<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/x/ Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year ended June 30, 1995
/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number: 1-7134
MERCURY AIR GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 11-1800515
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
5456 McConnell Avenue, Los Angeles, California 90066
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (310) 827-2737
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------- ------------------------
<S> <C>
Common Stock - Par Value $.01 American Stock Exchange
</TABLE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
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such filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K./ /
As of September 20, 1995, 5,371,087 shares of the Registrant's Common
Stock were outstanding. Of these shares, 1,595,790 shares were held by persons
who may be deemed to be affiliates. The 3,775,297 shares held by nonaffiliates
as of September 20, 1995 had an aggregate market value (based on the closing
price of these shares on the American Stock Exchange of $8.50 a share) of
$32,090,024.50.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement which is to be distributed in
connection with the Annual Meeting of Shareholders to be held on December 4,
1995 are incorporated by reference into Part III of this Form 10-K.
(The Exhibit Index May Be Found at Page 21)
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PART I
ITEM 1. BUSINESS.
Mercury Air Group, Inc., a New York Corporation, provides a broad range
of services to the aviation industry through four principal operating units:
fuel sales and services, cargo operations, fixed base operations and government
contract services. Fuel sales and services include the sale of fuel and delivery
of fuel primarily to commercial airlines and air freight companies. Cargo
operations consist of cargo handling, space brokerage operations and general
cargo sales agent services. Fixed base operations ("FBO's") include fuel sales,
into-plane services, ground support services and aircraft hangar facilities and
tie-down facilities for commercial, private and other aircraft. Government
contract services principally consist of operating government-owned fuel depots
and refueling aircraft for the military. As used in this Annual Report, the term
"Company" or "Mercury" refers to Mercury Air Group, Inc. and, unless the context
otherwise requires, its subsidiaries. The Company's principal executive offices
are located at 5456 McConnell Avenue, Los Angeles, California 90066 and its
telephone number is (310) 827-2737.
A. NARRATIVE DESCRIPTION OF THE BUSINESS.
FUEL SALES AND SERVICES
Mercury's fuel sales consist of contract fueling and related fuel
management services. Sales of aviation fuel are made primarily to domestic and
international airline customers.
Contract fuel sales are generally made pursuant to verbal or
short-term contracts whereby Mercury provides fuel supply and, in most cases,
delivery to meet all or a portion of a customer's fuel supply requirements. To
facilitate its fuel sales business at locations where Mercury does not have
facilities, Mercury has developed an extensive network of third party delivery
and supply relationships which enable it to provide fuel to customers, on a
scheduled or ad hoc basis. Through these third party relationships, Mercury is
currently supplying fuel to customers at over 100 airports in the United States
and, to a lesser extent, internationally.
Mercury believes that it adds value for its customers and is able to
attract business by providing high quality service and by offering a combination
of favorable pricing and credit terms. Mercury provides 24-hour, single source,
coordinated supply and delivery on a national and international basis and
provides related support services. Mercury believes its scale of operations and
creditworthiness allow the purchase of fuel on more favorable price and credit
terms than would be available to most of its customers on an individual basis.
In general, the aviation industry is capital intensive and highly
leveraged. Recognizing the financial risks of the airline industry, major oil
companies often restrict or prohibit the extension of credit to smaller or less
well-capitalized airlines. Consequently, in order to obtain fuel from a major
oil company, many
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carriers must either post a letter of credit or prepay for fuel purchases. These
supply requirements can absorb a substantial portion of an airline's working
capital.
Mercury believes that the extension of credit to smaller or less
well-capitalized airlines represents a risk, but also is a contributing factor
in attracting and retaining customers. Accordingly, Mercury frequently extends
credit on an unsecured basis to customers which may exhibit a higher credit risk
profile and who may otherwise be required to prepay or post letters of credit
for fuel purchases. The amount of credit extended to any particular customer is
a subjective decision. Factors considered in credit decisions include the
customer's financial strength and payment history, competitive conditions in the
market, the expected productivity of the account and, with respect to domestic
accounts, the availability of credit insurance. Mercury considers its existing
credit portfolio to be of acceptable quality and, on an ongoing basis,
establishes allowances that in management's judgment are adequate to absorb
potential credit problems inherent in the portfolio.
Mercury purchases fuel at current market prices from a number of
independent and major oil companies based on the expected requirements of its
customers. Mercury's terms of payment range from ten to thirty days for most of
its fuel purchases except for bulk pipeline purchases which generally are
payable two days from invoice receipt. Mercury has agreements with certain
suppliers under which Mercury purchases a minimum amount of fuel each month at
prices which approximate current market prices. Mercury makes occasional spot
purchases of fuel to take advantage of market differentials. In order to meet
customer supply requirements, Mercury carries limited inventories at numerous
locations and two to three weeks inventory requirements at a few key pipeline
locations. Due to the nature of Mercury's business, the volume of Mercury's
aviation fuel inventories will occasionally fluctuate. Depending upon the price
and price movement of aviation fuel, such inventories may subject Mercury to a
risk of financial loss.
Mercury's fuel supply contracts may generally be canceled by either
party with no further obligations. In some cases, Mercury has monthly purchase
requirements which are established based on historical volumes of fuel purchased
by Mercury. Such fuel purchase history may result in the seller agreeing to
provide a monthly allocation to Mercury such that the seller agrees to dedicate
a portion of its available fuel for Mercury's requirements. Mercury benefits
from such an allocation because, during periods of short fuel supply, reductions
in supply are generally made first to those buyers who have not been given any
allocations. To maintain dedicated allocations of fuel, Mercury usually
purchases fuel at levels approximating the allocated amount. However, Mercury is
not obligated to purchase any fuel under an allocation. Currently, the monthly
allocations from Mercury's fuel suppliers represent only a small portion of
Mercury's total monthly supply requirements.
Mercury's consolidated fuel sales could be materially adversely
affected by a significant decrease in the availability, or increase in the price
, of aviation fuel. Consolidated fuel sales of $145.2 million in fiscal 1995 and
$69.0 million in fiscal 1994 represented approximately 79% and 67% of
consolidated revenues in fiscal 1995 and fiscal 1994, respectively. Although
Mercury believes that there are currently adequate aviation fuel supplies and
that aviation fuel supplies will generally remain available, events outside
Mercury's control have resulted and could result in spot shortages or rapid
increases in fuel costs. Although Mercury is generally able to pass through
rising fuel costs to its customers, extended periods of high fuel costs could
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adversely affect Mercury's ability to purchase fuel in sufficient quantities
because of credit limits placed on Mercury by its fuel suppliers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
In addition to contract fueling, Mercury considers a number of other
commercial activities which are headquartered at Los Angeles International
Airport ("LAX") as part of its fuel sales and services operations. These
activities include refueling services at LAX and John Wayne International
Airport in Santa Ana, California, the brokering of non-aviation fuel to the
industrial and commercial market place, the provision of air frame and power
plant mechanics to commercial airlines and the provision of cargo warehouse
manpower to a commercial airline. Refueling services at LAX and John Wayne
International Airport consist of the delivery of fuel by company owned trucks or
hydrant carts for a fee. Mercury also maintains fuel tanks at LAX to support its
fuel sales and refueling services.
CARGO OPERATIONS
The Company's cargo operations are conducted through its wholly owned
subsidiary, Mercury Air Cargo, Inc. ("MAC"), which provides the following
services: cargo handling, space brokerage and general cargo sales agent
services.
Cargo Handling. MAC provides domestic and international air cargo handling, air
mail handling and bonded warehousing. MAC is one of only two non-airline
providers of contractual cargo containerization and palletization for
international carriers and cargo shippers at LAX. MAC specializes in
consolidating smaller parcels into air cargo pallets and breaking down shipping
containers for sea-to-air and air-to-air transfers. In addition, MAC receives
cargo and loads pallets for shipping.
MAC's cargo handling operations occur primarily at LAX. In May 1994,
MAC expanded its cargo handling operations by opening an off-airport warehouse
in San Francisco, California. See "Properties". In July 1994, MAC opened a cargo
handling facility in Miami, Florida in conjunction with the hiring of a key
employee. Upon the departure of the key employee in March 1995, the Miami
facility was closed at minimal expense.
MAC is able to compete in the cargo handling business by offering
quality service from its strategically located LAX and San Francisco warehouse
facilities. At LAX, a portion of Mercury's cargo handling operations are
conducted in a facility subject to a month-to-month lease. Continuous long-term
growth in MAC's cargo handling operations can only be realized by maintaining
and expanding current warehouse facilities or by obtaining additional warehouse
facilities at LAX or new locations.
Space Brokerage. MAC brokers cargo space on international flights to Europe, the
Middle East, Mexico and Central and South America. Space brokerage involves
contracting for cargo space on airlines and subsequently, on MAC's own airway
bill, selling that space to customers with shipping needs. MAC has established a
network of shipping agents who assist in obtaining cargo for shipment on space
purchased from airlines, and who facilitate the delivery and collection of
freight charges for cargo shipped on MAC's airway bills.
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Unlike an air cargo company which operates its own aircraft, MAC's
space brokerage business utilizes otherwise unfilled cargo space on scheduled
airline flights. Accordingly, MAC is able to profit from the sale of cargo
transportation space worldwide without the fixed overhead expense of maintaining
aircraft. MAC purchases cargo space from a number of airlines worldwide. As a
result of its large volume of cargo space purchases and its ability to negotiate
among airlines, MAC adds value for its customers and is able to attract business
by offering favorable pricing. MAC's revenues are the difference between the
cost of the space and the amount at which the space is resold.
General Sales Agent Services. MAC also serves as general cargo sales agent for
airlines in the Far East, Mexico, Central and South America and in the United
States. In this capacity, MAC sells the transportation of cargo on client
airlines' flights, using the client airlines' own airway bills. MAC earns
commissions from the airlines for selling air cargo space. As with its space
brokerage operations, the growth potential for Mercury Air Cargo's general cargo
sales agent business is not limited by requirements for physical facilities or
by requirements for additional capital investments.
FIXED BASE OPERATIONS
Mercury currently provides FBO services at LAX; Cannon International
Airport in Reno, Nevada; Meadows Field Airport in Bakersfield, California;
Burbank-Glendale-Pasadena Airport in Burbank, California; and Santa Barbara
Municipal Airport in Santa Barbara, California. See "Properties." At each FBO,
Mercury maintains administrative offices; conducts retail fuel sales and
refueling operations which service principally corporate and private aircraft
("general aviation") and to some extent commercial airlines; and acts as a
landlord for office and aircraft tie-down space tenants and, except at LAX, for
hangar tenants. In addition, at Cannon International Airport, Mercury provides
ground handling services for commercial airlines.
Each FBO operates refueling vehicles and maintains fuel storage tanks
to support its into-plane and fuel sales activities. The FBO facilities and the
property on which their operations are conducted are leased from the respective
airport authorities. See "Properties."
During fiscal 1993, the Company acquired certain assets including
equipment and leasehold interests of two competing FBO's at Meadows Field
Airport to complement its existing FBO operation at that airport. During fiscal
1992, the Company acquired certain assets including equipment and a leasehold
interest of a competing FBO at Cannon International Airport in Reno, Nevada to
complement its existing FBO operation at that airport.
GOVERNMENT CONTRACT SERVICES
Mercury conducts its Government Contract Services business through its
subsidiary, Maytag Aircraft Corporation ("Maytag"). Headquartered in Colorado
Springs, Colorado, Maytag provides services at nineteen U.S. military bases,
primarily for the U.S. Navy, including sixteen in the United States and three
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additional bases in Greece, Japan and Bermuda. Maytag provides services to the
government pursuant to contracts for each base which run for one to four years.
Under most of these contracts, Maytag operates government-owned fuel depots and
services a variety of aircraft for the military. Under the terms of its
contracts, Maytag supplies all necessary personnel and equipment to provide 24-
hour refueling capability. All fuel handled in these operations is government
owned. In connection with its Government Contract Services business, Maytag owns
and operates a fleet of refueling trucks and other support vehicles.
The following table lists the bases which Maytag services, as of
September 15, 1995, and the expiration of each contract for each base.
<TABLE>
<CAPTION>
Location Expiration Date of Contract
-------- ---------------------------
<S> <C>
Bangor, WA September 1996 *
Bermuda September 1995
Fukuoka, Japan September 1996 **
Memphis, TN September 1995
Peterson, CO October 1995
Cherry Point, NC October 1995
North Island, CA December 1995
Washington, DC October 1995
Willow Grove, PA August 1996
Lakehurst, NJ September 1996
Souda Bay, Crete September 1996
Brunswick, ME October 1996
Pensacola, FL August 1997
Whidbey Island, WA August 1997
Fallon, NV September 1997
Whiting Field, FL September 1997
Yuma, AZ July 1998
Point Mugu, CA April 1999
El Centro, CA September 1999
</TABLE>
* Contract to provide library services only.
** Contract to provide air terminal services only.
Maytag's government contracts are subject to competitive bidding, are
generally awarded on a firm fixed-price basis and are subject to termination at
the discretion of the United States Government in whole or in part. Termination
of a contract may occur if the United States Government determines that it is in
its best interest to discontinue the contract, in which case closure costs will
be paid to Maytag. Termination may also occur if Maytag defaults under a
contract. Maytag has never experienced any such default termination.
Maytag's government services business has been negatively impacted by
contract losses due to base closures, the loss of competitive bids, small
business contract set asides and internalization of the refueling function by
the United States military. Since June 30, 1994, ten contracts held by Maytag
have been terminated or are scheduled to be terminated, five of which were
terminated in fiscal 1995 and the balance of which are scheduled for termination
at the end of the first quarter or during the second quarter of fiscal
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1996. The five base contracts scheduled for termination are North Island, Cherry
Point, Peterson, Bermuda and Memphis. Maytag lost a bid to renew its refueling
contract at North Island, such contract expiring in December 1995. In addition,
the refueling contract at Cherry Point, which will expire in October 1995, has
not been renewed due to the Government's decision to perform the services with
military personnel. The contract at Peterson has been set aside for small
business effective October 1995. Two bases currently served by Maytag, Bermuda
and Memphis, are scheduled for closure in September 1995 under federal base
closure and realignment legislation. Based upon the July 13, 1995 presidential
approval of the Defense Base Closure and Realignment Commission recommendation,
no additional bases served by Maytag were selected for closure under the last
round of federally mandated base closures. The Company knows of no additional
plans by the United States Government to close bases.
Operating income from government services in fiscal 1995 included $1.4
million from the ten contracts which have been terminated or are scheduled for
termination.
Since June 30, 1994 Maytag was successful in its bid to renew four-year
contracts at Point Mugu and El Centro and acquired a new contract at Fukuoka,
Japan, which began in November 1994, to provide air terminal services.
RECENT DEVELOPMENTS
Excel Cargo
On August 1, 1995, Mercury executed a letter of intent to purchase
certain operating and other assets of Excel Cargo Inc., Excel Handling Inc. and
3087-1966 (Quebec) Inc. (the "Excel Parties"). Pursuant to the letter of intent,
the purchase price for the assets will be $2,015,632 (United States Dollars). In
addition, Mercury will assume certain liabilities in connection with the
transaction, including a line of credit, accounts payable, accrued expenses, and
long-term debt. Mercury estimates that the total liabilities assumed will be
approximately $727,000.
The letter of intent calls for Mercury to acquire the assets through
the issuance, by a wholly-owned subsidiary, of a convertible debenture in the
principal amount of $2,015,632, to be guaranteed by Mercury. The convertible
debenture will bear interest at the rate of 8.5%, will be payable over eight
years in equal monthly installments of principal and interest, and will be
convertible into Mercury's Common Stock at a conversion price of $12.00, or an
initial maximum of approximately 168,000 shares, subject to adjustment upon
certain events. In addition, the face amount of the convertible debenture will
be adjustable downward in the event the net worth of the assets acquired less
the liabilities assumed is less than zero and in the event the average pre-tax
earnings generated by the acquiring subsidiary during the three years following
the acquisition is less than a certain amount.
The letter of intent further provides for the employment of the former
President of each of the Excel Parties for three years, at $100,000 per year,
plus bonus. In addition, the Excel Parties and their affiliates have agreed not
to compete with Mercury or any of its affiliates in the cargo handling business
in Canada until February 1, 2000. Consummation of the acquisition is subject to,
among other things, due diligence investigation, approval of Mercury's board of
directors, other third-party approvals and negotiation and execution of a
definitive purchase agreement. If the transaction is consummated, Mercury has
agreed to pay
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$810,000 to certain third parties as finders' fees.
Houston and Miami Sales Offices
In October 1994, when a fuel sales competitor ceased operations,
Mercury opened fuel sales offices in Houston and Miami, hired the former
competitor's key sales personnel and attracted the former competitor's fuel
sales accounts. The opening of the Houston and Miami fuel sales offices
increased Mercury's gallons of fuel sold in fiscal 1995 by approximately 50%.
LAX Cargo Facility
In August 1995, Mercury Air Cargo expanded its cargo handling
operations at LAX by leasing, on a month-to-month basis, an additional 45,000
square foot hangar. See "Properties."
MAJOR CUSTOMERS
During fiscal 1995, no customer accounted for over 10% of Mercury's
consolidated revenues.
SEASONAL NATURE OF BUSINESS
Mercury's commercial fuel sales, FBOs and aircraft support operations
are seasonal in nature, being relatively stronger during the months of April
through September in its fueling operations and FBOs than during the months of
October through March. Commercial air traffic and traffic at the FBOs is reduced
during the winter months due in part to weather conditions and increased during
the summer months due in part to additional commercial flights and more
recreational flying. Mercury's cargo business is relatively stronger during the
months of October through March than during the months of April through
September. The cargo business is affected by the patterns for commercial and
retail inventory build-ups in international trade. Operations at military
facilities are not seasonal.
POTENTIAL LIABILITY AND INSURANCE
Mercury's business activities subject it to risk of significant
potential liability under Federal & State statutes, common law and contractual
indemnification agreements. Mercury reviews the adequacy of its insurance on an
on going basis. Mercury believes it follows generally accepted standards for its
lines of business with respect to the purchase of business insurance and risk
management practices. The Company purchases airport liability and general and
auto liability in amounts which the Company believes are adequate for the risks
of its business.
COMPETITION
Mercury competes with major companies who maintain their own source of
aviation fuel and with other aircraft support companies whose total sales and
financial resources far exceed those of Mercury. In addition, certain airlines
provide cargo and fueling services comparable to those furnished by Mercury. At
LAX, Mercury competes with, in addition to the airlines, three independent fuel
delivery services providers and primarily with one non-airline entity with
respect to air cargo handling. Each FBO has a minimum of one
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competitor at each airport. Mercury has many principal competitors with respect
to Government contracting services including certain small disadvantaged
businesses which receive a ten percent (10%) cost advantage with respect to
certain bids and set asides of certain contracts. Substantially all Mercury's
services are subject to competitive bidding. Mercury competes on the basis of
price and quality of service.
ENVIRONMENTAL MATTERS
Mercury must continuously comply with federal, state and local
environmental statutes and regulations associated with its numerous underground
fuel storage tanks. These requirements include, among other things, tank and
pipe testing for tightness, soil sampling for evidence of leaking and
remediation of detected leaks and spills. Mercury has installed stringent
inventory systems for its underground storage tanks and has placed sensors
underground which detect leaking. Mercury's operations are subject to frequent
inspection by federal and local environmental agencies and local fire and
airline quality control departments. To date, there have been no material
capital expenditures nor has there been a material negative impact on Mercury's
earnings or competitive position in performing such compliance and related
remediation work. To date, Mercury has not received any notice of violation or
been subject to any cease and abatement proceeding by any governmental agency as
a result of failure to comply with applicable environmental laws and
regulations. Based on tests performed to date, Mercury knows of no basis for any
notice of violation or cease and abatement proceeding by any governmental
agency.
EMPLOYEES
As of September 15, 1995, Mercury employed 963 persons in its following
operating units: fuel sales and services, 228 persons; cargo handling, 228
persons; FBOs, 177 persons; and government contract service, 330 persons.
Mercury is in the process of negotiating collective bargaining agreements for
its military refueling operation at Brunswick, Maine and Point Mugu, California.
Management believes that, in general, wages, hours, fringe benefits and other
conditions of employment offered throughout Mercury's operations are at least
equivalent to those found elsewhere in its industry and that its general
relationship with its employees is satisfactory.
ITEM 2. PROPERTIES
Mercury owns its executive offices, which consists of approximately
20,000 square feet, located at 5456 McConnell Avenue, Los Angeles, California.
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Listed below are the significant properties leased or owned by Mercury
as of September 15, 1995:
<TABLE>
<CAPTION>
Leased Expiration Activity
Location or Annual of Conducted
and Type Owned Rental Lease at Facility Size
-------- ----- ------ ----- ----------- ----
<S> <C> <C> <C> <C> <C>
6851 and 6805 W. Leased $416,000 December Executive offices and 60,000 sq. ft. on
Imperial Highway, Los 1999 cargo hangar, with 5.5 acres
Angeles, California offices and executive
(Two story office offices rented to
building and customers
hanger)(1)
5456 McConnell Owned N/A N/A Executive offices 20,000 sq. ft.
Los Angeles, brick building
California (2)
700 World Way West, Leased $296,000 December Service and refueling of 2,000 sq. ft. on
LAX (Executive 1998 private aircraft 1.93 acres
terminal) (1)
2601 East Plumb Lane, Leased $21,000 June 1997 Service, maintenance and 2,300 sq. ft.
Cannon International refueling of commercial executive terminal
Airport, Reno, Nevada and private aircraft and and 85,000 sq. ft.
(Cement block sublessor of building of hangar
building and and hangar space facilities
hangars)(1)
655 So. Rock Blvd., Building $11,000 June 2017 Service, maintenance and 23.7 acres of
Cannon International owned, refueling of commercial land; hangar and
Airport, Reno, Nevada land and private aircraft and administrative
(1) rented sublessor of building building
and hangar space consisting of
33,000 sq. ft.
1601 Skyway Drive and Leased $21,000 February Offices and refueling of 2,000 sq. ft.
Meadows Field Fuel 2008 commercial and private facility on 5
Parcels No. 9 and 10, aircraft acres
Meadows Field
Airport, Bakersfield,
California (1)
Meadows Field, Leased $44,000 February Landlord, service and 49,200 sq. ft.
Parcels 1-5 Meadows 2008 refueling of commercial building on 17.2
Field Airport, and private aircraft acres
Bakersfield,
California (3
buildings) (1)
</TABLE>
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<TABLE>
<CAPTION>
Leased Expiration Activity
Location or Annual of Conducted
and Type Owned Rental Lease at Facility Size
-------- ----- ------ ----- ----------- ----
<S> <C> <C> <C> <C> <C>
Meadows Field, Hangar Leased $46,000 June 2001 Landlord, service and 30,000 sq. ft.
6 and Parcel A refueling of commercial hangar on 2.7
Meadows Field and private aircraft acres
Airport, Bakersfield,
California (4)
Meadows Field, Leased $21,000 April 1996 Landlord, service and 1,200 sq. ft.
Parcels 1 and 2 and refueling of commercial building on 10.86
Lease site 4 and 6 and private aircraft acres
Meadows Field
Airport, Bakersfield,
California
Meadows Field, Lease Leased $25,000 March 2015 Landlord, service and 35,940 sq. ft.
site 2 Meadows Field refueling of commercial executive terminal
Airport, Bakersfield, and private aircraft and hangar on 6.14
California (4) acres
Burbank-Glendale- Leased $158,000 July 2000 Landlord, service and 45,000 sq. ft.
Pasadena Airport, refueling of commercial
Burbank, California and private aircraft
(Aircraft facility)
Burbank-Glendale- Building $465,000 August 1999 Landlord, service and 106,000 sq. ft.
Pasadena Airport, owned, refueling of commercial
Burbank, California land and private aircraft
(Aircraft facility) leased
Burbank-Glendale- Leased $187,000 November Hangar Facility 5,200 sq. ft.
Pasadena Airport, 1999
Burbank, California
(Hangar)
Santa Barbara Leased $99,000 May 1996 Service, maintenance, 2,000 sq. ft.
Municipal Airport, and refueling of terminal; 2
Santa Barbara, commercial and private hangars totaling
California (Tie-down aircraft 13,120 sq. ft.
space and 3
buildings) (1)
6145 Lehman Drive, Owned N/A N/A Executive and support 8,000 sq. ft.
Suite 300, Colorado personnel offices;
Springs, Colorado landlord
(Brick block building
with furnished
offices) (3)
526 Forbes Blvd., San Leased $218,000 April 1999 Cargo handling with 45,403 sq. ft.
Francisco, California offices building
LAX (B-4 Hangar) 6401 Leased $540,000 Month-to- Hangar space 45,000 sq. ft.
West Imperial Hwy., month
Los Angeles,
California
</TABLE>
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(1) The Leasehold interest is subject to a security interest granted to
Mercury's secured lender under its loan agreements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
(2) This property was purchased in April 1994 for $1,800,000 and is subject to
a first mortgage in the sum of $1,033,500 at June 30, 1995 repayable in
equal monthly installments of principal of $9,750, plus interest at 7.5%
per annum, the last payment due in April 2004.
(3) This property is subject to a first mortgage in the sum of $433,924 at June
30, 1995 repayable with interest at 9% in equal monthly installments of
approximately $4,450, the last payment due May 2010.
(4) This property is subject to a first mortgage in the sum of $1,017,063 at
June 30, 1995 repayable with interest at prime in equal monthly
installments, the last payment due in December 2004.
At each of the locations where Mercury conducts its business, including
six commercial locations and nineteen military locations, Mercury's operations
are dependent on a fleet of refueling vehicles. All locations utilize refueling
trucks for transporting and pumping fuel. At LAX, in addition to refueling
trucks, hydrant trucks are also maintained which pump fuel from underground
storage tanks directly into the aircraft. Mercury's owned equipment is subject
to a lien in favor of its secured lender. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
At commercial airports where Mercury operates FBOs, Mercury maintains
its own fuel storage capabilities which are principally located underground as
follows:
<TABLE>
<CAPTION>
Approximate
Capacity
Location (gallons)
-------- ---------
<S> <C>
LAX 312,000
Bakersfield 105,000
Burbank 119,000
Santa Barbara 35,000
Reno 100,000
</TABLE>
Management believes that Mercury's property and equipment are adequate
for its present business needs. Mercury fully utilizes the real properties it
owns or leases for its business.
ITEM 3. LEGAL PROCEEDINGS
Other than routine litigation incident to Mercury's business, Mercury
knows of no material litigation or administrative proceedings pending against
Mercury to which Mercury or any of its subsidiaries is a party or to which any
of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Mercury's Common Stock is listed and traded on the AMEX under the
Symbol "MAX". The table below sets forth, for the quarterly periods indicated,
the high and low closing sale prices per share of Common Stock. All per share
stock price information has been adjusted to reflect the June 16, 1995 ten
percent stock dividend.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
FISCAL 1994:
Quarter ended September 30, 1993............................... $3.41 $2.44
Quarter ended December 31, 1993................................ 3.64 2.78
Quarter ended March 31, 1994................................... 5.80 3.30
Quarter ended June 30, 1994.................................... 5.45 3.98
FISCAL 1995:
Quarter ended September 30, 1994............................... $6.36 $4.77
Quarter ended December 31, 1994................................ 7.05 5.00
Quarter ended March 31, 1995................................... 8.98 6.25
Quarter ended June 30, 1995.................................... 8.41 7.05
</TABLE>
As of September 21, 1995, there were approximately 499 holders of record.
