrants Will Be Subject To Certain Limitations
Upon Trading Activities
Trading of our securities will be subject to material limitations, at
least initially, as a consequence of certain provisions of the Securities
Exchange Act of 1934 which limit the activities of broker-dealers effecting
transactions in "penny stocks."
"Penny stocks" are equity securities with a market price below $5.00 per
share other than a security that is registered on a national exchange; included
for quotation in the NASDAQ system; or whose issuer has net tangible assets of
more than $2,000,000 and has been in continuous operation for greater than
three (3) years. Issuers who have been in operation less than three (3) years
must have net tangible assets of at least $5,000,000.
Rules promulgated by the Securities and Exchange Commission under Section
15(g) of the Exchange Act require broker-dealers engaging in transactions in
"penny stocks," to first provide to their customers a series of disclosures and
documents, including:
o a standardized risk disclosure document identifying the risks inherent
in investment in "penny stocks;"
o all compensation received by the broker-dealer in connection with the
transaction;
o current quotation prices and other relevant market data; and
o monthly account statements reflecting the fair market value of the
securities. In addition, these rules require that a broker-dealer obtain
financial and other information from a customer, determine that
transactions in penny stocks are suitable for such customer and deliver a
written statement to such customer setting forth the basis for such
determination.
If the common stock and units are not listed, they presently will
constitute "penny stocks." In that event, trading activities for the common
stock and units will be made more difficult for broker-dealers than in the case
of securities not defined as "penny stock." This may have the result of
depressing the market for our securities and an investor may find it difficult
to dispose of such securities.
Further, under the Exchange Act, and the regulations thereunder, any
person engaged in a distribution of the common stock or units offered by this
prospectus may not simultaneously engage in market making activities with
respect to the common stock during the applicable "cooling off' periods prior
to the commencement of such distribution.
5
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The Warrants May Not Be Exercisable If We Do Not Maintain A Current Prospectus
And Registrations.
We intend to maintain registration of the common stock underlying the
Class A Warrants so that holders of Class A Warrants may exercise them and sell
the underlying common stock, but we cannot assure you that we will be able to
do so. If we cannot, the Class A Warrants may have limited value.
We May Be Able To Redeem The Class A Warrants At A Time Adverse To The Interest
Of A Class A Warrant Holder.
We have the right to redeem the Class A Warrants at any time for a price
of $.01 per share if the average closing price for the common stock equals or
exceeds $5.50 for a specified period of time. This could force holders to
exercise the Class A Warrants, and pay the exercise price, at a time when they
otherwise would not do so.
WHERE YOU CAN GET MORE INFORMATION
At your request, we will provide you, without charge, a copy of any
exhibits to our Registration Statement. If you would like more information,
write or call us at:
AVIATION HOLDINGS GROUP, INC.
15675 Northwest 15th Avenue
Miami, Florida 33169
Telephone: (305) 624-6700
Facsimile: (305) 623-9307
Our fiscal year ends on December 31. We intend to provide annual reports
containing audited financial statements and other appropriate reports to our
shareholders. In addition, we intend to become a reporting company and file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any reports, statements or other
information we file at the SEC's public reference room in Washington, D.C. You
can request copies of these documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings are
also available to the public on the SEC Internet site at http\\www.sec.gov.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions.
Important factors that may cause actual results to differ from
forward-looking statements may include, for example,
o the success or failure of our efforts to implement our business strategy,
including expanding our international operations;
o our ability to raise sufficient capital to expand our business;
o the effect of changing economic conditions on the airline and aircraft
industries;
o changes in government regulations, tax rates and similar matters;
o our ability to attract and retain quality employees; and
o other risks which may be described in our future filings with the SEC.
We do not promise to update forward-looking information to reflect actual
results or changes in assumptions or other factors that could affect those
statements.
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DILUTION
As of September 30, 1999, the net tangible book value of our common stock
was $2,819,453, or $0.67 per share of common stock, based upon 4,219,315 shares
outstanding. "Net tangible book value" per share represents the amount of our
total tangible assets reduced by our total liabilities and minority interest
and divided by the number of shares of common stock outstanding. After giving
effect to the sale of 750,000 units being offered by us in this offering at an
assumed initial public offering price of $5.50 per unit less underwriting
discounts and commissions and estimated offering expenses we owe, our pro forma
net tangible book value at September 30, 1999 would have been $5,849,453, or
$1.02 per share of common stock, based upon 5,719,315 shares outstanding. This
does not include the 750,000 shares issuable on exercise of the Class A
Warrants. This represents an immediate increase in net tangible book value of
$0.35 per share to existing stockholders and an immediate dilution per share of
$1.73 to new investors purchasing shares in this offering. "Dilution per share
to new investors" represents the difference between the price per share of
common stock in this offering and the pro forma net tangible book value per
share at September 30, 1999, as adjusted to give effect to this offering.
Public offering price per share(1) ................................ $ 2.75
Net tangible book value per share before offering .............. $ 0.67
Increase per share attributable to new investors ............... $ 0.35
Pro forma net tangible book value per share after offering ..... $ 1.02
Dilution per share to new investors ............................ $ 1.73
- ------------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses.
The foregoing computations exclude (i) an aggregate of 255,750 shares of
common stock reserved for issuance upon exercise of outstanding stock options
under our stock option plan, as amended, at a weighted average exercise price
of $2.50 per share; and (ii) 525,000 shares of common stock reserved for
issuance upon exercise of other outstanding warrants and options. Any exercise
of such options or warrants may result in further dilution to new investors.
The following table summarizes on a pro forma basis as of September 30,
1999, the number of shares of common stock we issued, the total consideration
we received and the average price per share paid by the existing stockholders
and to be paid by purchasers of our common stock in the offering (before
deducting offering expenses and underwriting discounts and commissions) at an
assumed public offering price of $2.75 per share. Excluded from the amount of
consideration from existing stockholders is $249,119 recorded for the shares
and warrants issued to Nancy Plotkin and the John G. Jacobs Trust from APP
Investments in consideration of the Company's extension of payment of $250,000
in aggregate principal amount of notes payable and $443,850 recorded on the
issuance of stock options to employees.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------------- ----------------------- Average Price
Number Percent Amount Percent Per Share
----------- --------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing Common Stockholders ......... 4,219,315 73.8% 5,759,070 58.3% $ 1.36
New Investors ........................ 1,500,000 26.2 4,125,000 41.7 $ 2.75
Total .............................. 5,719,315 100.0 9,884,070 100.0 $ 1.73
</TABLE>
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USE OF PROCEEDS
Our net proceeds from the offering will be approximately $3,030,000,
assuming a public offering price of $5.50 per unit and after deducting
underwriting discounts and commissions and estimated offering expenses. If the
underwriter exercises its option in full however, we estimate to receive net
proceed from this offering of $3,402,000.
Over the twelve months following completion of the sale of the units, we
intend to use the net proceeds as follows:
o $0.3 million to fund the remaining portion of our commitment to the
SYNOR-A joint venture (see "Business-Asian Operations");
o approximately $0.6 million to fund purchases of additional inventory;
o approximately $0.9 million to pay down the principal balance of our line
of credit, which is payable on demand and bears interest at Comerica
Bank's prime rate plus 1%. See "Business -- Operations -- Credit
Facilities."
o approximately $0.6 million of the net proceeds to fund purchases of
aircraft and/or jet turbine engines; and
o approximately $0.6 million of the net proceeds for general corporate
purposes, including possible business acquisitions.
If the underwriter exercises its option in full, $0.2 million of the
additional proceeds would be applied to purchase inventory, $0.1 million would
be used to pay down the line of credit, and $0.1 million would be available for
general corporate purposes.
We have had discussions with a number of acquisition candidates which
primarily are FAA certified aircraft part repair facilities in various parts of
the country. We also have had discussions with aircraft parts manufacturers and
distributors. It is too early to tell which, if any, of these potential
business acquisitions will take place. We anticipate that any business
acquisitions will be accomplished using a combination of cash and shares of our
common stock for the purchase price.
The amounts actually expended for the purposes described above could vary
significantly depending on, among other things, our ability to obtain capital
from other sources, the demand for our services and the availability of
inventory, jet engines and aircraft at attractive prices.
Pending application of the net proceeds we receive from the offering, we
intend to invest the funds in short-term investment-bearing, investment grade
securities or guaranteed obligations of the United States government.
8
<PAGE>
MARKET PRICE OF THE COMMON STOCK
Prior to August 2, 1999, our common stock was traded in the
over-the-counter market through the OTC Bulletin Board under the symbol "AHGI."
Since August 2, 1999, broker/dealers have continued to submit quotations in the
National Quotation Bureau's Pink Sheets. The market for our common stock is
sporadic, and the quarterly average daily volume of shares traded since
formation ranged from a low of 19,674 shares to a high of 37,957 shares. The
following table presents the range of the high and low bid and average daily
volume information for our common stock for the periods indicated, which
information was provided by the Nasdaq Stock Market, Inc. and the National
Quotation Bureau, LLC. The quotations reflect inter-dealer prices, without
retail mark-up, markdown or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
Average
Daily
High Low Volume (Shares)
---- --- ---------------
<S> <C> <C> <C>
Year Ended December 31, 1998
First Quarter ...................................... 4.75 3.469 27,172
Second Quarter ..................................... 5.875 3.625 37,957
Third Quarter ...................................... 5.875 4 26,473
Fourth Quarter ..................................... 5 3 31,366
Year Ending December 31, 1999
First Quarter ...................................... 5.25 3 25,944
Second Quarter ..................................... 5.25 4 29,524
Third Quarter ...................................... 4.50 0.51 33,194
Fourth Quarter (through November 17, 1999) ......... 2 0.75 19,674
</TABLE>
Records of our stock transfer agent indicate that as of November 12, 1999,
there were 75 record holders of our common stock.
DIVIDEND POLICY
We have not paid any cash dividends to date, and do not anticipate or
contemplate paying cash dividends in the foreseeable future. Under the terms of
its credit agreement with Comerica Bank, Aviation Holdings International is
prohibited from declaring or paying cash dividends to Aviation Holdings Group
without the consent of Comerica Bank. We intend to utilize all available funds
for the purposes set forth above under "Use of Proceeds."
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Company's
financial statements and accompanying notes. This prospectus contains certain
forward-looking information, which involves risks and uncertainties. The actual
results could differ from the results we anticipate. See "Special Note
Regarding Forward-Looking Statements."
Overview
Our principal asset is our ownership of a controlling interest in Aviation
Holdings International. Accordingly, our results of operations are highly
dependent upon the results of operations of Aviation Holdings International.
Aviation Holdings International was incorporated in Florida on May 28,
1997 as Schuylkill Acquisition Corp. for the purpose of acquiring, by merger,
the business and operations of Jet Aviation Trading, Inc. On July 28, 1997,
Schuylkill Acquisition Corp. acquired 100% of the outstanding common stock of
Jet Aviation Trading, Inc., a Florida corporation, in exchange for 1,776,800
shares of common stock of Schuylkill Acquisition Corp. in a one-for-one stock
exchange. The former Jet Aviation Trading, Inc. was incorporated in the state
of Florida on October 3, 1996 for the purpose of buying, selling, leasing and
exchanging spare parts for fixed-wing commercial jet transport aircraft.
Effective July 28, 1997, the name of Schuylkill Acquisition Corp. was changed
to Jet Aviation Trading, Inc. Effective September 15, 1998, the name of Jet
Aviation Trading, Inc. was changed to Aviation Holdings International.
The effect of the transaction between Schuylkill Acquisition Corp. and the
former Jet Aviation Trading, Inc. was a reverse merger. Accordingly, the
historical financial statements presented for Aviation Holdings International
are those of the accounting survivor, Jet Aviation Trading, Inc., and the
stockholders' equity of the merged company was recapitalized to reflect the
capital structure of the surviving legal entity (Schuylkill Acquisition Corp.)
and the retained earnings of Jet Aviation Trading, Inc.
In February 1998, Aviation Holdings International acquired all or a
majority of the capital stock of PASCO International Aviation Corp., PASCO
International Aviation Corp. Limited, PASCO Financial Services Limited and
Aero-Link Flight Systems Limited (collectively "PASCO").
Effective in May 1998, we acquired a majority of the common stock of
Aviation Holdings International. Accordingly, our financial statements and
those of Aviation Holdings International were consolidated as of that date and
our financial statements for the year ended December 31, 1998 and the nine
months ended September 30, 1998 include the results of Aviation Holdings
International's operations for the period May 1998 through December 31, 1998,
and September 30, 1998, respectively.
Aviation Holdings International currently derives its revenues from
selling, leasing and exchanging spare parts for fixed-wing commercial jet
transport aircraft, selling turbine jet engines and management services.
We have only a limited operating history upon which you may base an
evaluation of our operations and prospects. Although since our inception we
have experienced increased net sales, we may experience significant
fluctuations in our gross margins and operating results in the future, both on
an annual and quarterly basis. Various factors cause these fluctuations,
including general economic conditions, specific economic conditions in the
commercial aviation industry, the availability and price of surplus aviation
parts, the size and timing of customer orders, returns by and allowances to
customers and our cost of capital.
Nine Months Ended September 30, 1999 v. Nine Months Ended September 30, 1998.
Results of Operation
Effective in May 1998, we acquired a majority of the common stock of
Aviation Holdings International. Accordingly, our financial statements and
those of Aviation Holdings International were consolidated as of that date and
our financial statements for the nine months ended September 30, 1999 include
the results of Aviation Holdings International's operations. The financial
statements for the nine months ended September 30, 1998 include the results of
Aviation Holdings International for the period May 4, 1998 through September
30, 1998 only.
10
<PAGE>
Net sales of aircraft and engine parts were $9,342,749 for the nine months
ended September 30, 1999 as compared to $5,094,930 for the nine months ended
September 30, 1998. The increase in net sales of aircraft and engine parts was
due to our acquisition of the controlling interest in Aviation Holdings
International.
Cost of goods sold was $6,048,375 for the nine months ended September 30,
1999 as compared to $3,996,660 for the nine months ended September 30, 1998.
Gross profit increased to $3,294,374 in the nine months ended September 30,
1998 from $1,098,270 in the nine months ended September 30, 1998. Our increases
in cost of goods sold and gross profit were due to our acquisition of the
controlling interest in Aviation Holdings International.
Salary and wage expense was $1,095,200 in the nine months ended September
30, 1999 and $896,608 in the nine months ended September 30, 1998. This overall
increase is the result of an increase from the acquisition of the controlling
interest in Aviation Holdings International offset by a nonrecurring
compensation bonus expense recorded May 1998 in the amount of $360,200 for
options issued to our CEO.
General and administrative expenses were $1,435,615 in the nine months
ended September 30, 1999 and $1,157,850 for the nine months ended September 30,
1998. Our general and administrative expenses for the nine months ended
September 30, 1998 consisted primarily of a valuation allowance on a promissory
note due to the Company from Environmental Waste Systems, Inc. which has been
sold by the Company (see "Certain Transactions"), a nonrecurring expense. Our
general and administrative expenses for the nine months ended September 30,
1999 related primarily to Aviation Holdings International's operations.
Professional fees were $190,512 in the nine months ended September 30,
1999 and $408,713 in the nine months ended September 30, 1998. We incurred
additional accounting and legal expenses related to our efforts to acquire
businesses in the first nine months of 1998. Activities related to acquisitions
in the first nine months of 1999 declined.
Interest expense was $578,148 in the nine months ended September 30, 1999
and $6,057 in the nine months ended September 30, 1998. This increase was
primarily due to additional borrowings from Comerica Bank and stockholders and
amortization of the discount on the notes payable to the John G. Jacobs Trust
and Nancy Plotkin.
Interest income was $21,009 in the nine months ended September 30, 1999
and $66,786 in the nine months ended September 30, 1998. We stopped recording
interest on the Environmental Waste Solutions note receivable after the note
was in default and therefore interest income decreased.
Income from the joint venture was $4,171 in the nine months ended
September 30, 1999 and $5,057 in the nine months ended September 30, 1998. This
decrease is primarily a result of additional costs for FAA certification
incurred by the SYNOR-A Joint Venture investment which we acquired along with
our controlling interest in Aviation Holdings International.
Income tax expense was $56,125 in the nine months ended September 30, 1999
and $3,757 in the nine months ended September 30, 1998. This increase is
primarily due to Aviation Holdings International's earnings for the three
months ended March 31, 1999. As of March 31, 1999, we qualified to file a
consolidated income tax return under the Internal Revenue Code. Therefore, as
of April 1, 1999 we were able to offset the earnings of Aviation Holdings
International against our losses. At September 30, 1999 and September 30, 1998,
due to the uncertainty of our ability to generate future earnings, we have
recorded a valuation allowance for the income tax benefits that would have been
generated by our losses incurred for the nine months ended September 30, 1998
and September 30, 1999, respectively.
Minority interest was $62,870 in the nine months ended September 30, 1999
and ($25,870) in the nine months ended September 30, 1998. This increase is
mainly due to the acquisition of the controlling interest in Aviation Holdings
International.
As a result of the foregoing, our net loss was $98,616 for the nine months
ended September 30, 1999, which was a decrease from a net loss of $1,277,567
for the nine months ended September 30, 1998. Basic and diluted loss per common
share decreased from $0.49 for the nine months ended September 30, 1998 to
$0.03 for the nine months ended September 30, 1999.
11
<PAGE>
Liquidity and Capital Resources
As of September 30, 1999, our principal source of liquidity included cash
and cash equivalents of $497,437, compared with cash and cash equivalents of
$254,994 as of September 30, 1998. As of September 30, 1999, total outstanding
debt was $2,244,176 compared to $739,348 as of September 30, 1998. Aviation
Holdings International obtained a revolving working capital line of credit from
Comerica Bank in August 1998. At September 30, 1999, the amount of principal
owed to the bank was $1,975,000. The credit agreement governing the revolving
line of credit provides for a maximum aggregate borrowing limit of $3,500,000,
subject to certain borrowing restrictions and is secured by substantially all
of Aviation Holdings International's assets. The line of credit bears interest
per annum at Comerica Bank's prime rate plus 1%. As of September 30, 1999,
Aviation Holdings International did not meet the tangible net worth covenant of
$4,250,000 in the Comerica Bank credit agreement, which puts it in technical
default under the terms of the credit agreement. Comerica Bank has, however,
waived the default and continued to make advances under the credit agreement.
Cash used in operating activities for the nine months ended September 30,
1999 was $204,577, which was primarily attributable to overall increases in
accounts payable and decreases in accrued expenses amounting to $373,233, and
increases in accounts receivable of $321,980 and inventory of $813,373 offset
by losses from operations after adding back non-cash expenses. Cash used in
operating activities for the nine months ending September 30, 1998 was
$1,128,893, which was primarily attributable to increases in accounts
receivable of $743,139, inventory of $84,046 and prepaid expenses of $138,472
and offset partially by an increase in accounts payable of $211,550, a decrease
in accrued expenses of $156,916 and operating losses.
Cash flows used in investing activities for the nine months ended
September 30, 1999 was $262,844 compared with $39,401 of cash provided for the
nine months ended September 30, 1998. For the nine months ended September 30,
1999, cash used was related primarily to the investment in the SYNOR-A joint
venture of $200,000 and the purchase of property and equipment for $77,419. For
the nine months ended September 30, 1998, the primary use of cash was funding
advances under the Environmental Waste Solutions credit facility of $535,100,
purchase of property and equipment for $55,830 and investment in the SYNOR-A
joint venture of $200,000, which was offset by $830,331 of cash acquired in the
acquisition of Aviation Holdings International, Inc.
Cash provided by financing activities for the nine months ended September
30, 1999 was $601,168 compared with $1,342,311 for the nine months ended
September 30, 1998. Cash provided for the nine months ended September 30, 1999
primarily resulted from the net proceeds from the sale of stock of $265,000,
additional borrowings under the bank line of credit of $475,000 and cash
proceeds from the sale of the Environmental Waste Solutions note of $43,880
partially offset by repayments of advances from stockholders and debt of
$103,089 and payment of deferred offering costs of $79,623. In addition, we
obtained an extension of the maturity date of $250,000 borrowed during 1998
from the John G. Jacobs Trust and Nancy Plotkin. These loans were extended
rather than repaid in order to conserve working capital to support operations.
These loans were paid in full in December 1999. For the nine months ended
September 30, 1998, the primary source of cash were advances from our
stockholders of $724,498 and bank line of credit of $675,000, offset by
repayments of debt of $1,409 and payment of deferred offering costs of $55,778.
We believe that existing cash balances, the credit agreement with Comerica
and the proceeds of this offering will be sufficient to meet our capital
requirements for at least the next eighteen months, including those
expenditures described in "Use of Proceeds" and, in particular, the capital
required for expansion of our turbine engine and aircraft sales. Thereafter, if
our capital requirements increase, we could be required to secure additional
sources of capital. There can be no assurance we will be capable of securing
additional capital or that the terms upon which such capital will be available
to us will be acceptable.
Year ended December 31, 1998 v. Year Ended December 31, 1997
Results of Operations
Effective in May 1998, we acquired a majority of the common stock of
Aviation Holdings International. Accordingly, our financial statements and
those of Aviation Holdings International were consolidated as of that date and
our financial statements for the year ended December 31, 1998 include the
results of Aviation Holdings International's operations for the period May 1998
through December 31, 1998.
12
<PAGE>
Net sales of aircraft and engine spare parts were $8,365,197 for the year
ended December 31, 1998 as compared to $0 for the year ended December 31,1997.
The increase in net sales of aircraft and engine spare parts was due to our
acquisition of the controlling interest in Aviation Holdings International.
Cost of goods sold was $5,839,049 for the year ended December 31, 1998 as
compared to $0 for the year ended December 31, 1997. Our increase in cost of
goods sold was due to the sales generated by the acquisition of the controlling
interest in Aviation Holdings International.
Salary and wage expenses increased to $1,300,172 in the year ended
December 31, 1998 from $0 in the year ended December 31, 1997. This increase is
primarily the result of our acquisition of the controlling interest in Aviation
Holdings International and $380,328 of noncash compensation expense for common
stock and options to purchase common stock granted to our President.
General and administrative expenses increased to $1,771,560 in the year
ended December 31, 1998 from $15,950 in the year ended December 31, 1997. This
increase is primarily due to our acquisition of the controlling interest in
Aviation Holdings International, our increased acquisition activities during
the first five months of 1998, and the provision in the amount of $633,410 for
a valuation allowance on the Environmental Waste Solutions note.
Professional fees increased to $617,099 in the year ended December 31,
1998 from $48,227 in the year ended December 31, 1997. This increase is
primarily due to our acquisition of the controlling interest in Aviation
Holdings International and to our increased acquisition activities during the
first five months of 1998.
Interest expense increased to $96,044 in the year ended December 31, 1998
from $0 in the year ended December 31, 1997. The increase is due to interest
incurred on advances from our stockholders, interest on borrowings under the
Comerica credit facility by Aviation Holdings International and amortization of
the discount on the notes payable to the John G. Jacobs Trust and Nancy
Plotkin.
Interest income increased to $72,825 in the year ended December 31, 1998
from $6,740 in the year ended December 31, 1997. The increase is primarily due
to the interest recorded under the Environmental Waste Solutions note
receivable.
Loss from the joint venture increased to $8,313 in the year ended December
31, 1998 from $0 in the year ended December 31, 1997. The increase is due to
the losses recorded on our investment in the SYNOR-A Joint Venture.
Income tax expense increased to $186,863 in the year ended December 31,
1998 from $0 in the year ended December 31, 1997. The increase is primarily the
result of income generated by Aviation Holdings International. We have recorded
a valuation allowance against our deferred tax asset because we are unable to
determine if we will ever generate taxable income to utilize those benefits.
Minority interest increased to $3,702 in the year ended December 31,1998
from $0 in the year ended December 31, 1997. This increase is primarily due to
our acquisition of less than 100% of Aviation Holdings International in 1998.
As a result of the foregoing, net loss increased to $1,384,780 for the
year ended December 31, 1998 as compared to $57,437 for the year ended December
31, 1997. Basic and diluted loss per share of common stock increased from $.06
in the year ended December 31, 1997 as compared to $.46 for the year ended
December 31, 1998.
Liquidity and Capital Resources
As of December 31, 1998 our liquidity and capital resources included cash
and cash equivalents of $363,690 and working capital of $1,371,885, compared
with cash and cash equivalents of $2,175 and a working capital deficit of
$36,128 for the year ended December 31, 1997. The increase in working capital
was primarily due to our acquisition of the controlling interest in Aviation
Holdings International.
Cash used in operating activities for the year ended December 31, 1998 was
$1,828,124 compared to $41,009 for the year ended December 31, 1997. Cash used
in the year ended December 31, 1998 was
13
<PAGE>
primarily to fund increases in accounts receivable of $1,059,241, inventory of
$613,306, interest receivable of $64,351, and to reduce accounts payable by
$169,081 and accrued expenses by $173,823. Cash provided for the year ended
December 31, 1998 was primarily due to a decrease in prepaid expenses of
$27,905 and an increase in income taxes payable of $188,500. Cash used in the
year ended December 31, 1997 was primarily related to increases in interest
receivable of $6,740 and prepaid expenses of $2,957, and a decrease in the
amount due to stockholder of $7,207. Cash provided for the year ended December
31, 1997 was due to an increase in accrued expenses of $8,000.
Cash used in investing activities for the year ended December 31, 1998 was
$97,007 compared to $950,673 of cash used for investing activities in the year
ended December 31, 1997. Cash used in the year ended December 31, 1998 was for
funds we advanced under the Environmental Waste Systems credit facility of
$535,100, purchases of equipment of $88,198 and additional investment in
SYNOR-A Joint Venture of $300,000. Cash provided for the year ended December
31, 1998 was due to the cash acquired in the acquisition of the controlling
interest in Aviation Holdings International of $830,331. The primary components
of cash used in the year ended December 31, 1997 was from funds we advanced
under the Environmental Waste Solutions credit facility of $940,000.
Cash provided by financing activities for the year ended December 31, 1998
was $2,286,646 compared to $993,857 for the year ended December 31, 1997. The
primary sources of cash provided from the year ended December 31, 1998 related
to $1,500,000 borrowed on the bank line of credit, $50,000 borrowed from the
John G. Jacobs Trust, $200,000 borrowed from Nancy Plotkin, and advances from
stockholders, net of repayments, of $550,284. The source of cash provided from
the year ended December 31, 1997 was the proceeds received from the sale of
securities, net of offering costs paid, in the amount of $993,857.
Since our principal sources of funds are those generated by Aviation
Holdings International, the following sets forth certain information relating
to the operations of Aviation Holdings International for the periods indicated.
Aviation Holdings International formerly maintained its accounting records on a
fiscal year basis ending August 31. Beginning January 1, 1999, Aviation
Holdings International has changed its reporting to a calendar year basis.
Year ended August 31, 1998 v. October 3, 1996 (Date of Inception) to August 31,
1997.
Results of Operations
Aviation Holdings International's net sales of aircraft and engine spare
parts for the fiscal year ended August 31, 1998 increased $6,858,043, or 110%,
over the period ended August 31, 1997. During this period, domestic sales
increased by 119% from $3,559,585 to $7,788,597, and international sales
increased 99% from $2,655,968 to $5,284,999. The increase in net sales was due
to several factors which include the sale of a single jet engine to Federal
Express for $2,000,000, the addition of new sales personnel, increased customer
penetration, increased investment in, and availability of, inventory and the
expansion of services offered to customers.
Cost of sales was $11,066,005 for the fiscal year ended August 31, 1998
and $4,684,864 for the fiscal period ended August 31, 1997, which is an
increase of 136% resulting from the increase in sales. There was a decrease in
gross profit from 25% to 15%. The decrease in gross profit was primarily due to
a lower profit margin on the cost of the jet engine sold to Federal Express and
the establishment of reserves for obsolete and slow-moving inventory of
$515,421.
General and administrative expenses decreased $441,735 in the fiscal year
ended August 31, 1998, or 15% compared to the fiscal period ended August 31,
1997. General and administrative expenses were 19% of operating revenues for
the fiscal year ended August 31, 1998, compared to 46% for the fiscal period
ended August 31, 1997. There was nonrecurring compensation expense recorded in
the period ended August 31, 1997 for the issuance of common stock to Aviation
Holdings International's founders in the amount of $1,399,600. The decrease in
this expense in the year ended August 31, 1998 was offset by increases in
salary expense of $630,807, professional fees of $96,145, and other general and
administrative expenses of $230,913, so that overall general administrative
costs only decreased by $441,735.
14
<PAGE>
As a result of these and other factors, Aviation Holdings International
generated a loss from operations of $295,264 for the fiscal year ended August
31, 1998, compared to a loss of $1,383,641 for the fiscal period ended August
31, 1997.
Liquidity and Capital Resources
Aviation Holdings International's liquidity and capital resources included
cash and cash equivalents of $559,578 and working capital of $2,632,231 as of
August 31, 1998 compared with cash and cash equivalents of $341,660 and working
capital of $3,246,086 as of August 31, 1997. The principal reason for the
decrease in working capital was the increase in the reserves for uncollectible
accounts and the establishment of the reserve for obsolete and slow-moving
inventory.
Cash provided by operations was $90,180 for the fiscal year ended August
31, 1998 compared to cash used in operating activities of $1,516,173 for the
fiscal period ended August 31, 1997. For the fiscal year ended August 31, 1998,
cash provided was primarily attributable to increases in accounts payable and
accrued expenses of $1,325,114. Cash used in the fiscal year ended August 31,
1998 was primarily related to increases in inventory of $922,519, accounts
receivable of $516,035, and prepaid expenses amounting to $57,805. Cash
provided from the period ended August 31, 1997 was $1,179,058 which was
primarily from increases in accounts payable and accrued expenses. For the
period ended August 31, 1997, cash was primarily used to fund increases in
inventory of $1,006,754, accounts receivable of $1,857,119, and prepaid
expenses of $29,610.
Cash used in investing activities was $412,142 for the fiscal year ended
August 31, 1998 compared to $121,730 for the fiscal period ended August 31,
1997. Fort the year ended August 31, 1998, cash was used for the acquisition of
property and equipment of $212,142 and the funding of the SYNOR-A joint venture
commitment of $200,000. The primary use of cash for the period ended August 31,
1997 was for the acquisition of property and equipment of $96,730.
Cash provided by financing activities was $539,880 for the fiscal year
ended August 31, 1998 compared to $1,979,563 for the fiscal period ended August
31, 1997. Cash from the fiscal year ended August 31, 1998 was from proceeds
from the issuance of stock in the amount of $165,000 and borrowings under the
line of credit of $425,000. Cash provided by the fiscal period ended August 31,
1997 was from the proceeds received from stockholder loans, net of repayments,
in the amount of $1,070,000, and proceeds from the issuance of securities in
the amount of $923,313.
Inflation
Although we cannot accurately anticipate the effect of inflation on our
operations, we do not believe that inflation has had, or is likely in the
foreseeable future to have, a material effect on our results of operations or
financial condition. Increases in fuel costs due to inflation may adversely
affect demand for used aircraft that typically are less fuel efficient, thereby
decreasing demand for aircraft and engine components and spare parts for these
aircraft.
Year 2000 Issue
The widespread use of computer programs that rely on two-digit dates to
perform computations and decision making functions may cause computer systems
to malfunction prior to or in the year 2000 and lead to significant business
delays and disruptions in the U.S. and Internationally.
We recently upgraded all of our current computer hardware and software
applications as part of our normal business operations, and we believe that all
of our hardware and software applications are year 2000 compliant. As this
upgrade would have occurred in any event, we had no additional costs
attributable to the Year 2000 issue. We have completed an assessment of our
non-information technology systems, and we are not currently aware of any Year
2000 problems relating to these systems which would materially adversely affect
our business operating results or financial condition.
15
<PAGE>
We are currently reviewing the efforts of our vendors and customers to
become Year 2000 compliant. Letters and questionnaires have been or are in the
process of being sent to all critical entities with which we do business to
assess their Year 2000 readiness. To date, we have received minimal responses.
Each of the companies that have responded have assured us that they have
already addressed, or that they will address on a timely basis, all of their
known significant Year 2000 issues. In particular, we have been assured that
the principal electronic database on which we advertise parts, ILS, is Year
2000 compliant. Although this review is continuing, we are not currently aware
of any vendor or customer circumstances that may materially adversely impact
us.
We cannot assure you that Year 2000 compliance plans of our vendors and
customers will be completed on a timely manner. With respect to vendors, we
believe that there are sufficient numbers of vendors of parts that any Year
2000 problems encountered by a particular vendor will not adversely impact our
ability to purchase inventory. In the event that any particular customer
encounters Year 2000 difficulties, it may impact our sales to, or collection of
receivables from, that customer until the problems are resolved. We believe
that our sales are sufficiently diversified that this would not result in a
material adverse impact on operating results. In addition, any such disruption
is likely to be temporary and result in a delay, rather than loss, of sales to
that customer. However, if a number of customers experience problems resulting
in significant delays in payment on outstanding accounts receivable, we could
experience material cash flow difficulties until such problems are resolved.
The great majority of aircraft spare parts in our inventory do not involve
computers or embedded chips that might present Year 2000 problems. We have
contacted our vendors of the parts that might have such problems to assess the
Year 2000 compliance of those parts. If any such parts are determined to be
Year 2000 non-compliant, we will seek to return them to the vendor and believe
that we will be successful in doing so. However, we cannot be sure that this
will always be the case, and some parts may be rendered unsaleable as a result.
We do not believe that this will be material in amount.
Plan of Operation
Following the completion of this offering we intend to use a portion of
the proceeds, as well as trade credit, to expand our inventory of aircraft and
engine spare parts and to acquire turbine jet engines and/or aircraft. We also
anticipate hiring additional employees, particularly in the marketing area.
Aviation Holdings International owns a one-half interest in a DC10-30
flight simulator. See "Certain Transactions." Our management, and the co-owner
of the DC10-30 flight simulator, have determined that the flight simulator will
be best utilized if disassembled and sold as spare parts to current users of
DC10 parts and peripheral equipment. We anticipate this liquidation will be
completed by the end of 1999.
We believe that anticipated cash flows from operations, together with net
proceeds we receive from the offering, will meet our anticipated short term
cash needs for working capital and will enable us to make future inventory
expenditures for the foreseeable future. On August 12, 1998, Aviation Holdings
International entered into a credit agreement with Comerica Bank whereby
Comerica Bank agreed to extend a revolving line of credit to Aviation Holdings
International of up to $3,500,000. The revolving line of credit is intended to
fund working capital needs such as inventory purchases and, subject to
Comerica's approval, strategic acquisitions. The funds advanced to Aviation
Holdings International by Comerica are secured by the assets of Aviation
Holdings International. The outstanding balance may not at any time exceed the
sum of (a) 85% of Aviation Holdings International's eligible accounts
receivable and (b) 35% of Aviation Holdings International's eligible inventory.
As of November 30, 1999, the maximum amount available to Aviation Holdings
International under this formula was approximately $2,440,785 million, and the
outstanding balance was approximately $2,125,000 million.
We do not anticipate material capital expenditures for the coming fiscal
year other than as described above under "Use of Proceeds."
16
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BUSINESS
General
Aviation Holdings Group is a holding company and currently has no
operations other than the ownership of 96% of the outstanding capital stock of
Aviation Holdings International. Aviation Holdings Group was incorporated in
January 1998 as a Delaware corporation and wholly-owned subsidiary of EyeQ
Networking, Inc., a Colorado corporation formed in May 1988. In February, 1998,
EyeQ Networking, Inc. merged with and into Aviation Holdings Group, with
Aviation Holdings Group surviving as the newly merged entity under the name of
EyeQ Networking, Inc. In September 1998, Aviation Holdings Group changed its
name from EyeQ Networking, Inc. to Aviation Holdings Group, Inc.
We acquired approximately 96% of the issued and outstanding capital stock
of Aviation Holdings International through a series of share exchanges in which
holders of Aviation Holdings International common stock exchanged it for
newly-issued shares of Aviation Holdings Group common stock.
We are in the aircraft and engine spare parts redistribution business and
specialize in the sale, lease, exchange and purchase of technical spare parts
for fixed-wing commercial jet transport aircraft manufactured by Boeing,
McDonnell Douglas, Airbus and Lockheed. As part of this business, we provide
customers with inventory management services including new product
distribution, technical purchasing, maintenance and repair management,
consignment marketing and purchase/leaseback of technical spare parts
inventory. We also pursue opportunities involving the purchase, sale and lease
of jet turbine engines, jet turbine aircraft and related aviation industry
equipment.
Industry Overview
The aircraft spare parts redistribution market includes sellers of parts
other than parts manufacturers. This market is highly fragmented, with a
limited number of large, well-capitalized companies selling a broad range of
aircraft spare parts and many smaller competitors servicing particular segments
of the aircraft spare parts industry. We believe that significant trends
affecting the aircraft spare parts market will increase our overall size and at
the same time eliminate some market participants and cause consolidation in the
industry due to the inability of some participants to compete efficiently.
These trends are:
Growth in Market for Aircraft Spare Parts
Boeing's 1999 Market Outlook estimates that:
o the worldwide fleet of commercial passenger airplanes will more than
double from 12,600 airplanes at the end of 1998 to 28,400 airplanes by
2018; and
o cargo jet aircraft will increase from 1,545 airplanes in 1998 to 3,036
airplanes by 2018.
Seventy percent of the airplanes delivered to cargo operators are expected to
be used aircraft which were converted from commercial passenger service.
Further, the number of planes in service for more than 10 years is continuing
to increase, and these older planes are the primary market for parts
redistributors. Finally, cost considerations are forcing many airlines and
repair and maintenance facilities to utilize aircraft spare parts sold by
redistributors, instead of purchasing new parts for inventory. We believe that
all of these factors will increase the demand for aircraft spare parts from the
redistribution market.
Increased Outsourcing of Inventory Management Function
Airlines incur substantial expenditures in connection with fuel, labor and
aircraft ownership. During the last decade, airlines have come under increasing
pressure from consumers to reduce air travel costs. Although some expenditures
required to operate an airline are beyond the direct control of airline
operators (e.g., the price of fuel and labor costs), we believe that obtaining
replacement parts from the redistribution market and outsourcing inventory
management functions are steps airlines will take to manage these functions
with less expense and greater efficiency.
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<PAGE>
Increasing Emphasis on Traceability
Due to concerns regarding unapproved aircraft spare parts, regulatory
authorities now require airlines to maintain stricter parts documentation. This
requirement has, in turn, been extended by airlines to the spare parts vendors.
The sophistication required to track the history of an inventory consisting of
thousands of aircraft spare parts is considerable and has required companies to
invest significantly in information systems technology. On March 25, 1999 our
quality control systems were certified by the Airline Suppliers Association as
meeting its quality system standards and FAA guidelines.
Increased Consignment
Certain of our customers adjust inventory levels on a periodic basis by
disposing of excess aircraft spare parts. Traditionally, larger airlines have
used internal personnel to manage such dispositions. We believe that major
airlines and other owners of aircraft spare parts are increasingly entering
into long-term consignment agreements with redistributors in order to
concentrate on their core businesses and to more effectively redistribute their
excess parts inventories. By consigning inventories to a redistributor such as
us, customers are able to distribute their aircraft spare parts to a larger
number of prospective inventory buyers, allowing the customer to maximize the
value of its inventory. Consignment also enables us to offer for sale
significant parts inventory at minimal capital cost to us.
Increased Leasing
We believe that cost considerations will cause airlines to lease, rather
than purchase, more spare parts and engines. This would benefit us by:
o providing a steady income stream over a period of time from lease
payments;
o upon termination of the lease, we would regain the part or engine for
subsequent sale; and
o provide the opportunity to obtain additional financing.
Operations
Our core business is buying and selling aircraft and engine spare parts.
We purchase spare parts from numerous unaffiliated sources, including airlines,
original equipment manufacturers and other parts distributors. We have also
pursued opportunities to purchase and sell related aviation industry equipment.
For example, Aviation Holdings International acquired a 50% interest in a DC10
flight simulator and related support package and software. We also provide
value-added inventory management services to our customers. We believe that
inventory management services provide significant opportunities for expansion
of our business in the future. We also intend to develop business as a
redistributor of turbine jet engines and become involved in the purchase, sale
and lease of jet turbine aircraft and engines.
Aircraft and Engine Spare Parts
Aircraft and engine spare parts can be categorized by their ongoing
ability to be repaired and returned to service. The general categories are as
follows:
o rotable: means a part which is removed periodically as dictated by an
operator's maintenance procedures or on an "as needed" basis and is
typically repaired or overhauled and reused an indefinite number of
times. An important type of rotable is a "life limited" part, which means
it has a predetermined designated number of allowable flight hours and/or
flights after which it is rendered unusable;
o repairable: means a part limited by the number of times it can be
repaired before it must be discarded; and
o expendable: means a part which is used and not thereafter repaired for
further use.
Rotable and repairable aircraft and engine spare parts are further
classified as:
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o factory new: means parts that have never been installed or used which are
purchased from manufacturers or their authorized distributors, aircraft
manufacturers and engine manufacturers;
o new surplus: means parts that have never been installed or used which are
purchased from excess stock of airlines, repair facilities or other
redistributors;
o overhauled: means a part that has been completely disassembled,
inspected, repaired, reassembled and tested by a licensed repair
facility;
o serviceable: means a part repaired by an approved maintenance center that
is functional and meets any manufacturer or time and cycle restrictions
applicable to it; and
o as removed: means a part that requires functional testing, repair or
overhaul by a licensed facility prior to being returned to service in an
aircraft or engine.
A factory new, new surplus, overhauled or serviceable part designation
indicates that the part can be immediately utilized on an aircraft.
Inventory Purchases and Sales
Our daily operations encompass inventory sales, brokering and exchanging
aircraft spare parts. We advertise our available inventories held for sale or
exchange on the Inventory Locator Service ("ILS"), the Airline Inventory
Redistribution System ("AIRS") and BCOM electronic databases. Buyers of
aircraft spare parts can access the ILS, AIRS and BCOM databases and determine
the companies which have the desired inventory available. We estimate that 25%
of our daily sales activity results from an ILS, AIRS or BCOM inquiry. All
major airlines and repair agencies subscribe to one or more of these databases
and accordingly, we maintain continual on-line direct access with them. ILS,
AIRS and BCOM do not, however, list price information relating to particular
parts. The ability to properly evaluate and price spare parts and to predict
competitive supply and demand trends derives from management experience in the
industry. We are currently developing an internet web site that will describe
in detail the parts and services we offer.
We typically have over 50,000 line items in stock. We monitor market
availability, pricing and historical data on a continuous basis. We sell new,
overhauled and serviceable replacement parts from our inventory and buy them at
the request of its customers against a specific order. We usually purchase
parts for our own account and sell them to our customers.
For the twelve months ended December 31, 1998 and the nine months ended
September 30, 1999, Aviation Holdings International's total revenues were
approximately as follows:
12/31/98 9/30/99
-------- -------
83% from inventory sales; 95% from inventory sales;
16% from engine sales; and 4% from engine sales; and
1% from consignment sales. 1% from consignment sales.
Inventory Management Services
We provide a number of inventory management services to our customers.
These services assist airlines in downsizing their inventory management
operations, thus enabling them to utilize their capital more efficiently and
reduce costs. We believe we can provide an inventory management program geared
to any particular customer's requirements. Such programs would be supported by
our operating agreements with various airlines and independent repair agencies.
We do not charge separately for these services, but consider them to be a
marketing advantage to our inventory sales.
Consignment
By consigning inventories to a redistributor such as us, consignors are
able to distribute their aircraft spare parts to a larger number of prospective
inventory buyers, allowing the consignor to maximize the value of its
inventory. Consignment also enables us to sell a broad range of parts at
minimal capital cost. We anticipate that revenues from consignment will
increase as a percentage of total revenues in the future.
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<PAGE>
Purchasing Services
We purchase spare parts on behalf of smaller and start-up airlines. This
service allows our customers to take advantage of our greater purchasing power,
repair management services, information systems technology, quality and
logistics systems and industry expertise. We do not charge separately for these
services, but consider them to be a marketing tool for our inventory sales.
Asian Operations
While the majority of our operations are conducted in the United States,
we also operate in Asia and the Pacific Rim directly and through a joint
venture with a third party and a number of subsidiaries. These Asian operations
currently account for approximately 24.7% of our gross revenues on a
consolidated basis and we intend to continue to expand them. The Asian
operations are supervised by Simon Chiang, Vice President for Asia and the
Pacific Rim. From our Miami headquarters, business is conducted through a
number of entities controlled by us that share employees and office facilities.
There are two employees in Hong Kong, one in Shenyang and one in Beijing. The
bulk of the Asian operations consist of business similar to our core operations
in the United States and Europe. We intend to expand the Asian operations to
include other lines of business related to aviation.
Pasco International Aviation Corp. Ltd., a Hong Kong corporation
("Pasco-HK") and majority-owned subsidiary of Aviation Holdings International,
accounted for approximately 13% and 1% of our gross revenues on a consolidated
basis for the year ended December 31, 1998 and the nine months ended September
30, 1999. The following is a list of some of its major customers: Ameco
Beijing, Air China Group, China Northern Airlines Sanya Branch, China Sandong
Airlines, China Southwest Airlines, China Northwest Airlines, China Shanghai
Airlines, China Airlines-Taiwan, HAECO-HK, Cathay Pacific Airlines and Thai
Airways.
Shenyang Northern Aircraft Maintenance & Engineering Co., Ltd. is a
Sino-American joint venture company established in November 1997. The joint
venture mainly deals with inspection, repair and recertification of DC9, MD80
and A300-600 components, line replacement units, instruments and avionics. It
also represents some of the world's leading original equipment manufacturers
for certain items. It is the first Sino-foreign joint venture approved by the
Civil Aviation Administration of China in the avionics and accessories repair
field and which commenced operations in March 1998. Twenty-five percent of the
joint venture is held by PASCO International Aviation Corporation, Inc., a
Florida corporation and a subsidiary of Aviation Holdings International
("Pasco-FLA"). China Northern Airlines, one of the largest airlines in China,
holds the remaining 75%. The joint venture is currently certified by the
Chinese aviation authorities and expects to complete FAA certification by the
end of 1999.
Pasco-FLA's total financial commitment to the joint venture is $1,000,000.
As of September 30, 1999, Aviation Holdings International had funded
approximately $700,000 of this total and intends to fund the remaining
approximately $300,000 with proceeds from this offering and from internal
operations. Under the terms of the joint venture, Pasco-FLA is entitled to
certain preferences in any initial distributions of net income. This preference
provides that Pasco-FLA will recoup its investment prior to any regular
distributions being made to China Northern. Pasco-FLA provides technological
advice to the joint venture and promotes, markets and sells its services. The
joint venture serves approximately 14 airlines. In July 1999, Pasco-FLA
received an initial distribution of approximately $14,600 from the joint
venture.
Pasco Financial Services Ltd., Corp., a Hong Kong corporation and
majority-owned subsidiary of Aviation Holdings International
("Pasco-Financial"), specializes in providing financing from banks on behalf of
airlines for aircraft and aviation-related purchases. Pasco-Financial was
recently appointed by China Southwest Airlines to work with banks to provide
financing for three newly-purchased Boeing B737-800 aircraft which are expected
to be delivered in 1999 and 2000. Pasco-Financial has also been appointed by
certain airlines to act as their agent for the sale or lease of aircraft on
behalf of such airlines. Pasco-Financial was also invited by China Southwest
Airlines to arrange the leasing of one of their B757-200 aircraft. To date,
Aviation Holdings International has not recognized any revenue from
Pasco-Financial.
China Airlines, located in Taipei, Taiwan, has a sophisticated, quality
conscious engine overhaul facility and aircraft maintenance center. Its
maintenance base is located in Taipei, Taiwan. Their $150 million
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investment in facilities, equipment, backshops and support mechanisms was
completed in 1997 and is certified by every major aviation regulatory authority
in the world. Two majority owned subsidiaries of Aviation Holdings
International, Aero-Link Flight Systems Ltd., a Hong Kong corporation, and
Aero-Link Flight System, Inc., a Florida corporation (collectively,
"Aero-Link"), act as China Airlines' global marketing representative outside of
Taiwan. To date, we have recognized $122,866 in revenue from Aero-Link.
Credit Facilities
On August 12, 1998, Aviation Holdings International entered into a Credit
Agreement with Comerica Bank ("Comerica") whereby Comerica agreed to extend a
revolving line of credit to Aviation Holdings International in an amount not to
exceed $3,500,000. The revolving line of credit is intended to fund, if
necessary, working capital needs, such as inventory purchases, and, subject to
Comerica's approval, strategic acquisitions. The funds advanced to Aviation
Holdings International by Comerica are secured by the assets of Aviation
Holdings International and may not at any time exceed the sum of (a) 85% of
Aviation Holdings International's eligible accounts receivable and (b) 35% of
Aviation Holdings International's eligible inventory. As of November 30, 1999,
Aviation Holdings International had an aggregate availability of approximately
$2,440,785 million and an outstanding balance due to Comerica under the
revolving line of credit of approximately $2,125,000 million.
Strategy
We believe that we can become a low cost leader in the redistribution
market, as well as in the inventory management services industry, by combining
its managerial experience with increased capital and continuing to build upon
its present operations. The essential elements of our business strategy are:
Internal Growth
We seek to increase our operating revenues and operating income through
continued customer penetration in our existing markets and expansion into new
markets. We intend to achieve such growth by continuing to increase the size
and scope of our inventory and by continuing to expand our marketing efforts
worldwide. We will also expand our inventory management, leasing and
consignment services to allow our customers to reduce their costs of operations
by outsourcing some or all of their inventory management and supply functions
and to take advantage of opportunities to maximize the value of their spare
parts inventory. We will seek to establish and maintain close working
relationships with our customers and to become their vendor of choice.
Capitalize on Large Bulk Purchase Opportunities
Although opportunities to purchase large inventories in bulk in the
aircraft spare parts industry cannot be predicted, historically they become
available on a regular basis. "Bulk" purchase opportunities arise when:
o airlines, in order to reduce capital requirements, sell large amounts of
inventory in a single transaction;
o inventories of aircraft spare parts are sold in conjunction with asset
sales or bankruptcy proceedings; or
o when operators upgrade their fleet.
In these situations, we can obtain large inventories of aircraft spare parts at
a lower cost than can ordinarily be obtained by purchasing on an individual
basis. This results generally in higher gross margins on sales of such parts.
As of September 30, 1999, we had successfully completed approximately eight
bulk inventory purchases in excess of $100,000. We believe that due to our
experience, and as a result of additional capital, we will be able to complete
an increased number of larger bulk purchases.
Purchase and Sale of Jet Turbine Engines and Aircraft
We believe that with sufficient financial resources, we would be in a
position to increase our activity in the market for the purchase and sale of
jet turbine engines and aircraft. This market is extremely competitive and
capital intensive. We feel, however, that our management has the expertise and
industry contacts to make prudent purchases, which are the key to profitability
in this market.
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<PAGE>
Pursue Acquisitions of Complementary Businesses
We will also seek acquisitions of other companies, assets or product lines
that would complement or expand our existing aircraft spare parts
redistribution and inventory management services business. We believe that such
acquisitions will enable us to achieve economies of scale and expand the
product and service lines available to our customers. We are currently
evaluating a number of acquisition opportunities, including several FAA
certified aircraft part repair facilities. No commitments or binding agreements
have been entered into to date and accordingly, no assurance can be given that
any of the acquisitions currently being considered will be consummated.
Diversification
We are interested in contracting with manufacturers of specialty products
that could diversify our product line. New product distribution agreements
would allow us to exploit our established network of customers, while providing
a value-added service to smaller manufacturers who lack marketing expertise and
distribution capabilities. On a cost basis, such contracts prove to be
lucrative for us, as we are in a position to reap residual commissions without
any of the associated product costs or liability. On January 23, 1997, we
entered into such an agreement with Mirandy Products Ltd., a leading
manufacturer of lavatory systems cleaner for aircraft. We feel that
distribution sales of Mirandy's latest product, "Mirabowl," will serve to
augment our existing line of products and services. Mirabowl is essentially a
lavatory system cleaner and deodorizer that has been designed for flush tank
treatment of all types. Mirandy also manufacturers "Super Vinall," a
multi-purpose aircraft wash which removes carbon and hydraulic fluid buildup
from fuselage areas, degreases aircraft parts and may be used as an interior
cleaner for the cabin area. We intend to begin active marketing of these
products in the near future and have not realized revenues from sales of these
products to date. We are currently negotiating agreements with other
manufacturers whose products relate to aircraft environmental systems and fluid
processing systems.
We have also been awarded the opportunity to represent six FAA/JAA
approved repair stations throughout specific areas of the world. This
representation applies to component, aircraft and engine repair services
originating from various national and international customers. This opportunity
should allow us to recognize additional income, receive volume discounts on
products and obtain increased recognition in the commercial aviation community,
which will enhance overall brand awareness. We have entered into contracts with
additional maintenance providers and intend to pursue additional relationships.
We also are seeking to expand our operations in Asia and the Pacific Rim
to include the arrangement of aircraft financing and leasing, aircraft repair
and maintenance coordination, technology consulting and the facilitation of
contracts and cross-border business arrangements between aviation-related
entities from different countries. See "Business -- Asian Operations."
Sales and Marketing; Customers
We utilize twelve inside and outside salespersons and a network of
independent representatives in our sales and marketing efforts. The respective
Directors of Sales, Marketing and New Business Development provide the synergy
and management which is responsible for obtaining new customers and maintaining
relationships with existing customers. The majority of Aviation Holdings
International's day-to-day sales are accomplished through our inside sales
force.
We provide sales and delivery services seven days a week, 24 hours a day.
This service is critical to provide support to airline customers which, at any
time, may have an aircraft grounded in need of a particular part. Our South
Florida location, with easy access to Miami International Airport and Fort
Lauderdale International Airport, assists in the reliable and timely delivery
of purchased products. This location also provides access to exceptional import
and export facilities.
We have over 140 customers, which include aircraft and engine
manufacturers, commercial passenger airlines, air cargo carriers, maintenance
and repair facilities, original equipment manufacturers and other aircraft
parts redistribution companies. During the twelve month period ended December
31, 1998, Aviation
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Holdings International's top 10 customers accounted for approximately 47% of
net sales, and one customer, Federal Express Corp., accounted for more than 16%
of net sales. During the nine month period ended September 30, 1999, the top 10
customers accounted for approximately 44.7% of net sales, and one customer,
Aviation Sales Company accounted for 8.6% of net sales.
Management Information System
We have upgraded our management information systems by acquiring computer
hardware and software. Our data system is being developed to incorporate
state-of-the-art records imaging, archiving, inventory and asset management
analysis, financial record and other support systems. We believe that upon full
implementation, our data management system will be adequate to manage our
requirements in accordance with our forecasted growth.
Competition
The aircraft spare parts redistribution market is highly-fragmented.
Competition is generally based on price, availability of product and quality,
including traceability. Our major competitors include AAR Corp., Aero Controls
Corp., Solair, Inc., The Memphis Group and Aviation Sales Company. There is
also substantial competition, both domestically and overseas, from smaller,
independent dealers who generally participate in niche markets. Several of our
competitors have greater financial and other resources.
The jet turbine engine and jet turbine aircraft market is currently
dominated by various financial institutions, such as GE Capital, CIT Group, and
International Lease Finance Corp. as well as the major competitors from the
spare parts redistribution market. The market also includes many smaller
entities who engage in transactions on an infrequent basis.
Government Regulation and Traceability
The FAA regulates the manufacture, repair and operation of all aircraft,
engines and aircraft and engine parts operated in the United States. Its
regulations are designed to ensure that all aircraft and aviation equipment are
continuously maintained in proper condition for the safe operation of aircraft.
Similar rules apply in other countries. All aircraft must be maintained under a
continuous condition monitoring program and must periodically undergo thorough
inspection and maintenance. The inspection, maintenance and repair procedures
for the various types of aircraft and equipment are prescribed by regulatory
authorities and can be performed only by certified technicians at certified
repair facilities. Certification and conformance is required before
installation of a part on an aircraft. Presently, whenever necessary with
respect to a particular part, we utilize FAA and/or Joint Aviation Authority
("JAA") certified repair stations to repair and certify parts to ensure
worldwide marketability. Our operations may in the future be subject to new and
more stringent regulatory requirements. In that regard, we closely monitor the
FAA and industry trade groups in an attempt to understand how possible future
regulations might impact us. See "Risk Factors -- Stricter Government
Regulations Could Reduce The Value Of Our Inventory And/Or Require Significant
Expenditures."
An important factor in the aircraft and engine spare parts redistribution
market relates to the documentation or traceability that is supplied with an
aircraft or engine spare part. We require all of our suppliers to provide
adequate documentation as required by the industry and the regulatory agencies.
We are designing out data management system to image, capture, manage and
communicate this documentation.
Employees
As of November 30, 1999, Aviation Holdings Group employed three persons
and Aviation Holdings International employed 32 persons, including two in Hong
Kong, one in Shenyang and one in Beijing. None of these employees are covered
by collective bargaining agreements. We believe that our relations with our
employees are good.
Properties
Our offices and warehouse facilities are located in Miami, Florida. These
facilities comprise a total of approximately 17,600 square feet. The premises
are subject to a lease, under which Aviation Holdings
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International is the tenant, dated January 1, 1997 and subsequently amended on
November 1, 1997, which expires on December 31, 2000. Annual rental is $78,348
plus pass-through of (1) utilities, (2) increases in real estate taxes, (3)
assessments, (4) increases in insurance and (5) a pro rata share of assessments
imposed by the industrial park's association. Rent is subject to a cost of
living increase adjustment. We have two additional one year options to renew.
These facilities are adequate for our present and anticipated needs. Pasco-HK
leases office space in Hong Kong at a monthly rental of $2,500 under a two year
lease that expires December 31, 1999. Pasco-HK also leases twenty square meters
of office space in Beijing at an annual rental of $3,600 under a three year
lease that expires November 20, 2001.
Product Liability and Legal Proceedings
Our business exposes us to possible claims for personal injury or death
which may result from a failure of aircraft spare parts sold by it. Management
takes what it believes are adequate precautions to ensure the quality and
traceability of the aircraft parts which it sells. We have a director of
quality control whose responsibilities include implementation of our quality
control system and supervision of our licensed airframe and powerplant
inspectors and operations personnel. Our President, with over 20 years of
experience in the industry, also works with the director of quality control.
Parts that require maintenance are submitted to FAA/JAA certified facilities
for overhaul and recertification as required. We also ensure that all parts
received or shipped are accompanied by proper documentation. The director of
quality control also supervises our document traceability program. We do not
carry product liability insurance. See "Risk Factors -- Our Business May
Subject Us To Expensive Product Liability Claims."
Neither Aviation Holdings Group nor Aviation Holdings International is
currently involved in any litigation.
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MANAGEMENT
Directors and Executive Officers
The Directors and executive officers of Aviation Holdings Group and
Aviation Holdings International, their ages and positions are set forth below:
<TABLE>
<S> <C> <C>
Joseph J. Nelson ........... 49 President, Chief Executive Officer and Director of
Aviation Holdings International and Aviation
Holdings Group
Simon Chiang ............... 44 Executive Vice President of Aviation Holdings
International and Aviation Holdings Group and
Director of Aviation Holdings International
Michael J. Cirillo ......... 31 Director of Aviation Holdings International and
Aviation Holdings Group
Theodore H. Gregor ......... 48 Director of Aviation Holdings International and
Aviation Holdings Group
Joseph F. Janusz ........... 47 Vice President-Finance and Chief Financial
Officer of Aviation Holdings Group and Aviation
Holdings International
</TABLE>
Joseph J. Nelson has been our President, Chief Executive Officer and a
Director since August 1998 and President, Chief Executive Officer and a
Director of Aviation Holdings International since October 1996. Prior to
October 1996 he was Senior Vice-President of The AGES Group, L.P. ("AGES"),
responsible for the operations of four divisions with revenues of approximately
$100 million, and held other positions with AGES since October 1990. Prior
thereto, Mr. Nelson was with Ryder Corporation attaining the position of Vice
President of Sales. Mr. Nelson holds a B.S. degree from DePaul University and
an M.B.A. in Finance from Farleigh Dickinson University.
Simon Chiang has been Executive Vice President since August 1999, prior to
which he was Vice President of Asia and Pacific Rim Operations and a Director
of Aviation Holdings International since February 1998 and has been a Director
of ours since August 1998. From 1986 to 1995, Mr. Chiang was President of Simon
International Trading Corp., a company engaged primarily in the import and
export of aviation tooling. Mr. Chiang is also the founder and has served as
President of Pacific Airlines Support Corp. and of Pasco-Financial from 1995 to
1998. Mr. Chiang holds a B.A. degree from Fu Ren University, Taipei, Taiwan.
Michael J. Cirillo has been President of The D.A.R. Group, Inc., an
investment banking firm and President of CBM Consultants, Inc., a marketing and
consulting firm since 1995. From 1987 through 1995 Mr. Cirillo was an officer
and director of Flex Resources, Inc., a temporary and permanent employment
firm. Mr. Cirillo has been a Director of Aviation Holdings International since
June 1997 and a Director of Aviation Holdings Group since August 1998. Mr.
Cirillo holds a B.S. degree from Farleigh Dickinson University.
Theodore H. Gregor has been a director of Aviation Holdings International
since October 1997 and a director of Aviation Holdings Group since August 1998.
Since 1972, he has been the President of Aero Kool Corporation, a
privately-held company engaged in business as an FAA approved repair facility.
Mr. Gregor holds a B.S. degree in Mechanical Engineering from the University of
Miami.
Joseph F. Janusz has been Vice President of Finance and Chief Financial
Officer of Aviation Holdings Group since September 1999 and of Aviation
Holdings International since June 1, 1997. From March 1996 through May 1997, he
was a practicing certified public accountant. From September 1993 through March
1996, Mr. Janusz was the Chief Financial and Operations Officer of Homeshield
Industries, Inc. a privately-held manufacturing company. Mr. Janusz received a
B.S. degree in Accounting from the University of Florida. He is a member of the
American Institute of CPAs, the Florida Institute of CPAs and is a licensed
real estate broker in Florida.
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The officers of Aviation Holdings Group and Aviation Holdings
International are elected by the Board of Directors of Aviation Holdings Group
and Aviation Holdings International, respectively, to serve until their
successors are elected and qualified. The Directors are elected at the annual
meeting of the stockholders.
Aviation Holdings Group's Certificate of Incorporation and Bylaws and
Aviation Holdings International's Certificate of Incorporation and Bylaws
provide for the indemnification of, and advancement of expenses to, directors
and officers. Aviation Holdings International has also entered into agreements
to provide indemnification for its Directors and executive officers.