In December 1994, Mercury's Board of Directors adopted a quarterly dividend plan
of $.01 per common share in cash. The first such dividend was paid on February
1, 1995. Based upon the current number of shares of Common Stock outstanding and
assuming the quarterly amount of $.01 per share remains in effect, annual
dividend requirements will amount to approximately $220,000. Mercury intends to
review its dividend policy from time to time in light of Mercury's earnings,
financial condition and other relevant factors, including applicable covenants
in debt and other agreements. In this regard, as discussed in Note 9 of Notes to
Consolidated Financial Statements, certain of Mercury's loan agreements provide
for the maintenance of specified levels of working capital as well as
limitations on cash dividends.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for each of the five years
ended June 30 have been derived from the audited consolidated financial
statements of Mercury. The information set forth below should be read in
conjunction with the consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993 1992 1991
-------- -------- ------- ------- -------
OPERATING DATA
--------------
<S> <C> <C> <C> <C> <C>
REVENUES (1) $183,000 $103,069 $84,543 $71,746 $73,498
COSTS AND EXPENSES 166,427 90,404 75,640 65,254 65,589
OPERATING INCOME 16,573 12,665 8,903 6,492 7,909
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,363 4,261 3,879 3,731 3,435
DEPRECIATION AND AMORTIZATION 2,409 2,049 1,680 1,349 1,472
INTEREST EXPENSE 1,478 1,080 1,084 898 1,309
OTHER EXPENSE (INCOME) (2) 11 106 (1,103) (102) 59
INCOME BEFORE INCOME TAXES 7,312 5,169 3,363 616 1,634
PROVISION FOR INCOME TAXES 3,005 2,174 1,413 257 690
NET INCOME 4,307 2,995 1,950 359 944
NET INCOME PER COMMON SHARE
ON A FULLY DILUTED BASIS 0.76 0.59 0.39 0.01 0.38
WEIGHTED AVERAGE COMMON
OUTSTANDING SHARES 5,420,158 3,719,884 2,431,549 2,394,151 2,377,821
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA AT JUNE 30,
------------------ ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS $54,210 $35,442 $31,800 $26,090 $22,370
SHORT-TERM DEBT (INCLUDING
CURRENT PORTION OF LONG-TERM
DEBT) 2,607 2,317 1,654 1,242 1,922
LONG-TERM DEBT AND REDEEMABLE
PREFERRED STOCK 17,104 8,650 9,821 7,299 4,941
DIVIDENDS PER COMMON SHARE 0.02 0.00 0.00 0.00 0.00
</TABLE>
(1) Revenue consists of consolidated sales and revenues.
(2) Fiscal 1993 includes a pretax gain from legal judgment in the amount of
$1,060,000.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FISCAL 1995, 1994 AND 1993.
The following tables set forth, for the periods indicated, the revenues and
operating income for each of the Company's four operating units, as well as
selected other financial statement data.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------
($ in millions) 1995 1994 1993
% of Total % of Total % of Total
Amount Revenues Amount Revenues Amount Revenues
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Fuel Sales and Services (1) $ 141.8 77.5% $ 64.4 62.5% $ 52.9 62.5%
Cargo Operations 9.9 5.4% 7.0 6.8% 4.8 5.7%
Government Contract Services 15.6 8.5% 16.0 15.5% 12.4 14.7%
FBOs (1) 15.7 8.6% 15.7 15.2% 14.4 17.1%
-------- ----- -------- ----- ------- -----
Total Revenues $ 183.0 100.0% $ 103.1 100.0% $ 84.5 100.0%
======== ===== ======== ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
% of Unit % of Unit % of Unit
Amount Revenues Amount Revenues Amount Revenues
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Income:
Fuel Sales and Services (1) $ 6.9 4.9% $ 3.0 4.7% $ 2.2 4.3%
Cargo Operations 2.8 28.5% 2.7 38.4% 1.6 33.1%
Government Contract Services 4.2 26.7% 4.0 25.0% 3.2 25.8%
FBOs (1) 2.7 17.1% 3.0 18.9% 1.9 12.8%
------- ---- ------- ---- ------ ----
Total Operating Income $ 16.6 9.1% $ 12.7 12.3% $ 8.9 10.5%
======= ==== ======= ==== ====== ====
</TABLE>
<TABLE>
<CAPTION>
% of Total % of Total % of Total
Amount Revenues Amount Revenues Amount Revenues
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Selling, General and Administrative $ 5.4 2.9% $ 4.3 4.1% $ 3.9 4.6%
Depreciation and Amortization 2.4 1.3% 2.0 2.0% 1.7 2.0%
Interest Expense and Other 1.5 0.8% 1.2 1.2%
------- --- ------ --- ------ ----
Income before Income Taxes 7.3 4.0% 5.2 5.0% 3.4 4.0%
Provision for Income Taxes 3.0 1.6% 2.2 2.1% 1.4 1.7%
------- --- ------ --- ------ ----
Net Income $ 4.30 2.4% $ 3.0 2.9% $ 2.0 2.3%
======= === ====== === ====== ====
</TABLE>
(1) Amounts for fiscal 1993 and fiscal 1994 have been reclassified to conform
to the fiscal 1995 presentation.
15
<PAGE> 17
Fiscal Year Ended June 30, 1995 Compared to Fiscal Year Ended June 30, 1994
Revenue increased 77.6% to $183.0 million in fiscal 1995 from $103.1
million in fiscal 1994. Operating income increased 30.9% to $16.6 million in
fiscal 1995 from $12.7 million in fiscal 1994.
Revenues from fuel sales and services represented 77.5% of total
revenues in fiscal 1995 compared to 62.5% of total revenues in fiscal 1994.
Revenues from fuel sales and services in fiscal 1995 increased 120% to $141.8
million from $64.4 million in fiscal 1994. The increase in revenues from fuel
sales and services was primarily due to an increase in the number of gallons
sold as a result of the addition of a significant number of new accounts in
fiscal 1995. These new accounts were attributable in part to the opening of
sales offices in Houston and Miami in October 1994. Average fuel prices were
marginally higher in fiscal 1995 compared with fiscal 1994. Operating income
from fuel sales and services in fiscal 1995 increased 127.9% to $6.9 million
from $3.0 million in fiscal 1994. The increase in operating income from fuel
sales and services in fiscal 1995 compared to fiscal 1994 was attributable
primarily to an increase in fuel sales and, to a much lesser extent, a slight
improvement in per gallon margins. Revenues and operating income from fuel sales
and services include the activities of Mercury's contract fueling business, as
well as activities from a number of other commercial services including the
provision of certain refueling services, non-aviation fuel brokerage and other
services managed at LAX as part of Mercury's fuel sales and services operations.
Revenues from cargo operations in fiscal 1995 increased 41.8% to $9.9
million from $7.0 million in fiscal 1994. This increase was primarily due to a
general increase in the volume of business from existing accounts and the
addition of a new location in San Francisco. During the year, Mercury opened a
cargo operation in Miami; however, in March 1995, the operation was closed as a
result of the loss of a key employee. Operating income from cargo operations in
fiscal 1995 increased 5.5% to $2.8 million from $2.7 million in fiscal 1994. The
increase in operating income was significantly lower than the corresponding
revenue increase due to operating losses at the San Francisco and Miami
locations in fiscal 1995 and higher labor and other operating costs at LAX in
fiscal 1995 compared to fiscal 1994.
Revenues from government contract services in fiscal 1995 declined 2.6%
to $15.6 million from $16.0 million in fiscal 1994. Revenues from government
contract services in fiscal 1995 included $5.3 million from ten contracts, five
of which were terminated in fiscal 1995 and the balance of which are scheduled
for termination at the end of the first quarter or during the second quarter of
fiscal 1996. The decrease in revenues from governmental contract services in
fiscal 1995 compared to fiscal 1994 was primarily due to the contract
terminations during fiscal 1995, which terminations were only partially offset
by a new contract received in November 1994. Operating income from government
services in fiscal 1995 increased 4.1% to $4.2 million from $4.0 million in
fiscal 1994 due to lower operating expenses. Operating income from government
services in fiscal 1995 included $1.4 million from the ten contracts described
above which have or will be terminated. Mercury does not anticipate significant
charge-offs associated with the contract terminations described above.
Revenues from FBOs remained relatively constant in fiscal 1995 at $15.7
million compared to fiscal 1994, but operating income declined 9.0% from $3.0
million in fiscal 1994 to $2.7 million in fiscal 1995. The decline was primarily
attributable to a reduction in the volume of fuel sold, as well as lower per
gallon margins.
16
<PAGE> 18
Selling, general and administrative expenses in fiscal 1995 increased
25.9% to $5.4 million from $4.3 million in fiscal 1994. The increase was
primarily due to an increase in the provision for bad debts. Provision for bad
debts increased to $905,000 in fiscal 1995 from $324,000 in fiscal 1994 due to a
significant increase in sales and accounts receivable. Excluding the provision
for bad debts, selling, general and administrative expenses in fiscal 1995
increased 13.2% to $4.5 million from $3.9 million in fiscal 1994, primarily due
to higher compensation expenses related to expansion of Mercury's business.
Depreciation and amortization expense in fiscal 1995 increased 17.6% to
$2.4 million from $2.0 million in fiscal 1994. The increase was primarily due to
$2.0 million of capital expenditures in fiscal 1995 and $5.0 million of capital
expenditures in fiscal 1994.
Interest expense in fiscal 1995 increased 36.9% to $1.5 million from
$1.1 million in fiscal 1994. The increase was due to higher interest rates and
significantly higher average outstanding bank borrowing in fiscal 1995 compared
to fiscal 1994. Interest income decreased in fiscal 1995 to $84,000 from
$140,000 in fiscal 1994 due to the declining principal balance of Mercury's
outstanding notes receivable.
Charges for minority interest in fiscal 1995 decreased to $95,000 from
$246,000 in fiscal 1994. The decrease was due to the acquisition of the
remaining minority interest's share of Mercury Air Cargo in November 1994. See
Note 4 of Notes to Consolidated Financial Statements.
Income tax expense approximated 41% of pre-tax income for fiscal 1995
and 42% for fiscal 1994, reflecting the expected effective annual tax rate.
Fiscal Year Ended June 30, 1994 Compared to the Fiscal Year Ended June 30, 1993
Consolidated revenues increased 21.9% to $103.1 million in fiscal 1994
from $84.5 million in fiscal 1993. Operating income increased 42.3% to $12.7
million in fiscal 1994 from $8.9 million in fiscal 1993.
Revenues from fuel sales and services represented 62.5% of total
revenues in both fiscal 1994 and fiscal 1993. Revenues from fuel sales and
services in fiscal 1994 increased 21.8% to $64.4 million from $52.9 million in
fiscal 1993. The increase in revenues from fuel sales and services was primarily
due to an increase in the number of gallons sold. On average, fuel prices were
approximately 13% lower in fiscal 1994 than during fiscal 1993. Operating income
from fuel sales and services in fiscal 1994 increased 34.4% to $3.0 million from
$2.2 million in fiscal 1993. The increase in operating income from fuel sales
and services in fiscal 1994 compared to fiscal 1993 was principally attributable
to the increase in fuel sales.
Revenues from cargo operations in fiscal 1994 increased 46.3% to $7.0
million from $4.8 million in fiscal 1993. This increase was primarily due to a
general increase in the volume of business from existing accounts and the
addition of one cargo handling account. Operating income from cargo operations
in fiscal 1994 increased 69.4% to $2.7 million from $1.6 million in fiscal 1993.
The increase in operating income was attributable to higher revenues.
17
<PAGE> 19
Revenues from government contract services in fiscal 1994 increased
28.7% to $16.0 million from $12.5 million in fiscal 1993 due in part to the
addition of two contracts, one in October 1992 and one in September 1993, and in
part due to increased add-ons to existing contracts. Operating income from
government services in fiscal 1994 increased 24.4% to $4.0 million from $3.2
million in fiscal 1993 primarily due to higher revenues.
Revenues from Mercury's FBOs in fiscal 1994 increased 8.3% to $15.7
million from $14.4 million in fiscal 1993 due to an increase in fuel sales and
service revenues. Operating income from Mercury's FBOs increased by 59.6% to
$3.0 million in fiscal 1994 from $1.9 million in fiscal 1993. The increase was
primarily attributable to higher margins from fuel sales and, to a lesser
extent, a greater quantity of fuel sales.
Selling, general and administrative expenses in fiscal 1994 increased
9.8% to $4.3 million from $3.9 million in fiscal 1993. Excluding the provision
for bad debts, selling, general and administrative expenses in fiscal 1994
increased 13.6% to $3.9 million from $3.5 million in fiscal 1993, primarily due
to higher compensation expense. Included in selling, general and administrative
expenses in fiscal 1994 is a $324,000 provision for bad debts compared to
$414,000 in fiscal 1993.
Depreciation and amortization expense in fiscal 1994 increased 21.9% to
$2.0 million from $1.7 million in fiscal 1993. The increase was primarily due to
$5.0 million of capital expenditures in fiscal 1994 and $4.0 million of capital
expenditures in fiscal 1993.
Interest expense remained relatively constant in fiscal 1994 at $1.1
million compared to fiscal 1993. Interest income decreased 18.1% in fiscal 1994
to $140,000 from $171,000 in fiscal 1993 due to the declining principal balance
of Mercury's outstanding notes receivable.
Charges for minority interest in fiscal 1994 increased to $246,000 from
$128,000 in fiscal 1993. The increase was due to significantly higher income
generated by Mercury Air Cargo, 20% of which was owned by a minority
shareholder.
Income tax expense approximated 42% of pre-tax income for fiscal 1994
and fiscal 1993, reflecting the expected effective annual tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Mercury has historically financed its operations primarily through
operating cash flow and borrowings under its revolving line of credit (the
"Revolver"). Mercury's cash balance at June 30, 1995 totaled $831,000.
Net cash used in operating activities totaled $5,581,000 during fiscal
1995. During this period, the primary source of net cash provided by operating
activities was net income plus depreciation and amortization totaling $6,716,000
and an increase in accounts payable of $6,078,000. The primary use of cash for
operating activities in fiscal 1995 was an increase in accounts receivable of
$16,105,000 and an increase in inventories of $2,332,000.
18
<PAGE> 20
Net cash provided by financing activities totaled $6,663,000 during
fiscal 1995. The primary source of cash from financing activities during this
period was borrowing under the Revolver of $10,118,000. The primary use of cash
in financing activities was the reduction in long term debt of $2,443,000 and
repurchases of common stock, including redemption by a subsidiary of a portion
of a minority stockholder's interest, totaling $1,925,000.
Mercury's Credit Facility consists of the Revolver and the Term Loan.
The Credit Facility is secured by substantially all of Mercury's assets. The
original principal balance of the Term Loan was $7,500,000, of which $4,752,000
was outstanding as of June 30, 1995. The Term Loan is amortized and paid on a
monthly basis and matures in August 1998. Pursuant to the Revolver, funds may be
obtained in an amount equal to the value of up to 85% of Mercury's eligible
receivables, as determined by the lender, up to an aggregate of $16,000,000 with
an initial term maturing in October 1997, subject to renewal by the parties. At
June 30, 1995, Mercury had approximately $10,118,000 of borrowing under the
Revolver and had approximately $3,000,000 of additional borrowing availability
based on the 85% of eligible receivables test. See Note 9 of Notes to
Consolidated Financial Statements.
During fiscal 1995, Mercury repurchased 236,300 shares of Common Stock
at a total cost of approximately $1,474,000. Management is currently authorized
by Mercury's board of directors and under Mercury's loan agreements to
repurchase up to an additional approximately $1,060,000 in Common Stock. During
fiscal 1995, Mercury received approximately $379,000 from the exercise of
Underwriter Warrants and stock options which resulted in the issuance of 128,532
shares of Common Stock. Subsequent to June 30, 1995, the Company repurchased an
additional 155,420 shares of Common Stock at a cost of approximately $820,000.
Historically, the Company's capital expenditure requirements have been
related to refueling and ground handling equipment for both commercial and
government service operations. In fiscal 1994, the Company spent approximately
$2,400,000 for equipment requirements related to new and existing contracts and
to purchase equipment previously held under noncancelable operating leases.
During fiscal 1994, the Company also acquired a 20,000 square foot building for
its headquarters at a cost of approximately $1,800,000. In addition, the Company
invested nearly $800,000 to acquire a leasehold interest at its Bakersfield FBO.
In fiscal 1995, the Company purchased a building in Colorado Springs at a cost
of $500,000 to relocate its government services headquarters. The Company also
invested nearly $700,000 for computer equipment and to remodel and furnish its
Los Angeles headquarters building. In addition, the Company spent approximately
$700,000 to purchase refueling and ground equipment for its commercial, FBO and
government service operations.
The Company's accounts receivable grew from $17,164,000 at June 30,
1994 to $33,269,000 at June 30, 1995, an increase of $16,105,000 with an
increase in accounts payable during the same period of only $6,078,000 to
$12,998,000 at June 30, 1995 from $6,920,000 at June 30, 1994. Accounts
receivable days outstanding for the quarter ended June 30, 1994 was 64 days
compared to 61 days for the quarter ended June 30, 1995 based upon consolidated
revenue for each period. Accounts receivable days outstanding are impacted by a
high volume of fuel brokerage which is reported in revenues on a net margin
basis and a high concentration of fuel sales to customers with extended payment
terms. Allowance for doubtful accounts increased to $610,000 at June 30, 1995
from $508,000 at June 30, 1994.
19
<PAGE> 21
Absent a major prolonged surge in oil prices or a capital intensive
acquisition, the Company believes its operating cash flow, Revolver and vendor
credit will provide it with sufficient liquidity during the next twelve months.
In the event that fuel prices increase significantly for an extended period of
time, the Company's liquidity could be adversely affected unless the Company is
able to increase vendor credit or increase lending limits under its revolving
credit facility. The Company believes, however, its Revolver and vendor credit
should provide it with sufficient liquidity in the event of a major temporary
surge in oil prices.
Inflation
The Company believes that inflation has not had a significant effect on
its results of operations during the past three fiscal years.
Item 8. Financial Statements and Supplementary Data.
See Part IV, Item 14, pages F1 through F17 immediately following.
Item 9. Accounting and Financial Disclosure Disputes
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Reference is made to the information set forth under the caption
"Election of Directors" of the Company's Proxy Statement for the annual meeting
scheduled for December 4, 1995 (the "Proxy Statement") for a description of the
directors and executive officers of the Company, which information is
incorporated herein by reference.
Item 11. Executive Compensation.
Reference is made to the information set forth under the caption
"Executive Compensation" of the Proxy Statement, which information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Reference is made to the table, including the footnotes thereto, set
forth under the caption "Election of Directors" of the Proxy Statement, for
certain information respecting ownership of stock of the Company by management
and certain shareholders, which table and footnotes are incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
Reference is made to the information set forth under the caption
"Certain Transactions" of the Proxy Statement for certain information with
respect to relationships and related transactions, which information is
incorporated herein by reference.
20
<PAGE> 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K:
<TABLE>
<S> <C>
(a)(1) Financial Statements
Independent Auditors' Report.......................................................................... F-1
Consolidated Balance Sheets as of June 30, 1995 and 1994.............................................. F-2
Consolidated Statements of Income for each of the three
years in the period ended June 30, 1995............................................................. F-3
Consolidated Statements of Cash Flows for each of the three
years in the period ended June 30, 1995............................................................. F-4
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended June 30, 1995................................................ F-5
Notes to Consolidated Financial Statements for the three
years ended June 30, 1995........................................................................... F-6 to F-16
(a)(2) Supplemental Schedule for each of the three years in the period ended June 30, 1995:
Schedule II - Valuation and Qualifying Accounts....................................................... F-17
</TABLE>
All other items are not included in this Form 10-K for the reason that
they are not applicable or are included in the information as set forth in the
Consolidated Financial Statements or in the Notes to Consolidated Financial
Statements.
21
<PAGE> 23
(a) (3) Exhibits:
Exhibit
No. Description
3.1 Restated Certificate of Incorporation (4)
3.2 Form of Amendment to Restated Certificate of Incorporation creating
the Series A 8% Convertible Cumulative Redeemable
Preferred Stock (4)
3.3 Form of Amendment to Restated Certificate of Incorporation declaring
the Separation Date for the Series A 8% Convertible
Redeemable Preferred Stock (6)
3.4 Bylaws of the Company (4)
3.5 Amendment to Bylaws of the Company
10.1 Underwriter's Unit Warrant dated June 18, 1991 issued to Emanuel and
Company by the Company (4)
10.2 Employment Agreement dated December 10, 1993 between the Company and
Seymour Kahn (10)
10.3 Loan and Security Agreements among the Company, Maytag Aircraft
Corporation and Marine Midland Business Loans, Inc. dated
December 6, 1989 (2)
10.4 Stock Purchase Agreement between the Company, SK Acquisition, Inc.,
Randolph E. Ajer, Kevin J. Walsh, Grant Murray and Joseph Czyzyk (2)
10.5 Company's 1990 Long-Term Incentive Plan (7)
10.6 Company's 1990 Directors Stock Option Plan (1)
10.7 Lease for 6851 West Imperial Highway, Los Angeles, California (4)
10.8 Amendment to Loan Agreement and Security Agreement among the Company,
Maytag Aircraft Corporation and Marine Midland Business Loans, Inc.
dated October 2, 1990 (4)
10.9 Second Amendment to Loan and Security Agreement among the Company,
Maytag Aircraft Corporation and Marine Midland Business Loans, Inc.
dated April 18, 1991 (4)
10.10 Third Amendment to Loan and Security Agreement among the Company,
Maytag Aircraft Corporation and Marine Midland Business Loans, Inc.
dated June 1991 (5)
10.11 Amendment to Loan and Security Agreements and Term Notes dated as of
April 1, 1992 among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc. dated April 1, 1992(6)
10.12 Amendment to Loan and Security Agreements and Term Notes dated as of
April 1, 1992 among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc. (8)
10.13 Amendment to Loan and Security Agreements and Term Notes dated as of
December 21, 1992 among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc. (9)
10.14 Amendment to Loan and Security Agreements and Term Notes dated as of
August 30, 1993 among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc. (9)
22
<PAGE> 24
10.15 Memorandum Dated September 15, 1995 regarding Summary of Officer Life
Insurance Policies with Benefits Payable to Officers or Their
Designated Beneficiaries
10.16 Memorandum dated September 15, 1995 regarding Summary of Bonus Plans
for Seymour Kahn, Joseph Czyzyk and Randolph E. Ajer
10.17 Memorandum dated September 15, 1995 regarding Summary of Bonus Plans
for Kevin Walsh and William Silva
10.18 The Company's 401(k) Plan consisting of LCI Actuaries, Inc. Regional
Prototype Defined Contribution Plan and Trust and Adoption
Agreement (9)
10.19 Amendment to Loan and Security Agreements and Term Notes dated as of
September 21, 1993 among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc. (9)
10.20 Non-Qualified Stock Option Agreement by and between the Company and
Seymour Kahn dated January 21, 1993 (9)
10.21 Non-Qualified Stock Option Agreement by and between the Company and
William G. Langton dated August 9, 1993(9)
10.22 Stock Purchase Agreement among the Company, SK Acquisition, Inc. and
William L. Silva dated as of August 9, 1993 (10)
10.23 Amendment to Loan and Security Agreements and Term Notes dated as of
September 21, 1993 among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc.(10)
10.24 Amendment to Loan and Security Agreements and Term Notes dated as of
April 1, 1994 among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc. (10)
10.25 Stock Exchange Agreement dated as of November 15, 1994 between Joseph
Czyzyk and the Company (11)
10.26 Employment Agreement dated November 15, 1995 between the Company and
Joseph Czyzyk (12)
10.27 Amendment to Loan and Security Agreements and Term Notes dated as of
December 20, 1994 among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc. (12)
10.28 Amendment to Loan and Security Agreements and Term Notes dated as of
December 17, 1994 among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc. (12)
10.29 Amendment to Loan and Security Agreements and Term Notes dated as of
June 12, 1995 among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc.
10.30 Loan and Security Agreement dated as of June 12, 1995 between Mercury
Air Cargo, Inc. and Marine Midland Business Loans, Inc.
10.31 Agreement dated August 1, 1995 between Mercury Air Group, Inc. and
Grant Murray
11.1 Computation of Earnings Per Share (3)
22.1 Subsidiaries of Registrant
23
<PAGE> 25
23.1 Consent of Deloitte & Touche with respect to incorporation of their
report on the audited financial statements contained in this Annual
Report on Form 10-K in the Company's Registration Statement on Form
S-3 (Registration No. 33-346568) and the Company's Registration
Statement on Form S-8 (Registration Statement No. 33-69414)
- ---------------------------------
(1) Such document was previously filed as Appendix A to the Company's Proxy
Statement for the December 10, 1993 Annual Meeting of Shareholders and is
incorporated herein by reference.
(2) Such document was previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated December 6, 1989 and is incorporated herein by
reference.
(3) Such statement is included in Note 14 of Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K and is incorporated
herein by reference.
(4) All such documents were previously filed as Exhibits to the Company's
Registration Statement No. 33-39044 on Form S-2 and are incorporated herein
by reference.
(5) Such document was previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the year ended June 30, 1991 and is incorporated
herein by reference.
(6) All such documents were previously filed as Exhibits to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 and are
incorporated herein by reference.
(7) Such document was previously filed as Appendix A to the Company's Proxy
Statement for the December 2, 1992 Annual Meeting of Shareholders.
(8) Such document was previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the year ended June 30, 1992 and is incorporated
herein by reference.
(9) All such documents were previously filed as Exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1993 and are
incorporated herein by reference.
(10) All such documents were previously filed as Exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994 and are
24
<PAGE> 26
incorporated herein by reference.
(11) Such document was previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated November 15, 1995 and is incorporated herein by
reference.
(12) All such documents were previously filed as Exhibits to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1995 and
are incorporated herein by reference.
(b) Reports on Form 8-K:
None.
(c) Identification of management contracts and compensatory plans and
arrangements:
Exhibits 10.2, 10.4, 10.5, 10.6, 10.15, 10.16, 10.17, 10.18, 10.20, 10.21,
10.22, 10.26 and 10.31 constitute the management contracts and compensatory
plans and arrangements required to be filed as exhibits to this Annual Report on
Form 10-K. Such documents are either filed as exhibits to this Annual Report on
Form 10-K or were previously filed as exhibits to the filings indicated in the
notes to Item 14(a) and are incorporated herein by reference.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized in the City of Los
Angeles, State of California, on the 22nd day of September 1995.
MERCURY AIR GROUP, INC.
By: /s/ Seymour Kahn
_____________________
Seymour Kahn
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons in the capacities and on
the dates indicated:
Signatures
Principal Executive Officer:
/s/ SEYMOUR KAHN Dated: September 22, 1995
______________________________
Seymour Kahn
Chief Executive Officer and Director
Principal Chief Operating Officer and Director:
/s/ JOSEPH CZYZYK Dated: September 22, 1995
______________________________
Joseph Czyzyk
Chief Operating Officer and Director
Principal Financial and Accounting Officer:
/s/ RANDOLPH E. AJER Dated: September 22, 1995
______________________________
Randolph E. Ajer
Executive Vice President
Secretary and Treasurer
Additional Directors:
/s/ ROBERT L. LIST Dated: September 22, 1995
______________________________
Robert L. List
Director
/s/ PHILIP J. FAGAN, JR., M.D. Dated: September 22, 1995
______________________________
Philip J. Fagan, Jr., M.D.
Director
/s/ WILLIAM G. LANGTON Dated: September 22, 1995
______________________________
William G. Langton
Director
/s/ FREDERICK H. KOPKO, JR. Dated: September 22, 1995
______________________________
Frederick H. Kopko, Jr.
Director
26
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mercury Air Group, Inc.
Los Angeles, California
We have audited the accompanying consolidated balance sheets of Mercury Air
Group, Inc. and subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1995. Our audits also included
the financial statement schedule listed in the Index at Item 14. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Mercury Air Group, Inc. and
subsidiaries as of June 30, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1995 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
September 15, 1995
<PAGE> 29
PART I - FINANCIAL INFORMATION
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JUNE 30 JUNE 30
1995 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 831,000 $ 1,770,000
Trade accounts receivable, net of allowance for doubtful
accounts of $610,000 at 6/30/95 and $508,000 at 6/30/94(Note 9) 33,269,000 17,164,000
Notes receivable - current portion 50,000 185,000
Inventories (Notes 3 and 9) 3,283,000 951,000
Prepaid expenses and other current assets 1,822,000 1,297,000
------------ ------------
Total current assets 39,255,000 21,367,000
PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated
depreciation and amortization of $20,391,000 at 6/30/95 and
$18,277,000 at 6/30/94(Notes 5 and 9) 12,219,000 12,570,000
NOTES RECEIVABLE, net of current portion 136,000 186,000
OTHER ASSETS (Note 6) 2,600,000 1,319,000
------------ ------------
$ 54,210,000 $ 35,442,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,998,000 $ 6,920,000
Accrued expenses and other current liabilities (Note 7) 3,008,000 2,078,000
Income taxes payable (Note 8) 114,000 699,000
Current portion of long-term debt (Note 9) 2,607,000 2,317,000
------------ ------------
Total current liabilities 18,727,000 12,014,000
LONG-TERM DEBT (Note 9) 17,104,000 8,650,000
DEFERRED INCOME TAXES (Note 8) 8,000 218,000
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY(Note 4) 0 924,000
------------ ------------
Total liabilities 35,839,000 21,806,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY (Notes 9, 10 and 11):
Preferred Stock - $.01 par value; authorized 3,000,000 shares;
no shares outstanding
Common Stock - $ .01 par value; authorized 9,000,000 shares;
outstanding 5,524,257 shares 6/30/95;
outstanding 4,905,779 shares 6/30/94 55,000 49,000
Additional Paid-in Capital 14,992,000 9,187,000
Retained Earnings 3,479,000 4,555,000
Treasury Stock - 35,200 shares of common stock 6/30/95;
32,000 shares of common stock 6/30/94 (155,000) (155,000)
------------ ------------
Total stockholders' equity 18,371,000 13,636,000
------------ ------------
$ 54,210,000 $ 35,442,000
============ ============
</TABLE>
F-2
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 30
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended June 30
-------------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Sales and Revenues (Note 13):
Sales $ 145,166,000 $ 68,991,000 $ 57,186,000
Service revenues 37,834,000 34,078,000 27,357,000
------------- ------------- -------------
183,000,000 103,069,000 84,543,000
------------- ------------- -------------
Costs and Expenses:
Cost of sales 132,838,000 61,060,000 50,804,000
Operating expenses 33,589,000 29,344,000 24,836,000
------------- ------------- -------------
166,427,000 90,404,000 75,640,000
------------- ------------- -------------
Operating Income 16,573,000 12,665,000 8,903,000
------------- ------------- -------------
Other Expenses (Income):
Selling, general and administrative (Note 6) 5,363,000 4,261,000 3,879,000
Depreciation and amortization 2,409,000 2,049,000 1,680,000
Interest expense 1,478,000 1,080,000 1,084,000
Interest income (84,000) (140,000) (171,000)
Minority interest (Note 4) 95,000 246,000 128,000
Gain-legal judgement (Note 2) (1,060,000)
------------- ------------- -------------
9,261,000 7,496,000 5,540,000
------------- ------------- -------------
Income Before Income Taxes 7,312,000 5,169,000 3,363,000
Provision for Income Taxes (Note 8) 3,005,000 2,174,000 1,413,000
------------- ------------- -------------
Net Income $ 4,307,000 $ 2,995,000 $ 1,950,000
============= ============= =============
Net Income applicable to Common Stock $ 4,307,000 $ 2,920,000 $ 1,496,000
============= ============= =============
Net Income Per Common Share and
Common Equivalent Share (Primary) (Note 14) $ 0.76 $ 0.75 $ 0.62
============= ============= =============
Net Income Per Common Share-Assuming
Full Dilution (Note 14) $ 0.76 $ 0.59 $ 0.39
============= ============= =============
Weighted Average Number of Shares of
Common Stock (Note 14) 5,420,158 3,719,884 2,431,549
============= ============= =============
</TABLE>
F-3
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 31
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended June 30
----------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,307,000 $ 2,995,000 $ 1,950,000
Adjustments to derive cash flow from
operating activities:
Depreciation and amortization 2,409,000 2,049,000 1,680,000
Minority interest 95,000 246,000 128,000
Amortization of officers' loans 140,000 154,000 154,000
Increase (decrease) in deferred income taxes (210,000) (651,000) 229,000
Changes in operating assets and liabilities:
Trade and other accounts receivable (16,105,000) (474,000) (3,929,000)
Inventories (2,332,000) (103,000) 84,000
Prepaid expenses and other current assets (525,000) (304,000) 398,000
Accounts payable 6,078,000 150,000 459,000
Income taxes payable (368,000) 348,000 351,000
Accrued expenses and other current liabilities 930,000 (43,000) 162,000
------------ ------------ ------------
Net cash provided by (used in) operating activities (5,581,000) 4,367,000 1,666,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment 300,000
Decrease in notes receivable 185,000 677,000 261,000
Addition to other assets (632,000) (259,000) (265,000)
Additions to property, equipment and leaseholds (1,574,000) (1,933,000) (2,538,000)
------------ ------------ ------------
Net cash used in investing activities (2,021,000) (1,215,000) (2,542,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividend on common stock (100,000)
Proceeds from long-term debt 10,752,000 2,876,000 3,461,000
Reduction of long-term debt (2,443,000) (5,902,000) (1,952,000)
Payment of dividend on preferred stock (75,000) (454,000)
Issuance of common stock 379,000 3,097,000
Repurchase and retire preferred and common stock and warrants (1,475,000) (1,917,000) (50,000)
Redemption by subsidiary of common stock
owned by minority shareholder (450,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities 6,663,000 (1,921,000) 1,005,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (939,000) 1,231,000 129,000
CASH AND CASH EQUIVALENTS, beginning of year 1,770,000 539,000 410,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 831,000 $ 1,770,000 $ 539,000
============ ============ ============
CASH PAID DURING THE YEAR:
Interest $ 1,478,000 $ 1,080,000 $ 1,084,000
Income taxes $ 3,607,000 $ 2,477,000 $ 645,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Direct financing for purchase of equipment and property $ 435,000 $ 2,518,000 $ 1,425,000
Cancellation of a note receivable and other assets as
consideration for the purchase of leasehold property $ 540,000
Issuance of 225,000 common shares in exchange for
the remaining minority interest of Mercury Air Cargo, Inc. $ 1,406,000
</TABLE>
F-4
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 32
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK
---------------------------------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30,1992 575,000 $ 6,000 2,206,191 $ 22,000 $ 7,049,000 $1,167,000
Net income 1,950,000
Series A Preferred Stock converted
into Common Stock (12,002) 48,008
Cash Dividend on Series A Preferred Stock (454,000)
Repurchase and retire Preferred Stock (4,000) (32,000) (17,000)
-------------------------------------------------------------------------
BALANCE, JUNE 30, 1993 558,998 6,000 2,254,199 22,000 7,017,000 2,646,000
Net income 2,995,000
Cash Dividend on Series A Preferred Stock (75,000)
Repurchase and retire Preferred Stock (80,256) (1,000) (640,000) (475,000)
Series A Preferred Stock converted into
Common Stock (478,742) (5,000) 1,914,968 19,000 (14,000)
Repurchase and retire Common Stock (169,200) (1,000) (264,000) (536,000)
Common Stock issued on exercise of
warrants and options 905,812 9,000 3,088,000
-------------------------------------------------------------------------
BALANCE, JUNE 30, 1994 0 0 4,905,779 49,000 9,187,000 4,555,000
Net income 4,307,000
Cash Dividend on Common Stock (100,000)
Repurchase and retire Common Stock (236,300) (2,000) (450,000) (1,022,000)
Common Stock issued on exercise of
warrants and options 128,532 1,000 378,000
Tax benefit from exercise of stock options 217,000
Common stock issued in exchange
for the remaining minority interest of Mercury
Air Cargo, Inc. 225,000 2,000 1,404,000
Issue 10% stock dividend 501,246 5,000 4,256,000 (4,261,000)
-------------------------------------------------------------------------
BALANCE, JUNE 30, 1995 0 $ 0 5,524,257 $ 55,000 $14,992,000 $3,479,000
=========================================================================
<CAPTION>
COMMON STOCK
IN TREASURY
--------------------
NUMBER OF
SHARES AMOUNT
--------------------
<S> <C> <C>
BALANCE, JUNE 30,1992 32,000 ($ 155,000)
Net income
Series A Preferred Stock converted
into Common Stock
Cash Dividend on Series A Preferred Stock
Repurchase and retire Preferred Stock
--------------------
BALANCE, JUNE 30, 1993 32,000 (155,000)
Net income
Cash Dividend on Series A Preferred Stock
Repurchase and retire Preferred Stock
Series A Preferred Stock converted into
Common Stock
Repurchase and retire Common Stock
Common Stock issued on exercise of
warrants and options
--------------------
BALANCE, JUNE 30, 1994 32,000 (155,000)
Net income
Cash Dividend on Common Stock
Repurchase and retire Common Stock
Common Stock issued on exercise of
warrants and options
Tax benefit from exercise of stock options
Common stock issued in exchange
for the remaining minority interest of Mercury
Air Cargo, Inc.
Issue 10% stock dividend 3,200
--------------------
BALANCE, JUNE 30, 1995 35,200 ($ 155,000)
====================
</TABLE>
F-5
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 33
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1995
Note 1 - Summary of Significant Accounting Policies:
Business
Mercury Air Group, Inc. and subsidiaries (the "Company") are principally
engaged in the conduct of cargo handling, cargo general sales agency and
air cargo space brokerage, and the sale and delivery of aviation fuels to
commercial, air courier and commuter airlines, and to general aviation
aircraft. The Company also provides ground support services to U.S.
military aircraft.
Principles of Consolidation
The consolidated financial statements include the accounts of Mercury Air
Group, Inc.,and its subsidiaries. All material intercompany transactions
and balances have been eliminated.
Cash and Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments that are
readily convertible into cash and were purchased with maturities of three
months or less.
Inventories
Inventory amounts are stated at the lower of aggregate cost (first-in,
first-out method) or market.
Property, Equipment and Leaseholds
Property, equipment and leaseholds are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful life of
the asset (3-25 years) and over the lease life or useful life for leasehold
improvements, whichever is less.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired arose in the acquisitions of Maytag
Aircraft Corporation, a wholly-owned subsidiary, in 1984 and the minority
interest in Mercury Air Cargo, Inc. in November 1994. Such costs are being
amortized on the straight-line method over 40 years. The Company assesses
recoverability on a periodic basis. Factors included in evaluating
recoverability include historical earnings and projected future earnings of
the operations.
Revenue Recognition
Revenues are recognized upon delivery of product or completion of the
service. The Company's contracts with the U.S. Government are subject to
profit renegotiation. The Company has not been required to adjust profits
arising out of U.S. Government contracts to date.
F-6
<PAGE> 34
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1995
Income Taxes
Deferred tax assets and liabilities are recognized based on differences
between financial statement and tax basis of assets and liabilities using
presently enacted tax rates.
Income Per Share
Per share data is based on the weighted average number of shares
outstanding, after giving effect to the cumulative dividend on cumulative
preferred stock, and common stock equivalents, excluding those common stock
equivalents that would increase the income per share.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
receivable and payable, and debt instruments. The book values of all
financial instruments, other than debt instruments, are representative of
their fair values due to their short-term maturity. The book values of the
Company's debt instruments are considered to approximate their fair values
because the interest rates of these instruments are based on current rates
offered to the Company.
Note 2 - Gain-Legal Judgement:
The Company recorded a pretax gain of $1,060,000 in fiscal 1993 related to
a recovery obtained from a legal judgement which arose following the
bankruptcy of a former significant customer.
Note 3 - Inventories:
<TABLE>
<CAPTION>
June 30
-------
Inventories consist of the following: 1995 1994
---------- --------
<S> <C> <C>
Aviation fuel $3,166,000 $757,000
Supplies and parts 117,000 194,000
---------- --------
$3,283,000 $951,000
========== ========
</TABLE>
Note 4 - Related Party Transactions:
Twenty percent of Mercury Air Cargo, Inc. ("MAC"), a subsidiary of the
Company, was owned by a company which is wholly-owned by an executive
officer of Mercury Air Group, Inc. The minority interest share in the net
income of MAC resulting from this ownership amounted to $95,000 (1995),
$246,000 (1994) and $128,000 (1993). In November 1994, the Company acquired
the remaining minority interest from the executive officer. The transaction
included a redemption of 5% in exchange for $450,000 in cash and
acquisition of the remaining 15% through the issuance of 247,500 common
shares (after adjustment for the 10% stock dividend) valued at $1,406,000
($5.68 per share) for a total consideration of $1,856,000. The acquisition
of the minority interest has been accounted for as a purchase and,
accordingly, the excess of the cost over the book value ($1,019,000) of the
shares acquired is included in other assets in the accompanying
consolidated balance sheet at June 30, 1995 (See note 6).
F-7
<PAGE> 35
MERCURY AIR GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1995
Note 5 - Property, Equipment and Leaseholds:
Property, equipment and leaseholds consist of the following:
<TABLE>
<CAPTION>
June 30
-------
1995 1994
----------- -----------
<S> <C> <C>
Land, buildings and leasehold improvements $16,187,000 $ 15,230,000
Equipment, furniture and fixtures 16,391,000 15,509,000
Construction in progress 32,000 108,000
----------- ------------
32,610,000 30,847,000
Less accumulated depreciation and amortization (20,391,000) (18,277,000)
----------- ------------
$12,219,000 $ 12,570,000
=========== ============
</TABLE>
Note 6 - Other Assets:
Other assets consist of the following:
<TABLE>
<CAPTION>
June 30
-------
1995 1994
---------- ----------
<S> <C> <C>
Cost in excess of net assets acquired $1,466,000 $ 665,000
Deferred lease cost 26,000 38,000
Other assets 698,000 404,000
Loans to officers 410,000 212,000
---------- ----------
$2,600,000 $1,319,000
========== ==========
</TABLE>
Cost in excess of net assets acquired includes $823,000 which arose from
the Company's acquisition of the outstanding minority interest in MAC in
November 1994. (See note 4)
In 1991, four executive officers of the Company each agreed to purchase
110,000 (after adjustment for the 10% stock dividend) shares of the
Company's stock from a company owned by the Chairman and Chief Executive
Officer at $2.73 per share pursuant to a Stock Purchase Agreement
("Agreement"). The officers each paid $30,000 in cash, or $120,000, with
the remaining aggregate purchase price of $1,080,000 to be paid over a five
year period ending in 1996. As part of the Agreement to purchase the stock,
the Company agreed to loan the executives the $1,080,000 in quarterly
installments. Beginning in 1994, one fifth of the amount ultimately to be
loaned will be forgiven each year over a five year period ending in 1998
provided each of the officers remains in the employ of the Company.
In 1994, a fifth executive officer of the Company purchased 110,000 shares
(after adjustment for the 10% stock dividend) of the Company's stock from a
company owned by the Chairman and Chief Executive Officer at $2.73 per
share pursuant to a Stock Purchase Agreement similar to the agreements
above. The officer paid $30,000 in cash with the remaining purchase price
of $270,000 to be paid over a five year period ending in 1998.
F-8
<PAGE> 36
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1995
The Company agreed to loan the executive the $270,000 in quarterly
installments. Beginning in 1996, one fifth of the amount to be loaned, or
$54,000, will be forgiven each year over a five year period ending in 2000
provided the officer remains in the employ of the Company.
For accounting purposes, the amounts subject to forgiveness of $1,080,000
and $270,000 are being treated as additional compensation over the seven
year period from the date of the Agreements through 1998 and 2000,
respectively. The loans to officers are increased by actual amounts
advanced by the Company and are decreased annually, by one-seventh of the
amount to be forgiven, or approximately $154,000 through fiscal 1994 and
$140,000 in 1995. In July 1995, one of the executive officers resigned
resulting in the elimination of any future forgiveness with respect to that
officers loan. In August 1995, the Company repurchased this officers stock
for $453,000, less the balance outstanding on the loan.
Note 7 - Accrued Expenses and Other Current Liabilities:
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
June 30
-------
1995 1994
---------- ----------
<S> <C> <C>
Salaries and wages $1,918,000 $1,393,000
Other 1,090,000 685,000
---------- ----------
$3,008,000 $2,078,000
========== ==========
</TABLE>
Note 8 - Income Taxes:
The provision for taxes on income from continuing operations consists of
the following:
<TABLE>
<CAPTION>
Year ended June 30
------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Federal, current $2,565,000 $2,262,000 $ 944,000
State, current 650,000 563,000 240,000
---------- ---------- ----------
3,215,000 2,825,000 1,184,000
Deferred, primarily federal (210,000) (651,000) 229,000
---------- ---------- ----------
Net provision $3,005,000 $2,174,000 $1,413,000
========== ========== ==========
</TABLE>
Deferred taxes arise from the recognition of certain items of revenue and
expense for tax purposes in years different from those in which they are
recognized in the financial statements.
F-9
<PAGE> 37
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1995
Major components of deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
June 30
-------
1995 1994
---- ----
<S> <C> <C>
Depreciation/Amortization $150,000 $337,000
Deferred and Prepaid Expenses 275,000 258,000
State Income Taxes (209,000) (191,000)
Allowance for doubtful accounts (244,000) (186,000)
Miscellaneous 36,000
-------- --------
$ 8,000 $218,000
======== ========
</TABLE>
The components of the deferred tax provision prior to the adoption of SFAS 109
consisted of:
<TABLE>
<CAPTION>
Year ended June 30
------------------
1993
--------
<S> <C>
Excess of book over tax depreciation $ (57,000)
Allowance for bad debts 96,000
Deferred expenses (79,000)
Amortization of officers loans (62,000)
Gain - legal judgement 445,000
State income taxes and miscellaneous (114,000)
--------
$ 229,000
=========
</TABLE>
The reconciliation of the federal statutory rate to the Company's effective
tax rate on income is summarized as follows:
<TABLE>
<CAPTION>
Year ended June 30
------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax rate 34% 34% 34%
State income taxes, net of
federal income tax benefit 6 6 6
Other 1 2 2
-- -- --
Effective rate 41% 42% 42%
== == ==
</TABLE>
F-10
<PAGE> 38
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1995
Note 9 - Long-term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30
-------
1995 1994
----------- -----------
<S> <C> <C>
Notes payable to banks $14,870,000 $ 6,251,000
Installment notes, payable to financial
institutions in monthly installments
aggregating approximately $70,000 at
June 30, 1995 including interest from
7.23% to 11.85%, collateralized by
certain assets of the Company and
maturing from 1995 through 1999. 2,075,000 2,288,000
Mortgage payable to financial institution
in monthly principal installments of
$9,750 plus interest at 7.5% per annum,
collateralized by land and building,
maturing in April 2004. 1,034,000 1,151,000
Mortgage payable to financial institution in
monthly installments of $4,447 including
interest at 9% per annum, collateralized by
land and building, maturing in May 2010. 434,000 --
Note payable to seller of assets and
leasehold at Bakersfield, California
due in December 2004, interest at prime
(9.00% at June 30, 1995), collateralized
by property acquired, which is principally
a leasehold. 1,017,000 1,093,000
Note payable to seller of assets and
leasehold at Bakersfield, California
due in November 1997, interest at 10%. 126,000 169,000
Other 155,000 15,000
----------- -----------
19,711,000 10,967,000
Less current portion 2,607,000 2,317,000
----------- -----------
$17,104,000 $ 8,650,000
=========== ===========
</TABLE>
F-11
<PAGE> 39
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1995
Notes payable to banks at June 30, 1995 consists of a term loan in the
amount of $4,752,000, which is payable in monthly payments of approximately
$125,000 plus interest at prime plus 3/4% or LIBOR + 2 1/4% and is
scheduled to mature in August 1998. At June 30, 1995 the Company also has a
revolving credit line that matures in October 1997, bears interest at prime
plus 1/2% or LIBOR + 2% and permits borrowing of up to $16,000,000 subject
to available eligible collateral. At June 30, 1995, there was approximately
$10,118,000 in outstanding borrowings. The term loan and line of credit are
collateralized by substantially all of the Company's assets.
Certain debt agreements contain provisions that require: the maintenance of
certain financial ratios, minimum tangible net worth (as defined) and
minimum working capital levels and limit payments of dividends on common
stock to $250,000 annually, annual capital expenditures and payments under
operating leases.
Long-term debt payable subsequent to June 30, 1995 is as follows:
<TABLE>
<S> <C>
1996 $ 2,607,000
1997 2,489,000
1998 12,277,000
1999 709,000
2000 249,000
Thereafter 1,380,000
---------
$19,711,000
===========
</TABLE>
Note 10 - Series A Preferred Stock:
During fiscal 1994, 478,742 shares of Series A Preferred Stock were
converted into 1,914,968 shares of Common Stock. Also in fiscal 1994, the
Company repurchased and/or redeemed 80,256 shares of Series A Preferred
Stock at a cost of $1,115,000. In addition, 660,320 Series A and Series B
Warrants were exercised resulting in proceeds of $2,400,000 and the
remaining 18,680 Series A and Series B Warrants were redeemed at a cost of
$.10 per Warrant. As a result of these transactions, there are no remaining
outstanding shares of Series A Preferred Stock or Series A and Series B
Warrants as of June 30,1994.
F-12
<PAGE> 40
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1995
Note 11 - Common Stock:
The Company has 9,000,000 authorized shares of common stock having a par
value of $0.01 per share.
The Company has reserved 639,300 shares of common stock of which 242,800
shares relate to the 1990 Long-Term Incentive Plan; 286,500 shares relate
to the 1990 Directors' Stock Option Plan and 110,000 shares relate to a
special option grant made outside the Company's option plans.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Director's
Long-Term Stock Option
Option Prices Incentive Plan Option Prices Plan
==================================================================
<S> <C> <C> <C> <C>
Outstanding July 1, 1992 2.25 - 3.38 135,000 1.875 - 3.00 60,000
Granted 2.125 135,000 2.125 30,000
Cancelled 2.25 - 3.38 (95,000)
------- -------
Outstanding June 30, 1993 2.125 - 3.38 175,000 1.875 - 3.00 90,000
Granted 3.688 25,000 3.688 40,000
Exercised 2.125 - 2.25 (32,500) 1.875 - 2.25 (13,000)
------- -------
Outstanding June 30, 1994 2.13 - 3.688 167,500 1.875 - 3.69 117,000
Granted 7.00 40,000
Exercised 2.125 - 2.25 (54,700) 2.125 - 3.00 (30,500)
------- -------
2.125 - 3.688 112,800 1.875 - 7.00 126,500
10% Stock Dividend 11,280 12,650
Outstanding June 30, 1995 1.93 - 3.35 124,080 1.70 - 6.36 139,150
======= =======
</TABLE>
At June 30, 1995, options to purchase 95,150 shares at prices ranging from
$1.70 to $3.35 are exercisable under the Director's Stock Option Plan. All
of the options outstanding under the Long-Term Incentive Plan are
exercisable.
On January 21, 1993, a special option grant for 110,000 shares at $2.12 was
made and is exercisable at June 30, 1995. On August 9, 1993 a special
option grant for 11,000 shares at $2.84 was made and such option was
exercised in March, 1995.
F-13
<PAGE> 41
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1995
The Company has also reserved 18,335 shares of common stock for issuance
upon exercise of outstanding underwriter warrants which have an exercise
price of $3.44 per share and an expiration date of June 1996. During fiscal
1995, 33,332 warrants were exercised.
All amounts have been restated to include the 10% stock dividend paid on
June 16, 1995.
Note 12 - Commitments and Contingencies:
Leases
The Company is obligated under noncancellable operating leases. Certain
leases include renewal clauses and require payment of real estate taxes,
insurance and other operating costs. Total rental expense on all such
leases for the fiscal years 1995, 1994 and 1993 was approximately
$2,502,000, $2,265,000 and $2,596,000, respectively, net of sublease income
of approximately $230,000 annually. The minimum annual rentals on all
noncancellable operating leases having a term of more than one year at June
30, 1995 are as follows:
<TABLE>
<S> <C>
1996 $1,836,000
1997 1,836,000
1998 1,815,000
1999 1,686,000
2000 707,000
Thereafter 1,198,000
---------
Total minimum payments required $9,078,000
==========
</TABLE>
Litigation
The Company is also a defendant in certain litigation arising in the normal
course of business. In the opinion of management, the ultimate resolution of
such litigation will not have a significant effect on the financial statements.
F-14
<PAGE> 42
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1995
Note 13 - Major Customers and Foreign Customers:
Revenues from the United States government amounted to approximately 9%,
16% and 15% for fiscal 1995, 1994 and 1993, respectively.
The Company does business with a number of foreign airlines, principally in
the sale of aviation fuels. For the most part, such sales are made within
the United States and utilize the same assets and generally the same
personnel as are utilized in the Company's domestic business. Revenues
related to these foreign airlines amounted to approximately 39%, 45% and
40% of consolidated revenues for the years ended June 30, 1995, 1994 and
1993, respectively.
Note 14 - Earnings Per Share:
Primary earnings per Common Share is computed by dividing net income
available to common stockholders, which gives effect to the cash portion of
the cumulative dividend on preferred stock, by the weighted average number
of common stock and common stock equivalents outstanding during the period.
Options granted to purchase 373,230 shares of common stock under the
Company's Long-Term Incentive Plan and Directors' Stock Option Plan at
exercise prices ranging from $1.70 to $6.36 were included as common stock
equivalents in fiscal 1995 for purposes of computing primary earnings per
share.
<TABLE>
<CAPTION>
Fully Diluted Primary
------------- ---------
<S> <C> <C>
Weighted average number of common shares
outstanding during the period 5,420,158 5,420,158
Common stock equivalents resulting from the
assumed excercise of stock options 250,016 235,577
------- -------
Weighted average number of common and
common equivalent shares outstanding
during the period 5,670,174 5,655,735
========= =========
</TABLE>
Weighted average outstanding shares and earnings per share have been
retroactively restated to include the 10% stock dividend paid on June 16,
1995 which amounted to the issuance of 501,246 shares.