Committees
Our Board of Directors has not to date established any committees, but
intends to establish an Audit Committee. The Audit Committee will recommend the
independent accountants appointed by the Board of Directors to audit our
financial statements, and will review with such accountants the scope of their
audit and their report thereon, including any questions and recommendations
that may arise relating to such audit and report of our internal accounting and
auditing procedures.
Director Compensation
Our Directors have not received any compensation for their services as
Directors in the past. We intend to pay directors who are not employed by us a
fee of $500 for each meeting of the Board of Directors attended and $500 for
each committee meeting attended.
In addition, all Directors will receive stock option grants under the
Stock Option Plan for serving on our Board of Directors. Options to purchase
5,000 shares of common stock will be automatically granted to each Director on
December 31 of each year, starting December 31, 1999, at an option exercise
price equal to the closing bid or sales price of the common stock on such date.
Additionally, Directors appointed to the Board of Directors of Aviation
Holdings International in the future will be granted options to purchase 10,000
shares of common stock at an exercise price equal to the closing bid or sales
price of the common stock on the date of their appointment.
Executive Compensation
The following table reflects compensation paid or accrued during the
indicated fiscal years, which end on August 31 of the indicated year with
respect to compensation paid or accrued by Aviation Holdings International and
which end on December 31 of the indicated year with respect to compensation
paid or accrued by Aviation Holdings Group.
Summary Compensation Table
<TABLE>
<CAPTION>
All other
Name Principal Position Year Salary Bonus Other(1) Compensation
- -------------------------- -------------------- ------ --------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph J. Nelson ......... President, Chief 1998 160,000 29,999 20,128(2) 0.00
Executive Officer 1997 160,000 11,153 0.00 0.00
and Director
Simon Chiang ............. Executive Vice 1998 87,653 21,500 0.00 0.00
President and
Director
Joseph F. Janusz ......... Vice President of 1998 78,000 14,500 62,500(3) 0.00
Aviation Holdings 1997 29,500 0.00 0.00 0.00
International
</TABLE>
- ------------
(1) Does not include perquisites and other personal benefits, securities or
property if the aggregate amount of such compensation for each of the
persons listed did not exceed the lesser of (i) $50,000 or (ii) ten
percent of the combined salary and bonus for such person during the
applicable year.
26
<PAGE>
(2) Represents 4,000 shares of the common stock granted on August 1, 1998 by
the Company's Board of Directors at $5.03 per share. The shares were
issued in consideration of services rendered.
(3) Represents 25,000 shares of Aviation Holdings International's common stock
granted on June 11, 1998 by Aviation Holdings International's Board of
Directors at $2.50 per share. The shares were issued by Aviation Holdings
International in consideration of services rendered.
The following table contains information concerning stock options granted
to officers and directors through November 30, 1999.
<TABLE>
<CAPTION>
Number of % of Options Earliest
Options/Warrants Granted to Employees Exercise or Exercise
Name Granted (1) Base Price Date Expiration Date
---- ---------------- -------------------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Joseph Nelson ........... 50,000 12.5% 2.50 12/24/97 December 23, 2002
Joseph Nelson ........... 200,000 49.8% 2.50 5/31/98 May 30, 2003
Joseph Nelson ........... 25,000 6.2% 2.50 5/31/98 May 30, 2003
Joseph Janusz ........... 20,000 5.0% 2.50 10/29/98 June 11, 2004
Joseph Janusz ........... 20,000 5.0% 2.50 12/24/97 June 11, 2004
Joseph Janusz ........... 15,000 3.7% 2.50 5/31/98 June 11, 2004
Simon Chiang ............ 15,000 3.7% 2.50 2/12/99(2) February 11, 2003
Simon Chiang ............ 10,000 2.5% 2.50 5/31/98 May 30, 2003
Theodore Gregor ......... 10,000 2.5% 2.50 11/6/97 November 5, 2002
</TABLE>
- ------------
(1) Excludes from total options those options canceled due to employee
termination and options canceled under the provisions of Joseph Nelson's
employment agreement. The cancellations amounted to 35,000 options shares
in 1998 and 50,750 option shares in the nine months ended September 30,
1999.
(2) Options vest as to 5,000 shares on February 12 of each year, commencing
February 12, 1999.
The following table sets forth information regarding the number and value
of options held as of November 30, 1999 by the directors and officers, based on
an assumed value of $2.75 per share of common stock. No options have been
exercised to date.
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised In-the Money Options
at October 31, 1999 at October 31, 1999
------------------------------- -----------------------------------------
Name Exercisable Unexercisable Exercisable Unexerciseable
- ------------------------- ------------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
Joseph Nelson ........... 275,000 -- $68,750 --
Joseph Janusz ........... 55,000 -- $13,750 --
Simon Chiang ............ 15,000 10,000 $ 3,750 $2,500
Theodore Gregor ......... 10,000 -- $ 2,500 --
</TABLE>
Employment Agreements
Aviation Holdings Group and Mr. Nelson have entered into an employment
agreement dated as of May 31, 1998 providing for Mr. Nelson's employment as
President and Chief Executive Officer of Aviation Holdings Group. The agreement
has a term of three years and, thereafter, continues on a month-to-month basis.
The agreement provides for compensation consisting of (i) annual base
compensation of $175,000, (ii) an annual bonus equal to 3% of the pre-tax net
income of Aviation Holdings Group (exclusive of the pre-tax net income of
Aviation Holdings International) and 3% of the pre-tax net income of Aviation
Holdings International, and (iii) certain fringe and other employee benefits
that are made available to the senior executives of Aviation Holdings Group.
Pursuant to the agreement, Mr. Nelson was granted options to purchase 200,000
shares of common stock at a price of $2.50 per share. The options are fully
vested and expire on May 31, 2003. In the event of a change in control of
Aviation Holdings Group other than one approved by its Board of Directors or in
the event that Mr. Nelson's employment is terminated by Aviation Holdings Group
for any reason other than his death or disability or for "cause" (as defined in
the agreement),
27
<PAGE>
Mr. Nelson will be entitled to receive a lump sum payment equal to his annual
base compensation multiplied by three. In the event of Mr. Nelson's death or
disability, Mr. Nelson or his estate shall receive Mr. Nelson's base
compensation for 24 months or the remainder of the term of the agreement,
whichever is shorter.
Aviation Holdings International and Simon Chiang have entered into an
employment agreement dated as of February 12, 1998, as amended August 1, 1999,
providing for Mr. Chiang's employment as Vice President of Aviation Holdings
International prior to August 1, 1999, and Executive Vice President of Aviation
Holdings Group and Aviation Holdings International thereafter. The agreement
has a term of three years and thereafter continues on a month-to-month basis.
The agreement provides for compensation consisting of (i) annual base
compensation of $131,000 ($95,000 prior to August 1, 1999), (ii) an annual
graduated bonus based on a percentage of Aviation Holdings International's net
sales from business conducted within China (0% of first $1.5 million; 1% of
next $1 million; 2% of next $1.5 million; 3% of next $1.5 million; and 4% of
net sales in excess of $5.5 million), and (iii) certain fringe and other
employee benefits that are made available to similarly situated executives of
Aviation Holdings International. Pursuant to the agreement, Mr. Chiang was
granted options, under Aviation Holdings International's Stock Option Plan, to
purchase 15,000 shares of Aviation Holdings International common stock at a
price of $2.50 per share. The options vest at the rate of 5,000 per year. In
the event that Mr. Chiang's employment is terminated by Aviation Holdings
International for any reason other than his death or disability or for "cause"
(as defined in the agreement), Mr. Chiang will be entitled to receive any bonus
due to the date of such event and his annual base compensation for the
unexpired term of the agreement. In the event of Mr. Chiang's death, his estate
shall be entitled to receive Mr. Chiang's base compensation for sixty days.
Aviation Holdings International and Joseph F. Janusz have entered into an
employment agreement dated as of June 11, 1999 pursuant to which Mr. Janusz
serves as Chief Financial Officer of Aviation Holdings International. The
agreement has a term of two years and provides for (i) annual base compensation
of $89,500, (ii) an annual bonus, and (iii) benefits consistent with Aviation
Holdings International's then current policies and reasonable expense
reimbursement. Pursuant to the agreement, Mr. Janusz was granted, under
Aviation Holdings International's Stock Option Plan, options to purchase 20,000
shares of Aviation Holdings International common stock. In the event that Mr.
Janusz's employment is terminated by Aviation Holdings International for
reasons other than his death or permanent disability or for "cause" (as
definition the agreement), Mr. Janusz will be entitled to receive his annual
base compensation for 12 months prorated, annualized and calculated through the
date of termination. In the event that Mr. Janusz's employment is terminated
for disability, Mr. Janusz shall be entitled to receive his base compensation
for six months. In the event of Mr. Janusz's death, his estate shall be
entitled to receive Mr. Janusz's base compensation for six months. The
agreement provides that Aviation Holdings International will require any
successor to all or substantially all of the business or assets of Aviation
Holdings International to assume Aviation Holdings International's obligations
under the agreement.
Stock Option Plan
On September 1, 1997, the Board of Directors of Aviation Holdings
International adopted a Stock Option Plan which was superseded, effective March
1, 1999, by a Stock Option Plan of Aviation Holdings Group (the "Plan"). This
Plan provides for the grant of Incentive Stock Options, Non-qualified Stock
options and Stock Appreciation Rights to employees selected by the Board of
Directors of Aviation Holdings Group, or Compensation Committee. The Plan also
sets forth applicable rules and regulations for stock options granted to
non-employee directors. To date, 255,750 options have been granted under the
Plan, replacing the same number of options granted under the predecessor plan,
including 75,000 to Mr. Nelson, 25,000 to Mr. Chiang, 10,000 to Mr. Gregor and
55,000 to Mr. Janusz. The Plan is subject to stockholder approval and will be
submitted to the stockholders at our annual meeting in 1999.
28
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the common stock (including common stock acquirable
within 60 days pursuant to options, warrants, conversion privileges or other
rights) of the Company as of November 12, 1999 (i) by each of the Company's
directors and executive officers, (ii) all executive officers and directors as
a group, and (iii) all persons known by the Company to own beneficially more
than 5% of the common stock. All persons listed have sole voting and investment
power over the indicated shares unless otherwise indicated.
<TABLE>
<CAPTION>
Percent
--------------------------------------
Name Shares Before Offering After Offering(9)
- ----------------------------------------------------------- --------- ----------------- ------------------
<S> <C> <C> <C>
Joseph J. Nelson(1)(2) .................................... 475,800 11.3 8.3
Joseph F. Janusz(1)(3) .................................... 70,000 1.7 1.2
Simon Chiang(1)(4) ........................................ 187,123 4.4 3.3
Michael J. Cirillo(1)(5) .................................. 234,000 5.5 4.1
Theodore H. Gregor(6) ..................................... 10,000 0.2 0.2
1495 Southeast Avenue
Hialeah, FL 33010
APP Investments, Inc.(7) .................................. 915,000 21.7 16.0
Two Penn Center Plaza
Suite 605
Philadelphia, PA 19102
Argaman, Inc.(8) .......................................... 600,000 14.2 10.5
M.S.A. Trust Company, Ltd., Co.
Daniel Frisch Street
64731 Tel Aviv, Israel
Norton Herrick ............................................ 220,000 5.2 3.8
2295 Corporate Blvd., N.W.
Boca Raton, FL 33431
All officers and directors as a group(2)(3)(4)(7) ......... 976,923 23.2 17.1
</TABLE>
- ------------
(1) The addresses for Messrs. Nelson, Janusz, Chiang and Cirillo are c/o
Aviation Holdings Group, Inc., 15675 N.W. 15th Avenue, Miami, Florida
33169
(2) Includes 275,000 shares subject to options presently exercisable.
(3) Includes 55,000 shares subject to options presently exercisable.
(4) Includes 55,556 shares held by Ann Chiang, Mr. Chiang's wife. Also includes
15,000 shares subject to options presently exercisable.
(5) Includes 30,000 shares of common stock, and warrants to purchase 200,000
shares of common stock, owned by the D.A.R. Group, Inc. of which Mr.
Cirillo is the President. Also includes 4,000 shares owned by RP Capital
Growth, L.P., of which Mr. Cirillo is a partner.
(6) Includes 10,000 shares subject to options presently exercisable.
(7) APP is a personal holding company. The sole shareholder of APP is Andrew P.
Panzo. Neither APP nor Mr. Panzo is affiliated with any officer, director,
or other principal stockholder.
(8) Includes warrants to purchase 100,000 shares of common stock. Argaman is an
Israeli corporation making investments on behalf of a group of investors.
Argaman is not affiliated with any officer, director or other principal
stockholder. We do not know who beneficially owns the shares held by
Argaman, and representatives of Argaman have refused to provide that
information to us.
(9) Does not include exercise of the underwriter's option.
29
<PAGE>
CERTAIN TRANSACTIONS
Effective October 1, 1996, Aviation Holdings International issued 600,000
shares of its common stock to Jet Avionics Systems, Inc. ("Jet Avionics") in
consideration of a promissory note in the principal amount of $175,000, payable
on demand, together with accrued interest at the applicable federal rate.
Aviation Holdings International also entered into a Consignment Agreement with
Jet Avionics, whereby Aviation Holdings International agreed to sell certain
inventory of technical spares for the benefit of Aviation Holdings
International and Jet Avionics. The Consignment Agreement was for a period of
one year and provided for the delivery of inventory by Jet Avionics to Aviation
Holdings International and the storage by Aviation Holdings International, on a
segregated basis, of such inventory. Title to such inventory remained with Jet
Avionics until sale to a third party, at which time title passed to Aviation
Holdings International and then to the third party. Aviation Holdings
International insured the inventory. The Consignment Agreement provided that
Aviation Holdings International retained 25% of the selling price of the
inventory and remitted the balance of 75% to Jet Avionics. Jet Avionics
certified that each item of inventory covered by the Agreement was maintained
by an FAA approved source and was properly documented. Pursuant to such
Consignment Agreement, Aviation Holdings International sold to third parties
certain of the consignment inventory for approximately $452,000 and owed Jet
Avionics $303,000 after giving effect to a $36,000 payment.
On August 29, 1997, Aviation Holdings International and Jet Avionics
entered into a Consignment Cancellation and Purchase Agreement whereby (i) Jet
Avionics canceled the debt of $303,000 and (ii) Aviation Holdings International
purchased the remaining consignment inventory with a value of approximately
$336,000 from Jet Avionics all in exchange for 230,000 shares of Aviation
Holdings International's common stock, $4,000 in cash, and the cancellation of
$175,000 of indebtedness of Jet Avionics to Aviation Holdings International.
The President and sole shareholder of Jet Avionics is Sharon Taoz. Ms. Taoz was
employed by Aviation Holdings International, as an account executive, from
October 3, 1996 through August 31, 1997 and was paid $37,000. Ms. Taoz is
married to a current employee of Aviation Holdings International.
On October 3, 1996, Aviation Holdings International sold 80,000 shares of
its common stock to IP Services, Inc. ("IP") for $24,510. IP is an affiliate of
Howard M. Appel. During 1996 FAC Enterprises, Inc. ("FAC"), an affiliate of Mr.
Appel, loaned Aviation Holdings International aggregate of $325,000. During the
year, Aviation Holdings International repaid $125,000. The balance ($200,000)
was repaid on August 29, 1997 through the issuance of 100,000 shares of
Aviation Holdings International common stock. FAC was also issued 7,500 shares
for advisory services rendered. Mr. Appel may be deemed to have been an
organizer of Aviation Holdings International.
On November 1, 1996, Aviation Holdings International sold 192,000 shares
of its common stock to its president, Joseph J. Nelson, in consideration of a
promissory note in the principal amount of $80,000 payable on demand. The
outstanding balance as of September 30, 1999 was $80,000. The note bears
interest at the applicable federal rate.
On November 14, 1996, Aviation Holdings International entered into a
contract with Fersam International Ltd. ("Fersam") for the purchase of a
one-half interest in a CAE Electronics Ltd. Sigma six (6) axis DC-10 simulator
(the "DC-10 simulator"). In consideration for the purchase of this interest,
Aviation Holdings International paid $125,000 in cash and issued 40,000 shares
of Aviation Holdings International common stock valued at $100,000. On March
28, 1997, Aviation Holdings International entered into another contract with
Fersam for the purchase of one (1) Novoview 2000 Visual Support System,
Simulator Spare Parts Package and Maintenance Training Data Package to be used
in connection with the DC-10 simulator. In consideration of and as payment for
the purchase of these assets, Aviation Holdings International issued 200,000
shares of Aviation Holdings International common stock valued at $500,000.
On March 27, 1997, Silvertown International Corp. ("Silvertown") loaned
Aviation Holdings International $120,000. This loan was evidenced by a
promissory note payable to Silvertown, due on June 27, 1997, together with
interest at 6% per annum. In consideration for this unsecured loan, Aviation
Holdings International issued to Silvertown 4,800 shares of Aviation Holdings
International common stock. This note was extended for an additional three (3)
months. On May 12, 1997, Silvertown loaned Aviation Holdings International
$250,000. This loan was evidenced by a promissory note payable to Silvertown,
due on or about July 27, 1997, together with interest at 6% per annum. In
consideration for this unsecured loan, Aviation
30
<PAGE>
Holdings International issued to Silvertown 10,000 shares of Aviation Holdings
International common stock. On August 29, 1997, Aviation Holdings International
satisfied the principal amounts of these promissory notes through the issuance
of 185,000 shares of Aviation Holdings International common stock to
Silvertown.
On May 23, 1997, Joseph Laura loaned $500,000 to Aviation Holdings
International. This loan was evidenced by a promissory note payable to Mr.
Laura, due on the earlier of May 31, 1998 or Aviation Holdings International
obtaining equity financing in excess of $1,000,000, together with interest at
12% per annum. Aviation Holdings International satisfied the principal amount
of this note through the issuance of 250,000 shares of common stock to Mr.
Laura on August 29, 1997.
On May 30, 1997, The D.A.R. Group, Inc., an affiliate of Michael J.
Cirillo, a director of Aviation Holdings International, was issued 200,000
shares of Aviation Holdings International common stock, for $200. On June 1,
1997, The D.A.R. Group, Inc., was issued warrants to purchase 950,000 shares of
Aviation Holdings International common stock for a fee in connection with
advice concerning the formation, capitalization and structure of Schuylkill
Acquisition Corp. See "Description of Securities -- Outstanding Warrants."
On February 12, 1998, Aviation Holdings International consummated a
transaction whereby Aviation Holdings International acquired all or a majority
of the outstanding capital stock of a number of companies controlled by Simon
Chiang in return for 150,000 shares of Aviation Holdings International common
stock. The entities acquired are as follows: 100% of the capital stock of PASCO
International Aviation Corp., a Florida corporation; 90% of the capital stock
of PASCO International Aviation Corp. Limited, a Hong Kong Corporation; 80% of
the capital stock of PASCO Financial Services Limited, a Hong Kong corporation;
and 100% of the capital stock of Aero-Link Flight Systems Limited, a Hong Kong
Corporation. In connection with these transactions, Aviation Holdings
International paid certain amounts on behalf of the acquired companies for
which Mr. Chiang agreed to be liable in the aggregate amount of $133,707 as of
September 30, 1999, which amounts Mr. Chiang has agreed to repay prior to
December 31, 1999. Simultaneously with the aforementioned transactions,
Aviation Holdings International and Mr. Chiang entered into an employment
agreement pursuant to which Mr. Chiang serves as Aviation Holdings
International's Vice President for Asia and the Pacific Rim Operations. See
"Management -- Employment Agreements."
On October 15, 1998, Nancy Plotkin and the John C. Jacobs Trust loaned an
aggregate of $250,000 to the Company. These loans were evidenced by promissory
notes due March 15, 1999 (subject to extension by the Company to May 15,1 999),
bear interest at 10% per annum and are secured by the pledge of 51% of the
outstanding stock of Aviation Holdings International. As additional
consideration for the loans, the Company issued 20,000 shares of its common
stock to Nancy Plotkin and 5,000 shares to the John C. Jacobs Trust. In May
1999 the Company extended the maturity date of these promissory notes to July
14, 1999 and issued a warrant to purchase 12,000 shares of common stock to
Nancy Plotkin and a warrant to purchase 3,000 shares of common stock to the
John G. Jacobs Trust as consideration for this extension. The warrants are
exercisable for three years from the date of grant at an exercise price of
$4.00 per share. In August 1999, the note holders agreed to extend the maturity
date of these promissory notes to September 17, 1999 upon issuance of 4,800
shares of common stock to Nancy Plotkin and 1,200 shares of common stock to the
John G. Jacobs Trust. In September 1999, the note holders agreed to extend the
maturity date of these promissory notes to October 17, 1999 upon issuance of
4,000 shares of common stock to Nancy Plotkin and 1,000 shares of common stock
to the John G. Jacobs Trust. In October 1999, the noteholders agreed to extend
the maturity date of these promissory notes to November 17, 1999 upon
prepayment of interest on the notes through the end of the extension. These
notes were paid in full in December 1999.
On March 3, 1999, Aviation Holdings Group purchased 600,000 shares of
Aviation Holdings International common stock from Argaman, Inc. ("Argaman") in
exchange for 500,000 shares of the common stock and a warrant to purchase an
additional 100,000 shares at an exercise price of $3.75 per share.
On June 1, 1999, Aviation Holdings Group issued warrants to purchase
210,000 shares of common stock to the D.A.R. Group, Inc. and Dallas
Investments, Ltd. in consideration for the cancellation of warrants to purchase
1,000,000 shares of common stock of Aviation Holdings International.
On August 31, 1999 Aviation Holdings Group sold to IP its interest in a
promissory note from Environmental Waste Solutions, Inc. with a book value of
$900,000 which is secured by a mortgage on a 60
31
<PAGE>
acre parcel of land in Colchester, Connecticut. The purchase price was $900,000
plus 50% of any net proceeds received from the debtor or on foreclosure. The
note and mortgage related to advances made by Aviation Holdings Group to the
debtor in connection with a proposed transaction prior to the Company's
acquisition of Aviation Holdings International and unrelated to the Company's
current business.
DESCRIPTION OF SECURITIES
General
We are authorized to issue 18,000,000 shares of common stock, $.0001 par
value per share, of which 4,208,315 shares are outstanding. An additional
750,000 shares of common stock are reserved for issuance pursuant to our Stock
Option Plan.
Within the limits and restrictions contained in the Certificate of
Incorporation, board of directors has the authority, without further action by
the stockholders, to issue up to 2,000,000 shares of preferred stock, $.0001
par value per share, in one or more series, and to fix, as to any such series,
the dividend rate, redemption prices, preferences on liquidation or
dissolution, sinking fund terms, if any, conversion rights, voting rights, and
any other preferences or special rights and qualifications. As of the date
hereof, we have no preferred stock issued and outstanding.
Shares of preferred stock issued by our board of directors could be
utilized, under certain circumstances, to make an attempt to gain control of us
more difficult or time consuming. For example, shares of preferred stock could
be issued with certain rights which might have the effect of diluting the
percentage of common stock owned by a significant stockholder or issued to
purchasers who might side with management in opposing a takeover bid which the
board of directors determines is not in our best interests of us and our
stockholders. This provision may be viewed as having possible anti-takeover
effects. A takeover transaction frequently affords stockholders the opportunity
to sell their shares at a premium over current market prices. The board of
directors has not authorized any series of preferred stock, and there are no
agreements, understandings or plans for the issuance of any preferred stock.
Units
Each unit offered hereby consists of two shares of common stock and one
Class A Warrant. The two shares of common stock and Class A Warrants that make
up each unit may not be separated or sold separately until 45 days after the
date of issuance.
Common Stock
Holders of common stock have equal rights to receive dividends when, as
and if declared by the board of directors, out of funds legally available
therefor. Holders of common stock have one vote for each share held of record
and do not have cumulative voting rights.
Holders of common stock are entitled upon our liquidation to share ratably
in the net assets available for distribution, subject to the rights, if any, of
holders of any preferred stock then outstanding. Shares of common stock are not
redeemable and have no preemptive or similar rights. All outstanding shares of
common stock are fully paid and non-assessable.
Class A Warrants
Each Class A Warrant will entitle the registered holder to purchase one
share of common stock at an exercise price of $2.85 per share during the three
year period commencing on the issuance date. No fractional shares of common
stock will be issued in connection with the exercise of Class A Warrants. Upon
exercise, we will pay the holder the value of any such fractional shares in
cash, based upon the market value of the common stock at such time.
32
<PAGE>
Unless extended by us at our discretion, the Class A Warrants will expire
at 5:00 p.m., New York time, on the third anniversary of the original issuance
date. In the event a holder of Class A Warrants fails to exercise the Class A
Warrants prior to their expiration, the Class A Warrants will expire and the
holder thereof will have no further rights with respect to the Class A
Warrants.
We may redeem the Class A Warrants at a price of $.01 per Class A Warrant,
at any time once they become exercisable upon not less than 30 days prior
written notice if the average closing price or bid price of the common stock as
reported by the principal exchange on which the common stock is traded, the
Nasdaq National Market or SmallCap Market or the National Quotation Bureau,
Incorporated, as the case may be, equals or exceeds $5.50 per share for any
twenty (20) consecutive trading days ending within five (5) days prior to the
date on which notice of redemption is given.
No Class A Warrants will be exercisable unless at the time of exercise
there is a current prospectus covering the shares of common stock issuable upon
exercise of such Class A Warrants under an effective registration statement
filed with the qualification under the securities laws of the state or
residence of the holder of such Class A Warrants. Although we intend to have
all shares so qualified for sale in those states where the units are being
offered and to maintain a current prospectus relating thereto until the
expiration of the Class A Warrants, subject to the terms of the Warrant
Agreement, there can be no assurance that it will be able to do so.
A holder of Class A Warrants will not have any rights or privileges as a
shareholder prior to the exercise of the Class A Warrants. We are required to
keep available a sufficient number of authorized shares of common stock to
permit exercise of the Class A Warrants.
The exercise price of the Class A Warrants and the number of shares
issuable upon exercise of the Class A Warrants will be subject to adjustment to
protect against dilution in the event of stock dividends, stock splits,
combinations, subdivisions and reclassifications. No assurance can be given
that the market price of our common stock will exceed the exercise price of the
Class A Warrants at any time during the exercise period.
Outstanding Warrants
Warrants to purchase 1,000,000 shares of Aviation Holdings International
common stock were issued in June 1, 1997 in connection with its organization.
This included warrants to purchase 950,000 shares issued to D.A.R. Group, Inc.,
of which Michael J. Cirillo is the principal. On June 1, 1999, all of these
warrants were exchanged for warrants to purchase 210,000 shares of Aviation
Holdings Group common stock. Each warrant entitles the holder to purchase one
share of Aviation Holdings Group common stock at an exercise price of $4.50
until June 30, 2002. We may redeem the warrants at $.05 upon the occurrence of
both of the following events: (a) the listing of our common stock on a
securities exchange and (b) our common stock trading in excess of $5.25 per
share for a ten day period.
On March 31, 1999, we issued to Argaman, Inc. a warrant to purchase up to
100,000 shares of common stock at an exercise price of $3.75 per share until
March 4, 2002.
On May 15, 1999, Aviation Holdings Group issued to Nancy Plotkin and the
John G. Jacobs Trust warrants to purchase 12,000 shares and 3,000 shares,
respectively, of our common stock at an exercise price of $4.00 per share until
May 15, 2004.
The warrants described above provide for adjustment of the exercise price
and for a change in the number of shares issuable upon exercise to protect
holders against dilution in the event of a stock dividend, stock split,
combination or reclassification of our common stock. A warrant may be exercised
upon surrender of the warrant certificate on or prior to the expiration date
(or earlier redemption date) of such warrant at the offices of our transfer
agent, with the form of "Election to Purchase" completed and executed as
indicated, accompanied by payment of the full exercise price (by certified or
bank check) for the number of shares with respect to which the warrant is being
exercised. Shares issued upon exercise of warrants and paid for in accordance
with the terms of the warrants will be fully paid and nonassessable.
The warrants do not confer upon the holder thereof any voting or other
rights of a stockholder.
33
<PAGE>
Transfer Agent
StockTrans, Inc., 7 East Lancaster Avenue, Ardmore, Pennsylvania 19003,
serves as transfer agent for the common stock of Aviation Holdings
International and the Company.
UNDERWRITING
M.S. Farrell & Co., Inc. has agreed, subject to the terms and conditions
contained in an underwriting agreement to purchase the 750,000 units offered
hereby at the offering price less the underwriting discount set forth on the
cover page of this prospectus. The underwriter is committed to purchase all of
such units, if any are purchased.
The underwriter has advised us that it proposes to offer the units to the
public at the public offering prices set forth on the cover page of this
prospectus, and to certain securities dealers at such price less a concession
of not more than $_____ per unit, and that the underwriter and such dealers may
reallot to other dealers, including the underwriter, a discount not in excess
of $______ per unit. After this offering, the public offering price and
concessions and discounts may be changed by the underwriter. No reduction in
such terms will change the amount of proceeds to be received by us as set forth
on the cover page of this prospectus.
We have granted an option to the underwriter, exercisable for a period of
30 days after the date of this prospectus, to purchase up to an additional
75,000 units from us at the public offering prices set forth on the cover page
of this prospectus less the underwriting discounts and commissions. The
underwriter may exercise this option only for the purpose of covering
over-allotments, if any.
The underwriting agreement provides that we will indemnify the underwriter
against certain liabilities, including liabilities under the Securities Act, or
will contribute to payments the underwriter may be required to make in respect
thereof.
Aviation Holdings Group, its executive officers and directors have agreed
not to, directly or indirectly, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or announce
any offer, sale, offer of sale, contract of sale, pledge, grant of any option
to purchase or other sale or disposition) of any shares of common stock, units
or other capital stock of Aviation Holdings Group, or any securities
convertible into, or exercisable or exchangeable for, any shares of common
stock or other capital stock of Aviation Holdings Group or any right to
purchase or acquire common stock or other capital stock of Aviation Holdings
Group for a period of 360 days after the date of this prospectus without the
prior written consent of the underwriter, except for options granted pursuant
to the Stock Option Plan. The underwriter may, in its sole discretion, at any
time and without prior notice, release all shares or any portion thereof
subject to such lock-up agreements.
The public offering prices for the common stock and the units have been
determined through negotiations between Aviation Holdings Group and the
underwriter. Among the factors considered in making such determination will be
prevailing market conditions, Aviation Holdings Group's financial and operating
history and condition, its prospects and the prospects of the industry in
general, its management, of Aviation Holdings Group, and the market prices of
securities for companies in businesses similar to that of Aviation Holdings
Group. The offering prices of the units do not necessarily bear any
relationship to the assets, book value, net worth or earnings history of
Aviation Holdings Group. The offering price of the units should not necessarily
be considered an indication of the actual value of the units.
In connection with the offering of the units, the underwriter and its
affiliates may engage in transactions that stabilize, maintain or otherwise
affect the market price of the common stock or the units. Such transactions may
include stabilization transactions effected in accordance with Rule 104 of
Regulation M, pursuant to which such persons may bid for or purchase common
stock for the purpose of stabilizing its market price. The underwriter also may
create a short position for the account of the underwriter by selling more
common stock in connection with the offering than they are committed to
purchase from Aviation Holdings Group, and in such case may purchase common
stock in the open market following completion of the offering to cover all or a
portion of such short position. The underwriter may also cover all or a portion
of such short position, up to 75,000 shares of common stock, by exercising the
underwriter's over-allotment
34
<PAGE>
option referred to previously. Any of the transactions described in this
paragraph may result in the maintenance of the price for the common stock or
the units at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph are required and,
if they are undertaken, then they may be discontinued at any time.
The underwriter and its predecessors have been actively engaged in the
securities brokerage and investment banking business since 1984. However, they
have engaged in only limited underwriting activities, and have been the lead or
sole underwriter in only a few public offerings during the last five years.
Accordingly, there can be no assurance that the underwriter's lack of public
offering experience will not affect the proposed public offering of the units
or the common stock or the subsequent development of a trading market for the
common stock. Therefore, purchasers of the units or shares of common stock
offered hereby may suffer a lack of liquidity in their investment or a material
diminution of the value of their investments. The underwriter is a member of
the National Association of Securities Dealers, Inc. and is registered as a
Securities broker-dealer in 46 states. See "Risk Factors -- The Underwriter has
Limited Underwriting Experience."
LEGAL MATTERS
The validity of the common stock offered hereby will passed upon for us by
Klehr, Harrison, Harvey, Branzburg & Ellers LLP, Philadelphia, Pennsylvania,
and for the underwriter by ___________________.
EXPERTS
The financial statements of the Company for the fiscal years ended
December 31, 1998 and December 31, 1997 included in this prospectus have been
audited by L J Soldinger Associates, certified public accountants, and are
included herein in reliance upon the authority of said firm as experts on
accounting and auditing.
35
<PAGE>
AVIATION HOLDINGS GROUP, INC.
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
AVIATION HOLDINGS GROUP, INC.
Independent Auditors' Report ............................................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and September 30, 1999 (Unaudited) .. F-3
Consolidated Statements of Operation for the Years Ended December 31, 1997 and 1998 and
for the Nine Months Ended September 30, 1998 and 1999 (Unaudited) ..................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December
31, 1997 and 1998 and for the Nine Months Ended September 30, 1999 and 1998
(Unaudited) ........................................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and 1998 and
for the Nine Months Ended September 30, 1998 and 1999 (Unaudited) ..................... F-7
Notes to Financial Statements ........................................................... F-9
JET AVIATION TRADING, INC.
Independent Auditors' Report ............................................................ F-30
Balance Sheet as of August 31, 1997 ..................................................... F-31
Statement of Income, October 3, 1996 (Date of Inception) to August 31, 1997 ............. F-32
Statement of Changes in Stockholders' Equity, October 3, 1996 (Date of Inception) to
August 31, 1997 ....................................................................... F-33
Statement of Cash Flows October 3, 1996 (Date of Inception) to August 31, 1997 .......... F-34
Notes to Financial Statements ........................................................... F-35
AVIATION HOLDINGS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheet as of May 31, 1998 (Unaudited) ..................... F-43
Condensed Consolidated Statements of Operations and Accumulated Deficit for the Periods
October 3, 1996 (Date of Inception) Through May 31, 1997 (Unaudited) and the Nine
Months Ended May 31, 1998 (Unaudited) ................................................. F-45
Condensed Consolidated Statements of Cash Flows for the Periods October 3, 1996 (Date of
Inception) Through May 31, 1997 (Unaudited) and the Nine Months Ended May 31, 1998
(Unaudited) ........................................................................... F-46
Notes to Interim Financial Statements (Unaudited) ....................................... F-47
PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTS
Pro Forma Condensed Consolidated Combined Statement of Operations for the Year Ended
December 31, 1998 (Unaudited) ......................................................... P-2
Pro Forma Condensed Consolidated Combined Statement of Operations for the Nine Months
Ended September 30, 1999 (Unaudited) .................................................. P-3
Notes to Unaudited Pro Forma Condensed Consolidated Combined Financial Statements
(Unaudited) ........................................................................... P-4
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Aviation Holdings Group, Inc.
Miami, FL
We have audited the accompanying consolidated balance sheets of Aviation
Holdings Group, Inc. (the "Company") as of December 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years ended December 31, 1997 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Aviation Holdings
Group, Inc. as of December 31, 1998, and the consolidated results of its
operations, changes in stockholders' equity and cash flows for the years ended
December 31, 1997 and 1998 in conformity with generally accepted accounting
principles.
L J SOLDINGER ASSOCIATES
Arlington Heights, Illinois
June 22, 1999
F-2
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash ........................................................... $ 363,690 $ 497,437
Trade receivables, net ......................................... 2,842,545 3,118,220
Inventory ...................................................... 3,220,062 4,033,434
Employee advances .............................................. 4,040 4,091
Advances to stockholder -- related party ....................... 75,181 151,709
Prepaid expenses ............................................... 24,728 42,723
Refundable income taxes ........................................ 16,200 16,200
----------- ------------
Total Current Assets ........................................ 6,546,446 7,863,814
----------- ------------
Property and Equipment, Net ....................................... 303,121 321,981
----------- ------------
Other Assets
Investment in joint venture .................................... 503,042 692,585
Deposits ....................................................... 17,382 16,713
Note receivable, net ........................................... 900,000 --
Interest receivable from stockholders -- related party ......... 25,827 42,132
Intangibles, net ............................................... 357,766 695,127
Deferred offering costs ........................................ 109,782 677,082
----------- ------------
Total Other Assets .......................................... 1,913,799 2,123,639
----------- ------------
Total Assets ...................................................... $ 8,763,366 $ 10,309,434
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
-------------- ----------------
(Unaudited)
<S> <C> <C>
Current Liabilities
Short-term borrowings -- bank ......................................... $ 1,500,000 $ 1,975,000
Short-term borrowings -- others ....................................... 148,685 255,444
Current portion of long-term debt ..................................... 3,272 3,418
Accounts payable ...................................................... 2,130,906 2,854,567
Accrued expenses ...................................................... 404,498 436,822
Advances from stockholders ............................................ 782,500 1,000
Income taxes payable .................................................. 204,700 229,000
------------ ------------
Total Current Liabilities .......................................... 5,174,561 5,755,251
------------ ------------
Long-term debt, net of current portion ................................... 13,124 10,314
------------ ------------
Total Liabilities .................................................. 5,187,685 5,765,565
------------ ------------
Minority Interest ........................................................ 1,186,964 364,906
------------ ------------
Commitments and Contingencies
Stockholders' Equity
Preferred stock; no par value; authorized -- 2,000,000 shares;
issued -- none ....................................................... -- --
Common stock; $.0001 par value; At December 31, 1998 authorized --
18,000,000 shares; issued, issuable and outstanding -- 3,474,815
At September 30, 1999 authorized -- 18,000,000 shares; issued,
issuable and outstanding -- 4,219,315 ................................ 347 422
Additional paid-in capital ............................................ 4,148,457 6,037,544
Less subsidiary stock subscription receivable -- related parties ...... (280,000) (280,000)
Accumulated deficit ................................................... (1,480,087) (1,579,003)
------------ ------------
Total Stockholders' Equity ......................................... 2,388,717 4,178,963
------------ ------------
Total Liabilities and Stockholders' Equity ......................... $ 8,763,366 $ 10,309,434
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------ --------------------------------
1997 1998 1998 1999
------------ --------------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales .............................................. $ -- $ 8,365,197 $ 5,094,930 $9,342,749
Cost of Goods Sold ..................................... -- 5,839,049 3,996,660 6,048,375
--------- ------------ ------------ ----------
Gross Profit ........................................... -- 2,526,148 1,098,270 3,294,374
--------- ------------ ------------ ----------
Operating Expenses
Salaries and wages .................................... -- 1,300,172 896,608 1,095,200
General and administrative ............................ 15,950 1,771,560 1,157,850 1,435,615
Professional fees ..................................... 48,227 617,099 408,713 190,512
--------- ------------ ------------ ----------
Total Operating Expenses ............................... 64,177 3,688,831 2,463,171 2,721,327
--------- ------------ ------------ ----------
Income (Loss) from Operations .......................... (64,177) (1,162,683) (1,364,901) 573,047
Other Income (Expense)
Interest expense ...................................... -- (96,044) (6,057) (578,148)
Interest income ....................................... 6,740 72,825 66,786 21,009
Income (loss) from joint venture ...................... -- (8,313) 5,057 4,171
--------- ------------ ------------ ----------
Total Other Income (Expense) ........................... 6,740 (31,532) 65,786 (552,968)
--------- ------------ ------------ ----------
Loss Before Income Taxes and Minority Interest ......... (57,437) (1,194,215) (1,299,115) 20,079
Income Tax Expense ..................................... -- (186,863) (3,757) (56,125)
--------- ------------ ------------ ----------
Loss Before Minority Interest .......................... (57,437) (1,381,078) (1,302,872) (36,046)
Minority Interest ...................................... -- (3,702) 25,305 (62,870)
--------- ------------ ------------ ----------
Net Loss ............................................... $ (57,437) $ (1,384,780) $ (1,277,567) (98,916)
========= ============ ============ ==========
Basic and Diluted Loss Per Common Share ................ $ (.06) $ (.46) $ (.49) $ (.03)
========= ============ ============ ==========
Average Common Shares -- Basic and Diluted ............. 1,046,235 3,035,856 2,610,511 3,954,459
========= ============ ============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Stock
------------------------ Paid-In Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------ --------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1996 .......... 637,000 $64 $ 30,599 $ -- $ (37,870)
Common stock issued for services --
related party ............................ 1,000,000 100 900 -- --
Cancellation of common stock .............. (87,000) (9) 9 -- --
Common stock issued for cash .............. 800,000 80 999,920 -- --
Additional offering costs ................. -- -- (46,143) -- --
Liabilities paid or forgiven by
stockholder -- related party ............. -- -- 24,332 -- --
Net loss .................................. -- -- -- -- (57,437)
--------- ----- ---------- ---------- ------------
Balances as of December 31, 1997 .......... 2,350,000 235 1,009,617 -- (95,307)
Common stock issued in the Aviation
Holdings International, Inc.
acquisition .............................. 1,095,815 110 2,619,626 -- --
Stock subscription receivable from
officers' subsidiary stock -- related
parties .................................. -- -- -- (280,000) --
Compensatory common stock options
issued ................................... -- -- 360,200 -- --
Common stock issued to officer --
related party ............................ 4,000 -- 20,128 -- --
Common stock and warrants issued in
connection with $250,000 note
payable .................................. 25,000 2 138,886 -- --
Net loss .................................. -- -- -- -- (1,384,780)
--------- ----- ---------- ---------- ------------
Balances as of December 31, 1998 .......... 3,474,815 347 4,148,457 (280,000) (1,480,087)
Common stock and warrants issued in
the Aviation Holdings International,
Inc. acquisition ......................... 500,000 50 1,041,498 -- --
Common stock issued in connection
with 506 offering, net of offering cost
paid ..................................... 118,000 12 264,988 -- --
Common stock issued by major
stockholder on behalf of Company in
connection with $250,000 notes
payable .................................. -- -- 176,015 -- --
Common stock issued in the Aviation
Holdings acquisition ..................... 115,500 11 206,445 -- --
Common stock issued by major
stockholder on behalf of Company in
connection with $250,000 notes
payable .................................. -- -- 43,190 -- --
Warrants issued by Company in
connection with $250,000 notes
payable .................................. -- -- 29,914 -- --
Common stock issued in connection
with $250,000 notes payable .............. 11,000 2 43,412 -- --
Compensatory stock options issued ......... -- -- 83,625 -- --
Net loss .................................. -- -- -- -- (98,916)
--------- ----- ---------- ---------- ------------
Balances as of September 30, 1999
(Unaudited) .............................. 4,219,315 $422 $6,037,544 $ (280,000) $ (1,579,003)
========= ===== ========== ========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1997 1998
-------------- -----------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss ................................................... $ (57,437) $ (1,384,780)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Compensatory common stock and options .................... -- 401,161
Common stock issued for services -- related parties ...... 1,000
Minority interest ........................................ -- 3,702
Loss (income) from joint venture ......................... -- 3,976
Depreciation and amortization ............................ -- 54,979
Amortization of financing fees ........................... -- 37,573
Provision for bad debts .................................. -- 841,410
Reserve for obsolete inventory ........................... -- 66,579
Liability paid on behalf of company by
stockholder -- related party ............................ 10,000 --
Liability forgiven by stockholder -- related party . 14,332 --
Expensed deferred acquisition costs ...................... -- 10,673
Change in assets and liabilities
(Increase) decrease in
Trade receivables ..................................... -- (1,059,241)
Inventory ............................................. -- (613,306)
Interest receivable ................................... (6,740) (64,351)
Prepaid expenses and deposits ......................... (2,957) 27,905
Refundable income taxes ............................... (16,200)
Increase (decrease) in
Due to stockholder -- related party ................... (7,207) --
Accounts payable ...................................... -- (169,081)
Accrued expenses ...................................... 8,000 (173,823)
Income taxes payable .................................. -- 204,700
---------- -------------
Total Adjustments .................................... 16,428 (443,344)
---------- -------------
Net Cash Used in Operating Activities ....................... (41,009) (1,828,124)
---------- -------------
Cash Flows from Investing Activities
Note receivable advances ................................... (940,000) (535,100)
Employee advances .......................................... -- (4,040)
Purchases of equipment ..................................... -- (88,198)
Cash acquired in Aviation Holdings International, Inc.
acquisition .............................................. -- 830,331
Investment in joint venture ................................ -- (300,000)
Distribution from joint venture ............................ -- --
Payments for deferred acquisition costs .................... (10,673) --
---------- -------------
Net Cash (Used in) Provided by Investing Activities ......... (950,673) (97,007)
---------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1998 1999
----------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities
Net loss ................................................... $ (1,277,567) $ (98,916)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Compensatory common stock and options .................... 395,953 83,625
Common stock issued for services -- related parties ...... -- --
Minority interest ........................................ (25,305) 62,871
Loss (income) from joint venture ......................... (5,057) (4,170)
Depreciation and amortization ............................ 28,023 86,690
Amortization of financing fees ........................... -- 383,932
Provision for bad debts .................................. 632,410 30,000
Reserve for obsolete inventory ........................... 39,000 --
Liability paid on behalf of company by
stockholder -- related party ............................ -- --
Liability forgiven by stockholder -- related party ....... -- --
Expensed deferred acquisition costs ...................... 10,673 --
Change in assets and liabilities
(Increase) decrease in
Trade receivables ..................................... (684,664) (305,675)
Inventory ............................................. (84,046) (813,373)
Interest receivable ................................... (58,475) (16,305)
Prepaid expenses and deposits ......................... (138,472) 12,015
Refundable income taxes ............................... (16,000) --
Increase (decrease) in
Due to stockholder -- related party ................... -- --
Accounts payable ...................................... 211,550 723,662
Accrued expenses ...................................... (156,916) (373,233)
Income taxes payable .................................. -- 24,300
------------- ----------
Total Adjustments .................................... 148,674 (105,661)
------------- ----------
Net Cash Used in Operating Activities ....................... (1,128,893) (204,577)
------------- ----------
Cash Flows from Investing Activities
Note receivable advances ................................... (535,100) --
Employee advances .......................................... -- (52)
Purchases of equipment ..................................... (55,830) (77,419)
Cash acquired in Aviation Holdings International, Inc.
acquisition .............................................. 830,331 --
Investment in joint venture ................................ (200,000) (200,000)
Distribution from joint venture ............................ -- 14,627
Payments for deferred acquisition costs .................... -- --
------------- ----------
Net Cash (Used in) Provided by Investing Activities ......... 39,401 (262,844)
------------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- ----------------------------
1997 1998 1998 1999
---------- -------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows From Financing Activities
Proceeds from bank line of credit ................ $ -- $ 1,500,000 $ 675,000 $ 475,000
Proceeds from short-term borrowing ............... -- 250,000 -- --
Repayments of short-term borrowings .............. -- -- -- (23,897)
Repayments on long-term debt ..................... -- (2,270) (1,409) (2,664)
Payments of deferred offering costs .............. -- (11,368) (55,778) (79,623)
Proceeds from sale of EWS note ................... -- -- -- 43,880
Advances from (to) stockholders,
net of repayments .............................. -- 550,284 724,498 (76,528)
Proceeds from sale of stock, net of
offering costs paid ............................ 993,857 -- -- 265,000
-------- ----------- ---------- ---------
Net Cash Provided by Financing Activities ......... 993,857 2,286,646 1,342,311 601,168
-------- ----------- ---------- ---------
Net Increase in Cash .............................. 2,175 361,515 252,819 133,747
Cash, Beginning of Period ......................... -- 2,175 2,175 363,690
-------- ----------- ---------- ---------
Cash, End of Period ............................... $ 2,175 $ 363,690 $ 254,994 $ 497,437
======== =========== ========== =========
Supplemental Disclosure of Cash Flow Information
Cash Paid for Interest and Income Taxes
Interest ......................................... $ -- $ 21,202 $ 2,992 $ 190,638
======== =========== ========== =========
Income Taxes ..................................... $ -- $ 8,191 $ 20,815 $ 31,825
======== =========== ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 1 -- DESCRIPTION OF THE BUSINESS
Background
Aviation Holdings Group, Inc., together with its subsidiaries, is
hereinafter referred to as the "Company." Aviation Holdings Group, Inc.
(formerly EYEQ Networking, Inc.) was incorporated under the laws of the State
of Colorado on May 19, 1988 and reincorporated in the State of Delaware in
January 1998. The Company was initially intended to serve as a public shell
company, defined as an inactive, publicly-quoted company with nominal assets
and liabilities. It was intended that such a public shell would be attractive
to privately-held companies interested in becoming publicly traded by means of
a business combination with the Company rather than by offering their own
securities to the public.
The Company entered into a letter agreement dated November 20, 1997,
pursuant to which the Company intended to merge with Environmental Waste
Solutions, Inc. ("EWS"), a Nevada corporation, whereby the Company would have
remained as the surviving entity. EWS was formed for the purpose of serving as
a holding company for operating subsidiaries which were to be acquired and
which engage in waste recycling and disposal. EWS failed to acquire the
operating subsidiaries, and on June 2, 1998 the Company exercised its option to
terminate the letter agreement.
During the period May through July 1998, the Company acquired 74% of
Aviation Holdings International, Inc. ("AHI") (formerly Jet Aviation Trading,
Inc.) through common stock share exchanges and by a block purchase of common
stock. In the first six months of 1999, the Company increased its ownership
interest in AHI to 96% through a series of common stock share exchanges. AHI
has two wholly-owned subsidiaries, PASCO International Aviation Corp., a
Florida corporation ("PASCO Florida"), and Aero-Link Flight Systems Limited, a
Hong Kong corporation ("Aero HK"), and two majority-owned subsidiaries, PASCO
International Aviation Corporation Limited, a Hong Kong corporation ("PASCO
HK"), of which it owns 90%, and PASCO Financial Services Limited, a Hong Kong
corporation ("PASCO Financial HK"), of which it owns 80%. AHI acquired its
interests in these subsidiaries in February 1998. (PASCO Florida, PASCO HK,
PASCO Financial HK and Aero HK are sometimes hereinafter referred to
collectively as "PASCO"). Subsequent to its initial stock acquisition of AHI,
the Company changed its name from EYEQ Networking, Inc. to Aviation Holdings
Group, Inc.
On March 26, 1999 the Company filed a registration statement with the
United States Securities and Exchange Commission to sell its securities to the
public in an initial public offering of its common stock.
Nature of Operations
The nature of operations for each entity is as follows:
AHI is in the business of buying, selling, leasing and exchanging spare
parts and engines for fixed-wing commercial jet transport aircraft.
PASCO HK operations consist of purchasing, selling and leasing of aircraft
components and engines in Asia and the Pacific Rim.
PASCO Florida holds a 25% interest in Shenyang Northern Aircraft
Maintenance & Engineering Co., Ltd. ("SYNOR-A"), a Sino-American joint venture.
The Company has recognized minimal revenue from PASCO Florida as of September
30, 1999.
PASCO Financial HK's objective is to procure financing from banks on
behalf of airlines for their aircraft and aviation-related purchases. PASCO
Financial HK also intends to function on behalf of certain airlines and act as
their agent in connection with the sale or lease of aircraft. The Company had
not recognized any revenue from PASCO Financial HK as of September 30, 1999.
F-9
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 1 -- DESCRIPTION OF THE BUSINESS -- (Continued)
Aero HK and its wholly-owned subsidiary, Aero-Link Flight Systems, Inc., a
Florida corporation, have entered into an agreement to act as the global
marketing representative (except in the Taiwan region) for China Airlines,
Taiwan.
In this capacity they are responsible for promoting and marketing China
Airlines' aircraft maintenance, turbine engine and component repair and
overhaul business. This entity also functions as a purchasing agent in the
United States on behalf of PASCO HK. The Company has recognized minimal revenue
from Aero-Link as of September 30, 1999.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Development Stage Enterprise
The Company was a Development Stage Enterprise, as defined in Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting for Development
Stage Enterprises." The Company started development stage activities in 1997 by
raising capital through a private placement offering in order to actively
pursue a merger with EWS as well as pursue other potential business
combinations. The Company ceased being in the development stage in 1998 upon
the acquisition of a majority interest in AHI.
Consolidated Financial Statements and Interim Information
The interim consolidated financial data as of September 30, 1999 and for
the nine months ended September 30, 1999 and 1998 is unaudited. The information
reflects all adjustments, consisting only of normal recurring adjustments that,
in the opinion of management, are necessary to fairly present the financial
position and results of operations of the Company for the periods indicated.
Results of operations for the interim periods are not necessarily indicative of
the results of operations for a full fiscal year.
The accompanying consolidated interim financial statements include the
accounts of the Company and its 96%-owned subsidiary, AHI. The operations of
AHI have been included in these consolidated financial statements since the
initial date of acquisition (May 1998), ratably based on the percentage of
ownership of AHI. The accounts of AHI include all of its majority and
wholly-owned subsidiaries. Significant intercompany accounts and transactions
have been eliminated. The outside investors' interests have been recorded as
minority interest.
AHI formerly maintained its accounting records on a fiscal year basis
ending on August 31. AHI's accounting records have been restated to a calendar
year basis for consolidation purposes. AHI changed its reporting to a calendar
year basis beginning on January 1, 1999.
For comparability purposes, the 1997 figures have been reclassified where
appropriate to conform with the financial statement presentation used in 1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from those estimates.
Significant estimates
F-10
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
included here in the financial statements and in the accompanying notes include
the allowance for doubtful accounts, loan valuation allowance, reserve for
obsolete and slow-moving inventory, depreciable lives for property and
equipment and income tax rates. It is at least reasonably possible that the
estimates used will change within the next year.
Earnings Per Share
Earnings per share is calculated in accordance with Statement of Financial
Accounting Standard No. 128 "Earnings Per Share" ("SFAS 128"). Basic earnings
per share is computed based upon the weighted average number of shares of
common stock outstanding for the period and excludes any potential dilution.
Diluted earnings per share reflect potential dilution from the exercise of, or
the conversion of, securities into common stock.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly-liquid instruments purchased with a maturity of three months or less to
be cash equivalents.
Concentration of Credit Risk
The Company provides credit in the normal course of business and performs
ongoing credit evaluations of its customers while maintaining a provision for
potential credit losses which, when realized, have been within the range of
management's expectations.
During the periods presented in these financial statements, AHI maintained
cash balances in excess of the Federal Deposit Insurance Corporation ("FDIC")
insured limits. At December 31, 1998 and September 30, 1999, the amount of
funds that exceeded FDIC insurance was $403,377 and $670,391, respectively. AHI
also maintained funds in banks that were not FDIC insured. At December 31, 1998
and September 30, 1999, AHI maintained a balance of $22,536 and $2,536,
respectively, in the Israel Discount Bank Limited, an international bank that
operates in the United States. Management does not believe that a significant
risk existed by maintaining balances in excess of the FDIC insured limit.
During the period from February 12, 1998 through December 31, 1998 and for
the nine months ended September 30, 1999, PASCO HK maintained bank accounts in
Hong Kong with the Kwong On Bank, Limited. The accounts were denominated in
United States Dollars, Hong Kong Dollars and German Deutsche Marks. None of the
accounts were FDIC insured. During the period, the accounts denominated in
foreign currencies and the effects of the translation of foreign currency
accounts into United States Dollars were immaterial.
Revenue and Cost Recognition
Revenue and the associated cost of sales are recognized when parts are
shipped to the customer. Amounts received or paid in advance are recorded
either as deferred income or as prepaid, and are recognized in the period in
which the parts are shipped to customers or received by the Company. Revenue
and the related cost of consigned inventory are recognized when the parts are
shipped to the customer.
Inventories
Inventory is stated at the lower of cost or market. Cost of aircraft parts
is determined on a specific identification basis, except at September 30, 1998,
when cost was determined by using the gross profit
F-11
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
method. When parts are purchased in lots, costs are assigned to individual
parts or the individual parts are expensed at a predetermined percentage of the
sales price until the cost of the lot is recovered. Costs to repair, inspect
and/or modify the parts are charged to the specific part when incurred.
Inventories held by the Company on consignment from others are not included in
the inventory in the accompanying financial statements. Provisions have been
made for the estimated effect of excess and obsolete inventories. Such
allowance is based on management's best estimate, which is subject to change.
Actual realizable results could significantly differ from this estimate.
Risks Regarding Inventory
Inventory consists principally of overhauled, serviceable, repairable and
new aircraft parts that are purchased from many sources. Before parts may be
installed in aircraft, they must meet certain standards of condition
established by the Federal Aviation Administration ("FAA") and/or the
equivalent regulatory agencies in other countries. Specific regulations vary
from country to country, although regulatory requirements in other countries
generally coincide with FAA requirements. Parts owned or acquired by the
Company may not meet applicable standards or standards may change in the
future, causing parts which are already contained in the Company's inventory to
be scrapped or modified.
Aircraft manufacturers may also develop new parts to be used in lieu of
parts already contained in the inventory. In all such cases, to the extent that
such parts are included in inventory, the value of such parts may be reduced.
Consignment Inventory
The Company currently maintains consignment inventories and its revenues
from consignment arrangements accounted for approximately one percent of net
sales for the periods ended December 31, 1998 and September 30, 1999.
Consignment inventory is not included in inventory amounts.
Deferred Offering Costs
Deferred offering costs consist of amounts paid or accrued for
professional fees, commissions, filing fees and other costs incurred by the
Company in connection with the filing of its registration statement with the
Securities and Exchange Commission for a public offering. These amounts will be
recorded as a reduction of the proceeds when the offering is completed. If the
offering is not completed, the costs will be expensed.
Property and Equipment
Property and equipment are recorded at cost. Property and equipment are
depreciated using the straight-line method over their estimated useful lives
ranging from five to seven years. Leasehold improvements are amortized over the
shorter of their useful lives or the remaining periods of the related leases.
Intangibles
Intangibles consist of goodwill, unamortized note discounts and deferred
offering costs. Goodwill, which originated from the PASCO acquisition and the
1999 share exchanges (Note 4), is being amortized over fifteen years using the
straight-line method. The unamortized note discount, which originated from the
warrants issued in connection with the maturity date extension of the $250,000
notes, is being amortized using the effective interest rate method over the
life of the extension period exercised.
F-12
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Fair Value of Financial Instruments
The carrying value of accounts receivable, accounts payable, accrued
expenses and accrued offering costs approximates the fair market value due to
the relatively short maturity of these instruments.
Income Taxes
The Company accounts for its income taxes under Statement of Financial
Accounting Standard No. 109 ("SFAS 109"), "Accounting for Income Taxes." Income
taxes are recorded in the period in which the related transactions have been
recognized in the financial statements, net of the valuation allowances which
are recorded against deferred tax assets because future utilization of these
assets and liabilities cannot be determined. Deferred tax assets and/or
liabilities are recorded for the expected future tax consequences of temporary
differences between the tax basis and the financial reporting of assets and
liabilities.
Compensatory Stock-Based Arrangements
Management has elected to utilize the guidelines of Accounting Principles
Board Opinion No. 25 to account for the value of stock-based compensation
arrangements that will be entered into by the Company in exchange for services
performed by employees.
Subsequent Accounting Pronouncements Implementation
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start- up Activities." SOP 98-5,
which is effective for fiscal years beginning after December 15, 1998, provides
guidance on the financial reporting of start-up costs and organizations costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. As the Company has expensed these costs historically, the adoption
of this standard during the first quarter of 1999 did not have a significant
impact on results of operations, financial position or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS 133"), which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives), and for hedging
activities. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company does not expect the adoption of this
statement to have a significant impact on results of operations, financial
position or cash flows.
NOTE 3 -- REINCORPORATION/CHANGE OF CORPORATE NAME
In January 1998, the Company reincorporated in the State of Delaware,
decreasing its authorized common and preferred stock shares to 18,000,000 and
2,000,000, respectively.
On August 31, 1998, both the Company and AHI amended their Articles of
Incorporation to change their corporate names to Aviation Holdings Group, Inc.
and Aviation Holdings International, Inc., respectively.
NOTE 4 -- ACQUISITION
During the second and third quarters of 1998, the Company acquired 74.08%
of AHI. The business combination was treated as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations." The
Company entered into share exchange agreements ("Exchange Agreements") with
various AHI stockholders. Based upon the terms of the underlying agreements,
the Company exchanged
F-13
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 4 -- ACQUISITION -- (Continued)
one share of common stock for between 1.667 to 2.5 shares of the AHI's common
stock. The Company also acquired 80,000 shares of AHI common stock from a
stockholder of the Company in repayment of a loan from the Company for
$100,000. Through these exchanges and the acquisition from a stockholder, the
Company issued 1,095,815 shares of its common stock in return for 2,468,080
shares (74.08%) of AHI's issued and outstanding common stock as of December 31,
1998. The original shareholders of the Company continued to maintain majority
ownership after the AHI acquisition. The Company shares of common stock
received by the former shareholders of AHI gave them the same rights as all
other common shareholders of the Company. No special controlling or voting
rights were accorded to any shares. The acquisitions have been accounted for as
a purchase by the Company with a purchase price of $2,719,736. The purchase
price was derived from the underlying book value of the assets and liabilities
of AHI. No fair value adjustments were deemed necessary as management believes
that the values of the assets and liabilities approximated the fair values at
the time of the acquisitions. The operations of AHI, since the acquisition,
have been included in the accompanying consolidated financial statements for
the year ended December 31, 1998 and the nine months ended September 30, 1998
and 1999.
In March 1999, the Company entered into a share exchange agreement with a
stockholder of AHI, thereby increasing the Company's ownership percentage of
AHI to 92%. In return for 600,000 shares of AHI stock, the Company exchanged
500,000 shares of its common stock and a warrant to purchase 100,000 shares of
its common stock at an exercise price of $3.75 per share and an exercise period
of three years. The value of the Company's securities that were tendered in the
exchange were valued at $1,041,498, resulting in the Company recording goodwill
of $321,679.
In April 1999, the Company entered into a series of share exchange
agreements with stockholders of AHI, thereby increasing its ownership
percentage of AHI to 96%. In return for 137,500 shares of AHI stock, the
Company exchanged 115,500 shares of its common stock. The value of the
Company's securities that were tendered in the exchange were valued at
$206,445, resulting in the Company recording goodwill of $41,396.
NOTE 5 -- JOINT VENTURE
SYNOR-A is a Sino-American joint venture company that was established in
November 1997 by PASCO Florida and China Northern Airlines ("CNA") under an
agreement with a term of eleven years. PASCO Florida holds a 25% interest in
SYNOR-A and CNA holds the remaining 75% interest. SYNOR-A primarily deals with
inspection, repair and recertification of DC9, MD80, and A300-600 components,
instruments and avionics. SYNOR-A has been approved by the Civil Aviation
Administration of China in the avionics accessories repair field. SYNOR-A
received licenses necessary to commence operations in November 1997. Operations
commenced in March 1998. The Company reports this investment on the equity
method of accounting.