F-15
<PAGE> 43
MERCURY AIR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STAEMENTS
THREE YEARS ENDED JUNE 30,1995
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
GROSS PROFIT EARNINGS PER SHARE
SALES AND (OPERATING FULLY
REVENUES INCOME) NET INCOME PRIMARY DILUTED
------------ ------------ ------------ -------- ---------
FISCAL YEAR JUNE 30, 1995
- -------------------------
<S> <C> <C> <C> <C> <C>
FIRST QUARTER $ 35,554,000 $ 3,851,000 $ 1,002,000 $ 0.18 $ 0.18
SECOND QUARTER 49,165,000 4,444,000 1,200,000 0.21 0.21
THIRD QUARTER 50,002,000 4,038,000 1,003,000 0.18 0.18
FOURTH QUARTER 48,279,000 4,240,000 1,102,000 0.19 0.19
------------ ------------ ------------ -------- --------
FISCAL YEAR JUNE 30, 1995 $183,000,000 $ 16,573,000 $ 4,307,000 $ 0.76 $ 0.76
============ ============ ============ ======== ========
FISCAL YEAR JUNE 30, 1994
- -------------------------
FIRST QUARTER $ 24,982,000 $ 2,715,000 $ 597,000 $ 0.19 $ 0.12
SECOND QUARTER 26,668,000 3,165,000 817,000 0.31 0.17
THIRD QUARTER 26,613,000 3,349,000 819,000 0.14 0.15
FOURTH QUARTER 24,806,000 3,436,000 762,000 0.11 0.15
------------ ------------ ------------ -------- --------
FISCAL YEAR JUNE 30, 1994 $103,069,000 $ 12,665,000 $ 2,995,000 $ 0.75 $ 0.59
============ ============ ============ ======== ========
</TABLE>
F-16
<PAGE> 44
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ADDITIONS
------------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS- AT END
CLASSIFICATION OF PERIOD EXPENSES DESCRIBE DEDUCTIONS OF PERIOD
- -------------- ---------- ---------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1995
----
Allowance for doubtful accounts $508,000 $905,000 (d) ($803,000) (a) $610,000
======== ======== ============ ========= ========
1994
----
Allowance for doubtful accounts $ 83,000 $624,000 (c) ($199,000) (a) $508,000
======== ======== ============ ========= ========
1993
----
Allowance for doubtful accounts $294,000 $671,000 (b) ($882,000) (a) $ 83,000
======== ======== ============ ========= ========
</TABLE>
(a) Accounts receivable write-off
(b) Included in the $671,000 is $414,000 charged to selling, general and
adminstrative expenses and $257,000 recorded as a reduction to revenues.
(c) Included in the $624,000 is $324,000 charged to selling, general and
administrative expenses and $300,000 recorded as a reduction to revenues.
(d) Amount charged to selling, general and administrative expense.
F-17
<PAGE> 1
Amendment to Bylaws of Mercury Air Group, Inc.
Clarification of Officer Titles
WHEREAS, the Article IV of the Bylaws of the Corporation currently creates
positions, responsibilities and titles for various officers of the Corporation;
and
WHEREAS, the titles actually used by the officers of the Corporation or
anticipated for use by the officers of the Corporation are different from those
set forth in the Bylaws; and
WHEREAS, the Board deems it to be in the best interests of the Corporation
to clarify the relative positions and responsibilities of the Corporation's
various officers.
NOW, THEREFORE, BE IT RESOLVED, that the Bylaws of the Corporation are
hereby amended as follows:
1. Section 4.01 of the Bylaws is hereby amended to read in its entirety as
follows:
"Section 4.01. Number. The officers of the Corporation shall be elected by the
Board of Directors and shall be a Chairman of the Board (President and Chief
Executive Officer), a Chief Operating Officer, one or more Executive Vice
Presidents or Vice Presidents, a Secretary and a Chief Financial Officer
(Treasurer and Principal Accounting Officer). The Board of Directors may also
elect one or more Assistant Secretaries and one or more Assistant Treasurers.
Any two offices may be held by the same person, except the offices of Chairman
of the Board and Secretary. No officer need be a director of the Corporation."
2. Section 4.06 of the Bylaws is hereby amended to read in its entirety as
follows:
"Section 4.06 Chairman of the Board. The Chairman of the Board shall have the
following powers and duties:
(a) He shall be the Chief Executive Officer of the Corporation, and,
subject to the directions of the Board of Directors, shall have general charge
of the business, affairs and property of the Corporation; general charge of
formulating strategic direction for the Corporation; and general supervision
over all of the Corporation's officers, employees and agents.
Exhibit 3.5
<PAGE> 2
(b) He shall sign (unless a Vice President or Executive Vice President shall
have signed) certificates representing shares of the Corporation the issuance of
which shall have been authorized by the Board of Directors.
(c) Subject to the direction of the Board of Directors, he shall exercise
all powers and perform all duties incident to the office of President of the
Corporation, and shall exercise such other powers and perform such other duties
as from time-to-time may be assigned to him by the Board. References to the
"President" in these Bylaws shall be deemed references to the Chairman of the
Board.
(d) He shall be the Chairman of and shall conduct each Board of Directors
meeting."
3. A new Section 4.06A is hereby added to the Bylaws of the Corporation to
read in its entirety as follows:
"Section 4.06A Chief Operating Officer. The Chief Operating Officer of the
Corporation shall have the following powers and duties:
(a) He shall be the Chief Operating Officer of the Corporation, and,
subject to the directions of the Board of Directors or the Chairman of the
Board, shall have charge of the business, affairs and property of the
Corporation on a day-to-day basis; charge of implementing strategic direction
for the Corporation; and general supervision over all of the Corporation's
officers, employees and agents, other than the Chairman of the Board and the
Chief Financial Officer.
(b) At the request of the Chairman of the Board, or in his absence or
disability, the Chief Operating Officer shall perform all of the duties of the
Chairman of the Board and, when so acting, shall have all of the powers and be
subject to all of the restrictions upon the powers of the Chairman of the Board.
(c) He shall perform such duties as the Chairman of the Board or the Board
of Directors shall from time-to-time assign to him."
4. Section 4.07 of the Bylaws is amended to read in its entirety as
follows:
"Section 4.07. Executive Vice Presidents/Vice Presidents. Each Executive
Vice President or Vice
2
<PAGE> 3
President shall perform such duties as from time-to-time shall be assigned to
him by the Chairman of the Board, the Chief Operating Officer or the Board of
Directors. Any Executive Vice President or Vice President may sign certificates
representing shares of the Corporation the issuance of which shall have been
authorized by the Board of Directors."
5. The caption to and first sentence of Section 4.09 of the Bylaws is
amended to read as follows:
"Section 4.09 Chief Financial Officer. The Chief Financial Officer shall
have the following powers and duties:"
6. A new sentence is added at the end of Section 4.09(h) which reads as
follows:
"References to the "Treasurer" in these Bylaws shall be deemed references
to the Chief Financial Officer."
7. A new Section 4.09(h) is added to the Bylaws which reads in its
entirety as follows:
"(h) The Chief Financial Officer of the Corporation shall also be the
principal accounting officer of the Corporation."
3
<PAGE> 1
M E M O R A N D U M
Date: September 15, 1995
To: Form 10-K Exhibit List
Re: Summary of Mercury Air Group, Inc. Officer Life Insurance Policies with
Benefits Payable to Officers or Their Designated Beneficiaries
From: Kathryn McCuskey
The Company presently maintains the following life insurance policies on
the lives of the officers of the corporation:
1. Seymour Kahn. The Company maintains a whole-life insurance policy on
the life of Mr. Kahn which provides a death benefit in the amount of $2,025,000
all payable to Mr. Kahn's designated beneficiary. The Company is entitled to
receive the cash surrender value of this policy and may use the cash surrender
value to fund premiums.
2. Joseph A. Czyzyk. The Company maintains whole-life insurance policies
on the life of Mr. Czyzyk which provide death benefits in the amount of
$1,000,000 payable to Mr. Czyzyk's designated beneficiary. The Company is
entitled to receive the cash surrender value of these policies up to the amount
of premiums paid, with the remainder of the cash surrender value to be paid to
the designated beneficiary.
3. Kevin Walsh. The Company maintains a whole-life insurance policy on the
life of Mr. Walsh which provides a death benefit in the amount of $750,000, with
$500,000 payable to the Company and $250,000 payable to the designated
beneficiary of Mr. Walsh. The Company is entitled to receive the cash surrender
value of this policy up to the amount of premiums paid, with the remainder of
the cash surrender value to be paid to the designated beneficiary.
4. Randolph E. Ajer. The Company maintains a whole-life insurance policy
on the life of Mr. Ajer which provides a death benefit in the amount of
$750,000, with $500,000 payable to the Company and $250,000 payable to Mr.
Ajer's designated beneficiary. The Company is entitled to receive the cash
surrender value of this policy up to the amount of premiums paid, with the
remainder of the cash surrender value to be paid to the designated beneficiary.
Exhibit 10.15
<PAGE> 2
5. William L. Silva. The Company maintains a whole-life insurance policy
on the life of Mr. Silva which provides a death benefit in the amount of
$750,000, with $500,000 payable to the Company and $250,000 payable to Mr.
Silva's designated beneficiary. The Company is entitled to receive the cash
surrender value of this policy up to the amount of premiums paid, with the
remainder of the cash surrender value to be paid to the designated beneficiary.
<PAGE> 1
M E M O R A N D U M
Date: September 15, 1995
To: Form 10-K Exhibit List
Re: Summary of Bonus Plans for Seymour Kahn, Joseph A. Czyzyk and Randolph
E. Ajer
From: Kathryn McCuskey
In November 1990, the Board of Directors adopted a cash bonus plan (the
"Bonus Plan") for Messrs. Kahn and Ajer effective for fiscal 1991 and
thereafter. The two part Bonus Plan is based on earnings before interest and
taxes ("EBIT") of the Company during the fiscal year for which the bonus is
calculated. Under Part I of the Bonus Plan, if the bonus year's EBIT meets or
exceeds a maintenance level based on the trailing three-year EBIT average, then
a bonus in the amount of 25% of the respective salaries of Messrs. Kahn and Ajer
will be paid to each of them. If the bonus year's EBIT level falls below the
prescribed EBIT maintenance level, bonuses will be paid to Messrs. Kahn and Ajer
under the Bonus Plan solely at the discretion of the Compensation Committee of
the Board of Directors (the "Compensation Committee"). Additional bonuses will
be paid two-thirds to Mr. Kahn and one-third to Mr. Ajer under Part II of the
Bonus Plan in an amount equal to 10% of any increase in a bonus year's EBIT
level over the trailing three-year average EBIT level.
Pursuant to his employment agreement, for fiscal 1995, Mr. Czyzyk is
entitled to receive a bonus under a two part Bonus Plan equal to: (1) Part
I--Twenty-Five Percent of base compensation if fiscal 1995 EBIT meets or exceeds
fiscal 1994 EBIT; and (2) Part II--Two and One-Half Percent (2.5%) of the amount
by which fiscal 1995 EBIT exceeds fiscal 1994 EBIT. For fiscal 1996, Mr.
Czyzyk's bonus will be based on meeting or exceeding an average of fiscal 1995
and 1994 EBIT and, thereafter, Mr. Czyzyk's bonus will be based on meeting or
exceeding a trailing three-year average EBIT level. If the bonus year's EBIT
level falls below the prescribed EBIT maintenance level, a bonus will be paid to
Mr. Czyzyk under the Bonus Plan solely at the discretion of the Compensation
Committee.
Exhibit 10.16
<PAGE> 1
M E M O R A N D U M
Date: September 15, 1995
To: Form 10-K Exhibit List
Re: Summary of Bonus Plans for Kevin Walsh and William L. Silva
From: Kathryn McCuskey
For fiscal 1996, the Compensation Committee (the "Compensation Committee")
of the Board of Directors of Mercury Air Group, Inc. has adopted a bonus plan
for Messrs. Walsh and Silva pursuant to which each participant is eligible to
earn a bonus based on the operating income of his unit as compared to budgeted
operating income. Each participant will become eligible for the bonus based on
achieving the budgeted operating income goal and will receive a prorated bonus
(up to 100% of his base salary) based on achieving operating income equal to or
exceeding the greater of $500,000 or 10% in excess of budgeted operating income.
The Compensation Committee retains the right to grant discretionary bonuses in
the event that the operating income targets are not attained.
Exhibit 10.17
<PAGE> 1
EXHIBIT 10.29
AMENDMENT TO
LOAN AND SECURITY AGREEMENTS
THIS AMENDMENT (this "Amendment") dated as of June 12, 1995 is
entered into by and among MARINE MIDLAND BUSINESS LOANS, INC., a Delaware
corporation ("Lender"), and MERCURY AIR GROUP, INC., a New York corporation
formerly known as IPM Technology, Inc. ("Mercury"), and MAYTAG AIRCRAFT
CORPORATION, a Colorado corporation ("Maytag"). Mercury and Maytag shall
collectively be referred to herein as "Borrowers".
RECITALS
A. Lender and the respective Borrowers are parties to those two (2)
certain Loan and Security Agreements dated as of December 6, 1989, as amended
(singly, the "Agreement," and collectively, the "Agreements").
B. Lender and Borrowers desire to amend the Agreements in certain
respects, but subject to the terms and conditions set forth below.
AGREEMENT
In consideration of the above recitals and of the mutual covenants
contained herein, Lender and Borrowers agree as follows:
1. Defined Terms. Each of the terms defined in the Agreements which
are used herein shall have the same meaning as set forth in the Agreements,
unless otherwise specified herein.
2. Maximum Borrowing Capacity. With respect to clauses (a) of the
definitions of "Borrowing Capacity" in Sections 1.1 of the Agreements, the
maximum aggregate Borrowing Capacity of Borrowers shall be $16,000,000.00 less
the total outstanding "Advances" to Cargo under its Loan and Security Agreement
with Lender of even date herewith as it may hereafter be amended, modified,
substituted or replaced.
3. Financial Covenants. With respect to Sections 10.13 of the
Agreements, Mercury and its Consolidated Subsidiaries shall maintain Tangible
Net Worth and Working Capital of not less than $15,000,000.00 and $6,000,000.00,
respectively, as of the end of each fiscal quarter on a consolidated basis. For
the purposes of Sections 10.13, "Tangible Net Worth" shall mean the amount by
which the assets of Mercury and its Consolidated Subsidiaries, but excluding
goodwill, exceed liabilities computed in accordance with GAAP.
<PAGE> 2
4. Events of Default. With respect to Sections 12.1 of the
Agreements, an Event of Default shall be deemed to have occurred if an "Event of
Default" occurs under, and as defined in, that certain Loan and Security
Agreement of even date herewith between Mercury Air Cargo, Inc., a California
corporation, and Secured Party.
5. Continuing Effect of Loan Documents.
(a) Except as specifically amended as set forth above, the
Agreements and all other Loan Documents shall remain in full force and effect
and are hereby ratified and confirmed; and
(b) Upon the effectiveness of this Amendment, each reference in
the Loan Documents to the Agreements shall mean and be a reference to the
Agreements as amended hereby.
6. Borrowers' Representations and Warranties. Borrowers represent and
warrant as follows:
(a) Each of the representations and warranties contained in the
Agreements is hereby reaffirmed as of the date hereof, each as if set forth
herein;
(b) The execution, delivery and performance of this Amendment are
within Borrowers' powers, have been duly authorized by all necessary action,
have received all necessary approvals, if any, and do not contravene any law or
any contractual restrictions binding on Borrowers;
(c) This Amendment is the legal, valid and binding obligation of
Borrowers, enforceable against Borrowers in accordance with its terms; and
(d) No event has occurred and is continuing which constitutes an
Event of Default under the Agreements after giving effect to this Amendment.
7. Conditions Precedent. This Amendment shall become effective when,
and only when, Lender shall have received all of the following, in form and
substance satisfactory to Lender:
(a) A counterpart of this Amendment duly executed by Borrowers and
acknowledged by the guarantors indicated hereinbelow; and
(b) Such other documents, instruments or agreements as Lender may
reasonably request.
8. Governing Law. This Amendment shall be deemed to be a contract
under and subject to, and shall be construed for all
2
<PAGE> 3
purposes and in accordance with, the internal laws of the State of California.
9. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
WITNESS the due execution hereof as of the date first above written.
MARINE MIDLAND BUSINESS LOANS, INC.
By:
----------------------------------
Title:
-------------------------------
MERCURY AIR GROUP, INC.
By:
----------------------------------
Title:
-------------------------------
MAYTAG AIRCRAFT CORPORATION
By:
----------------------------------
Title:
-------------------------------
3
<PAGE> 4
CONSENT AND REAFFIRMATION OF GUARANTORS
The undersigned, as guarantors under their respective Guaranties
dated December 6, 1989 or April 1, 1992, hereby consent to the foregoing
Amendment and acknowledge and reaffirm their obligations and liabilities under
such Guaranties, which shall remain in full force and effect.
Dated: As of June , 1995
----
MERCURY AIR CARGO, INC.,
a California corporation
By:
----------------------------------
Title:
-------------------------------
HERMES AVIATION, INC.,
a California corporation
By:
----------------------------------
Title:
-------------------------------
<PAGE> 1
Exhibit 10.30
LOAN AND SECURITY AGREEMENT
BETWEEN
MERCURY AIR CARGO, INC.
("DEBTOR")
5456 McConnell Avenue
Los Angeles, California 90066
and
MARINE MIDLAND BUSINESS LOANS, INC.
("SECURED PARTY")
2210 Main Street
Suite 500
Irvine, California 92714
Dated as of June 12, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS................................................................ 1
1.1 CERTAIN SPECIFIC TERMS......................................... 1
1.2 SINGULARS AND PLURALS.......................................... 2
1.3 U.C.C. DEFINITIONS............................................. 2
2. CREDIT FACILITY............................................................ 2
2.1 REQUESTS FOR AN ADVANCE........................................ 2
2.2 PROCEEDS OF AN ADVANCE......................................... 2
3. COLLATERAL AND INDEBTEDNESS SECURED........................................ 2
3.1 SECURITY INTEREST.............................................. 2
3.2 OTHER COLLATERAL............................................... 2
3.3 INDEBTEDNESS SECURED........................................... 2
4. REPRESENTATIONS AND WARRANTIES............................................. 2
4.1 CORPORATE EXISTENCE............................................ 2
4.2 CORPORATE CAPACITY............................................. 2
4.3 VALIDITY OF RECEIVABLES........................................ 2
4.4 INTENTIONALLY DELETED.......................................... 2
4.5 TITLE TO COLLATERAL............................................ 2
4.6 NOTES RECEIVABLE............................................... 3
4.7 EQUIPMENT...................................................... 3
4.8 PLACE OF BUSINESS.............................................. 3
4.9 FINANCIAL CONDITION............................................ 3
4.10 TAXES.......................................................... 3
4.11 LITIGATION..................................................... 3
4.12 ERISA MATTERS.................................................. 3
4.13 ENVIRONMENTAL MATTERS.......................................... 3
4.14 VALIDITY OF TRANSACTION DOCUMENTS.............................. 3
4.15 NO CONSENT OR FILING........................................... 3
4.16 NO VIOLATIONS.................................................. 3
4.17 TRADEMARKS AND PATENTS......................................... 3
4.18 CONTINGENT LIABILITIES......................................... 3
4.19 COMPLIANCE WITH LAWS........................................... 3
4.20 LICENSES, PERMITS, ETC......................................... 3
4.21 LABOR CONTRACTS................................................ 3
4.22 CONSOLIDATED SUBSIDIARIES...................................... 3
4.23 AUTHORIZED SHARES.............................................. 3
5. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY......................... 4
5.1 DOCUMENTS...................................................... 4
5.2 INVOICES....................................................... 4
5.3 CHATTEL PAPER.................................................. 4
6. COLLECTIONS................................................................ 4
7. PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND EXPENSES............... 4
7.1 PROMISE TO PAY PRINCIPAL....................................... 4
7.2 PROMISE TO PAY INTEREST........................................ 4
7.3 PROMISE TO PAY FEES............................................ 4
7.4 PROMISE TO PAY COSTS AND EXPENSES.............................. 4
7.5 METHOD OF PAYMENT OF PRINCIPAL, INTEREST,
FEES, AND COSTS AND EXPENSES................................... 4
7.6 COMPUTATION OF DAILY OUTSTANDING BALANCE....................... 4
7.7 ACCOUNT STATED................................................. 4
8. PROCEDURES AFTER SCHEDULING RECEIVABLES.................................... 4
8.1 INTENTIONALLY DELETED.......................................... 4
8.2 CREDITS AND EXTENSIONS......................................... 4
8.3 RETURNED INSTRUMENTS........................................... 5
8.4 DEBIT MEMORANDA................................................ 5
8.5 NOTES RECEIVABLE............................................... 5
9. AFFIRMATIVE COVENANTS...................................................... 5
9.1 FINANCIAL STATEMENTS........................................... 5
9.2 GOVERNMENT AND OTHER SPECIAL RECEIVABLES....................... 5
9.3 TERMS OF SALE.................................................. 5
9.4 BOOKS AND RECORDS.............................................. 5
9.5 INTENTIONALLY DELETED.......................................... 5
9.6 EXAMINATIONS................................................... 5
9.7 VERIFICATION OF COLLATERAL..................................... 5
9.8 RESPONSIBLE PARTIES............................................ 5
9.9 TAXES.......................................................... 5
9.10 LITIGATION..................................................... 5
9.11 INSURANCE...................................................... 5
9.13 PENSION REPORTS................................................ 5
9.14 NOTICE OF NON-COMPLIANCE....................................... 5
9.15 COMPLIANCE WITH ENVIRONMENTAL LAWS............................. 5
9.16 DEFEND COLLATERAL.............................................. 6
9.17 USE OF PROCEEDS................................................ 6
9.18 COMPLIANCE WITH LAWS........................................... 6
9.19 MAINTENANCE OF PROPERTY........................................ 6
9.20 LICENSES, PERMITS, ETC......................................... 6
9.21 TRADEMARKS AND PATENTS......................................... 6
9.22 ERISA.......................................................... 6
9.23 MAINTENANCE OF OWNERSHIP....................................... 6
9.24 ACTIVITIES OF CONSOLIDATED SUBSIDIARIES........................ 6
10. NEGATIVE COVENANTS......................................................... 6
10.1 LOCATION OF INVENTORY, EQUIPMENT AND BUSINESS RECORDS.......... 6
10.2 BORROWED MONEY................................................. 6
10.3 SECURITY INTEREST AND OTHER ENCUMBRANCES....................... 6
10.4 STORING AND USE OF THE COLLATERAL.............................. 6
10.5 MERGERS, CONSOLIDATIONS, OR SALES.............................. 6
10.6 CAPITAL STOCK.................................................. 6
10.7 DIVIDENDS OR DISTRIBUTIONS..................................... 6
10.8 INVESTMENTS AND ADVANCES....................................... 6
10.9 GUARANTIES..................................................... 6
10.10 ............................................................... 6
10.11 CAPITAL EXPENDITURES........................................... 6
10.12 INTENTIONALLY DELETED.......................................... 6
10.13 NAME CHANGE.................................................... 6
10.14 DISPOSITION OF COLLATERAL...................................... 6
10.15 FINANCIAL COVENANTS............................................ 6
11. EVENTS OF DEFAULT.......................................................... 6
11.1 EVENTS OF DEFAULT.............................................. 6
11.2 EFFECTS OF AN EVENT OF DEFAULT................................. 7
12. SECURED PARTY'S RIGHTS AND REMEDIES........................................ 7
12.1 GENERALLY...................................................... 7
12.2 NOTIFICATION OF ACCOUNT DEBTORS................................ 7
12.3 POSSESSION OF COLLATERAL....................................... 7
12.4 COLLECTION OF RECEIVABLES...................................... 7
12.5 INDORSEMENT OF CHECKS; DEBTOR'S MAIL........................... 7
12.6 LICENSE TO USE PATENTS, TRADEMARKS, AND TRADENAMES............. 7
13. MISCELLANEOUS.............................................................. 7
13.1 PERFECTING THE SECURITY INTEREST; PROTECTING THE COLLATERAL.... 7
13.2 PERFORMANCE OF DEBTOR'S DUTIES................................. 7
13.3 NOTICE OF SALE................................................. 7
13.4 WAIVER BY SECURED PARTY........................................ 7
13.5 WAIVER BY DEBTOR............................................... 8
13.6 SETOFF......................................................... 8
13.7 ASSIGNMENT..................................................... 8
13.8 SUCCESSORS AND ASSIGNS......................................... 8
13.9 MODIFICATION................................................... 8
13.10 COUNTERPARTS................................................... 8
13.11 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES....................... 8
13.12 INDEMNIFICATION................................................ 8
13.13 TERMINATION; PREPAYMENT PREMIUM................................ 8
13.14 FURTHER ASSURANCES............................................. 8
13.15 HEADINGS....................................................... 8
13.16 CUMULATIVE SECURITY INTEREST, ETC.............................. 8
13.17 SECURED PARTY'S DUTIES......................................... 8
13.18 NOTICES GENERALLY.............................................. 8
13.19 SEVERABILITY................................................... 8
13.20 INCONSISTENT PROVISIONS........................................ 9
13.21 ENTIRE AGREEMENT............................................... 9
13.22 APPLICABLE LAW................................................. 9
13.23 CONSENT TO JURISDICTION........................................ 9
13.24 JURY TRIAL WAIVER.............................................. 9
</TABLE>
(i)
<PAGE> 3
Debtor and Secured Party agree as follows:
1. DEFINITIONS.
1.1 CERTAIN SPECIFIC TERMS. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) ACCOUNT DEBTOR means the person, firm, or entity
obligated to pay a Receivable.
(b) ADVANCE means a revolving loan made to Debtor by
Secured Party pursuant to Section 2.1.
(c) BORROWING CAPACITY means, at the time of computation,
the amount specified in Item 1 of the Schedule.
(d) BUSINESS DAY means a day other than a Saturday, Sunday
or other day on which banks are authorized or required to close under the laws
of the State.
(e) COLLATERAL means collectively all of the property of
Debtor subject to the Security Interest and described in Sections 3.1 and 3.2.
(f) CONSOLIDATED SUBSIDIARY means any corporation of which
at least 50% of the voting stock is owned by Debtor directly, or indirectly
through one or more Consolidated Subsidiaries. If Debtor has no Consolidated
Subsidiaries, the provisions of this Agreement relating to Consolidated
Subsidiaries shall be inapplicable without affecting the applicability of such
provisions to Debtor alone.
(g) CREDIT means any discount, allowance, credit, rebate,
or adjustment granted by Debtor with respect to a Receivable, other than a cash
discount described in Item 3 of the Schedule.
(h) DEBTOR means the person or entity defined on the cover
page to this Agreement.
(i) DISPOSAL means the intentional or unintentional
abandonment, discharge, deposit, injection, dumping, spilling, leaking, storing,
burning, thermal destruction, or placing of any Hazardous Substance so that it
or any of its constituents may enter the environment.
(j) INTENTIONALLY DELETED.
(k) ENVIRONMENT means any water including, but not limited
to, surface water and ground water or water vapor; any land including land
surface or subsurface; stream sediments; air; fish, wildlife, plants; and all
other natural resources or environmental media.
(l) ENVIRONMENTAL LAWS means all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances, regulations, codes, and rules relating to the
protection of the Environment and/or governing the processing, handling,
production, or disposal of Hazardous Substances and the policies, guidelines,
procedures, interpretations, decisions, orders, and directives of federal,
state, and local governmental agencies and authorities with respect thereto.
(m) ENVIRONMENTAL PERMITS means all licenses, permits,
approvals, authorizations, consents, or registrations required by any applicable
Environmental Laws and all applicable judicial and administrative orders in
connection with ownership, lease, purchase, transfer, closure, use and/or
operation of any property owned, leased, or operated by Debtor or any
Consolidated Subsidiary and/or as may be required for the storage, treatment,
generation, transportation, processing, handling, production, or disposal of
Hazardous Substances.
(n) ENVIRONMENTAL QUESTIONNAIRE means a questionnaire and
all attachments thereto concerning (i) activities and conditions affecting the
Environment at any property of Debtor or any Consolidated Subsidiary or (ii) the
enforcement or possible enforcement of any Environmental Law against Debtor or
any Consolidated Subsidiary.
(o) ENVIRONMENTAL REPORT means a written report prepared
for Secured Party by an environmental consulting or environmental engineering
firm.
(p) ERISA means the Employee Retirement Income Security Act
of 1974, as amended from time to time.
(q) EVENT OF DEFAULT means an Event of Default or Events of
Default as defined in Section 11.1.
(r) EXTENSION means the granting to an Account Debtor of
additional time within which such Account Debtor is required to pay a
Receivable.
(s) FEDERAL BANKRUPTCY CODE means Title 11 of the United
States Code, entitled "Bankruptcy", as amended, or any successor federal
bankruptcy law.
(t) HAZARDOUS SUBSTANCES means, without limitation, any
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated piphenyls, petroleum and petroleum products, ethane,
hazardous materials, hazardous wastes, hazardous or toxic substances, and any
other material defined as a hazardous substance in Section 104(14) of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601(14).
(u) INDEBTEDNESS means the indebtedness secured by the
Security Interest and described in Section 3.3.
(v) INELIGIBLE RECEIVABLES means the following described
Receivables and any other Receivables which, in the reasonable credit judgment
of Secured Party, are not satisfactory for credit or any other reason.
(i) Any Receivable which has remained unpaid for
more than the number of days specified in Item 4 of the Schedule.
(ii) Any Receivable with respect to which a
representation or warranty contained in Section 4.3, 4.5 or 4.6 is not, or does
not continue to be, true and accurate, including, without limitation, any
Receivable subject to a setoff.
(iii) Any Receivable with respect to which Debtor
has extended the time for payment without the consent of Secured Party, except
as provided in Section 8.2(a).
(iv) Any Receivable as to which any one or more of
the following events occurs: a Responsible Party shall die or be judicially
declared incompetent; a request or petition for liquidation, reorganization,
arrangement, adjustment of debts, adjudication as a bankrupt, or other relief
under the bankruptcy, insolvency, or similar laws of the United States, any
state or territory thereof, or any foreign jurisdiction, now or hereafter in
effect shall be filed by or against a Responsible Party; a Responsible Party
shall make any general assignment for the benefit of creditors; a receiver or
trustee, including, without limitation, a "custodian" as defined in the Federal
Bankruptcy Code, shall be appointed for a Responsible Party or for any of the
assets of a Responsible Party; any other type of insolvency proceeding with
respect to a Responsible Party (under the bankruptcy laws of the United States
or otherwise) or any formal or informal proceeding for the dissolution or
liquidation of, settlement of claims against, or winding up of affairs of, a
Responsible Party shall be instituted; all or any material part of the assets of
a Responsible Party shall be sold, assigned, or transferred; a Responsible Party
shall fail to pay its debts as they become due; or a Responsible Party shall
cease doing business as a going concern.
(v) All Receivables owed by an Account Debtor
owing Receivables classified as ineligible under the criterion set forth in
Section 1.1(v)(i) or Receivables, if the outstanding dollar amount of such
Receivables constitutes a percentage of the aggregate outstanding dollar amount
of all Receivables owed by such Account Debtor equal to or greater than the
percentage specified in Item 5 of the Schedule.
(vi) All Receivables in which the perfection,
enforceability or validity of Secured Party's Security Interest is governed by
statutory requirements other than the Uniform Commercial Code.
(vii) All Receivables owed by an Account Debtor
which does not maintain its chief executive office in the United States or which
is not organized under the laws of the United States or any state, unless
otherwise specified in Item 6 of the Schedule.
(viii) All Receivables owed by an Account Debtor if
Debtor or any person who, or entity which, directly or indirectly controls
Debtor, either owns in whole or material part, or directly or indirectly
controls, such Account Debtor.
(ix) Any Receivable arising from a consignment or
other arrangement pursuant to which the subject Inventory is returnable if not
sold or otherwise disposed of by the Account Debtor; any Receivable constituting
a partial billing under terms providing for payment only after full shipment or
performance; any Receivable arising from a bill and hold sale or in connection
with any prebilling where the Inventory or services have not been delivered,
performed, or accepted by the Account Debtor if Secured Party has not entered
into a satisfactory written agreement with such Account Debtor relating to such
Receivables; and any Receivable as to which the Account Debtor contends the
balance reported by Debtor is incorrect or not owing in any material respect.
(x) Any Receivable which is unenforceable against
the Account Debtor for any reason.
(xi) Any Receivable which is an Instrument,
Document or Chattel Paper or which is evidenced by a note, draft, trade
acceptance, or other instrument for the payment of money where such Instrument,
Document, Chattel Paper, note, draft, trade acceptance, or other instrument has
not been endorsed and delivered by Debtor to Secured Party.
(w) INTERNAL REVENUE CODE means the Internal Revenue Code
of 1986, as amended from time to time.
(x) INVENTORY means inventory as defined in the Uniform
Commercial Code as in effect in the State as of the date of this Agreement, and
in any event shall include returned or repossessed Goods.
(y) INTENTIONALLY DELETED.
(z) INVOICE means any document or documents used or to be
used to evidence a Receivable.
(aa) INTENTIONALLY DELETED.
(bb) MARINE PAYMENT ACCOUNT means the special bank
account owned by Secured Party to which Proceeds of Collateral, including,
without limitation, payments on Receivables and other payments from sales or
leases of Inventory, are credited. There is a Marine Payment Account if so
indicated in Item 8 of the Schedule.
(cc) PENSION EVENT means, with respect to any Pension Plan,
the occurrence of (i) any prohibited transaction described in Section 406 of
ERISA or in Section 4975 of the Internal Revenue Code, (ii) any Reportable
Event, (iii) any complete or partial withdrawal or proposed complete or partial
withdrawal of Debtor or any Consolidated Subsidiary from such Pension Plan, (iv)
any complete or partial termination or proposed complete or partial termination
of such Pension Plan, or (v) any accumulated funding deficiency (whether or not
waived) as defined in Section 302 of ERISA or in Section 412 of the Internal
Revenue Code.
(dd) PENSION PLAN means any pension plan as defined in
Section 3(2) of ERISA which is a multiemployer plan or a single employer plan as
defined in Section 4001 of ERISA and subject to Title IV of ERISA and which is
(i) a plan maintained by Debtor or any Consolidated Subsidiary for employees or
former employees of Debtor or of any Consolidated Subsidiary, (ii) a plan to
which Debtor or any Consolidated Subsidiary contributes or is required to
contribute, (iii) a plan to which Debtor or any Consolidated Subsidiary was
required to make contributions at any time during the five (5) calendar years
preceding the date of this Agreement, or (iv) any other plan with respect to
which Debtor or any Consolidated Subsidiary has incurred or may incur liability,
including, without limitation, contingent liability, under Title IV of ERISA
either to such plan or to the Pension Benefit Guaranty Corporation. For purposes
of this definition and for purposes of
<PAGE> 4
Sections 1.1(cc), 4.12, and 11.1(h), Debtor shall include any trade or business
(whether or not incorporated) which, together with Debtor or any Consolidated
Subsidiary, is deemed to be a "single employer" within the meaning of Section
4001(b)(1) of ERISA.
(ee) PRIME RATE means the rate of interest publicly
announced by Marine Midland Bank from time to time as its prime rate and is a
base rate for calculating interest on certain loans. The rate announced by
Marine Midland Bank as its prime rate may or may not be the most favorable rate
charged by Marine Midland Bank to its customers.
(ff) RECEIVABLE means the right to payment for Goods sold or
leased or services rendered by Debtor, whether or not earned by performance, and
may, without limitation, in whole or in part be in the form of an Account,
Chattel Paper, Document, or Instrument.
(gg) RECEIVABLES BORROWING BASE means, at the time of its
computation, the aggregate amount of the outstanding Receivables in which
Secured Party has a first priority perfected security interest (adjusted with
respect to Credits and returned merchandise as provided in Article 8 hereof)
less the amount of Ineligible Receivables and any reserves established by
Secured Party in accordance with Section 2.3.
(hh) RELEASE means "release," as defined in Section 101(22)
of the Comprehensive, Environmental Response, Compensation and Liability act of
1980, 42 U.S.C. Section 9601(22), and the regulations promulgated thereunder.
(ii) REPORTABLE EVENT means any event described in Section
4043(b) of ERISA or in regulations issued thereunder with regard to a Pension
Plan.
(jj) RESPONSIBLE PARTY means an Account Debtor, a general
partner of an Account Debtor, or any party otherwise in any way directly or
indirectly liable for the payment of a Receivable.
(kk) SCHEDULE means the schedule executed in connection
with, and which is a part of, this Agreement.
(ll) SECURED PARTY means the person or entity defined on the
cover page of this Agreement and any successors or assigns of Secured Party.
(mm) SECURITY INTEREST means the security interest granted
to Secured Party by Debtor as described in Section 3.1.
(nn) STATE means the State of the United States specified in
Item 34 of the Schedule.
(oo) THIRD PARTY means any person or entity who has executed
and delivered, or who in the future may execute and deliver, to Secured Party
any agreement, instrument, or document pursuant to which such person or entity
has guarantied to Secured Party the payment of the Indebtedness or has granted
Secured Party a security interest in or lien on some or all of such person's or
entity's real or personal property to secure the payment of the Indebtedness.
(pp) TRANSACTION DOCUMENTS means this Agreement and all
documents including, without limitation, collateral documents, letter of credit
agreements, notes, acceptance credit agreements, security agreements, pledges,
guaranties, mortgages, title insurance, assignments and subordination agreements
required to be executed by Debtor, any Third Party or any Responsible Party
pursuant hereto or in connection herewith.
1.2 SINGULARS AND PLURALS. Unless the context otherwise requires,
words in the singular number include the plural, and in the plural include the
singular.
1.3 U.C.C. DEFINITIONS. Unless otherwise defined in Section 1.1 or
elsewhere in this Agreement, capitalized words shall have the meanings set forth
in the Uniform Commercial Code as in effect in the State as of the date of this
Agreement.
2. CREDIT FACILITY.
2.1 REQUESTS FOR AN ADVANCE. From time to time, Debtor may make a
written or oral request for an Advance, so long as the sum of the aggregate
principal balance of outstanding Advances and the requested Advance does not
exceed the Borrowing Capacity as then computed; and Secured Party shall make
such requested Advance, provided that (i) the Borrowing Capacity would not be so
exceeded, (ii) there has not occurred an Event of Default or an event which,
with notice or lapse of time or both, would constitute an Event of Default, and
(iii) all representations and warranties contained in this Agreement and in the
other Transaction Documents are true and correct on the date such requested
Advance is made as though made on and as of such date. Notwithstanding any
other provision of this Agreement, Secured Party may from time to time reduce
the percentages applicable to the Receivables Borrowing Base as it relates to
amounts of the Borrowing Capacity if Secured Party determines in its reasonable
credit judgment that there has been a material change in circumstances related
to any or all Receivables from those circumstances in existence on or prior to
the date of this Agreement or in the financial or other condition of Debtor.
Each oral request for an Advance shall be conclusively presumed to be made by a
person authorized by Debtor to do so; and the making of the Advance to Debtor as
hereinafter provided shall conclusively establish Debtor's obligation to repay
the Advance.
2.2 PROCEEDS OF AN ADVANCE. Advances shall be made in the manner
agreed by Debtor and Secured Party in writing or, absent any such agreement, as
determined by Secured Party.
3. COLLATERAL AND INDEBTEDNESS SECURED.
3.1 SECURITY INTEREST. Debtor hereby grants to Secured Party a
security interest in and a lien on the following property of Debtor wherever
located and whether now owned or hereafter acquired:
(a) All Accounts, Inventory, General Intangibles, Chattel
Paper, Documents, and Instruments, whether or not specifically assigned to
Secured Party, including, without limitation, all Receivables and all Equipment,
whether or not affixed to realty, and Fixtures.
(b) All guaranties, collateral, liens on or security
interests in real or personal property, leases, letters of credit, and other
rights, agreements, and property securing or relating to payment of Receivables.
(c) All books, records, ledger cards, data processing
records, computer software, and other property at any time evidencing or
relating to Collateral.
(d) All monies, securities, and other property now or
hereafter held or received by, or in transit to, Secured Party from or for
Debtor, and all of Debtor's deposit accounts, credits, and balances with Secured
Party existing at any time.
(e) All parts, accessories, attachments, special tools,
additions, replacements, substitutions, and accessions to or for all of the
foregoing.
(f) All Proceeds and products of all of the foregoing in
any form including, without limitation, amounts payable under any policies of
insurance insuring the foregoing against loss or damage, and all increases and
profits received from all of the foregoing.
3.2 OTHER COLLATERAL. Nothing contained in this Agreement shall
limit the rights of Secured Party in and to any other Collateral securing the
Indebtedness which may have been or may hereafter be granted to Secured Party by
Debtor or any Third Party pursuant to any other agreement.
3.3 INDEBTEDNESS SECURED. The Security Interest secures payment of
any and all indebtedness, and performance of all obligations and agreements, of
Debtor to Secured Party, whether now existing or hereafter incurred or arising,
of every kind and character, primary or secondary, direct or indirect, absolute
or contingent, sole, joint or several, and whether such indebtedness is from
time to time reduced and thereafter increased, or entirely extinguished and
thereafter reincurred, including, without limitation: (a) all Advances; (b) all
interest which accrues on any such indebtedness, until payment of such
indebtedness in full, including, without limitation, all interest provided for
under this Agreement; (c) all other monies payable by Debtor, and all
obligations and agreements of Debtor to Secured Party, pursuant to the
Transaction Documents; (d) all debts owed or to be owed by Debtor to others
which Secured Party has obtained, or may obtain, by assignment or otherwise; (e)
all monies payable by any Third Party, and all obligations and agreements of any
Third Party to Secured Party, pursuant to any of the Transaction Documents; and
(f) all monies due and to become due pursuant to Section 7.3.
4. REPRESENTATIONS AND WARRANTIES. To induce Secured Party to enter into
this Agreement and make Advances to Debtor from time to time as herein provided,
Debtor represents and warrants and, so long as any Indebtedness remains unpaid
or this Agreement remains in effect, shall be deemed continuously to represent
and warrant as follows:
4.1 CORPORATE EXISTENCE. Debtor and each Consolidated Subsidiary is
duly organized and existing and in good standing under the laws of the state
specified in Item 9 of the Schedule and is duly licensed or qualified to do
business and in good standing in every state in which the nature of its business
or ownership of its property requires such licensing or qualification.
4.2 CORPORATE CAPACITY. The execution, delivery, and performance of
the Transaction Documents are within Debtor's corporate powers, have been duly
authorized by all necessary and appropriate corporate and shareholder action,
and are not in contravention of any law or the terms of Debtor's articles or
certificate of incorporation or by-laws or any amendment thereto, or of any
indenture, agreement, undertaking, or other document to which Debtor is a party
or by which Debtor or any of Debtor's property is bound or affected.
4.3 VALIDITY OF RECEIVABLES. (a) Each Receivable is genuine and
enforceable in accordance with its terms and represents an undisputed and bona
fide indebtedness owing to Debtor by the Account Debtor obligated thereon; (b)
there are no defenses, setoffs, or counterclaims against any Receivable except
as disclosed to Secured Party in writing; (c) no payment has been received on
any Receivable and no Receivable is subject to any Credit or Extension or
agreements therefor unless written notice specifying such payment, Credit,
Extension, or agreement has been delivered to Secured Party; (d) each copy of
each Invoice is a true and genuine copy of the original Invoice sent to the
Account Debtor named therein and accurately evidences the transaction from which
the underlying Receivable arose; and the date payment is due as stated on each
such Invoice or computed based on the information set forth on each such Invoice
is correct; (e) all Chattel Paper, and all promissory notes, drafts, trade
acceptances, and other instruments for the payment of money relating to or
evidencing each Receivable, and each indorsement thereon, are true and genuine
and in all respects what they purport to be, and are the valid and binding
obligation of all parties thereto; and the date or dates stated on all such
items as the date on which payment in whole or in part is due is correct; (f)
any Inventory described in each Invoice has been delivered to the Account Debtor
named in such Invoice or placed for such delivery in the possession of a carrier
not owned or controlled directly or indirectly by Debtor; (g) any evidence of
the delivery or shipment of Inventory is true and genuine; (h) all services to
be performed by Debtor in connection with each Receivable have been performed by
Debtor; and (i) all evidence of the performance of such services by Debtor is
true and genuine.
4.4 INTENTIONALLY DELETED.
4.5 TITLE TO COLLATERAL. (a) Debtor is the owner of the Collateral
free of all security interests, liens, and other encumbrances except the
Security Interest and except as described in Item 11 of the Schedule; (b) Debtor
has the unconditional authority to grant the Security Interest to Secured Party;
and (c) assuming that all necessary Uniform
2
<PAGE> 5
Commercial Code filings have been made and, if applicable, assuming compliance
with the Federal Assignment of Claims Act of 1940, as amended, Secured Party has
an enforceable first lien on all Collateral, subordinate only to those security
interests, liens, or encumbrances described as having priority over the Security
Interest in Item 11 of the Schedule.
4.6 NOTES RECEIVABLE. No Receivable is an Instrument, Document or
Chattel Paper or is evidenced by any note, draft, trade acceptance, or other
instrument for the payment of money, except such Instrument, Document, Chattel
Paper, note, draft, trade acceptance, or other instrument as has been indorsed
and delivered by Debtor to Secured Party and has not been presented for payment
and returned uncollected for any reason; provided, however, that Debtor, Mercury
Air Group, Inc. and Maytag Aircraft Corporation shall not be required to endorse
or deliver to Secured Party Instruments having an aggregate outstanding balance
of not more than $300,000.
4.7 EQUIPMENT. Equipment is located, and Equipment which is a
Fixture is affixed to real property, only at the address or addresses of Debtor
set forth at the beginning of this Agreement, the locations specified in Item 10
of the Schedule, or such other place or places as approved by Secured Party in
writing.
4.8 PLACE OF BUSINESS. (a) Unless otherwise disclosed to Secured
Party in Item 10 or Item 12 of the Schedule, Debtor is engaged in business
operations which are in whole or in part carried on at the address or addresses
specified at the beginning of this Agreement and at no other address or
addresses; (b) if Debtor has more than one place of business, its chief
executive office is at the address specified as such at the beginning of this
Agreement; and (c) Debtor's records concerning the Collateral are kept at the
address or addresses specified at the beginning of this Agreement or in Item 12
of the Schedule.
4.9 FINANCIAL CONDITION. Debtor has furnished to Secured Party
Debtor's most current financial statements, which statements represent correctly
and fairly the results of the operations and transactions of Debtor and the
Consolidated Subsidiaries as of the dates and for the period referred to, and
have been prepared in accordance with generally accepted accounting principles
consistently applied during each interval involved and from interval to
interval. Since the date of such financial statements, there have not been any
materially adverse changes in the financial condition reflected in such
financial statements, except as disclosed in writing by Debtor to Secured Party.
4.10 TAXES. Except as disclosed in writing by Debtor to Secured
Party: (a) all federal and other tax returns required to be filed by Debtor and
each Consolidated Subsidiary have been filed and all taxes required by such
returns have been paid; and (b) neither Debtor nor any Consolidated Subsidiary
has received any notice from the Internal Revenue Service or any other taxing
authority proposing additional taxes.
4.11 LITIGATION. Except as disclosed in writing by Debtor to Secured
Party, there are no actions, suits, proceedings, or investigations pending or,
to the knowledge of Debtor, threatened against Debtor or any Consolidated
Subsidiary or any basis therefor which, if adversely determined, would, in any
case or in the aggregate, materially adversely affect the property, assets,
financial condition, or business of Debtor or any Consolidated Subsidiary or
materially impair the right or ability of Debtor or any Consolidated Subsidiary
to carry on its operations substantially as conducted on the date of this
Agreement.
4.12 ERISA MATTERS. (a) No Pension Plan maintained has been
terminated or partially terminated or is insolvent or in reorganization, nor
have any proceedings been instituted to terminate or reorganize any Pension
Plan; (b) the assets held under such Pension Plan are sufficient to discharge
when due all obligations of such Pension Plan; (c) neither Debtor nor any
Consolidated Subsidiary has withdrawn from any Pension Plan in a complete or
partial withdrawal, nor has a condition occurred which if continued would result
in a complete or partial withdrawal; (d) neither Debtor nor any Consolidated
Subsidiary has incurred any withdrawal liability, including, without limitation,
contingent withdrawal liability, to any Pension Plan pursuant to Title IV of
ERISA; (e) neither Debtor nor any Consolidated Subsidiary has incurred any
liability to the Pension Benefit Guaranty Corporation other than for required
insurance premiums which have been paid when due; (f) no Reportable Event has
occurred; (g) no Pension Plan or other "employee pension benefit plan" as
defined in Section 3(2) of ERISA to which Debtor or any Consolidated Subsidiary
is a party has an "accumulated funding deficiency" (whether or not waived) as
defined in Section 302 of ERISA or in Section 412 of the Internal Revenue Code;
(h) the present value of all benefits vested under any Pension Plan does not
exceed the value of the assets of such Pension Plan allocable to such vested
benefits; (i) each Pension Plan and each other "employee benefit plan" as
defined in Section 3(3) of ERISA to which Debtor or any Consolidated Subsidiary
is a party is in substantial compliance with ERISA, and no such plan or any
administrator, trustee, or fiduciary thereof has engaged in a prohibited
transaction described in Section 406 of ERISA or in Section 4975 of the Internal
Revenue Code; (j) each Pension Plan and each other "employee benefit plan" as
defined in Section 3(2) of ERISA to which Debtor or any Consolidated Subsidiary
is a party has received a favorable determination by the Internal Revenue
Service with respect to qualification under Section 401(a) of the Internal
Revenue Code; and (k) neither Debtor nor any Consolidated Subsidiary has
incurred any liability to a trustee or trust established pursuant to Section
4049 of ERISA or to a trustee appointed pursuant to Section 4042(b) or (c) of
ERISA.
4.13 ENVIRONMENTAL MATTERS.
(a) Any Environmental Questionnaire previously provided to
Secured Party was and is accurate and complete and does not omit any material
fact the omission of which would make the information contained therein
materially misleading.
(b) Except as previously disclosed to Secured Party, no
above ground or underground storage tanks containing Hazardous Substances (other
than pesticides and fertilizer) are or have been during Debtor's occupancy or,
to the best of Debtor's knowledge, have been prior to such occupancy, located
on, any property owned, leased, or operated by Debtor or any Consolidated
Subsidiary.
(c) No property owned, leased, or operated by Debtor or any
Consolidated Subsidiary is or has been during Debtor's occupancy or, to the best
of Debtor's knowledge, has been prior to such occupancy, used for the Disposal
of any Hazardous Substance, except in the ordinary course of Debtor's business
and as permitted by Environmental Laws.
(d) No Release of a Hazardous Substance has occurred during
Debtor's occupancy or, to the best of Debtor's knowledge, previously occurred,
or is threatened on, at, from, or near any property owned, leased, or operated
by Debtor or any Consolidated Subsidiary except in the ordinary course of
Debtor's business and as permitted by Environmental Laws.
(e) Neither Debtor nor any Consolidated Subsidiary is
subject to any existing, pending, or threatened suit, claim, notice of violation
under any Environmental Law.
(f) Debtor and each Consolidated Subsidiary are in
compliance with, and have obtained all Environmental Permits required by, all
Environmental Laws.
4.14 VALIDITY OF TRANSACTION DOCUMENTS. The Transaction Documents
constitute the legal, valid and binding obligations of Debtor and each
Consolidated Subsidiary and any Third Parties thereto, enforceable in accordance
with their respective terms, except as enforceability may be limited by
applicable bankruptcy and insolvency laws and laws affecting creditors' rights
generally.
4.15 NO CONSENT OR FILING. No consent, license, approval or
authorization of, or registration, declaration or filing with, any court,
governmental body or authority or other person or entity is required in
connection with the valid execution, delivery or performance of the Transaction
Documents or for the conduct of Debtor's business as now conducted, other than
filings and recordings to perfect security interests in or liens on the
Collateral in connection with the Transaction Documents.
4.16 NO VIOLATIONS. Neither Debtor nor any Consolidated Subsidiary
is in violation of any term of its articles or certificate of incorporation or
by-laws, or of any mortgage, borrowing agreement or other instrument or
agreement pertaining to indebtedness for borrowed money. Neither Debtor nor any
Consolidated Subsidiary is in violation of any term of any other indenture,
instrument, or agreement to which it is a party or by which it or its property
may be bound, resulting, or which might reasonably be expected to result, in a
material and adverse effect upon its business or assets. Neither Debtor nor any
Consolidated Subsidiary is in violation of any order, writ, judgment, injunction
or decree of any court of competent jurisdiction or of any statute, rule or
regulation of any governmental authority which might reasonably be expected to
result, in a material and adverse effect upon its business or assets. The
execution and delivery of the Transaction Documents and the performance of all
of the same is and will be in compliance with the foregoing and will not result
in any violation thereof or result in the creation of any mortgage, lien,
security interest, charge or encumbrance upon any properties or assets except in
favor of Secured Party. There exists no fact or circumstance (whether or not
disclosed in the Transaction Documents) which materially adversely affects or in
the future (so far as Debtor can now foresee) may materially adversely affect
the condition, business or operations of Debtor or any Consolidated Subsidiary.
4.17 TRADEMARKS AND PATENTS. Debtor and each Consolidated Subsidiary
possesses all trademarks, trademark rights, patents, patent rights, licenses,
tradenames, tradename rights and copyrights that are required to conduct its
business as now conducted without conflict with the rights or claimed rights of
others. A list of the foregoing is set forth in Item 13 of the Schedule.
4.18 CONTINGENT LIABILITIES. There are no suretyship agreements,
guaranties, or other contingent liabilities of Debtor or any Consolidated
Subsidiary which are not disclosed by the financial statements described in
Section 4.9 or Item 29 of the Schedule.
4.19 COMPLIANCE WITH LAWS. Debtor is in compliance with all
applicable laws, rules, regulations, and other legal requirements with respect
to its business and the use, maintenance, and operations of the real and
personal property owned or leased by it in the conduct of its business.
4.20 LICENSES, PERMITS, ETC. Each franchise, grant, approval,
authorization, license, permit, easement, consent, certificate and order of and
registration, declaration, and filing with, any court, governmental body, or
other person or entity required for or in connection with the conduct of
Debtor's and each Consolidated Subsidiary's business as now conducted is in full
force and effect, except where the failure to maintain such items would not have
a material adverse effect on Debtor's business or financial condition.
4.21 LABOR CONTRACTS. Neither Debtor nor any Consolidated Subsidiary
is a party to any collective bargaining agreement or to any existing or
threatened labor dispute or controversies except as set forth in Item 15 of the
Schedule.
4.22 CONSOLIDATED SUBSIDIARIES. Debtor has no Consolidated
Subsidiaries other than those listed in Item 36 of the Schedule and the
percentage ownership of Debtor in each such Consolidated Subsidiary is specified
in such Item 36.
4.23 AUTHORIZED SHARES. Debtor's total authorized common shares, the
par value of such shares, and the number of such shares issued and outstanding,
are set forth in Item 16 of the Schedule. All of such shares are of one class
and have been validly issued in full compliance with
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all applicable federal and state laws, and are fully paid and non-assessable. No
other shares of the Debtor of any class or type are authorized or outstanding.
5. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY.
5.1 DOCUMENTS. Debtor shall deliver to Secured Party, all
documents specified in Item 17 of the Schedule, as frequently as indicated
therein or at such other times as Secured Party may request, and all other
documents and information reasonably requested by Secured Party, all in form,
content and detail satisfactory to Secured Party. The documents and schedules
to be provided under this Section 5.1 are solely for the convenience of Secured
Party in administering this Agreement and maintaining records of the Collateral.