PASCO Florida's total financial investment commitment to SYNOR-A is
$1,000,000. As of September 30, 1999, $708,332 of this commitment had been
funded. Under the terms of the joint venture, PASCO Florida is entitled to
certain preferences in any distributions of net income of SYNOR-A. These
preferences are intended to provide that PASCO Florida will recover its
investment in SYNOR-A prior to any regular distributions made to CNA. PASCO
Florida's role in SYNOR-A is to provide technological advice to SYNOR-A and to
promote, market and sell the services of SYNOR-A. The Company has recognized
minimal revenue from SYNOR-A as of September 30, 1999. In August 1999, SYNOR-A
distributed $14,627 to the Company.
F-14
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 5 -- JOINT VENTURE -- (Continued)
Condensed financial information for the Company's investment in the joint
venture is as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Balance Sheet:
Total Assets .................................................. $ 3,706,753 $ 3,720,291
=========== ===========
Total Liabilities ............................................. 223,515 101,252
=========== ===========
Statement of Operations:
Revenues ...................................................... 510,610 1,079,045
Expenses ...................................................... 526,516 1,062,365
----------- -----------
Net Income (Loss) ................................................ (15,906) 16,680
=========== ===========
Aviation Holdings International's Share of (Loss) Income ......... $ (3,976) $ 4,170
=========== ===========
</TABLE>
NOTE 6 -- DISCONTINUED MERGER
On November 20, 1997, the Company entered into a letter agreement (the
"Letter Agreement") which sets forth the terms of a series of transactions that
would have resulted in EWS merging into the Company (the "Merger") (see Note
1). Under the terms of the Letter Agreement, the Company would have been the
surviving entity. As a prerequisite of its merger with the Company, EWS was
required to complete a merger with three companies that had entered into
agreements to be acquired by EWS (the "Acquisitions"). The companies were: J.
M. Container, Inc., a New Hampshire corporation ("JMC"), which operates a waste
transfer station and recycling center in New Hampshire; Waste Placement, Inc.,
a Connecticut corporation ("WPI"), which operates a waste brokerage business
located in Massachusetts; and Municipal Enterprises, Inc., a Connecticut
corporation ("MEI"), which owns a sixty-acre parcel of real estate in
Colchester, Connecticut which contains an inactive sanitary landfill. In
accordance with the Letter Agreement, the Company had the right to consummate
the Merger as soon as practicable following the completion of the EWS
Acquisitions, or, prior to the completion of the EWS Acquisitions, the Company
had the option to terminate the Letter Agreement at its sole discretion. On
June 2, 1998, as a result of EWS not consummating the Acquisitions, the Company
exercised its option to terminate the Letter Agreement. As of December 31,
1997, the Company had incurred deferred acquisition costs in the amount of
$10,673. These costs were expensed during the year ending December 31, 1998.
NOTE 7 -- TRADE RECEIVABLES
Trade receivables consisted of the following at:
December 31, September 30,
1998 1999
-------------- --------------
(Unaudited)
Accounts receivable ..................... $ 3,162,545 $ 3,468,220
Allowance for doubtful accounts ......... (320,000) (350,000)
----------- -----------
Net Trade Receivables ................ $ 2,842,545 $ 3,118,220
=========== ===========
F-15
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 8 -- INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
Inventory ............................................ $ 3,440,062 $ 4,253,434
Allowance for obsolete and slow-moving goods ......... (220,000) (220,000)
----------- -----------
Total ............................................. $ 3,220,062 $ 4,033,434
=========== ===========
</TABLE>
NOTE 9 -- DC-10 FLIGHT SIMULATOR AND SUPPORT PACKAGE
On November 1, 1996, AHI entered into an agreement with a company
domiciled in the Netherlands (the "Seller") to purchase a one-half ownership in
a DC 10-30 flight simulator and all associated equipment required to operate
the flight simulator. The agreement called for the Seller and AHI to equally
participate in all revenues generated from the sale, lease or disassembly of
the hardware of the flight simulator. AHI paid the Seller $125,000 in cash and
issued 40,000 shares of its common stock, which was valued at $2.50 per share,
for the flight simulator. AHI intended to sell the flight simulator as a
complete package.
On March 28, 1997, AHI entered into a second agreement with the Seller to
purchase one Novoview 2000 Visual System ("Novoview 2000") to be used in
conjunction with the DC 10-30 flight simulator. The purchase price was
$500,000, and AHI satisfied its obligation by issuing 200,000 shares of its
common stock at an ascribed value of $2.50 per share. AHI is to receive 100% of
the revenues generated from the sale of these items. The interest in the
simulator, Novoview 2000 and freight costs were recorded at AHI's cost of
$734,421. In 1998, AHI changed its sales strategy. Instead of selling the
simulator and the Novoview 2000 as a complete unit, AHI decided to sell the
components individually as spare parts. In conjunction with this change in
strategy, AHI expensed $335,000 in 1998, prior to its acquisition by the
Company, in order to reflect the decrease in market value of the avionics and
physical structure as spare parts. The remaining value is recorded in the
Company's inventory.
This Seller is also a purchaser and supplier of spare parts from and to
the Company.
NOTE 10 -- NOTES RECEIVABLE AND CREDIT RISK
Credit Facility
In December 1997, the Company agreed, subject to the availability of its
funding, to provide a $2,000,000 credit facility (the "Credit Facility") to
EWS, JMC and MEI. This Credit Facility was provided in anticipation of the
contemplated merger between EWS and the Company. At December 31, 1997, the
Company had advanced $940,000 to EWS in connection with the Credit Facility.
The loan was unsecured at December 31, 1997, and subsequently became evidenced
by a promissory note dated February 17, 1998 and secured by a mortgage on real
estate owned by MEI. Interest commenced on December 2, 1997 and accrues at the
rate of 10% per annum on the principal balance and on any overdue interest.
Principal and interest were due on the earlier of July 1, 1998 or the date of
any event of default. At July 1, 1998, EWS had disbursed all of the funds
received from the Company, had no business operations, and had not consummated
the acquisitions of the three companies it was to acquire before merging with
the Company. The Company may need to foreclose on the property to recover the
principal and interest receivable and foreclosure costs. During 1998, the
Company and EWS restructured the loan by extending the maturity date to
February 1, 1999. Accrued interest as of July 1, 1998 of approximately $58,000
was added to the existing principal balance at that date. The new principal
balance, along with additional advances, accrued interest through the maturity
F-16
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 10 -- NOTES RECEIVABLE AND CREDIT RISK -- (Continued)
date. During the first two quarters of 1998, the Company advanced an additional
$535,100 to EWS under this Credit Facility. A valuation allowance has been
recorded in 1998 for these additional advances as well as for the accrued
interest through July 1, 1998. The Company ceased recording interest on this
receivable subsequent to July 1, 1998 since any interest recorded would be
offset with a valuation allowance. The amount recorded for this loan receivable
at December 31, 1998 was $900,000 (principal balance of $1,475,100 plus
interest receivable of $58,310, less a valuation allowance of $633,410).
NOTE 11 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31, September 30,
1998 1999
-------------- --------------
(Unaudited)
Leasehold improvements ................. $ 143,321 $ 169,289
Office furniture and equipment ......... 76,687 87,404
Computer equipment ..................... 81,372 114,917
Software ............................... 45,184 52,373
Trucks ................................. 28,676 28,676
--------- ----------
375,240 452,659
Accumulated depreciation ............ (72,119) (130,678)
--------- ----------
Total ............................... $ 303,121 $ 321,981
========= ==========
NOTE 12 -- INTANGIBLES
Intangibles consisted of the following:
December 31, September 30,
1998 1999
-------------- --------------
(Unaudited)
Goodwill ................................. $ 375,000 $ 738,075
Deferred financing costs ................. 7,500 17,499
--------- ---------
382,500 755,574
Less accumulated amortization ......... (24,734) (60,447)
--------- ---------
Total ................................. $ 357,766 $ 695,127
========= =========
NOTE 13 -- STOCK SUBSCRIPTION RECEIVABLE
On February 12, 1998, AHI issued 160,000 shares of common stock to PASCO's
former majority stockholder (the "Vice President") in return for two promissory
notes aggregating $365,000 and the assignment from PASCO of inventory valued at
$35,000. AHI received a three-month non-interest bearing promissory note for
$165,000, which had recourse against the personal assets of the Vice President,
and was paid in full in May 1998. The second note is a three-year promissory
note for $200,000 bearing interest at prime, secured solely by 80,000 shares of
the Company's common stock ("Nonrecourse Note"). The shares of common stock
have been pledged as security and are held in escrow in accordance with a stock
pledge agreement dated February 12, 1998. The Nonrecourse Note remained
outstanding at September 30, 1999.
In October 1996, AHI issued 192,000 shares of its common stock to its
Chief Executive Officer in exchange for a demand promissory note of $80,000
which remains outstanding as of September 30, 1999. The note bears interest at
6% per annum.
F-17
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 13 -- STOCK SUBSCRIPTION RECEIVABLE -- (Continued)
AHI recorded interest income of approximately $19,844 and $16,304 for the
year ended December 31, 1998 and the nine-month period ended September 30,
1999, respectively, on the outstanding stock subscription receivables. As of
December 31, 1998 and September 30, 1999, the accrued interest receivable on
the stock subscription receivables was $25,827 and $42,132, respectively.
NOTE 14 -- ADVANCES AND BORROWINGS - STOCKHOLDERS AND RELATED PARTIES
The Company advanced funds to and received advances from certain
stockholders during 1998. At December 31, 1998 and September 30, 1999, the
Company owed $781,500 and $0, respectively, of such advances to IP Services,
Inc. and $1,000 to FAC Enterprises, Inc. The amounts owed to IP Services, Inc.
are due on demand; however, demand may not be made prior to repayment of funds
due from EWS (see Notes 10 and 27).
AHI made non-interest bearing advances, net of repayments, to an officer
amounting to $75,181 and $151,709 at December 31, 1998 and September 30, 1999,
respectively.
NOTE 15 -- SHORT-TERM BORROWINGS
On August 12, 1998, AHI obtained a revolving working capital line of
credit from Comerica Bank. At December 31, 1998 and September 30, 1999, the
amount outstanding on the credit line was $1,500,000 and $1,975,000,
respectively. The loan agreement provides for a maximum aggregate borrowing
limit of $3,500,000, subject to a limitation amount of eighty-five percent of
eligible Company receivables and thirty-five percent of eligible Company
inventory as defined in the loan agreement. This revolving line of credit is
secured by substantially all of AHI's assets, and is due on demand. The line of
credit bears interest at the Bank's prime rate plus 1%. The loan agreement
contains certain covenants which require AHI to maintain minimum thresholds on
specific financial ratios.
As of December 31, 1998 and June 30, 1999, AHI had not met the tangible
net worth covenant required by the credit agreement. Under the terms of the
loan agreement, the bank has the right to demand full and immediate repayment
of its loan. As of the date of this report, the bank has not indicated to the
Company that it intends to make such a demand.
Short term borrowings -- other consisted of the following:
December 31, September 30,
1998 1999
-------------- --------------
(Unaudited)
Unrelated investor notes ............... $ 250,000 $ 250,000
Financed insurance premium ............. -- 5,444
--------- ---------
250,000 255,444
Less unamortized note discount ......... 101,315 --
--------- ---------
$ 148,685 $ 255,444
========= =========
On October 15, 1998, the Company borrowed $250,000 in the aggregate from
two unrelated investors. The loans had an initial maturity date of March 15,
1999 with two one-month extension periods and bear interest at a rate of 10%
per annum. As additional consideration for such borrowings, the Company issued
25,000 shares of the Company's common stock to the investors. As an additional
inducement to the investors to loan money to the Company, a stockholder of the
Company conveyed to the investors warrants to purchase 75,000 shares of the
Company's common stock at an exercise price of $4.00 per share, and agreed to
transfer
F-18
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 15 -- SHORT-TERM BORROWINGS -- (Continued)
a maximum of 45,000 shares of the Company's common stock upon the occurrence of
an event of default or an extension of the maturity date by the Company. The
Company has pledged 51% of the issued and outstanding shares of common stock of
AHI as security. On March 15 and April 15, 1999, the Company exercised its
option to extend payment for one month.
The Company recorded a note discount of $138,888 as a result of the stock
issued as an inducement for making the loans of $250,000. The discount is being
amortized over the term of the notes using the effective interest method. The
effective interest rate is 343%. As of December 31, 1998 and September 30,
1999, the unamortized discount totaled $101,315 and $0, respectively. In
addition, the Company incurred financing fees of $176,015 and $43,190 on March
15, 1999 and April 15, 1999, respectively as a result of the stock transferred
by a shareholder of the Company to the noteholders as consideration for the
extension of the maturity date. On May 15, 1999, the Company and the
noteholders entered into an agreement to further extend the maturity date of
the $250,000 notes to July 14, 1999. In consideration of the extension, the
Company granted the noteholders warrants to purchase 15,000 shares of the
Company's common stock. The warrants have an exercise price of $4.00, a term of
five years and have a one year restriction on their sale or transfer. This
resulted in the Company recording a financing fee in the amount of $29,914 (see
Note 28). The financing fees are being amortized over the extension periods.
The note discount and financing fees represented the fair market value of the
securities at the date they were issuable.
In March 1999, AHI financed its insurance obligations through a nine-month
note with Premium Assignment Corporation. The note bears interest at an annual
rate of 8.5 % with monthly principal and interest payments of $2,721. As of
September 30, 1999, the outstanding balance of the note was $5,444.
NOTE 16 -- LONG-TERM DEBT
In February 1998, AHI purchased a vehicle and financed the purchase
through a five-year note with General Motors Acceptance Corporation. The note
bears interest at an annual rate of 5.9% with monthly payments, principal and
interest of $371. As of December 31, 1998 and September 30, 1999, the
outstanding balance of the note was $16,396 and $13,732, respectively.
Maturities of long-term debt are as follows:
Year ended December 31:
1999 $ 3,272
2000 3,776
2001 4,005
2002 4,247
2003 1,096
--------
$ 16,396
========
F-19
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 17 -- INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary timing
differences between the carrying amounts of assets and liabilities reflected on
the financial statements and the amounts used for income tax purposes. The tax
effects of temporary differences and net operating loss carryforwards that give
rise to significant portions of the deferred tax assets recognized at December
31 are presented below:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998
----------- ------------
<S> <C> <C>
Deferred tax assets :
Federal and state deferred tax benefit arising from net operating loss
carryforwards ....................................................... $ 27,397 $ 162,000
Accrued expenses ..................................................... -- 30,000
Reserves and allowances .............................................. -- 410,000
Note discount amortization ........................................... -- 12,000
Compensation for employee stock options .............................. -- 144,000
Undistributed loss from foreign subsidiaries ......................... -- 93,000
--------- ----------
27,397 851,000
Less valuation allowance ................................................ (27,397) (842,000)
--------- ----------
Total deferred tax assets ............................................... -- 9,000
--------- ----------
Deferred tax liability
Accelerated depreciation ............................................. -- (9,000)
--------- ----------
Net deferred tax asset ............................................... $ -- $ --
========= ==========
</TABLE>
Income tax (expense) benefit consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1998
------------ ---------------
<S> <C> <C>
Current
Federal ................................................ $ -- $ (152,970)
State .................................................. -- (33,893)
Deferred ................................................
Federal ................................................ -- 500,900
State .................................................. -- 103,863
Tax benefit of net operating loss carryforward ......... 27,397 139,400
--------- -----------
27,397 557,300
Less valuation allowance ................................ (27,397) (744,163)
--------- -----------
Income Tax (Expense) ................................ $ -- $ (186,863)
========= ===========
</TABLE>
The Company has a loss carryforward of approximately $487,000 as of
December 31, 1998 that may be offset against future taxable income. The
carryforward will expire between the years 2009 and 2014.
The following table presents the principal reasons for the difference
between the Company's effective tax rates and the United States federal
statutory income tax rate of 34%.
F-20
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 17 -- INCOME TAXES -- (Continued)
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1998
----------- ---------------
<S> <C> <C>
U.S. federal statutory income tax rate ............................... 34% 34%
Federal income tax benefit at statutory rate ......................... $ 9,359 $ 406,000
State and local income tax benefits, net of effect of federal benefit 5,165 65,700
Non-deductible expenses .............................................. -- (11,100)
Tax benefit from NOL carryback and carryforward ...................... -- 60,800
Other differences .................................................... -- 11,070
Valuation allowance for deferred income tax benefit .................. (14,524) (719,333)
--------- ----------
Income Tax Expense .................................................. $ -- $ (186,863)
========= ==========
Effective Income Tax Rate ........................................... 0% (15.6)%
========= ==========
</TABLE>
NOTE 18 -- OFFICE AND WAREHOUSE FACILITY
AHI leases its Miami, Florida office and warehouse facility from a company
partially owned by one of its stockholders. The lease expires December 31, 2000
and has two one-year options to renew. The monthly rental is $6,529 plus the
pass through of certain expenses. Pasco HK leases office space in Hong Kong.
The Hong Kong lease expires December 31, 1999 and contains monthly rental
obligations of $2,500 for 1998 and $2,650 for 1999.
Rent expense for the periods ended December 31, 1998 and September 30,
1999 was $56,586 and $84,352, respectively. AHI's minimum obligation under
existing leases is as follows:
December 31, September 30,
1998 1999
-------------- --------------
(Unaudited)
Year Ending:
1999 ......... $ 109,850 $ --
2000 ......... 78,350 85,850
2001 ......... -- 19,588
--------- ---------
$ 188,200 $ 105,438
========= =========
NOTE 19 -- CAPITAL STOCK ACTIVITY
Common Stock
On August 15, 1997, the Company issued 1,000,000 shares of common stock as
partial payment for legal fees and costs advanced by a law firm owned by a
stockholder and related party of the Company. The stockholder is the son of the
former President and the sole Director of the Company at the time of the
transaction.
On November 17, 1997, the stockholders of the Company entered into an
agreement to sell 1,410,000 shares of common stock, representing approximately
86% of the outstanding shares of the Company, to unrelated parties. As a
condition of the agreement, 87,000 shares of common stock were canceled and the
then existing officers and directors of the Company were required to resign. On
November 20, 1997, after the close of the transaction, there were 1,550,000
shares of common stock outstanding. Certain shares are subject to lock-up
agreements or restrictions which limit the holders' ability to sell them. The
November 17, 1997 agreement also required all debts and liabilities of the
Company to be paid out of the purchase price at the closing. Prior to the
closing, the Company owed a stockholder and related party $24,332. This
liability was
F-21
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 19 -- CAPITAL STOCK ACTIVITY -- (Continued)
comprised of $10,000 of costs advanced on behalf of the Company and $14,332 for
legal services provided to the Company. The amount owed was paid from the
proceeds of the sale of stock and consequently the Company was released from
its obligation. The Company recorded the satisfaction of this liability as
additional paid-in capital.
In December 1997, the Company completed a private offering of 800,000
shares of common stock at a price of $1.25 per share, amounting to total gross
proceeds of $1,000,000. Offering costs amounted to $6,143 and have been
reflected as a reduction of additional paid-in capital.
During the second and third quarters of 1998, the Company entered into
share exchange agreements with various AHI stockholders. Based on the terms of
the underlying agreements, the Company exchanged one share of common stock for
between 1.667 to 2.5 shares of AHI's common stock. The Company issued 1,095,815
shares of common stock in connection with these share exchanges.
On June 11, 1998, AHI's Board of Directors granted its Chief Financial
Officer ("CFO"), 25,000 shares of AHI's common stock valued at $62,500. The
shares of common stock were issued by AHI in consideration of services rendered
by the CFO for the fiscal year ended August 31, 1998.
On August 1, 1998, the Company issued 4,000 shares to its Chief Executive
Officer for services rendered, resulting in compensation expense of $20,128.
On October 15, 1998, the Company borrowed $250,000 from two unrelated
investors. As an inducement to make the loans, the Company issued 25,000 shares
of the Company's common stock and warrants to purchase shares of its common
stock at an exercise price of $4.00 per share to the investors.
In March 1999, the Company completed a private offering of 118,000 shares
of common stock at a price of $2.50 per share, amounting to gross proceeds of
$295,000. In connection with the offering, the Company paid $30,000 in
investment banking fees.
In March 1999, the Company entered into a share exchange agreement with a
stockholder of AHI to acquire additional shares of AHI stock. The Company
issued 500,000 shares of its common stock and a warrant to purchase 100,000
shares of its common stock at an exercise price of $3.75 per share in
connection with this transaction.
In April and June 1999, the Company entered into share exchange agreements
with various AHI stockholders. Based on the terms of the underlying agreements,
the Company exchanged one share of common stock for between 1 to 1.667 shares
of AHI's common stock. The Company issued 115,500 shares of common stock in
connection with these share exchanges.
In July 1999, the Company issued 6,000 shares of common stock to the
holders of the $250,000 notes in consideration for the extension of the
maturity date of the notes.
In September 1999, the Company issued 5,000 shares of common stock to the
holders of the $250,000 notes in consideration for the extension of the
maturity date of the notes.
During 1997, the Company adopted the provisions of Statement Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS
123"). As permitted under SFAS 123, the Company has continued to follow
Accounting Principles Board No. 25 "Accounting for Stock-Based Compensation"
("APB 25") in accounting for its stock-based compensation. SFAS 123 recognizes
compensation expense using the fair market value of stock options, warrants and
common stock issuances as of the grant date. APB 25 recognizes the intrinsic
value of the instruments issued by the Company as of the measurement date,
which is
F-22
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 19 -- CAPITAL STOCK ACTIVITY -- (Continued)
generally the date at which both the number of shares that an individual is
entitled to receive and the purchase price are known. Had compensation expense
for the year ended December 31, 1998 been determined under the fair value
provisions of SFAS 123, the Company's net loss and net loss per share would
have differed as follows:
December 31,
1998
-----------------------------
Net Loss Per Share
---------------- ----------
As Reported Under APB 25 ......... $ (1,384,780) $ (.46)
============= ========
Pro Forma Under SFAS 123 ......... $ (1,476,291) $ (.49)
============= ========
No such differences between the application of APB 25 and SFAS 123 existed
for 1997.
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period and additional options may be issued in future years. The
weighted average fair values of options at their grant date during 1998, where
exercise price equals the market price on the grant date, was $0. The weighted
average fair value of options at their grant date during 1998, where the
exercise price exceeds the market price on the grant date, was $0. No such
options were granted during 1997. The estimated fair value of each option
granted is calculated using the Black Scholes option pricing model. The
following summarizes the weighted average of the assumptions used in the model.
1997 1998
------ ----------
Risk free rate ......................... -- 5.09%
Expected years until exercise .......... -- 2.25%
Expected stock volatility .............. -- 33.08%
Dividend yield ......................... -- 0%
Preferred Stock
No shares of the Company's no par value preferred stock have been issued
or are outstanding. Dividends, voting rights, and other terms, rights and
preferences of the preferred shares have not yet been designated but may be so
designated by the Board of Directors from time to time.
NOTE 20 -- COMPENSATORY STOCK OPTION PLAN
In 1994 the Company adopted a Compensatory Stock Option Plan (the "CSO
Plan") which provides for the granting of options to employees, officers,
directors and consultants of the Company. The number of shares which can be
purchased under this plan is limited to 1,000,000 shares. The CSO Plan is not
intended to qualify as an "incentive stock option plan" under Section 422 of
the Internal Revenue Code. The exercise prices of the options granted under the
CSO Plan are to be determined by the Board of Directors or other CSO Plan
administrators but shall not be lower than eighty-five percent of the fair
market value of a share of common stock on the date the option is granted. The
options under the CSO Plan vest immediately upon grant unless otherwise
specified, and are valid for ten years. The Company will incur compensation
expense to the extent that the market value of the stock at the date of grant
exceeds the amount the grantee is required to pay for the options. There were
no options granted under the CSO Plan as of December 31, 1997.
During 1998, the Company granted options to the CEO to purchase 200,000
shares of common stock at an exercise price of $2.50 per share. All of these
options vested upon the execution of the CEO's employment agreement and expire
five years later. The Company recognized compensation expense of $360,200 for
services rendered.
F-23
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 20 -- COMPENSATORY STOCK OPTION PLAN -- (Continued)
Restatement of Stock Option Plan
On October 29, 1997, the Board of Directors of AHI adopted a stock option
plan (the "Plan") which became effective September 1, 1997. This Plan provided
for the grant of incentive stock options, non-qualified stock options and stock
appreciation rights not exceeding 750,000 shares, in the aggregate, to selected
employees. The Plan also sets forth applicable rules and regulations for stock
options granted to non-employee directors. The Board of Directors authorized
the issuance of 250,750 stock options under the Plan, and of these options,
50,750 were subsequently canceled. No stock options had been exercised under
this Plan.
AHI subsequently amended and restated the Plan, and all active
participants of the Plan became included in the stock option plan of the
Company. The options to acquire AHI stock outstanding at the time of the
restatement were replaced by options to acquire Company stock on a
share-for-share basis.
The following table summarizes information about fixed stock options
outstanding:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Outstanding Contractual Exercise Outstanding Exercise
Shares Life Price Shares Price
------------- ------------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1998
$2.50 .......................... 200,000 4.42 $ 2.50 200,000 $ 2.50
======= ==== ======= ======= =======
September 30, 1999 (Unaudited)
$2.50 .......................... 455,750 3.89 $ 2.50 435,750 $ 2.50
======= ==== ======= ======= =======
</TABLE>
NOTE 21 -- EMPLOYEE STOCK COMPENSATION PLAN
In 1994 the Company adopted an employee stock compensation plan (the "ESC
Plan") which provides for shares of the Company's common stock to be granted to
employees, officers, directors and consultants of the Company. The number of
shares of common stock which can be awarded under this plan is limited to
1,000,000 shares. The Company will incur compensation expense to the extent of
the market value of the stock at the date of grant of the stock award to the
employee. The ESC Plan will be administered by the Board of Directors or a
committee of directors. There has been no stock awarded under the ESC Plan to
date.
NOTE 22 -- LOSS PER SHARE
The Company adopted SFAS 128 in 1997, and has followed the guidelines of
SFAS 128 in the presentation of earnings and loss per share for all periods
presented in the financial statements. Options and warrants to purchase common
stock are not included in the computation of diluted loss per share because the
effect of these instruments would be anti-dilutive for the loss periods
presented. The common shares potentially issuable arising from these
instruments, which were outstanding during the periods presented in the
financial statements, are as follows:
F-24
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 22 -- LOSS PER SHARE -- (Continued)
<TABLE>
<CAPTION>
December 31,
Exercise ------------------ September 30,
Price 1997 1998 1999
---------- ------ --------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Options .......................................... $ 2.50 -- 200,000 435,750
Warrants ......................................... $ 3.75 -- -- 100,000
$ 4.00 -- -- 15,000
$ 4.50 -- -- 210,000
---- ------- -------
Total common shares potentially issuable ......... 200,000 760,750
==== ======= =======
</TABLE>
The following table represents AHI's outstanding options and warrants:
<TABLE>
<CAPTION>
Exercise December 31, September 30,
Price 1998 1999
---------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
Options .......................................... $ 2.50 212,750 --
Warrants ......................................... $ 4.00 1,000,000 --
------ --------- ----
Total common shares potentially issuable ......... 1,212,750 --
========= ====
</TABLE>
All AHI options and warrants that were outstanding at December 31, 1998
were amended and restated to those of the Company.
NOTE 23 -- COMMITMENTS AND CONTINGENCIES
The Company supplies certain inventory parts to its customers through
various consignment agreements, under which the Company takes possession of a
vendor's inventory. These agreements are generally entered into on a long-term
basis.
The Company neither manufacturers nor repairs aircraft parts, and requires
that all of the parts that it sells are properly documented and traceable to
their original source. Although the Company has never been subject to product
liability claims, there is no guarantee that the Company could not be subject
to liability from its potential exposure relating to faulty aircraft parts in
the future. The Company maintains no product liability insurance to protect it
from such claims. An uninsured loss could have a materially adverse affect upon
the Company's financial condition.
Effective as of May 31, 1998, the President of AHI entered into an
employment agreement with the Company to serve as President and Chief Executive
Officer of the Company ("CEO"). In accordance with the employment agreement,
the CEO also became a Director of the Company. The agreement reaffirms debt
obligations connected to a stock purchase of AHI shares by the CEO which was
initiated under a prior agreement. The term of the employment agreement is for
a period of three years and may be extended on a month-to-month basis
thereafter. The employment agreement calls for a base compensation and a bonus
arrangement based upon a percentage of pre-tax income.
Effective February 14, 1998, in conjunction with the purchase of the PASCO
entities by AHI, the majority stockholder of PASCO entered into an employment
agreement with AHI to serve as Vice President (the "Vice President"). In
accordance with the employment agreement, the Vice President also became a
Director of AHI. His duties include the responsibility for, and the oversight
of, AHI's operations in Asia and the Pacific Rim. The term of his employment
agreement is for three years and may be extended on a month-to-month basis
thereafter. The agreement calls for a base salary and bonus arrangement based
upon a percentage of sales to China, whereby one-half of any bonus earned
annually in excess of $25,000 is to be
F-25
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 23 -- COMMITMENTS AND CONTINGENCIES -- (Continued)
applied against the outstanding balance of the Vice President's obligation
under a three-year promissory note dated February 12, 1998. The Vice President
was granted options to purchase 15,000 shares of AHI's common stock at an
exercise price of $2.50 per share. One-third of these options vest annually
over a three-year period beginning February 14, 1999.
NOTE 24 -- SEGMENT INFORMATION
The Company is in the business of acquiring companies and upon acquiring a
majority interest in AHI in 1998, the Company became a supplier, distributor
and broker of commercial aircraft technical spares for commercial airlines
worldwide, which it considers to be an additional segment.
The information with respect to revenue, by geographic area, is presented
in the table below for the period from May 1998, when the Company acquired a
controlling interest in AHI, through December 31, 1998, and for the nine months
ended September 30, 1999.
May - Dec. Jan. - Sept.
1998 1999
-------------- -------------
(Unaudited)
United States .................. $ 4,632,079 $ 5,172,056
Africa and Middle East ......... 104,396 245,130
Europe ......................... 659,898 1,069,589
Latin America .................. 59,694 549,410
Asia ........................... 2,909,130 2,306,564
----------- -----------
Total ....................... $ 8,365,197 $ 9,342,749
=========== ===========
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------
Acquisitions Aviation
Business Segments --------------- --------------
<S> <C> <C>
Revenues .............................. $ -- $ 8,365,197
Interest income ....................... 54,472 18,353
Interest expense ...................... 65,392 30,652
Depreciation and amortization ......... 2,679 52,300
Segment profit (loss) ................. (1,397,449) 12,669
Segment assets ........................ 1,367,548 7,395,818
Capital expenditures .................. -- 88,198
<CAPTION>
September 30, 1998 September 30, 1999
-------------------------------- ------------------------------
Acquisitions Aviation Acquisitions Aviation
Business Segments --------------- --------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues .............................. $ -- $ 5,094,930 $ -- $ 9,342,749
Interest income ....................... 54,268 12,518 -- 21,009
Interest expense ...................... -- 6,057 455,684 122,464
Depreciation and amortization ......... -- 28,023 4,821 81,869
Segment profit (loss) ................. (1,221,747) (55,820) (587,968) 489,052
Segment assets ........................ 956,567 6,963,997 1,007,181 9,302,253
Capital expenditures .................. -- 55,830 -- 77,419
</TABLE>
NOTE 25 -- EMPLOYEE BENEFIT PLAN
On January 1, 1999 the Company adopted a 401(k) savings plan that covers
substantially all employees. Under the terms of the 401(k) savings plan,
employees are entitled to contribute a maximum of 15% of their total
compensation, within limitations established by the Internal Revenue Code.
NOTE 26 -- SUPPLEMENTAL CASH FLOW INFORMATION
In 1998, the Company advanced funds to one of its stockholders. The
Company received 80,000 shares of AHI stock as repayment of $100,000 of the
stockholder's obligation.
In 1998, the Company issued 1,095,815 shares of its common stock in
exchange for 2,368,880 shares of AHI common stock.
F-26
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 26 -- SUPPLEMENTAL CASH FLOW INFORMATION -- (Continued)
In October, 1998, the Company issued 25,000 shares of its common stock to
two unrelated investors in connection with a loan to the Company of $250,000.
The Company had $40,000, $105,915 and $268,617 of deferred offering costs
in accrued expenses at December 31, 1997 and 1998 and September 30, 1999,
respectively.
In March, 1999, AHI financed a portion of its insurance premium amounting
to $29,341 with a note payable.
On March 15, 1999, the Company recorded $176,015 in deferred financing
costs when a major shareholder of the Company transferred 35,000 shares of the
Company's common stock to the investors of the $250,000 notes.
In March, 1999, the Company issued 500,000 shares of its common stock in
exchange for 600,000 shares of AHI common stock, resulting in goodwill of
$321,679 and a reduction in minority interest of $719,869.
In April and June 1999, the Company issued 115,500 shares of its common
stock in exchange for 133,000 shares of AHI common stock, resulting in goodwill
of $41,396 and a reduction in minority interest of $165,061.
On April 15, 1999, the Company recorded $43,190 in deferred financing
costs when a major shareholder of the Company transferred 10,000 shares of the
Company's common stock to the investors of the $250,000 notes.
On May 15, 1999, the Company recorded $29,914 in deferred financing costs
for the issuance of 15,000 warrants to purchase the Company's common stock to
the investors of the $250,000 notes.
In July 1999, the Company recorded $25,914 in financing costs in
connection with its issuance of 6,000 shares of common stock to the holders of
the $250,000 notes in consideration for the extension of the maturity date of
the notes.
In August 1999, the Company recorded $83,625 of compensation expense in
connection with the issuance of 55,750 options to employees.
In September 1999, the Company recorded $17,499 in financing costs in
connection with its issuance of 5,000 shares of common stock to the holders of
the $250,000 notes in consideration for the extension of the maturity date of
the notes. As of September 30, 1999, $7,582 had been amortized.
NOTE 27 -- SUBSEQUENT EVENTS
In April and June 1999, the Company entered into a series of share
exchanges with certain remaining AHI stockholders. The Company exchanged
115,500 shares of its common stock in return for 137,500 shares of AHI common
stock, bringing the Company's ownership of AHI to 96%.
In June 1999, the Company issued warrants to purchase 210,000 shares of
the Company's common stock at $4.50 per share, with an exercise period through
June 30, 2002 ("Warrants"). The Warrants were issued by the Company in order to
replace warrants to purchase 1,000,000 shares of AHI common stock previously
issued by AHI in June 1997. The terms of the Warrants are identical to the
terms of the AHI warrants. The Warrants were issued to a related party, an
entity whose president is a director of the Company, and to an unrelated
investor. The related party received 200,000 Warrants and the unrelated
investor received 10,000 Warrants. The Warrants include certain anti-dilutive
provisions. The Company has the right to call the Warrants for $.05 per
Warrant, if the Company's common stock meets certain performance objectives and
the Company offers its common stock for trading on a national exchange.
F-27
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 27 -- SUBSEQUENT EVENTS -- (Continued)
In June 1999, the Company and the holders of the $250,000 note payable
(see Note 15) agreed to extend the maturity date of the note to July 14, 1999.
In consideration of the extension, the Company issued warrants to purchase
15,000 shares of the Company's common stock at $4.00 per share, with an
exercise period through May 15, 2004. These warrants include certain
anti-dilutive provisions, and the shares of the Company's common stock covered
by the warrants contain restrictions on transfer for one year.
NOTE 28 -- EVENTS UNAUDITED SUBSEQUENT TO THE DATE OF THE AUDITORS' REPORT
On July 15, 1999, the maturity date of the $250,000 notes was extended to
September 17, 1999. In consideration for the extension, a shareholder of the
Company delivered 6,000 shares of the Company's common stock to the
noteholders.
On August 11, 1999, the Company granted 55,750 options to purchase the
Company's common stock to certain employees under its stock option plan.
On August 31, 1999, the Company sold its note receivable from EWS (see
Note 10) to a stockholder in exchange for the cancellation of $855,000 of
obligations payable to the stockholder for advances of cash to the Company and
accrued interest thereon, plus $45,000 in cash.
In September 1999, the Company issued 5,000 shares of common stock to the
holders of the $250,000 notes in consideration for the extension of the
maturity date of the notes.
On July 15, 1999, the Company and the noteholders entered into an
agreement to further extend the maturity date of the $250,000 notes to
September 14, 1999. In consideration of the extension, the company granted the
noteholders 6,000 shares of the Company's common stock. This resulted in the
Company recording a financing fee of $25,913. On September 15, 1999, the
Company and the noteholders entered into an agreement to further extend the
maturity date of the $250,000 notes to October 14, 1999. In consideration of
the extension, the Company granted the noteholders 5,000 shares of the
Company's common stock. This resulted in the Company recording a financing fee
of $17,499, of which $7,582 had been amortized as of September 30, 1999.
On October 4, 1999, the maturity date of the $250,000 notes was extended
to October 17, 1999. In consideration for the extension, the Company delivered
5,000 shares of the Company's common stock to the noteholders.
On October 15, 1999, the maturity date of the $250,000 notes was extended
to November 16, 1999. Except for the additional interest incurred, no other
additional consideration was provided for the extension.
For the nine months ended September 30, 1999, the Company had sales to a
company affiliated with a director of the Company in the amount of
approximately $44,000.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Jet Aviation Trading, Inc.
We have audited the accompanying balance sheet of Jet Aviation Trading,
Inc. as of August 31, 1997, and the related statements of income, stockholders'
equity, and cash flows for the period from October 3, 1996 (Date of Inception)
through August 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jet Aviation Trading, Inc.
as of August 31, 1997, and the results of its operations and cash flows for the
period from October 3, 1996 (Date of Inception) through August 31, 1997, in
conformity with generally accepted accounting principles.
Sweeney, Gates & Co.
Fort Lauderdale, Florida
October 9, 1997, except as to Note 12
which is as of October 29, 1997
F-29
<PAGE>
JET AVIATION TRADING, INC.
BALANCE SHEET
AUGUST 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash .................................................................................... $ 341,660
Accounts receivable, less $93,000 allowance for doubtful accounts........................ 1,764,119
Inventory ............................................................................... 1,532,333
DC-10 flight simulator held for resale (Note 3) ......................................... 734,421
Deferred tax asset ...................................................................... 23,000
Prepaid expenses and other current assets ............................................... 29,610
------------
Total current assets ............................................................... 4,425,143
------------
Property and equipment, less accumulated depreciation of $8,293........................... 88,437
Deferred offering costs .................................................................. 22,750
Deposit-Boeing ........................................................................... 25,000
------------
$ 4,561,330
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................................ $ 977,706
Accrued expenses ........................................................................ 144,540
Accrued interest ........................................................................ 19,611
Income taxes payable .................................................................... 37,200
------------
Total current liabilities .......................................................... 1,179,057
------------
Deferred tax liability ................................................................... 2,000
------------
Stockholders' equity:
Preferred stock, par value $.10 per share, 3,000,000 shares authorized, and no shares
issued and outstanding ................................................................ --
Common stock, par value $.001 per share; 30,000,000 shares authorized, and
2,996,500 shares issued and outstanding ............................................... 2,997
Additional paid-in capital .............................................................. 4,840,917
Accumulated Deficit ..................................................................... (1,383,641)
------------
3,460,273
Less: Stockholders' notes receivable (Note 8) ............................................ (80,000)
------------
Total stockholder's equity ......................................................... 3,380,273
------------
$ 4,561,330
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
JET AVIATION TRADING, INC.
STATEMENT OF OPERATIONS
OCTOBER 3, 1996 (DATE OF INCEPTION) TO AUGUST 31, 1997
<TABLE>
<S> <C> <C>
Sales, net of returns and allowances ......................... $ 6,215,553
Cost of sales ................................................ 4,684,864
------------
Gross profit .............................................. 1,530,689
------------
Selling, general and administrative expenses ................. 2,881,660
------------
Operating Loss ............................................... (1,350,971)
------------
Other income (expense):
Interest income ............................................. $ 21,867
Interest expense ............................................ (38,337) (16,470)
--------- ------------
Loss before income taxes ..................................... (1,367,441)
Income tax expense:
Current ..................................................... 37,200
Deferred .................................................... (21,000) 16,200
--------- ------------
Net Loss ............................................... $ (1,383,641)
============
Net Loss per share ..................................... $ (.83)
============
Weighted average number of common shares outstanding ......... 1,672,968
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
JET AVIATION TRADING, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
OCTOBER 3, 1996 (DATE OF INCEPTION) TO AUGUST 31, 1997
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional Stockholder's
Paid-In Accumulated Note
Shares Amount Capital Deficit Receivable Total
----------- -------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founding stockholders ............ 1,200,000 $1,200 $ 778,800 $ -- $ (255,000) $ 525,000
Issuance of common stock in
connection with the purchase
of equipment and aircraft
parts ............................ 10,000 10 24,990 -- -- 25,000
Issuance of common stock in
connection with private place-
ment ............................. 312,000 312 745,997 -- -- 746,309
Issuance of common stock in
connection with purchase of
DC-10 Simulator held for
resale ........................... 240,000 240 599,760 -- -- 600,000
Issuance of common stock in
connection with debt ............. 14,800 15 36,985 -- -- 37,000
Issuance of common stock to
founders of Schuylkill Acqui-
sition Corp. ..................... 400,000 400 999,600 -- -- 1,000,000
Issuance of common stock in a
private offering by Schuylkill
Acquisition Corp. ................ 47,200 47 95,856 -- -- 95,903
Issuance of 1,000,000 warrants..... -- -- 50,000 -- -- 50,000
Accumulated deficit of
Schuylkill Acquisition Corp.
adjusted due to merger ........... -- -- (35,298) -- -- (35,298)
Conversion of $370,000 of notes
payable to common stock .......... 185,000 185 369,815 -- -- 370,000
Conversion of $200,000 stock-
holder loan to common stock
and payment of $15,000 advi-
sory fee in common stock ......... 107,500 108 214,892 -- -- 215,000
Conversion of $500,000 note
payable to common stock .......... 250,000 250 499,750 -- -- 500,000
Issuance of common stock for
the payment of amounts due
to a stockholder and for the
purchase of remaining con-
signed inventory ................. 230,000 230 459,770 -- 175,000 635,000
Net Loss .......................... -- -- -- (1,383,641) -- (1,383,641)
--------- ------ ---------- ------------ ---------- ------------
Balance, August 31, 1997 .......... 2,996,500 $2,997 $4,840,917 $ (1,383,641) $ (80,000) $ 3,380,273
========= ====== ========== ============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
JET AVIATION TRADING, INC.
STATEMENT OF CASH FLOWS
OCTOBER 3, 1996 (DATE OF INCEPTION) TO AUGUST 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net (loss) ......................................................................... $ (1,383,641)
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization .................................................... 8,293
Allowance for doubtful accounts .................................................. 93,000
Noncash compensation expense related to sale of founders shares .................. 400,000
Noncash compensation expense related to sale of Schuylkill Acquisition
founders shares ................................................................. 999,600
Noncash compensation expense related to warrants ................................. 50,000
Noncash compensation relating to an advisory fee ................................. 15,000
Noncash compensation relating to loan origination fee ............................ 37,000
Deferred tax asset, net of deferred tax liability ................................ (21,000)
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable ............................................................. (1,857,119)
Inventory (Note 6) .............................................................. (872,333)
Cash paid in connection with purchase of DC-10 flight simulator ................. (134,421)
Prepaid expenses and other current assets ....................................... (29,610)
Increase (decrease) in:
Accounts payable ................................................................. 977,706
Accrued expenses ................................................................. 144,541
Accured interest ................................................................. 19,611
Income tax payable ............................................................... 37,200
------------
Total adjustments ............................................................. (132,532)
------------
Net cash used for operating activities .............................................. (1,516,173)
------------
Cash flows from investing activities:
Deposit--Boeing .................................................................... (25,000)
Purchase of property and equipment ................................................. (96,730)
------------
Net cash used for investing activities ........................................ (121,730)
------------
Cash flows from financing activities:
Deferred offering costs ............................................................ (22,750)
Proceeds from stockholder loans, subsequently converted to common stock ............ 1,195,000
Payments on stockholder loans ...................................................... (125,000)
Proceeds from issuance of securities ............................................... 932,313
------------
Net cash provided by financing activities ..................................... 1,979,563
------------
Cash, ending ........................................................................ $ 341,660
============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Interest paid ...................................................................... $ 24,103
------------
Income taxes paid .................................................................. $ --
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
JET AVIATION TRADING, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
Organization and History -- Schuylkill Acquisition Corp. ("the Company" or
"SAC") was incorporated in Florida on May 28, 1997, for the purpose of
acquiring by merger the business and operations of Jet Aviation Trading, Inc.
("Old Jet") upon the completion of a stock offering by the Company. On July 28,
1997, the Company acquired 100% of the outstanding common stock of Old Jet in
exchange for 1,776,800 shares of common stock of the Company in a one for one
stock exchange. Old Jet was incorporated in the state of Florida on October 3,
1996 for the purpose of buying, selling, leasing and exchanging spare parts for
fixed-wing commercial jet transport aircraft. Effective July 28, 1997, the
Company's name was changed from Schuylkill Acquisition Corp. to Jet Aviation
Trading, Inc.
Merger and Recapitalization -- The merger was completed on July 28, 1997,
whereby SAC acquired 100% of the outstanding common stock of Old Jet in
exchange for 1,776,800 shares of common stock of SAC in a one for one stock
exchange. The merger has been accounted for as a purchase.
The effect of the transaction was a reverse merger, whereas SAC changed
its name to Jet Aviation Trading, Inc. and Old Jet became the acquiring entity
and accounting survivor. Accordingly, the historical financial statements
presented are those of the accounting survivor, Old Jet, and the stockholders'
equity of the merged Company was recapitalized to reflect the capital structure
of the surviving legal entity and the accumulated deficit of Old Jet at the
time of merger.
Nature of Business and Credit Policies -- The Company buys, sells, leases
and exchanges spare parts for fixed-wing commercial jet transport aircraft. The
Company's customers are primarily commercial passenger and cargo operators,
original equipment manufacturers and Federal Aviation Administration and Joint
Aviation Authority repair stations throughout the world. The Company performs
ongoing credit evaluations of its customers' financial condition and extends
credit to its customers based upon its evaluations. If creditworthiness is
questionable, parts are shipped COD. The allowance for doubtful accounts is
based upon the expected collection of accounts receivable.
Cash Equivalents -- The Company considers all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents.
Revenue and Cost Recognition -- The Company recognizes revenue when parts
are shipped to the customer. Amounts paid in advance are recorded as deferred
income and recognized in the period in which the parts are shipped. The Company
recognizes revenue and the related cost of consigned inventory when the parts
are shipped to the customer.
Inventories -- Inventory is stated at the lower of cost or market. Cost of
aircraft parts is determined on a specific identification basis. When parts are
purchased in lots, the individual parts are expensed at a predetermined
percentage of the sales price until the cost of the lot is recovered. Costs to
repair, inspect and/or modify the parts are charged to the specific part when
incurred. Inventories held by the Company on consignment from others are not
included in the inventory in the accompanying financial statements.
Deferred Offering Costs -- Amounts paid or accrued for costs related to
the anticipated public offering will be recorded as a reduction of the proceeds
when the offering is completed. If the offering is not completed, the costs
will be expensed.
Income Taxes -- The Company accounts for income taxes on an asset and
liability approach for financial accounting. Deferred income tax assets and
liabilities are computed annually for temporary differences between the
financial statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
is the tax payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities.
F-34
<PAGE>
JET AVIATION TRADING, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION -- (Continued)
Net Income Per Share -- Net income per common share is computed by
dividing net income by the weighted average number of shares outstanding during
the period. Warrants issued during the period are not considered dilutive, and
therefore, are not included in the computation of net income per share.
In February 1997, the Financial Accounting Standards Board issued SFAS
128, "Earnings Per Share". The adoption of SFAS 128 did not have an effect on
the computation of earnings per share because the effective date is December
15, 1997, and earlier application is not permitted.
Recoverability of Long Lived Assets -- The Company has adopted Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The Statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. The Company is
not aware of any events or circumstances which indicate the existence of an
impairment which would be material to the Company's financial statements.
Financial Instruments -- The carrying amount of cash, accounts receivable,
accounts payable and accrued expenses approximates fair value as of August 31,
1997. The carrying value of the stockholder's note receivable at August 31,
1997, approximates fair value.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of estimates based on
management's knowledge and experience. Accordingly, actual results could differ
from those estimates.
2. RELATED PARTY TRANSACTIONS
CONSIGNMENT AGREEMENT WITH RELATED PARTY
The Company entered into a Consignment Agreement (the "Agreement") with a
related party, Jet Avionics Systems, Inc. ("Avionics"), effective October 3,
1996, wherein the Company agreed to sell certain consignment inventory of
technical spare parts belonging to Avionics and pay Avionics 75% of the sales
price collected for the inventory sold. The sales price is the gross sales
price less any costs involved if any item of inventory is required to be
overhauled, certified or modified in order to be sold. Total consideration to
be paid for the inventory under the Agreement was $675,000. Pursuant to such
Agreement, the Company sold approximately $452,000 of parts during the year to
third parties and Avionics was due $339,000 of this amount. During the year,
the Company paid Avionics $36,000 of the amount due. On August 29, 1997, the
Company and Avionics entered into a Consignment Cancellation and Purchase
Agreement whereby the Company purchased the remaining inventory not sold with a
value of approximately $336,000 from Avionics and thereafter paid the balance
of $639,000 in exchange for 230,000 shares of the Company's common stock valued
at $2.00 per share, the cancellation of $175,000 of indebtedness of Avionics
due the Company, and $4,000 in cash.
The president and sole stockholder of Avionics was employed by the Company
from October 3, 1996 through October 2, 1997. The president and sole
stockholder is the daughter of an employee of the Company who served in a
non-executive capacity as Vice President of Special Projects.
OFFICE AND WAREHOUSE FACILITY
The Company leases its office and warehouse facility from a company
partially owned by a stockholder of the Company under a four year lease
expiring December 31, 2000 with two one year options to renew. The monthly
rental is $4,609 plus applicable sales tax and pass through of expenses. Rent
expense was $29,435 for the period ended August 31, 1997. At August 31, 1997,
the Company was obligated under this operating lease arrangement as follows:
F-35
<PAGE>
JET AVIATION TRADING, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
2. RELATED PARTY TRANSACTIONS -- (Continued)
YEARS ENDING AUGUST 31, AMOUNT
- ------------------------- ----------
1998 .............................................. $ 55,308
1999 .............................................. 55,308
2000 .............................................. 55,308
2001 .............................................. 18,436
--------
$184,360
========
3. PURCHASE OF DC-10 FLIGHT SIMULATOR AND SUPPORT PACKAGE
On November 1, 1996, the Company entered into an agreement with a company
domiciled in the Netherlands (the "seller" or the "Netherlands Company") to
purchase one half (50%) ownership in a DC 10-30 six axis flight simulator and
all associated equipment required to operate the flight simulator. The
agreement calls for the seller and the Company to equally participate in all
revenues generated from the sale, lease or disassembly of the hardware of the
flight simulator. The Company paid the seller $125,000 in cash and issued
40,000 shares of the Company's common stock valued at $2.50 per share for the
flight simulator The Company intends to sell the flight simulator as a complete
package.
On March 28, 1997, the Company entered into a second agreement with the
seller to purchase one Novoview 2000 Visual System, one package of simulator
parts, one maintenance training/procedure manual and one data support package
used to support the DC 10-30 flight simulator. The price of the items purchased
was $500,000 and the Company paid for the items by issuing 200,000 shares of
its common stock at $2.50 per share. The Company will receive 100% of the
revenues generated from the sale of these items. The interest in the simulator,
related items and freight costs are reflected in the accompanying balance sheet
as DC-10 flight simulator totaling $734,421.
This Netherlands Company is also a purchaser and supplier of spare parts
from and to the Company. During the year ended August 31, 1997, the Netherlands
Company purchased spare parts totaling $82,775 from the Company, and sold
$183,331 of spare parts to the Company in addition to the DC 10-30 flight
simulator. At August 31, 1997, the Company was owed $1,375 by the Netherlands
Company and the Company owed the Netherlands Company $47,750. Additionally, the
Netherlands Company held $22,400 of the Company's inventory in their warehouse
at August 31, 1997.
4. RISKS REGARDING THE COMPANY'S INVENTORY
The Company's inventory consists principally of new, overhauled,
serviceable and repairable aircraft parts that are purchased from many sources.
Before parts may be installed in an aircraft, they must meet certain standards
of condition established by the Federal Aviation Administration ("FAA") and/or
the equivalent regulatory agencies in other countries. Specific regulations
vary from country to country, although regulatory requirements in other
countries generally coincide with FAA requirements. Parts owned or acquired by
the Company may not meet applicable standards or standards may change in the
future, causing parts, which are already contained in the Company's inventory
to be scrapped or modified. Aircraft manufacturers may also develop new parts
to be used in lieu of parts already contained in the Company's inventory. In
all such cases, to the extent that the Company has such parts in its inventory,
their value may be reduced.
5. CONSIGNMENT INVENTORY
By consigning inventories to a redistributor such as the Company,
customers are able to distribute their aircraft spare parts to a large number
of prospective inventory buyers, allowing the customer to maximize the value of
its inventory. Consignment also enables the Company to offer for sale
significant parts inventory at minimal capital cost. The Company currently
maintains or manages or has consignment agreement in place and its revenues
from consignment arrangement have accounted for approximately 5% of net sales
for the period ended August 31, 1997.
F-36
<PAGE>
JET AVIATION TRADING, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at August 31, 1997:
Furniture and fixtures .................................. $ 28,715
Computer equipment ...................................... 27,068
Leasehold improvements .................................. 30,443
Software ................................................ 10,504
--------
96,730
Less: Accumulated depreciation .......................... (8,293)
--------
$ 88,437
========
Property and equipment is depreciated on a straight-line basis with useful
lives ranging from 5 to 7 years. Depreciation expense for the period was
$8,293.
7. CAPITAL STOCK
PREFERRED STOCK
Within the limits and restrictions contained in the Certificate of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 3,000,000 shares of Preferred Stock, $.10
par value per share, in one or more series, and to fix, as to any such series,
the dividend rate, redemption prices, preferences on liquidation or
dissolution, sinking fund terms, if any, conversion rights, voting rights, and
any other preferences or special rights and qualifications.
COMMON STOCK
Founders' shares totaling 400,000 common shares were issued on May 28,
1997, to four entities for par value of $.001. Net proceeds from the issuance
of founders' shares was $400. Compensation expenses was charged for the
difference between the fair market value per share of $2.50 and $.001 per share
paid or a total charge of $999,600.
During 1997, the Company sold 47,200 shares of common stock for $2.50 per
share resulting in total proceeds of $118,000. Deferred offering costs of
$22,098 have been reflected as a reduction of the proceeds of the private
placement offering.
On July 17, 1997, the Company issued 1,776,800 shares of common stock to
acquire 100% of the outstanding common stock of Jet Aviation in a 1 for 1 stock
exchange.
WARRANTS
On June 1, 1997, 1,000,000 warrants were issued in connection with the
organization of Schuylkill Acquisition Corp. to related parties for an advisory
fee. The Company has reserved 1,000,000 shares of its common stock for exercise
of the warrants. Each warrant entitles the holder to purchase one share of
common stock at an exercise price of $4.50 until June 30, 2002. The warrants
are redeemable by the Company at $.05 upon the occurrence of both of the
following events: (a) the listing of the Company's shares of common stock on a
securities exchange, and (b) the Company's common stock is trading in excess of
$5.25 per share for a ten day period.
The Company has adopted SFAS No. 123, Accounting for Stock-Based
Compensation, for non-employee stock compensation. Accordingly, the warrants
referred to above have been valued at $.05 per warrant and expensed.
F-37
<PAGE>
JET AVIATION TRADING, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
7. CAPITAL STOCK -- (Continued)
CONVERSION OF DEBT
During October and November, 1996, an affiliate of a stockholder loaned
the Company $325,000. The loans were payable on demand and did not bear a
stated interest rate. During the year $125,000 was repaid. On August 29, 1997,
the Company converted $200,000 of the loan to 100,000 shares of common stock at
$2.00 per share.
On March 27 and May 12, 1997, the Company borrowed $370,000 from a
stockholder and entered into two short term notes payable, bearing interest at
6% per annum. One of the notes was extended on June 19, 1997, and interest was
increased to 10% per annum. On August 29, 1997, the Company and stockholder
converted the notes payable to 185,000 shares of common stock at $2.00 per
share and the Company paid the interest accrued on the short term notes payable
through that date.
On May 23, 1997, prior to the merger, Schuylkill Acquisition Corp.
borrowed $500,000 from a stockholder, evidence by a promissory note bearing
interest at 12%. On August 29, 1997, the promissory note was converted to
250,000 shares of common stock at $2.00 per share, and the Company paid the
accrued interest through that date.
COMMON STOCK TRANSACTIONS OF JET AVIATION TRADING, INC. (OLD JET) PRIOR TO
MERGER
On October 3, 1996, Old Jet sold 408,000 founders' shares of common stock
for total proceeds of $125,000. Effective October 1, 1996, Old Jet issued
600,000 shares of the Old Jet's common stock for a $175,000 note bearing
interest of 6% to Avionics. Further, effective November 1, 1996, Old Jet issued
192,000 shares of common stock to its President for a $80,000 note bearing
interest of 6%. See Note 2 and Note 8. Compensation expenses was charged for
the difference between the fair market value of $2.50 per share and $.417 per
share or a total charge of $400,000. See Note 2 and Note 8.
On October 22, 1996, Old Jet issued 10,000 shares valued at $2.50 per
share in partial payment of the purchase of equipment and aircraft parts
totaling $50,000.
On January 22, 1997, Old Jet issued 40,000 shares of Old Jet's common
stock in partial payment for the purchase of a DC-10 flight simulator. See Note
3. Also, on January 22, 1997, and June 2, 1997, Old Jet issued 312,000 shares
of common stock in private placement transactions. Net proceeds from the
private placement totaled $746,309, after giving effect to $33,691 in offering
costs.
On March 31, 1997, Old Jet issued 200,000 shares of common stock valued at
$2.50 per share in connection with the purchase of a DC-10 flight simulator
support package. See Note 3.
On April 4, 1997, and May 12, 1997, Old Jet issued a total of 14,800
shares valued at $2.50 per share, for a total of $37,000, to a stockholder as
additional incentive for providing stockholder loans. The expense has been
recorded as debt issue costs.
8. STOCKHOLDERS' NOTES RECEIVABLE
Stockholders' notes receivable relate to the issuance of Old Jet's common
stock as follows:
-- Effective October 1, 1996, Old Jet issued 600,000 shares of common stock
to Avionics for a $175,000 note bearing interest at 6%. The note was
canceled in partial payment of the amounts due under the Consignment
Cancellation and Purchase Agreement. See Note 2.
-- On November 1, 1996, Old Jet issued 192,000 shares of common stock to
its president for an $80,000 note bearing interest at 6%. Should the
president earn bonuses per his employment contract, one half of the
bonuses in excess of $25,000 earned annually, may be applied to the
outstanding note balance. The note is due on demand and is unsecured.
F-38
<PAGE>
JET AVIATION TRADING, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
9. INCOME TAXES
The income tax provision was comprised of the following at August 31,
1997:
Current:
Federal ............................................... $ 30,500
State ................................................. 6,700
Deferred:
Federal ............................................... (16,700)
State ................................................. (4,300)
---------
Income tax provision .................................... $ 16,200
=========
A reconciliation between the statutory rate and the effective rate is as
follows for the year ended August 31, 1997:
Federal statutory tax rate .............................. 34.0%
State statutory rate, net of federal benefit ............ 3.6
Permanent difference and other .......................... 12.8
-----
Effective tax rate ...................................... 50.4%
=====
Significant components of the Company's deferred tax assets and
liabilities, computed using currently enacted tax rates, are as follows at
August 31, 1997:
<TABLE>
<S> <C>
Current items:
Assets:
Allowances for doubtful accounts which are currently nondeductible ................. $ 23,000
--------
Net current deferred tax assets .......................................................... $ 23,000
========
Long-term items:
Property and equipment principally due to the use of accelerated depreciation for tax
purposes ................................................................................. $ (2,000)
--------
Net long-term deferred tax liabilities ................................................... $ (2,000)
========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENT
Effective November 1, 1996, Old Jet entered into an employment contract
with its president for a three year period and the agreement automatically
extends on a month to month basis thereafter. Base compensation is $160,000 per
year, plus 3% of the pretax net income of the Company. The agreement also calls
for one half of the bonus in excess of $25,000 earned annually by the president
to be applied to reduce the outstanding balance of the president's obligation
under his promissory note given to Old Jet for his stock. See Note 6.
Effective October 3, 1996, Old Jet entered into an employment contract
with an individual who is an affiliate of Avionics as an employee for a three
year period. Base compensation is $120,000 per year, plus a bonus determined by
the Board of Directors. On October 2, 1997, the Company and the employee
mutually agreed to the termination of said employment agreement dated October
3, 1996. The Company and individual have entered into a Consulting Agreement on
October 3, 1997, for a twelve month period ending October 2, 1998. Base
compensation is $4,000 per month, plus a commission of 15% of the collected
purchase price of sales, and 15% of the purchase price of material for resale
which the individual introduces to the Company.
F-39
<PAGE>
JET AVIATION TRADING, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
11. SALES TO MAJOR CUSTOMERS
The Company sells, leases and exchanges spare parts for fixed-wing
commercial jet transport aircraft to foreign and domestic customers.
The information with respect to revenue, by geographic area, is presented
in the table below for the period from October 3, 1997 (inception) through
August 31, 1997.
United States ..................................... $3,559,585
Africa and Middle East ............................ 36,119
Europe ............................................ 938,896
Latin America ..................................... 25,140
Asia .............................................. 1,655,813
----------
Total ........................................... $6,215,553
==========
One Asian customer accounted for 20% of the Company's sales in fiscal
1997.
12. SUPPLEMENTAL NON-CASH FLOW INFORMATION
Effective October 3, 1996, Old Jet issued 192,000 shares of common stock
to its President for a $80,000 note bearing interest of 6%. Compensation
expenses was charged for the difference between the fair market value of $2.50
per share and $.417 per share or a total charge of $400,000.
During the year the Company purchased equipment and aircraft parts with a
value of $50,000 by issuing 10,000 shares of common stock at $2.50 per share
and paying the remainder in cash.