Debtor's failure to provide Secured Party with any such schedule shall not
affect the Security Interest.
5.2 INVOICES. Debtor shall cause all of its Invoices to be printed
and to bear consecutive numbers and shall prepare and issue its Invoices in such
consecutive numerical order. If requested by Secured Party, all copies of
Invoices not previously delivered to Secured Party shall be delivered to Secured
Party with each schedule of Receivables. Copies of all Invoices which are
voided or canceled or which for any other reason do not evidence a Receivable
shall be included in such delivery. If any Invoice or copy thereof is lost,
destroyed, or otherwise unavailable, Debtor shall account in writing, in form
satisfactory to Secured Party, for such missing Invoice.
5.3 CHATTEL PAPER. The original of each item of Chattel Paper
evidencing a Receivable shall be delivered to Secured Party with the schedule
listing the Receivable which it evidences, together with an assignment in form
and content satisfactory to Secured Party of such Chattel Paper by Debtor to the
Secured Party.
6. COLLECTIONS. Upon Secured Party's request, all Proceeds of Collateral
received by Debtor, including, without limitation, payments on Receivables,
shall be held by Debtor in trust for Secured Party, shall not be commingled with
any assets of Debtor, and shall be immediately delivered to Secured Party. If
Secured Party elects, Debtor shall establish the Marine Payment Account wherein
Debtor shall deposit all Proceeds of Collateral and shall, on the day of each
such deposit, forward to Secured Party a copy of the deposit receipt of the
depository bank indicating that such deposit has been made. Upon receipt of
Proceeds of Collateral, Secured Party shall apply such Proceeds directly to the
Indebtedness in the manner provided in Section 7.5. Checks drawn on the Marine
Payment Account and all any part of the balance of the Marine Payment Account
shall be applied from time to time to the Indebtedness in the manner provided in
Section 7.5.
7. PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND EXPENSES.
7.1 PROMISE TO PAY PRINCIPAL. Debtor promises to pay to Secured
Party the outstanding principal of Advances, in full upon termination of this
Agreement pursuant to Section 13.13, or acceleration of the time for payment of
the Indebtedness, pursuant to Section 11.2. Whenever the outstanding principal
balance of Advances exceeds the Borrowing Capacity, Debtor shall immediately pay
to Secured Party the excess of the outstanding principal balance of Advances
over the Borrowing Capacity.
7.2 PROMISE TO PAY INTEREST.
(a) Debtor promises to pay to Secured Party, interest on the
principal of Advances from time to time unpaid at the fluctuating per annum rate
specified in Item 18 of the Schedule. From the date of the occurrence of, and
during the continuance of, an Event of Default, Debtor, as additional
compensation to Secured Party for its increased credit risk promises to pay
interest on (i) the principal of Advances, whether or not past due; and (ii)
past due interest and any other amount past due under the Transaction Documents,
at a per annum rate of 3% greater than the rate of interest specified in Item 18
of the Schedule.
(b) Interest shall be paid (i) on the first day of each
month in arrears, (ii) on termination of this Agreement, pursuant to Section
13.13, (iii) on acceleration of the time for payment of the Indebtedness,
pursuant to Section 11.2, and (iv) on the date the Indebtedness is paid in full.
(c) Any change in the interest rate resulting from a change
in the Prime Rate shall take effect simultaneously with such change in the Prime
Rate. Interest shall be computed on the daily unpaid principal balance of
Advances. Interest shall be calculate for each calendar year at 1/360th of the
applicable per annum rate which will result in an effective per annum rate
higher than that specified in Item 18 of the Schedule. In no event shall the
rate of interest exceed the maximum rate permitted by applicable law. If Debtor
pays to Secured Party interest in excess of the amount permitted by applicable
law, such excess shall be applied in reduction of the principal of Advances made
pursuant to this Agreement, and any remaining excess interest, after application
thereof to the principal of Advances, shall be refunded to Debtor.
7.3 PROMISE TO PAY FEES. Debtor promises to pay to Secured Party
any fees specified in Item 19 of the Schedule on the applicable due dates also
specified in Item 19 of the Schedule.
7.4 PROMISE TO PAY COSTS AND EXPENSES.
(a) Debtor agrees to pay to Secured Party, on demand, all
reasonable costs and expenses as provided in this Agreement, and all costs and
expenses incurred by Secured Party from time to time in connection with this
Agreement, including, without limitation, those incurred in: (i) preparing,
negotiating, amending, waiving or granting consent with respect to the terms of
any or all of the Transaction Documents; (ii) enforcing the Transaction
Documents; (iii) performing, pursuant to Section 13.2, Debtor's duties under the
Transaction Documents upon Debtor's failure to perform them; (iv) filing
financing statements, assignments, or other documents relating to the
Collateral, (e.g., filing fees, recording taxes, and documentary stamp taxes);
(v) maintaining the Marine Payment Account; (vi) administering the Transaction
Documents, including any bank fees such as returned check and wire transfer
fees, but not ordinary general and administrative expenses; (vii) compromising,
pursuing, or defending any controversy, action, or proceeding resulting,
directly or indirectly, from Secured Party's relationship with Debtor,
regardless of whether Debtor is a party to such controversy, action, or
proceeding and of whether the controversy, action, or proceeding occurs before
or after the Indebtedness has been paid in full; (viii) realizing upon or
protecting any Collateral; (ix) enforcing or collecting any Indebtedness or
guaranty thereof; (x) employing collection agencies or other agents to collect
any or all of the Receivables; (xi) examining Debtor's books and records or
inspecting the Collateral, including, without limitation, the reasonable costs
of examinations and inspections conducted by third parties, provided that
nothing herein shall limit Secured Party's right to audit, examination,
inspection, or other fees otherwise payable under Section 7.3 and (xii)
obtaining independent appraisals from time to time as reasonably deemed
necessary or appropriate by Secured Party.
(b) Without limiting Section 7.4(a), Debtor also agrees to
pay to Secured Party, on demand, the actual reasonable fees and disbursements
incurred by Secured Party for attorneys retained by Secured Party for advice,
suit, appeal, or insolvency or other proceedings under the Federal Bankruptcy
Code or otherwise, or in connection with any purpose specified in Section
7.4(a).
7.5 METHOD OF PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND
EXPENSES. Without limiting Debtor's obligation pursuant to Sections 7.1, 7.2.,
7.3, and 7.4 to pay the principal of Advances, interest, fees, and costs and
expenses, the following provisions shall apply to the payment thereof:
(a) Payment of Principal. Debtor authorizes Secured Party
to apply any Proceeds of Collateral, including, without limitation, payments on
Receivables and any funds in the Marine Payment Account, to the unpaid principal
of Advances.
(b) Payment of Interest, Fees, and Costs and Expenses.
Without limiting Debtor's obligation to pay accrued interest, fees, costs and
expenses, Debtor authorizes Secured Party in its sole discretion to (provided,
however, Secured Party shall have no obligation to): (i) make an Advance to pay
for such items; or (ii) apply Proceeds of Collateral, including, without
limitation, payments on Receivables and any funds in the Marine Payment Account,
to the payment of such items.
(c) Notwithstanding any other provision of this Agreement,
Secured Party, in its sole discretion, shall determine the manner and amount of
application of payments and credits and Proceeds of Collateral, if any, to be
made on all or any part of any component or components of the Indebtedness,
whether principal, interest, fees, costs and expenses, or otherwise.
7.6 COMPUTATION OF DAILY OUTSTANDING BALANCE. For the purpose of
calculating the aggregate principal balance of outstanding Advances under
Section 2.1, Advances shall be deemed to be paid on the date that checks drawn
on or other funds received from the Marine Payment Account are applied by
Secured Party to Advances, and on the date any other payments on Receivables or
other payments from sales or leases of Inventory to be so applied have been
processed for collection by Secured Party. Notwithstanding any other provision
of this Agreement, if any Item presented for collection by Secured Party is not
honored, Secured Party may reverse any provisional credit which has been given
for the Item and make appropriate adjustments to the amount of interest and
principal due.
7.7 ACCOUNT STATED. Debtor agrees that each monthly or other
statement of account mailed or delivered by Secured Party to Debtor pertaining
to the outstanding balance of Advances, the amount of interest due thereon,
fees, and costs and expenses shall be final, conclusive, and binding on Debtor
and shall constitute an "account stated" with respect to the matters contained
therein unless, within thirty (30) calendar days from when such statement is
mailed or, if not mailed, delivered to Debtor, Debtor shall deliver to Secured
Party written notice of any objections which it may have as to such statement of
account, and in such event, only the items to which objection is expressly made
in such notice shall be considered to be disputed by Debtor. Secured Party
shall use reasonable care in the preparation of such statements.
8. PROCEDURES AFTER SCHEDULING RECEIVABLES.
8.1 INTENTIONALLY DELETED.
8.2 CREDITS AND EXTENSIONS.
(a) Granting of Credits and Extensions. Debtor may grant
such Credits and such Extensions as are ordinary in the usual course of Debtor's
business without the prior consent of Secured Party; provided, however, that any
such Extension shall not extend the time for payment beyond thirty (30) days
after the original due date as shown on the Invoice evidencing the related
Receivable, or as computed based on the information set forth on such Invoice.
(b) Accounting for Credits and Extensions. Debtor shall
make a full accounting of each grant of a Credit or an Extension, including a
brief description of the reasons therefor and a copy of all credit memoranda.
Such accountings shall be in form satisfactory to Secured Party and shall be
delivered to Secured Party daily or at such other intervals as may be specified
in Item 17 of the Schedule. All credit memoranda issued by Debtor shall be
numbered consecutively and copies of the same, when delivered to Secured Party,
shall be in numerical order and accounted for in the same manner as provided in
Section 5.2 with respect to Invoices.
(c) Adjustment to Receivables Borrowing Base. The
Receivables Borrowing Base will be reduced by the amount of all Credits
reflected in an accounting required by Section 8.2(b) and may, in the
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reasonable discretion of Secured Party, be reduced by the full amount of any
Receivables for which Extensions were granted.
8.3 RETURNED INSTRUMENTS. In the event that any check or other
instrument received in payment of a Receivable shall be returned uncollected for
any reason, Secured Party shall again forward the same for collection or return
the same to Debtor. Upon receipt of a returned check or instrument by Debtor,
Debtor shall immediately make the necessary entries on its books and records to
reinstate the Receivable as outstanding and unpaid and immediately notify
Secured Party of such entries. All Receivables of an Account Debtor with
respect to which such check or instrument was received shall thereupon become
Ineligible Receivables.
8.4 DEBIT MEMORANDA.
(a) Unless Secured Party otherwise notifies Debtor in
writing, Debtor shall deliver at least weekly to Secured Party, together with
the schedule of Receivables provided for in Item 17 on the Schedule, copies of
all debit memoranda issued by Debtor since the last such debit memoranda
delivered to Secured Party.
(b) All debit memoranda issued by Debtor shall be numbered
consecutively and copies of the same, when delivered to Secured Party, shall be
in numerical order and accounted for in the same manner as provided in Section
5.2 with respect to Invoices.
8.5 NOTES RECEIVABLE. Debtor shall not accept any note or other
instrument (except a check or other instrument for the immediate payment of
money) with respect to any Receivable without the prior written consent of
Secured Party. If Secured Party in its reasonable judgment, consents to the
acceptance of any such note or instrument, the same shall be considered as
evidence of the Receivable giving rise to such note or instrument, shall be
subject to the Security Interest, and shall not constitute payment of such
Receivable, and Debtor shall forthwith indorse such note or instrument to the
order of Secured Party and deliver the same to Secured Party, together with the
Schedule listing the Receivables which it evidences. Upon collection, the
proceeds of such note or instrument may be applied directly to unpaid Advances,
interest, and costs and expenses as provided in Section 7.5.
9. AFFIRMATIVE COVENANTS. So long as any part of the Indebtedness remains
unpaid or this Agreement remains in effect, Debtor shall comply with the
covenants contained in Item 21 of the Schedule or elsewhere in this Agreement,
and with the covenants listed below:
9.1 FINANCIAL STATEMENTS. Debtor shall furnish or have furnished,
as applicable, to Secured Party:
(a) Within ninety (90) days after the end of each fiscal
year, audited consolidated and consolidating financial statements of Mercury Air
Group, Inc. ("Mercury") and each Consolidated Subsidiary of Mercury as of the
end of such year, fairly presenting Mercury's and each of its Consolidated
Subsidiaries' financial position, which statements shall consist of a balance
sheet and related statements of income, retained earnings, cash flow covering
the period of Mercury's immediately preceding fiscal year, and which shall be
prepared by independent certified public accountants satisfactory to Secured
Party.
(b) Within thirty (30) days after the end of each month,
consolidated and consolidating financial statements of Mercury and each
Consolidated Subsidiary of Mercury as of the end of such month fairly presenting
Mercury's and its Consolidated Subsidiaries' financial position, which
statements shall consist of a balance sheet and related statements of income and
retained earnings covering the period from the end of the immediately preceding
fiscal year to the end of such month, all in such detail as Secured Party may
request signed and certified to be correct by the president or chief financial
officer of Mercury or other financial officer satisfactory to Secured Party in
the form of Exhibit A attached hereto and made a part hereof.
(c) Promptly after their preparation, copies of any and all
proxy statements, financial statements, and reports which Mercury sends to its
shareholders, and copies of any and all periodic and special reports and
registration statements which Debtor files with the Securities and Exchange
Commission.
(d) Such additional information as Secured Party may from
time to time reasonably request regarding the financial and business affairs of
Debtor or any Consolidated Subsidiary.
9.2 GOVERNMENT AND OTHER SPECIAL RECEIVABLES. Debtor shall promptly
notify Secured Party in writing of the existence of any Receivable as to which
the perfection, enforceability, or validity of Secured Party's Security Interest
in such Receivable, or Secured Party's right or ability to obtain direct payment
to Secured Party of the Proceeds of such Receivable, is governed by any federal
or state statutory requirements other than those of the Uniform Commercial Code,
including, without limitation, any Receivable subject to the Federal Assignment
of Claims Act of 1940, as amended.
9.3 TERMS OF SALE. The terms on which sales or leases giving rise
to Receivables are made shall be as specified in Items 3 and 25 of the Schedule.
9.4 BOOKS AND RECORDS. Debtor shall maintain, at its own cost and
expense, accurate and complete books and records with respect to the Collateral,
in form reasonably satisfactory to Secured Party, and including, without
limitation, records of all payments received and all Credits and Extensions
granted with respect to the Receivables, of the return, rejection, repossession,
stoppage in transit, loss, damage, or destruction of any Inventory, and of all
other dealings affecting the Collateral. Debtor shall deliver such books and
records to Secured Party or its representative on request. At Secured Party's
request, Debtor shall mark all or any records to indicate the Security Interest.
Debtor shall further indicate the Security Interest on all financial statements
issued by it or shall cause the Security Interest to be so indicated by its
accountants. The Marine Payment Account, if any, is not an asset of Debtor and
shall not be shown as an asset of Debtor in such books and records or in such
financial statements, except to the extent the funds therein exceed the
Indebtedness.
9.5 INTENTIONALLY DELETED.
9.6 EXAMINATIONS. Debtor shall at all reasonable times and from
time to time permit Secured Party or its agents upon request to inspect the
Collateral and to examine and make extracts from or copies of any of Debtor's
books, ledgers, reports, correspondence, and other records.
9.7 VERIFICATION OF COLLATERAL. Secured Party shall have the right
to verify all or any Collateral in any manner and through any medium Secured
Party may reasonably consider appropriate and Debtor agrees to furnish all
reasonable assistance and reasonable information and perform any acts which
Secured Party may reasonably require in connection therewith.
9.8 RESPONSIBLE PARTIES. Debtor shall notify Secured Party of the
occurrence of any event specified in Section 1.1(v)(iv) with respect to any
Responsible Party promptly after receiving notice thereof.
9.9 TAXES. Debtor shall promptly pay and discharge all of its
taxes, assessments, and other governmental charges prior to the date on which
penalties are attached thereto, establish adequate reserves for the payment of
such taxes, assessments, and other governmental charges, make all required
withholding and other tax deposits, and, upon request, provide Secured Party
with receipts or other proof that such taxes, assessments, and other
governmental charges have been paid in a timely fashion; provided, however, that
nothing contained herein shall require the payment of any tax, assessment, or
other governmental charge so long as its validity is being contested in good
faith and by appropriate proceedings diligently conducted and adequate reserves
for the payment thereof have been established.
9.10 LITIGATION.
(a) Debtor shall promptly notify Secured Party in writing of
any litigation, proceeding, or counterclaim against, or of any investigation of,
Debtor or any Consolidated Subsidiary if: (i) the outcome of such litigation,
proceeding, counterclaim, or investigation may materially and adversely affect
the finances or operations of Debtor or any Consolidated Subsidiary or title to,
or the value of, any Collateral; or (ii) such litigation, proceeding,
counterclaim, or investigation questions the validity of any Transaction
Document or any action taken or to be taken pursuant to any Transaction
Document.
(b) Debtor shall furnish to Secured Party such information
regarding any such litigation, proceeding, counterclaim, or investigation as
Secured Party shall request.
9.11 INSURANCE.
(a) Debtor shall at all times carry and maintain in full
force and effect such insurance as Secured Party may reasonably from time to
time require, in coverage, form, and amount, and issued by insurers,
satisfactory to Debtor and Secured Party, including, without limitation:
workers' compensation or similar insurance; public liability insurance; and
insurance against such other risks as are usually insured against by business
entities of established reputation engaged in the same or similar businesses as
Debtor and similarly situated. The insurance presently maintained by Debtor is
satisfactory to Secured Party; however, Secured Party reserves the right, in the
exercise of its reasonable credit judgment, to require additional or other
insurance in light of new or different circumstances from those presently known
to Secured Party.
(b) Debtor shall deliver to Secured Party the policies of
insurance required by Secured Party, with appropriate endorsements designating
Secured Party as an additional insured mortgagee and loss payee as requested by
Secured Party. Each policy of insurance shall provide that if such policy is
canceled for any reason whatsoever, if any substantial change is made in the
coverage which affects Secured Party, or if such policy is allowed to lapse for
nonpayment of premium, such cancellation, change, or lapse shall not be
effective as to Secured Party until thirty (30) days after receipt by Secured
Party of written notice thereof from the insurer issuing such policy.
9.12 GOOD STANDING; BUSINESS.
(a) Debtor shall take all necessary steps to preserve its
corporate existence and its right to conduct business in all states in which the
nature of its business or ownership of its property requires such qualification
except where the failure to maintain such qualification would not have a
material adverse effect on the Debtor's business or financial condition.
(b) Debtor shall engage only in the same or similar business
conducted by it on the date of this Agreement.
9.13 PENSION REPORTS. Upon the occurrence of any Pension Event,
Debtor shall furnish to Secured Party, as soon as possible and in any event
within thirty (30) days after Debtor knows or has reason to know of such
occurrence, the statement of the president or chief financial officer of Debtor
setting forth the details of such Pension Event and the action which Debtor
proposes to take with respect thereto.
9.14 NOTICE OF NON-COMPLIANCE. Debtor shall notify Secured Party in
writing of any failure by Debtor or any Third Party to comply with any provision
of any Transaction Document immediately upon learning of such non-compliance, or
if any representation or warranty contained in any Transaction Document is no
longer true.
9.15 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Debtor shall comply with all Environmental Laws.
(b) Debtor shall, at Secured Party's request, provide, at
Debtor's expense, updated Environmental Questionnaires, concerning any property
owned, leased, or operated by Debtor or any Consolidated Subsidiary.
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(c) Debtor shall deliver promptly to Secured Party (i)
copies of any documents received from the United States Environmental Protection
Agency or any state, county, or municipal environmental or health agency
concerning Debtor's or any Consolidated Subsidiary's violation of any
Environmental Law; and (ii) copies of any documents submitted by Debtor or any
Consolidated Subsidiary to the United States Environmental Protection Agency or
any state, county, or municipal environmental or health agency concerning its
violation of any Environmental Law.
(d) Debtor shall conduct its operations in compliance with
the provisions of all federal, state, and local laws, ordinances, rules,
regulations, and orders applicable to any natural or environmental resource or
media located on, above, within, or in the vicinity of, related to, or affected
by, any real property.
9.16 DEFEND COLLATERAL. Debtor shall defend the Collateral against
the claims and demands of all other parties (other than Secured Party)
including, without limitation, defenses, setoffs, and counterclaims asserted by
any Account Debtor against Debtor or Secured Party; provided, however, that
nothing herein shall restrict the ability of Debtor to handle, compromise,
settle or concede any dispute or claim as Debtor may deem reasonable.
9.17 USE OF PROCEEDS. Debtor shall use the proceeds of Advances
solely for Debtor's working capital and for such other legal and proper
corporate purposes as are consistent with all applicable laws, Debtor's articles
or certificate of incorporation and by-laws, resolutions of Debtor's Board of
Directors, and the terms of this Agreement.
9.18 COMPLIANCE WITH LAWS. Debtor shall comply with all applicable
laws, rules, regulations, and other legal requirements with respect to its
business and the use, maintenance, and operations of the real and personal
property owned or leased by it in the conduct of its business, except where the
failure to so comply would not have a material adverse effect on the business or
financial condition of Debtor.
9.19 MAINTENANCE OF PROPERTY. Debtor shall maintain its material
property including, without limitation, the Collateral, in good condition and
repair, subject to ordinary course of business wear and tear, and shall prevent
waste.
9.20 LICENSES, PERMITS, ETC. Debtor shall maintain all of its
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, and orders, if any, in full force and effect until their
respective expiration dates.
9.21 TRADEMARKS AND PATENTS. Debtor shall maintain all of its
trademarks, trademark rights, patents, patent rights, licenses, permits,
tradenames, tradename rights, and approvals, if any, in full force and effect
until their respective expiration dates, except where the failure to maintain
such items would not have a material adverse effect on the business or financial
condition of Debtor.
9.22 ERISA. Debtor shall comply with the provisions of ERISA and the
Internal Revenue Code with respect to each Pension Plan.
9.23 MAINTENANCE OF OWNERSHIP. Debtor shall at all times maintain
ownership of the percentages of issued and outstanding capital stock of each
Consolidated Subsidiary set forth in Item 36 of the Schedule and notify Secured
Party in writing prior to the incorporation of any new Consolidated Subsidiary.
9.24 ACTIVITIES OF CONSOLIDATED SUBSIDIARIES. Unless the provisions
of this Section 9.24 are expressly waived by Secured Party in writing, Debtor
shall cause each Consolidated Subsidiary to comply with Sections 9.1(b), 9.9,
9.11(a), 9.12, 9.15 and 9.18 through 9.22, inclusive, and any of the provisions
contained in Item 21 of the Schedule, and shall cause each Consolidated
Subsidiary to refrain from doing any of the acts proscribed by Sections 10.2,
10.3, and 10.5 through 10.14, inclusive, or proscribed by any of the provisions
contained in Item 21 of the Schedule.
10. NEGATIVE COVENANTS. So long as any part of the Indebtedness remains
unpaid or this Agreement remains in effect, Mercury and its Consolidated
Subsidiaries, without the written consent of Secured Party, which consent shall
not be unreasonably withheld, shall not violate any covenant contained in Item
21 of the Schedule and shall not:
10.1 LOCATION OF INVENTORY, EQUIPMENT AND BUSINESS RECORDS. Move
the Inventory, Equipment or the records concerning the Collateral from the
location where they are kept as specified in Items 10 and 12 of the Schedule.
10.2 BORROWED MONEY. Create, incur, assume, or suffer to exist any
liability for borrowed money, except to Secured Party and except as may be
specified in Item 27 of the Schedule.
10.3 SECURITY INTEREST AND OTHER ENCUMBRANCES. Create, incur, assume,
or suffer to exist any mortgage, security interest, lien, or other encumbrance
upon any of its properties or assets, whether now owned or hereafter acquired,
except mortgages, security interests, liens, and encumbrances (a) in favor of
Secured Party and (b) as may be specified in Item 11 of the Schedule.
10.4 STORING AND USE OF THE COLLATERAL. Place the Collateral in any
warehouse which may issue a negotiable Document with respect thereto or use the
Collateral in violation of any provision of the Transaction Documents, of any
applicable statute, regulation, or ordinance, or of any policy insuring the
Collateral.
10.5 MERGERS, CONSOLIDATIONS, OR SALES. (a) Merge or consolidate
with or into any corporation; (b) enter into any joint venture or partnership
with any person, firm, or corporation; (c) convey, lease, or sell all or any
material portion of its property or assets or business to any other person,
firm, or corporation except for the sale of Inventory in the ordinary course of
its business and in accordance with the terms of this Agreement; or (d) convey,
lease, or sell any of its assets to any person, firm, or corporation for less
than the fair market value thereof.
10.6 CAPITAL STOCK. Purchase or retire any of its capital stock or
issue any capital stock, except pro rata to its present stockholders, or
otherwise change the capital structure of Debtor or change the relative rights,
preferences or limitations relating to any of its capital stock.
10.7 DIVIDENDS OR DISTRIBUTIONS. Pay or declare any cash or other
dividends or distributions on any of its corporate stock, except that stock
dividends may be paid, and except that a Consolidated Subsidiary may pay
dividends of any kind to Debtor and so long as no Event of Default shall have
occurred and is continuing, Debtor may pay lawful, cash dividends to Mercury.
10.8 INVESTMENTS AND ADVANCES. Make any investment in or advances to
any other person, firm, or corporation, except (a) advance payments or deposits
against purchases made in the ordinary course of Debtor's regular business; (b)
direct obligations of the United States of America; (c) any existing investments
in, or existing advances to, the Consolidated Subsidiaries; or (d) any
investments or advances that may be specified in Item 28 of the Schedule.
10.9 GUARANTIES. Become a guarantor, a surety, or otherwise liable
for the debts or other obligations of any other person, firm, or corporation,
whether by guaranty or suretyship agreement, agreement to purchase
indebtedness, agreement for furnishing funds through the purchase of goods,
supplies, or services (or by way of stock purchase, capital contribution,
advance, or loan) for the purpose of paying or discharging indebtedness, or
otherwise, except in favor of Secured Party, except as an indorser of
instruments for the payment of money deposited to its bank account for
collection in the ordinary course of business and except as may be specified
in Item 29 of the Schedule.
10.10 INTENTIONALLY DELETED.
10.11 CAPITAL EXPENDITURES. Together with Mercury and its other
Consolidated Subsidiaries make or incur any capital expenditures in any one
fiscal year in an aggregate amount in excess of the amount, if any, specified in
Item 31 of the Schedule.
10.12 INTENTIONALLY DELETED.
10.13 NAME CHANGE. Change its name without giving at least thirty
(30) days prior written notice of its proposed new name to Secured Party,
together with delivery to Secured Party of UCC-1 Financing Statements reflecting
Debtor's new name, all in form and substance satisfactory to Secured Party.
10.14 DISPOSITION OF COLLATERAL. Sell, assign, or otherwise transfer,
dispose of or encumber the Collateral or any interest therein, or grant a
security interest therein or license thereof, except to Secured Party and except
the sale or lease of Inventory and obsolete Equipment in the ordinary course of
business of Debtor and in accordance with the terms of this Agreement.
10.15 FINANCIAL COVENANTS. Fail to comply with the financial
covenants set forth in Item 26 of the Schedule.
11. EVENTS OF DEFAULT.
11.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an event of default (individually, an Event of
Default and, collectively, Events of Default):
(a) Nonpayment. Nonpayment when due of any principal,
interest, premium, fee, cost, or expense due under the Transaction Documents.