As part of the purchase of the DC-10 flight simulator and support package
for $734,421, the Company issued 240,000 shares of common stock at $2.50 per
share and paid the remainder in cash.
As part of its cost of borrowing money during the year the Company issued
14,800 shares of common stock valued at $2.50 per share to a stockholder of the
Company.
On August 29, 1997, the Company issued 230,000 shares of common stock
valued at $2.00 per share, canceled a $175,000 note due to the Company by
Avionics and paid $4,000 in cash in satisfaction of a $303,000 debt due
Avionics and the purchase of the remaining consigned inventory valued at
$336,000.
Schuylkill Acquisition Corp. (prior to merging with Old Jet) issued
founders' shares totaling 400,000 on May 28, 1997 to four entities for par
value of $.001. Net proceeds from the issuance of founders' shares was $400.
Compensation expenses was charged for the difference between the fair market
value of $2.50 per share and $.001 per share paid or a total charge of
$999,600.
On August 29, 1997, the Company converted four notes payable totaling
$1,070,000 by issuing 535,000 shares of common stock at a value of $2.00 per
share.
On August 29, 1997, the Company paid $15,000 as an advisory fee to a
related party by issuing 7,500 shares of common stock at a value of $2.00 per
share.
13. CONCENTRATION OF CREDIT RISK INVOLVING CASH
During the year, the Company maintained cash balances in excess of the
Federally insured limits. The Company maintained the balances in four banks,
one of which is a major money center bank. Three of the banks are Federally
insured. A fourth bank, Israel Discount Bank Limited is a major international
bank and operates in the United States under the Edge Act, but is not Federally
insured. At August 31, 1997, the Company had balances under $100,000 in the
three Federally insured banks, but maintained a balance of $264,550 in Israel
Discount Bank Limited. However, the Company does not believe a significant risk
existed in having the balance with Israel Discount Bank Limited.
F-40
<PAGE>
JET AVIATION TRADING, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
14. SUBSEQUENT EVENTS
On October 29, 1997, the Board of Directors adopted a Stock Option Plan
(the "Plan") effective September 1, 1997. This Plan provides for the grant to
employees selected by the Board of Directors, or Compensation Committee, of
incentive stock options, non-qualified stock options and stock appreciation
rights in the aggregate not exceeding 750,000 shares. The Plan also sets forth
applicable rules and regulations for stock options granted to non-employee
directors. The Board of Directors authorized the issuance of 74,500 stock
options. The Plan is subject to stockholder approval and will be submitted to
the stockholders at the Company's annual meeting in 1998.
F-41
<PAGE>
AVIATION HOLDINGS INTERNATIONAL, INC
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
May 31,
1998
--------------
(Unaudited)
<S> <C>
ASSETS
Current Assets
Cash ............................................................................ $ 555,742
Trade receivables (Net of allowance for doubtful accounts of $112,000) .......... 1,991,302
Inventory ....................................................................... 2,544,335
Interest receivable from stockholder -- related party ........................... 13,046
Prepaid expenses ................................................................ 49,676
Deferred tax benefit ............................................................ 135,000
------------
Total Current Assets ......................................................... 5,289,101
------------
Property and Equipment, Net ........................................................ 381,428
------------
Other Assets
Investment in joint venture ..................................................... 212,564
Deposits ........................................................................ 17,385
Intangibles -- goodwill ......................................................... 367,740
------------
Total Other Assets ........................................................... 597,689
------------
Total Assets ....................................................................... $ 6,268,218
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ................................................................ $ 2,139,672
Current portion of long-term debt ............................................... 14,334
Advances from stockholder -- related party ...................................... 57,035
Accrued expenses ................................................................ 424,407
------------
Total Current Liabilities .................................................... 2,635,448
------------
Noncurrent Liabilities
Long-term debt, net of current portion .......................................... 4,332
Deferred income taxes ........................................................... 1,000
------------
Total Noncurrent Liabilities ................................................. 5,332
------------
Total Liabilities ........................................................... 2,640,780
------------
Commitments and Contingencies
Stockholders' Equity
Preferred stock, par value $.10 per share; 3,000,000 shares authorized, and no
shares issued and outstanding .................................................. --
Common stock, par value $.001 per share; 30,000,000 shares authorized, and
authorized and 3,306,500 shares issued and outstanding ......................... 3,307
Additional Paid-In Capital ...................................................... 5,615,608
Less stock subscriptions receivable ............................................. (280,000)
Accumulated deficit ............................................................. (1,711,477)
------------
Total Stockholders' Equity ......................................................... 3,627,438
------------
Total Liabilities and Stockholders' Equity ......................................... $ 6,268,218
============
</TABLE>
See notes to financial statements.
F-42
<PAGE>
AVIATION HOLDINGS INTERNATIONAL, INC
Condensed Consolidated Statements of Operations and Accumulated Deficit
<TABLE>
<CAPTION>
October 3, 1996 Nine Months
Through Ended
May 31, May 31,
1997 1998
----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales ..................................................... $ 3,644,071 $ 9,841,005
Cost of Goods Sold ............................................ 2,644,623 8,591,981
------------- -------------
Gross Profit .................................................. 999,448 1,249,024
------------- -------------
Operating Expenses
Salaries and wages ......................................... 371,107 845,245
General and administrative ................................. 511,216 849,090
Non-compensation stock expense ............................. 1,399,601 --
------------- -------------
Total Operating Expenses ................................ 2,281,924 1,694,335
------------- -------------
Loss from Operations .................................... (1,282,476) (445,311)
------------- -------------
Other Income (Expense)
Interest income ............................................ 10,806 18,583
Interest expense ........................................... (23,060) (16,340)
Interest in earnings of joint venture ...................... -- 4,232
------------- -------------
Total Other Income (Expense) ............................ (12,254) 6,475
------------- -------------
Loss Before Income Taxes ...................................... (1,294,730) (438,836)
------------- -------------
Income Tax Benefit (Expense)
Current .................................................... (34,000) --
Deferred ................................................... 19,000 111,000
------------- -------------
Total Income Tax Benefit (Expense) ...................... (15,000) 111,000
------------- -------------
Net Loss ...................................................... (1,309,730) (327,836)
Accumulated Deficit, Beginning of Period ...................... -- (1,383,641)
------------- -------------
Accumulated Deficit, End of Period ............................ $ (1,309,730) $ (1,711,477)
============= =============
Basic and Diluted Loss Per Common Share ....................... (.91) (.11)
============= =============
Weighted Average Number of Common Shares Outstanding: ......... 1,439,742 3,119,137
============= =============
</TABLE>
See notes to financial statements.
F-43
<PAGE>
AVIATION HOLDINGS INTERNATIONAL, INC
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
October 3, 1996 Nine Months
Through Ended
May 31, 1997 May 31, 1998
----------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss ............................................................. $ (1,309,730) $ (327,836)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Depreciation and amortization ...................................... 4,374 33,583
Provision for doubtful accounts .................................... 93,000 19,000
Earnings of joint venture .......................................... -- (4,232)
Reserve for obsolete inventory ..................................... -- 488,421
Noncash compensation expenses related to sale of founders
shares ............................................................ 1,399,601 --
Withdrawn offering costs .......................................... -- 22,750
Deferred income taxes .............................................. (19,000) (111,000)
Change in assets and liabilities
Increase in
Accounts receivable ............................................. (1,934,179) (248,183)
Inventory ....................................................... (1,554,418) (860,002)
Prepaid expenses and other current assets ....................... (43,804) (8,112)
Deposits ........................................................ -- (17,385)
Increase (decrease) in
Accounts payable ................................................ 1,770,308 1,161,966
Income taxes payable ............................................ 34,000 (37,200)
Accrued expenses ................................................ 97,372 260,256
------------- -----------
Total Adjustments .............................................. (152,746) 699,862
------------- -----------
Net Cash (Used in ) Provided by Operating Activities (1,462,476) 372,026
------------- -----------
Cash Flows from Investing Activities
Purchase of property and equipment ................................... (79,914) (168,637)
Investment in joint venture .......................................... -- (100,000)
------------- -----------
Net Cash Used in Investing Activities ........................ (79,914) (268,637)
------------- -----------
Cash Flows From Financing Activities
Principal payments on long-term debt ................................. -- (3,010)
Deferred offering costs .............................................. (21,285) --
Advances from stockholders -- related party .......................... 121,727 --
Payments on acquired stockholder obligation -- related party ......... -- (51,297)
Loans from stockholders, net of repayments ........................... 640,000 --
Proceeds from sales of securities .................................... 871,309 165,000
------------- -----------
Net Cash Provided by Financing Activities .................... 1,611,751 110,693
------------- -----------
Net increase in cash .................................................. 69,361 214,082
Cash, Beginning of Period ............................................. -- 341,660
------------- -----------
Cash, End of Period ................................................... $ 69,361 $ 555,742
============= ===========
</TABLE>
See notes to financial statements
F-44
<PAGE>
AVIATION HOLDINGS INTERNATIONAL, INC
Notes to Interim Financial Statements
NOTE 1 -- BASIS OF PRESENTATION
Interim Condensed Consolidated Financial Statements
The interim condensed consolidated financial statements include the
accounts of Aviation Holdings International, Inc. (formerly Jet Aviation
Trading, Inc.) and its majority-owned subsidiaries (collectively "AHI" or the
"Company") after elimination of significant intercompany accounts and
transactions.
The interim consolidated financial data as of May 31, 1998 and for the
nine months then ended and the period October 3, 1996 (date of inception)
through May 31, 1997 is unaudited. The information reflects all adjustments,
consisting only of normal recurring adjustments, that in the opinion of
management, are necessary to present fairly the financial position and results
of operations of the Company for the periods indicated. Results of operations
for the interim periods are not necessarily indicative of the results of
operations for a full fiscal year.
The interim consolidated condensed financial statements should be read in
conjunction with the financial statements and notes thereto contained elsewhere
in the Prospectus for the year ended August 31, 1997.
Change of Majority Ownership
Effective May 31, 1998, various Company shareholders entered into share
exchange agreements ("Exchange Agreements") with Aviation Holdings Group, Inc.
(formerly EYEQ Networking, Inc.) ("AHGI"). Under the Exchange Agreements, one
share of AHGI's common stock was exchanged for between 1.667 to 2.5 shares of
the Company's common stock depending on the terms of the underlying agreement.
AHGI also purchased a block of 80,000 shares of the Company's common stock from
a stockholder for $100,000. Through these exchanges and the purchase, AHGI
acquired 2,016,280 shares (60.98%) of the Company's issued and outstanding
common stock as of May 31, 1998.
Additional Exchange Agreements were executed in June and July 1998. As of
September 30, 1998, AHGI had acquired an aggregate of 2,468,080 shares (74.08%)
of the Company's issued and outstanding common stock.
This interim consolidated financial data is presented as of the most
recent fiscal quarter of the Company coinciding with the change of ownership.
Subsequent operations are consolidated in the AHGI financial statements. The
acquisition has been accounted for as a purchase by AHGI.
NOTE 2 -- ACQUISITIONS AND MERGERS
Effective February 12, 1998, the Company entered into a stock purchase
agreement (the "Purchase Agreement") with PASCO International Aviation Corp., a
Florida corporation ("PASCO Florida"), PASCO International Aviation Corporation
Limited, a Hong Kong corporation ("PASCO HK"), PASCO Financial Services
Limited, a Hong Kong corporation ("PASCO Financial HK"), and Aero-Link Flight
Systems Limited, a Hong Kong corporation ("Aero HK"), and their major
stockholder ("Seller"). (PASCO Florida, PASCO HK, PASCO Financial HK and Aero
HK are hereinafter referred to collectively as "PASCO").
The Seller received 150,000 shares of the Company's common stock, entered
into a three-year employment contract with the Company (see Note 4), and
retained primarily all of the operating tangible assets and liabilities of the
acquired companies. An interest in a joint venture owned by PASCO and a
corresponding liability that were approximately equivalent in value were
transferred to the Company under the terms of the Purchase Agreement.
The acquisition was apportioned as follows:
The Company acquired 90% of the outstanding common stock of PASCO HK in
exchange for 40,000 shares of the Company's common stock. PASCO HK operations
consist of purchasing, selling and leasing of aircraft components and engines
in Asia and the Pacific Rim.
F-45
<PAGE>
AVIATION HOLDINGS INTERNATIONAL, INC
Notes to Interim Financial Statements -- (Continued)
NOTE 2 -- ACQUISITIONS AND MERGERS -- (Continued)
The Company acquired 100% of the outstanding common stock of PASCO
Florida in exchange for 100,000 shares of the Company's common stock. PASCO
Florida holds a 25% interest in Shenyang Northern Aircraft Maintenance &
Engineering Co., Ltd., a Sino-American joint venture (SYNOR-A) (see Note
3). The Seller retained a 22% interest in future distributions to be
received by PASCO Florida after its capital investment is recovered. The
Company recognized minimal revenue from PASCO Florida as of May 31, 1998.
The Company acquired 80% of the outstanding common stock of PASCO
Financial HK in exchange for 1,000 shares of the Company's common stock.
The objective of PASCO Financial HK is to procure financing from banks on
behalf of airlines for their aircraft and aviation-related purchases. PASCO
Financial HK also intends to function on behalf of certain airlines and act
as their agent in connection with the sale or lease of aircraft. The
Company has not recognized any revenue from PASCO Financial HK as of May
31, 1998.
The Company acquired 100% of the outstanding common stock of Aero HK in
exchange for 9,000 shares of the Company's common stock. Aero HK and its
wholly owned subsidiary Aero-Link Flight Systems, Inc., a Florida
Corporation ("AERO Florida"), (collectively, "Aero-Link") have entered into
an agreement to act as the global marketing representative (except the
Taiwan region) for China Airlines, Taiwan. In this capacity they are
responsible for promoting and marketing China Airlines' aircraft
maintenance, turbine engine and component repair and overhaul business.
AERO Florida also functions as a purchasing agent in the United States on
behalf of PASCO HK.
All of the aforementioned acquisitions have been accounted for as
purchases, and all operations have been included in the accompanying
consolidated financial statements since the date of the acquisitions.
The Seller assigned inventory to the Company as partial payment for common
stock purchased by the Seller (see Note 6). The Company was responsible for
collecting the pre-purchase receivables of PASCO and applying those proceeds
against the pre-purchase payables of PASCO, a stock subscription payable to the
Company on behalf of the Seller (see Note 6) and the balance to an assumed
Seller obligation.
NOTE 3 -- JOINT VENTURE
SYNOR-A is a Sino-American Joint venture company which was established in
November 1997 by PASCO Florida and China Northern Airlines ("CNA") under the
terms of an eleven-year agreement. PASCO Florida holds a twenty-five percent
interest in SYNOR-A and CNA holds the remaining 75% interest. SYNOR-A primarily
deals with inspection, repair and recertification of DC9, MD80, and A300-600
components, instruments and avionics. SYNOR-A has been approved by the Civil
Aviation Administration of China in the avionics accessories repair field. In
November 1997, SYNOR-A received the licenses necessary to commence operations.
Operations commenced in March 1998. The term of the joint venture arrangement
is eleven years. The Company reflects this investment on its financial
statements using the equity method of accounting.
PASCO Florida's total financial investment commitment to SYNOR-A is
$1,000,000. As of May 31, 1998, the Company had funded $208,332 of this
commitment. Under the terms of the joint venture, PASCO Florida is entitled to
certain preferences in any distributions of the net income of SYNOR-A. This
distribution preference is effectively intended to provide that PASCO Florida
recovers its investment in SYNOR-A prior to any regular distributions being
made to CNA. PASCO Florida's role in SYNOR-A is to provide technological advice
to SYNOR-A and promote, market and sell the services of SYNOR-A. The Company
has recognized minimal revenue from SYNOR-A as of May 31, 1998.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
Effective May 31, 1998, the President of the Company entered into an
employment agreement with AHGI to serve as President and Chief Executive
Officer of AHGI ("CEO"). In accordance with the
F-46
<PAGE>
AVIATION HOLDINGS INTERNATIONAL, INC
Notes to Interim Financial Statements -- (Continued)
NOTE 4 -- COMMITMENTS AND CONTINGENCIES -- (Continued)
employment agreement the CEO also became a director of AHGI. The agreement
reaffirms debt obligations of the CEO to the Company which were initiated under
a prior agreement in connection with the purchase of common stock. The term of
the employment agreement is three years and may be extended on a month to month
basis thereafter. In addition to base compensation, the CEO is entitled to a
bonus arrangement based upon a percentage of pretax income. In addition, the
CEO was granted options to purchase 200,000 shares of AHGI's common stock at an
exercise price of $2.50 per share. All of these options are vested and expire
five years from the effective date of the new employment agreement.
Effective February 14, 1998, in conjunction with the Purchase Agreement,
the Seller, PASCO's majority shareholder, entered into an employment agreement
with the Company to serve as Vice President. In accordance with the employment
agreement, the Seller also became a director of the Company. Duties include
responsibility for and oversight of the Company's operations in Asia and the
Pacific Rim. The term of the employment agreement, which includes base
compensation and a bonus as defined in the agreement, is three years and may be
extended on a month-to-month basis thereafter. The agreement requires one-half
of the bonus in excess of $25,000 earned annually to be applied as a reduction
of the outstanding balance of the Seller's obligation under a three-year
promissory note dated February 12, 1998 (see Note 6). The Seller was granted
options to purchase 15,000 shares of the Company's common stock at an exercise
price of $2.50 per share. One-third of these options vest annually over a
three-year period beginning February 14, 1999 and expire five years from the
date of grant.
NOTE 5 -- SALES TO MAJOR CUSTOMERS
The Company sells, leases and exchanges spare parts for fixed-wing
commercial jet transport aircraft to foreign and domestic customers.
The information with respect to revenue, by geographic area, is presented
in the table below for the period from October 3, 1996 (inception) through May
31, 1997 and for the nine months ended May 31, 1998.
May 31,
-------------------------------
1997 1998
-------------- --------------
United States .................. $ 2,185,179 $ 6,317,145
Africa and Middle East ......... 33,869 47,595
Europe ......................... 421,104 1,332,712
Latin America .................. 9,520 73,925
Asia ........................... 994,399 2,069,628
----------- -----------
Total ....................... $ 3,644,071 $ 9,841,005
=========== ===========
For the period October 3, 1996 (inception) through May 31, 1997, AHI had
sales to three customers of $840,850, $618,530 and $377,201, respectively, of
more than ten percent of total revenues. For the nine months ended May 31,
1998, AHI had sales to one customer in the amount of $2,195,000 that accounted
for more than twenty percent of total revenues.
NOTE 6 -- STOCK SUBSCRIPTIONS RECEIVABLE
On February 12, 1998, the Company issued 160,000 shares of common stock to
the Seller in exchange for two promissory notes aggregating $365,000 and the
assignment from PASCO of inventory valued at $35,000. One of the notes received
by the Company was a three-month non-interest bearing promissory note for
$165,000 which had recourse against the personal assets of the Seller
("Recourse Note"). The Recourse Note was paid in full prior to May 31, 1998.
The other note is a three-year promissory note for $200,000 which bears
interest at 8.5% and is secured solely by 80,000 shares of the Company's common
stock ("Nonrecourse Note"). The shares of common stock which have been pledged
as security are held in escrow in accordance with a stock pledge agreement
dated February 12, 1998. The Nonrecourse Note remained outstanding at September
30, 1998.
F-47
<PAGE>
AVIATION HOLDINGS INTERNATIONAL, INC
Notes to Interim Financial Statements -- (Continued)
NOTE 6 -- STOCK SUBSCRIPTIONS RECEIVABLE -- (Continued)
The Company was responsible to collect all of the pre-purchase accounts
receivable of PASCO on behalf of the Seller. A portion of these funds,
amounting to $165,000, was used to pay the principal due on the Recourse Note
prior to May 31, 1998.
The Company recorded interest income on outstanding stock subscription
receivables of approximately $8,700 for the nine months ended May 31, 1998 and
$3,156 for the period October 3, 1996 through May 31, 1997. As of May 31, 1998
and 1997, accrued interest receivable on subscription receivables was $13,045
and $3,156, respectively.
NOTE 7 -- CONCENTRATIONS OF CREDIT RISK INVOLVING CASH
During the periods presented in these financial statements, the Company
maintained cash balances in excess of the Federal Deposit Insurance Corporation
(FDIC) insured limits. At May 31, 1998, the amount of funds that exceeded FDIC
insurance was $297,745. The Company also maintained funds in banks that were
not FDIC insured. At May 31, 1998 and 1997 the Company maintained balances of
$367,067 and $176,389, respectively in Israel Discount Bank Limited, an
international bank that operates in the United States under the Edge Act. The
Company does not believe a significant risk existed in having the balances in
excess of the FDIC-insured limit.
During the period from February 12, 1998 through May 31, 1998, PASCO HK
maintained bank accounts in Hong Kong with the Kwong On Bank, Limited. The
accounts were denominated in US Dollars, Hong Kong Dollars and German Deutsche
Marks. None of the accounts were FDIC insured. During the period, the accounts
denominated in foreign currencies and the effects of translation of foreign
currency accounts into US dollars were immaterial.
NOTE 8 -- FLIGHT SIMULATOR AND SUPPORT PACKAGE
In 1998, the Company changed its sales strategy regarding a flight
simulator maintained in inventory. Instead of selling the simulator as a
complete unit, the Company decided to sell the individual components of the
unit. In conjunction with this change in strategy, the Company has taken a
charge against income of $335,000 during the nine-month period ended May 31,
1998 in order to reflect the decrease in market value of the avionics and the
structure as spare parts.
NOTE 9 -- LONG TERM DEBT
In February 1998, the Company purchased a delivery van. The Company
financed the purchase through a five-year note with General Motors Acceptance
Corporation having an interest rate of 5.9% and monthly payments of $371. As of
May 31, 1998 the balance of the note was $18,666.
NOTE 10 -- LEASED EQUIPMENT
Commencing on May 20, 1998, the Company leased a flight computer with a
cost of $129,000 to a customer. The lease term was for four months. Payments on
the lease amounted to $9,000 per month and the equipment was returned by the
customer on September 20, 1998. The Company temporarily reclassified the leased
item from inventory to property and equipment and depreciated the computer
using the straight-line method over a five-year life during the term of the
lease.
NOTE 11 -- STOCK OPTION PLAN
Effective September 1, 1997 the Company adopted a qualified incentive
stock option and stock appreciation rights plan that has a term of ten years. A
maximum of 750,000 shares of common stock may be issued under the plan to any
employee or consultant of the Company or any of its subsidiaries. The option
price, the number of shares, the grant date and the vesting are determined at
the discretion of the Company's
F-48
<PAGE>
AVIATION HOLDINGS INTERNATIONAL, INC
Notes to Interim Financial Statements -- (Continued)
NOTE 11 -- STOCK OPTION PLAN -- (Continued)
Board of Directors. Options granted under the plan are generally exercisable
for a period not to exceed ten years. Upon termination, an employee has three
months to exercise any vested options. If any individual or entity acquires an
eighty percent interest in the voting classes of stock of the Company, the plan
automatically terminates.
The Company has elected to account for the stock option plan under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. Accordingly, no compensation expense
has been recognized for the stock options issued.
Following is a summary of option transactions during the nine months ended
May 31, 1998:
Weighted
Number Average
of Exercise
Shares Price
------------ -----------
Outstanding at September 1, 1997 ......... 0
Granted .................................. 234,750 $ 2.50
Exercised ................................ 0
Canceled ................................. (40,000) $ 2.50
------- -------
Outstanding at May 31, 1998 .............. 194,750 $ 2.50
======= =======
Shares Available for Grant ............... 555,250
=======
The following table summarizes information about fixed stock options
outstanding at May 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Exercise of Outstanding Contractual Exercise of Exercise
Price Options Life Price Options Price
- --------------- ---------------- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
$ 2.50 194,750 9.67 $ 2.50 166,500 $ 2.50
======= =======
</TABLE>
The Company subsequently amended and restated this plan, and all active
participants became included in the stock option plan of AHGI. The options to
acquire the Company's stock, outstanding at the time of the restatement, were
replaced by options to acquire AHGI Company stock on a share-for-share basis.
NOTE 12 -- INTANGIBLES
The resulting goodwill from the purchase of the PASCO entities is being
amortized on a straight-line basis over 15 years.
NOTE 13 -- SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash was paid for the following items as follows:
Period Ended May 31,
----------------------
1997 1998
-------- --------
Interest ................................. $ 12,285 $ 27,115
======== ========
Taxes .................................... $ 0 $ 16,200
======== ========
F-49
<PAGE>
AVIATION HOLDINGS INTERNATIONAL, INC
Notes to Interim Financial Statements -- (Continued)
NOTE 13 -- SUPPLEMENTAL CASH FLOW DISCLOSURES -- (Continued)
The Company had the following non-cash transactions:
In October 1996, the Company issued stock in the amount of $625,000 as
consideration for the purchase of inventory.
In October 1996, the Company issued stock in exchange for promissory notes
aggregating $255,000.
In connection with the acquisition of PASCO in February 1998, the Company
issued stock with a value of $375,000 to the Seller. The company issued
additional stock to the Seller in exchange for a promissory note in the amount
of $200,000 and inventory valued at $35,000.
In February 1998, the Company financed the purchase of a delivery van in
the amount of $21,676.
F-50
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated combined
financial statements are based on the historical financial statements of
Aviation Holdings Group, Inc. ("AHGI") and the historical financial statements
of Aviation Holdings International, Inc. ("AHI"), an entity in which AHGI
acquired a majority interest during May 1998 and additional interests in June
and July 1998 and March, April and June 1999 (both entities collectively
referred to as the "Company"). Specifically, the following unaudited pro forma
condensed consolidated combined financial statements present, as if the
acquisition of AHI had been consummated as of January 1, 1998, the pro forma
results of operations of the Company for the six months ended June 30, 1999 and
for the year ended December 31, 1998. The information presented is derived
from, should be read in conjunction with, and is qualified in its entirety by
reference to, the separate historical financial statements and the notes
thereto appearing elsewhere in this Prospectus/SB2 or incorporated elsewhere in
this Prospectus/SB2 by reference. The unaudited pro forma condensed combined
financial data has been included for comparative purposes only and does not
purport to be indicative (i) of the results of operations or financial position
which actually would have been obtained if the AHI acquisition had been
effected at January 1, 1998 or (ii) of the financial position or results of
operations which may be obtained in the future.
The post-acquisition results of operations of AHI have been included in
the historical operations of the Company. Pro forma adjustments to record the
preacquisition results of operations of AHI are included in the accompanying
pro forma financial information.
P-1
<PAGE>
AVIATION HOLDINGS GROUP, INC
Pro Forma Condensed Consolidated Combined Statement of Operations
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Aviation
Aviation Holdings
Holdings International As
Group, Inc. Inc. Adjustments Restated
--------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Net Sales ....................................... $ 0 $14,201,107 -- $ 14,201,107
Cost of Goods Sold .............................. -- 10,972,724 -- 10,972,724
------------ ----------- ---------- ------------
Gross Profit .................................... 0 3,228,383 -- 3,228,383
Operating Expenses
Salaries and wages ............................ 380,328 1,340,879 -- 1,721,207
General and administrative .................... 709,872 1,602,965 -- 2,312,837
Professional fees ............................. 283,734 315,010 -- 598,744
------------ ----------- ---------- ------------
Total Operating Expenses ........................ 1,373,934 3,258,854 -- 4,632,788
------------ ----------- ---------- ------------
Loss from Operations ............................ (1,373,934) (30,471) -- (1,404,405)
Other (Expense) Income
Interest expense .............................. (65,391) (29,067) -- (94,458)
Interest income ............................... 54,472 28,888 -- 83,360
Loss from joint venture ....................... -- (5,290) -- (5,290)
------------ ----------- ---------- ------------
Total Other Expense ............................. (10,919) (5,469) -- (16,388)
------------ ----------- ---------- ------------
Loss Before Income Taxes and Minority
Interest ....................................... (1,384,853) (35,940) -- (1,420,793)
Income Tax Expense .............................. (8,893) (115,615) -- (124,508)
------------ ----------- ---------- ------------
Loss Before Minority Interest ................... (1,393,746) (151,555) -- (1,545,301)
Minority Interest ............................... -- -- 5,759 5,759
------------ ----------- ---------- ------------
Net Loss ........................................ $ (1,393,746) $ (151,555) $5,759 $ (1,539,542)
============ =========== ========== ============
Basic and Diluted Loss Per Common Share ......... $ (0.38)
============
Weighted Average Number of Common Shares
Outstanding .................................... 4,068,047
============
</TABLE>
The accompanying notes are an integral part of this unaudited
pro forma condensed consolidated combined statement of operations.
P-2
<PAGE>
AVIATION HOLDINGS GROUP, INC
Pro Forma Condensed Consolidated Combined Statement of Operations
For the Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Aviation
Aviation Holdings
Holdings International As
Group, Inc. Inc. Adjustments Restated
------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales ...................................... $ -- $6,371,942 -- $6,371,942
Cost of Goods Sold ............................. -- 4,253,559 -- 4,253,559
---------- ---------- --------- ----------
Gross Profit ................................... -- 2,118,383 -- 2,118,383
Operating Expenses
Salaries and wages ........................... -- 646,019 -- 646,019
General and administrative ................... 33,715 964,666 -- 998,381
Professional fees ............................ 2,894 125,438 -- 128,332
---------- ---------- --------- ----------
Total Operating Expenses ....................... 36,609 1,736,123 -- 1,772,732
---------- ---------- --------- ----------
Income (Loss) from Operations .................. (36,609) 382,260 -- 345,651
Other (Expense) Income
Interest expense ............................. (372,024) (77,281) -- (449,305)
Interest income .............................. -- 15,492 -- 15,492
Income from joint venture .................... -- 19,651 -- 19,651
---------- ---------- --------- ----------
Total Other Expense ............................ (372,024) (42,138) -- (414,162)
---------- ---------- --------- ----------
Income (Loss) Before Income Taxes
and Minority Interest ......................... (408,633) 340,122 -- (68,511)
Income Tax Expense ............................. -- (49,000) -- (49,000)
---------- ---------- --------- ----------
Income (Loss) Before Minority Interest ......... (408,633) 291,122 -- (117,511)
Minority Interest .............................. -- -- (11,063) (11,063)
---------- ---------- --------- ----------
Net Income (Loss) .............................. $ (408,633) $ 291,122 $ (11,063) $ (128,574)
========== ========== ========= ==========
Earnings Per Common Share ...................... $ (0.03)
==========
Weighted Average Number of Common Shares
Outstanding ................................... 4,165,884
==========
</TABLE>
The accompanying notes are an integral part of this unaudited
pro forma condensed consolidated combined statement of operations.
P-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(1) The unaudited pro forma information for the year ended December 31, 1998
and for the six months ended June 30, 1999 has been prepared using the
hypothetical assumption that the acquisition of 96% of the outstanding
stock of AHI occurred as of January 1, 1998. A 61% majority interest in
AHI was acquired through various share exchange agreements and a block
purchase of common stock in May 1998. Additional exchange agreements were
executed in June and July 1998 and March, April and June 1999 which
increased the ownership percentage of AHI to 96%. These transactions have
been accounted for as a purchase.
(2) This presentation assumes that the issuance of approximately 1,711,315
shares of AHGI's common stock, exchanged in the acquisition, were
exchanged at January 1, 1998 instead of at the time of the acquisitions in
1998 and 1999.
(3) There were no intercompany sales during the periods presented. All
intercompany transactions have been eliminated.
(4) Outside interests have been recorded as minority interest.
P-4
<PAGE>
===============================================================================
No dealer, salesman or any other person has been authorized in
connection with this offering to give any information or to make
representations other than those contained in this prospectus. This prospectus
does not constitute an offer or a solicitation in any jurisdiction to any
person to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
circumstances, create an implication that there has been no change in the
circumstances of the Company or the facts herein set forth since the date
hereof.
-----------------------------------
Until _________, 1999 (90 days after the date of this prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
===============================================================================
<PAGE>
===============================================================================
750,000 Units, each Unit Consisting of
Two Shares of Common Stock
and One Class A Warrant
-----------------------------------
AVIATION HOLDINGS
GROUP, INC.
-----------------------------------
PROSPECTUS
-----------------------------------
________, 1999
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Section 145 of the Delaware General Corporation Law permits a
corporation to include in its charter documents, and in agreements between the
corporation and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Our bylaws provide for the indemnification of officers, directors and
third parties acting on behalf of the Company if such person acted in good faith
and in a manner reasonably believed to be in and not opposed to our best
interest and, with respect to any criminal action or proceeding, the indemnified
party had no reason to believe his conduct was unlawful.
We intend to enter into indemnification agreements with our directors
and executive officers in addition to the indemnification provided for in our
bylaws, and intend to enter into indemnification agreements with any new
directors and executive officers in the future.
The form of Underwriting Agreement filed as an Exhibit hereto provides
for the indemnification of our directors and officers in certain circumstances
as provided therein.
We intend to procure insurance, which would afford officers and
directors insurance coverage for losses arising from claims based on breaches of
duty, negligence, error and other wrongful acts, including liabilities under the
Securities Act.
Pursuant to Section 607.0850 of the Florida Business Corporation Act,
Aviation Holdings International has the power to indemnify directors, officers,
employees or agents. Aviation Holdings International's Articles of Incorporation
and Bylaws provide for indemnification of directors and officers. In addition,
Aviation Holdings International's executive officers and directors have entered
into agreements with the Aviation Holdings International which also indemnifies
them for certain acts and omissions.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with the issuance of the
securities being registered are as follows:
SEC Registration Fee..............................$ 1,950
Printing Expenses.................................. 50,000
Accounting Fees and Expenses........................350,000
Legal Fees and Expenses............................ 250,000
Blue Sky Fees and Expenses........................ 10,000
Transfer Agent and Registrar Fees and Expenses.... 5,000
Miscellaneous...................................... 15,000
Total.....................................$681,950
========
All amounts, except the SEC registration fee, are estimated.
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
The Company
The following sets forth all sales of unregistered securities during
the past three years by Aviation Holdings Group, Aviation Holdings International
and its predecessors:
In August 1997, EyeQ Networking, Inc. issued 1,000,000 shares of its
common stock to John D. Basher, Jr., pursuant to Rule 701 promulgated under the
Securities Act as payment of professional services rendered to the Company by
Mr. Basher.
In December 1997, EyeQ Networking, Inc. issued 800,000 shares of its
common stock to nine accredited investors pursuant to Rule 504 promulgated under
the Securities Act in return for $1,000,000 less $40,000 in investment banking
fees.
In May, June and July 1998, EyeQ Networking, Inc. issued 1,095,815
shares of its common stock to 25 shareholders of Jet Aviation Trading, Inc.
pursuant to Rule 506 promulgated under the Securities Act in consideration of
the receipt of 2,468,080 shares of common stock of Jet Aviation Trading, Inc.
Each of the shareholders of Jet Aviation Trading, Inc. who participated in the
transaction made representations stating that he or she was an "accredited
investor" (as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act).
On August 1, 1998, we issued 4,000 shares of its common stock to Joseph
J. Nelson pursuant to Section 4(2) of the Securities Act as consideration for
services rendered.
In October, 1998, we issued a $200,000 promissory note and 20,000
shares of its common stock to Nancy Plotkin, and a $50,000 promissory note and
5,000 shares of its common stock to the John G. Jacobs Trust, in consideration
of loans totaling $250,000, pursuant to Rule 506 promulgated under the
Securities Act. In May 1999 we extended the maturity date of these promissory
notes to July 14, 1999 and issued a warrant to purchase 12,000 shares of common
stock to Nancy Plotkin and a warrant to purchase 3,000 shares of common stock to
the John G. Jacobs Trust as consideration for this extension. The warrants are
exercisable for three years from the date of grant at an exercise price of $4.00
per share. In July 1999, we extended the maturity date of these promissory notes
to September 17, 1999 and issued 4,800 shares of common stock to Nancy Plotkin
and 1,200 shares of common stock to the John G. Jacobs Trust.
On March 3, 1999, we issued 500,000 shares of its common stock and a
warrant to purchase an additional 100,000 shares of the common stock at an
exercise price of $3.75 per share, to Argaman, Inc. under Section 4(2) of the
Securities Act in exchange for 600,000 shares of Aviation Holdings International
common stock.
In March 1999, we issued 118,000 shares of common stock to five
accredited investors pursuant to Rule 506 promulgated under the Securities Act
in exchange for $295,000.
In April and June, 1999 we issued 115,500 shares of common stock to
thirteen shareholders of Aviation Holdings International pursuant to Rule 506
under the Securities Act in consideration of the receipt of 137,500 shares of
Aviation Holdings International common stock. Each Aviation Holdings
International shareholder participating in the transaction represented, and we
determined, that he or she was an "accredited investor."
II-2
<PAGE>
Aviation Holdings International
The following sets forth all sales of unregistered securities during
the past three years by Aviation Holdings International or its predecessors:
In connection with the initial capitalization of Jet Aviation Trading,
Inc. in October and November of 1996, Jet Aviation Trading, Inc. issued a total
of 1,200,000 shares of its common stock for a total consideration of $780,000
consisting of $125,000 in cash, $255,000 in promissory notes and $400,000 in
non-cash compensation expense. The seven investors consisted of six business
entities and one individual, and all of the seven investors made representations
regarding their status as accredited investors.
On December 31, 1996, Jet Aviation Trading, Inc. issued 10,000 shares
of its common stock to William Seidle pursuant to Section 4(2) of the Securities
Act in return for spare parts that became part of the inventory of Jet Aviation
Trading, Inc.
In February and March 1997, Jet Aviation Trading, Inc. issued an
aggregate of 292,000 shares of its common stock to eleven accredited investors
pursuant to Rule 506 promulgated under the Securities Act for an aggregate
consideration of $730,000 in cash, less $33,691 paid as broker-dealer costs in
connection with the offering.
On March 14, 1997, Jet Aviation Trading, Inc. issued 40,000 shares of
its common stock to Fersam International Ltd. ("Fersam") in return for inventory
consisting of a one-half interest in certain flight-simulation equipment. On
March 28, 1997, Jet Aviation Trading, Inc. issued 200,000 shares of its common
stock to Fersam in return for computer software and training materials to be
used in connection with aforementioned flight-simulation equipment. On June 2,
1997, Jet Aviation Trading, Inc. issued 20,000 shares of common stock to Fersam
in return for $50,000 in cash. All of the issuances to Fersam were made pursuant
to Section 4(2) of the Securities Act.
On June 2, 1997, Jet Aviation Trading, Inc. issued 14,800 shares of its
common stock to Silvertown International Corp. ("Silvertown") pursuant to
Section 4(2) of the Securities Act as an inducement for loans made by Silvertown
to Jet Aviation Trading, Inc.
In June and July 1997, Jet Aviation Trading, Inc. (i) issued an
aggregate of 47,200 shares of its common stock to 99 investors pursuant to Rule
504 promulgated under the Securities Act for an aggregate consideration of
$118,000 in cash and payment of certain professional fees, (ii) issued 100,000
shares of its common stock to FAC Enterprises pursuant to Section 4(2) of the
Securities Act in repayment of a $250,000 loan and 7,500 shares to FAC
Enterprises as consulting fees, and (iii) issued 150,000 shares of its common
stock to Fersam International, Ltd. pursuant to Section 4(2) of the Securities
Act as payment for inventory previously held on consignment for Fersam
International, Ltd.
On August 29, 1997, Jet Aviation Trading, Inc. issued (i) 80,000 shares
of its common stock to Jet Avionics Systems, Inc. in return for spare parts
inventory, (ii) 250,000 shares of its common stock to Joseph Laura in repayment
of a $500,000 loan and (iii) 185,000 shares of its common stock to Silvertown in
repayment of $370,000 of outstanding notes. Each of the issuances was made
pursuant to Section 4(2) of the Securities Act.
On June 1, 1997, Jet Aviation Trading, Inc. issued warrants to purchase
950,000 shares of common stock to the D.A.R. Group and warrants to purchase
50,000 shares of its common stock to Dallas Investment Group in return for
certain services. These issuances were made pursuant to Section 4(2) of the
Securities Act.
On February 12, 1998, Aviation Holdings International issued 150,000
shares of its common stock to Simon Chiang pursuant to Section 4(2) of the
Securities Act in exchange for the outstanding capital stock in various
companies owned by Simon Chiang, and issued 160,000 shares to Mr. Chiang in
exchange for inventory valued at $35,000 and two promissory notes totaling
$365,000.
II-3
<PAGE>
On June 11, 1998, Aviation Holdings International issued 25,000 shares
of its common stock to Joseph F. Janusz pursuant to Section 4(2) of the
Securities Act as consideration for services rendered.
In connection with the initial capitalization of Schuylkill Acquisition
Corp. (which later merged with Jet Aviation Trading, Inc. and changed its name
to "Jet Aviation Trading, Inc.") in May 1997, Schuylkill Acquisition Corp.
issued an aggregate of 400,000 shares of its common stock to four accredited
investors for an aggregate consideration of $400 in cash and $999,600 in
non-cash compensation expense.
No Commissions or other remuneration was paid in connection with the
above described sales of common stock.
Item 27. Exhibits.
<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 (a) Certificate of Incorporation, as amended*
(b) Articles of Merger or Share Exchange*
(c) Certificate of Ownership and Merger*
(d) Certificate of Amendment*
3.2 Bylaws of the Company, as amended to date*
4.1 Form of Common Stock Certificate*
4.2 Form of Class A Warrant*
4.3 Warrant Agreement*
4.4 Deposit Agreement*
4.5 Plotkin Warrant*
4.6 Jacobs Warrant*
4.7 D.A.R. Group Warrant*
4.8 Dallas Investments Warrant*
5.1 Opinion of Klehr, Harrison, Harvey, Branzburg & Ellers LLP*
10.1 1999 Stock Option Plan*
10.2 Employment Agreement of Joseph J. Nelson*
10.3 Employment Agreement of Simon Chiang*
10.4 Lease for Company Headquarters*
10.5 Share Exchange Agreements
(a) Share Exchange Agreement between The D.A.R. Group and EYEQ Networking, Inc.*
(b) Share Exchange Agreement between The Eastwind Group, Inc. and EYEQ Networking, Inc.*
(c) Share Exchange Agreement between KAB Investments, Inc. and EYEQ Networking, Inc.*
(d) Share Exchange Agreement between Godwin Finance Ltd. and EYEQ Networking, Inc.*
(e) Share Exchange Agreement between Clifton Capital Ltd. and EYEQ Networking, Inc.*
(f) Share Exchange Agreement between Elanken Family Trust and EYEQ Networking, Inc.*
(g) Share Exchange Agreement between Joseph Laura and EYEQ Networking, Inc.*
(h) Share Exchange Agreement between Dallas Investments, Ltd. and EYEQ Networking, Inc.*
(i) Share Exchange Agreement between Joseph Nelson and EYEQ Networking, Inc.*
(j) Share Exchange Agreement between Fersam International Ltd. and EYEQ Networking, Inc.*
(k) Share Exchange Agreement between I.P. Services Inc. and EYEQ Networking, Inc.*
(l) Share Exchange Agreement between Discretionary Investment Trust dated 7/7/93 and EYEQ Networking, Inc.*
(m) Share Exchange Agreement between Brian Due and EYEQ Networking, Inc.*
(n) Share Exchange Agreement between Bill Seidle and EYEQ Networking, Inc.*
(o) Share Exchange Agreement between Leonard Bloom and EYEQ Networking, Inc.*
(p) Share Exchange Agreement between Sheng Kuang Chiang and EYEQ Networking, Inc.*
(q) Share Exchange Agreement between Bing Ju Chiang and EYEQ Networking, Inc.*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(r) Share Exchange Agreement between Impact Investment Company, Ltd. and EYEQ Networking, Inc.*
(s) Share Exchange Agreement between Silvertown International Corp. and EYEQ Networking, Inc.*
(t) Share Exchange Agreement between Janet and Robert Weinstein and EYEQ Networking, Inc.*
(u) Share Exchange Agreement between Amaury Borges and EYEQ Networking, Inc.*
(v) Share Exchange Agreement between SPH Equities, Inc. and EYEQ Networking, Inc.*
(w) Share Exchange Agreement between Bella Shrem and EYEQ Networking, Inc.*
(x) Share Exchange Agreement between Mustang Electronics Inc. Affiliated Defined Benefits Pension Plan and EYEQ
Networking, Inc.*
(y) Share Exchange Agreement between Gary Cunningham and EYEQ Networking, Inc.*
(z) Share Exchange Agreement between Ron Halper and EYEQ Networking, Inc.*
(aa) Share Exchange Agreement between John Hunter and EYEQ Networking, Inc.*
(bb) Share Exchange Agreement between Eugene Savonen and EYEQ Networking, Inc.*
(cc) Share Exchange Agreement between William Voohees and EYEQ Networking, Inc.*
(dd) Share Exchange Agreement between Arthur Lucchesi and EYEQ Networking, Inc.*
(ee) Share Exchange Agreement between Gerard Bartolomeo and EYEQ Networking, Inc.*
(ff) Share Exchange Agreement between Neal Erps and EYEQ Networking, Inc.*
(gg) Share Exchange Agreement between Tor Osmundsen and EYEQ Networking, Inc.*
(hh) Share Exchange Agreement between James Catania and EYEQ Networking, Inc.*
(ii) Share Exchange Agreement between Legal America of Virginia, Ltd. and EYEQ Networking, Inc.*
(jj) Share Exchange Agreement between Joseph Janusz and EYEQ Networking, Inc.*
(kk) Share Exchange Agreement between Rozel International Holdings, Ltd. and EYEQ Networking, Inc.*
10.6 (a) Share Purchase Agreement with Argaman, Inc.*
(b) Argaman, Inc. Stock Purchase Warrant*
10.7 (a) Plotkin Promissory Note*
(b) Collateral Pledge Agreement*
(c) Plotkin Securities Transfer Agreement*
(d) Plotkin Stock Purchase Agreement*
10.8 (a) Jacobs Promissory Note*
(b) Jacobs Securities Transfer Agreement*
(c) Jacobs Stock Pledge Agreement*
10.9 (a) Amended and Restated Comerica Bank Credit Agreement dated September 1, 1999
(b) Comerica Bank Master Revolving Note dated September 1, 1999
(c) Comercia Guaranty dated September 1, 1999 with Aviation Holdings Group, Inc.
(d) Comercia Guaranty dated September 1, 1999 with Pasco Int'l Aviation Corp., Aero-Link Flight Systems, Inc.,
Aero-Link Flight Systems Limited and Pasco Financial Services Limited
(e) Comerica Bank Security Agreement dated August 12, 1998 with Aviation Trading, Inc.*
(f) Advance Formula Agreement dated August 12, 1998*
(g) Comercia Bank Security Agreement dated as of September 1, 1999 with Aviation Holdings Group, Inc.
(h) Comercia Bank Security Agreement dated as of September 1, 1999 with Aero-Link Flight Systems, Inc.
(i) Comercia Bank Security Agreement dated as of September 1, 1999 with Aero-Link Flight Systems Limited
(j) Comercia Bank Security Agreement dated as of September 1, 1999 with Pasco Financial Services Limited
(k) Comercia Bank Security Agreement dated as of September 1, 1999 with Pasco Int'l Aviation Corp.
10.10 (a) Consignment Agreement*
(b) Consignment, Cancellation and Purchase Agreement*
10.11 Indemnity Agreement with Directors and Officers*
10.12 Consulting Agreement*
10.13 Simulator Purchase Agreement*
10.14 Purchase Agreement*
10.15 Stock Purchase Agreement among Jet Aviation Trading, Inc., PASCO International Aviation Corp., et al.*
10.16 Form of Lock-up Agreement**
10.17 Employment Agreement with Joseph J. Janusz
10.18 Cooperative Agreement between PASCO International Aviation Corporation, Inc. and China Northern Airlines*
10.19 Consignment Contract between Jet Aviation Trading, Inc. and Fersam International, Ltd. dated December 1, 1996*
10.20 Manufacturers Representative Agreement with Mirandy Products, Ltd. dated January 27, 1997*
10.21 Sales Representation Agreement between Aviation Holdings International, Inc. and Accessory Technologies
Corporation dated January 1, 1995*
10.22 Sales Representation Agreement between Aviation Holdings International at Aero Kool Corporation dated January 1,
1999*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.23 Sales Representation Agreement between Aviation Holdings International and AAS Landing Gear Services, inc. dated
April 1, 1999*
10.24 Agreement between Aero-Link Flight Systems Corp. Ltd. and China Airlines*
10.25 Modification of Employment Agreement for Simon Chiang*
11 Computation of Net Loss Per Share*
21.1 Subsidiaries of the Company*
23.1 Consent of Klehr, Harrison, Harvey, Branzburg & Ellers LLP (included in Exhibit 5.1)
23.2 Consent of LJ Soldinger Associates
27 Financial Data Schedule
</TABLE>
- --------------
* Previously Filed
Item 28. Undertakings.
The undersigned registrant hereby undertakes that it will:
(1) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(2) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(3) Provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
(4) Treat the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the undersigned under Rule 424(b)(1), or (4), or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the undersigned of expenses incurred or paid by a
director, officer or controlling persons of the undersigned in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
undersigned will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Miami, State of Florida on this 10th day of
December, 1999.
AVIATION HOLDINGS GROUP, INC.
By: JOSEPH J. NELSON
--------------------------------------
Joseph J. Nelson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
JOSEPH J. NELSON President and Chief Executive December 10, 1999
- ------------------------------------- Officer, Director
Joseph J. Nelson (Principal Executive Officer)
JOSEPH F. JANUSZ Vice President and Chief Financial December 10, 1999
- ------------------------------------ Officer
Joseph F. Janusz (Principal Accounting and
Financial Officer)
SIMON CHIANG* Vice President and Director December 10, 1999
- ------------------------------------
Simon Chiang
MICHAEL J. CIRILLO* Director December 10, 1999
- ------------------------------------
Michael J. Cirillo
THEODORE H. GREGOR* Director December 10, 1999
- ------------------------------------
Theodore H. Gregor
*By JOSEPH J. NELSON December 10, 1999
---------------------------------
Joseph J. Nelson
Attorney-in-fact
</TABLE>
II-7
<PAGE>
Exhibit 10.9(a)
- -------------------------------------------------------------------------------
AMENDED AND RESTATED
CREDIT AGREEMENT
DATED AS OF SEPTEMBER 1 , 1999
COMERICA BANK
- -------------------------------------------------------------------------------
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement, made as of the 1 day of
September, 1999, by and between Aviation Holdings Int'l, Inc., a Florida
corporation formerly known as Jet Aviation Trading, Inc., (herein called
"Borrower") and COMERICA BANK, a Michigan banking corporation, of Detroit,
Michigan (herein called "Bank");
RECITALS:
A. Bank and Borrower entered into a Credit Agreement dated as of August
12, 1998 (the "Existing Credit Agreement").
B. Bank and Borrower wish to amend the Existing Credit Agreement in its
entirety as provided herein.
NOW, THEREFORE, the Bank and Borrower agree as follows:
WITNESSETH:
1. DEFINITIONS
For the purposes of this Agreement the following terms will have the
following meanings:
"Account" shall have the meaning assigned to it in the Michigan Uniform
Commercial Code on the date of this Agreement.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and executive officers of such Person), controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to control a
corporation for the purposes of this definition if such Person possesses,
directly or indirectly, the power (i) to vote 10% or more of the securities
having ordinary voting power for the election of directors of such corporation
or (ii) to direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
"Business Day" shall mean any day on which commercial banks are open
for domestic and international business (including dealings in foreign exchange)
in Detroit, Michigan and Miami, Florida.
<PAGE>
"Capital Expenditure" shall mean, without duplication, any payment made
directly or indirectly for the purpose of acquiring or constructing fixed
assets, real property or equipment which in accordance with GAAP would be added
as a debit to the fixed asset account of a Person, including, without
limitation, amounts paid or payable under any conditional sale or other title
retention agreement or under any lease or other periodic payment arrangement
which is of such a nature that payment obligations of such Person thereunder
would be required by GAAP to be capitalized and shown as liabilities on the
balance sheet of such Person.
"Capital Lease" shall mean any lease of any property (whether real,
personal or mixed) by a Person as lessee which, in conformity with GAAP, is, or
is required to be accounted for as a capital lease on the balance sheet such
Person, together with any renewals of such leases (or entry into new leases) on
substantially similar terms.
"Consolidated" or "Consolidating" shall, when used with reference to
any financial information pertaining to (or when used as a part of any defined
term or statement pertaining to the financial condition of) Borrower and its
Subsidiaries, mean the accounts of Borrower and its Subsidiaries determined on a
consolidated or consolidating basis, as the case maybe, all determined as to
principles of consolidation and, except as otherwise specifically required by
the definition of such term or by such statements, as to such accounts, in
accordance with GAAP.
"Credit Parties" shall mean the Parent, the Borrower, the Borrower's
Subsidiaries and their respective successors.
"Debt" shall mean, as of any applicable date of determination, all
items of indebtedness, obligation or liability of a Person, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, that should be classified as liabilities in
accordance with GAAP.
"Domestic Subsidiary" shall mean any direct or indirect subsidiary of
the Borrower incorporated under the laws of the United States of America, or any
state, territory, possession or other political subdivision thereof
"Environmental Laws" shall mean all federal, state and local laws
including statutes, regulations, ordinances, codes, rules, and other
governmental restrictions and requirements, relating to environmental pollution,
contamination or other impairment of the environment or any hazardous or toxic
substances of any nature. These Environmental Laws shall include but not be
limited to the Federal Solid Waste Disposal Act, the Federal Clean Air Act, the
Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of
1976, the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, and the Federal Superfund Amendments and Reauthorization
Act of 1986.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor act or code.
<PAGE>
"Event of Default" shall mean any of the Events of Default specified in
Section 8 hereof.
"Foreign Account" shall mean an account owing by an account debtor
which (i) does not maintain its chief executive office in the United States of
America, (ii) is not organized under the laws of the United States of America or
any state thereof, or (iii) is the government of any foreign country of
sovereign state, or of any state, province, municipality or other
instrumentality thereof.
"GAAP" shall mean, as of any applicable date of determination,
generally accepted accounting principles consistently applied, as in effect on
the date of this Agreement.
"Guarantor" shall mean any guarantor of any present and/or future
Indebtedness.
"Guaranty" shall mean the Parent Guaranty and any Guaranty of the
Indebtedness executed by any Domestic Subsidiary under Section 5.7A and
"Guaranties" shall mean all of them.
"Indebtedness" shall mean all loans, advances, indebtedness,
obligations and liabilities of Borrower to Bank under this Agreement, together
with all other indebtedness, obligations and liabilities whatsoever of Borrower
to Bank arising under or in connection with this Agreement, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising.
"Letter of Credit" shall have the meaning set forth in Section 2.4.
"Letter of Credit Reserve" shall mean as of any date of determination,
an amount equal to the undrawn amount of outstanding Letters of Credit as of
such date and the outstanding principal amount of draws under Letters of Credit
honored by Bank for which Borrower has not reimbursed Bank.
"Loan Documents" shall mean collectively, this Agreement, the Revolving
Credit Note, the Security Agreements, the Guaranties and any other instruments
or agreements executed at any time pursuant to or in connection with any such
documents.
"Material Adverse Effect" means (a) a material adverse effect on the
financial condition, operations, assets, business or proper-ties of the Borrower
and its Subsidiaries taken as a whole, (b) a material impairment of the ability
of the Borrower to perform its obligations under the Loan documents to which it
is a party, or (c) an impairment of the validity or enforceability of, or a
material impairment of the rights, remedies or benefits available to Bank under
this Agreement or any other Loan Document.
"Parent" shall mean Aviation Holdings Group, Inc., a Delaware
corporation.
"Parent Guaranty" shall mean the Parent's Guaranty of the Indebtedness
in form attached as Exhibit "D".
<PAGE>
"Permitted Liens" means for a Person:
(a) liens for taxes or assessments or governmental charges or levies
not yet due or delinquent, or which can thereafter be paid without penalty, or
which are being contested in good faith by proceedings diligently pursued;
(b) unfilled inchoate mechanics' and materialmen's liens for
construction work in progress;
(c) workmen's, repairmen's, warehousemen's and carriers' liens and
other similar liens, if any, arising in the ordinary course of business;
(d) all of the following, if they do not in the opinion of Bank, upon
advice of its legal counsel or professional engineer, individually or in the
aggregate materially impair the use of such Person's material properties by such
Person: any easements, restrictions, mineral, oil, gas and mining rights and
reservations, zoning laws and defects in title;
(e) any lien for the satisfaction and discharge of which a sum of money
deemed adequate by Bank is on deposit with Bank or an institution acceptable to
Bank;
(f) liens created by or resulting from any litigation or other
proceeding (including liens arising out of judgments or awards against such
Person) with respect to which such Person is in good faith prosecuting an appeal
or proceeding for review, if such liens do not in the opinion of counsel for
Bank individually or in the aggregate materially impair the use of any of such
Person's material properties by such Person;
(g) any other lien, encumbrance or charge acceptable to and approved in
writing by Bank.
"Person" or "person" shall mean any individual, corporation,
partnership, joint venture, limited liability company, association, trust,
unincorporated association, joint stock company, government, municipality,
political subdivision or agency, or other entity.
"Prime Rate" shall mean the per annum. interest rate established by
Bank as its prime rate for its borrowers as such rate may vary from time to
time, which rate is not necessarily the lowest rate on loans made by Bank at any
such time.
"Request for Advance" shall mean a Request for Advance issued by
Borrower under this Agreement in the form annexed to this Agreement as Exhibit
"A".
"Revolving Credit Note" shall mean the Note described in Section 2.1
hereof made by Borrower to Bank in the form annexed to this Agreement as Exhibit
"B".
"SEC" shall mean the United States Securities and Exchange Commission
and any successor thereto.
<PAGE>
"Security Agreements" shall mean the Security Agreement (All Assets)
dated August 12, 1998 between Borrower and Bank, and Security Agreements in the
form and content of Exhibit "C" to this Agreement to be executed by each
Guarantor pursuant to which Borrower has granted and each Guarantor shall grant
to Bank a first priority security interest in all accounts, chattel paper,
documents, equipment, fixtures, general intangibles, goods, instruments and
inventory, parts, aircraft, aircraft engines and all other tangible and
intangible personal property wherever located and whether now owned or hereafter
acquired, together with all replacements thereof, substitutions therefor,
accessions thereto and all proceeds and products of all the foregoing.
"Subsidiary" shall mean a corporation or other entity of which more
than fifty percent (50%) of the outstanding voting stock or other equity
interests is owned by Borrower, either directly or indirectly, through one or
more intermediaries.
"Tangible Net Worth" shall mean the excess of (i) the net book value of
the assets of Borrower and its Consolidated Subsidiaries (excluding from assets
however, amounts due, if any, from affiliates, officers, directors and employees
and patents, patent rights, trademarks, trade names, franchises, copyrights,
licenses, good will and similar intangible assets) after all appropriate
deductions determined in accordance with generally accepted accounting
principles, consistently applied (including, without limitation, reserves for
doubtful receivables, obsolescence, etc.), over (ii) all Debt of Borrower and
its Consolidated Subsidiaries.
2. THE INDEBTEDNESS: Revolving Credit
2.1 Bank may lend to Borrower at any time and from time to time from
the effective date hereof until the earlier to occur of (i) demand or (ii) the
occurrence of an Event of Default sums not to exceed under the line of credit
Three Million Five Hundred Thousand Dollars ($3,500,000) in aggregate principal
amount at any one time outstanding. The borrowings hereunder shall be evidenced
by the Revolving Credit Note under which advances, repayments and readvances may
be made, subject to the terms and conditions of this Agreement; provided,
however, in no event shall Bank be obligated to make any advance under this
Agreement.
2.2 The Revolving Credit Note shall be payable upon demand, and the
balance from time to time outstanding shall bear interest at a per annum. rate
equal to one percent (1%) above the Bank's Prime Rate. Upon the occurrence of
any Event of Default hereunder, interest shall accrue on the unpaid principal
balance at the per annum rate of three percent (3%) above the rate otherwise in
effect. Interest shall be payable monthly as provided in the Revolving Credit
Note. Interest shall be computed on a daily basis using a year of 360 days,
assessed for the actual number of days elapsed, and in such computation effect
shall be given to any change in the interest rate resulting from a change in the
Prime Rate on the date of such change in the Prime Rate.
2.3 Bank shall not make any advances under the Revolving Credit Note
unless Borrower shall have first filed with Bank a Request for Advance executed
by an authorized officer of Borrower; provided, however, at the option of Bank,
in lieu of written Requests for Advances, Borrower may utilize Bank's "Sweep to
Loan" automated system for obtaining advances. Each time
<PAGE>
an advance is made using the "Sweep to Loan" system, it shall constitute a
certificate by Borrower of the matters set forth in the Request for Advance form
as of such date. Bank may revoke Borrower's privilege to use the "Sweep to Loan"
system at any time and after any such revocation, the regular procedures set
forth herein shall apply. Bank may, at its option, lend under the Revolving
Credit Note upon the telephone request of an authorized officer of Borrower and,
in the event Bank makes any such advance upon a telephone request, the
requesting officer shall mail to Bank, on the same day as such telephone
request, a Request for Advance. Borrower hereby authorizes Bank to disburse
advances under the Revolving Credit Note pursuant to the telephone instructions
of any person purporting to be an authorized officer of Borrower and Borrower
shall bear all risk of loss resulting from disbursements made upon any telephone
request.
2.4 In addition to advances under the Revolving Credit Note to be
provided to Borrower by Bank under and pursuant to Section 2.1 of this
Agreement, Bank may issue, or commit to issue, from time to time, standby and
trade letters of credit for the account of Company (herein individually called a
"Letter of Credit" and collectively "Letters of Credit") provided, however that
the sum of the aggregate amount of advances outstanding under the Revolving
Credit Note plus the Letter of Credit Reserve shall not exceed Three Million
Five Hundred Thousand Dollars ($3,500,000) at any one time. In addition to the
terms and conditions of this Agreement, the issuance of any Letters of Credit
shall also be subject to the terms and conditions of any letter of credit
applications and agreements executed and delivered by Company unto Bank with
respect thereto.
2.5 Borrower may prepay the Revolving Credit Note in whole or in part
without premium or penalty.
2.6 The aggregate principal amount at any one time outstanding under
the Revolving Credit Note and the Letter of Credit Reserve shall never exceed
the formula set forth in the Advance Formula Agreement dated August 12, 1998 or
in any Advance Formula Agreement delivered by Borrower to Bank in substitution
therefor. Borrower shall immediately make all payments necessary to comply with
this provision.
2.7 Advances under the Revolving Credit Note shall be used for working
capital purposes and, subject to the prior approval of Bank (which approval may
be given or withheld in the sole discretion of Bank) for permitted acquisitions.
2.8 Borrower acknowledges that the Revolving Credit Note and the
Indebtedness under this Section 2 matures upon issuance and that the Bank, at
any time, without notice, and without reason, may demand that the Revolving
Credit Note and the Indebtedness be immediately repaid in full.
3. CONDITIONS
3.1 Borrower agrees to furnish Bank prior to the initial borrowing
under this Agreement, in form and substance to be satisfactory to Bank, with (i)
certified copies of resolutions of the Board of Directors of each Credit Party
evidencing approval of the borrowings hereunder in the case of the
<PAGE>
Borrower's Board of Directors, the Guaranties and, if applicable, the Security
Agreements, in the case of the other Credit Parties' Boards of Directors and in
each case the relevant transactions contemplated hereunder; (ii) certificates of
good standing of each Credit Party from their respective states of formation and
from the states in which they are required to be qualified to do business; and
(iii) such other documents, instruments and legal opinions as Bank may
reasonably require.
3.2 As security for all indebtedness of Borrower to Bank hereunder,
Borrower agrees to furnish, execute and deliver to Bank, or cause to be
furnished, executed and delivered to Bank, prior to or simultaneously with the
initial borrowing hereunder, in form to be satisfactory to Bank and supported by
appropriate resolution in certified form authorizing same, the following:
(a) The Security Agreements;
(b) Financing Statements required or requested by Bank to perfect
all security interests to be conferred upon Bank under this
Agreement and to accord Bank a perfected first priority
security position under the Uniform Commercial Code (subject
only to the encumbrances permitted hereunder);
(c) The Guaranties;
(d) Such other documents or agreements of security and appropriate
assurances of validity and perfected first priority of lien or
security interest as Bank may reasonably request at any time,
including, without limitation, landlord waivers.
4. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants and such representations and
warranties shall be deemed to be continuing representations and warranties
during the entire life of this Agreement:
4.1 Each Credit Party is a corporation duly organized and existing in
good standing under the laws of its jurisdiction of incorporation, is duly
qualified and authorized to do business as a foreign corporation in each
jurisdiction where the character of its assets or the nature of its activities
makes such qualification necessary; execution, delivery and performance of each
Loan Document to which the Credit Party is a party are within the Credit Party's
corporate powers, have been duly authorized, are not in contravention of law or
the terms of the Credit Party's Articles of Incorporation or Bylaws, and do not
require the consent or approval of any governmental body, agency or authority;
and this Agreement and any other documents and instruments required under this
Agreement, when issued and delivered under this Agreement, will be valid and
binding in accordance with their terms.
4.2 The execution, delivery and performance of this Agreement and any
other documents and instruments required under this Agreement, and the issuance
of the Revolving Credit Note by Borrower, are not in contravention of the
unwaived terms of any indenture, agreement or undertaking to which any Credit
Party is a party or by which it is bound.
<PAGE>
4.3 No litigation or other proceeding before any court or
administrative agency is pending, or to the knowledge of the officers of the
Borrower is threatened against any Credit Party, the outcome of which could
materially impair any Credit Party's financial condition or its ability to carry
on its business.
4.4 There are no security interests in, liens, mortgages, or other
encumbrances on any Credit Party's assets, except to Bank, or as permitted in
this Agreement.
4.5 Except as set forth in Schedule 4.5 attached hereto, there are no
Subsidiaries of Borrower.
4.6 There exists no default by any Credit Party under the provisions of
any instrument evidencing any permitted debt or of any agreement relating
thereto.
4.7 No Credit Party maintains or contributes to any Pension Plans
subject to ERISA except the plans listed on Schedule 4.7 hereto ("Pension
Plans"). The "unfunded past service liability" of the Pension Plans, as of
__________, 1999, was as noted on Schedule 4.7, and there is no accumulated
funding deficiency within the meaning of ERISA, or any existing liability with
respect to the Pension Plans owed to the Pension Benefit Guaranty Corporation or
any successor thereto.
4.8 The balance sheets and operating statements of Borrower dated
August 31, 1997, November 30, 1997, May 31, 1998 and August 31, 1998, previously
furnished Bank, are complete and correct and fairly present the financial
condition of Borrower and the results of its operations; the balance sheets and
operating statements of Borrower and its Consolidated Subsidiaries dated
December 31,1998, March 31, 1999 and July 31, 1999, previously furnished Bank,
are complete and correct and fairly represent the financial condition of
Borrower and its Consolidated Subsidiaries and the results of their operations;
since said dates there has been no material adverse change in the financial
condition of Borrower or its Consolidated Subsidiaries; to the knowledge of
Borrower's officers, neither Borrower nor any of its Subsidiaries has any
contingent obligations (including any liability for taxes) not disclosed by or
reserved against in said balance sheets, and at the present time there are no
material unrealized or anticipated losses from any present commitment of
Borrower or any of its Subsidiaries.
4.9 All tax returns and tax reports of the Credit Parties required by
law to be filed have been duty filed or extensions obtained, and all taxes,
assessments and other governmental charges or levies (other than those presently
payable without penalty and those currently being contested in good faith for
which adequate reserves have been established) upon any Credit Party (or any of
their properties) which are due and payable have been paid. The charges,
accruals and reserves on the books of the Credit Parties in respect of the
Federal income tax for all periods are adequate in the opinion of the Credit
Parties.
<PAGE>
4.10 Each Credit Party is in the conduct of its business, in compliance
in all material respects with all federal, state or local laws, statutes,
ordinances and regulations applicable to it, the enforcement of which, if it
were not in compliance, would adversely affect its business or the value of its
property or assets. Each Credit Party has all approvals, authorizations,
consents, licenses, orders and other permits of all governmental agencies and
authorities, whether federal, state or local, required to permit the operation
of its business as presently conducted, except such approvals, authorizations,
consents, licenses, orders and other permits with respect to which the failure
to have can be cured without having an adverse effect on the operation of such
business.
4.11 No representation or warranty by Borrower in this Agreement, nor
any statement or certificate (including financial statements) furnished or to be
furnished to Bank pursuant hereto contains or will contain any materially untrue
statement of any fact or omits or will omit to state a fact necessary to make
such representation, warranty, statement or certificate not misleading.
4.12 No Credit Party is a party to any litigation or administrative
proceeding, nor so far as is known by any Credit Party is any litigation or
administrative proceeding threatened against any Credit Party, which in either
case (A) asserts or alleges that any Credit Party violated Environmental Laws
(B) asserts or alleges that any Credit Party is required to clean up, remove, or
take remedial or other response action due to the disposal, depositing,
discharge, leaking or other release of any hazardous substances or materials,
(C) asserts or alleges that any Credit Party is required to pay all or a portion
of the cost of any past, present, or future cleanup, removal or remedial or
other response action which arises out of or is related to the disposal,
depositing, discharge, leaking or other release of any hazardous substances or
materials by any Credit Party.
4.13 To the best knowledge of Borrower, there are no conditions
existing currently or likely to exist during the term of this Agreement which
would subject any Credit Party to damages, penalties, injunction relief or
cleanup costs under any applicable Environmental Laws or which require or are
likely to require cleanup, removal, remedial action or other response pursuant
to applicable Environmental Laws by any Credit Party.
4.14 No Credit Party subject to anyjudgment, decree, order or citation
related to or arising out of applicable Environmental Laws and to the best
knowledge of the Borrower, no Credit Party has been named or listed as a
potentially responsible party by any governmental body or agency in a matter
arising under any applicable Environmental Laws.
4.15 To the best knowledge of Borrower, each Credit Party has all
permits, licenses and approvals required under applicable Environmental Laws.
4.16 No Credit Party is an "investment company" within the meaning of
the Investment Company Act of 1940, as amended. No Credit Party is engaged
principally, or as one of its important activities, directly or indirectly, in
the business of extending credit for the purpose of purchasing or carrying
margin stock, and none of the proceeds of any of the loans hereunder will be
used, directly or indirectly, for any purpose which would violate the provisions
of Regulation U or X of the Board of Governors of the Federal Reserve System.
Terms for which meanings are provided in Regulation
<PAGE>
U of the Board of Governors of the Federal Reserve System or any regulations
substituted therefor, as from time to time in effect, are used in this paragraph
with such meanings.
4.17 Each Credit Party has good and valid title to the property
pledged, mortgaged or otherwise encumbered or to be encumbered by it under the
Security Agreements.
5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that it will and it will cause each of
its Subsidiaries, so long as Bank may make any advance under this Agreement and
thereafter so long as any indebtedness remains outstanding under this Agreement
to:
5.1 Furnish Bank:
(a) within one hundred twenty (120) days after and as of the end
of each fiscal year of Borrower, a Consolidated balance sheet
and statement of profit and loss and changes in cash flow of
the Borrower and its Consolidated Subsidiaries prepared on an
audited basis in accordance with the requirements of the SEC
by independent certified public accountants satisfactory to
Bank;
(b) within forty five (45) days after and as of the end of each
fiscal quarter, a consolidated and consolidating balance sheet
and consolidated and consolidating statement of profit and
loss and changes in cash flow of Borrower and its Consolidated
Subsidiaries prepared in accordance with the requirements of
the SEC certified by an authorized officer of Borrower as
being correct and accurate to the best of his knowledge (if
Bank in its sole discretion deems the consolidating financial
statements required by this subsection (b) to be not
sufficiently detailed, Bank reserves the right to require
separate financial statements for each Subsidiary, reviewed by
certified public accountants acceptable to Bank in form and
content acceptable to Bank);
(c) so long as Borrower or Parent shall be required to file
reports with the SEC, promptly upon transmission thereof,
copies of all such financial statements, proxy statements,
notices and reports as it shall send to its public
stockholders generally and copies of all registration
statements (without exhibits) and all reports which it files
with the SEC;
(d) within three (3) days after and as of the end of each week a
borrowing base report in form satisfactory to Bank;
(e) on or before August 1 of each year, a copy of any foreign
credit insurance policy then in effect with respect to which
Borrower or any Subsidiary is the beneficiary;
<PAGE>
(f) promptly upon receipt thereof, copies of all management
letters prepared with respect to Borrower by any independent
certified public accountants;
(g) such information as required by the terms and conditions of
any security agreements referred to in this Agreement;
(h) promptly, and in form to be satisfactory to Bank, such other
information as Bank may reasonably request from time to time;
(i) on or before October 1 of each year an inventory appraisal in
form satisfactory to Bank prepared by an appraiser
satisfactory to Bank utilizing an appraisal method which is
acceptable to Bank.
5.2 Pay and discharge all taxes and other governmental charges and all
contractual obligations calling for the payment of money, before any interest or
penalties shall accrue, unless and to the extent only that such payment is being
contested in good faith.
5.3 Maintain insurance coverage on its physical assets and against
other business risks in such amounts and of such types as are customarily
carried by companies similar in size and nature, and in the event of acquisition
of additional property, real or personal, or of incurrence of additional risks
of any nature, increase such insurance coverage in such manner and to such
extent as prudent business judgment and present practice would dictate; and in
the case of all policies covering property mortgaged or pledged to Bank or
property in which Bank shall have a security interest of any kind whatsoever,
other than those policies protecting against casualty liabilities to strangers,
all such insurance policies shall provide that the loss payable thereunder shall
be payable to Borrower or a Subsidiary as the case may be, and Bank as their
respective interests may appear; copies of all said policies, including all
endorsements thereon and those required hereunder, to be deposited with Bank.
5.4 Permit Bank, through its authorized attorneys, accountants, and
representatives, to examine each Credit Party's books, accounts, records,
ledgers and assets of every kind and description during regular business hours,
including, without limitation, collateral audits at Borrower's cost and expense.
Prior to the occurrence of an Event of Default under this Agreement, collateral
audits shall be conducted not more frequently than four times a year; provided,
however, following the occurrence of an Event of Default, the limitation on the
frequency of audits shall no longer apply.
5.5 Promptly notify Bank of any condition or event which constitutes or
with the running of time and/or the giving of notice would constitute a default
under this Agreement, and promptly inform Bank of any material adverse change in
any Credit Party's financial condition.
5.6 Maintain in good standing and cause each Subsidiary to maintain in
good standing, all licenses and certifications required by the State of Florida,
or any agency thereof, or the FAA or any other governmental authority that maybe
necessary or required for Borrower and its Subsidiaries
<PAGE>
to carry on their general business objects and purposes. FAA licenses and
certifications maybe held by the employees of Borrower and/or its Subsidiaries
so long as Borrower and its Subsidiaries may legally avail themselves of all
rights and privileges associated therewith and all such licenses and
certifications remain in good standing.
5.7 Furnish Bank, upon Bank's request, in form satisfactory to Bank
with pledges, assignments, mortgages, lien instruments or other security
instruments covering any or all of the Credit Parties' real or personal
property, of every nature and description, whether now owned or hereafter
acquired, to the extent that Bank may in its sole and reasonable discretion
require. Borrower shall notify Bank of the acquisition of any aircraft engines
or aircraft in which a security interest must be perfected by filing with the
FAA within five days of the acquisition thereof and shall provide Bank a copy of
the applicable purchase agreement related thereto.
5.7A Promptly, and in any event not later than three (3) business days
thereafter, notify Bank of the creation of any Subsidiary and cause each
Domestic Subsidiary, including any Person which becomes a Domestic Subsidiary
after the date of this Agreement, to execute and deliver to Bank a Guaranty and
Security Agreement and such other documents and materials as Bank may require in
order to perfect its liens and security interests in the assets of such Domestic
Subsidiary on the date the Person is created, acquired or otherwise becomes a
Domestic Subsidiary (whichever first occurs).
5.8 Comply and cause each Subsidiary to comply with all requirements
imposed by ERISA as presently in effect or hereafter promulgated including, but
not limited to, the minimum funding requirements of the Pension Plans.
5.9 Promptly notify Bank after the occurrence thereof in writing of
any of the following events:
(a) the termination of any Credit Party's Pension Plan pursuant to
Subtitle C of Title IV of ERISA or otherwise;
(b) the appointment of a trustee by a United States District Court
to administer the Pension Plan;
(c) the commencement by the Pension Benefit Guaranty Corporation,
or any successor thereto of any proceeding to terminate any
Credit Party's Pension Plan;
(d) the failure of any Credit Party's Pension Plan to satisfy the
minimum funding requirements for any plan year as established
in Section 412 of the Internal Revenue Code of 1954, as
amended;
(e) the withdrawal of any Credit Party from a Pension Plan; or
(f) a reportable event, within the meaning of Title IV of ERISA.
<PAGE>
5.10 Maintain all cash collection and general disbursement accounts
with Bank or another financial institution which is acceptable to Bank.
5.11 Maintain as of the end of each fiscal quarter of Borrower, a
Consolidated Tangible Net Worth of not less than $4,250,000.
5.12 Maintain as of the end of each fiscal year of Borrower a ratio of
Debt of Borrower and its Subsidiaries as determined on a Consolidated basis in
accordance with GAAP to Tangible Net Worth of not more than 1.7 to 1.0.
5.13 Maintain as of the end of each fiscal quarter of Borrower (other
that the fourth quarter of each fiscal year) a ratio of Debt of the Borrower and
its Subsidiaries as determined on a Consolidated basis in accordance with GAAP
to Tangible Net Worth of not more than 2.25 to 1.0.
5.14 Use its best efforts to maintain Consolidated net income of
Borrower and its Consolidated Subsidiaries of not less than $425,000 for fiscal
year 1999.
6. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as Bank may make any
advances under this Agreement and thereafter so long as any Indebtedness remains
outstanding under this Agreement, it will not and it will not permit any
Subsidiary to, without the prior written consent of Bank:
6.1 Purchase, acquire or redeem any of its capital stock or make any
material change in its capital structure, except purchases and redemptions of
stock so long as no Event of Default exists or would result therefrom.
6.2 Enter into any merger or consolidation or sell, lease, transfer, or
dispose of all, substantially all, or any part of its assets, except in the
ordinary course of its business.
6.3 Guarantee, endorse, or otherwise become secondarily liable for or
upon the obligations of others, except by endorsement for deposit in the
ordinary course of business and guaranties in favor of Bank.
6.4 Purchase or otherwise acquire or become obligated for the purchase
of all or substantially all of the assets or business interests of any person,
firm or corporation or any shares of stock of any corporation, trusteeship or
association or in any other manner effectuate or attempt to effectuate an
expansion of present business by acquisition.
6.5 Become or remain obligated for any indebtedness for borrowed money,
or for any indebtedness incurred in connection with the acquisition of any
property, real or personal, tangible or intangible, except:
(a) indebtedness to Bank;
<PAGE>
(b) current unsecured trade payables and accrued liabilities
anising in the ordinary course of Borrower's or a Subsidiary's
business;
(c) purchase money indebtedness to acquire fixed assets in an
amount not exceeding $100,000 in the aggregate for Borrower
and its Subsidiaries during any fiscal year of Borrower.
6.6 Affirmatively pledge or mortgage any of its assets, whether now
owned or hereafter acquired, or create, suffer or permit to exist any lien,
security interest in, or encumbrance thereon, except:
(a) to Bank;
(b) the Permitted Liens;
(c) liens described in attached Schedule 6.6; and
(d) liens and security interests upon fixed assets acquired by
Borrower or a Subsidiary after the date of this Agreement
(including by virtue of a Capital Lease) provided that (i) any
such lien or security interest is created solely for the
purpose of securing indebtedness representing, or incurred to
finance, the cost of the item of property subject thereto;
(ii) the principal amount of the indebtedness secured by such
lien does not exceed 100% of the fair value of the property at
the time it was acquired, and (iii) the lien or security
interest does not cover any other property other than such
item of property.
6.7 Sell, assign, transfer or confer a security interest in any
account, contract, note, trade acceptance or other receivable, except to Bank.
6.8 Materially alter the character of its businesses from that
conducted as of the date of this Agreement.
6.9 Enter into any transaction or series of transactions with any
Affiliate other than on terms and conditions as favorable to Borrower or its
Subsidiary, as the case may be, as would be obtainable in a comparable
arms-length transaction with a Person other than an Affiliate.
6.10 Make or allow to remain outstanding any investment (whether such
investment shall be or the character of investment in shares of stock, evidence
of indebtedness or other securities or otherwise) in, or any loans or advances
or extensions of credit to, any person, firm, corporation or other entity or
association, except
(a) advances made for expenses or purchases in the ordinary course
of business within the United States; and
<PAGE>
(b) loans or advances made to officers, directors, or employees of
Borrower or its Subsidiaries within the United States, not to
exceed in the aggregate One Hundred Thousand Dollars
($100,000) for the Borrower and its Subsidiaries at any one
time outstanding.
6.11 Enter into or become subject to any agreement (other than this
Agreement) (i) prohibiting the creation or assumption of any lien or encumbrance
upon the properties or assets of Borrower or any Subsidiary or (ii) requiring an
obligation to become secured (or further secured) if another obligation is
secured or further secured.
6.12 Declare of pay any dividends or make any other distributions with
respect to its stock except for dividends payable in the capital stock of
Borrower and dividends by a Subsidiary of Borrower to Borrower.
6.13 Modify or amend the Employment Agreement dated October 31, 1996
and subsequently extended on August 1, 1998 (effective November 1, 1998) between
Borrower and Joseph Nelson if the effect of such amendment is to shorten the
term thereof or materially change the scope of Mr. Nelson's duties.
6.14 Provide any special credit arrangement with respect to uninsured
Foreign Accounts. All past-due Foreign Accounts must be declared in default,
claimed via insurance, or enforced for collection. Contra-accounts of any kind
are expressly forbidden.
7. ENVIRONMENTAL PROVISIONS
7.1 Borrower shall comply and shall cause each Credit Party to comply
in all material respects with all applicable Environmental Laws.
7.2 Borrower shall provide to Bank, immediately upon receipt, copies of
any correspondence, notice, pleading, citation, indictment, complaint, order,
decree, or other document from any source asserting or alleging a circumstance
or condition which requires or may require a financial contribution by any
Credit Party or a cleanup, removal, remedial action, or other response by or on
the part of any Credit Party under applicable Environmental Laws or which seeks
damages or civil, criminal or punitive penalties from any Credit Party for an
alleged violation of Environmental Laws.
7.3 Borrower shall promptly notify Bank in writing as soon as Borrower
becomes aware of any condition or circumstance which makes the environmental
warranties contained in this Agreement incomplete or inaccurate in any material
respect as of any date.
7.4 In the event of any condition or circumstance that makes any
environmental warranty, representation and/or agreement incomplete or inaccurate
in any material respect as of any date, Borrower shall, at the reasonable
request of Bank, at Borrower's sole expense, retain an environmental
professional consultant, reasonably acceptable to Bank, to conduct a thorough
and
<PAGE>
complete environmental audit regarding the changed condition and/or circumstance
and any environmental concerns arising from that changed condition and/or
circumstance. A copy of the environmental consultant's report will be promptly
delivered to Bank upon completion.
7.5 At any time any Credit Party, directly or indirectly through any
professional consultant or other representative, determines to undertake an
environmental audit, assessment or investigation, Borrower shall promptly
provide Bank with written notice of the initiation of the environmental audit,
fully describing the purpose and intended scope of the environmental audit. Upon
receipt, Borrower will promptly provide to Bank copies of all final findings and
conclusions of any such environmental investigation. Preliminary findings and
conclusions shall be provided if final reports have not been completed and
delivered to Bank within 60 days following completion of the preliminary
findings and conclusions.
7.6 Borrower hereby indemnifies, saves and holds Bank and any of its
past, present and future officers, directors, shareholders, employees,
representatives and consultants harmless from any and all loss, damages, suits,
penalties, costs, liabilities and expenses (including but not limited to
reasonable investigation, environmental audit(s), and legal expenses) arising
out of any claim, loss or damage of any property, injuries to or death of
persons, contamination of or adverse affects on the environment, or any
violation of any applicable Environmental Laws, caused by or in any way related
to property owned by any Credit Party, or due to any acts of any Credit Party or
their respective officers, directors, shareholders, employees, consultants
and/or representatives; provided, however, that the foregoing indemnification
shall not be applicable when arising from events or conditions occurring while
the Bank is in sole possession (subject to the rights of any creditors of
Borrower) of the property. In no event shall Borrower be liable hereunder for
any loss, damages, suits, penalties, costs, liabilities or expenses arising from
any act of gross negligence or wilfful misconduct of Bank, or its agents or
employees.
7.7 Borrower shall and shall cause each Subsidiary to maintain all
permits, licenses and approvals required under applicable Environmental Laws.
8. EVENTS OF DEFAULT
8.1 Upon occurrence of any of the following Events of Default:
(a) non-payment of any installment of the principal or interest on
the Revolving Credit Note when due in accordance with the
terms thereof, or upon non-payment of any other outstanding
Indebtedness when due in accordance with the terms thereof;
(b) default in the observance or performance of any of the
conditions, covenants or agreements of Borrower set forth in
Section 5 or Section 6.
(c) default in the observance or performance of any of the other
conditions, covenants or agreements of Borrower set forth in
this Agreement and continuance thereof for thirty (30) days
after notice to Borrower by Bank;
<PAGE>
(d) any material representation or warranty made by Borrower
herein or by any Credit Party in any instrument or agreement
submitted pursuant hereto proves untrue in any material
respect when made or deemed made;
(e) default in the observance or performance of any of the
conditions, covenants or agreements of any Credit Party set
forth in any collateral document of security which may be
given to secure the indebtedness hereunder or in any other
document related to or connected with this Agreement or the
indebtedness hereunder, including without limitation any
Security Agreement or Guaranty;
(f) default in the payment of any other obligation of any Credit
Party for borrowed money in an aggregate amount in excess of
Ten Thousand Dollars ($10,000), or in the observance or
performance of any conditions, covenants or agreements related
or given with respect to any obligations for borrowed money in
an aggregate amount in excess of Ten Thousand Dollars
($10,000) sufficient to permit the holder thereof to
accelerate the maturity of such obligation;
(g) judgments for the payment of money in excess of the sum of Ten
Thousand Dollars ($10,000) in the aggregate shall be rendered
against any Credit Party and such judgments shall remain
unpaid, unvacated, unbonded or unstayed by appeal or otherwise
for a period of thirty (30) consecutive days from the date of
its entry and such judgment is not covered by insurance from a
solvent insurer who is defending such action without
reservation of rights;
(h) the occurrence of any "reportable event", as defined in the
Employee Retirement Income Security Act of 1974 and any
amendments thereto, which is determined to constitute grounds
for termination by the Pension Benefit Guaranty Corporation of
any employee pension benefit plan maintained by or on behalf
of any Credit Party for the benefit of any of its employees or
for the appointment by the appropriate United States District
Court of a trustee to administer such plan and is reasonably
likely that the occurrence of such event would result in a
Material Adverse Effect, and such reportable event is not
corrected and such determination is not revoked within thirty
(30) days after notice thereof has been given to the plan
administrator or the applicable Credit Party; or the
institution of proceedings by the Pension Benefit Guaranty
Corporation to terminate any such employee benefit pension
plan or to appoint a trustee to administer such plan; or the
appointment of a trustee by the appropriate United States
District Court to administer any such employee benefit pension
plan;
(i) if there shall be any change for any reason in the management
or control of Borrower which in the sole judgment of Bank
adversely affects Borrower, including, without limitation, if
Joseph Nelson no longer is actively involved in the day to day
management of Borrower;
<PAGE>
(j) the revocation of any Guaranty;
(k) if there shall occur an event which has a Material Adverse
Effect or if the Bank shall deem itself to be insecure;
then, or at any time thereafter, unless such default is remedied, Bank may give
notice to Borrower declaring all outstanding indebtedness hereunder and under
the Revolving Credit Note to be due and payable, whereupon all indebtedness then
outstanding hereunder and under the Revolving Credit Note shall immediately
become due and payable without further notice and demand.
8.2 If a creditors' committee shall have been appointed for the
business of any Credit Party in connection with any bankruptcy or insolvency; or
if any Credit Party shall have made a general assignment for the benefit of
creditors or shall have been adjudicated bankrupt, or shall have filed a
voluntary petition in bankruptcy or for reorganization or to effect a plan or
arrangement with creditors; or shall file an answer to a creditor's petition or
other petition filed against it, admitting the matenial allegations thereof for
an adjudication in bankruptcy or for reorganization; or shall have applied for
or permitted the appointment of a receiver, or trustee or custodian for any of
its property or assets; or such receiver, trustee or custodian shall have been
appointed for any of its property or assets (otherwise than upon application or
consent of the Credit Party), and such receiver, trustee or custodian so
appointed shall not have been discharged within sixty (60) days after the date
of his appointment or if an order shall be entered and shall not be dismissed or
stayed within sixty (60) days from its entry, approving any petition for
reorganization of any Credit Party then the Revolving Credit Note and all
indebtedness then outstanding hereunder and under any Letters of Credit shall
automatically become immediately due and payable.
8.3 Upon the occurrence and during the continuance of an Event of
Default, unless all of the Indebtedness is then immediately fully paid, Bank
shall have and may exercise any one or more of the rights and remedies for which
provision is made for a secured party under the UCC, under the Security
Agreements or under any other document contemplated hereby or for which
provision is provided by law or in equity, including, without limitation, the
right to take possession and sell, lease or otherwise dispose of any or all of
the collateral and to set off against the Indebtedness any amount owing by Bank
to Borrower and/or any property of Borrower in possession of Bank. Borrower
agrees, upon request of Bank, to assemble the collateral and make it available
to Bank at any place designated by Bank which is reasonably convenient to Bank
and Borrower.
8.4 All of the Indebtedness shall constitute one loan secured by Bank's
security interest in the collateral and by all other security interests,
mortgages, liens, claims, and encumbrances now and from time to time hereafter
granted from the Credit Parties to Bank. Upon the occurrence and during the
continuance of an Event of Default which is not cured within the cure period, if
any, provided hereunder, Bank may in its sote discretion apply the collateral to
any portion of the Indebtedness. The proceeds of any sate or other disposition
of the collateral authorized by this Agreement shall be applied by Bank, first
upon all expenses authorized by the Michigan Uniform Commercial Code (or other
applicable law) or otherwise in connection with the sale and all reasonable
attorneys' fees and legal expenses incurred by Bank; the balance of the proceeds
of such
<PAGE>
sale or other disposition shall be applied in the payment of the Indebtedness,
first to interest, then to principal, then to other Indebtedness and the
surplus, if any, shall be paid over to Borrower or to such other Person or
Persons as maybe entitled thereto under applicable law. Borrower shall remain
liable for any deficiency, which Borrower shall pay to Bank immediately upon
demand.
8.5 The remedies provided for herein are cumulative to the remedies for
collection of the Indebtedness as provided by law, in equity or by any mortgage,
security agreement or other document contemplated hereby. Nothing herein
contained is intended, nor shalt it be construed, to preclude Bank from pursuing
any other remedy for the recovery of any other sum to which Bank may be or
become entitled for the breach of this Agreement by Borrower.
9. MISCELLANEOUS
9.1 This Agreement shall be binding upon and shall inure to the benefit
of Borrower and Bank and their respective successors and assigns, except that
the credit provided for under this Agreement and no part thereof and no
obligation of Bank hereunder shall be assignable or otherwise transferable by
Borrower.
9.2 Borrower shall pay all closing costs and expenses, including, by
way of description and not limitation, reasonable outside attorney fees and lien
search fees, incurred by Bank in connection with the commitment, consummation
and closing of this Agreement. All of said amounts required to be paid by
Borrower may, at Bank's option, be charged by Bank as an advance against the
proceeds of the Revolving Credit Note. All costs, including reasonable attorney
fees incurred by Bank in protecting or enforcing any of its or any of the Bank's
rights against any Credit Party or any collateral or in defending Bank from any
claims or liabilities by any party or other-wise incurred by Bank in connection
with an event of default or the enforcement of this Agreement or the related
documents, including by way of description and not limitation, such charges in
any court or bankruptcy proceedings or arising out of any claim or action by any
person against Bank which would not have been asserted were it not for Bank's
relationship with Borrower hereunder, shall also be paid by Borrower.
9.3 Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, it shall be done in accordance with GAAP.
9.4 No delay or failure of Bank in exercising any right, power or
privilege hereunder shall affect such right, power or privilege, nor shall any
single or partial exercise thereof preclude any further exercise thereof, or the
exercise of any other power, right or privilege. The rights of Bank under this
Agreement are cumulative and not exclusive of any night or remedies which Bank
would otherwise have.
9.5 All notices with respect to this Agreement shall be deemed to be
completed upon mailing by certified mail to the following:
<PAGE>
To Borrower:
15675 NW 15th Avenue
Miami, Florida 33169
Attention: Joseph Janusz
To Bank:
100 NE Third Avenue, Suite 200
Fort Lauderdale, Florida 33301
Attention: Joseph Marchese
9.6 This Agreement and the Revolving Credit Note have been delivered at
Detroit, Michigan, and shall be governed by and construed and enforced in
accordance with the laws of the State of Michigan. Whenever possible each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
9.7 No amendments or waiver of any provisions of this Agreement nor
consent to any departure by Borrower therefrom shall in any event be effective
unless the same shall be in writing and signed by the Bank, and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No amendment, waiver or consent
with respect to any provision of this Agreement shall affect any other provision
of this Agreement.
9.8 All sums payable by Borrower to Bank under this Agreement or the
other documents contemplated hereby shall be paid directly to Bank at its
principal office set forth in Section 9.5 hereof in immediately available United
States funds, without set off, deduction or counterclaim. In its sole
discretion, Bank may charge any and all deposit or other accounts (including
without limit an account evidenced by a certificate of deposit) of Borrower with
Bank for all or a part of any Indebtedness then due; provided, however, that
this authorization shall not affect Borrower's obligation to pay, when due, any
Indebtedness whether or not account balances are sufficient to pay amounts due.
9.9 Any payment of the Indebtedness made by mail will be deemed
tendered and received only upon actual receipt by Bank at the address designated
for such payment, whether or not Bank has authorized payment by mail or any
other manner, and shall not be deemed to have been made in a timely manner
unless received on the date due for such payment, time being of the essence.
Borrower authorizes Bank to charge its accounts maintained with Bank for the
payment of any of the Indebtedness. Borrower expressly assumes all risks of loss
or liability resulting from nondelivery or delay of delivery of any item of
payment transmitted by mail or in any other manner. Acceptance by Bank of any
payment in an amount less than the amount then due shall be deemed an acceptance
on account only, and the failure to pay the entire amount then due shall be and
continue to be an Event of Default, and at any time thereafter and until the
entire amount then due has been paid, Bank shall be entitled to exercise any and
all rights conferred upon it herein upon the occurrence of an
<PAGE>
Event of Default. Upon the occurrence and during the continuance of an Event of
Default, Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by Bank from or on behalf of
Borrower. Upon the occurrence and during the continuance of an Event of Default,
Borrower agrees that Bank shall have the continuing exclusive right to apply and
to reapply any and all payments received at any time or times hereafter against
the Indebtedness in such manner as Bank may deem advisable, notwithstanding any
entry by Bank upon any of its books and records. Borrower expressly agrees that
to the extent that Bank receives any payment or benefit and such payment or
benefit, or any part thereof, is subsequently invalidated, declared to be
fraudulent or preferential, set aside or is required to be repaid to a trustee,
receiver, or any other party under any bankruptcy act, state or federal law,
common law or equitable cause, then to the extent of such payment or benefit,
the Indebtedness or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if such payment or benefit had not been
made and, further, any such repayment by Bank, to the extent that Bank did not
directly receive a corresponding cash payment, shall be added to and be
additional Indebtedness payable upon demand by Bank.
9.10 In the event Borrower's obligation to pay interest on the
principal balance of the Revolving Credit Note is or becomes in excess of the
maximum interest rate which Borrower is permitted by law to contract or agree to
pay, giving due consideration to the execution date of this Agreement, then, in
that event, the rate of interest applicable shall be deemed to be immediately
reduced to such maximum rate and all previous payments in excess of such maximum
rate shall be deemed to have been payments in reduction of principal and not of
interest.
9.11 THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY
JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR
CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY
RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE REVOLVING CREDIT
NOTE.
9.12 In the event of any express inconsistency between the provisions
of this Agreement and the provisions of any of the other Loan Documents, the
provisions of this Agreement shall control.
9.13 Borrower submits, in any legal proceeding related to this
Agreement or the Revolving Credit Note, to the nonexclusive in personam
jurisdiction of any court of competent jurisdiction sitting in the State of
Florida and agrees to a suit being brought in any such court; waives any
objection that it may now have or hereafter have to the venue of such proceeding
in any such court or that such proceeding was brought in an inconvenient court;
agrees that service of process and any such legal proceeding may be made, and
shall be conclusively deemed sufficient and adequate, by mailing of copies
thereof (by registered or certified mail, if practicable) postage prepaid to
Borrower at its address set forth herein or such other address of which the Bank
shall be notified in writing, in which event, service shall be deemed complete
upon the filing with the court of a copy of the
<PAGE>
process mailed and an affidavit attesting the mailing. Borrower agrees that
nothing herein shall affect the Bank's right to affect service or process in any
other manner permitted by law.
9.14 This Agreement shall become effective upon the execution hereof by
Bank and Borrower.
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK AVIATION HOLDINGS INT'L, INC.
By: /s/ Joseph Marchese By: /s/ Joseph J. Nelson
--------------------------- ---------------------------------
Its: Vice President Its: President
By: /s/ Joseph Janusz
---------------------------------
Its: Chief Financial Officer
<PAGE>
EXHIBIT "A"
REQUEST FOR ADVANCE
Pursuant to the Amended and Restated Credit Agreement dated as of
September _, 1999, (herein called "Agreement"), the undersigned hereby requests
COMERICA BANK to make Advance to the undersigned on _____________________,
_________, in the amount of __________________________ DOLLARS, ($_________)
under the Revolving Credit Note dated September ____, 1999, issued by the
undersigned to said Bank (herein called "Note").
The undersigned certifies that no event has occurred or condition
exists which constitutes, or with the passage of time and/or giving of notice
would constitute, a default under the Agreement or the Note, and none will exist
upon the making of the Advance requested hereunder. The undersigned further
certifies that upon advancing the sum requested hereunder, the aggregate
principal amount outstanding under the Note will not exceed the face amount
thereof or any advance formula applicable to advances under such Note. If the
amount advanced to the undersigned under the Note shall at any time exceed the
face amount thereof or any advance formula applicable to advances under such
Note, the undersigned will pay such excess amount on demand.
The undersigned hereby authorizes said Bank to disburse the proceeds of
this Request for Advance by crediting the account of the undersigned with Bank
separately designated by the undersigned or as the undersigned may otherwise
direct, unless this Request for Advance is being submitted for a conversion or
refunding, in which case it shall refund or convert that portion stated above of
the existing outstandings under the Note.
Dated this ____ day of _____________, _______.
AVIATION HOLDINGS INT'L, INC.
By:___________________________
Its:__________________________
By:___________________________
Its:__________________________
<PAGE>
EXHIBIT B
Comeric A Master Revolving Note
Variable Rate-Demand Op ional Advances (Business and
Commercial Loans Only)
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION NUMBER
$3,500,000 September 1 , 1999 ON DEMAND 52-2040613
For Value Received, the undersigned promise(s) to pay ON DEMAND to the order of
Comerica Bank ("Bank"), at any office of the Bank in the State of Michigan,
Three Million Five Hundred Thousand Dollars (U.S.) (orthat portion of it
advanced bythe Bank and not repaid as later provided) with interest until demand
or until Default, as later defined, at a per annum rate equal to the Bank's
prime rate from time to time in effect plus 1 % per annum and after that at a
rate equal to the rate of interest otherwise prevailing underthis Note plus 3%
per annum (but in no event in excess of the maximum rate permitted by law). The
Bank's "prime rate" is that annual rate of interest so designated by the Bank
and which is changed by the Bank from time to time. Interest rate changes will
be effective for interest computation purposes as and when the Bank's prime rate
changes. Interest shall be calculated on the basis of a 360-day year for the
actual number of days the principal is outstanding. Unless sooner demanded,
accrued interest on this Note shall be payable on the first day of each month
commencing October 1, 1999. If the frequency of interest payments is not
otherwise specified, accrued interest on this Note shall be payable monthly on
the first day of each month, unless sooner demanded. If any payment of principal
or interest under this Note shall be payable on a day other than a day on which
the Bank is open for business, this payment shall be extended to the next
succeeding business day and interest shall be payable at the rate specified in
this Note during this extension. A late payment charge equal to 5% of each late
payment may be charged on any payment not received by the Bank within 10
calendar days after the payment due date, but acceptance of payment of this
charge shall not waive any Default under this Note.
The principal amount payable under this Note shall be the sum of all advances
made by the Bank to or at the request of the undersigned, less principal
payments actually received in cash by the Bank. The books and records of the
Bank shall be the best evidence of the principal amount and the unpaid interest
amount owing at any time under this Note and shall be conclusive absent manifest
error. No interest shall accrue under this Note until the date of the first
advance made by the Bank; after that interest on all advances shall accrue and
be computed on the principal balance outstanding from time to time under this
Note until the same is paid in full. At no time shall the Bank be under any
obligation to make any advances to the undersigned pursuant to this Note
(notwithstanding anything expressed or implied in this Note or elsewhere to the
contrary, including without limit if the Bank supplies the undersigned with a
borrowing formula) and the Bank, at any time and from time to time, without
notice, and in its sole discretion, may refuse to make advances to the
undersigned without incurring any liability due to this refusal and without
affecting the undersigned's liability under this Note for any and all amounts
advanced.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
- -enewals or extensions of it, whetherjointor several, contingent or absolute,
now existing or later arising, and however evidenced (collectively ,
indebtedness") are secured by and the Bank is granted a security interest in all
items deposited in any account of any of the undersigned with the Bank and by
all proceeds of these items (cash or otherwise), all account balances of any of
the undersigned from time to time with the Bank, by all property of any of the
undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge, assignment and other security or
collateral agreement which has been, or will at any time(s) later be, executed
by any (or all) of the undersigned to or for the benefit of the Bank
(collectively "Collateral"). Notwithstanding the above, (I) to the extent that
any portion of the Indebtedness is a consumer loan, that portion shall not be
secured by any deed of trust or mortgage on or other security interest in any of
the undersigned's principal dwelling or in any of the undersigned's real
property which is not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place, or (ii) if the
undersigned (or any of them) has(have) given or give(s) Bank a deed of trust or
mortgage covering California real property, that deed of trust or mortgage shall
not secure this Note or any other indebtedness of the undersigned (or any of
them), unless expressly provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the indebtedness ("guarantor") (i) fail(s) to pay any of the
Indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to pay
any Indebtedness owing on a demand basis upon demand; or (ii) fail(s) to comply
with any of the terms or provisions of any agreement between the undersigned (or
any of them) or any such guarantor and the Bank; or (III) become(s) insolvent or
the subject of a voluntary or involuntary proceeding in bankruptcy, or a
reorganization, arrangement or creditor composition proceeding, (if a business
entity) cease(s) doing business as a going concern, (if a natural person) die(s)
or become(s) incompetent, (if a partnership) dissolve(s) or any general partner
of it dies, becomes incompetent or becomes the subject of a bankruptcy
proceeding or (if a corporation or a limited liability company) is the subject
<PAGE>
of a dissolution, merger or consolidation; or (a) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the Indebtedness shall be discovered to be untrue or
incomplete; or (b) if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the Indebtedness; or (c) if there is any failure
by any of the undersigned or any guarantor to pay when due any of its
indebtedness (otherthan to the Bank) or in the observance or performance of any
term, covenant or condition in any document evidencing, securing or relating to
such indebtedness; or (d) if the Bank deems itself insecure believing that the
prospect of payment of this Note or any of the Indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (e) if there
is filed or issued a levy orwrit of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
Indebtedness to be immediately due and payable (notwithstanding any provisions
,mntained in the evidence of it to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the Indebtedness any amounts ivving
by the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant Indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law.
The undersigned acknowledge(s) that this Note matures upon issuance, and that
the Bank, at any time, without notice, and without reason, may demand that this
Note be immediately paid in full. The demand nature of this Note shall not be
deemed modified by reference to a Default in this Note or in any agreement to a
default by the undersigned or to the occurrence of an event of default
(collectively an "Event of Default"). For purposes of this Note, to the extent
there is reference to an Event of Default this reference is for the purpose of
permitting the Bank to accelerate Indebtedness not on a demand basis and to
receive interest at the default rate provided in the document evidencing the
relevant ndebtedness. It is expressly agreed that the Bank may exercise its
demand rights under this Note whether or not an Event of Default has occurred.
The Bank, with or without reason and without notice, may from time to time ma '
ke demand for partial payments underthis Note and these demands shall not
preclude the Bank from demanding at any time that this Note be immediately paid
in full. All payments under this Note shall be in immediately available United
States funds, without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns. The undersigned waive(s) presentment, demand, protest, notice of
dishonor, notice of demand or intent to demand, notice of acceleration or intent
to accelerate, and all other notices and agree(s) that no extension or
indulgence to the undersigned (or any of them) or release, substitution or
nonenforcement of any security, or release or substitution of any of the
undersigned, any guarantor or any other party, whether with or without notice,
shall affect the obligations of any of the undersigned. The undersigned waive(s)
all defenses or right to discharge available under Section 3-605 of the Michigan
Uniform Commercial Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the Bank has the right to sell, assign,
or grant participations or any interest in, any or all of the Indebtedness, and
that, in connection with this right, but without limiting its ability to make
other disclosures to the full extent allowable, the Bank may disclose all
documents and information which the Bank now or later has relating to the
undersigned or the Indebtedness. The undersigned agree(s) that the Bank may
provide information relating to this Note or relating to the undersigned to the
Bank's parent, affiliates, subsidiaries and service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note upon
demand for any and all costs and expenses (including without limit, court costs,
legal expenses and reasonable attorney fees, whether inside or outside counsel
is used, whether or not suit is instituted and, if suit is instituted, whether
at the trial court level, appellate level, in a bankruptcy, probate or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or incurred in any other matter or proceeding relating to this
Note.
This Note replaces and renews the Master Revolving Note dated August 12, 1998
from Borrower to Bank in the principal amount of $3,500,000.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a 'imilar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
~ffective. THIS NOTE IS MADE IN THE STATE OF MICHIGAN AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MICHIGAN,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
<PAGE>
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED 25% PER ANNUM, OR THE HIGHEST
APPLICABLE USURY CEILING, WHICHEVER IS LESS.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BYJURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
<TABLE>
<CAPTION>
<S> <C> <C>
AVIATION HOLDINGS INT'L INC., formerly known as By: Its: President
JET AVIATION TRADING, INC. ------------------- ------------------------
SIGNATURE OF TITLE (if applicable)
OBLIGOR NAME TYPED/PRINTED
By: Its: Chief Financial Officer
------------------- ------------------------
SIGNATURE OF TITLE (it appiicable)
By: Its:
------------------- ------------------------
SIGNATURE OF TITLE (it applicable)
By: Its:
------------------- ------------------------
SIGNATURE OF TITLE (it applicable)
15675 N.W. 15' Avenue Miami Florida 33169
- -----------------------------------------------------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP CODE
- -----------------------------------------------------------------------------------------------------------------
For Bank Use Only CCAR#
- -----------------------------------------------------------------------------------------------------------------
LOAN OFFICER INITIALS LOAN GROUP NAME OBLIGOR NAME
- -----------------------------------------------------------------------------------------------------------------
LOAN OFFICER ID. NO. LOAN GROUP NO. OBLIGOR NO. NOTE NO. AMOUNT
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT C
ComericA Security Agreement
(All Assets)
- -------------------------------------------------------------------------------
As of September __, 1999, for value received, the undersigned ("Debtor") grants
to Comerica Bank ("Bank"), a Michigan banking corporation, a continuing security
interest in the Collateral (as defined below) to secure payment when due,
whether by stated maturity, demand, acceleration or otherwise, of all existing
and future indebtedness ("Indebtedness") to the Bank of Aviation Holdings
Int'l., Inc., a Florida corporation formerly known as Jet Aviation Trading, Inc.
("Borrower") and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary, liquidated
or unliquidated, joint or several, known or unknown; any and all obligations or
liabilities for which the Borrower and/or Debtor would otherwise be liable to
the Bank were it not for the invalidity or unenforceability of them by reason of
any bankruptcy, insolvency or other law, or for any other reason; any and all
amendments, modifications, renewals and/or extensions of any of the above; all
costs incurred by Bank in establishing, determining, continuing, or defending
the validity or priority of its security interest, or in pursuing its rights and
remedies under this Agreement or under any other agreement between Bank and
Borrower and/or Debtor or in connection with any proceeding involving Bank as a
result of any financial accommodation to Borrower and/or Debtor; and all other
costs of collecting Indebtedness, including without limit attorney fees. Debtor
agrees to pay Bank all such costs incurred by the Bank, immediately upon demand,
and until paid all costs shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorney fees
or court costs are incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding or otherwise.
1. Collateral shall mean all of the following property Debtor now or later owns
or has an interest in, wherever located:
(a) all Accounts Receivable (for purposes of this Agreement,
"Accounts Receivable" consists of all accounts, general
intangibles, chattel paper, contract rights, deposit accounts,
documents and instruments),
(b) all Inventory,
(c) all Equipment and Fixtures,
(d) specific items listed below and/or on attached Schedule A, if
any, is/are also included in Collateral:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
(e) all goods, instruments, documents, policies and certificates
of insurance, deposits, money, investment property or other
property (except real property which is not a fixture) which
are now or later in possession or control of Bank, or as to
which Bank now or later controls possession by documents or
otherwise, and
(f) all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions,
rights of any kind (including but not limited to stock splits,
stock rights, voting and preferential rights), products, and
proceeds of or pertaining to the above including, without
limit, cash or other property which were proceeds and are
recovered by a bankruptcy trustee or otherwise as a
preferential transfer by Debtor.
2. Warranties, Covenants and Agreements. Debtor warrants, covenants and agrees
as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank
may request, any information Bank may reasonably request and
allow Bank to examine, inspect, and copy any of Debtor's books
and records. Debtor shall, at the request of Bank, mark its
records and the Collateral to clearly indicate the security
interest of Bank under this Agreement.
<PAGE>
2.2 At the time any Collateral becomes, or is represented to be,
subject to a security interest in favor of Bank, Debtor shall
be deemed to have warranted that (a) Debtor is the lawful
owner of the Collateral and has the right and authority to
subject it to a security interest granted to Bank; (b) none of
the Collateral is subject to any security interest other than
that in favor of Bank and there are no financing statements on
file, other than in favor of Bank; and (c) Debtor acquired its
rights in the Collateral in the ordinary course of its
business.
2.3 Debtor will keep the Collateral free at all times from all
claims, liens, security interests and encumbrances other than
those in favor of Bank. Debtor will not, without the prior
written consent of Bank, sell, transfer or lease, or permit to
be sold, transferred or leased, any or all of the Collateral,
except for Inventory in the ordinary course of its business
and will not return any Inventory to its supplier. Bank or its
representatives may at all reasonable times inspect the
Collateral and may enter upon all premises where the
Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be
executed all writings requested by Bank to establish, maintain
and continue a perfected and first security interest of Bank
in the Collateral. Debtor agrees that Bank has no obligation
to acquire or perfect any lien on or security interest in any
asset(s), whether realty or personalty, to secure payment of
the Indebtedness, and Debtor is not relying upon assets in
which the Bank may have a lien or security interest for
payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without
interest or penalty all taxes, assessments and similar charges
which at any time are or may become a lien, charge, or
encumbrance upon any Collateral, except to the extent
contested in good faith and bonded in a manner satisfactory to
Bank. If Debtor fails to pay any of these taxes, assessments,
or other charges in the time provided above, Bank has the
option (but not the obligation) to do so and Debtor agrees to
repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate
which could be charged by Bank on any Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will
protect it from loss, damage, or deterioration from any cause.
Debtor has and will maintain at all times (a) with respect to
the Collateral, insurance under an "all risk" policy against
fire and other risks customarily insured against, and (b)
public liability insurance and other insurance as may be
required by law or reasonably required by Bank, all of which
insurance shall be in amount, form and content, and written by
companies as may be satisfactory to Bank, containing a
lender's loss payable endorsement acceptable to Bank. Debtor
will deliver to Bank immediately upon demand evidence
satisfactory to Bank that the required insurance has been
procured. If Debtor fails to maintain satisfactory insurance,
Bank has the option (but not the obligation) to do so and
Debtor agrees to repay all amounts so expended by Bank
immediately upon demand, together with interest at the highest
lawful default rate which could be charged by Bank on any
Indebtedness.
2.7 On each occasion on which Debtor evidences to Bank the account
balances on and the nature and extent of the Accounts
Receivable, Debtor shall be deemed to have warranted that
except as otherwise indicated (a) each of those Accounts
Receivable is valid and enforceable without performance by
Debtor of any act; (b) each of those account balances are in
fact owing, (c) there are no setoffs, recoupments, credits,
contra accounts, counter claims or defenses against any of
those Accounts Receivable, (d) as to any Accounts Receivable
represented by a note, trade acceptance, draft or other
instrument or by any chattel paper or document, the same have
been endorsed and/or delivered by Debtor to Bank, (e) Debtor
has not received with respect to any Account Receivable, any
notice of the death of the related account debtor, nor of the
dissolution, liquidation, termination of existence,
insolvency, business failure, appointment of a receiver for,
assignment for the benefit of creditors by, or filing of a
petition in bankruptcy by or against, the account debtor, and
(f) as to each Account Receivable, the account debtor is not
an affiliate of Debtor, the United States of America or any
<PAGE>
department, agency or instrumentality of it, or a citizen or
resident of any jurisdiction outside of the United States.
Debtor will do all acts and will execute all writings
requested by Bank to perform, enforce performance of, and
collect all Accounts Receivable. Debtor shall neither make nor
permit any modification, compromise or substitution for any
Account Receivable without the prior written consent of Bank.
Debtor shall, at Bank's request, arrange for verification of
Accounts Receivable directly with account debtors or by other
methods acceptable to Bank.
2.8 Debtor at all times shall be in strict compliance with all
applicable laws, including without limit any laws, ordinances,
directives, orders, statutes, or regulations an object of
which is to regulate or improve health, safety, or the
environment ("Environmental Laws").
2.9 If Bank, acting in its sole discretion, redelivers Collateral
to Debtor or Debtor's designee for the purpose of (a) the
ultimate sale or exchange thereof; or (b) presentation,
collection, renewal, or registration of transfer thereof; or
(c) loading, unloading, storing, shipping, transshipping,
manufacturing, processing or otherwise dealing with it
preliminary to sale or exchange; such redelivery shall be in
trust for the benefit of Bank and shall not constitute a
release of Bank's security interest in it or in the proceeds
or products of it unless Bank specifically so agrees in
writing. If Debtor requests any such redelivery, Debtor will
deliver with such request a duly executed financing statement
in form and substance satisfactory to Bank. Any proceeds of
Collateral coming into Debtor's possession as a result of any
such redelivery shall be held in trust for Bank and
immediately delivered to Bank for application on the
Indebtedness. Bank may (in its sofe discretion) deliver any or
all of the Collateral to Debtor, and such delivery by Bank
shall discharge Bank from all liability or responsibility for
such Collateral. Bank, at its option, may require delivery of
any Collateral to Bank at any time with such endorsements or
assignments of the Collateral as Bank may request.
2.10 At any time and without notice, Bank may (a) cause any or all
of the Collateral to be transferred to its name or to the name
of its nominees; (b) receive or collect by legal proceedings
or otherwise all dividends, interest, principal payments and
other sums and all other distributions at any time payable or
receivable on account of the Collateral, and hold the same as
Collateral, or apply the same to the Indebtedness, the manner
and distribution of the application to be in the sole
discretion of Bank; (c) enter into any extension,
subordination, reorganization, deposit, merger or
consolidation agreement or any other agreement relating to or
affecting the Collateral, and deposit or surrender control of
the Collateral, and accept other property in exchange for the
Collateral and hold or apply the property or money so received
pursuant to this Agreement.
2.11 Bank may assign any of the Indebtedness and deliver any or all
of the Collateral to its assignee, who then shall have with
respect to Collateral so delivered all the rights and powers
of Bank under this Agreement, and after that Bank shall be
fully discharged from all liability and responsibility with
respect to Collateral so delivered.
2.12 Debtor delivers this Agreement based solely on Debtor's
independent investigation of (or decision not to investigate)
the financial condition of Borrower and is not relying on any
information furnished by Bank. Debtor assumes full
responsibility for obtaining any further information
concerning the Borrower's financial condition, the status of
the Indebtedness or any other matter which the undersigned may
deem necessary or appropriate now or later. Debtor waives any
duty on the part of Bank, and agrees that Debtor is not
relying upon nor expecting Bank to disclose to Debtor any fact
now or later known by Bank, whether relating to the operations
or condition of Borrower, the existence, liabilities or
financial condition of any guarantor of the Indebtedness, the
occurrence of any default with respect to the Indebtedness, or
otherwise, notwithstanding any effect such fact may have upon
Debtor's risk or Debtor's rights against Borrower. Debtor
knowingly accepts the full range of risk encompassed in this
Agreement, which risk includes without limit the possibility
that Borrower may incur Indebtedness to Bank after the
financial condition of Borrower, or Borrower's ability to pay
debts as they mature, has deteriorated.
<PAGE>
2.13 Debtor shall defend, indemnify and hold harmless Bank, its
employees, agents, shareholders, affiliates, officers, and
directors from and against any and all claims, damages, fines,
expenses, liabilities or causes of action of whatever kind,
including without limit consultant fees, legal expenses, and
attorney fees, suffered by any of them as a direct or indirect
result of any actual or asserted violation of any law,
including, without limit, Environmental Laws, or of any
remediation relating to any property required by any law,
including without limit Environmental Laws.
3. Collection of Proceeds.
3.1 Debtor agrees to collect and enforce payment of all Collateral
until Bank shall direct Debtor to the contrary. Immediately
upon notice to Debtor by Bank and at all times after that,
Debtor agrees to fully and promptly cooperate and assist Bank
in the collection and enforcement of all Collateral and to
hold in trust for Bank all payments received in connection
with Collateral and from the sale, lease or other disposition
of any Collateral, all rights by way of suretyship or guaranty
and all rights in the nature of a lien or security interest
which Debtor now or later has regarding Collateral.
Immediately upon and after such notice, Debtor agrees to (a)
endorse to Bank and immediately deliver to Bank all payments
received on Collateral or from the sale, lease or other
disposition of any Collateral or arising from any other rights
or interests of Debtor in the Collateral, in the form received
by Debtor without commingling with any other funds, and (b)
immediately deliver to Bank all property in Debtor's
possession or later coming into Debtor's possession through
enforcement of Debtor's rights or interests in the Collateral.
Debtor irrevocably authorizes Bank or any Bank employee or
agent to endorse the name of Debtor upon any checks or other
items which are received in payment for any Collateral, and to
do any and all things necessary in order to reduce these items
to money. Bank shall have no duty as to the collection or
protection of Collateral or the proceeds of it, nor as to the
preservation of any related rights, beyond the use of
reasonable care in the custody and preservation of Collateral
in the possession of Bank. Debtor agrees to take all steps
necessary to preserve rights against prior parties with
respect to the Collateral. Nothing in this Section 3.1 shall
be deemed a consent by Bank to any sale, lease or other
disposition of any Collateral.
3.2 Debtor agrees that immediately upon Bank's request (whether or
not any Event of Default exists) the Indebtedness shall be on
a "remittance basis" as follows: Debtor shall at its sole
expense establish and maintain (and Bank, at Bank's option may
establish and maintain at Debtor's expense): (a) an United
States Post Office lock box (the "Lock Box"), to which Bank
shall have exclusive access and control. Debtor expressly
authorizes Bank, from time to time, to remove contents from
the Lock Box, for disposition in accordance with this
Agreement. Debtor agrees to notify all account debtors and
other parties obligated to Debtor that all payments made to
Debtor (other than payments by electronic funds transfer)
shall be remitted, for the credit of Debtor, to the Lock Box,
and Debtor shall include a like statement on all invoices; and
(b) a non-interest bearing deposit account with Bank which
shall be titled as designated by Bank (the "Cash Collateral
Account") to which Bank shall have exclusive access and
control. Debtor agrees to notify all account debtors and other
parties obligated to Debtor that all payments made to Debtor
by electronic funds transfer shall be remitted to the Cash
Collateral Account, and Debtor, at Bank's request, shall
include a like statement on all invoices. Debtor shall execute
all documents and authorizations as required by Bank to
establish and maintain the Lock Box and the Cash Collateral
Account.
<PAGE>
3.3 All items or amounts which are remitted to the Lock Box, to
the Cash Collateral Account, or otherwise delivered by or for
the benefit of Debtor to Bank on account of partial or full
payment of, or with respect to, any Collateral shall, at
Bank's option, M be applied to the payment of the
Indebtedness, whether then due or not, in such order or at
such time of application as Bank may determine in its sole
discretion, or, (ii) be deposited to the Cash Collateral
Account. Debtor agrees that Bank shall not be liable for any
loss or damage which Debtor may suffer as a result of Bank's
processing of items or its exercise of any other rights or
remedies under this Agreement, including without limitation
indirect, special or consequential damages, loss of revenues
or profits, or any claim, demand or action by any third party
arising out of or in connection with the processing of items
or the exercise of any other rights or remedies under this
Agreement. Debtor agrees to indemnify and hold Bank harmless
from and against all such third party claims, demands or
actions, and all related expenses or liabilities, including,
without limitation, attorney fees.
4. Defaults, Enforcement and Application of Proceeds.
4.1 Upon the occurrence of any of the following events leach an
"Event of Default"), Debtor shall be in default under this
Agreement:
(a) Any failure to pay the Indebtedness or any other indebtedness
when due, or such portion of it as may be due, by acceleration
or otherwise; or
(b) Any failure or neglect to comply with, or breach of or default
under, any term of this Agreement, or any other agreement or
commitment between Borrower, Debtor, or any guarantor of any
of the Indebtedness ("Guarantor") and Bank; or
(c) Any warranty, representation, financial statement, or other
information made, given or furnished to Bank by or on behalf
of Borrower, Debtor, or any Guarantor shall be, or shall prove
to have been, false or materially misleading when made, given,
or furnished; or
(d) Any loss, theft, substantial damage or destruction to or of
any Collateral, or the issuance or filing of any attachment,
levy, garnishment or the commencement of any proceeding in
connection with any Collateral or of any other judicial
process of, upon or in respect of Borrower, Debtor, any
Guarantor, or any Collateral; or
(e) Sale or other disposition by Borrower, Debtor, or any
Guarantor of any substantial portion of its assets or property
or voluntary suspension of the transaction of business by
Borrower, Debtor, or any Guarantor, or death, dissolution,
termination of existence, merger, consolidation, insolvency,
business failure, or assignment for the benefit of creditors
of or by Borrower, Debtor, or any Guarantor; or commencement
of any proceedings under any state or federal bankruptcy or
insolvency laws or laws for the relief of debtors by or
against Borrower, Debtor, or any Guarantor; or the appointment
of a receiver, trustee, court appointee, sequestrator or
otherwise, for all or any part of the property of Borrower,
Debtor, or any Guarantor; or
(f) Bank deems the margin of Collateral insufficient or itself
insecure, in good faith believing that the prospect of payment
of the Indebtedness or performance of this Agreement is
impaired or shall fear deterioration, removal, or waste of
Collateral.
4.2 Upon the occurrence of any Event of Default, Bank may at its
discretion and without prior notice to Debtor declare any or
all of the Indebtedness to be immediately due and payable, and
shall have and may exercise any one or more of the following
rights and remedies:
(a) Exercise all the rights and remedies upon default, in
foreclosure and otherwise, available to secured parties under
the provisions of the Uniform Commercial Code and other
applicable law;
<PAGE>
(b) Institute legal proceedings to foreclose upon the lien and
security interest granted by this Agreement, to recover
judgment for all amounts then due and owing as Indebtedness,
and to collect the same out of any Collateral or the proceeds
of any sale of it;
(c) Institute legal proceedings for the sale, under the judgment
or decree of any court of competent jurisdiction, of any or
all Collateral; and/or
(d) Personally or by agents, attorneys, or appointment of a
receiver, enter upon any premises where Collateral may then be
located, and take possession of all or any of it and/or render
it unusable; and without being responsible for loss or damage
to such Collateral, hold, operate, sell, lease, or dispose of
all or any Collateral at one or more public or private sales,
leasings or other disposition, at places and times and on
terms and conditions as Bank may deem fit, without any
previous demand or advertisement; and except as provided in
this Agreement, all notice of sale, lease or other
disposition, and advertisement, and other notice or demand,
any right or equity of redemption, and any obligation of a
prospective purchaser or lessee to inquire as to the power and
authority of Bank to sell, lease, or otherwise dispose of the
Collateral or as to the application by Bank of the proceeds of
sale or otherwise, which would otherwise be required by, or
available to Debtor under, applicable law are expressly waived
by Debtor to the fullest extent permitted.