(b) Negative Covenants. Default in the observance of any of
the covenants or agreements of Debtor contained in Article 10.
(c) Article 6. Default in the observance of any of the
covenants or agreements of Debtor contained in Article 6.
(d) Other Covenants. Default in the observance of any of
the covenants or agreements of Debtor contained in the Transaction Documents,
other than in Article 11 or Sections 7.1, 7.2, 7.3 or 7.4 or in any other
agreement with Secured Party which is not remedied within the earlier of ten
(10) days after (i) notice thereof by Secured Party to Debtor, or (ii) the date
Debtor was required to give notice to Secured Party under Section 9.14.
(e) Cessation of Business or Voluntary Insolvency
Proceedings. The (i) cessation of operations of Debtor's business as conducted
on the date of this Agreement in any material respect; (ii) filing by Debtor of
a petition or request for liquidation reorganization, arrangement, adjudication
as a bankrupt, relief as a debtor, or other relief under the bankruptcy,
insolvency, or similar laws of the United States of America or any state or
territory thereof or any foreign jurisdiction now or hereafter in effect; (iii)
making by Debtor of a general assignment for the benefit of creditors; (iv)
consent by the Debtor to the appointment of a receiver or trustee, including,
without limitation, a "custodian" as defined in the Federal Bankruptcy Code for
Debtor or any of Debtor's assets; (v) making of any, or sending of any notice of
any intended, bulk sale by Debtor; or (vi) execution by Debtor of a consent to
any other type of insolvency proceeding (under the Federal Bankruptcy Code or
otherwise) or any formal or informal proceeding for the dissolution or
liquidation of, or settlement of claims against or winding up of affairs of,
Debtor.
(f) Involuntary Insolvency Proceedings. (i) The appointment
of a receiver, trustee, custodian, or officer performing similar functions,
including, without limitation, a "custodian" as defined in the Federal
Bankruptcy Code, for Debtor or any of Debtor's assets; or the filing against
Debtor of a request or petition for liquidation, reorganization, arrangement,
adjudication as a bankrupt, or other relief under the bankruptcy, insolvency, or
similar laws of the United States of America, any state or territory thereof, or
any foreign jurisdiction now or hereafter in effect; or of any other type of
insolvency proceeding (under the Federal Bankruptcy Code
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or otherwise) or any formal or informal proceeding for the dissolution or
liquidation of, settlement of claims against or winding up of affairs of Debtor
shall be instituted against Debtor and (ii) such appointment shall not be
vacated or such petition or proceeding shall not be dismissed within sixty (60)
days after such appointment, filing, or institution.
(g) Other Indebtedness and Agreements. Failure by Debtor to
pay when due (or, if permitted by the terms of any applicable documentation,
within any applicable grace period) any indebtedness owing by Debtor to Secured
Party or any other person or entity (other than the Indebtedness incurred
pursuant to this Agreement and including, without limitation indebtedness
evidencing a deferred purchase price), whether such indebtedness shall become
due by scheduled maturity, by required prepayment, by acceleration, by demand or
otherwise, or failure by the Debtor to perform any term, covenant, or agreement
on its part to be performed under any agreement or instrument (other than a
Transaction Document) evidencing or securing or relating to any indebtedness
owing by Debtor when required to be performed if the effect of such failure is
to permit the holder to accelerate the maturity of such indebtedness, unless
Debtor is contesting such matter in good faith with appropriate proceedings and
reserves.
(h) Judgments. Any judgment or judgments against Mercury
and its Consolidated Subsidiaries in excess of an aggregate amount of $250,000
(other than any judgment which is fully insured) shall remain unpaid, unstayed
on appeal, undischarged, unbonded, or undismissed for a period of forty-five
(45) days.
(i) Pension Default. Any Reportable Event which Secured
Party shall determine in good faith constitutes grounds for the termination of
any Pension Plan by the Pension Benefit Guaranty Corporation or for the
appointment by an appropriate United States district court of a trustee to
administer any Pension Plan shall occur and shall continue thirty (30) days
after written notice thereof to Debtor by Secured Party; or the Pension Benefit
Guaranty Corporation shall institute proceedings to terminate any Pension Plan
or to appoint a trustee to administer any Pension Plan; or a trustee shall be
appointed by an appropriate United States district court to administer any
Pension Plan; or any Pension Plan shall be terminated; or Debtor or any
Consolidated Subsidiary shall withdraw from a Pension Plan in a complete
withdrawal or a partial withdrawal; or there shall arise vested unfunded
liabilities under any Pension Plan that, in the good faith opinion of Secured
Party, have or will or might have a material adverse effect on the finances or
operations of Debtor; or Debtor or any Consolidated Subsidiary shall fail to pay
to any Pension Plan any contribution which it is obligated to pay under the
terms of such plan or any agreement or which is required to meet statutory
minimum funding standards.
(j) Collateral; Impairment. There shall occur with respect
to the Collateral any (i) misappropriation, conversion, diversion, or fraud,
(ii) levy, seizure, or attachment, or (iii) material loss, theft, or damage, in
each case, if such event has a material adverse effect on the Debtor's business
or financial condition.
(k) Cross Default. There shall occur an "Event of Default"
as defined in those two (2) certain Loan and Security Agreements dated as of
December 6, 1989, as amended, between Secured Party and Mercury or Maytag
Aircraft Corporation, respectively.
(l) Third Party Default. There shall occur with respect to
any Third Party, including, without limitation, any guarantor (i) any event
described in Section 11.1(d), 11.1(e), 11.1(f) or 11.1(g), (ii) any pension
default event such as described in Section 11.1(h) with respect to any pension
plan maintained by such Third Party, or (iii) any failure by Third Party to
perform in accordance with the terms of any agreement between such Third Party
and Secured Party.
(m) Representations. Any certificate, statement,
representation, warranty, or financial statement furnished by or on behalf of
Debtor or any Third Party pursuant to or in connection with this Agreement
(including, without limitation, representations and warranties contained herein)
or as an inducement to Secured Party to enter into this Agreement or any other
lending agreement with Debtor shall prove to have been false in any material
respect at the time as of which the facts therein set forth were certified or to
have omitted any substantial contingent or unliquidated liability or material
claim against Debtor or any such Third Party, or if on the date of the execution
of this Agreement there shall have been any materially adverse change in any of
the facts disclosed by any such statement or certificate which shall not have
been disclosed in writing to Secured Party at or prior to the time of such
execution.
(n) Challenge to Validity. Debtor or any Third Party
commences any action or proceeding to contest the validity or enforceability of
any Transaction Document, or any lien or security interest granted or
obligations evidenced by any Transaction Document.
(o) Death or Incapacity; Termination. Any Third Party dies
or becomes incapacitated, or terminates or attempts to terminate, in accordance
with its terms or otherwise, any guaranty or other Transaction Document executed
by such Third Party.
(p) Change of Ownership. If all or a controlling interest
of the capital stock of Debtor shall be sold, assigned, or otherwise transferred
or if a security interest or other encumbrance shall be granted or otherwise
acquired therein or with respect thereto.
11.2 EFFECTS OF AN EVENT OF DEFAULT.
(a) Upon the happening of one or more Events of Default
(except an Event of Default under either Section 11.1(d) or 11.1(e), Secured
Party may declare any obligations it may have hereunder to be canceled and the
principal of the Indebtedness then outstanding to be immediately due and
payable, together with all interest thereon and costs and expenses accruing
under the Transaction Documents. Upon such declaration, any obligations Secured
Party may have hereunder shall be immediately canceled and the Indebtedness then
outstanding shall become immediately due and payable without presentation,
demand or further notice of any kind to Debtor.
(b) Upon the happening of one or more Events of Default
under Section 11.1(d) or 11.1(e), Secured Party's obligations hereunder shall be
canceled immediately, automatically, and without notice, and the Indebtedness
then outstanding shall become immediately due and payable without presentation,
demand, or notice of any kind to the Debtor.
12. SECURED PARTY'S RIGHTS AND REMEDIES.
12.1 GENERALLY. Secured Party's rights and remedies with respect to
the Collateral, in addition to those rights granted herein and in any other
agreement between Debtor and Secured Party now or hereafter in effect, shall be
those of a secured party under the Uniform Commercial Code as in effect in the
State and under any other applicable law.
12.2 NOTIFICATION OF ACCOUNT DEBTORS. At any time during the
continuance of an Event of Default, Secured Party may, at any time and from time
to time, notify any or all Account Debtors of the Security Interest and may
direct such Account Debtors to make all payments on Receivables directly to
Secured Party.
12.3 POSSESSION OF COLLATERAL. Whenever Secured Party may take
possession of the Collateral pursuant to Section 12.1, Secured Party may take
possession of the Collateral on Debtor's premises or may remove the Collateral
or any part thereof to such other places as the Secured Party may in its sole
discretion determine to be commercially reasonable. If requested by Secured
Party, Debtor shall assemble the Collateral and deliver it to Secured Party at
such place as may be designated by Secured Party.
12.4 COLLECTION OF RECEIVABLES. At any time during the continuance
of an Event of Default, Secured Party may demand, collect, and sue for all
monies and Proceeds due or to become due on the Receivables (in either Debtor's
or Secured Party's name at the latter's option) with the right to enforce,
compromise, settle, or discharge any or all Receivables. If Secured Party takes
any action contemplated by this Section with respect to any Receivable, Debtor
shall not exercise any right that Debtor would otherwise have had to take such
action with respect to such Receivable.
12.5 INDORSEMENT OF CHECKS; DEBTOR'S MAIL. Debtor hereby irrevocably
appoints Secured Party the Debtor's agent with full power, in the same manner,
to the same extent, and with the same effect as if Debtor were to do the same:
to indorse Debtor's name on any Instruments or Documents pertaining to any
Collateral, or, at any time during the continuance of an Event of Default, or
upon Secured Party's reasonable belief that Debtor has committed fraud or has
failed to remit collections on Receivables or other Proceeds of Collateral to
Secured Party as required hereunder, to receive and collect all mail addressed
to Debtor, direct the place of delivery of such mail to any location designated
by Secured Party, open such mail, remove all contents therefrom and retain all
contents thereof constituting or relating to the Collateral. This agency is
unconditional and shall not terminate until all of the Indebtedness is paid in
full and this Agreement has been terminated. Secured Party agrees to give Debtor
notice in the event it exercises this agency, except with respect to the
indorsement of Debtor's name on any instruments or documents pertaining to any
Collateral.
12.6 LICENSE TO USE PATENTS, TRADEMARKS, AND TRADENAMES. Debtor
grants to Secured Party a royalty-free license to use any and all patents,
trademarks, and tradenames now or hereafter owned by, or licensed to, Debtor for
the purposes of manufacturing and disposing of Inventory after the occurrence of
an Event of Default. All Inventory shall at least meet quality standards
maintained by Debtor prior to such Event of Default.
13. MISCELLANEOUS.
13.1 PERFECTING THE SECURITY INTEREST; PROTECTING THE COLLATERAL.
Debtor hereby authorizes Secured Party to file such financing statements
relating to the Collateral without Debtor's signature thereon as Secured Party
may deem appropriate, and appoints Secured Party as Debtor's attorney-in-fact
(without requiring Secured Party) to execute any such financing statement or
statements in Debtor's name and to perform all other acts which Secured Party
deems appropriate to perfect and continue the Security Interest and to protect,
preserve, and realize upon the Collateral.
13.2 PERFORMANCE OF DEBTOR'S DUTIES. Upon Debtor's failure to
perform any of its duties under the Transaction Documents, including, without
limitation, the duty to obtain insurance as specified in Section 9.11, Secured
Party may, but shall not be obligated to, perform any or all such duties
following written notice to Debtor or during the continuance of an Event of
Default.
13.3 NOTICE OF SALE. Without in any way requiring notice to be given
in the following manner, Debtor agrees that any notice by Secured Party of sale,
disposition, or other intended action hereunder or in connection herewith,
whether required by the Uniform Commercial Code as in effect in the State or
otherwise, shall constitute reasonable notice to Debtor if such notice is mailed
by regular or certified mail, postage prepaid, at least five (5) days prior to
such action, to Debtor's address or addresses specified above or to any other
address which Debtor has specified in writing to Secured Party as the address to
which notices hereunder shall be given to Debtor.
13.4 WAIVER BY SECURED PARTY. No course of dealing between Debtor
and Secured Party and no delay or omission by Secured Party in exercising any
right or remedy under the Transaction Documents or with respect to any
Indebtedness shall operate as a waiver thereof or of any other right or remedy,
and no single or partial exercise thereof shall preclude any other or further
exercise thereof or the exercise of
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any other right or remedy. All rights and remedies of Secured Party are
cumulative.
13.5 WAIVER BY DEBTOR. Secured Party shall have no obligation to
take, and Debtor shall have the sole responsibility for taking, any and all
steps to preserve rights against any and all Account Debtors and against any and
all prior parties to any note, Chattel Paper, draft, trade acceptance, or other
instrument for the payment of money covered by the Security Interest whether or
not in Secured Party's possession. Secured Party shall not be responsible to
Debtor for loss or damage resulting from Secured Party's failure to enforce any
Receivables or to collect any moneys due or to become due thereunder or other
Proceeds constituting Collateral hereunder, unless such loss or damage results
from Secured Party's gross negligence or wilfull misconduct. Debtor waives
protest of any note, check, draft, trade acceptance, or other instrument for the
payment of money constituting Collateral at any time held by Secured Party on
which Debtor is in any way liable and waives notice of any other action taken by
Secured Party, including, without limitation, notice of Secured Party's intent
to accelerate the Indebtedness or any part thereof.
13.6 SETOFF. Without limiting any other right of Secured Party,
whenever Secured Party has the right to declare any Indebtedness to be
immediately due and payable (whether or not it has so declared), Secured Party
at its sole election may setoff against the Indebtedness any and all monies then
or thereafter owed to Debtor by Secured Party in any capacity, whether or not
the Indebtedness or the obligation to pay such monies owed by Secured Party is
then due, and Secured Party shall be deemed to have exercised such right of
setoff immediately at the time of such election even though any charge therefor
is made or entered on Secured Party's records subsequent thereto.
13.7 ASSIGNMENT. The rights and benefits of Secured Party hereunder
shall, if Secured Party so agrees, inure to any party acquiring any interest in
the Indebtedness or any part thereof.
13.8 SUCCESSORS AND ASSIGNS. Secured Party and Debtor as used herein
shall include the successors or assigns of those parties, except that Debtor
shall not have the right to assign its rights hereunder or any interest herein.
13.9 MODIFICATION. No modification, rescission, waiver, release, or
amendment of any provision of this Agreement shall be made, except as may be
provided in Item 38 of the Schedule or by a written agreement signed by Debtor
and a duly authorized officer of Secured Party.
13.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by Secured Party and Debtor on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same Agreement.
13.11 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Any financial
calculation to be made, all financial statements and other financial information
to be provided, and all books and records to be kept in connection with the
provisions of this Agreement, shall be in accordance with generally accepted
accounting principles consistently applied during each interval and from
interval to interval; provided, however, that in the event changes in generally
accepted accounting principles shall be mandated by the Financial Accounting
Standards Board or any similar accounting body of comparable standing, or should
be recommended by Debtor's certified public accountants, to the extent such
changes would affect any financial calculations to be made in connection
herewith, such changes shall be implemented in making such calculations only
from and after such date as Debtor and Secured Party shall have amended this
Agreement to the extent necessary to reflect such changes in the financial and
other covenants to which such calculations relate.
13.12 INDEMNIFICATION.
(a) If after receipt of any payment of all or any part of
the Indebtedness, Secured Party is for any reason compelled to surrender such
payment to any person or entity because such payment is determined to be void or
voidable as a preference, an impermissible setoff, or a diversion of trust
funds, or for any other reason, the Transaction Documents shall continue in full
force and Debtor shall be liable, and shall indemnify and hold Secured Party
harmless for, the amount of such payment surrendered. The provisions of this
Section shall be and remain effective notwithstanding any contrary action which
may have been taken by Secured Party in reliance upon such payment, and any such
contrary action so taken shall be without prejudice to Secured Party's rights
under the Transaction Documents and shall be deemed to have been conditioned
upon such payment having become final and irrevocable. The provisions of this
Section 13.12(a) shall survive the termination of this Agreement and the
Transaction Documents.
(b) Debtor agrees to indemnify, defend, and hold harmless
Secured Party from and against, any and all liabilities, claims, damages,
penalties, expenditures, losses, or charges, including, but not limited to, all
costs of investigation, monitoring, legal representations, remedial response,
removal, restoration, or permit acquisition, which may now, or in the future, be
undertaken, suffered, paid, awarded, assessed, or otherwise incurred by Secured
Party or any other person or entity as a result of the presence of, Release of,
or threatened Release of Hazardous Substances on, in, under, or near the
property owned, leased, or operated by Debtor or any Consolidated Subsidiary.
The liability of Debtor under the covenants of this Section 13.12(b) is not
limited by any exculpatory provisions in this Agreement or any other documents
securing the Indebtedness and shall survive repayment of the Indebtedness or any
transfer or termination of this Agreement regardless of the means of such
transfer or termination. Debtor agrees that Secured Party shall not be liable
in any way for the completeness or accuracy of any Environmental Report or the
information contained therein. Debtor further agrees that Secured Party has no
duty to warn Debtor or any other person or entity about any actual or potential
environmental contamination or other problem that may have become apparent, or
will become apparent, to Secured Party.
(c) Debtor agrees to pay, indemnify, and hold Secured Party
harmless, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever (including, without limitation, counsel and
special counsel fees and disbursements in connection with any litigation,
investigation, hearing or other proceeding) with respect or in any way related
to the existence, execution, delivery, enforcement, performance and
administration of this Agreement and any other Transaction Document (all of the
foregoing, collectively, the "Indemnified Liabilities"). The agreements in this
Section 13.12(c) shall survive repayment of the Indebtedness.
13.13 TERMINATION; PREPAYMENT PREMIUM.
(a) Termination. This Agreement is and is intended to be a
continuing Agreement and shall remain in full force and effect for an initial
term equal to the term set forth in Item 35 of the Schedule and for any renewal
term also specified in Item 35 of the Schedule; provided, however, that either
party may terminate this Agreement as of the end of the initial term or any
subsequent renewal term by giving the other party notice to terminate in writing
at least sixty (60) days prior to the end of any such period whereupon at the
end of such period all Indebtedness shall be due and payable in full without
presentation, demand, or further notice of any kind, whether or not all or any
part of such Indebtedness is otherwise due and payable pursuant to the agreement
or instrument evidencing same. Secured Party may terminate this Agreement
immediately and without notice upon the occurrence of an Event of Default.
Notwithstanding the foregoing or anything in this Agreement or elsewhere to the
contrary, the Security Interest, Secured Party's rights and remedies under the
Transaction Documents and Debtor's obligations and liabilities under the
Transaction Documents, shall survive any termination of this Agreement and shall
remain in full force and effect until all of the Indebtedness outstanding, or
contracted or committed for (whether or not outstanding), before the receipt of
such notice by Secured Party, and any extensions or renewals thereof (whether
made before or after receipt of such notice), together with interest accruing
thereon after such notice, shall be finally and irrevocably paid in full. No
Collateral shall be released or financing statement terminated until such final
and irrevocable payment in full of the Indebtedness as described in the
preceding sentence.
(b) Prepayment Premium. If Debtor pays in full all or
substantially all of the principal balance of Advances prior to the end of the
initial term or any renewal term of this Agreement as set forth in Item 37 of
the Schedule, other than temporarily from funds internally generated in the
ordinary course of business, at the time of any such payment Debtor shall also
pay to Secured Party the prepayment premium set forth in Item 37 of the
Schedule. Any tender of payment in full of such principal balance following an
acceleration by Secured Party of the Indebtedness pursuant to Section 11.2 shall
be for purposes of this Section 13.13(b), deemed to be considered a prepayment
requiring Debtor to pay the prepayment premium set forth in Item 37 of the
Schedule.
13.14 FURTHER ASSURANCES. From time to time, Debtor shall take such
action and execute and deliver to Secured Party such additional documents,
instruments, certificates, and agreements as Secured Party may reasonably
request to effectuate the purposes of the Transaction Documents.
13.15 HEADINGS. Article and Section headings used in this Agreement
are for convenience only and shall not affect the construction of this
Agreement.
13.16 CUMULATIVE SECURITY INTEREST, ETC. The execution and delivery
of this Agreement shall in no manner impair or affect any other security (by
endorsement or otherwise) for payment or performance of the Indebtedness and no
security taken hereafter as security for payment or performance of the
Indebtedness shall impair in any manner or affect this Agreement or the security
interest granted hereby, all such present and future additional security to be
considered as cumulative security.
13.17 SECURED PARTY'S DUTIES. Without limiting any other provision of
this Agreement: (a) the powers conferred on Secured Party hereunder are solely
to protect its interests and shall not impose any duty to exercise any such
powers and (b) except as may be required by applicable law, Secured Party shall
not have any duty as to any Collateral or as to the taking of any necessary
steps to preserve rights against any parties or any other rights pertaining to
any Collateral.
13.18 NOTICES GENERALLY. All notices and other communications
hereunder shall be made by telegram, telex, electronic transmitter, overnight
air courier, or certified or registered mail, return receipt requested, and
shall be deemed to be received by the party to whom sent one Business Day after
sending, if sent by telegram, telex, electronic transmitter, or overnight air
courier, and three Business Days after mailing, if sent by certified or
registered mail. All such notices and other communications to a party hereto
shall be addressed to such party at the address set forth on the cover page
hereof or to such other address as such party may designate for itself in a
notice to the other party given in accordance with this Section 13.18.
13.19 SEVERABILITY. The provisions of this Agreement are independent
of and separable from each other, and no such provision shall be affected or
rendered invalid or unenforceable by virtue of the fact that for any reason any
other such provision may be invalid or unenforceable in whole or in part. If
any provision of this Agreement is prohibited or unenforceable in any
jurisdiction, such provision shall be ineffective in such jurisdiction only to
the extent of such prohibition or unenforceability, and such prohibition or
unenforceability shall not invalidate the balance of such provision to the
extent it is not prohibited or unenforceable nor render prohibited or
unenforceable such provision in any other jurisdiction.
8
<PAGE> 11
13.20 INCONSISTENT PROVISIONS. The terms of this Agreement and the
other Transaction Documents shall be cumulative except to the extent they are
specifically inconsistent with each other, in which case the terms of this
Agreement shall prevail.
13.21 ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents constitute the entire agreement and understanding between the parties
hereto with respect to the transactions contemplated hereby and supersede all
prior negotiations, understandings, and agreements between such parties with
respect to such transactions, including, without limitation, those expressed in
any commitment letter delivered by Secured Party to Debtor.
13.22 APPLICABLE LAW. THIS AGREEMENT AND THE TRANSACTIONS EVIDENCED
HEREBY SHALL BE GOVERNED BY AND CONSTRUED UNDER THE INTERNAL LAWS OF THE STATE,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, AS THE SAME MAY FROM TIME TO
TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE UNIFORM COMMERCIAL CODE AS
IN EFFECT IN THE STATE.
13.23 CONSENT TO JURISDICTION. DEBTOR AND SECURED PARTY AGREE THAT
ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THE TRANSACTION DOCUMENTS
MAY BE COMMENCED IN ANY COURT OF THE STATE IN LOS ANGELES COUNTY, OR IN THE
DISTRICT COURT OF THE UNITED STATES IN LOS ANGELES COUNTY, AND DEBTOR WAIVES
PERSONAL SERVICE OF PROCESS AND AGREES THAT A SUMMONS AND COMPLAINT COMMENCING
AN ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY SERVED AND SHALL
CONFER PERSONAL JURISDICTION IF SERVED BY REGISTERED OR CERTIFIED MAIL TO
DEBTOR, OR AS OTHERWISE PROVIDED BY THE LAWS OF THE STATE OR THE UNITED STATES.
13.24 JURY TRIAL WAIVER. DEBTOR AND SECURED PARTY HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY DEBTOR OR
SECURED PARTY MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN
CONNECTION WITH THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
DEBTOR REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF SECURED PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SECURED PARTY WILL NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THIS RIGHT TO JURY TRIAL WAIVER. DEBTOR
ACKNOWLEDGES THAT SECURED PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION 13.24.
MARINE MIDLAND BUSINESS MERCURY AIR CARGO, INC.
LOANS, INC.
By By
---------------------------------- --------------------------------
(Title) (Title)
At Newport Beach, California At Los Angeles, California
9
<PAGE> 12
SCHEDULE
This Schedule is a part of a Loan and Security Agreement, dated as of
June 12, 1995, between MERCURY AIR CARGO, INC. and MARINE MIDLAND BUSINESS
LOANS, INC. (the "Agreement").
1. Borrowing Capacity (Section 1.1(c))
Borrowing Capacity at any time shall be the net amount determined by
taking the lesser of the following amounts:
(A) $16,000,000 minus the total outstanding "Advances" to Mercury
Air Group, Inc. ("Mercury") and Maytag Aircraft Corporation
("Maytag") as defined in their respective Loan and Security
Agreements dated as of December 6, 1989, as amended, with
Secured Party (collectively, the "Other Loan Agreements");
or
(B) up to 85% of the Receivables Borrowing Base;
or
(C) $1,000,000.
2. INTENTIONALLY DELETED.
3. Cash Discount (Section Section 1.1(g) & 9.3)
NONE
4. Receivables--Age (Section 1.1(v)(i))
90 days after the Invoice date.
5. Receivables Disqualification Percentage (Section 1.1(v)(v))
50% or more
6. Permissible Foreign Account Debtors (Section 1.1(v)(vi))
NONE
7. INTENTIONALLY DELETED.
8. Marine Payment Account (Section 1.1(bb))
There shall be no Marine Payment Approval unless and until Secured Party
elects otherwise.
9. State of Incorporation (Section 4.1)
California.
10. Locations of Inventory and Equipment (Section Section 4.4(c), 4.7,
4.8(a) & 10.1)
See attached Schedule 1.
11. Permitted Encumbrances (Section Section 4.5(a), 4.5(c) & 10.3)
Purchase money security interests against and leases of equipment
acquired in accordance with the capital expenditures limitation set
forth in Section 10.11 of the Other Loan Agreements and Item 31 below.
12. Business Records Location (Section Section 4.8(a), 4.8(c) & 10.1)
5456 McConnell Avenue, Los Angeles, California 90066
13. Trademarks and Patents (Section 4.17)
NONE
14. INTENTIONALLY DELETED.
15. Labor Contracts (Section 4.21)
NONE
16. Authorized Shares (Section 4.23)
No. of authorized common shares: 10,000
Par Value of common shares: $.01
No. of issued and outstanding common shares: 9,500
<PAGE> 13
<TABLE>
<CAPTION>
Check If Frequency
Required Due
-------- ---------
<S> <C> <C>
17. Required Documents(Sections 5.1, 8.2(b))
Receivables Schedules /X/ Upon Request
Receivables Aging /X/ Monthly - within 25 days after month end
Credits and Extensions Reports /X/ Upon Request
Cash Receipts Journal and Schedule of Payments on Receivables /X/ Upon Request
List of names and addresses of Account Debtors /X/ Quarterly
Reconciliation report, showing all Receivables, collections, /X/ Monthly
payments, Credits, and Extensions since the preceding report
Payables aging report, showing the amounts due and owing on /X/ Monthly
all Debtor's payables according to Debtor's records as of
the close of such periods as shall be specified by Secured Party
Reconciliation of Receivables and payables aging reports to /X/ Monthly
financial statements
Loan Request, Remittance and Collateral Report (L4085F) /X/ On the date of each Advance request
Certificate signed by the president and/or chief financial /X/ Monthly
officer of Debtor that no Event of Default has occurred and
is continuing, and that no event has occurred which may
constitute an Event of Default with lapse of time or notice
or both.