At any sale pursuant to this Section 4.2, whether under the
power of sale, by virtue of judicial proceedings or otherwise,
it shall not be necessary for Bank or a public officer under
order of a court to have present physical or constructive
possession of Collateral to be sold. The recitals contained in
any conveyances and receipts made and given by Bank or the
public officer to any purchaser at any sale made pursuant to
this Agreement shall, to the extent permitted by applicable
law, conclusively establish the truth and accuracy of the
matters stated (including, without limit, as to the amounts of
the principal of and interest on the Indebtedness, the accrual
and nonpayment of it and advertisement and conduct of the
sale); and all prerequisites to the sale shall be presumed to
have been satisfied and performed. Upon any sale of any
Collateral, the receipt of the officer making the sale under
judicial proceedings or of Bank shall be sufficient discharge
to the purchaser for the purchase money, and the purchaser
shall not be obligated to see to the application of the money.
Any sale of any Collateral under this Agreement shall be a
perpetual bar against Debtor with respect to that Collateral.
4.3 Debtor shall at the request of Bank, notify the account
debtors or obligors of Bank's security interest in the
Collateral and direct payment of it to Bank. Bank may, itself,
upon the occurrence of any Event of Default so notify and
direct any account debtor or obligor.
4.4 The proceeds of any sale or other disposition of Collateral
authorized by this Agreement shall be applied by Bank first
upon all expenses authorized by the Uniform Commercial Code
and all reasonable attorney fees and legal expenses incurred
by Bank; the balance of the proceeds of the sale or other
disposition shall be applied in the payment of the
Indebtedness, first to interest, then to principal, then to
remaining Indebtedness and the surplus, if any, shall be paid
over to Debtor or to such other person(s) as may be entitled
to it under applicable law. Debtor shall remain liable for any
deficiency, which it shall pay to Bank immediately upon
demand.
4.5 Nothing in this Agreement is intended, nor shall it be
construed, to preclude Bank from pursuing any other remedy
provided by law for the collection of the Indebtedness or for
the recovery of any other sum to which Bank may be entitled
for the breach of this Agreement by Debtor. Nothing in this
Agreement shall reduce or release in any way any rights or
security interests of Bank contained in any existing agreement
between Borrower, Debtor, or any Guarantor and Bank.
<PAGE>
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized
officer of Bank. No waiver of any default or forbearance on
the part of Bank in enforcing any of its rights under this
Agreement shall operate as a waiver of any other default or of
the same default on a future occasion or of any rights.
4.7 Debtor irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest) the true and lawful
attorney of Debtor (with full power of substitution) in the
name, place and stead of, and at the expense of, Debtor:
(a) to demand, receive, sue for, and give receipts or acquittances
for any moneys due or to become due on any Collateral and to
endorse any item representing any payment on or proceeds of
the Collateral;
(b) to execute and file in the name of and on behalf of Debtor all
financing statements or other filings deemed necessary or
desirable by Bank to evidence, perfect, or continue the
security interests granted in this Agreement; and
(c) to do and perform any act on behalf of Debtor permitted or
required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also
agrees, upon request of Bank, to assemble the Collateral and
make it available to Bank at any place designated by Bank
which is reasonably convenient to Bank and Debtor.
5. Miscellaneous.
5.1 Until Bank is advised in writing by Debtor to the contrary,
all notices, requests and demands required under this
Agreement or by law shall be given to, or made upon, Debtor at
the first address indicated in Section 5.15 below.
5.2 Debtor will give Bank not less than 90 days prior written
notice of all contemplated changes in Debtor's name, chief
executive office location, and/or location of any Collateral,
but the giving of this notice shall not cure any Event of
Default caused by this change.
5.3 Bank assumes no duty of performance or other responsibility
under any contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or
grant participations or any interest in, any or all of the
Indebtedness and any related obligations, including without
limit this Agreement. In connection with the above, but
without limiting its ability to make other disclosures to the
full extent allowable, Bank may disclose all documents and
information which Bank now or later has relating to Debtor,
the Indebtedness or this Agreement, however obtained. Debtor
further agrees that Bank may provide information relating to
this Agreement or relating to Debtor to the Bank's parent,
affiliates, subsidiaries, and service providers.
5.5 In addition to Bank's other rights, any indebtedness owing
from Bank to Debtor can be set off and applied by Bank on any
Indebtedness at any time(s) either before or after maturity or
demand without notice to anyone.
5.6 Debtor waives any right to require the Bank to: (a) proceed
against any person or property; (b) give notice of the terms,
time and place of any public or private sale of personal
property security held from Borrower or any other person, or
otherwise comply with the provisions of Section 9-504 of the
Uniform Commercial Code; or (c) pursue any other remedy in the
Bank's power. Debtor waives notice of acceptance of this
Agreement and presentment, demand, protest, notice of protest,
dishonor, notice of dishonor, notice of default, notice of
intent to accelerate or demand payment of any Indebtedness,
any and all other notices to which the undersigned might
otherwise be entitled, and diligence in collecting any
Indebtedness, and agree(s) that the Bank may, once or any
number of times, modify the terms of any Indebtedness,
compromise, extend, increase, accelerate, renew or forbear to
enforce payment of any or all Indebtedness, or permit Borrower
to incur additional Indebtedness, all without notice to Debtor
<PAGE>
and without affecting in any manner the unconditional
obligation of Debtor under this Agreement. Debtor
unconditionally and irrevocably waives each and every defense
and setoff of any nature which, under principles of guaranty
or otherwise, would operate to impair or diminish in any way
the obligation of Debtor under this Agreement, and
acknowledges that such waiver is by this reference
incorporated into each security agreement, collateral
assignment, pledge and/or other document from Debtor now or
later securing the Indebtedness, and acknowledges that as of
the date of this Agreement no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation,
indemnity, reimbursement, or otherwise) to recover from
Borrower any amounts paid or the value of any Collateral given
by Debtor pursuant to this Agreement.
5.8 In the event that applicable law shall obligate Bank to give
prior notice to Debtor of any action to be taken under this
Agreement, Debtor agrees that a written notice given to Debtor
at least five days before the date of the act shall be
reasonable notice of the act and, specifically, reasonable
notification of the time and place of any public sale or of
the time after which any private sale, lease, or other
disposition is to be made, unless a shorter notice period is
reasonable under the circumstances. A notice shall be deemed
to be given under this Agreement when delivered to Debtor or
when placed in an envelope addressed to Debtor and deposited,
with postage prepaid, in a post office or official depository
under the exclusive care and custody of the United States
Postal Service or delivered to an overnight courier. The
mailing shall be by overnight courier, certified, or first
class mail.
5.9 Notwithstanding any prior revocation, termination, surrender,
or discharge of this Agreement in whole or in part, the
effectiveness of this Agreement shall automatically continue
or be reinstated in the event that any payment received or
dredit given by Bank in respect of the Indebtedness is
returned, disgorged, or rescinded under any applicable law,
including, without limitation, bankruptcy or insolvency laws,
in which case this Agreement, shall be enforceable against
Debtor as if the returned, disgorged, or rescinded payment or
credit had not been received or given by Bank, and whether or
not Bank relied upon this payment or credit or changed its
position as a consequence of it. In the event of continuation
or reinstatement of this Agreement, Debtor agrees upon demand
by Bank to execute and deliver to Bank those documents which
Bank determines are appropriate to further evidence (in the
public records or otherwise) this continuation or
reinstatement, although the failure of Debtor to do so shall
not affect in any way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under
this Agreement shall inure to the benefit of Bank's successors
and assigns and to any other holder who derives from Bank
title to or an interest in the Indebtedness or any portion of
it, and shall bind Debtor and the heirs, legal
representatives, successors, and assigns of Debtor. Nothing in
this Section 5.10 is deemed a consent by Bank to any
assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties
and covenants made by Debtor and all rights, powers and
authorities given to or conferred upon Bank are made or given
jointly and severally.
5.12 Except as otherwise provided in this Agreement, all terms in
this Agreement have the meanings assigned to them in Article 9
(or, absent definition in Article 9 in any other Article) of
the Uniform Commercial Code. "Uniform Commercial Code" means
Act No. 174 of & Michigan Public Acts of 1962, as amended.
5.13 No single or partial exercise, or delay in the exercise, of
any right or power under this Agreement, shall preclude other
or further exercise of the rights and powers under this
Agreement. The unenforceability of any provision of this
Agreement shall not affect the enforceability of the remainder
of this Agreement. This Agreement constitutes the entire
agreement of Debtor and Bank with respect to the subject
<PAGE>
matter of this Agreement. No amendment or modification of this
Agreement shall be effective unless the same shall be in
writing and signed by Debtor and an authorized officer of
Bank. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Michigan,
without regard to conflict of laws principles.
5.14 To the extent that any of the Indebtedness is payable upon
demand, nothing contained in this Agreement shall modify the
terms and conditions of that Indebtedness nor shall anything
contained in this Agreement prevent Bank from making demand,
without notice and with or without reason, for immediate
payment of any or all of that Indebtedness at any time(s),
whether or not an Event of Default has occurred.
5.15 Debtor's chief executive office is located and shall be
maintained at ____________________
STREET ADDRESS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
CITY STATE ZIP CODE COUNTY
If Collateral is located at other than the chief executive office, such
Collateral is located and shall be maintained at
----------------------------------------------------------------------------------------------
STREET ADDRESS
----------------------------------------------------------------------------------------------
CITY STATE ZIP CODE COUNTY
</TABLE>
Collateral shall be maintained only at the locations identified in this
Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement under the Uniform
Commercial Code and may be filed by Bank in any filing office.
5.17 This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable
provisions of the Uniform Commercial Code, but the obligations
contained in Section 2.13 of this Agreement shall survive
termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT
WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
AGREEMENT OR THE INDEBTEDNESS.
Special Provisions Applicable to this Agreement. (*None, if left blank)
Debtor:
----------------------------------
DEBTOR NAME TYPED/PRINTED
By:
-------------------------------
SIGNATURE OF
Its:
-------------------------------
TITLE (if applicable)
BY:
-------------------------------
SIGNATURE OF
Its:
-------------------------------
TITLE (If applicable)
<PAGE>
Exhibit 10.9(b)
Comerica Master Revolving Note
Variable Rate-Demand - Optional Advances (Business and Commercial Loans Only)
- --------------------------------------------------------------------------------
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION
$3,500,000 September 1, 1999 On Demand NUMBER
- --------------------------------------------------------------------------------
For Value Received, the undersigned promise(s) to pay ON DEMAND to the order of
Comerica Bank ("Bank"), at any office of the Bank in the State of Michigan,
Three Million Five Hundred Thousand Dollars (U.S.) (or that portion of it
advanced by the Bank and not repaid as later provided) with interest until
demand or until Default, as later defined, at a per annum rate equal to the
Bank's prime rate from time to time in effect plus 1% per annum and after that
at a rate equal to the rate of interest otherwise prevailing under this Note
plus 3% per annum (but in no event in excess of the maximum rate permitted by
law). The Bank's "prime rate" is that annual rate of interest so designated by
the Bank and which is changed by the Bank from time to time. Interest rate
changes will be effective for interest computation purposes as and when the
Bank's prime rate changes. Interest shall be calculated on the basis of a
360-day year for the actual number of days the principal is outstanding. Unless
sooner demanded, accrued interest on this Note shall be payable on the first day
of each month commencing October 1, 1999. If the frequency of interest payments
is not otherwise specified, accrued interest on this Note shall be payable
monthly on the first day of each month, unless sooner demanded. If any payment
of principal or interest under this Note shall be payable on a day other than a
day on which the Bank is open for business, this payment shall be extended to
the next succeeding business day and interest shall be payable at the rate
specified in this Note during this extension. A late payment charge equal to 5%
of each late payment may be charged on any payment not received by the Bank
within 10 calendar days after the payment due date, but acceptance of payment of
this charge shall not waive any Default under this Note.
The principal amount payable under this Note shall be the sum of all advances
made by the Bank to or at the request of the undersigned, less principal
payments actually received in cash by the Bank. The books and records of the
Bank shall be the best evidence of the principal amount and the unpaid interest
amount owing at any time under this Note and shall be conclusive absent manifest
error, No interest shall accrue under this Note until the date of the first
advance made by the Bank; after that interest on all advances shall accrue and
be computed on the principal balance outstanding from time to time under this
Note until the same is paid in full. At no time shall the Bank be under any
obligation to make any advances to the undersigned pursuant to this Note
(notwithstanding anything expressed or implied in this Note or elsewhere to the
contrary, including without limit if the Bank supplies the undersigned with a
borrowing formula) and the Bank, at any time and from time to time, without
notice, and in its sole discretion, may refuse to make advances to the
undersigned without incurring any liability due to this refusal and without
affecting the undersigned's liability under this Note for any and all amounts
advanced.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge, assignment and other security or
collateral agreement which has been, or will at any time(s) later be, executed
by any (or all) of the undersigned to or for the benefit of the Bank
(collectively "Collateral"). Notwithstanding the above, (i) to the extent that
any portion of the indebtedness is a consumer loan, that portion shall not be
secured by any deed of trust or mortgage on or other security interest in any of
the undersigned's principal dwelling or in any of the undersigned's real
property which is not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place, or (ii) if the
undersigned (or any of them) has (have) given or give(s) Bank a deed of trust or
mortgage covering California real property, that deed of trust or mortgage shall
not secure this Note or any other indebtedness of the undersigned (or any of
them), unless expressly provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the Indebtedness ("guarantor") (i) fail(s) to pay any of the
Indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to pay
any Indebtedness owing on a demand basis upon demand; or (ii) fail(s) to comply
with any of the terms or provisions of any agreement between the undersigned (or
any of them) or any such guarantor and the Bank; or (iii) become(s) insolvent or
the subject of a voluntary or involuntary proceeding in bankruptcy,
<PAGE>
or a reorganization, arrangement or creditor composition proceeding, (if a
business entity) cease(s) doing business as a going concern, (if a natural
person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any
general partner of it dies, becomes incompetent or becomes the subject of a
bankruptcy proceeding or (if a corporation or a limited liability company) is
the subject of a dissolution, merger or consolidation; or (a) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the Indebtedness shall be discovered to be untrue or
incomplete; or (b) if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the indebtedness; or (c) if there is any failure
by any of the undersigned or any guarantor to pay when due any of its
indebtedness (other than to the Bank) or in the observance or performance of any
term, covenant or condition in any document evidencing, securing or relating to
such indebtedness; or (d) if the Bank deems itself insecure believing that the
prospect of payment of this Note or any of the Indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (e) if there
is filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
Indebtedness to be immediately due and payable (notwithstanding any provisions
contained in the evidence of it to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the Indebtedness any amounts owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant Indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law.
The undersigned acknowledge(s) that this Note matures upon issuance, and that
the Bank, at any time, without notice, and without reason, may demand that this
Note be immediately paid in full. The demand nature of this Note shall not be
deemed modified by reference to a Default in this Note or in any agreement to a
default by the undersigned or to the occurrence of an event of default
(collectively an "Event of Default"). For purposes of this Note, to the extent
there is reference to an Event of Default this reference is for the purpose of
permitting the Bank to accelerate Indebtedness not on a demand basis and to
receive interest at the default rate provided in the document evidencing the
relevant Indebtedness. It is expressly agreed that the Bank may exercise its
demand rights under this Note whether or not an Event of Default has occurred.
The Bank, with or without reason and without notice, may from time to time make
demand for partial payments under this Note and these demands shall not preclude
the Bank from demanding at any time that this Note be immediately paid in full.
All payments under this Note shall be in immediately available United States
funds, without set off or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns. The undersigned waive(s) presentment, demand, protest, notice of
dishonor, notice of demand or intent to demand, notice of acceleration or intent
to accelerate, and all other notices and agree(s) that no extension or
indulgence to the undersigned (or any of them) or release, substitution or
nonenforcement of any security, or release or substitution of any of the
undersigned, any guarantor or any other party, whether with or without notice,
shall affect the obligations of any of the undersigned. The undersigned waive(s)
all defenses or right to discharge available under Section 3-605 of the Michigan
Uniform Commercial Code and waive(s) all other suretyship defenses or right to
discharge, The undersigned agree(s) that the Bank has the right to sell, assign,
or grant participation or any interest in, any or all of the Indebtedness, and
that, in connection with this right, but without limiting its ability to make
other disclosures to the full extent allowable, the Bank may disclose all
documents and information which the Bank now or later has relating to the
undersigned or the Indebtedness. The undersigned agree(s) that the Bank may
provide information relating to this Note or relating to the undersigned to the
Bank's parent, affiliates, subsidiaries and service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note upon
demand for any and all costs and expenses (including without limit, court costs,
legal expenses and reasonable attorney fees, whether inside or outside counsel
is used, whether or not suit is instituted and, if suit is instituted, whether
at the trial court level, appellate level, in a bankruptcy, probate or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or incurred in any other matter or proceeding relating to this
Note.
<PAGE>
This Note replaces and renews the Master Revolving Note dated August 12, 1998
from Borrower to Bank in the principal amount of $3,500,000.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity- If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF MICHIGAN AND SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
MICHIGAN, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED 25% PER ANNUM, OR THE HIGHEST
APPLICABLE USURY CEILING, WHICHEVER IS LESS.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY
JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR
CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY
RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
<TABLE>
<CAPTION>
<S> <C> <C>
AVIATION HOLDINGS INT'L, INC.,
formerly known as Jet Aviation Trading, Inc. By: /s/ Joseph Nelson Its: President
- -------------------------------------------- -------------------- ----------------------
Obligor Name Typed/Printed Signature of Title (if applicable)
By: /s/ Joseph Janusz Its: Chief Financial Officer
-------------------- ------------------------
Signature of Title (if applicable)
By: Its:
-------------------- ------------------------
Signature of Title (if applicable)
By: Its:
-------------------- ------------------------
Signature of Title (if applicable)
15675 NW 15th Avenue Miami Florida 33169
- ---------------------------------------------------------------------------------------------------------------
Street Address City State Zip Code
- ---------------------------------------------------------------------------------------------------------------
For Bank Use Only CCAR#
- ---------------------------------------------------------------------------------------------------------------
Loan Officer Initials Loan Group name Obligor Name
- ---------------------------------------------------------------------------------------------------------------
Loan Officer ID No. Loan Group No. Obligor No. Note No. Amount
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.9(c)
ComericA Guaranty
- -------------------------------------------------------------------------------
As of September 1 , 1999, the undersigned, for value received, unconditionally
and absolutely guarantee(s) to Comerica Bank ("Bank"), a Michigan banking
corporation, payment when due, whether by stated maturity, demand, acceleration
or otherwise, of all existing and future indebtedness ("Indebtedness") to the
Bank of Aviation Holdings Int'l., Inc., a Florida corporation formerly known as
Jet Aviation Trading, Inc. ("Borrower"). Indebtedness includes without limit any
and all obligations or liabilities of the Borrower to the Bank, whether absolute
or contingent, direct or indirect, voluntary or involuntary, liquidated or
unliquidated, joint or several, known or unknown; any and all indebtedness,
obligations or liabilities for which Borrower would otherwise be liable to the
Bank were it not for the invalidity, irregularity or unenforceability of them by
reason of any bankruptcy, insolvency or other law or order of any kind, or for
any other reason; any and all amendments, modifications, renewals and/or
extensions of any of the above; and all costs of collecting Indebtedness,
including, without limit, attorney fees. Any reference in this Guaranty to
attorney fees shall be deemed a reference to reasonable fees, charges, costs and
expenses of both in-house and outside counsel and paralegals, whether or not a
suit or action is instituted, and to court costs if a suit or action is
instituted, and whether attorney fees or court costs are incurred at the trial
court level, on appeal, in a bankruptcy, administrative or probate proceeding or
otherwise. All costs shall be payable immediately by the undersigned when
incurred by the Bank, without demand, and until paid shall bear interest a the
highest per annum rate applicable to any of the Indebtedness, but not in excess
of the maximum rate permitted by law.
1. LIMITATION: The total obligation of the undersigned under this Guaranty is
UNLIMITED unless specifically limited in the Additional Provisions of this
Guaranty, and this obligation (whether unlimited or limited to the extent
specified in the Additional Provisions) shall include, IN ADDITION TO any
limited amount of principal guaranteed, all interest on that limited
amount, and all costs incurred by the Bank in collection efforts against
the Borrower and/or the undersigned or otherwise incurred by the Bank in
any way relating to the Indebtedness, or this Guaranty, including without
limit attorney fees. The undersigned agree(s) that (a) this limitation
shall not be a limitation on the amount of Borrower's Indebtedness to the
Bank; W any payments by the undersigned shall not reduce the maximum
liability of the undersigned under this Guaranty unless written notice to
that effect is actually received by the Bank at, or prior to, the time of
the payment; and (c) the liability of the undersigned to the Bank shall at
all times be deemed to be the aggregate liability of the undersigned under
this Guaranty and any other guaranties previously or subsequently given to
the Bank by the undersigned and not expressly revoked, modified or
invalidated in writing.
2. NATURE OF GUARANTY: This is a continuing Guaranty of payment and not of
collection and remains effective whether the Indebtedness is from time to
time reduced and later increased or entirely extinguished and later
reincurred. The undersigned deliver(sI this Guaranty based solely on the
undersigned's independent investigation of (or decision not to investigate)
the financial condition of Borrower and is (are) not relying on any
information furnished by the Bank. The undersigned assume(s) full
responsibility for obtaining any further information concerning the
Borrower's financial condition, the status of the Indebtedness or any other
matter which the undersigned may deem necessary or appropriate now or
later. The undersigned knowingly accept(s) the full range of risk
encompassed in this Guaranty, which risk includes, without limit, the
possibility that Borrower may incur Indebtedness to the Bank after the
financial condition of the Borrower, or the Borrower's ability to pay debts
as they mature, has deteriorated.
3. APPLICATION OF PAYMENTS: The undersigned authorize(s) the Bank, either
before or after termination of this Guaranty, without notice to or demand
on the undersigned and without affecting the undersigned's liability under
this Guaranty, from time to time to: (a) apply any security and direct the
order or manner of sale; and (b) apply payments received by the Bank from
the Borrower to any indebtedness of the Borrower to the Bank, in such order
as the Bank shall determine in its sole discretion, whether or not this
indebtedness is covered by this Guaranty, and the undersigned waive(s) any
provision of law regarding application of payments which specifies
otherwise. The undersigned agree(s) to provide to the Bank copies of the
undersigned's financial statements upon request.
4. SECURITY: The undersigned grant(s) to the Bank a security interest in and
the right of setoff as to any and all property of the undersigned now or
later in the possession of the Bank. The undersigned further assign(s) to
the Bank as collateral for the obligations of the undersigned under this
Guaranty all claims of any nature that the undersigned now or later has
(have) against the Borrower (other than any claim under a deed of trust or
mortgage covering California real property) with full right on the part of
the Bank, in its own name or in the name of the undersigned, to collect and
enforce these claims. The undersigned agree(s) that no security now or
later held by
<PAGE>
the Bank for the payment of any Indebtedness, whether from the Borrower,
any guarantor, or otherwise, and whether in the nature of a security
interest, pledge, lien, assignment, setoff, suretyship, guaranty,
indemnity, insurance or otherwise, shall affect in any manner the
unconditional obligation of the undersigned under this Guaranty, and the
Bank, in its sole discretion, without notice to the undersigned, may
release, exchange, enforce and otherwise deal with any security without
affecting in any manner the unconditional obligation of the undersigned
under this Guaranty. The undersigned acknowledge(s) and agree(s) that the
Bank has no obligation to acquire or perfect any lien on or security
interest in any asset(s), whether realty or personalty, to secure payment
of the Indebtedness, and the undersigned is (are) not relying upon any
asset(s) in which the Bank has or may have a lien or security interest for
payment of the Indebtedness.
5. OTHER GUARANTORS: If any Indebtedness is guaranteed by two or more
guarantors, the obligation of the undersigned shall be several and also
joint, each with all and also each with any one or more of the others, and
may be enforced at the option of the Bank against each severally, any two
or more jointly, or some severally and some jointly. The Bank, in its sole
discretion, may release any one or more of the guarantors for any
consideration which it deems adequate, and may fail or elect not to prove a
claim against the estate of any bankrupt, insolvent, incompetent or
deceased guarantor; and after that, without notice to any guarantor, the
Bank may extend or renew any or all Indebtedness and may permit the
Borrower to incur additional Indebtedness, without affecting in any manner
the unconditional obligation of the remaining guarantor(s). The undersigned
acknowledge(s) that the effectiveness of this Guaranty is not conditioned
on any or all of the indebtedness being guaranteed by anyone else.
6. TERMINATION: Any of the undersigned may terminate their obligation under
this Guaranty as to future Indebtedness (except as provided below) by (and
only by) delivering written notice of termination to an officer of the Bank
and receiving from an officer of the Bank written acknowledgment of
delivery; provided, however, the termination shall not be effective until
the opening of business on the fifth (5th) day ("effective date") following
written acknowledgment of delivery. Any termination shall not affect in any
way the unconditional obligations of the remaining guarantor(s), whether or
not the termination is known to the remaining guarantor(s). Any termination
shall not affect in any way the unconditional obligations of the
terminating guarantor(s) as to any Indebtedness existing at the effective
date of termination or any Indebtedness created after that pursuant to any
commitment or agreement of the Bank or pursuant to any Borrower loan with
the Bank existing at the effective date of termination (whether advances or
readvances by the Bank after the effective date of termination are optional
or obligatory), or any modifications, extensions or renewals of any of this
Indebtedness, whether in whole or in part, and as to all of this
Indebtedness and modifications, extensions or renewals of it, this Guaranty
shall continue effective until the same shall have been fully paid. The
Bank has no duty to give notice of termination by any guarantor(s) to any
remaining guarantor(s). The undersigned shall indemnify the Bank against
all claims, damages, costs and expenses, including, without limit, attorney
fees, incurred by the Bank in connection with any suit, claim or action
against the Bank arising out of any modification or termination of a
Borrower loan or any refusal by the Bank to extend additional credit in
connection with the termination of this Guaranty.
7. REINSTATEMENT: Notwithstanding any prior revocation, termination, surrender
or discharge of this Guaranty (or of any lien, pledge or security interest
securing this Guaranty) in whole or in part, the effectiveness of this
Guaranty, and of all liens, pledges and security interests securing this
Guaranty, shall automatically continue or be reinstated in the event that
any payment received or credit given by the Bank in respect of the
Indebtedness is returned, disgorged or rescinded under any applicable state
or federal law, including, without limitation, laws pertaining to
bankruptcy or insolvency, in which case this Guaranty, and all liens,
pledges and security interests securing this Guaranty, shall be enforceable
against the undersigned as if the returned, disgorged or rescinded payment
or credit had not been received or given by the Bank, and whether or not
the Bank relied upon this payment or credit or changed its position as a
consequence of it. In the event of continuation or reinstatement of this
Guaranty and the liens, pledges and security interests securing it, the
undersigned agree(s) upon demand by the Bank, to execute and deliver to the
Bank those documents which the Bank determines are appropriate to further
evidence (in the public records or otherwise) this continuation or
reinstatement, although the failure of the undersigned to do so shall not
affect in any way the reinstatement or continuation. If the undersigned
do(es) not execute and deliver to the Bank upon demand such documents, the
Bank and each Bank officer is irrevocably appointed (which appointment is
coupled with an interest) the true and lawful attorney of the undersigned
(with full power of substitution) to execute and deliver such documents in
the name and on behalf of the undersigned.
8. WAIVERS: The undersigned waive(s) any right to require the Bank to: (a)
proceed against any person or property; (b) give notice of the terms, time
and place of any public or private sale of personal property security held
from the Borrower or any other person, or otherwise comply with the
provisions of Section 9-504 of the Michigan or other
<PAGE>
applicable Uniform Commercial Code; or (c) pursue any other remedy in the
Bank's power. The undersigned waive(s) notice of acceptance of this
Guaranty and presentment, demand, protest, notice of protest, dishonor,
notice of dishonor, notice of default, notice of intent to accelerate or
demand payment of any Indebtedness, any and all other notices to which the
undersigned might otherwise be entitled, and diligence in collecting any
Indebtedness, and agree(s) that the Bank may, once or any number of times,
modify the terms of any Indebtedness, compromise, extend, increase,
accelerate, renew or forbear to enforce payment of any or all Indebtedness,
or permit the Borrower to incur additional Indebtedness, all without notice
to the undersigned and without affecting in any manner the unconditional
obligation of the undersigned under this Guaranty.
The undersigned unconditionally and irrevocably waive(s) each and every
defense and setoff of any nature which, under principles of guaranty or
otherwise, would operate to impair or diminish in any way the obligation of
the undersigned under this Guaranty, and acknowledge(s) that each such
waiver is by this reference incorporated into each security agreement,
collateral assignment, pledge and/or other document from the undersigned
now or later securing this Guaranty and/or the Indebtedness, and
acknowledge(s) that as of the date of this Guaranty no such defense or
setoff exists.
9. WAIVER OF SUBROGATION: The undersigned waive(s) any and all rights (whether
by subrogation, indemnity, reimbursement, or otherwise) to recover from the
Borrower any amounts paid by the undersigned pursuant to this Guaranty.
10. SALE/ASSIGNMENT: The undersigned acknowledge(s) that the Bank has the right
to sell, assign, transfer, negotiate, or grant participations in all or any
part of the Indebtedness and any related obligations, including, without
limit, this Guaranty, without notice to the undersigned and that the Bank
may disclose any documents and information which the Bank now has or later
acquires relating to the undersigned or to the Borrower in connection with
such sale, assignment, transfer, negotiation, or grant. The undersigned
agree(s) that the Bank may provide information relating to this Guaranty or
relating to the undersigned to the Bank's parent, affiliates, subsidiaries
and service providers.
11. GENERAL: This Guaranty constitutes the entire agreement of the undersigned
and the Bank with respect to the subject matter of this Guaranty. No
waiver, consent, modification or change of the terms of the Guaranty shall
bind any of the undersigned or the Bank unless in writing and signed by the
waiving party or an authorized officer of the waiving party, and then this
waiver, consent, modification or change shall be effective only in the
specific instance and for the specific purpose given. This Guaranty shall
inure to the benefit of the Bank and its successors and assigns and shall
be binding an the undersigned and the undersigned's heirs, legal
representatives, successors and assigns including, without limit, any
debtor in possession or trustee in bankruptcy for any of the undersigned.
The undersigned has (have) knowingly and voluntarily entered into this
Guaranty in good faith for the purpose of inducing the Bank to extend
credit or make other financial accommodations to the Borrower. If any
provision of this Guaranty is unenforceable in whole or in part for any
reason, the remaining provisions shall continue to be effective. THIS
GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF MICHIGAN, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES.
12. HEADINGS: Headings in this Agreement are included for the convenience of
reference only and shall not constitute a part of this Agreement for any
purpose.
13. ADDITIONAL PROVISIONS:
14. JURY TRIAL WAIVER: THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAYBE WAIVED. EACH
PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION
REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
GUARANTY OR THE INDEBTEDNESS.
<PAGE>
IN WITNESS WHEREOF, Guarantor(s) has (have) signed and delivered this Guaranty
the day and year first written above.
GUARANTOR(S): AVIATION HOLDINGS GROUP, INC.
-------------------------------
GUARANTOR NAME TYPED/PRINTED
WITNESSES:
/s/ Joseph Marchese By: /s/ Joseph J. Nelson
- ------------------------ -----------------------------------------
SIGNATURE OF SIGNATURE OF
Its: President
----------------------------------------
TITLE (IF APPLICABLE)
By: /s/ Joseph Janusz
- ------------------------ -----------------------------------------
SIGNATURE OF SIGNATURE OF
Its: Chief Financial Officer
----------------------------------------
TITLE (IF APPLICABLE)
GUARANTOR'S ADDRESS:
15675 NW 15th Avenue
---------------------------------------------
STREET ADDRESS
Miami, FL 33169
---------------------------------------------
CITY STATE ZIP CODE
<PAGE>
Exhibit 10.9(d)
ComericA Guaranty
- -------------------------------------------------------------------------------
As of September 1, 1999, the undersigned, for value received, unconditionally
and absolutely guarantee(s) to Comerica Bank ("Bank"), a Michigan banking
corporation, payment when due, whether by stated maturity, demand, acceleration
or otherwise, of all existing and future indebtedness ("Indebtedness") to the
Bank of Aviation Holdings Int'l., Inc., a Florida corporation formerly known as
Jet Aviation Trading, Inc. ("Borrower"). Indebtedness includes without limit any
and all obligations or liabilities of the Borrower to the Bank, whether absolute
or contingent, direct or indirect, voluntary or involuntary, liquidated or
unliquidated, joint or several, known or unknown; any and all indebtedness,
obligations or liabilities for which Borrower would otherwise be liable to the
Bank were it not for the invalidity, irregularity or unenforceability of them by
reason of any bankruptcy, insolvency or other law or order of any kind, or for
any other reason; any and all amendments, modifications, renewals and/or
extensions of any of the above; and all costs of collecting Indebtedness,
including, without limit, attorney fees. Any reference in this Guaranty to
attorney fees shall be deemed a reference to reasonable fees, charges, costs and
expenses of both in-house and outside counsel and paralegals, whether or not a
suit or action is instituted, and to court costs if a suit or action is
instituted, and whether attorney fees or court costs are incurred at the trial
court level, on appeal, in a bankruptcy, administrative or probate proceeding or
otherwise. All costs shall be payable immediately by the undersigned when
incurred by the Bank, without demand, and until paid shall bear interest a the
highest per annum rate applicable to any of the Indebtedness, but not in excess
of the maximum rate permitted by law.
1. LIMITATION: The total obligation of the undersigned under this Guaranty is
UNLIMITED unless specifically limited in the Additional Provisions of this
Guaranty, and this obligation (whether unlimited or limited to the extent
specified in the Additional Provisions) shall include, IN ADDITION TO any
limited amount of principal guaranteed, all interest on that limited
amount, and all costs incurred by the Bank in collection efforts against
the Borrower and/or the undersigned or otherwise incurred by the Bank in
any way relating to the Indebtedness, or this Guaranty, including without
limit attorney fees. The undersigned agree(s) that (a) this limitation
shall not be a limitation on the amount of Borrower's Indebtedness to the
Bank; W any payments by the undersigned shall not reduce the maximum
liability of the undersigned under this Guaranty unless written notice to
that effect is actually received by the Bank at, or prior to, the time of
the payment; and (c) the liability of the undersigned to the Bank shall at
all times be deemed to be the aggregate liability of the undersigned under
this Guaranty and any other guaranties previously or subsequently given to
the Bank by the undersigned and not expressly revoked, modified or
invalidated in writing.
2. NATURE OF GUARANTY: This is a continuing Guaranty of payment and not of
collection and remains effective whether the Indebtedness is from time to
time reduced and later increased or entirely extinguished and later
reincurred. The undersigned deliver(sI this Guaranty based solely on the
undersigned's independent investigation of (or decision not to investigate)
the financial condition of Borrower and is (are) not relying on any
information furnished by the Bank. The undersigned assume(s) full
responsibility for obtaining any further information concerning the
Borrower's financial condition, the status of the Indebtedness or any other
matter which the undersigned may deem necessary or appropriate now or
later. The undersigned knowingly accept(s) the full range of risk
encompassed in this Guaranty, which risk includes, without limit, the
possibility that Borrower may incur Indebtedness to the Bank after the
financial condition of the Borrower, or the Borrower's ability to pay debts
as they mature, has deteriorated.
3. APPLICATION OF PAYMENTS: The undersigned authorize(s) the Bank, either
before or after termination of this Guaranty, without notice to or demand
on the undersigned and without affecting the undersigned's liability under
this Guaranty, from time to time to: (a) apply any security and direct the
order or manner of sale; and (b) apply payments received by the Bank from
the Borrower to any indebtedness of the Borrower to the Bank, in such order
as the Bank shall determine in its sole discretion, whether or not this
indebtedness is covered by this Guaranty, and the undersigned waive(s) any
provision of law regarding application of payments which specifies
otherwise. The undersigned agree(s) to provide to the Bank copies of the
undersigned's financial statements upon request.
4. SECURITY: The undersigned grant(s) to the Bank a security interest in and
the right of setoff as to any and all property of the undersigned now or
later in the possession of the Bank. The undersigned further assign(s) to
the Bank as collateral for the obligations of the undersigned under this
Guaranty all claims of any nature that the
<PAGE>
undersigned now or later has (have) against the Borrower (other than any
claim under a deed of trust or mortgage covering California real property)
with full right on the part of the Bank, in its own name or in the name of
the undersigned, to collect and enforce these claims. The undersigned
agree(s) that no security now or later held by the Bank for the payment of
any Indebtedness, whether from the Borrower, any guarantor, or otherwise,
and whether in the nature of a security interest, pledge, lien, assignment,
setoff, suretyship, guaranty, indemnity, insurance or otherwise, shall
affect in any manner the unconditional obligation of the undersigned under
this Guaranty, and the Bank, in its sole discretion, without notice to the
undersigned, may release, exchange, enforce and otherwise deal with any
security without affecting in any manner the unconditional obligation of
the undersigned under this Guaranty. The undersigned acknowledge(s) and
agree(s) that the Bank has no obligation to acquire or perfect any lien on
or security interest in any asset(s), whether realty or personalty, to
secure payment of the Indebtedness, and the undersigned is (are) not
relying upon any asset(s) in which the Bank has or may have a lien or
security interest for payment of the Indebtedness.
5. OTHER GUARANTORS: If any Indebtedness is guaranteed by two or more
guarantors, the obligation of the undersigned shall be several and also
joint, each with all and also each with any one or more of the others, and
may be enforced at the option of the Bank against each severally, any two
or more jointly, or some severally and some jointly. The Bank, in its sole
discretion, may release any one or more of the guarantors for any
consideration which it deems adequate, and may fail or elect not to prove a
claim against the estate of any bankrupt, insolvent, incompetent or
deceased guarantor; and after that, without notice to any guarantor, the
Bank may extend or renew any or all Indebtedness and may permit the
Borrower to incur additional Indebtedness, without affecting in any manner
the unconditional obligation of the remaining guarantor(s). The undersigned
acknowledge(s) that the effectiveness of this Guaranty is not conditioned
on any or all of the indebtedness being guaranteed by anyone else.
6. TERMINATION: Any of the undersigned may terminate their obligation under
this Guaranty as to future Indebtedness (except as provided below) by (and
only by) delivering written notice of termination to an officer of the Bank
and receiving from an officer of the Bank written acknowledgment of
delivery; provided, however, the termination shall not be effective until
the opening of business on the fifth (5th) day ("effective date") following
written acknowledgment of delivery. Any termination shall not affect in any
way the unconditional obligations of the remaining guarantor(s), whether or
not the termination is known to the remaining guarantor(s). Any termination
shall not affect in any way the unconditional obligations of the
terminating guarantor(s) as to any Indebtedness existing at the effective
date of termination or any Indebtedness created after that pursuant to any
commitment or agreement of the Bank or pursuant to any Borrower loan with
the Bank existing at the effective date of termination (whether advances or
readvances by the Bank after the effective date of termination are optional
or obligatory), or any modifications, extensions or renewals of any of this
Indebtedness, whether in whole or in part, and as to all of this
Indebtedness and modifications, extensions or renewals of it, this Guaranty
shall continue effective until the same shall have been fully paid. The
Bank has no duty to give notice of termination by any guarantor(s) to any
remaining guarantor(s). The undersigned shall indemnify the Bank against
all claims, damages, costs and expenses, including, without limit, attorney
fees, incurred by the Bank in connection with any suit, claim or action
against the Bank arising out of any modification or termination of a
Borrower loan or any refusal by the Bank to extend additional credit in
connection with the termination of this Guaranty.
7. REINSTATEMENT: Notwithstanding any prior revocation, termination, surrender
or discharge of this Guaranty (or of any lien, pledge or security interest
securing this Guaranty) in whole or in part, the effectiveness of this
Guaranty, and of all liens, pledges and security interests securing this
Guaranty, shall automatically continue or be reinstated in the event that
any payment received or credit given by the Bank in respect of the
Indebtedness is returned, disgorged or rescinded under any applicable state
or federal law, including, without limitation, laws pertaining to
bankruptcy or insolvency, in which case this Guaranty, and all liens,
pledges and security interests securing this Guaranty, shall be enforceable
against the undersigned as if the returned, disgorged or rescinded payment
or credit had not been received or given by the Bank, and whether or not
the Bank relied upon this payment or credit or changed its position as a
consequence of it. In the event of continuation or reinstatement of this
Guaranty and the liens, pledges and security interests securing it, the
undersigned agree(s) upon demand by the Bank, to execute and deliver to the
Bank those documents which the Bank determines are appropriate to further
evidence (in the public records or otherwise) this continuation or
reinstatement, although the failure of the undersigned to do so shall not
affect in any way the reinstatement or continuation. If the undersigned
do(es) not execute and deliver to the Bank upon demand such documents, the
Bank and each Bank officer is irrevocably appointed (which appointment is
coupled with an interest) the true and lawful attorney of the undersigned
(with full power of substitution) to execute and deliver such documents in
the name and on behalf of the undersigned.
<PAGE>
8. WAIVERS: The undersigned waive(s) any right to require the Bank to: (a)
proceed against any person or property; (b) give notice of the terms, time
and place of any public or private sale of personal property security held
from the Borrower or any other person, or otherwise comply with the
provisions of Section 9-504 of the Michigan or other applicable Uniform
Commercial Code; or (c) pursue any other remedy in the Bank's power. The
undersigned waive(s) notice of acceptance of this Guaranty and presentment,
demand, protest, notice of protest, dishonor, notice of dishonor, notice of
default, notice of intent to accelerate or demand payment of any
Indebtedness, any and all other notices to which the undersigned might
otherwise be entitled, and diligence in collecting any Indebtedness, and
agree(s) that the Bank may, once or any number of times, modify the terms
of any Indebtedness, compromise, extend, increase, accelerate, renew or
forbear to enforce payment of any or all Indebtedness, or permit the
Borrower to incur additional Indebtedness, all without notice to the
undersigned and without affecting in any manner the unconditional
obligation of the undersigned under this Guaranty.
The undersigned unconditionally and irrevocably waive(s) each and every
defense and setoff of any nature which, under principles of guaranty or
otherwise, would operate to impair or diminish in any way the obligation of
the undersigned under this Guaranty, and acknowledge(s) that each such
waiver is by this reference incorporated into each security agreement,
collateral assignment, pledge and/or other document from the undersigned
now or later securing this Guaranty and/or the Indebtedness, and
acknowledge(s) that as of the date of this Guaranty no such defense or
setoff exists.
9. WAIVER OF SUBROGATION: The undersigned waive(s) any and all rights (whether
by subrogation, indemnity, reimbursement, or otherwise) to recover from the
Borrower any amounts paid by the undersigned pursuant to this Guaranty.
10. SALE/ASSIGNMENT: The undersigned acknowledge(s) that the Bank has the right
to sell, assign, transfer, negotiate, or grant participations in all or any
part of the Indebtedness and any related obligations, including, without
limit, this Guaranty, without notice to the undersigned and that the Bank
may disclose any documents and information which the Bank now has or later
acquires relating to the undersigned or to the Borrower in connection with
such sale, assignment, transfer, negotiation, or grant. The undersigned
agree(s) that the Bank may provide information relating to this Guaranty or
relating to the undersigned to the Bank's parent, affiliates, subsidiaries
and service providers.
11. GENERAL: This Guaranty constitutes the entire agreement of the undersigned
and the Bank with respect to the subject matter of this Guaranty. No
waiver, consent, modification or change of the terms of the Guaranty shall
bind any of the undersigned or the Bank unless in writing and signed by the
waiving party or an authorized officer of the waiving party, and then this
waiver, consent, modification or change shall be effective only in the
specific instance and for the specific purpose given. This Guaranty shall
inure to the benefit of the Bank and its successors and assigns and shall
be binding an the undersigned and the undersigned's heirs, legal
representatives, successors and assigns including, without limit, any
debtor in possession or trustee in bankruptcy for any of the undersigned.
The undersigned has (have) knowingly and voluntarily entered into this
Guaranty in good faith for the purpose of inducing the Bank to extend
credit or make other financial accommodations to the Borrower. If any
provision of this Guaranty is unenforceable in whole or in part for any
reason, the remaining provisions shall continue to be effective. THIS
GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF MICHIGAN, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES.
12. HEADINGS: Headings in this Agreement are included for the convenience of
reference only and shall not constitute a part of this Agreement for any
purpose.
13. ADDITIONAL PROVISIONS:
14. JURY TRIAL WAIVER: THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAYBE WAIVED. EACH
PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION
REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
GUARANTY OR THE INDEBTEDNESS.
<PAGE>
IN WITNESS WHEREOF, Guarantor(s) has (have) signed and delivered this Guaranty
the day and year first written above.
GUARANTOR(S): PASCO INT'L. AVIATION CORP.
----------------------------
GUARANTOR NAME TYPED/PRINTED
WITNESSES:
/s/ Joseph Marchese By: /s/ Joseph J. Nelson
- ----------------------------- --------------------------------------
SIGNATURE OF SIGNATURE OF
Its: President
-------------------------------------
TITLE (IF APPLICABLE)
By: /s/ Joseph Janusz
- ----------------------------- --------------------------------------
SIGNATURE OF SIGNATURE OF
Its Chief Financial Officer
--------------------------------------
TITLE (IF APPLICABLE)
GUARANTOR'S ADDRESS:
15675 NW 15th Avenue
------------------------------------------
STREET ADDRESS
Miami, FL 33169
------------------------------------------
CITY STATE ZIP CODE
AERO-LINK FLIGHT SYSTEMS, INC.
WITNESSES:
/s/ Joseph Marchese By: /s/ Joseph J. Nelson
- ----------------------------- --------------------------------------
SIGNATURE OF SIGNATURE OF
Its: President
-------------------------------------
TITLE (IF APPLICABLE)
By: /s/ Joseph Janusz
- ----------------------------- --------------------------------------
SIGNATURE OF SIGNATURE OF
Its Chief Financial Officer
--------------------------------------
TITLE (IF APPLICABLE)
GUARANTOR'S ADDRESS:
Same as above.
------------------------------------------
STREET ADDRESS
------------------------------------------
CITY STATE ZIP CODE
<PAGE>
AERO-LINK FLIGHT SYSTEMS LIMITED
WITNESSES:
/s/ Joseph Marchese By: /s/ Joseph J. Nelson
- ----------------------------- --------------------------------------
SIGNATURE OF SIGNATURE OF
Its: President
-------------------------------------
TITLE (IF APPLICABLE)
By: /s/ Joseph Janusz
- ----------------------------- --------------------------------------
SIGNATURE OF SIGNATURE OF
Its: Chief Financial Officer
-------------------------------------
TITLE (IF APPLICABLE)
GUARANTOR'S ADDRESS:
Same as above.
------------------------------------------
STREET ADDRESS
------------------------------------------
CITY STATE ZIP CODE
PASCO FINANCIAL SERVICES LIMITED
WITNESSES:
/s/ Joseph Marchese By: /s/ Joseph J. Nelson
- ----------------------------- --------------------------------------
SIGNATURE OF SIGNATURE OF
Its: President
-------------------------------------
TITLE (IF APPLICABLE)
By: /s/ Joseph Janusz
- ----------------------------- --------------------------------------
SIGNATURE OF SIGNATURE OF
Its: Chief Financial Officer
-------------------------------------
TITLE (IF APPLICABLE)
GUARANTOR'S ADDRESS:
Same as above.
------------------------------------------
STREET ADDRESS
------------------------------------------
CITY STATE ZIP CODE
<PAGE>
Exhibit 10.9(g)
Comerica Security Agreement
(All Assets)
- -------------------------------------------------------------------------------
As of September 1, 1999, for value received, the undersigned ("Debtor") grants
to Comerica Bank ("Bank"), a Michigan banking corporation, a continuing security
interest in the Collateral (as defined below) to secure payment when due,
whether by stated maturity, demand, acceleration or otherwise, of all existing
and future indebtedness ("Indebtedness") to the Bank of Aviation Holdings Int'l,
Inc., a Florida corporation formerly known as Jet Aviation Trading, Inc.
("Borrower") and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary, liquidated
or unliquidated, joint or several, known or unknown; any and all obligations or
liabilities for which the Borrower and/or Debtor would otherwise be liable to
the Bank were it not for the invalidity or unenforceability of them by reason of
any bankruptcy, insolvency or other law, or for any other reason; any and all
amendments, modifications, renewals and/or extensions of any of the above; all
costs incurred by Bank in establishing, determining, continuing, or defending
the validity or priority of its security interest, or in pursuing its rights and
remedies under this Agreement or under any other agreement between Bank and
Borrower and/or Debtor or in connection with any proceeding involving Bank as a
result of any financial accommodation to Borrower and/or Debtor; and all other
costs of collecting Indebtedness, including without limit attorney fees. Debtor
agrees to pay Bank all such costs incurred by the Bank, immediately upon demand,
and until paid all costs shall bear interest at-the highest per annum-rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorney fees
or court costs are incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding or otherwise.
1. Collateral shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
(a) all Accounts Receivable (for purposes of this Agreement,
"Accounts Receivable" consists of all accounts, general
intangibles, chattel paper, contract rights, deposit accounts,
documents and instruments),
(b) all Inventory,
(c) all Equipment and Fixtures,
(d) specific items listed below and/or on attached Schedule A, if
any, is/are also included in Collateral:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
(e) all goods, instruments, documents, policies and certificates
of insurance, deposits, money, investment property or other
property (except real property which is not a fixture) which
are now or later in possession or control of bank, or as to
which. Bank now or later controls possession by documents or
otherwise, and
<PAGE>
(f) all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions,
rights of any kind (including but not limited to stock splits,
stock rights, voting and preferential rights), products, and
proceeds of or pertaining to the above including, without
limit, cash or other property which were proceeds and are
recovered by a bankruptcy trustee or otherwise as a
preferential transfer by Debtor.
2. Warranties, Covenants and Agreements. Debtor warrants, covenants and
agrees as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank
may request, any information Bank may reasonably request and
allow Bank to examine', inspect, and copy any of Debtor's
books and records. Debtor shall, at the request of Bank, mark
its records and the Collateral to clearly indicate the
security interest of Bank under this Agreement.
2.2 At the time any Collateral becomes, or is represented to be,
subject to a security interest in favor of Bank, Debtor shall
be deemed to have warranted that (a) Debtor is the lawful
owner of the Collateral and has the right and authority to
subject it to a security interest granted to Bank; (b) none of
the Collateral is subject to any security interest other than
that in favor of Bank and there are no financing statements on
file, other than in favor of Bank; and (c) Debtor acquired its
rights in the Collateral in the ordinary course of its
business.
2.3 Debtor will keep the Collateral free at all times from all
claims, liens, security interests and encumbrances other than
those in favor of Bank. Debtor will not, without the prior
written consent of Bank, sell, transfer or lease, or permit to
be sold, transferred or leased, any or all of the Collateral,
except for Inventory in the ordinary course of its business
and will not return any Inventory to its supplier. Bank or its
representatives may at all reasonable times inspect the
Collateral and may enter upon all premises where the
Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be
executed all writings requested by Bank to establish, maintain
and continue a perfected and first security interest of Bank
in the Collateral. Debtor agrees that Bank has no obligation
to acquire or perfect any lien on or security interest in any
asset(s), whether realty or personalty, to secure payment of
the Indebtedness, and Debtor is not relying upon assets in
which the Bank may have a lien or security interest for
payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without
interest or penalty all taxes, assessments and similar charges
which at any time are or may become a lien, charge, or
encumbrance upon any Collateral, except to the extent
contested in good faith and bonded in a manner satisfactory to
Bank. If Debtor fails to pay any of these taxes, assessments,
or other charges in the time provided above, Bank has the
option (but not the obligation) to do so and Debtor agrees to
repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate
which could be charged by Bank on any Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will
protect it from loss, damage, or deterioration from any cause.
Debtor has and will maintain at all times (a) with respect to
the Collateral, insurance under an "all risk" policy against
fire and other risks customarily insured against, and (b)
public liability insurance and other insurance as may be
required by law or reasonably required by Bank, all of which
insurance shall be in amount, form and content, and written by
companies as may be satisfactory to Bank, containing a
lender's loss payable endorsement acceptable to Bank. Debtor
will deliver to Bank immediately upon demand evidence
satisfactory to Bank that the required insurance has been
procured. If Debtor fails to maintain satisfactory insurance,
Bank has the
<PAGE>
option (but not the obligation) to do so and Debtor agrees to
repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate
which could be charged by Bank on any Indebtedness.
2.7 On each occasion on which Debtor evidences to Bank the account
balances on and the nature and extent of the Accounts
Receivable, Debtor shall be deemed to have warranted that
except as otherwise indicated (a) each of those Accounts
Receivable is valid and enforceable without performance by
Debtor of any act; M each of those account balances are in
fact owing, (there are no setoffs, recoupments, credits,
contra accounts, counterclaims or defenses against any of
those Accounts Receivable, (d) as to any Accounts Receivable
represented by a note, trade acceptance, draft or other
instrument or by any chattel paper or document, the same have
been endorsed and/or delivered by Debtor to Bank, (e) Debtor
has not received with respect to any Account Receivable, any
notice of the death of the related account debtor, nor of the
dissolution, liquidation, termination of existence,
insolvency, business failure, appointment of a receiver for,
assignment for the benefit of creditors by, or filing of a
petition in bankruptcy by or against, the account debtor, and
(f) as to each Account Receivable, the account debtor is not
an affiliate of Debtor, the United States of America or any
department, agency or instrumentality of it, or a citizen or
resident of any jurisdiction outside of the United States.
Debtor will do all acts and will execute all writings
requested by Bank to perform, enforce performance of, and
collect all Accounts Receivable. Debtor shall neither make nor
permit any modification, compromise or substitution for any
Account Receivable without the prior written consent of Bank.
Debtor shall, at Bank's request, arrange for verification of
Accounts Receivable directly with account debtors or by other
methods acceptable to Bank.
2.8 Debtor at all times shall be in strict compliance with all
applicable laws, including without limit any laws, ordinances,
directives, orders, statutes, or regulations an object of
which is to regulate or improve health, safety, or the
environment ("Environmental Laws").
2.9 If Bank, acting in its sole discretion, redelivers Collateral
to Debtor or Debtor's designee for the purpose of (a) the
ultimate sale or exchange thereof; or M presentation,
collection, renewal, or registration of transfer thereof; or
(c) loading, unloading, storing, shipping, transshipping,
manufacturing, processing or otherwise dealing with it
preliminary to sale or exchange; such redelivery shall be in
trust for the benefit of Bank and shall not constitute a
release of Bank's security interest in it or in the proceeds
or products of it unless Bank specifically so agrees in
writing. If Debtor requests any such redelivery, Debtor will
deliver with such request a duly executed financing statement
in form and substance satisfactory to Bank. Any proceeds of
Collateral coming into Debtor's possession as a result of any
such redelivery shall be held in trust for Bank and
immediately delivered to Bank for application on the
Indebtedness. Bank may (in its sole discretion) deliver any or
all of the Collateral to Debtor, and such delivery by Bank
shall discharge Bank from all liability or responsibility for
such Collateral. Bank, at its option, may require delivery of
any Collateral to Bank at any time with such endorsements or
assignments of the Collateral as Bank may request.
2.10 At any time and without notice, Bank may (a) cause any or all
of the Collateral to be transferred to its name or to the name
of its nominees; M receive or collect by legal proceedings or
otherwise all dividends, interest, principal payments and
other sums and all other distributions at any time payable or
receivable on account of the Collateral, and hold the same as
Collateral, or apply the same to the Indebtedness, the manner
and distribution of the application to be in the sole
discretion of Bank; (c) enter into any extension,
subordination, reorganization, deposit, merger or
consolidation agreement or any other agreement relating to or
affecting the Collateral, and deposit or surrender control of
the Collateral, and accept other property in exchange for the
Collateral and hold or apply the property or money so received
pursuant to this Agreement.
<PAGE>
2.11 Bank may assign any of the Indebtedness and deliver any or all
of the Collateral to its assignee, who then shall have with
respect to Collateral so delivered all the rights and powers
of Bank under this Agreement, and after that Bank shall be
fully discharged from all liability and responsibility with
respect to Collateral so delivered.
2.12 Debtor delivers this Agreement based solely on Debtor's
independent investigation of (or decision not to investigate)
the financial condition of Debtor and is not relying on any
information furnished by Bank. Debtor assumes full
responsibility for obtaining any further information
concerning the Debtor's financial condition, the status of the
Indebtedness or any other matter which the undersigned may
deem necessary or appropriate now or later. Debtor waives any
duty on the part of Bank, and agrees that Debtor is not
relying upon nor expecting Bank to disclose to Debtor any fact
now or later known by Bank, whether relating to the operations
or condition of Borrower, the existence, liabilities or
financial condition of any guarantor of the Indebtedness, the
occurrence of any default with respect to the Indebtedness, or
otherwise, notwithstanding any effect such fact may have upon
Debtor's risk or Debtor's rights against Borrower. Debtor
knowingly accepts the full range of risk encompassed in this
Agreement, which risk includes without limit the possibility
that Borrower may incur Indebtedness to Bank after the
financial condition of Borrower, or Borrower's ability to pay
debts as they mature, has deteriorated.
2.13 Debtor shall defend, indemnify and hold harmless Bank, its
employees, agents, shareholders, affiliates, officers, and
directors from and against any and all claims, damages, fines,
expenses, liabilities or causes of action of whatever kind,
including without limit consultant fees, legal expenses, and
attorney fees, suffered by any of them as a direct or indirect
result of any actual or asserted violation of any law,
including, without limit, Environmental Laws, or of any
remediation relating to any property required by any law,
including without limit Environmental Laws.
3. Collection of Proceeds.
3.1 Debtor agrees to collect and enforce payment of all Collateral
until Bank shall direct Debtor to the contrary. Immediately
upon notice to Debtor by Bank and at all times after that,
Debtor agrees to fully and promptly cooperate and assist Bank
in the collection and enforcement of all Collateral and to
hold in trust for Bank all payments received in connection
with Collateral and from the sale, lease or other disposition
of any Collateral, all rights by way of suretyship or guaranty
and all rights in the nature of a lien or security interest
which Debtor now or later has regarding Collateral.
Immediately upon and after such notice, Debtor agrees to (a)
endorse to Bank and immediately deliver to Bank all payments
received on Collateral or from the sale, lease or other
disposition of any Collateral or arising from any other rights
or interests of Debtor in the Collateral, in the form received
by Debtor without commingling with any other funds, and (b)
immediately deliver to Bank all property in Debtor's
possession or later coming into Debtor's possession through
enforcement of Debtor's rights or interests in the Collateral.
Debtor irrevocably authorizes Bank or any Bank employee or
agent to endorse the name of Debtor upon any checks or other
items which are received in payment for any Collateral, and to
do any and all things necessary in order to reduce these items
to money. Bank shall have no duty as to the collection or
protection of Collateral or the proceeds of it, nor as to the
preservation of any related rights: beyond the use of
reasonable care in the custody and preservation of Collateral
in the possession of Bank. Debtor agrees to take all steps
necessary to preserve rights against prior parties with
respect to the Collateral. Nothing in this Section 3.1 shall
be deemed a consent by Bank to any sale, lease or other
disposition of any Collateral.
3.2 Debtor agrees that immediately upon Bank's request (whether or
not any Event of Default exists) the Indebtedness shall be on
a "remittance basis" as follows: Debtor shall at its sole
expense establish and
<PAGE>
maintain (and Bank, at Bank's option may establish and
maintain at Debtor's expense): (a) an United States Post
Office lock box (the "Lock Box"), to which Bank shall have
exclusive access and control. Debtor expressly authorizes
Bank, from time to time, to remove contents from the Lock Box,
for disposition in accordance with this Agreement. Debtor
agrees to notify all account debtors and other parties
obligated to Debtor that all payments made to Debtor (other
than payments by electronic funds transfer) shall be remitted,
for the credit of Debtor, to the Lock Box, and Debtor shall
include a like statement on all invoices; and (b) a
non-interest bearing deposit account with Bank which shall be
titled as designated by Bank (the "Cash Collateral Account")
to which Bank shall have exclusive access and control. Debtor
agrees to notify all account debtors and other parties
obligated to Debtor that all payments made to Debtor by
electronic funds transfer shall be remitted to the Cash
Collateral Account, and Debtor, at Bank's request, shall
include a like statement on all invoices. Debtor shall execute
all documents and authorizations as required by Bank to
establish and maintain the Lock Box and the Cash Collateral
Account.
3.3 All items or amounts which are remitted to the Lock Box, to
the Cash Collateral Account, or otherwise delivered by or for
the benefit of Debtor to Bank on account of partial or full
payment of, or with respect to, any Collateral shall, at
Bank's option, (i) be applied to the payment of the
Indebtedness, whether then due or not, in such order or at
such time of application as Bank may determine in its sole
discretion, or, (ii) be deposited to the Cash Collateral
Account. Debtor agrees that Bank shall not be liable for any
loss or damage which Debtor may suffer as a result of Bank's
processing of items or its exercise of any other rights or
remedies under this Agreement, including without limitation
indirect, special or consequential damages, loss of revenues
or profits, or any claim, demand or action by any third party
arising out of or in connection with the processing of items
or the exercise of any other rights or remedies under this
Agreement. Debtor agrees to indemnify and hold Bank harmless
from and against all such third party claims, demands or
actions, and all related expenses or liabilities, including,
without limitation, attorney fees.
4. Defaults, Enforcement and Application of Proceeds.
4.1 Upon the occurrence of any of the following events (each an
"Event of Default"), Debtor shall be in default under this
Agreement:
(a) Any failure to pay the Indebtedness or any other
indebtedness when due, or such portion of it as may
be due, by acceleration or otherwise; or
(b) Any failure or neglect to comply with, or breach of
or default under, any term of this Agreement, or any
other agreement or commitment between Borrower,
Debtor, or any guarantor of any of the Indebtedness
("Guarantor") and Bank; or
(c) Any warranty, representation, financial statement, or
other information made, given or furnished to Bank by
or on behalf of Borrower, Debtor, or any Guarantor
shall be, or shall prove to have been, false or
materially misleading when made, given, or furnished;
or
(d) Any loss, theft, substantial damage or destruction to
or of any Collateral, or the issuance or filing of
any attachment, levy, garnishment or the commencement
of any proceeding in connection with any Collateral
or of any other judicial process of, upon or in
respect of Borrower, Debtor, any Guarantor, or any
Collateral; or
(e) Sale or other disposition by Borrower, Debtor, or any
Guarantor of any substantial portion of its assets or
property or voluntary suspension of the transaction
of business by Borrower,
<PAGE>
Debtor, or any Guarantor, or death, dissolution,
termination of existence, merger, consolidation,
insolvency, business failure, or assignment for the
benefit of creditors of or by Borrower, Debtor, or
any Guarantor; or commencement of any proceedings
under any state or federal bankruptcy or insolvency
laws or laws for the relief of debtors by or against
Borrower, Debtor, or any Guarantor; or the
appointment of a receiver, trustee, court appointee,
sequestrator or otherwise, for all or any part of the
property of Borrower, Debtor, or any Guarantor; or
(f) Bank deems the margin of Collateral insufficient or
itself insecure, in good faith believing that the
prospect of payment of the Indebtedness or
performance of this Agreement is impaired or shall
fear deterioration, removal, or waste of Collateral.
4.2 Upon the occurrence of any Event of Default, Bank may at its
discretion and without prior notice to Debtor declare any or
all of the Indebtedness to be immediately due and payable, and
shall have and may exercise any one or more of the following
rights and remedies:
(a) Exercise all the rights and remedies upon default, in
foreclosure and otherwise, available to secured
parties under the provisions of the Uniform
Commercial Code and other applicable law;
(b) Institute legal proceedings to foreclose upon the
lien and security interest granted by this Agreement,
to recover judgment for all amounts then due and
owing as Indebtedness, and to collect the same out of
any Collateral or the proceeds of any sale of it;
(c) Institute legal proceedings for the sale, under the
judgment or decree of any court of competent
jurisdiction, of any or all Collateral; and/or
(d) Personally or by agents, attorneys, or appointment of
a receiver, enter upon any premises where Collateral
may then be located, and take possession of all or
any of it and/or render it unusable; and without
being responsible for loss or damage to such
Collateral, hold, operate, sell, lease, or dispose of
all or any Collateral at one or more public or
private sales, leasings or other disposition, at
places and times and on terms and conditions as Bank
may deem fit, without any previous demand or
advertisement; and except as provided in this
Agreement, all notice of sale, lease or other
disposition, and advertisement, and other notice or
demand, any right or equity of redemption, and any
obligation of a prospective purchaser or lessee to
inquire as to the power and authority of Bank to
sell, lease, or otherwise dispose of the Collateral
or as to the application by Bank of the proceeds of
sale or otherwise, which would otherwise be required
by, or available to Debtor under, applicable law are
expressly waived by Debtor to the fullest extent
permitted.
At any sale pursuant to this Section 4.2, whether
under the power of sale, by virtue of judicial
proceedings or otherwise, it shall not be necessary
for Bank or a public officer under order of a court
to have present physical or constructive possession
of Collateral to be sold. The recitals contained in
any conveyances and receipts made and given by Bank
or the public officer to any purchaser at any sale
made pursuant to this Agreement shall, to the extent
permitted by applicable law, conclusively establish
the truth and accuracy of the matters stated
(including, without limit, as to the amounts of the
principal of and interest on the Indebtedness, the
accrual and nonpayment of it and advertisement and
conduct of the sale); and all prerequisites to the
sale shall be presumed to have been satisfied and
performed. Upon any sale of any Collateral, the
receipt of the officer making the sale under
<PAGE>
judicial proceedings or of Bank shall be sufficient
discharge to the purchaser for the purchase money,
and the purchaser shall not be obligated to see to
the application of the money. Any sale of any
Collateral under this Agreement shall be a perpetual
bar against Debtor with respect to that Collateral.
4.3 Debtor shall at the request of Bank, notify the account
debtors or obligors of Bank's security interest in the
Collateral and direct payment of it to Bank. Bank may, itself,
upon the occurrence of any Event of Default so notify and
direct any account debtor or obligor.
4.4 The proceeds of any sale or other disposition of Collateral
authorized by this Agreement shall be applied by Bank first
upon all expenses authorized by the Uniform Commercial Code
and all reasonable attorney fees and legal expenses incurred
by Bank; the balance of the proceeds of the sale or other
disposition shall be applied in the payment of the
Indebtedness, first to interest, then to principal, then to
remaining Indebtedness and the surplus, if any, shall be paid
over to Debtor or to such other person(s) as may be entitled
to it under applicable law. Debtor shall remain liable for any
deficiency, which it shall pay to Bank immediately upon
demand.
4.5 Nothing in this Agreement is intended, nor shall it be
construed, to preclude Bank from pursuing any other remedy
provided by law for the collection of the Indebtedness or for
the recovery of any other sum to which Bank may be entitled
for the breach of this Agreement by Debtor. Nothing in this
Agreement shall reduce or release in any way any rights or
security interests of Bank contained in any existing agreement
between Borrower, Debtor, or any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized
officer of Bank. No waiver of any default or forbearance on
the part of Bank in enforcing any of its rights under this
Agreement shall operate as a waiver of any other default or of
the same default on a future occasion or of any rights.
4.7 Debtor irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest) the true and lawful
attorney of Debtor (with full power of substitution) in the
name, place and stead of, and at the expense of, Debtor:
(a) to demand, receive, sue for, and give receipts or
acquittances for any moneys due or to become due on
any Collateral and to endorse any item representing
any payment on or proceeds of the Collateral;
(b) to execute and file in the name of and on behalf of
Debtor all financing statements or other filings
deemed necessary or desirable by Bank to evidence,
perfect, or continue the security interests granted
in this Agreement; and
(c) to do and perform any act on behalf of Debtor
permitted or required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also
agrees, upon request of Bank, to assemble the Collateral and
make it available to Bank at any place designated by Bank
which is reasonably convenient to Bank and Debtor.
5. Miscellaneous.
<PAGE>
5.1 Until Bank is advised in writing by Debtor to the contrary,
all notices, requests and demands required under this
Agreement or by law shall be given to, or made upon, Debtor at
the first address indicated in Section 5.15 below.
5.2 Debtor will give Bank not less than 90 days prior written
notice of all contemplated changes in Debtor's name, chief
executive office location, and/or location of any Collateral,
but the giving of this notice shall not cure any Event of
Default caused by this change.
5.3 Bank assumes no duty of performance or other responsibility
under any contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or
grant participations or any interest in, any or all of the
Indebtedness and any related obligations, including without
limit this Agreement. In connection with the above, but
without limiting its ability to make other disclosures to the
full extent allowable, Bank may disclose all documents and
information - which Bank now or later has relating to Debtor,
the Indebtedness or this Agreement, however obtained. Debtor
further agrees that Bank may provide information relating to
this Agreement or relating to Debtor to the Bank's parent,
affiliates, subsidiaries, and service providers.
5.5 In addition to Bank's other rights, any indebtedness owing
from Bank to Debtor can be set off and applied by Bank on any
Indebtedness at any time(s) either before or after maturity or
demand without notice to anyone.
5.6 Debtor waives any right to require the Bank to: (a) proceed
against any person or property; (b) give notice of the terms,
time and place of any public or private sale of personal
property security held from Debtor or any other person, or
otherwise comply with the provisions of Section 9-504 of the
Uniform Commercial Code; or (c) pursue any other remedy in the
Bank's power. Debtor waives notice of acceptance of this
Agreement and presentment, demand, protest, notice of protest,
dishonor, notice of dishonor, notice of default, notice of
intent to accelerate or demand payment of any Indebtedness,
any and all other notices to which the undersigned might
otherwise be entitled, and diligence in collecting any
Indebtedness, and agree(s) that the Bank may, once or any
number of times, modify the terms of any Indebtedness,
compromise, extend, increase, accelerate, renew or forbear to
enforce payment of any or all Indebtedness, or permit Borrower
to incur additional Indebtedness, all without notice to Debtor
and without affecting in any manner the unconditional
obligation of Debtor under this Agreement. Debtor
unconditionally and irrevocably waives each and every defense
and setoff of any nature which, under principles of guaranty
or otherwise, would operate to impair or diminish in any way
the obligation of Debtor under this Agreement, and
acknowledges that such waiver is by this reference
incorporated into each security agreement, collateral
assignment, pledge and/or other document from Debtor now or
later securing the Indebtedness, and acknowledges that as of
the date of this Agreement no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation,
indemnity, reimbursement, or otherwise) to recover from
Borrower any amounts paid or the value of any Collateral given
by Debtor pursuant to this Agreement.
5.8 In the event that applicable law shall obligate Bank to give
prior notice to Debtor of any action to be taken under this
Agreement, Debtor agrees that a written notice given to Debtor
at least five days before the date of the act shall be
reasonable notice of the act and, specifically, reasonable
notification of the time and place of any public sale or of
the time after which any private sale, lease, or other
disposition is to be made, unless a shorter notice period is
reasonable under the circumstances. A
<PAGE>
notice shall be deemed to be given under this Agreement when
delivered to Debtor or when placed in an envelope addressed to
Debtor and deposited, with postage prepaid, in a post office
or official depository under the exclusive care and custody of
the United States Postal Service or delivered to an overnight
courier. The mailing shall be by overnight courier, certified,
or first class mail.
5.9 Notwithstanding any prior revocation, termination, surrender,
or discharge of this Agreement in whole or in part, the
effectiveness of this Agreement shall automatically continue
or be reinstated in the event that any payment received or
credit given by Bank in respect of the Indebtedness is
returned, disgorged, or rescinded under any applicable law,
including, without limitation, bankruptcy or insolvency laws,
in which case this Agreement, shall be enforceable against
Debtor as if the returned, disgorged, or rescinded payment or
credit had not been received or given by Bank, and whether or
not Bank relied upon this payment or credit or changed its
position as a consequence of it. In the event of continuation
or reinstatement of this Agreement, Debtor agrees upon demand
by Bank to execute and deliver to Bank those documents which
Bank determines are appropriate to further evidence (in the
public records or otherwise) this continuation or
reinstatement, although the failure of Debtor to do so shall
not affect in any way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under
this Agreement shall inure to the benefit of Bank's successors
and assigns and to any other holder who derives from Bank
title to or an interest in the Indebtedness or any portion of
it, and shall bind Debtor and the heirs, legal
representatives, successors, and assigns of Debtor. Nothing in
this Section 5.10 is deemed a consent by Bank to any
assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties
and covenants made by Debtor and all rights, powers and
authorities given to or conferred upon Bank are made or given
jointly and severally.
5.12 Except as otherwise provided in this Agreement, all terms in
this Agreement have the meanings assigned to them in Article 9
(or, absent definition in Article 9, in any other Article) of
the Uniform Commercial Code. "Uniform Commercial Code" means
Act No. 174 of the Michigan Public Acts of 1962, as amended.
5.13 No single or partial exercise, or delay in the exercise, of
any right or power under this Agreement, shall preclude other
or further exercise of the rights and powers under this
Agreement. The unenforceability of any provision of this
Agreement shall not affect the enforceability of the remainder
of this Agreement. This Agreement constitutes the entire
agreement of Debtor and Bank with respect to the subject
matter of this Agreement. No amendment or modification of this
Agreement shall be effective unless the same shall be in
writing and signed by Debtor and an authorized officer of
Bank. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Michigan,
without regard to conflict of laws principles.
5.14 To the extent that any of the Indebtedness is payable upon
demand, nothing contained in this Agreement shall modify the
terms and conditions of that Indebtedness nor shall anything
contained in this Agreement prevent Bank from making demand,
without notice and with or without reason, for immediate
payment of any or all of that Indebtedness at any time(s),
whether or not an Event of Default has occurred.
5.15 Debtor's chief executive office is located and shall be
maintained at 15675 NW 15th Avenue
--------------------
STREET ADDRESS
<PAGE>
Miami Florida 33169 Dade
- ------------------------------------------------------------------------
City State Zip Code County
If Collateral is located at other than the chief executive office, such
Collateral is located and shall be maintained at:
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City State Zip Code County
Collateral shall be maintained only at the locations identified in this
Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement under the Uniform
Commercial Code and may be filed by Bank in, any filing
office.
5.17 This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable
provisions of the Uniform Commercial Code, but the obligations
contained in Section 2.13 of this Agreement shall survive
termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT
WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
AGREEMENT OR THE INDEBTEDNESS.
<PAGE>
Special Provisions Applicable to this Agreement. (*None, if left blank)
Debtor:
AVIATION HOLDINGS GROUP, INC.
By: /s/ Joseph J. Nelson
------------------------------------
Signature of
Its: President
------------------------------------
Title (If applicable)
By: /s/ Joseph Janusz
------------------------------------
Signature of
Its: Chief Financial Officer
------------------------------------
Title (If applicable)
<PAGE>
Exhibit 10.9(h)
Comerica Security Agreement
(All Assets)
- --------------------------------------------------------------------------------
As of September 1, 1999, for value received, the undersigned ("Debtor") grants
to Comerica Bank ("Bank"), a Michigan banking corporation, a continuing security
interest in the Collateral (as defined below) to secure payment when due,
whether by stated maturity, demand, acceleration or otherwise, of all existing
and future indebtedness ("Indebtedness") to the Bank of Aviation Holdings Int'l,
Inc., a Florida corporation formerly known as Jet Aviation Trading, Inc.
("Borrower") and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary, liquidated
or unliquidated, joint or several, known or unknown; any and all obligations or
liabilities for which the Borrower and/or Debtor would otherwise be liable to
the Bank were it not for the invalidity or unenforceability of them by reason of
any bankruptcy, insolvency or other law, or for any other reason; any and all
amendments, modifications, renewals and/or extensions of any of the above; all
costs incurred by Bank in establishing, determining, continuing, or defending
the validity or priority of its security interest, or in pursuing its rights and
remedies under this Agreement or under any other agreement between Bank and
Borrower and/or Debtor or in connection with any proceeding involving Bank as a
result of any financial accommodation to Borrower and/or Debtor; and all other
costs of collecting Indebtedness, including without limit attorney fees. Debtor
agrees to pay Bank all such costs incurred by the Bank, immediately upon demand,
and until paid all costs shall bear interest at-the highest per annum-rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorney fees
or court costs are incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding or otherwise.
1. Collateral shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
(a) all Accounts Receivable (for purposes of this Agreement, "Accounts
Receivable" consists of all accounts, general intangibles, chattel
paper, contract rights, deposit accounts, documents and
instruments),
(b) all Inventory,
(c) all Equipment and Fixtures,
(d) specific items listed below and/or on attached Schedule A, if any,
is/are also included in Collateral:
_______________________________________________________
_______________________________________________________
_______________________________________________________
(e) all goods, instruments, documents, policies and certificates of
insurance, deposits, money, investment property or other property
(except real property which is not a fixture) which are now or
later in possession or control of bank, or as to which. Bank now or
later controls possession by documents or otherwise, and
<PAGE>
(f) all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions, rights
of any kind (including but not limited to stock splits, stock
rights, voting and preferential rights), products, and proceeds of
or pertaining to the above including, without limit, cash or other
property which were proceeds and are recovered by a bankruptcy
trustee or otherwise as a preferential transfer by Debtor.
2. Warranties, Covenants and Agreements. Debtor warrants, covenants and
agrees as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank may
request, any information Bank may reasonably request and allow Bank
to examine', inspect, and copy any of Debtor's books and records.
Debtor shall, at the request of Bank, mark its records and the
Collateral to clearly indicate the security interest of Bank under
this Agreement.
2.2 At the time any Collateral becomes, or is represented to be,
subject to a security interest in favor of Bank, Debtor shall be
deemed to have warranted that (a) Debtor is the lawful owner of the
Collateral and has the right and authority to subject it to a
security interest granted to Bank; (b) none of the Collateral is
subject to any security interest other than that in favor of Bank
and there are no financing statements on file, other than in favor
of Bank; and (c) Debtor acquired its rights in the Collateral in
the ordinary course of its business.
2.3 Debtor will keep the Collateral free at all times from all claims,
liens, security interests and encumbrances other than those in
favor of Bank. Debtor will not, without the prior written consent
of Bank, sell, transfer or lease, or permit to be sold, transferred
or leased, any or all of the Collateral, except for Inventory in
the ordinary course of its business and will not return any
Inventory to its supplier. Bank or its representatives may at all
reasonable times inspect the Collateral and may enter upon all
premises where the Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be executed
all writings requested by Bank to establish, maintain and continue
a perfected and first security interest of Bank in the Collateral.
Debtor agrees that Bank has no obligation to acquire or perfect any
lien on or security interest in any asset(s), whether realty or
personalty, to secure payment of the Indebtedness, and Debtor is
not relying upon assets in which the Bank may have a lien or
security interest for payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without
interest or penalty all taxes, assessments and similar charges
which at any time are or may become a lien, charge, or encumbrance
upon any Collateral, except to the extent contested in good faith
and bonded in a manner satisfactory to Bank. If Debtor fails to pay
any of these taxes, assessments, or other charges in the time
provided above, Bank has the option (but not the obligation) to do
so and Debtor agrees to repay all amounts so expended by Bank
immediately upon demand, together with interest at the highest
lawful default rate which could be charged by Bank on any
Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will protect
it from loss, damage, or deterioration from any cause. Debtor has
and will maintain at all times (a) with respect to the Collateral,
insurance under an "all risk" policy against fire and other risks
customarily insured against, and (b) public liability insurance and
other insurance as may be required by law or reasonably required by
Bank, all of which insurance shall be in amount, form and content,
and written by companies as may be satisfactory to Bank, containing
a lender's loss payable endorsement acceptable to Bank. Debtor will
deliver to Bank immediately upon demand evidence satisfactory to
Bank that the required insurance has been procured. If Debtor fails
to maintain satisfactory insurance, Bank has the
<PAGE>
option (but not the obligation) to do so and Debtor agrees to
repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate
which could be charged by Bank on any Indebtedness.
2.7 On each occasion on which Debtor evidences to Bank the account
balances on and the nature and extent of the Accounts
Receivable, Debtor shall be deemed to have warranted that
except as otherwise indicated (a) each of those Accounts
Receivable is valid and enforceable without performance by
Debtor of any act; M each of those account balances are in
fact owing, (there are no setoffs, recoupments, credits,
contra accounts, counterclaims or defenses against any of
those Accounts Receivable, (d) as to any Accounts Receivable
represented by a note, trade acceptance, draft or other
instrument or by any chattel paper or document, the same have
been endorsed and/or delivered by Debtor to Bank, (e) Debtor
has not received with respect to any Account Receivable, any
notice of the death of the related account debtor, nor of the
dissolution, liquidation, termination of existence,
insolvency, business failure, appointment of a receiver for,
assignment for the benefit of creditors by, or filing of a
petition in bankruptcy by or against, the account debtor, and
(f) as to each Account Receivable, the account debtor is not
an affiliate of Debtor, the United States of America or any
department, agency or instrumentality of it, or a citizen or
resident of any jurisdiction outside of the United States.
Debtor will do all acts and will execute all writings
requested by Bank to perform, enforce performance of, and
collect all Accounts Receivable. Debtor shall neither make nor
permit any modification, compromise or substitution for any
Account Receivable without the prior written consent of Bank.
Debtor shall, at Bank's request, arrange for verification of
Accounts Receivable directly with account debtors or by other
methods acceptable to Bank.
2.8 Debtor at all times shall be in strict compliance with all
applicable laws, including without limit any laws, ordinances,
directives, orders, statutes, or regulations an object of
which is to regulate or improve health, safety, or the
environment ("Environmental Laws").
2.9 If Bank, acting in its sole discretion, redelivers Collateral
to Debtor or Debtor's designee for the purpose of (a) the
ultimate sale or exchange thereof; or M presentation,
collection, renewal, or registration of transfer thereof; or
(c) loading, unloading, storing, shipping, transshipping,
manufacturing, processing or otherwise dealing with it
preliminary to sale or exchange; such redelivery shall be in
trust for the benefit of Bank and shall not constitute a
release of Bank's security interest in it or in the proceeds
or products of it unless Bank specifically so agrees in
writing. If Debtor requests any such redelivery, Debtor will
deliver with such request a duly executed financing statement
in form and substance satisfactory to Bank. Any proceeds of
Collateral coming into Debtor's possession as a result of any
such redelivery shall be held in trust for Bank and
immediately delivered to Bank for application on the
Indebtedness. Bank may (in its sole discretion) deliver any or
all of the Collateral to Debtor, and such delivery by Bank
shall discharge Bank from all liability or responsibility for
such Collateral. Bank, at its option, may require delivery of
any Collateral to Bank at any time with such endorsements or
assignments of the Collateral as Bank may request.
2.10 At any time and without notice, Bank may (a) cause any or all
of the Collateral to be transferred to its name or to the name
of its nominees; M receive or collect by legal proceedings or
otherwise all dividends, interest, principal payments and
other sums and all other distributions at any time payable or
receivable on account of the Collateral, and hold the same as
Collateral, or apply the same to the Indebtedness, the manner
and distribution of the application to be in the sole
discretion of Bank; (c) enter into any extension,
subordination, reorganization, deposit, merger or
consolidation agreement or any other agreement relating to or
affecting the Collateral, and deposit or surrender control of
the Collateral, and accept other property in exchange for the
Collateral and hold or apply the property or money so received
pursuant to this Agreement.
<PAGE>
2.11 Bank may assign any of the Indebtedness and deliver any or all
of the Collateral to its assignee, who then shall have with
respect to Collateral so delivered all the rights and powers
of Bank under this Agreement, and after that Bank shall be
fully discharged from all liability and responsibility with
respect to Collateral so delivered.
2.12 Debtor delivers this Agreement based solely on Debtor's
independent investigation of (or decision not to investigate)
the financial condition of Debtor and is not relying on any
information furnished by Bank. Debtor assumes full
responsibility for obtaining any further information
concerning the Debtor's financial condition, the status of the
Indebtedness or any other matter which the undersigned may
deem necessary or appropriate now or later. Debtor waives any
duty on the part of Bank, and agrees that Debtor is not
relying upon nor expecting Bank to disclose to Debtor any fact
now or later known by Bank, whether relating to the operations
or condition of Borrower, the existence, liabilities or
financial condition of any guarantor of the Indebtedness, the
occurrence of any default with respect to the Indebtedness, or
otherwise, notwithstanding any effect such fact may have upon
Debtor's risk or Debtor's rights against Borrower. Debtor
knowingly accepts the full range of risk encompassed in this
Agreement, which risk includes without limit the possibility
that Borrower may incur Indebtedness to Bank after the
financial condition of Borrower, or Borrower's ability to pay
debts as they mature, has deteriorated.
2.13 Debtor shall defend, indemnify and hold harmless Bank, its
employees, agents, shareholders, affiliates, officers, and
directors from and against any and all claims, damages, fines,
expenses, liabilities or causes of action of whatever kind,
including without limit consultant fees, legal expenses, and
attorney fees, suffered by any of them as a direct or indirect
result of any actual or asserted violation of any law,
including, without limit, Environmental Laws, or of any
remediation relating to any property required by any law,
including without limit Environmental Laws.
3. Collection of Proceeds.
3.1 Debtor agrees to collect and enforce payment of all Collateral
until Bank shall direct Debtor to the contrary. Immediately
upon notice to Debtor by Bank and at all times after that,
Debtor agrees to fully and promptly cooperate and assist Bank
in the collection and enforcement of all Collateral and to
hold in trust for Bank all payments received in connection
with Collateral and from the sale, lease or other disposition
of any Collateral, all rights by way of suretyship or guaranty
and all rights in the nature of a lien or security interest
which Debtor now or later has regarding Collateral.
Immediately upon and after such notice, Debtor agrees to (a)
endorse to Bank and immediately deliver to Bank all payments
received on Collateral or from the sale, lease or other
disposition of any Collateral or arising from any other rights
or interests of Debtor in the Collateral, in the form received
by Debtor without commingling with any other funds, and (b)
immediately deliver to Bank all property in Debtor's
possession or later coming into Debtor's possession through
enforcement of Debtor's rights or interests in the Collateral.
Debtor irrevocably authorizes Bank or any Bank employee or
agent to endorse the name of Debtor upon any checks or other
items which are received in payment for any Collateral, and to
do any and all things necessary in order to reduce these items
to money. Bank shall have no duty as to the collection or
protection of Collateral or the proceeds of it, nor as to the
preservation of any related rights: beyond the use of
reasonable care in the custody and preservation of Collateral
in the possession of Bank. Debtor agrees to take all steps
necessary to preserve rights against prior parties with
respect to the Collateral. Nothing in this Section 3.1 shall
be deemed a consent by Bank to any sale, lease or other
disposition of any Collateral.
3.2 Debtor agrees that immediately upon Bank's request (whether or
not any Event of Default exists) the Indebtedness shall be on
a "remittance basis" as follows: Debtor shall at its sole
expense establish and
<PAGE>
maintain (and Bank, at Bank's option may establish and
maintain at Debtor's expense): (a) an United States Post
Office lock box (the "Lock Box"), to which Bank shall have
exclusive access and control. Debtor expressly authorizes
Bank, from time to time, to remove contents from the Lock Box,
for disposition in accordance with this Agreement. Debtor
agrees to notify all account debtors and other parties
obligated to Debtor that all payments made to Debtor (other
than payments by electronic funds transfer) shall be remitted,
for the credit of Debtor, to the Lock Box, and Debtor shall
include a like statement on all invoices; and (b) a
non-interest bearing deposit account with Bank which shall be
titled as designated by Bank (the "Cash Collateral Account")
to which Bank shall have exclusive access and control. Debtor
agrees to notify all account debtors and other parties
obligated to Debtor that all payments made to Debtor by
electronic funds transfer shall be remitted to the Cash
Collateral Account, and Debtor, at Bank's request, shall
include a like statement on all invoices. Debtor shall execute
all documents and authorizations as required by Bank to
establish and maintain the Lock Box and the Cash Collateral
Account.
3.3 All items or amounts which are remitted to the Lock Box, to
the Cash Collateral Account, or otherwise delivered by or for
the benefit of Debtor to Bank on account of partial or full
payment of, or with respect to, any Collateral shall, at
Bank's option, (i) be applied to the payment of the
Indebtedness, whether then due or not, in such order or at
such time of application as Bank may determine in its sole
discretion, or, (ii) be deposited to the Cash Collateral
Account. Debtor agrees that Bank shall not be liable for any
loss or damage which Debtor may suffer as a result of Bank's
processing of items or its exercise of any other rights or
remedies under this Agreement, including without limitation
indirect, special or consequential damages, loss of revenues
or profits, or any claim, demand or action by any third party
arising out of or in connection with the processing of items
or the exercise of any other rights or remedies under this
Agreement. Debtor agrees to indemnify and hold Bank harmless
from and against all such third party claims, demands or
actions, and all related expenses or liabilities, including,
without limitation, attorney fees.
4. Defaults, Enforcement and Application of Proceeds.
4.1 Upon the occurrence of any of the following events (each an
"Event of Default"), Debtor shall be in default under this
Agreement:
(a) Any failure to pay the Indebtedness or any other
indebtedness when due, or such portion of it as may
be due, by acceleration or otherwise; or
(b) Any failure or neglect to comply with, or breach of
or default under, any term of this Agreement, or any
other agreement or commitment between Borrower,
Debtor, or any guarantor of any of the Indebtedness
("Guarantor") and Bank; or
(c) Any warranty, representation, financial statement, or
other information made, given or furnished to Bank by
or on behalf of Borrower, Debtor, or any Guarantor
shall be, or shall prove to have been, false or
materially misleading when made, given, or furnished;
or
(d) Any loss, theft, substantial damage or destruction to
or of any Collateral, or the issuance or filing of
any attachment, levy, garnishment or the commencement
of any proceeding in connection with any Collateral
or of any other judicial process of, upon or in
respect of Borrower, Debtor, any Guarantor, or any
Collateral; or
(e) Sale or other disposition by Borrower, Debtor, or any
Guarantor of any substantial portion of its assets or
property or voluntary suspension of the transaction
of business by Borrower,
<PAGE>
Debtor, or any Guarantor, or death, dissolution,
termination of existence, merger, consolidation,
insolvency, business failure, or assignment for the
benefit of creditors of or by Borrower, Debtor, or
any Guarantor; or commencement of any proceedings
under any state or federal bankruptcy or insolvency
laws or laws for the relief of debtors by or against
Borrower, Debtor, or any Guarantor; or the
appointment of a receiver, trustee, court appointee,
sequestrator or otherwise, for all or any part of the
property of Borrower, Debtor, or any Guarantor; or
(f) Bank deems the margin of Collateral insufficient or
itself insecure, in good faith believing that the
prospect of payment of the Indebtedness or
performance of this Agreement is impaired or shall
fear deterioration, removal, or waste of Collateral.
4.2 Upon the occurrence of any Event of Default, Bank may at its
discretion and without prior notice to Debtor declare any or
all of the Indebtedness to be immediately due and payable, and
shall have and may exercise any one or more of the following
rights and remedies:
(a) Exercise all the rights and remedies upon default, in
foreclosure and otherwise, available to secured
parties under the provisions of the Uniform
Commercial Code and other applicable law;
(b) Institute legal proceedings to foreclose upon the
lien and security interest granted by this Agreement,
to recover judgment for all amounts then due and
owing as Indebtedness, and to collect the same out of
any Collateral or the proceeds of any sale of it;
(c) Institute legal proceedings for the sale, under the
judgment or decree of any court of competent
jurisdiction, of any or all Collateral; and/or
(d) Personally or by agents, attorneys, or appointment of
a receiver, enter upon any premises where Collateral
may then be located, and take possession of all or
any of it and/or render it unusable; and without
being responsible for loss or damage to such
Collateral, hold, operate, sell, lease, or dispose of
all or any Collateral at one or more public or
private sales, leasings or other disposition, at
places and times and on terms and conditions as Bank
may deem fit, without any previous demand or
advertisement; and except as provided in this
Agreement, all notice of sale, lease or other
disposition, and advertisement, and other notice or
demand, any right or equity of redemption, and any
obligation of a prospective purchaser or lessee to
inquire as to the power and authority of Bank to
sell, lease, or otherwise dispose of the Collateral
or as to the application by Bank of the proceeds of
sale or otherwise, which would otherwise be required
by, or available to Debtor under, applicable law are
expressly waived by Debtor to the fullest extent
permitted.
At any sale pursuant to this Section 4.2, whether
under the power of sale, by virtue of judicial
proceedings or otherwise, it shall not be necessary
for Bank or a public officer under order of a court
to have present physical or constructive possession
of Collateral to be sold. The recitals contained in
any conveyances and receipts made and given by Bank
or the public officer to any purchaser at any sale
made pursuant to this Agreement shall, to the extent
permitted by applicable law, conclusively establish
the truth and accuracy of the matters stated
(including, without limit, as to the amounts of the
principal of and interest on the Indebtedness, the
accrual and nonpayment of it and advertisement and
conduct of the sale); and all prerequisites to the
sale shall be presumed to have been satisfied and
performed. Upon any sale of any Collateral, the
receipt of the officer making the sale under
<PAGE>
judicial proceedings or of Bank shall be sufficient
discharge to the purchaser for the purchase money,
and the purchaser shall not be obligated to see to
the application of the money. Any sale of any
Collateral under this Agreement shall be a perpetual
bar against Debtor with respect to that Collateral.
4.3 Debtor shall at the request of Bank, notify the account
debtors or obligors of Bank's security interest in the
Collateral and direct payment of it to Bank. Bank may, itself,
upon the occurrence of any Event of Default so notify and
direct any account debtor or obligor.
4.4 The proceeds of any sale or other disposition of Collateral
authorized by this Agreement shall be applied by Bank first
upon all expenses authorized by the Uniform Commercial Code
and all reasonable attorney fees and legal expenses incurred
by Bank; the balance of the proceeds of the sale or other
disposition shall be applied in the payment of the
Indebtedness, first to interest, then to principal, then to
remaining Indebtedness and the surplus, if any, shall be paid
over to Debtor or to such other person(s) as may be entitled
to it under applicable law. Debtor shall remain liable for any
deficiency, which it shall pay to Bank immediately upon
demand.
4.5 Nothing in this Agreement is intended, nor shall it be
construed, to preclude Bank from pursuing any other remedy
provided by law for the collection of the Indebtedness or for
the recovery of any other sum to which Bank may be entitled
for the breach of this Agreement by Debtor. Nothing in this
Agreement shall reduce or release in any way any rights or
security interests of Bank contained in any existing agreement
between Borrower, Debtor, or any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized
officer of Bank. No waiver of any default or forbearance on
the part of Bank in enforcing any of its rights under this
Agreement shall operate as a waiver of any other default or of
the same default on a future occasion or of any rights.
4.7 Debtor irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest) the true and lawful
attorney of Debtor (with full power of substitution) in the
name, place and stead of, and at the expense of, Debtor:
(a) to demand, receive, sue for, and give receipts or
acquittances for any moneys due or to become due on
any Collateral and to endorse any item representing
any payment on or proceeds of the Collateral;
(b) to execute and file in the name of and on behalf of
Debtor all financing statements or other filings
deemed necessary or desirable by Bank to evidence,
perfect, or continue the security interests granted
in this Agreement; and
(c) to do and perform any act on behalf of Debtor
permitted or required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also
agrees, upon request of Bank, to assemble the Collateral and
make it available to Bank at any place designated by Bank
which is reasonably convenient to Bank and Debtor.
<PAGE>
5. Miscellaneous.
5.1 Until Bank is advised in writing by Debtor to the contrary,
all notices, requests and demands required under this
Agreement or by law shall be given to, or made upon, Debtor at
the first address indicated in Section 5.15 below.
5.2 Debtor will give Bank not less than 90 days prior written
notice of all contemplated changes in Debtor's name, chief
executive office location, and/or location of any Collateral,
but the giving of this notice shall not cure any Event of
Default caused by this change.
5.3 Bank assumes no duty of performance or other responsibility
under any contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or
grant participations or any interest in, any or all of the
Indebtedness and any related obligations, including without
limit this Agreement. In connection with the above, but
without limiting its ability to make other disclosures to the
full extent allowable, Bank may disclose all documents and
information - which Bank now or later has relating to Debtor,
the Indebtedness or this Agreement, however obtained. Debtor
further agrees that Bank may provide information relating to
this Agreement or relating to Debtor to the Bank's parent,
affiliates, subsidiaries, and service providers.
5.5 In addition to Bank's other rights, any indebtedness owing
from Bank to Debtor can be set off and applied by Bank on any
Indebtedness at any time(s) either before or after maturity or
demand without notice to anyone.
5.6 Debtor waives any right to require the Bank to: (a) proceed
against any person or property; (b) give notice of the terms,
time and place of any public or private sale of personal
property security held from Debtor or any other person, or
otherwise comply with the provisions of Section 9-504 of the
Uniform Commercial Code; or (c) pursue any other remedy in the
Bank's power. Debtor waives notice of acceptance of this
Agreement and presentment, demand, protest, notice of protest,
dishonor, notice of dishonor, notice of default, notice of
intent to accelerate or demand payment of any Indebtedness,
any and all other notices to which the undersigned might
otherwise be entitled, and diligence in collecting any
Indebtedness, and agree(s) that the Bank may, once or any
number of times, modify the terms of any Indebtedness,
compromise, extend, increase, accelerate, renew or forbear to
enforce payment of any or all Indebtedness, or permit Borrower
to incur additional Indebtedness, all without notice to Debtor
and without affecting in any manner the unconditional
obligation of Debtor under this Agreement. Debtor
unconditionally and irrevocably waives each and every defense
and setoff of any nature which, under principles of guaranty
or otherwise, would operate to impair or diminish in any way
the obligation of Debtor under this Agreement, and
acknowledges that such waiver is by this reference
incorporated into each security agreement, collateral
assignment, pledge and/or other document from Debtor now or
later securing the Indebtedness, and acknowledges that as of
the date of this Agreement no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation,
indemnity, reimbursement, or otherwise) to recover from
Borrower any amounts paid or the value of any Collateral given
by Debtor pursuant to this Agreement.
5.8 In the event that applicable law shall obligate Bank to give
prior notice to Debtor of any action to be taken under this
Agreement, Debtor agrees that a written notice given to Debtor
at least five days before the date of the act shall be
reasonable notice of the act and, specifically, reasonable
notification of the time and place of any public sale or of
the time after which any private sale, lease, or other
disposition is to be made, unless a shorter notice period is
reasonable under the circumstances. A
<PAGE>
notice shall be deemed to be given under this Agreement when
delivered to Debtor or when placed in an envelope addressed to
Debtor and deposited, with postage prepaid, in a post office
or official depository under the exclusive care and custody of
the United States Postal Service or delivered to an overnight
courier. The mailing shall be by overnight courier, certified,
or first class mail.
5.9 Notwithstanding any prior revocation, termination, surrender,
or discharge of this Agreement in whole or in part, the
effectiveness of this Agreement shall automatically continue
or be reinstated in the event that any payment received or
credit given by Bank in respect of the Indebtedness is
returned, disgorged, or rescinded under any applicable law,
including, without limitation, bankruptcy or insolvency laws,
in which case this Agreement, shall be enforceable against
Debtor as if the returned, disgorged, or rescinded payment or
credit had not been received or given by Bank, and whether or
not Bank relied upon this payment or credit or changed its
position as a consequence of it. In the event of continuation
or reinstatement of this Agreement, Debtor agrees upon demand
by Bank to execute and deliver to Bank those documents which
Bank determines are appropriate to further evidence (in the
public records or otherwise) this continuation or
reinstatement, although the failure of Debtor to do so shall
not affect in any way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under
this Agreement shall inure to the benefit of Bank's successors
and assigns and to any other holder who derives from Bank
title to or an interest in the Indebtedness or any portion of
it, and shall bind Debtor and the heirs, legal
representatives, successors, and assigns of Debtor. Nothing in
this Section 5.10 is deemed a consent by Bank to any
assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties
and covenants made by Debtor and all rights, powers and
authorities given to or conferred upon Bank are made or given
jointly and severally.
5.12 Except as otherwise provided in this Agreement, all terms in
this Agreement have the meanings assigned to them in Article 9
(or, absent definition in Article 9, in any other Article) of
the Uniform Commercial Code. "Uniform Commercial Code" means
Act No. 174 of the Michigan Public Acts of 1962, as amended.
5.13 No single or partial exercise, or delay in the exercise, of
any right or power under this Agreement, shall preclude other
or further exercise of the rights and powers under this
Agreement. The unenforceability of any provision of this
Agreement shall not affect the enforceability of the remainder
of this Agreement. This Agreement constitutes the entire
agreement of Debtor and Bank with respect to the subject
matter of this Agreement. No amendment or modification of this
Agreement shall be effective unless the same shall be in
writing and signed by Debtor and an authorized officer of
Bank. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Michigan,
without regard to conflict of laws principles.
5.14 To the extent that any of the Indebtedness is payable upon
demand, nothing contained in this Agreement shall modify the
terms and conditions of that Indebtedness nor shall anything
contained in this Agreement prevent Bank from making demand,
without notice and with or without reason, for immediate
payment of any or all of that Indebtedness at any time(s),
whether or not an Event of Default has occurred.
5.15 Debtor's chief executive office is located and shall be
maintained at 15675 NW 15th Avenue
--------------------
STREET ADDRESS
<PAGE>
Miami Florida 33169 Dade
- --------------------------------------------------------------------------------
City State Zip Code County
If Collateral is located at other than the chief executive office, such
Collateral is located and shall be maintained at:
________________________________________________________________________________
Street Address
________________________________________________________________________________
City State Zip Code County
Collateral shall be maintained only at the locations identified in this
Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement under the Uniform
Commercial Code and may be filed by Bank in, any filing
office.
5.17 This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable
provisions of the Uniform Commercial Code, but the obligations
contained in Section 2.13 of this Agreement shall survive
termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT
WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
AGREEMENT OR THE INDEBTEDNESS.
<PAGE>
Special Provisions Applicable to this Agreement. (*None, if left blank)
Debtor:
AERO-LINK FLIGHT SYSTEMS, INC.
By: /s/ Joseph J. Nelson
-------------------------
Signature of
Its: President
-------------------------
Title (If applicable)
By: /s/ Joseph Janusz
-------------------------
Signature of
Its: Chief Financial Officer
-------------------------
Title (If applicable)
<PAGE>
Exhibit 10.9(i)
Comerica Security Agreement
(All Assets)
- -------------------------------------------------------------------------------
As of September 1, 1999, for value received, the undersigned ("Debtor") grants
to Comerica Bank ("Bank"), a Michigan banking corporation, a continuing security
interest in the Collateral (as defined below) to secure payment when due,
whether by stated maturity, demand, acceleration or otherwise, of all existing
and future indebtedness ("Indebtedness") to the Bank of Aviation Holdings Int'l,
Inc., a Florida corporation formerly known as Jet Aviation Trading, Inc.
("Borrower") and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary, liquidated
or unliquidated, joint or several, known or unknown; any and all obligations or
liabilities for which the Borrower and/or Debtor would otherwise be liable to
the Bank were it not for the invalidity or unenforceability of them by reason of
any bankruptcy, insolvency or other law, or for any other reason; any and all
amendments, modifications, renewals and/or extensions of any of the above; all
costs incurred by Bank in establishing, determining, continuing, or defending
the validity or priority of its security interest, or in pursuing its rights and
remedies under this Agreement or under any other agreement between Bank and
Borrower and/or Debtor or in connection with any proceeding involving Bank as a
result of any financial accommodation to Borrower and/or Debtor; and all other
costs of collecting Indebtedness, including without limit attorney fees. Debtor
agrees to pay Bank all such costs incurred by the Bank, immediately upon demand,
and until paid all costs shall bear interest at-the highest per annum-rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorney fees
or court costs are incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding or otherwise.
1. Collateral shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
(a) all Accounts Receivable (for purposes of this Agreement,
"Accounts Receivable" consists of all accounts, general
intangibles, chattel paper, contract rights, deposit accounts,
documents and instruments),
(b) all Inventory,
(c) all Equipment and Fixtures,
(d) specific items listed below and/or on attached Schedule A, if
any, is/are also included in Collateral:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
(e) all goods, instruments, documents, policies and certificates
of insurance, deposits, money, investment property or other
property (except real property which is not a fixture) which
are now or later in possession or control of bank, or as to
which. Bank now or later controls possession by documents or
otherwise, and
<PAGE>
(f) all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions,
rights of any kind (including but not limited to stock splits,
stock rights, voting and preferential rights), products, and
proceeds of or pertaining to the above including, without
limit, cash or other property which were proceeds and are
recovered by a bankruptcy trustee or otherwise as a
preferential transfer by Debtor.
2. Warranties, Covenants and Agreements. Debtor warrants, covenants and
agrees as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank
may request, any information Bank may reasonably request and
allow Bank to examine', inspect, and copy any of Debtor's
books and records. Debtor shall, at the request of Bank, mark
its records and the Collateral to clearly indicate the
security interest of Bank under this Agreement.
2.2 At the time any Collateral becomes, or is represented to be,
subject to a security interest in favor of Bank, Debtor shall
be deemed to have warranted that (a) Debtor is the lawful
owner of the Collateral and has the right and authority to
subject it to a security interest granted to Bank; (b) none of
the Collateral is subject to any security interest other than
that in favor of Bank and there are no financing statements on
file, other than in favor of Bank; and (c) Debtor acquired its
rights in the Collateral in the ordinary course of its
business.
2.3 Debtor will keep the Collateral free at all times from all
claims, liens, security interests and encumbrances other than
those in favor of Bank. Debtor will not, without the prior
written consent of Bank, sell, transfer or lease, or permit to
be sold, transferred or leased, any or all of the Collateral,
except for Inventory in the ordinary course of its business
and will not return any Inventory to its supplier. Bank or its
representatives may at all reasonable times inspect the
Collateral and may enter upon all premises where the
Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be
executed all writings requested by Bank to establish, maintain
and continue a perfected and first security interest of Bank
in the Collateral. Debtor agrees that Bank has no obligation
to acquire or perfect any lien on or security interest in any
asset(s), whether realty or personalty, to secure payment of
the Indebtedness, and Debtor is not relying upon assets in
which the Bank may have a lien or security interest for
payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without
interest or penalty all taxes, assessments and similar charges
which at any time are or may become a lien, charge, or
encumbrance upon any Collateral, except to the extent
contested in good faith and bonded in a manner satisfactory to
Bank. If Debtor fails to pay any of these taxes, assessments,
or other charges in the time provided above, Bank has the
option (but not the obligation) to do so and Debtor agrees to
repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate
which could be charged by Bank on any Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will
protect it from loss, damage, or deterioration from any cause.
Debtor has and will maintain at all times (a) with respect to
the Collateral, insurance under an "all risk" policy against
fire and other risks customarily insured against, and (b)
public liability insurance and other insurance as may be
required by law or reasonably required by Bank, all of which
insurance shall be in amount, form and content, and written by
companies as may be satisfactory to Bank, containing a
lender's loss payable endorsement acceptable to Bank. Debtor
will deliver to Bank immediately upon demand evidence
satisfactory to Bank that the required insurance has been
procured. If Debtor fails to maintain satisfactory insurance,
Bank has the
<PAGE>
option (but not the obligation) to do so and Debtor agrees to
repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate
which could be charged by Bank on any Indebtedness.
2.7 On each occasion on which Debtor evidences to Bank the account
balances on and the nature and extent of the Accounts
Receivable, Debtor shall be deemed to have warranted that
except as otherwise indicated (a) each of those Accounts
Receivable is valid and enforceable without performance by
Debtor of any act; M each of those account balances are in
fact owing, (there are no setoffs, recoupments, credits,
contra accounts, counterclaims or defenses against any of
those Accounts Receivable, (d) as to any Accounts Receivable
represented by a note, trade acceptance, draft or other
instrument or by any chattel paper or document, the same have
been endorsed and/or delivered by Debtor to Bank, (e) Debtor
has not received with respect to any Account Receivable, any
notice of the death of the related account debtor, nor of the
dissolution, liquidation, termination of existence,
insolvency, business failure, appointment of a receiver for,
assignment for the benefit of creditors by, or filing of a
petition in bankruptcy by or against, the account debtor, and
(f) as to each Account Receivable, the account debtor is not
an affiliate of Debtor, the United States of America or any
department, agency or instrumentality of it, or a citizen or
resident of any jurisdiction outside of the United States.
Debtor will do all acts and will execute all writings
requested by Bank to perform, enforce performance of, and
collect all Accounts Receivable. Debtor shall neither make nor
permit any modification, compromise or substitution for any
Account Receivable without the prior written consent of Bank.
Debtor shall, at Bank's request, arrange for verification of
Accounts Receivable directly with account debtors or by other
methods acceptable to Bank.
2.8 Debtor at all times shall be in strict compliance with all
applicable laws, including without limit any laws, ordinances,
directives, orders, statutes, or regulations an object of
which is to regulate or improve health, safety, or the
environment ("Environmental Laws").
2.9 If Bank, acting in its sole discretion, redelivers Collateral
to Debtor or Debtor's designee for the purpose of (a) the
ultimate sale or exchange thereof; or M presentation,
collection, renewal, or registration of transfer thereof; or
(c) loading, unloading, storing, shipping, transshipping,
manufacturing, processing or otherwise dealing with it
preliminary to sale or exchange; such redelivery shall be in
trust for the benefit of Bank and shall not constitute a
release of Bank's security interest in it or in the proceeds
or products of it unless Bank specifically so agrees in
writing. If Debtor requests any such redelivery, Debtor will
deliver with such request a duly executed financing statement
in form and substance satisfactory to Bank. Any proceeds of
Collateral coming into Debtor's possession as a result of any
such redelivery shall be held in trust for Bank and
immediately delivered to Bank for application on the
Indebtedness. Bank may (in its sole discretion) deliver any or
all of the Collateral to Debtor, and such delivery by Bank
shall discharge Bank from all liability or responsibility for
such Collateral. Bank, at its option, may require delivery of
any Collateral to Bank at any time with such endorsements or
assignments of the Collateral as Bank may request.
2.10 At any time and without notice, Bank may (a) cause any or all
of the Collateral to be transferred to its name or to the name
of its nominees; M receive or collect by legal proceedings or
otherwise all dividends, interest, principal payments and
other sums and all other distributions at any time payable or
receivable on account of the Collateral, and hold the same as
Collateral, or apply the same to the Indebtedness, the manner
and distribution of the application to be in the sole
discretion of Bank; (c) enter into any extension,
subordination, reorganization, deposit, merger or
consolidation agreement or any other agreement relating to or
affecting the Collateral, and deposit or surrender control of
the Collateral, and accept other property in exchange for the
Collateral and hold or apply the property or money so received
pursuant to this Agreement.
<PAGE>
2.11 Bank may assign any of the Indebtedness and deliver any or all
of the Collateral to its assignee, who then shall have with
respect to Collateral so delivered all the rights and powers
of Bank under this Agreement, and after that Bank shall be
fully discharged from all liability and responsibility with
respect to Collateral so delivered.
2.12 Debtor delivers this Agreement based solely on Debtor's
independent investigation of (or decision not to investigate)
the financial condition of Debtor and is not relying on any
information furnished by Bank. Debtor assumes full
responsibility for obtaining any further information
concerning the Debtor's financial condition, the status of the
Indebtedness or any other matter which the undersigned may
deem necessary or appropriate now or later. Debtor waives any
duty on the part of Bank, and agrees that Debtor is not
relying upon nor expecting Bank to disclose to Debtor any fact
now or later known by Bank, whether relating to the operations
or condition of Borrower, the existence, liabilities or
financial condition of any guarantor of the Indebtedness, the
occurrence of any default with respect to the Indebtedness, or
otherwise, notwithstanding any effect such fact may have upon
Debtor's risk or Debtor's rights against Borrower. Debtor
knowingly accepts the full range of risk encompassed in this
Agreement, which risk includes without limit the possibility
that Borrower may incur Indebtedness to Bank after the
financial condition of Borrower, or Borrower's ability to pay
debts as they mature, has deteriorated.
2.13 Debtor shall defend, indemnify and hold harmless Bank, its
employees, agents, shareholders, affiliates, officers, and
directors from and against any and all claims, damages, fines,
expenses, liabilities or causes of action of whatever kind,
including without limit consultant fees, legal expenses, and
attorney fees, suffered by any of them as a direct or indirect
result of any actual or asserted violation of any law,
including, without limit, Environmental Laws, or of any
remediation relating to any property required by any law,
including without limit Environmental Laws.
3. Collection of Proceeds.
3.1 Debtor agrees to collect and enforce payment of all Collateral
until Bank shall direct Debtor to the contrary. Immediately
upon notice to Debtor by Bank and at all times after that,
Debtor agrees to fully and promptly cooperate and assist Bank
in the collection and enforcement of all Collateral and to
hold in trust for Bank all payments received in connection
with Collateral and from the sale, lease or other disposition
of any Collateral, all rights by way of suretyship or guaranty
and all rights in the nature of a lien or security interest
which Debtor now or later has regarding Collateral.
Immediately upon and after such notice, Debtor agrees to (a)
endorse to Bank and immediately deliver to Bank all payments
received on Collateral or from the sale, lease or other
disposition of any Collateral or arising from any other rights
or interests of Debtor in the Collateral, in the form received
by Debtor without commingling with any other funds, and (b)
immediately deliver to Bank all property in Debtor's
possession or later coming into Debtor's possession through
enforcement of Debtor's rights or interests in the Collateral.
Debtor irrevocably authorizes Bank or any Bank employee or
agent to endorse the name of Debtor upon any checks or other
items which are received in payment for any Collateral, and to
do any and all things necessary in order to reduce these items
to money. Bank shall have no duty as to the collection or
protection of Collateral or the proceeds of it, nor as to the
preservation of any related rights: beyond the use of
reasonable care in the custody and preservation of Collateral
in the possession of Bank. Debtor agrees to take all steps
necessary to preserve rights against prior parties with
respect to the Collateral. Nothing in this Section 3.1 shall
be deemed a consent by Bank to any sale, lease or other
disposition of any Collateral.
3.2 Debtor agrees that immediately upon Bank's request (whether or
not any Event of Default exists) the Indebtedness shall be on
a "remittance basis" as follows: Debtor shall at its sole
expense establish and
<PAGE>
maintain (and Bank, at Bank's option may establish and
maintain at Debtor's expense): (a) an United States Post
Office lock box (the "Lock Box"), to which Bank shall have
exclusive access and control. Debtor expressly authorizes
Bank, from time to time, to remove contents from the Lock Box,
for disposition in accordance with this Agreement. Debtor
agrees to notify all account debtors and other parties
obligated to Debtor that all payments made to Debtor (other
than payments by electronic funds transfer) shall be remitted,
for the credit of Debtor, to the Lock Box, and Debtor shall
include a like statement on all invoices; and (b) a
non-interest bearing deposit account with Bank which shall be
titled as designated by Bank (the "Cash Collateral Account")
to which Bank shall have exclusive access and control. Debtor
agrees to notify all account debtors and other parties
obligated to Debtor that all payments made to Debtor by
electronic funds transfer shall be remitted to the Cash
Collateral Account, and Debtor, at Bank's request, shall
include a like statement on all invoices. Debtor shall execute
all documents and authorizations as required by Bank to
establish and maintain the Lock Box and the Cash Collateral
Account.
3.3 All items or amounts which are remitted to the Lock Box, to
the Cash Collateral Account, or otherwise delivered by or for
the benefit of Debtor to Bank on account of partial or full
payment of, or with respect to, any Collateral shall, at
Bank's option, (i) be applied to the payment of the
Indebtedness, whether then due or not, in such order or at
such time of application as Bank may determine in its sole
discretion, or, (ii) be deposited to the Cash Collateral
Account. Debtor agrees that Bank shall not be liable for any
loss or damage which Debtor may suffer as a result of Bank's
processing of items or its exercise of any other rights or
remedies under this Agreement, including without limitation
indirect, special or consequential damages, loss of revenues
or profits, or any claim, demand or action by any third party
arising out of or in connection with the processing of items
or the exercise of any other rights or remedies under this
Agreement. Debtor agrees to indemnify and hold Bank harmless
from and against all such third party claims, demands or
actions, and all related expenses or liabilities, including,
without limitation, attorney fees.
4. Defaults, Enforcement and Application of Proceeds.
4.1 Upon the occurrence of any of the following events (each an
"Event of Default"), Debtor shall be in default under this
Agreement:
(a) Any failure to pay the Indebtedness or any other
indebtedness when due, or such portion of it as may
be due, by acceleration or otherwise; or
(b) Any failure or neglect to comply with, or breach of
or default under, any term of this Agreement, or any
other agreement or commitment between Borrower,
Debtor, or any guarantor of any of the Indebtedness
("Guarantor") and Bank; or
(c) Any warranty, representation, financial statement, or
other information made, given or furnished to Bank by
or on behalf of Borrower, Debtor, or any Guarantor
shall be, or shall prove to have been, false or
materially misleading when made, given, or furnished;
or
(d) Any loss, theft, substantial damage or destruction to
or of any Collateral, or the issuance or filing of
any attachment, levy, garnishment or the commencement
of any proceeding in connection with any Collateral
or of any other judicial process of, upon or in
respect of Borrower, Debtor, any Guarantor, or any
Collateral; or
(e) Sale or other disposition by Borrower, Debtor, or any
Guarantor of any substantial portion of its assets or
property or voluntary suspension of the transaction
of business by Borrower,
<PAGE>
Debtor, or any Guarantor, or death, dissolution,
termination of existence, merger, consolidation,
insolvency, business failure, or assignment for the
benefit of creditors of or by Borrower, Debtor, or
any Guarantor; or commencement of any proceedings
under any state or federal bankruptcy or insolvency
laws or laws for the relief of debtors by or against
Borrower, Debtor, or any Guarantor; or the
appointment of a receiver, trustee, court appointee,
sequestrator or otherwise, for all or any part of the
property of Borrower, Debtor, or any Guarantor; or
(f) Bank deems the margin of Collateral insufficient or
itself insecure, in good faith believing that the
prospect of payment of the Indebtedness or
performance of this Agreement is impaired or shall
fear deterioration, removal, or waste of Collateral.
4.2 Upon the occurrence of any Event of Default, Bank may at its
discretion and without prior notice to Debtor declare any or
all of the Indebtedness to be immediately due and payable, and
shall have and may exercise any one or more of the following
rights and remedies:
(a) Exercise all the rights and remedies upon default, in
foreclosure and otherwise, available to secured
parties under the provisions of the Uniform
Commercial Code and other applicable law;
(b) Institute legal proceedings to foreclose upon the
lien and security interest granted by this Agreement,
to recover judgment for all amounts then due and
owing as Indebtedness, and to collect the same out of
any Collateral or the proceeds of any sale of it;
(c) Institute legal proceedings for the sale, under the
judgment or decree of any court of competent
jurisdiction, of any or all Collateral; and/or
(d) Personally or by agents, attorneys, or appointment of
a receiver, enter upon any premises where Collateral
may then be located, and take possession of all or
any of it and/or render it unusable; and without
being responsible for loss or damage to such
Collateral, hold, operate, sell, lease, or dispose of
all or any Collateral at one or more public or
private sales, leasings or other disposition, at
places and times and on terms and conditions as Bank
may deem fit, without any previous demand or
advertisement; and except as provided in this
Agreement, all notice of sale, lease or other
disposition, and advertisement, and other notice or
demand, any right or equity of redemption, and any
obligation of a prospective purchaser or lessee to
inquire as to the power and authority of Bank to
sell, lease, or otherwise dispose of the Collateral
or as to the application by Bank of the proceeds of
sale or otherwise, which would otherwise be required
by, or available to Debtor under, applicable law are
expressly waived by Debtor to the fullest extent
permitted.
At any sale pursuant to this Section 4.2, whether
under the power of sale, by virtue of judicial
proceedings or otherwise, it shall not be necessary
for Bank or a public officer under order of a court
to have present physical or constructive possession
of Collateral to be sold. The recitals contained in
any conveyances and receipts made and given by Bank
or the public officer to any purchaser at any sale
made pursuant to this Agreement shall, to the extent
permitted by applicable law, conclusively establish
the truth and accuracy of the matters stated
(including, without limit, as to the amounts of the
principal of and interest on the Indebtedness, the
accrual and nonpayment of it and advertisement and
conduct of the sale); and all prerequisites to the
sale shall be presumed to have been satisfied and
performed. Upon any sale of any Collateral, the
receipt of the officer making the sale under
<PAGE>
judicial proceedings or of Bank shall be sufficient
discharge to the purchaser for the purchase money,
and the purchaser shall not be obligated to see to
the application of the money. Any sale of any
Collateral under this Agreement shall be a perpetual
bar against Debtor with respect to that Collateral.
4.3 Debtor shall at the request of Bank, notify the account
debtors or obligors of Bank's security interest in the
Collateral and direct payment of it to Bank. Bank may, itself,
upon the occurrence of any Event of Default so notify and
direct any account debtor or obligor.
4.4 The proceeds of any sale or other disposition of Collateral
authorized by this Agreement shall be applied by Bank first
upon all expenses authorized by the Uniform Commercial Code
and all reasonable attorney fees and legal expenses incurred
by Bank; the balance of the proceeds of the sale or other
disposition shall be applied in the payment of the
Indebtedness, first to interest, then to principal, then to
remaining Indebtedness and the surplus, if any, shall be paid
over to Debtor or to such other person(s) as may be entitled
to it under applicable law. Debtor shall remain liable for any
deficiency, which it shall pay to Bank immediately upon
demand.
4.5 Nothing in this Agreement is intended, nor shall it be
construed, to preclude Bank from pursuing any other remedy
provided by law for the collection of the Indebtedness or for
the recovery of any other sum to which Bank may be entitled
for the breach of this Agreement by Debtor. Nothing in this
Agreement shall reduce or release in any way any rights or
security interests of Bank contained in any existing agreement
between Borrower, Debtor, or any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized
officer of Bank. No waiver of any default or forbearance on
the part of Bank in enforcing any of its rights under this
Agreement shall operate as a waiver of any other default or of
the same default on a future occasion or of any rights.
4.7 Debtor irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest) the true and lawful
attorney of Debtor (with full power of substitution) in the
name, place and stead of, and at the expense of, Debtor:
(a) to demand, receive, sue for, and give receipts or
acquittances for any moneys due or to become due on
any Collateral and to endorse any item representing
any payment on or proceeds of the Collateral;
(b) to execute and file in the name of and on behalf of
Debtor all financing statements or other filings
deemed necessary or desirable by Bank to evidence,
perfect, or continue the security interests granted
in this Agreement; and
(c) to do and perform any act on behalf of Debtor
permitted or required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also
agrees, upon request of Bank, to assemble the Collateral and
make it available to Bank at any place designated by Bank
which is reasonably convenient to Bank and Debtor.
5. Miscellaneous.
<PAGE>
5.1 Until Bank is advised in writing by Debtor to the contrary,
all notices, requests and demands required under this
Agreement or by law shall be given to, or made upon, Debtor at
the first address indicated in Section 5.15 below.
5.2 Debtor will give Bank not less than 90 days prior written
notice of all contemplated changes in Debtor's name, chief
executive office location, and/or location of any Collateral,
but the giving of this notice shall not cure any Event of
Default caused by this change.
5.3 Bank assumes no duty of performance or other responsibility
under any contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or
grant participations or any interest in, any or all of the
Indebtedness and any related obligations, including without
limit this Agreement. In connection with the above, but
without limiting its ability to make other disclosures to the
full extent allowable, Bank may disclose all documents and
information - which Bank now or later has relating to Debtor,
the Indebtedness or this Agreement, however obtained. Debtor
further agrees that Bank may provide information relating to
this Agreement or relating to Debtor to the Bank's parent,
affiliates, subsidiaries, and service providers.
5.5 In addition to Bank's other rights, any indebtedness owing
from Bank to Debtor can be set off and applied by Bank on any
Indebtedness at any time(s) either before or after maturity or
demand without notice to anyone.
5.6 Debtor waives any right to require the Bank to: (a) proceed
against any person or property; (b) give notice of the terms,
time and place of any public or private sale of personal
property security held from Debtor or any other person, or
otherwise comply with the provisions of Section 9-504 of the
Uniform Commercial Code; or (c) pursue any other remedy in the
Bank's power. Debtor waives notice of acceptance of this
Agreement and presentment, demand, protest, notice of protest,
dishonor, notice of dishonor, notice of default, notice of
intent to accelerate or demand payment of any Indebtedness,
any and all other notices to which the undersigned might
otherwise be entitled, and diligence in collecting any
Indebtedness, and agree(s) that the Bank may, once or any
number of times, modify the terms of any Indebtedness,
compromise, extend, increase, accelerate, renew or forbear to
enforce payment of any or all Indebtedness, or permit Borrower
to incur additional Indebtedness, all without notice to Debtor
and without affecting in any manner the unconditional
obligation of Debtor under this Agreement. Debtor
unconditionally and irrevocably waives each and every defense
and setoff of any nature which, under principles of guaranty
or otherwise, would operate to impair or diminish in any way
the obligation of Debtor under this Agreement, and
acknowledges that such waiver is by this reference
incorporated into each security agreement, collateral
assignment, pledge and/or other document from Debtor now or
later securing the Indebtedness, and acknowledges that as of
the date of this Agreement no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation,
indemnity, reimbursement, or otherwise) to recover from
Borrower any amounts paid or the value of any Collateral given
by Debtor pursuant to this Agreement.