</TABLE>
18. Interest Rate (Section 7.2)
one half percent (1/2%) plus the greater of (i) the Prime Rate or (ii)
five percent (5%), provided that Debtor may exercise the "LIBOR" option
upon the terms, conditions and provisions of that certain Amendment to
Loan and Security Agreements dated as of December 20, 1994 among Mercury,
Maytag and Secured Party.
19. Fees and Due Dates (Section 7.3)
<TABLE>
<CAPTION>
Type Amount Due Date(s)
---- ------ -----------
<S> <C> <C>
Wire Transfer Fee $15.00 for each wire transfer initiated Upon initiation or receipt of the
or received by Secured Party wire transfer by Secured Party
Annual Facility Fee .125% of $16,000,000 or such different Annually in advance, on December 12,
(jointly with Mercury maximum aggregate Borrowing Capacity 1995 on each anniversary thereof
and Maytag) as may hereafter be agreed to by
Borrower, Mercury, Maytag and Secured
Party.
</TABLE>
20. INTENTIONALLY DELETED.
21. Additional Covenants (Section Section 9 & 10)
NONE
22. INTENTIONALLY DELETED.
23. INTENTIONALLY DELETED.
24. INTENTIONALLY DELETED.
25. Terms of Sale (Section 9.3)
Due dates of no more than net 60 calendar days from date of Invoice.
26. Financial Covenants (Section 10.15)
Mercury and its Consolidated Subsidiaries shall maintain the following
levels of financial performance on a consolidated basis:
(A) Tangible Net Worth of not less than $15,000,000.00 as of the end
of each fiscal quarter.
"Tangible Net Worth" shall mean the amount by which the assets,
but excluding goodwill, exceed liabilities computed in accordance
with generally accepted accounting principles consistently
applied.
(B) Working Capital of not less than $6,000,000.00 as of the end of
each fiscal quarter.
"Working Capital" shall mean the amount by which current assets,
exceed current liabilities, including the Advances, computed in
accordance with generally accepted accounting principles
consistently applied.
(C) Current Ratio of not less than 1.0:1 as of the end of each fiscal
quarter.
2
<PAGE> 14
"Current Ratio" shall mean the ratio of current assets to
current liabilities, including the Advances, computed in
accordance with generally accepted accounting principles
consistently applied..
(D) Debt/Worth Ratio of not more than 3.5:1 as of the end of each
fiscal quarter.
"Debt/Worth Ratio" shall mean the ratio of total liabilities to
Tangible Net Worth, computed in accordance with generally
accepted accounting principles consistently applied.
(E) Net income after provision for taxes (determined in accordance
with generally accepted accounting principles consistently
applied) of not less than $3,000,000.00 during each fiscal year
ending on or after June 30, 1995.
27. Permitted Borrowings (Section 10.2)
As permitted in Sections 11.2 of the Other Loan Agreements
28. Permitted Investments and Advances (Section 10.8(d))
As permitted in Sections 11.9 of the Other Loan Agreements
29. Permitted Guaranties (Section Section 4.18, 10.9)
As permitted in Sections 11.10 of the Other Loan Agreements
30. INTENTIONALLY DELETED.
31. Permitted Capital Expenditures (Section 10.11)
$1,500,000
32. INTENTIONALLY DELETED.
33. INTENTIONALLY DELETED.
34. State (Section 1.1(oo))
California
35. Initial Term and Renewal Term (Section 13.13)
Initial Term: Through October 31, 1997
Renewal Term: 12 months
36. Percentage of Stock Ownership of Consolidated Subsidiaries (Section
4.22, Section 9.23)
Not applicable.
37. Prepayment Premium (Section 13.13)
$1/2% of the sum of the maximum aggregate Borrowing Capacity (presently
$16,000,000), plus the principal balances of any Term Loans to
Borrower, Mercury and/or Maytag, as they may hereafter be increased or
decreased (payable jointly with Mercury and Maytag)
38. Other Provisions (Section 13.9)
NONE
The undersigned have executed this Schedule as of June 12, 1995.
MARINE MIDLAND BUSINESS LOANS, INC. MERCURY AIRCARGO, INC.
By By
--------------------------------- -------------------------------
(Title) (Title)
At Newport Beach, California At Los Angeles, California
3
<PAGE> 15
EXHIBIT A
FINANCIAL STATEMENT CERTIFICATION
The undersigned, the _____________________________ of Mercury
Air Cargo, Inc. ("Debtor") hereby certifies to Marine Midland Business Loans,
Inc. that attached hereto is a true, correct and complete copy of the Debtor's
financial statements as of the month ending _________, 19__, which financial
statements fairly present Debtor's [and each consolidated subsidiary's]
financial position and consist of a balance sheet and related statements of
income, retained earnings, and cash flow covering the period from the end of the
immediately preceding fiscal year to the end of such month.
------------------------------------------
Name:
Title:
Date: , 19
-------- --
<PAGE> 16
AMENDMENT TO
LOAN AND SECURITY AGREEMENTS
THIS AMENDMENT (this "Amendment") dated as of June 12, 1995 is
entered into by and among MARINE MIDLAND BUSINESS LOANS, INC., a Delaware
corporation ("Lender"), and MERCURY AIR GROUP, INC., a New York corporation
formerly known as IPM Technology, Inc. ("Mercury"), and MAYTAG AIRCRAFT
CORPORATION, a Colorado corporation ("Maytag"). Mercury and Maytag shall
collectively be referred to herein as "Borrowers".
RECITALS
A. Lender and the respective Borrowers are parties to those two (2)
certain Loan and Security Agreements dated as of December 6, 1989, as amended
(singly, the "Agreement," and collectively, the "Agreements").
B. Lender and Borrowers desire to amend the Agreements in certain
respects, but subject to the terms and conditions set forth below.
AGREEMENT
In consideration of the above recitals and of the mutual covenants
contained herein, Lender and Borrowers agree as follows:
1. Defined Terms. Each of the terms defined in the Agreements which
are used herein shall have the same meaning as set forth in the Agreements,
unless otherwise specified herein.
2. Maximum Borrowing Capacity. With respect to clauses (a) of the
definitions of "Borrowing Capacity" in Sections 1.1 of the Agreements, the
maximum aggregate Borrowing Capacity of Borrowers shall be $16,000,000.00 less
the total outstanding "Advances" to Cargo under its Loan and Security Agreement
with Lender of even date herewith as it may hereafter be amended, modified,
substituted or replaced.
3. Financial Covenants. With respect to Sections 10.13 of the
Agreements, Mercury and its Consolidated Subsidiaries shall maintain Tangible
Net Worth and Working Capital of not less than $15,000,000.00 and $6,000,000.00,
respectively, as of the end of each fiscal quarter on a consolidated basis. For
the purposes of Sections 10.13, "Tangible Net Worth" shall mean the amount by
which the assets of Mercury and its Consolidated Subsidiaries, but excluding
goodwill, exceed liabilities computed in accordance with GAAP.
<PAGE> 17
4. Events of Default. With respect to Sections 12.1 of the
Agreements, an Event of Default shall be deemed to have occurred if an "Event of
Default" occurs under, and as defined in, that certain Loan and Security
Agreement of even date herewith between Mercury Air Cargo, Inc., a California
corporation, and Secured Party.
5. Continuing Effect of Loan Documents.
(a) Except as specifically amended as set forth above, the
Agreements and all other Loan Documents shall remain in full force and effect
and are hereby ratified and confirmed; and
(b) Upon the effectiveness of this Amendment, each reference in
the Loan Documents to the Agreements shall mean and be a reference to the
Agreements as amended hereby.
6. Borrowers' Representations and Warranties. Borrowers represent and
warrant as follows:
(a) Each of the representations and warranties contained in the
Agreements is hereby reaffirmed as of the date hereof, each as if set forth
herein;
(b) The execution, delivery and performance of this Amendment are
within Borrowers' powers, have been duly authorized by all necessary action,
have received all necessary approvals, if any, and do not contravene any law or
any contractual restrictions binding on Borrowers;
(c) This Amendment is the legal, valid and binding obligation of
Borrowers, enforceable against Borrowers in accordance with its terms; and
(d) No event has occurred and is continuing which constitutes an
Event of Default under the Agreements after giving effect to this Amendment.
7. Conditions Precedent. This Amendment shall become effective when,
and only when, Lender shall have received all of the following, in form and
substance satisfactory to Lender:
(a) A counterpart of this Amendment duly executed by Borrowers and
acknowledged by the guarantors indicated hereinbelow; and
(b) Such other documents, instruments or agreements as Lender may
reasonably request.
8. Governing Law. This Amendment shall be deemed to be a contract
under and subject to, and shall be construed for all
2
<PAGE> 18
purposes and in accordance with, the internal laws of the State of California.
9. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
WITNESS the due execution hereof as of the date first above written.
MARINE MIDLAND BUSINESS LOANS, INC.
By:
----------------------------------
Title:
-------------------------------
MERCURY AIR GROUP, INC.
By:
----------------------------------
Title:
-------------------------------
MAYTAG AIRCRAFT CORPORATION
By:
----------------------------------
Title:
-------------------------------
3
<PAGE> 19
CONSENT AND REAFFIRMATION OF GUARANTORS
The undersigned, as guarantors under their respective Guaranties
dated December 6, 1989 or April 1, 1992, hereby consent to the foregoing
Amendment and acknowledge and reaffirm their obligations and liabilities under
such Guaranties, which shall remain in full force and effect.
Dated: As of June , 1995
----
MERCURY AIR CARGO, INC.,
a California corporation
By:
----------------------------------
Title:
-------------------------------
HERMES AVIATION, INC.,
a California corporation
By:
----------------------------------
Title:
-------------------------------
<PAGE> 1
EHXIBIT 10.31
AGREEMENT
This Agreement is effective as of the 1st day of August, 1995, between
Grant G. Murray ("Murray") and Mercury Air Group, Inc. ("Mercury"), collectively
referred to as "the parties." This Agreement, once properly executed by the
parties, is a contract which supersedes any and all prior contracts, whether
written, oral or implied in law or in fact between the parties.
RECITALS
WHEREAS Murray has resigned his employment with Mercury effective July 6,
1995, which resignation has been accepted by Mercury; and,
WHEREAS Murray and Mercury wish to resolve any and all disputes, claims,
or potential disputes or claims arising out of Murray's employment with Mercury,
and/or arising out of any contracts which the parties entered into during the
time frame in which Murray was employed by Mercury; and
WHEREAS the parties wish to extinguish all obligations arising out of any
and all such contracts between them, or potentially arising out of any and all
such contracts between them, whether such contracts are claimed to be oral or
written, or implied in law or in fact, by entering into this Agreement which, in
return for the mutual considerations set forth below, establishes all present
and future rights and obligations of the parties, and specifically supersedes
any and all prior contracts, agreements, or commitments which either party
claims exist now, or may claim to exist at any time in the future; and
WHEREAS the parties wish to release one another from any and all claims,
demands and actions, whether known or unknown, and whether in law or in equity,
or of
Page 1 of 12
<PAGE> 2
an administrative nature arising out of any conduct or activity of either party
at any time prior to the effective date of this Agreement,
NOW THEREFORE, in contemplation of the intentions of the parties as set
forth in the foregoing recitals, and in consideration for the covenants,
conditions, payments, and restrictions as they relate to one party, the other
party, or both, as set forth below, the parties do hereby agree as follows:
TERMS
1. In consideration for the payment to Murray by Mercury of Two Hundred
Seventy Five Thousand and No/100 Dollars ($275,000), in accordance with the
schedule set forth below, Murray specifically agrees:
a. to relinquish any and all claims he has, might have, or might claim
to have in any stock options issued to him by Mercury, or purportedly
issued to him by Mercury, at any time whatsoever; and
b. to sell to Mercury One Hundred Ten Thousand (110,000) shares of
common stock owned, or claimed to be owned by Murray, either in whole or
in part, under a stock purchase agreement previously executed by Murray,
which agreement is now expressly extinguished by virtue of this
Agreement. The sale of the One Hundred Ten Thousand (110,000) shares of
common stock shall be effective and all of Murray's right, title and
interest to such shares shall be transferred to Mercury upon receipt by
Murray of the initial Seventy Five Thousand and No/100 Dollars ($75,000)
payment in accordance with the following payment schedule:
Page 2 of 12
<PAGE> 3
Initial payment of Seventy Five Thousand and No/100 Dollars ($75,000) to
Murray by Mercury upon execution of this Agreement, followed by four (4)
additional quarterly payments in the amount of Fifty Thousand and No/100
Dollars ($50,000) each, commencing with an initial Fifty Thousand and
No/100 Dollars ($50,000) quarterly payment on November 1, 1995, and
followed thereafter by similar Fifty Thousand and No/100 Dollars
($50,000) payments on February 1, 1996, May 1, 1996, and August 1, 1996.
The only exception to this payment schedule involves the first quarterly
installment of Fifty Thousand and No/100 Dollars ($50,000) scheduled to
be paid on November 1, 1995. Murray specifically agrees that there is
presently due and owing to Mercury an obligation by Millionaire of Long
Beach in the amount of Forty Four Thousand, Seven Hundred Ninety Five
and 59/100 Dollars ($44,795.59). Millionaire of Long Beach is a company
in which Murray holds an ownership interest, and Murray agrees that he
will use his best efforts to assure that the amount owing is paid to
Mercury in full on or before November 1, 1995. Murray specifically
agrees that in the event the obligation by Millionaire of Long Beach
has not been paid in full by November 1, 1995, Mercury's obligation to
Murray to pay the first Fifty Thousand and No/100 Dollars ($50,000)
quarterly
Page 3 of 12
<PAGE> 4
installment payment will be reduced by the amount of any remaining
obligation owed to Mercury by Millionaire of Long Beach. Murray will
only receive the difference between such amount as is owed by
Millionaire of Long Beach to Mercury and the Fifty Thousand and No/100
Dollars ($50,000) he otherwise would be scheduled to receive on
November 1, 1995, and Murray specifically agrees that no future claim or
demand will be made by him for any such amount by which his initial
quarterly installment payment is reduced, and in the event any claim or
demand is ever made by Millionaire of Long Beach or any stranger or third
party hereto, Murray will defend, indemnify and hold Mercury harmless
from and against any such claim or demand.
2. Upon execution of this Agreement, Murray releases, acquits and forever
discharges S.K. Acquisition, Inc., Seymour Kahn, Mercury, and all of its
employees, agents, officers, directors, attorneys, affiliates, successors and
assigns from any and all claims, demands, and causes of action, whether in law
or in equity, including, but not limited to, any and all administrative claims,
for any compensation due, or allegedly due, whether for wages, commissions,
bonuses, benefits or any other form of compensation earned or claimed to have
been earned during Murray's employment with Mercury.
3. As further consideration for Murray's release of any and all claims
against Mercury, and its officers, directors, employees, agents, attorneys,
affiliates and/or assigns, whether known or unknown, and whether arising in law
or in equity, and whether for tort
Page 4 of 12
<PAGE> 5
or contractual damages, or other relief arising under common law or statute,
Mercury agrees to pay all premiums due for continuation of the medical insurance
which currently affords coverage to Murray, through and including December,
1995.
4. As further consideration for Murray's release of all claims, whether
known or unknown, as set forth herein, and in return for Murray's acceptance of
all of the covenants, conditions and restrictions running in favor of Mercury as
also set forth herein, Mercury agrees to release Murray from any and all claims,
whether known or unknown, whether in law or in equity, and whether arising out
of any contract, written or oral, implied in law or in fact, previously entered
into or claimed to have been entered into between the parties during Murray's
employment with Mercury.
5. In consideration for the payments to him by Mercury as set forth
herein, and in consideration for Mercury's release of all claims it has or may
have against him through and including the effective date of this Agreement,
Murray expressly covenants that he will not, at any time during the effective
term of this Agreement, which runs from date of execution through and including
August 1, 1996, the date for the final Fifty Thousand and No/100 Dollars
($50,000) installment payment by Mercury to Murray, engage in any activity of
any kind or nature whatsoever in direct or indirect competition with Mercury.
For purposes of this Agreement, "direct competition" is defined as any conduct
by Murray, or at his direction, involving the design, development, production,
promotion, consulting, or sale of products or services competing with Mercury's
products or services, and "indirect competition" is defined as any employment of
Murray by, or affiliation with, any competitor of Mercury or third party which
provides products or services which compete with Mercury's products or services.
Page 5 of 12
<PAGE> 6
6. Murray acknowledges and by executing this Agreement confirms his
understanding that the covenant not to compete with Mercury contained in the
preceding paragraph number 5 is an essential condition of this contract.
Specifically, Murray acknowledges that he has had an opportunity to consider the
ramifications of such covenant not to compete, and he has had an opportunity to
consult freely with counsel of his choice, prior to execution of this Agreement,
concerning the ramifications of said covenant not to compete. Murray hereby
expressly confirms that he is voluntarily waiving any and all legal challenges
which he has, or might ever have, concerning the scope, duration or
enforceability of the covenant not to compete. Murray understands that by
executing this Agreement which contains this express covenant not to compete, he
is significantly restraining his own opportunities or potential opportunities
during the effective term of this Agreement to pursue employment, or any other
type of agency relationship or business affiliation with any business
organizations, individuals or entities which engage in or intend to engage in
business activities which compete with Mercury's business activities. Murray
hereby acknowledges his thorough understanding of the ramifications of executing
this Agreement, and freely and fully accepts the conditions of this Agreement
which preclude him from pursuing opportunities which he might otherwise pursue
during the effective term of this Agreement.
7. The parties recognize that the covenant not to compete by Murray
constitutes an essential, material term of this Agreement, any breach of which
would be substantially detrimental to Mercury. The parties further recognize
that in the event of any breach by Murray of the covenant not to compete, it
would be difficult, if not impossible to affix damages with sufficient
particularity to compensate Mercury for such breach. Therefore,
Page 6 of 12
<PAGE> 7
and recognizing such difficulty, Murray specifically agrees that in the event of
a breach by him of the covenant not to compete with Mercury, liquidated damages
are fixed by this Agreement, in lieu of any and all other claims for damages
which Mercury would have, or might assert, as a consequence of such breach. The
measure of liquidated damages in the event Murray breaches the covenant not to
compete will be the immediate cessation of any and all payments then remaining
due to Murray from Mercury under the schedule for payments set forth above,
along with the immediate cessation of any and all other consideration due to
Murray under the terms of this Agreement, whether monetary or otherwise.
8. As further consideration for Murray's covenant not to compete with
Mercury, Mercury agrees to negotiate with Murray in good faith to attempt to
enter into a separate agency agreement with Murray, whereby Murray will be
financially compensated by Mercury for procuring selected new business accounts
for Mercury, on terms to be agreed upon between the parties. The separate
agreement contemplated herein will allow the parties to identify certain
accounts with which Mercury presently does not have a business relationship, and
with whom a business relationship is desired by Mercury. In the event Murray
succeeds in procuring such identified new accounts for Mercury, and subject to
Mercury's receipt of payment for goods and/or services provided by Mercury to
said new accounts, Murray will be entitled to compensation pursuant to an agreed
upon formula between the parties, as set forth in the contemplated separate
agreement. Nothing in the contemplated separate agreement shall be construed to
create an employment relationship between the parties, but rather, the
contemplated separate agreement will be prepared to reflect an understanding
between the parties that Murray is to serve as an
Page 7 of 12
<PAGE> 8
independent agent exclusively for Mercury and Mercury will treat any payments to
Murray under the terms of the separate agreement as though it was a "finder's
arrangement" to the extent Murray succeeds in generating new business with
select accounts as identified by the parties. In the event the parties are
unable to agree upon mutually acceptable terms for this contemplated separate
agreement, all remaining terms and conditions of this Agreement will remain in
full force and effect and continue to be binding upon the parties.
9. The parties acknowledge that in connection with the negotiations
leading up to the preparation and execution of this Agreement, Mercury was
furnished a letter dated July 21, 1995, from Michael Lindsey, on behalf of
Aircraft Commodities Corporation, specifically confirming that a contract dated
November 25, 1992, between Aircraft Commodities Corporation and Mercury was
void, of no further force and effect, and Aircraft Commodities Corporation
specifically released Mercury from any and all claims, known and unknown,
arising under or claimed to arise under said contract, in return for a similar
agreement by Mercury to release Aircraft Commodities Corporation from any
claims, commissions or actions of any nature that Mercury may have or claim to
have against Aircraft Commodities Corporation arising out of the contract with
Mercury dated November 25, 1992. A copy of the Aircraft Commodities Corporation
letter dated July 21, 1995 is attached hereto as Exhibit A, and incorporated
fully by this reference. A copy of Mercury's letter to Aircraft Commodities
Corporation dated August 8, 1995, is attached hereto as Exhibit B, and
incorporated fully by this reference. By virtue of these documents referenced
Exhibits A and B, respectively, the parties acknowledge that Mercury on the one
hand, and Aircraft Commodities Corporation on the other hand, have expressly
agreed that the contract between them dated November 25, 1992 is of no further
force and effect,
Page 8 of 12
<PAGE> 9
and neither party will take action of any kind or make demand or claim of any
nature whatsoever against the other, as a consequence of, or arising out of the
business relationship contemplated by said contract. In the event, however, that
Aircraft Commodities Corporation initiates any action against Mercury arising
out of or in connection with said contract, or makes any demand or claim upon
Mercury for any commissions or other compensation due or allegedly due under the
terms of said contract, Murray expressly agrees hereby to defend, indemnify and
hold Mercury harmless from and against any and all such claims, demands,
actions, or causes of action as may be asserted by Aircraft Commodities
Corporation.
10. As further consideration to Murray under the terms of this Agreement,
Mercury agrees to forgive any and all debts or obligations owed by Murray or
claimed to be owed by Murray to Mercury, including, but not limited to, any
loans, advances or forgiveness of payments made by or on behalf of Murray at any
time prior to execution of this Agreement. In addition, Mercury expressly
acknowledges that prior to its execution of this Agreement, it has received the
original "Option Share Agreement" from Murray, representing Murray's full and
complete relinquishment of any claim or entitlement under said Option Share
Agreement. Further, prior to execution of this Agreement, Mercury expressly
warrants that no claim or demand for payment will be made upon Murray with
respect to the promissory note executed by Murray in favor of SK Acquisition,
Inc., in connection with the loan to Murray for purposes of acquiring common
stock in Mercury. It is expressly agreed that Murray will have no further
obligations of any kind whatsoever in connection with said promissory note, upon
execution of this Agreement.
Page 9 of 12
<PAGE> 10
11. This Agreement shall be construed, interpreted and enforced in
accordance with the laws of the State of California. With the exception of the
liquidated damages provision for any breach by Murray of the covenant not to
compete during the effective term of this Agreement, any and all other breaches
of this Agreement, or alleged breaches of this Agreement shall be subject to
resolution solely and exclusively by way of binding arbitration. The parties
expressly agree that in return for valuable consideration as set forth in this
Agreement, the parties waive any right or entitlement to proceed with any legal
action in the event of any breach or alleged breach of this Agreement. Rather,
and with the sole exception of any action involving the breach or alleged breach
of the covenant by Murray not to compete with Mercury, any and all other claims
or disputes shall be resolved exclusively and conclusively by way of mandatory
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then existing, and judgment on the arbitration
award may be entered in any court having jurisdiction over the subject matter of
the controversy. In the event of arbitration, the parties shall each pay their
respective share for any and all fees or costs charged in connection with the
arbitration, and each party shall pay for his or its attorneys' fees in
connection with any such activity. The prevailing party in any action which
proceeds to binding arbitration shall be entitled to complete reimbursement for
his or its costs associated with the arbitration, and for his or its attorneys'
fees incurred in connection with prosecuting or defending his or its position.
12. Notwithstanding the liquidated damages provisions specified in this
Agreement for breach of the covenant by Murray not to compete with Mercury
during the effective term of this Agreement, nothing in this Agreement shall be
construed as to
Page 10 of 12
<PAGE> 11
prevent Mercury from immediately seeking appropriate injunctive relief in any
court of competent jurisdiction in the event Murray breaches, or is alleged to
be breaching the covenant not to compete with Mercury. It is expressly
understood by Murray that in the event he breaches the covenant not to compete,
Mercury is entitled to pursue injunctive relief in any court of competent
jurisdiction, in addition to invoking the liquidated damages provisions of this
Agreement.
13. The parties agree that they will use their best efforts to facilitate
the prompt preparation and execution of the separate agreement contemplated in
paragraph 8 above. In addition, and prior to execution of this Agreement, the
parties will use their best efforts to procure, deliver, and/or sign any and all
such documents as are necessary to effect the purposes of this Agreement. One
such document which will require execution by the parties to effect the purposes
of this Agreement is a letter of instruction to Marvin Goldstein, Esq., escrow
agent for the common stock which is being relinquished by Murray and repurchased
by Mercury in accordance with the terms of this Agreement. A letter has been
prepared for this purpose, and is attached hereto as Exhibit C.
14. The parties confirm that this Agreement shall not be construed by
either Mercury or Murray as having been drafted by one party or the other. This
Agreement is the product of arms length negotiations between the parties, and
neither party shall argue or contend that this Agreement was drafted by the
other, so as to claim that any terms or provisions of this Agreement should be
construed in favor of one particular party or the other, on the basis that one
particular party or the other drafted this Agreement.
15. If any provision of this Agreement is held invalid or unenforceable,
the remainder of this Agreement shall nevertheless remain in full force and
effect for the term
Page 11 of 12
<PAGE> 12
of this Agreement. If any provision is held invalid or unenforceable with
respect to particular circumstances, it shall nevertheless remain in full force
and effect in all other circumstances.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date specified above.
------------------------------------
GRANT G. MURRAY
MERCURY AIR GROUP, INC.
By:
---------------------------------
SEYMOUR KAHN
Chairman
Page 12 of 12
<PAGE> 1
SUBSIDIARY LIST
1. AEG Finance Corp, a Delaware corporation, wholly-owned by Maytag Aircraft
Corporation
2. Mercury Environmental and Scientific Services, Inc., a California
corporation, wholly-owned by Mercury Air Group, Inc.
3. Maytag Aircraft Corporation, a Colorado corporation, wholly-owned by
Mercury Air Group, Inc.
4. Mercury Air Cargo, Inc., a California corporation, wholly-owned by Mercury
Air Group, Inc.
5. Hermes Aviation, Inc., a California corporation, wholly-owned by Mercury
Air Cargo, Inc.
6. Pegasus de Mexico S.A. de C.V., a Mexican corporation, owned 99% by Mercury
Air Cargo, Inc. and 1% by Hermes Aviation, Inc.
Exhibit 22.1
<PAGE> 1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Post Effective Amendment No. 2
to Registration Statement No. 33-346568 of Mercury Air Group, Inc. on Form S-3
and in Registration Statement No. 33-69414 of Mercury Air Group, Inc. on Form
S-8 of our report dated September 15, 1995 appearing in the Annual Report on
Form 10-K of Mercury Air Group, Inc. for the year ended June 30, 1995.
DELOITTE & TOUCHE LLP
Los Angeles, California
September 25, 1995
Exhibit 23.1
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1995 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE YEAR ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE
30, 1995
</LEGEND>
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<PERIOD-TYPE> YEAR
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<INVENTORY> 3,283
<CURRENT-ASSETS> 39,255
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<OTHER-SE> 18,316
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<SALES> 145,166
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