5.8 In the event that applicable law shall obligate Bank to give
prior notice to Debtor of any action to be taken under this
Agreement, Debtor agrees that a written notice given to Debtor
at least five days before the date of the act shall be
reasonable notice of the act and, specifically, reasonable
notification of the time and place of any public sale or of
the time after which any private sale, lease, or other
disposition is to be made, unless a shorter notice period is
reasonable under the circumstances. A
<PAGE>
notice shall be deemed to be given under this Agreement when
delivered to Debtor or when placed in an envelope addressed to
Debtor and deposited, with postage prepaid, in a post office
or official depository under the exclusive care and custody of
the United States Postal Service or delivered to an overnight
courier. The mailing shall be by overnight courier, certified,
or first class mail.
5.9 Notwithstanding any prior revocation, termination, surrender,
or discharge of this Agreement in whole or in part, the
effectiveness of this Agreement shall automatically continue
or be reinstated in the event that any payment received or
credit given by Bank in respect of the Indebtedness is
returned, disgorged, or rescinded under any applicable law,
including, without limitation, bankruptcy or insolvency laws,
in which case this Agreement, shall be enforceable against
Debtor as if the returned, disgorged, or rescinded payment or
credit had not been received or given by Bank, and whether or
not Bank relied upon this payment or credit or changed its
position as a consequence of it. In the event of continuation
or reinstatement of this Agreement, Debtor agrees upon demand
by Bank to execute and deliver to Bank those documents which
Bank determines are appropriate to further evidence (in the
public records or otherwise) this continuation or
reinstatement, although the failure of Debtor to do so shall
not affect in any way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under
this Agreement shall inure to the benefit of Bank's successors
and assigns and to any other holder who derives from Bank
title to or an interest in the Indebtedness or any portion of
it, and shall bind Debtor and the heirs, legal
representatives, successors, and assigns of Debtor. Nothing in
this Section 5.10 is deemed a consent by Bank to any
assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties
and covenants made by Debtor and all rights, powers and
authorities given to or conferred upon Bank are made or given
jointly and severally.
5.12 Except as otherwise provided in this Agreement, all terms in
this Agreement have the meanings assigned to them in Article 9
(or, absent definition in Article 9, in any other Article) of
the Uniform Commercial Code. "Uniform Commercial Code" means
Act No. 174 of the Michigan Public Acts of 1962, as amended.
5.13 No single or partial exercise, or delay in the exercise, of
any right or power under this Agreement, shall preclude other
or further exercise of the rights and powers under this
Agreement. The unenforceability of any provision of this
Agreement shall not affect the enforceability of the remainder
of this Agreement. This Agreement constitutes the entire
agreement of Debtor and Bank with respect to the subject
matter of this Agreement. No amendment or modification of this
Agreement shall be effective unless the same shall be in
writing and signed by Debtor and an authorized officer of
Bank. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Michigan,
without regard to conflict of laws principles.
5.14 To the extent that any of the Indebtedness is payable upon
demand, nothing contained in this Agreement shall modify the
terms and conditions of that Indebtedness nor shall anything
contained in this Agreement prevent Bank from making demand,
without notice and with or without reason, for immediate
payment of any or all of that Indebtedness at any time(s),
whether or not an Event of Default has occurred.
5.15 Debtor's chief executive office is located and shall be
maintained at 15675 NW 15th Avenue
--------------------
STREET ADDRESS
<PAGE>
Miami Florida 33169 Dade
- --------------------------------------------------------------------------
City State Zip Code County
If Collateral is located at other than the chief executive office, such
Collateral is located and shall be maintained at:
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City State Zip Code County
Collateral shall be maintained only at the locations identified in this
Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement under the Uniform
Commercial Code and may be filed by Bank in, any filing
office.
5.17 This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable
provisions of the Uniform Commercial Code, but the obligations
contained in Section 2.13 of this Agreement shall survive
termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT
WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
AGREEMENT OR THE INDEBTEDNESS.
<PAGE>
Special Provisions Applicable to this Agreement. (*None, if left blank)
Debtor:
AERO-LINK FLIGHT SYSTEMS LIMITED
By: /s/ Joseph J. Nelson
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Signature of
Its:President
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Title (If applicable)
By: /s/ Joseph Janusz
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Signature of
Its:Chief Financial Officer
-----------------------------
Title (If applicable)
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Comerica Security Agreement
(All Assets)
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As of September 1, 1999, for value received, the undersigned ("Debtor") grants
to Comerica Bank ("Bank"), a Michigan banking corporation, a continuing security
interest in the Collateral (as defined below) to secure payment when due,
whether by stated maturity, demand, acceleration or otherwise, of all existing
and future indebtedness ("Indebtedness") to the Bank of Aviation Holdings Int'l,
Inc., a Florida corporation formerly known as Jet Aviation Trading, Inc.
("Borrower") and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary, liquidated
or unliquidated, joint or several, known or unknown; any and all obligations or
liabilities for which the Borrower and/or Debtor would otherwise be liable to
the Bank were it not for the invalidity or unenforceability of them by reason of
any bankruptcy, insolvency or other law, or for any other reason; any and all
amendments, modifications, renewals and/or extensions of any of the above; all
costs incurred by Bank in establishing, determining, continuing, or defending
the validity or priority of its security interest, or in pursuing its rights and
remedies under this Agreement or under any other agreement between Bank and
Borrower and/or Debtor or in connection with any proceeding involving Bank as a
result of any financial accommodation to Borrower and/or Debtor; and all other
costs of collecting Indebtedness, including without limit attorney fees. Debtor
agrees to pay Bank all such costs incurred by the Bank, immediately upon demand,
and until paid all costs shall bear interest at-the highest per annum-rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorney fees
or court costs are incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding or otherwise.
1. Collateral shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
(a) all Accounts Receivable (for purposes of this Agreement, "Accounts
Receivable" consists of all accounts, general intangibles, chattel
paper, contract rights, deposit accounts, documents and instruments),
(b) all Inventory,
(c) all Equipment and Fixtures,
(d) specific items listed below and/or on attached Schedule A, if any,
is/are also included in Collateral:
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
(e) all goods, instruments, documents, policies and certificates of
insurance, deposits, money, investment property or other property
(except real property which is not a fixture) which are now or later
in possession or control of bank, or as to which. Bank now or later
controls possession by documents or otherwise, and
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(f) all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions, rights of
any kind (including but not limited to stock splits, stock rights,
voting and preferential rights), products, and proceeds of or
pertaining to the above including, without limit, cash or other
property which were proceeds and are recovered by a bankruptcy trustee
or otherwise as a preferential transfer by Debtor.
2. Warranties, Covenants and Agreements. Debtor warrants, covenants and agrees
as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank may
request, any information Bank may reasonably request and allow Bank to
examine', inspect, and copy any of Debtor's books and records. Debtor
shall, at the request of Bank, mark its records and the Collateral to
clearly indicate the security interest of Bank under this Agreement.
2.2 At the time any Collateral becomes, or is represented to be, subject
to a security interest in favor of Bank, Debtor shall be deemed to
have warranted that (a) Debtor is the lawful owner of the Collateral
and has the right and authority to subject it to a security interest
granted to Bank; (b) none of the Collateral is subject to any security
interest other than that in favor of Bank and there are no financing
statements on file, other than in favor of Bank; and (c) Debtor
acquired its rights in the Collateral in the ordinary course of its
business.
2.3 Debtor will keep the Collateral free at all times from all claims,
liens, security interests and encumbrances other than those in favor
of Bank. Debtor will not, without the prior written consent of Bank,
sell, transfer or lease, or permit to be sold, transferred or leased,
any or all of the Collateral, except for Inventory in the ordinary
course of its business and will not return any Inventory to its
supplier. Bank or its representatives may at all reasonable times
inspect the Collateral and may enter upon all premises where the
Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be executed all
writings requested by Bank to establish, maintain and continue a
perfected and first security interest of Bank in the Collateral.
Debtor agrees that Bank has no obligation to acquire or perfect any
lien on or security interest in any asset(s), whether realty or
personalty, to secure payment of the Indebtedness, and Debtor is not
relying upon assets in which the Bank may have a lien or security
interest for payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without interest
or penalty all taxes, assessments and similar charges which at any
time are or may become a lien, charge, or encumbrance upon any
Collateral, except to the extent contested in good faith and bonded in
a manner satisfactory to Bank. If Debtor fails to pay any of these
taxes, assessments, or other charges in the time provided above, Bank
has the option (but not the obligation) to do so and Debtor agrees to
repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate which could
be charged by Bank on any Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will protect it
from loss, damage, or deterioration from any cause. Debtor has and
will maintain at all times (a) with respect to the Collateral,
insurance under an "all risk" policy against fire and other risks
customarily insured against, and (b) public liability insurance and
other insurance as may be required by law or reasonably required by
Bank, all of which insurance shall be in amount, form and content, and
written by companies as may be satisfactory to Bank, containing a
lender's loss payable endorsement acceptable to Bank. Debtor will
deliver to Bank immediately upon demand evidence satisfactory to Bank
that the required insurance has been procured. If Debtor fails to
maintain satisfactory insurance, Bank has the
<PAGE>
option (but not the obligation) to do so and Debtor agrees to repay
all amounts so expended by Bank immediately upon demand, together with
interest at the highest lawful default rate which could be charged by
Bank on any Indebtedness.
2.7 On each occasion on which Debtor evidences to Bank the account
balances on and the nature and extent of the Accounts Receivable,
Debtor shall be deemed to have warranted that except as otherwise
indicated (a) each of those Accounts Receivable is valid and
enforceable without performance by Debtor of any act; M each of those
account balances are in fact owing, (there are no setoffs,
recoupments, credits, contra accounts, counterclaims or defenses
against any of those Accounts Receivable, (d) as to any Accounts
Receivable represented by a note, trade acceptance, draft or other
instrument or by any chattel paper or document, the same have been
endorsed and/or delivered by Debtor to Bank, (e) Debtor has not
received with respect to any Account Receivable, any notice of the
death of the related account debtor, nor of the dissolution,
liquidation, termination of existence, insolvency, business failure,
appointment of a receiver for, assignment for the benefit of creditors
by, or filing of a petition in bankruptcy by or against, the account
debtor, and (f) as to each Account Receivable, the account debtor is
not an affiliate of Debtor, the United States of America or any
department, agency or instrumentality of it, or a citizen or resident
of any jurisdiction outside of the United States. Debtor will do all
acts and will execute all writings requested by Bank to perform,
enforce performance of, and collect all Accounts Receivable. Debtor
shall neither make nor permit any modification, compromise or
substitution for any Account Receivable without the prior written
consent of Bank. Debtor shall, at Bank's request, arrange for
verification of Accounts Receivable directly with account debtors or
by other methods acceptable to Bank.
2.8 Debtor at all times shall be in strict compliance with all applicable
laws, including without limit any laws, ordinances, directives,
orders, statutes, or regulations an object of which is to regulate or
improve health, safety, or the environment ("Environmental Laws").
2.9 If Bank, acting in its sole discretion, redelivers Collateral to
Debtor or Debtor's designee for the purpose of (a) the ultimate sale
or exchange thereof; or M presentation, collection, renewal, or
registration of transfer thereof; or (c) loading, unloading, storing,
shipping, transshipping, manufacturing, processing or otherwise
dealing with it preliminary to sale or exchange; such redelivery shall
be in trust for the benefit of Bank and shall not constitute a release
of Bank's security interest in it or in the proceeds or products of it
unless Bank specifically so agrees in writing. If Debtor requests any
such redelivery, Debtor will deliver with such request a duly executed
financing statement in form and substance satisfactory to Bank. Any
proceeds of Collateral coming into Debtor's possession as a result of
any such redelivery shall be held in trust for Bank and immediately
delivered to Bank for application on the Indebtedness. Bank may (in
its sole discretion) deliver any or all of the Collateral to Debtor,
and such delivery by Bank shall discharge Bank from all liability or
responsibility for such Collateral. Bank, at its option, may require
delivery of any Collateral to Bank at any time with such endorsements
or assignments of the Collateral as Bank may request.
2.10 At any time and without notice, Bank may (a) cause any or all of the
Collateral to be transferred to its name or to the name of its
nominees; M receive or collect by legal proceedings or otherwise all
dividends, interest, principal payments and other sums and all other
distributions at any time payable or receivable on account of the
Collateral, and hold the same as Collateral, or apply the same to the
Indebtedness, the manner and distribution of the application to be in
the sole discretion of Bank; (c) enter into any extension,
subordination, reorganization, deposit, merger or consolidation
agreement or any other agreement relating to or affecting the
Collateral, and deposit or surrender control of the Collateral, and
accept other property in exchange for the Collateral and hold or apply
the property or money so received pursuant to this Agreement.
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2.11 Bank may assign any of the Indebtedness and deliver any or all of the
Collateral to its assignee, who then shall have with respect to
Collateral so delivered all the rights and powers of Bank under this
Agreement, and after that Bank shall be fully discharged from all
liability and responsibility with respect to Collateral so delivered.
2.12 Debtor delivers this Agreement based solely on Debtor's independent
investigation of (or decision not to investigate) the financial
condition of Debtor and is not relying on any information furnished by
Bank. Debtor assumes full responsibility for obtaining any further
information concerning the Debtor's financial condition, the status of
the Indebtedness or any other matter which the undersigned may deem
necessary or appropriate now or later. Debtor waives any duty on the
part of Bank, and agrees that Debtor is not relying upon nor expecting
Bank to disclose to Debtor any fact now or later known by Bank,
whether relating to the operations or condition of Borrower, the
existence, liabilities or financial condition of any guarantor of the
Indebtedness, the occurrence of any default with respect to the
Indebtedness, or otherwise, notwithstanding any effect such fact may
have upon Debtor's risk or Debtor's rights against Borrower. Debtor
knowingly accepts the full range of risk encompassed in this
Agreement, which risk includes without limit the possibility that
Borrower may incur Indebtedness to Bank after the financial condition
of Borrower, or Borrower's ability to pay debts as they mature, has
deteriorated.
2.13 Debtor shall defend, indemnify and hold harmless Bank, its employees,
agents, shareholders, affiliates, officers, and directors from and
against any and all claims, damages, fines, expenses, liabilities or
causes of action of whatever kind, including without limit consultant
fees, legal expenses, and attorney fees, suffered by any of them as a
direct or indirect result of any actual or asserted violation of any
law, including, without limit, Environmental Laws, or of any
remediation relating to any property required by any law, including
without limit Environmental Laws.
3. Collection of Proceeds.
3.1 Debtor agrees to collect and enforce payment of all Collateral until
Bank shall direct Debtor to the contrary. Immediately upon notice to
Debtor by Bank and at all times after that, Debtor agrees to fully and
promptly cooperate and assist Bank in the collection and enforcement
of all Collateral and to hold in trust for Bank all payments received
in connection with Collateral and from the sale, lease or other
disposition of any Collateral, all rights by way of suretyship or
guaranty and all rights in the nature of a lien or security interest
which Debtor now or later has regarding Collateral. Immediately upon
and after such notice, Debtor agrees to (a) endorse to Bank and
immediately deliver to Bank all payments received on Collateral or
from the sale, lease or other disposition of any Collateral or arising
from any other rights or interests of Debtor in the Collateral, in the
form received by Debtor without commingling with any other funds, and
(b) immediately deliver to Bank all property in Debtor's possession or
later coming into Debtor's possession through enforcement of Debtor's
rights or interests in the Collateral. Debtor irrevocably authorizes
Bank or any Bank employee or agent to endorse the name of Debtor upon
any checks or other items which are received in payment for any
Collateral, and to do any and all things necessary in order to reduce
these items to money. Bank shall have no duty as to the collection or
protection of Collateral or the proceeds of it, nor as to the
preservation of any related rights: beyond the use of reasonable care
in the custody and preservation of Collateral in the possession of
Bank. Debtor agrees to take all steps necessary to preserve rights
against prior parties with respect to the Collateral. Nothing in this
Section 3.1 shall be deemed a consent by Bank to any sale, lease or
other disposition of any Collateral.
3.2 Debtor agrees that immediately upon Bank's request (whether or not any
Event of Default exists) the Indebtedness shall be on a "remittance
basis" as follows: Debtor shall at its sole expense establish and
<PAGE>
maintain (and Bank, at Bank's option may establish and maintain at
Debtor's expense): (a) an United States Post Office lock box (the
"Lock Box"), to which Bank shall have exclusive access and control.
Debtor expressly authorizes Bank, from time to time, to remove
contents from the Lock Box, for disposition in accordance with this
Agreement. Debtor agrees to notify all account debtors and other
parties obligated to Debtor that all payments made to Debtor (other
than payments by electronic funds transfer) shall be remitted, for the
credit of Debtor, to the Lock Box, and Debtor shall include a like
statement on all invoices; and (b) a non-interest bearing deposit
account with Bank which shall be titled as designated by Bank (the
"Cash Collateral Account") to which Bank shall have exclusive access
and control. Debtor agrees to notify all account debtors and other
parties obligated to Debtor that all payments made to Debtor by
electronic funds transfer shall be remitted to the Cash Collateral
Account, and Debtor, at Bank's request, shall include a like statement
on all invoices. Debtor shall execute all documents and authorizations
as required by Bank to establish and maintain the Lock Box and the
Cash Collateral Account.
3.3 All items or amounts which are remitted to the Lock Box, to the Cash
Collateral Account, or otherwise delivered by or for the benefit of
Debtor to Bank on account of partial or full payment of, or with
respect to, any Collateral shall, at Bank's option, (i) be applied to
the payment of the Indebtedness, whether then due or not, in such
order or at such time of application as Bank may determine in its sole
discretion, or, (ii) be deposited to the Cash Collateral Account.
Debtor agrees that Bank shall not be liable for any loss or damage
which Debtor may suffer as a result of Bank's processing of items or
its exercise of any other rights or remedies under this Agreement,
including without limitation indirect, special or consequential
damages, loss of revenues or profits, or any claim, demand or action
by any third party arising out of or in connection with the processing
of items or the exercise of any other rights or remedies under this
Agreement. Debtor agrees to indemnify and hold Bank harmless from and
against all such third party claims, demands or actions, and all
related expenses or liabilities, including, without limitation,
attorney fees.
4. Defaults, Enforcement and Application of Proceeds.
4.1 Upon the occurrence of any of the following events (each an "Event of
Default"), Debtor shall be in default under this Agreement:
(a) Any failure to pay the Indebtedness or any other indebtedness
when due, or such portion of it as may be due, by acceleration or
otherwise; or
(b) Any failure or neglect to comply with, or breach of or default
under, any term of this Agreement, or any other agreement or
commitment between Borrower, Debtor, or any guarantor of any of
the Indebtedness ("Guarantor") and Bank; or
(c) Any warranty, representation, financial statement, or other
information made, given or furnished to Bank by or on behalf of
Borrower, Debtor, or any Guarantor shall be, or shall prove to
have been, false or materially misleading when made, given, or
furnished; or
(d) Any loss, theft, substantial damage or destruction to or of any
Collateral, or the issuance or filing of any attachment, levy,
garnishment or the commencement of any proceeding in connection
with any Collateral or of any other judicial process of, upon or
in respect of Borrower, Debtor, any Guarantor, or any Collateral;
or
(e) Sale or other disposition by Borrower, Debtor, or any Guarantor
of any substantial portion of its assets or property or voluntary
suspension of the transaction of business by Borrower,
<PAGE>
Debtor, or any Guarantor, or death, dissolution, termination of
existence, merger, consolidation, insolvency, business failure,
or assignment for the benefit of creditors of or by Borrower,
Debtor, or any Guarantor; or commencement of any proceedings
under any state or federal bankruptcy or insolvency laws or laws
for the relief of debtors by or against Borrower, Debtor, or any
Guarantor; or the appointment of a receiver, trustee, court
appointee, sequestrator or otherwise, for all or any part of the
property of Borrower, Debtor, or any Guarantor; or
(f) Bank deems the margin of Collateral insufficient or itself
insecure, in good faith believing that the prospect of payment of
the Indebtedness or performance of this Agreement is impaired or
shall fear deterioration, removal, or waste of Collateral.
4.2 Upon the occurrence of any Event of Default, Bank may at its
discretion and without prior notice to Debtor declare any or all of
the Indebtedness to be immediately due and payable, and shall have and
may exercise any one or more of the following rights and remedies:
(a) Exercise all the rights and remedies upon default, in foreclosure
and otherwise, available to secured parties under the provisions
of the Uniform Commercial Code and other applicable law;
(b) Institute legal proceedings to foreclose upon the lien and
security interest granted by this Agreement, to recover judgment
for all amounts then due and owing as Indebtedness, and to
collect the same out of any Collateral or the proceeds of any
sale of it;
(c) Institute legal proceedings for the sale, under the judgment or
decree of any court of competent jurisdiction, of any or all
Collateral; and/or
(d) Personally or by agents, attorneys, or appointment of a receiver,
enter upon any premises where Collateral may then be located, and
take possession of all or any of it and/or render it unusable;
and without being responsible for loss or damage to such
Collateral, hold, operate, sell, lease, or dispose of all or any
Collateral at one or more public or private sales, leasings or
other disposition, at places and times and on terms and
conditions as Bank may deem fit, without any previous demand or
advertisement; and except as provided in this Agreement, all
notice of sale, lease or other disposition, and advertisement,
and other notice or demand, any right or equity of redemption,
and any obligation of a prospective purchaser or lessee to
inquire as to the power and authority of Bank to sell, lease, or
otherwise dispose of the Collateral or as to the application by
Bank of the proceeds of sale or otherwise, which would otherwise
be required by, or available to Debtor under, applicable law are
expressly waived by Debtor to the fullest extent permitted.
At any sale pursuant to this Section 4.2, whether under the power
of sale, by virtue of judicial proceedings or otherwise, it shall
not be necessary for Bank or a public officer under order of a
court to have present physical or constructive possession of
Collateral to be sold. The recitals contained in any conveyances
and receipts made and given by Bank or the public officer to any
purchaser at any sale made pursuant to this Agreement shall, to
the extent permitted by applicable law, conclusively establish
the truth and accuracy of the matters stated (including, without
limit, as to the amounts of the principal of and interest on the
Indebtedness, the accrual and nonpayment of it and advertisement
and conduct of the sale); and all prerequisites to the sale shall
be presumed to have been satisfied and performed. Upon any sale
of any Collateral, the receipt of the officer making the sale
<PAGE>
under judicial proceedings or of Bank shall be sufficient
discharge to the purchaser for the purchase money, and the
purchaser shall not be obligated to see to the application of the
money. Any sale of any Collateral under this Agreement shall be a
perpetual bar against Debtor with respect to that Collateral.
4.3 Debtor shall at the request of Bank, notify the account debtors or
obligors of Bank's security interest in the Collateral and direct
payment of it to Bank. Bank may, itself, upon the occurrence of any
Event of Default so notify and direct any account debtor or obligor.
4.4 The proceeds of any sale or other disposition of Collateral authorized
by this Agreement shall be applied by Bank first upon all expenses
authorized by the Uniform Commercial Code and all reasonable attorney
fees and legal expenses incurred by Bank; the balance of the proceeds
of the sale or other disposition shall be applied in the payment of
the Indebtedness, first to interest, then to principal, then to
remaining Indebtedness and the surplus, if any, shall be paid over to
Debtor or to such other person(s) as may be entitled to it under
applicable law. Debtor shall remain liable for any deficiency, which
it shall pay to Bank immediately upon demand.
4.5 Nothing in this Agreement is intended, nor shall it be construed, to
preclude Bank from pursuing any other remedy provided by law for the
collection of the Indebtedness or for the recovery of any other sum to
which Bank may be entitled for the breach of this Agreement by Debtor.
Nothing in this Agreement shall reduce or release in any way any
rights or security interests of Bank contained in any existing
agreement between Borrower, Debtor, or any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized officer of
Bank. No waiver of any default or forbearance on the part of Bank in
enforcing any of its rights under this Agreement shall operate as a
waiver of any other default or of the same default on a future
occasion or of any rights.
4.7 Debtor irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest) the true and lawful attorney
of Debtor (with full power of substitution) in the name, place and
stead of, and at the expense of, Debtor:
(a) to demand, receive, sue for, and give receipts or acquittances
for any moneys due or to become due on any Collateral and to
endorse any item representing any payment on or proceeds of the
Collateral;
(b) to execute and file in the name of and on behalf of Debtor all
financing statements or other filings deemed necessary or
desirable by Bank to evidence, perfect, or continue the security
interests granted in this Agreement; and
(c) to do and perform any act on behalf of Debtor permitted or
required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also agrees, upon
request of Bank, to assemble the Collateral and make it available to
Bank at any place designated by Bank which is reasonably convenient to
Bank and Debtor.
<PAGE>
5. Miscellaneous.
5.1 Until Bank is advised in writing by Debtor to the contrary, all
notices, requests and demands required under this Agreement or by law
shall be given to, or made upon, Debtor at the first address indicated
in Section 5.15 below.
5.2 Debtor will give Bank not less than 90 days prior written notice of
all contemplated changes in Debtor's name, chief executive office
location, and/or location of any Collateral, but the giving of this
notice shall not cure any Event of Default caused by this change.
5.3 Bank assumes no duty of performance or other responsibility under any
contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or grant
participations or any interest in, any or all of the Indebtedness and
any related obligations, including without limit this Agreement. In
connection with the above, but without limiting its ability to make
other disclosures to the full extent allowable, Bank may disclose all
documents and information - which Bank now or later has relating to
Debtor, the Indebtedness or this Agreement, however obtained. Debtor
further agrees that Bank may provide information relating to this
Agreement or relating to Debtor to the Bank's parent, affiliates,
subsidiaries, and service providers.
5.5 In addition to Bank's other rights, any indebtedness owing from Bank
to Debtor can be set off and applied by Bank on any Indebtedness at
any time(s) either before or after maturity or demand without notice
to anyone.
5.6 Debtor waives any right to require the Bank to: (a) proceed against
any person or property; (b) give notice of the terms, time and place
of any public or private sale of personal property security held from
Debtor or any other person, or otherwise comply with the provisions of
Section 9-504 of the Uniform Commercial Code; or (c) pursue any other
remedy in the Bank's power. Debtor waives notice of acceptance of this
Agreement and presentment, demand, protest, notice of protest,
dishonor, notice of dishonor, notice of default, notice of intent to
accelerate or demand payment of any Indebtedness, any and all other
notices to which the undersigned might otherwise be entitled, and
diligence in collecting any Indebtedness, and agree(s) that the Bank
may, once or any number of times, modify the terms of any
Indebtedness, compromise, extend, increase, accelerate, renew or
forbear to enforce payment of any or all Indebtedness, or permit
Borrower to incur additional Indebtedness, all without notice to
Debtor and without affecting in any manner the unconditional
obligation of Debtor under this Agreement. Debtor unconditionally and
irrevocably waives each and every defense and setoff of any nature
which, under principles of guaranty or otherwise, would operate to
impair or diminish in any way the obligation of Debtor under this
Agreement, and acknowledges that such waiver is by this reference
incorporated into each security agreement, collateral assignment,
pledge and/or other document from Debtor now or later securing the
Indebtedness, and acknowledges that as of the date of this Agreement
no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation, indemnity,
reimbursement, or otherwise) to recover from Borrower any amounts paid
or the value of any Collateral given by Debtor pursuant to this
Agreement.
5.8 In the event that applicable law shall obligate Bank to give prior
notice to Debtor of any action to be taken under this Agreement,
Debtor agrees that a written notice given to Debtor at least five days
before the date of the act shall be reasonable notice of the act and,
specifically, reasonable notification of the time and place of any
public sale or of the time after which any private sale, lease, or
other disposition is to be made, unless a shorter notice period is
<PAGE>
reasonable under the circumstances. A notice shall be deemed to be
given under this Agreement when delivered to Debtor or when placed in
an envelope addressed to Debtor and deposited, with postage prepaid,
in a post office or official depository under the exclusive care and
custody of the United States Postal Service or delivered to an
overnight courier. The mailing shall be by overnight courier,
certified, or first class mail.
5.9 Notwithstanding any prior revocation, termination, surrender, or
discharge of this Agreement in whole or in part, the effectiveness of
this Agreement shall automatically continue or be reinstated in the
event that any payment received or credit given by Bank in respect of
the Indebtedness is returned, disgorged, or rescinded under any
applicable law, including, without limitation, bankruptcy or
insolvency laws, in which case this Agreement, shall be enforceable
against Debtor as if the returned, disgorged, or rescinded payment or
credit had not been received or given by Bank, and whether or not Bank
relied upon this payment or credit or changed its position as a
consequence of it. In the event of continuation or reinstatement of
this Agreement, Debtor agrees upon demand by Bank to execute and
deliver to Bank those documents which Bank determines are appropriate
to further evidence (in the public records or otherwise) this
continuation or reinstatement, although the failure of Debtor to do so
shall not affect in any way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under this
Agreement shall inure to the benefit of Bank's successors and assigns
and to any other holder who derives from Bank title to or an interest
in the Indebtedness or any portion of it, and shall bind Debtor and
the heirs, legal representatives, successors, and assigns of Debtor.
Nothing in this Section 5.10 is deemed a consent by Bank to any
assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties and
covenants made by Debtor and all rights, powers and authorities given
to or conferred upon Bank are made or given jointly and severally.
5.12 Except as otherwise provided in this Agreement, all terms in this
Agreement have the meanings assigned to them in Article 9 (or, absent
definition in Article 9, in any other Article) of the Uniform
Commercial Code. "Uniform Commercial Code" means Act No. 174 of the
Michigan Public Acts of 1962, as amended.
5.13 No single or partial exercise, or delay in the exercise, of any right
or power under this Agreement, shall preclude other or further
exercise of the rights and powers under this Agreement. The
unenforceability of any provision of this Agreement shall not affect
the enforceability of the remainder of this Agreement. This Agreement
constitutes the entire agreement of Debtor and Bank with respect to
the subject matter of this Agreement. No amendment or modification of
this Agreement shall be effective unless the same shall be in writing
and signed by Debtor and an authorized officer of Bank. This Agreement
shall be governed by and construed in accordance with the internal
laws of the State of Michigan, without regard to conflict of laws
principles.
5.14 To the extent that any of the Indebtedness is payable upon demand,
nothing contained in this Agreement shall modify the terms and
conditions of that Indebtedness nor shall anything contained in this
Agreement prevent Bank from making demand, without notice and with or
without reason, for immediate payment of any or all of that
Indebtedness at any time(s), whether or not an Event of Default has
occurred.
5.15 Debtor's chief executive office is located and shall be maintained at
15675 NW 15th Avenue
--------------------
STREET ADDRESS
<PAGE>
Miami Florida 33169 Dade
- --------------------------------------------------------------------------------
City State Zip Code County
If Collateral is located at other than the chief executive office, such
Collateral is located and shall be maintained at:
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City State Zip Code County
Collateral shall be maintained only at the locations identified in this
Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement under the Uniform Commercial
Code and may be filed by Bank in, any filing office.
5.17 This Agreement shall be terminated only by the filing of a termination
statement in accordance with the applicable provisions of the Uniform
Commercial Code, but the obligations contained in Section 2.13 of this
Agreement shall survive termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE
INDEBTEDNESS.
<PAGE>
Special Provisions Applicable to this Agreement. (*None, if left blank)
Debtor:
PASCO FINANCIAL SERVICES LIMITED
By: /s/ Joseph J. Nelson
---------------------------
Signature of
Its: President
---------------------------
Title (If applicable)
By: /s/ Joseph Janusz
---------------------------
Signature of
Its: Chief Financial Officer
---------------------------
Title (If applicable)
<PAGE>
Exhibit 10.9(k)
Comerica Security Agreement
(All Assets)
- --------------------------------------------------------------------------------
As of September 1, 1999, for value received, the undersigned ("Debtor") grants
to Comerica Bank ("Bank"), a Michigan banking corporation, a continuing security
interest in the Collateral (as defined below) to secure payment when due,
whether by stated maturity, demand, acceleration or otherwise, of all existing
and future indebtedness ("Indebtedness") to the Bank of Aviation Holdings Int'l,
Inc., a Florida corporation formerly known as Jet Aviation Trading, Inc.
("Borrower") and/or Debtor. Indebtedness includes without limit any and all
obligations or liabilities of the Borrower and/or Debtor to the Bank, whether
absolute or contingent, direct or indirect, voluntary or involuntary, liquidated
or unliquidated, joint or several, known or unknown; any and all obligations or
liabilities for which the Borrower and/or Debtor would otherwise be liable to
the Bank were it not for the invalidity or unenforceability of them by reason of
any bankruptcy, insolvency or other law, or for any other reason; any and all
amendments, modifications, renewals and/or extensions of any of the above; all
costs incurred by Bank in establishing, determining, continuing, or defending
the validity or priority of its security interest, or in pursuing its rights and
remedies under this Agreement or under any other agreement between Bank and
Borrower and/or Debtor or in connection with any proceeding involving Bank as a
result of any financial accommodation to Borrower and/or Debtor; and all other
costs of collecting Indebtedness, including without limit attorney fees. Debtor
agrees to pay Bank all such costs incurred by the Bank, immediately upon demand,
and until paid all costs shall bear interest at-the highest per annum-rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Agreement to attorney fees shall be
deemed a reference to reasonable fees, costs, and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorney fees
or court costs are incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding or otherwise.
1. Collateral shall mean all of the following property Debtor now or later
owns or has an interest in, wherever located:
(a) all Accounts Receivable (for purposes of this Agreement, "Accounts
Receivable" consists of all accounts, general intangibles, chattel
paper, contract rights, deposit accounts, documents and
instruments),
(b) all Inventory,
(c) all Equipment and Fixtures,
(d) specific items listed below and/or on attached Schedule A, if any,
is/are also included in Collateral:
______________________________________________
______________________________________________
______________________________________________
(e) all goods, instruments, documents, policies and certificates of
insurance, deposits, money, investment property or other property
(except real property which is not a fixture) which are now or
later in possession or control of bank, or as to which. Bank now or
later controls possession by documents or otherwise, and
<PAGE>
(f) all additions, attachments, accessions, parts, replacements,
substitutions, renewals, interest, dividends, distributions,
rights of any kind (including but not limited to stock splits,
stock rights, voting and preferential rights), products, and
proceeds of or pertaining to the above including, without
limit, cash or other property which were proceeds and are
recovered by a bankruptcy trustee or otherwise as a
preferential transfer by Debtor.
2. Warranties, Covenants and Agreements. Debtor warrants, covenants and
agrees as follows:
2.1 Debtor shall furnish to Bank, in form and at intervals as Bank
may request, any information Bank may reasonably request and
allow Bank to examine', inspect, and copy any of Debtor's
books and records. Debtor shall, at the request of Bank, mark
its records and the Collateral to clearly indicate the
security interest of Bank under this Agreement.
2.2 At the time any Collateral becomes, or is represented to be,
subject to a security interest in favor of Bank, Debtor shall
be deemed to have warranted that (a) Debtor is the lawful
owner of the Collateral and has the right and authority to
subject it to a security interest granted to Bank; (b) none of
the Collateral is subject to any security interest other than
that in favor of Bank and there are no financing statements on
file, other than in favor of Bank; and (c) Debtor acquired its
rights in the Collateral in the ordinary course of its
business.
2.3 Debtor will keep the Collateral free at all times from all
claims, liens, security interests and encumbrances other than
those in favor of Bank. Debtor will not, without the prior
written consent of Bank, sell, transfer or lease, or permit to
be sold, transferred or leased, any or all of the Collateral,
except for Inventory in the ordinary course of its business
and will not return any Inventory to its supplier. Bank or its
representatives may at all reasonable times inspect the
Collateral and may enter upon all premises where the
Collateral is kept or might be located.
2.4 Debtor will do all acts and will execute or cause to be
executed all writings requested by Bank to establish, maintain
and continue a perfected and first security interest of Bank
in the Collateral. Debtor agrees that Bank has no obligation
to acquire or perfect any lien on or security interest in any
asset(s), whether realty or personalty, to secure payment of
the Indebtedness, and Debtor is not relying upon assets in
which the Bank may have a lien or security interest for
payment of the Indebtedness.
2.5 Debtor will pay within the time that they can be paid without
interest or penalty all taxes, assessments and similar charges
which at any time are or may become a lien, charge, or
encumbrance upon any Collateral, except to the extent
contested in good faith and bonded in a manner satisfactory to
Bank. If Debtor fails to pay any of these taxes, assessments,
or other charges in the time provided above, Bank has the
option (but not the obligation) to do so and Debtor agrees to
repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate
which could be charged by Bank on any Indebtedness.
2.6 Debtor will keep the Collateral in good condition and will
protect it from loss, damage, or deterioration from any cause.
Debtor has and will maintain at all times (a) with respect to
the Collateral, insurance under an "all risk" policy against
fire and other risks customarily insured against, and (b)
public liability insurance and other insurance as may be
required by law or reasonably required by Bank, all of which
insurance shall be in amount, form and content, and written by
companies as may be satisfactory to Bank, containing a
lender's loss payable endorsement acceptable to Bank. Debtor
will deliver to Bank immediately upon demand evidence
satisfactory to Bank that the required insurance has been
procured. If Debtor fails to maintain satisfactory insurance,
Bank has the
<PAGE>
option (but not the obligation) to do so and Debtor agrees to
repay all amounts so expended by Bank immediately upon demand,
together with interest at the highest lawful default rate
which could be charged by Bank on any Indebtedness.
2.7 On each occasion on which Debtor evidences to Bank the account
balances on and the nature and extent of the Accounts
Receivable, Debtor shall be deemed to have warranted that
except as otherwise indicated (a) each of those Accounts
Receivable is valid and enforceable without performance by
Debtor of any act; M each of those account balances are in
fact owing, (there are no setoffs, recoupments, credits,
contra accounts, counterclaims or defenses against any of
those Accounts Receivable, (d) as to any Accounts Receivable
represented by a note, trade acceptance, draft or other
instrument or by any chattel paper or document, the same have
been endorsed and/or delivered by Debtor to Bank, (e) Debtor
has not received with respect to any Account Receivable, any
notice of the death of the related account debtor, nor of the
dissolution, liquidation, termination of existence,
insolvency, business failure, appointment of a receiver for,
assignment for the benefit of creditors by, or filing of a
petition in bankruptcy by or against, the account debtor, and
(f) as to each Account Receivable, the account debtor is not
an affiliate of Debtor, the United States of America or any
department, agency or instrumentality of it, or a citizen or
resident of any jurisdiction outside of the United States.
Debtor will do all acts and will execute all writings
requested by Bank to perform, enforce performance of, and
collect all Accounts Receivable. Debtor shall neither make nor
permit any modification, compromise or substitution for any
Account Receivable without the prior written consent of Bank.
Debtor shall, at Bank's request, arrange for verification of
Accounts Receivable directly with account debtors or by other
methods acceptable to Bank.
2.8 Debtor at all times shall be in strict compliance with all
applicable laws, including without limit any laws, ordinances,
directives, orders, statutes, or regulations an object of
which is to regulate or improve health, safety, or the
environment ("Environmental Laws").
2.9 If Bank, acting in its sole discretion, redelivers Collateral
to Debtor or Debtor's designee for the purpose of (a) the
ultimate sale or exchange thereof; or M presentation,
collection, renewal, or registration of transfer thereof; or
(c) loading, unloading, storing, shipping, transshipping,
manufacturing, processing or otherwise dealing with it
preliminary to sale or exchange; such redelivery shall be in
trust for the benefit of Bank and shall not constitute a
release of Bank's security interest in it or in the proceeds
or products of it unless Bank specifically so agrees in
writing. If Debtor requests any such redelivery, Debtor will
deliver with such request a duly executed financing statement
in form and substance satisfactory to Bank. Any proceeds of
Collateral coming into Debtor's possession as a result of any
such redelivery shall be held in trust for Bank and
immediately delivered to Bank for application on the
Indebtedness. Bank may (in its sole discretion) deliver any or
all of the Collateral to Debtor, and such delivery by Bank
shall discharge Bank from all liability or responsibility for
such Collateral. Bank, at its option, may require delivery of
any Collateral to Bank at any time with such endorsements or
assignments of the Collateral as Bank may request.
2.10 At any time and without notice, Bank may (a) cause any or all
of the Collateral to be transferred to its name or to the name
of its nominees; M receive or collect by legal proceedings or
otherwise all dividends, interest, principal payments and
other sums and all other distributions at any time payable or
receivable on account of the Collateral, and hold the same as
Collateral, or apply the same to the Indebtedness, the manner
and distribution of the application to be in the sole
discretion of Bank; (c) enter into any extension,
subordination, reorganization, deposit, merger or
consolidation agreement or any other agreement relating to or
affecting the Collateral, and deposit or surrender control of
the Collateral, and accept other property in exchange for the
Collateral and hold or apply the property or money so received
pursuant to this Agreement.
<PAGE>
2.11 Bank may assign any of the Indebtedness and deliver any or all
of the Collateral to its assignee, who then shall have with
respect to Collateral so delivered all the rights and powers
of Bank under this Agreement, and after that Bank shall be
fully discharged from all liability and responsibility with
respect to Collateral so delivered.
2.12 Debtor delivers this Agreement based solely on Debtor's
independent investigation of (or decision not to investigate)
the financial condition of Debtor and is not relying on any
information furnished by Bank. Debtor assumes full
responsibility for obtaining any further information
concerning the Debtor's financial condition, the status of the
Indebtedness or any other matter which the undersigned may
deem necessary or appropriate now or later. Debtor waives any
duty on the part of Bank, and agrees that Debtor is not
relying upon nor expecting Bank to disclose to Debtor any fact
now or later known by Bank, whether relating to the operations
or condition of Borrower, the existence, liabilities or
financial condition of any guarantor of the Indebtedness, the
occurrence of any default with respect to the Indebtedness, or
otherwise, notwithstanding any effect such fact may have upon
Debtor's risk or Debtor's rights against Borrower. Debtor
knowingly accepts the full range of risk encompassed in this
Agreement, which risk includes without limit the possibility
that Borrower may incur Indebtedness to Bank after the
financial condition of Borrower, or Borrower's ability to pay
debts as they mature, has deteriorated.
2.13 Debtor shall defend, indemnify and hold harmless Bank, its
employees, agents, shareholders, affiliates, officers, and
directors from and against any and all claims, damages, fines,
expenses, liabilities or causes of action of whatever kind,
including without limit consultant fees, legal expenses, and
attorney fees, suffered by any of them as a direct or indirect
result of any actual or asserted violation of any law,
including, without limit, Environmental Laws, or of any
remediation relating to any property required by any law,
including without limit Environmental Laws.
3. Collection of Proceeds.
3.1 Debtor agrees to collect and enforce payment of all Collateral
until Bank shall direct Debtor to the contrary. Immediately
upon notice to Debtor by Bank and at all times after that,
Debtor agrees to fully and promptly cooperate and assist Bank
in the collection and enforcement of all Collateral and to
hold in trust for Bank all payments received in connection
with Collateral and from the sale, lease or other disposition
of any Collateral, all rights by way of suretyship or guaranty
and all rights in the nature of a lien or security interest
which Debtor now or later has regarding Collateral.
Immediately upon and after such notice, Debtor agrees to (a)
endorse to Bank and immediately deliver to Bank all payments
received on Collateral or from the sale, lease or other
disposition of any Collateral or arising from any other rights
or interests of Debtor in the Collateral, in the form received
by Debtor without commingling with any other funds, and (b)
immediately deliver to Bank all property in Debtor's
possession or later coming into Debtor's possession through
enforcement of Debtor's rights or interests in the Collateral.
Debtor irrevocably authorizes Bank or any Bank employee or
agent to endorse the name of Debtor upon any checks or other
items which are received in payment for any Collateral, and to
do any and all things necessary in order to reduce these items
to money. Bank shall have no duty as to the collection or
protection of Collateral or the proceeds of it, nor as to the
preservation of any related rights: beyond the use of
reasonable care in the custody and preservation of Collateral
in the possession of Bank. Debtor agrees to take all steps
necessary to preserve rights against prior parties with
respect to the Collateral. Nothing in this Section 3.1 shall
be deemed a consent by Bank to any sale, lease or other
disposition of any Collateral.
3.2 Debtor agrees that immediately upon Bank's request (whether or
not any Event of Default exists) the Indebtedness shall be on
a "remittance basis" as follows: Debtor shall at its sole
expense establish and
<PAGE>
maintain (and Bank, at Bank's option may establish and
maintain at Debtor's expense): (a) an United States Post
Office lock box (the "Lock Box"), to which Bank shall have
exclusive access and control. Debtor expressly authorizes
Bank, from time to time, to remove contents from the Lock Box,
for disposition in accordance with this Agreement. Debtor
agrees to notify all account debtors and other parties
obligated to Debtor that all payments made to Debtor (other
than payments by electronic funds transfer) shall be remitted,
for the credit of Debtor, to the Lock Box, and Debtor shall
include a like statement on all invoices; and (b) a
non-interest bearing deposit account with Bank which shall be
titled as designated by Bank (the "Cash Collateral Account")
to which Bank shall have exclusive access and control. Debtor
agrees to notify all account debtors and other parties
obligated to Debtor that all payments made to Debtor by
electronic funds transfer shall be remitted to the Cash
Collateral Account, and Debtor, at Bank's request, shall
include a like statement on all invoices. Debtor shall execute
all documents and authorizations as required by Bank to
establish and maintain the Lock Box and the Cash Collateral
Account.
3.3 All items or amounts which are remitted to the Lock Box, to
the Cash Collateral Account, or otherwise delivered by or for
the benefit of Debtor to Bank on account of partial or full
payment of, or with respect to, any Collateral shall, at
Bank's option, (i) be applied to the payment of the
Indebtedness, whether then due or not, in such order or at
such time of application as Bank may determine in its sole
discretion, or, (ii) be deposited to the Cash Collateral
Account. Debtor agrees that Bank shall not be liable for any
loss or damage which Debtor may suffer as a result of Bank's
processing of items or its exercise of any other rights or
remedies under this Agreement, including without limitation
indirect, special or consequential damages, loss of revenues
or profits, or any claim, demand or action by any third party
arising out of or in connection with the processing of items
or the exercise of any other rights or remedies under this
Agreement. Debtor agrees to indemnify and hold Bank harmless
from and against all such third party claims, demands or
actions, and all related expenses or liabilities, including,
without limitation, attorney fees.
4. Defaults, Enforcement and Application of Proceeds.
4.1 Upon the occurrence of any of the following events (each an
"Event of Default"), Debtor shall be in default under this
Agreement:
(a) Any failure to pay the Indebtedness or any other
indebtedness when due, or such portion of it as may
be due, by acceleration or otherwise; or
(b) Any failure or neglect to comply with, or breach of
or default under, any term of this Agreement, or any
other agreement or commitment between Borrower,
Debtor, or any guarantor of any of the Indebtedness
("Guarantor") and Bank; or
(c) Any warranty, representation, financial statement, or
other information made, given or furnished to Bank by
or on behalf of Borrower, Debtor, or any Guarantor
shall be, or shall prove to have been, false or
materially misleading when made, given, or furnished;
or
(d) Any loss, theft, substantial damage or destruction to
or of any Collateral, or the issuance or filing of
any attachment, levy, garnishment or the commencement
of any proceeding in connection with any Collateral
or of any other judicial process of, upon or in
respect of Borrower, Debtor, any Guarantor, or any
Collateral; or
(e) Sale or other disposition by Borrower, Debtor, or any
Guarantor of any substantial portion of its assets or
property or voluntary suspension of the transaction
of business by Borrower,
<PAGE>
Debtor, or any Guarantor, or death, dissolution,
termination of existence, merger, consolidation,
insolvency, business failure, or assignment for the
benefit of creditors of or by Borrower, Debtor, or
any Guarantor; or commencement of any proceedings
under any state or federal bankruptcy or insolvency
laws or laws for the relief of debtors by or against
Borrower, Debtor, or any Guarantor; or the
appointment of a receiver, trustee, court appointee,
sequestrator or otherwise, for all or any part of the
property of Borrower, Debtor, or any Guarantor; or
(f) Bank deems the margin of Collateral insufficient or
itself insecure, in good faith believing that the
prospect of payment of the Indebtedness or
performance of this Agreement is impaired or shall
fear deterioration, removal, or waste of Collateral.
4.2 Upon the occurrence of any Event of Default, Bank may at its
discretion and without prior notice to Debtor declare any or
all of the Indebtedness to be immediately due and payable, and
shall have and may exercise any one or more of the following
rights and remedies:
(a) Exercise all the rights and remedies upon default, in
foreclosure and otherwise, available to secured
parties under the provisions of the Uniform
Commercial Code and other applicable law;
(b) Institute legal proceedings to foreclose upon the
lien and security interest granted by this Agreement,
to recover judgment for all amounts then due and
owing as Indebtedness, and to collect the same out of
any Collateral or the proceeds of any sale of it;
(c) Institute legal proceedings for the sale, under the
judgment or decree of any court of competent
jurisdiction, of any or all Collateral; and/or
(d) Personally or by agents, attorneys, or appointment
of a receiver, enter upon any premises where
Collateral may then be located, and take possession
of all or any of it and/or render it unusable; and
without being responsible for loss or damage to such
Collateral, hold, operate, sell, lease, or dispose of
all or any Collateral at one or more public or
private sales, leasings or other disposition, at
places and times and on terms and conditions as Bank
may deem fit, without any previous demand or
advertisement; and except as provided in this
Agreement, all notice of sale, lease or other
disposition, and advertisement, and other notice or
demand, any right or equity of redemption, and any
obligation of a prospective purchaser or lessee to
inquire as to the power and authority of Bank to
sell, lease, or otherwise dispose of the Collateral
or as to the application by Bank of the proceeds of
sale or otherwise, which would otherwise be required
by, or available to Debtor under, applicable law are
expressly waived by Debtor to the fullest extent
permitted.
At any sale pursuant to this Section 4.2, whether
under the power of sale, by virtue of judicial
proceedings or otherwise, it shall not be necessary
for Bank or a public officer under order of a court
to have present physical or constructive possession
of Collateral to be sold. The recitals contained in
any conveyances and receipts made and given by Bank
or the public officer to any purchaser at any sale
made pursuant to this Agreement shall, to the extent
permitted by applicable law, conclusively establish
the truth and accuracy of the matters stated
(including, without limit, as to the amounts of the
principal of and interest on the Indebtedness, the
accrual and nonpayment of it and advertisement and
conduct of the sale); and all prerequisites to the
sale shall be presumed to have been satisfied and
performed. Upon any sale of any Collateral, the
receipt of the officer making the sale under
<PAGE>
judicial proceedings or of Bank shall be sufficient
discharge to the purchaser for the purchase money,
and the purchaser shall not be obligated to see to
the application of the money. Any sale of any
Collateral under this Agreement shall be a perpetual
bar against Debtor with respect to that Collateral.
4.3 Debtor shall at the request of Bank, notify the account
debtors or obligors of Bank's security interest in the
Collateral and direct payment of it to Bank. Bank may, itself,
upon the occurrence of any Event of Default so notify and
direct any account debtor or obligor.
4.4 The proceeds of any sale or other disposition of Collateral
authorized by this Agreement shall be applied by Bank first
upon all expenses authorized by the Uniform Commercial Code
and all reasonable attorney fees and legal expenses incurred
by Bank; the balance of the proceeds of the sale or other
disposition shall be applied in the payment of the
Indebtedness, first to interest, then to principal, then to
remaining Indebtedness and the surplus, if any, shall be paid
over to Debtor or to such other person(s) as may be entitled
to it under applicable law. Debtor shall remain liable for any
deficiency, which it shall pay to Bank immediately upon
demand.
4.5 Nothing in this Agreement is intended, nor shall it be
construed, to preclude Bank from pursuing any other remedy
provided by law for the collection of the Indebtedness or for
the recovery of any other sum to which Bank may be entitled
for the breach of this Agreement by Debtor. Nothing in this
Agreement shall reduce or release in any way any rights or
security interests of Bank contained in any existing agreement
between Borrower, Debtor, or any Guarantor and Bank.
4.6 No waiver of default or consent to any act by Debtor shall be
effective unless in writing and signed by an authorized
officer of Bank. No waiver of any default or forbearance on
the part of Bank in enforcing any of its rights under this
Agreement shall operate as a waiver of any other default or of
the same default on a future occasion or of any rights.
4.7 Debtor irrevocably appoints Bank or any agent of Bank (which
appointment is coupled with an interest) the true and lawful
attorney of Debtor (with full power of substitution) in the
name, place and stead of, and at the expense of, Debtor:
(a) to demand, receive, sue for, and give receipts or
acquittances for any moneys due or to become due on
any Collateral and to endorse any item representing
any payment on or proceeds of the Collateral;
(b) to execute and file in the name of and on behalf of
Debtor all financing statements or other filings
deemed necessary or desirable by Bank to evidence,
perfect, or continue the security interests granted
in this Agreement; and
(c) to do and perform any act on behalf of Debtor
permitted or required under this Agreement.
4.8 Upon the occurrence of an Event of Default, Debtor also
agrees, upon request of Bank, to assemble the Collateral and
make it available to Bank at any place designated by Bank
which is reasonably convenient to Bank and Debtor.
<PAGE>
5. Miscellaneous.
5.1 Until Bank is advised in writing by Debtor to the contrary,
all notices, requests and demands required under this
Agreement or by law shall be given to, or made upon, Debtor at
the first address indicated in Section 5.15 below.
5.2 Debtor will give Bank not less than 90 days prior written
notice of all contemplated changes in Debtor's name, chief
executive office location, and/or location of any Collateral,
but the giving of this notice shall not cure any Event of
Default caused by this change.
5.3 Bank assumes no duty of performance or other responsibility
under any contracts contained within the Collateral.
5.4 Bank has the right to sell, assign, transfer, negotiate or
grant participations or any interest in, any or all of the
Indebtedness and any related obligations, including without
limit this Agreement. In connection with the above, but
without limiting its ability to make other disclosures to the
full extent allowable, Bank may disclose all documents and
information - which Bank now or later has relating to Debtor,
the Indebtedness or this Agreement, however obtained. Debtor
further agrees that Bank may provide information relating to
this Agreement or relating to Debtor to the Bank's parent,
affiliates, subsidiaries, and service providers.
5.5 In addition to Bank's other rights, any indebtedness owing
from Bank to Debtor can be set off and applied by Bank on any
Indebtedness at any time(s) either before or after maturity or
demand without notice to anyone.
5.6 Debtor waives any right to require the Bank to: (a) proceed
against any person or property; (b) give notice of the terms,
time and place of any public or private sale of personal
property security held from Debtor or any other person, or
otherwise comply with the provisions of Section 9-504 of the
Uniform Commercial Code; or (c) pursue any other remedy in the
Bank's power. Debtor waives notice of acceptance of this
Agreement and presentment, demand, protest, notice of protest,
dishonor, notice of dishonor, notice of default, notice of
intent to accelerate or demand payment of any Indebtedness,
any and all other notices to which the undersigned might
otherwise be entitled, and diligence in collecting any
Indebtedness, and agree(s) that the Bank may, once or any
number of times, modify the terms of any Indebtedness,
compromise, extend, increase, accelerate, renew or forbear to
enforce payment of any or all Indebtedness, or permit Borrower
to incur additional Indebtedness, all without notice to Debtor
and without affecting in any manner the unconditional
obligation of Debtor under this Agreement. Debtor
unconditionally and irrevocably waives each and every defense
and setoff of any nature which, under principles of guaranty
or otherwise, would operate to impair or diminish in any way
the obligation of Debtor under this Agreement, and
acknowledges that such waiver is by this reference
incorporated into each security agreement, collateral
assignment, pledge and/or other document from Debtor now or
later securing the Indebtedness, and acknowledges that as of
the date of this Agreement no such defense or setoff exists.
5.7 Debtor waives any and all rights (whether by subrogation,
indemnity, reimbursement, or otherwise) to recover from
Borrower any amounts paid or the value of any Collateral given
by Debtor pursuant to this Agreement.
5.8 In the event that applicable law shall obligate Bank to give
prior notice to Debtor of any action to be taken under this
Agreement, Debtor agrees that a written notice given to Debtor
at least five days before the date of the act shall be
reasonable notice of the act and, specifically, reasonable
notification of the time and place of any public sale or of
the time after which any private sale, lease, or other
disposition is to be made, unless a shorter notice period is
reasonable under the circumstances. A
<PAGE>
notice shall be deemed to be given under this Agreement when
delivered to Debtor or when placed in an envelope addressed to
Debtor and deposited, with postage prepaid, in a post office
or official depository under the exclusive care and custody of
the United States Postal Service or delivered to an overnight
courier. The mailing shall be by overnight courier, certified,
or first class mail.
5.9 Notwithstanding any prior revocation, termination, surrender,
or discharge of this Agreement in whole or in part, the
effectiveness of this Agreement shall automatically continue
or be reinstated in the event that any payment received or
credit given by Bank in respect of the Indebtedness is
returned, disgorged, or rescinded under any applicable law,
including, without limitation, bankruptcy or insolvency laws,
in which case this Agreement, shall be enforceable against
Debtor as if the returned, disgorged, or rescinded payment or
credit had not been received or given by Bank, and whether or
not Bank relied upon this payment or credit or changed its
position as a consequence of it. In the event of continuation
or reinstatement of this Agreement, Debtor agrees upon demand
by Bank to execute and deliver to Bank those documents which
Bank determines are appropriate to further evidence (in the
public records or otherwise) this continuation or
reinstatement, although the failure of Debtor to do so shall
not affect in any way the reinstatement or continuation.
5.10 This Agreement and all the rights and remedies of Bank under
this Agreement shall inure to the benefit of Bank's successors
and assigns and to any other holder who derives from Bank
title to or an interest in the Indebtedness or any portion of
it, and shall bind Debtor and the heirs, legal
representatives, successors, and assigns of Debtor. Nothing in
this Section 5.10 is deemed a consent by Bank to any
assignment by Debtor.
5.11 If there is more than one Debtor, all undertakings, warranties
and covenants made by Debtor and all rights, powers and
authorities given to or conferred upon Bank are made or given
jointly and severally.
5.12 Except as otherwise provided in this Agreement, all terms in
this Agreement have the meanings assigned to them in Article 9
(or, absent definition in Article 9, in any other Article) of
the Uniform Commercial Code. "Uniform Commercial Code" means
Act No. 174 of the Michigan Public Acts of 1962, as amended.
5.13 No single or partial exercise, or delay in the exercise, of
any right or power under this Agreement, shall preclude other
or further exercise of the rights and powers under this
Agreement. The unenforceability of any provision of this
Agreement shall not affect the enforceability of the remainder
of this Agreement. This Agreement constitutes the entire
agreement of Debtor and Bank with respect to the subject
matter of this Agreement. No amendment or modification of this
Agreement shall be effective unless the same shall be in
writing and signed by Debtor and an authorized officer of
Bank. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Michigan,
without regard to conflict of laws principles.
5.14 To the extent that any of the Indebtedness is payable upon
demand, nothing contained in this Agreement shall modify the
terms and conditions of that Indebtedness nor shall anything
contained in this Agreement prevent Bank from making demand,
without notice and with or without reason, for immediate
payment of any or all of that Indebtedness at any time(s),
whether or not an Event of Default has occurred.
5.15 Debtor's chief executive office is located and shall be
maintained at 15675 NW 15th Avenue
--------------------
STREET ADDRESS
<PAGE>
Miami Florida 33169 Dade
- -------------------------------------------------------------------------------
City State Zip Code County
If Collateral is located at other than the chief executive office, such
Collateral is located and shall be maintained at:
- -------------------------------------------------------------------------------
Street Address
- -------------------------------------------------------------------------------
City State Zip Code County
Collateral shall be maintained only at the locations identified in this
Section 5.15.
5.16 A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement under the Uniform
Commercial Code and may be filed by Bank in, any filing
office.
5.17 This Agreement shall be terminated only by the filing of a
termination statement in accordance with the applicable
provisions of the Uniform Commercial Code, but the obligations
contained in Section 2.13 of this Agreement shall survive
termination.
6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT
WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
AGREEMENT OR THE INDEBTEDNESS.
<PAGE>
Special Provisions Applicable to this Agreement. (*None, if left blank)
Debtor:
PASCO INT'L. AVIATION CORP.
By: /s/ Joseph J. Nelson
------------------------
Signature of
Its: President
-----------------------
Title (If applicable)
By: /s/ Joseph Janusz
------------------------
Signature of
Its: Chief Financial Officer
-----------------------
Title (If applicable)
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and the use
of our report dated December 10, 1999, in the Registration Statement and related
Prospectus of Aviation Holdings Group, Inc. for the registration of 750,000
units, each unit consisting of two shares of Common Stock and one Class A
Warrant.
/s/ LJ SOLDINGER
----------------------------
LJ SOLDINGER ASSOCIATES
Arlington Heights, Illinois
December 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 SEP-30-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 363,690 497,437
<SECURITIES> 0 0
<RECEIVABLES> 3,162,545 3,468,220
<ALLOWANCES> (320,000) (350,000)
<INVENTORY> 3,220,062 4,033,434
<CURRENT-ASSETS> 6,546,446 7,863,814
<PP&E> 375,240 452,659
<DEPRECIATION> (72,119) (130,678)
<TOTAL-ASSETS> 8,763,366 10,309,434
<CURRENT-LIABILITIES> 5,174,661 5,755,251
<BONDS> 13,124 10,314
0 0
0 0
<COMMON> 347 422
<OTHER-SE> 2,388,370 4,178,963
<TOTAL-LIABILITY-AND-EQUITY> 8,763,366 10,309,434
<SALES> 8,365,197 9,342,749
<TOTAL-REVENUES> 8,365,197 9,342,749
<CGS> 5,839,049 6,048,375
<TOTAL-COSTS> 5,839,049 6,048,375
<OTHER-EXPENSES> 3,015,842 2,691,327
<LOSS-PROVISION> 672,969 30,000
<INTEREST-EXPENSE> 96,044 578,148
<INCOME-PRETAX> (1,194,215) 20,079
<INCOME-TAX> 186,863 56,125
<INCOME-CONTINUING> (1,384,780) (98,916)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,384,780) (98,916)
<EPS-BASIC> (0.46) (0.03)
<EPS-DILUTED> (0.46) (0.03)
</TABLE>