<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
------------------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
( ) 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 0-22526
TOWER AIR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2621046
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HANGAR NO. 17
J.F.K. INTERNATIONAL AIRPORT
JAMAICA, N.Y. 11430
(Address of principal executive offices) (Zip Code)
(718) 553-4300
(Registrant's telephone number, including area code)
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 and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of July 31, 1997, there were 15,290,006 shares of Common Stock, par
value $.01 per share, outstanding.
- --------------------------------------------------------------------------------
Page 1 of 15 pages
<PAGE>
TOWER AIR, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 1997 and
December 31, 1996...................................... 3
Statements of Operations for the three months
and six months ended June 30, 1997 and 1996............ 4
Statements of Cash Flows for the six months
ended June 30, 1997 and 1996........................... 5
Notes to Financial Statements............................ 6
Selected Operating Data.................................. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk............................................ 12
PART II. OTHER INFORMATION........................................ 13
SIGNATURES ......................................................... 15
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOWER AIR, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Note)
----------- ------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 4,276 $ 2,968
Certificates of deposit, at cost,
which approximates market 2,000 275
Receivables, net 34,180 27,912
Income tax receivable -- 6,397
Prepaid expenses and other current
assets 2,084 5,102
-------- --------
Total current assets 42,540 42,654
Property and Equipment, at cost:
Flight equipment 360,886 321,240
Ground property and equipment 32,393 32,285
----------- ------------
393,279 353,525
Less accumulated depreciation and
amortization 157,934 135,467
----------- ------------
235,345 218,058
Other Assets 3,133 2,543
----------- ------------
$281,018 $263,255
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Notes payable $ 19,941 $ 4,545
Accounts payable 41,094 46,958
Accrued liabilities 40,806 40,043
Air traffic liability 24,966 18,010
Current maturities of long-term debt
(Note 2) 26,941 17,294
----------- ------------
Total current liabilities 153,748 126,850
Long-Term Debt (Note 2) 62,064 67,716
Deferred Income Taxes 12,034 13,545
Deferred Rent 1,698 1,828
Stockholders' Equity (Note 3):
Preferred stock, $.01 par value;
5,000,000 shares authorized; none
issued -- --
Common stock, $.01 par value;
35,000,000 shares authorized;
15,500,006 issued 155 155
Additional paid-in capital 43,885 43,885
Retained earnings 8,945 10,787
Less treasury stock, at cost (210,000
shares) 1,511 1,511
----------- ------------
Total stockholders' equity 51,474 53,316
----------- ------------
$281,018 $263,255
=========== ============
</TABLE>
See accompanying notes to financial statements.
Note: The Balance Sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
3
<PAGE>
TOWER AIR, INC.
STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Scheduled Passenger Service $ 55,067 $ 56,036 $ 97,844 $ 111,576
Commercial Charter Service 38,484 37,769 56,514 46,101
Military Charter Service 16,260 15,518 31,771 31,312
Cargo Service 652 2,785 966 7,141
Other 2,113 1,802 3,491 3,604
--------- --------- --------- ---------
Total operating revenues 112,576 113,910 190,586 199,734
OPERATING EXPENSES:
Fuel 15,524 17,818 32,283 35,821
Flight equipment rentals and
insurance 6,399 5,164 11,325 10,274
Maintenance 12,745 11,144 20,712 21,539
Crew costs and other 7,609 7,649 13,121 14,507
Aircraft and traffic servicing 15,880 19,154 30,476 39,402
Passenger servicing 10,656 14,443 20,641 26,055
Promotion, sales and commissions 16,887 18,272 27,272 31,366
General and administrative 4,651 5,378 9,439 10,566
Depreciation and amortization 12,713 9,742 22,879 18,197
--------- --------- --------- ---------
Total operating expenses 103,064 108,764 188,148 207,727
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 9,512 5,146 2,438 (7,993)
OTHER (INCOME) EXPENSES:
Other (income) expense (23) (257) (18) 15
Interest expense 3,022 2,250 5,809 3,573
--------- --------- --------- ---------
Total other expenses 2,999 1,993 5,791 3,588
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 6,513 3,153 (3,353) (11,581)
Income Tax Provision (Benefit) 2,930 230 (1,511) (6,370)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 3,583 $ 2,923 $ (1,842) $ (5,211)
========= ========= ========= =========
NET INCOME (LOSS) PER SHARE $ 0.23 $ 0.19 $ (0.12) $ (0.34)
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 15,290 15,290 15,290 15,290
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
TOWER AIR, INC.
STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,842) $ (5,211)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 22,879 18,197
Provision for doubtful
accounts -- 358
Deferred income taxes (1,511) (470)
Deferred rent (130) 128
Loss on disposal of property
and equipment 15 (139)
Changes in operating assets
and liabilities:
Receivables (6,268) (9,912)
Income tax receivable 6,397 --
Prepaid expenses and
other assets 2,456 (3,967)
Accounts payable and
accrued liabilities (6,232) (11,491)
Air traffic liability 6,956 12,594
--------- --------
Net cash provided by operating
activities 22,720 87
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of flight equipment (32,895) (29,169)
Purchase of ground property and
equipment (108) (1,583)
Proceeds from sale of property and
equipment 100 178
Proceeds from insurance company -- 25,000
(Increase) decrease in certificates
of deposit (1,725) 75
--------- --------
Net cash used in investing activities (34,628) (5,499)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 200,614 22,625
Principal payments on borrowings (187,090) (16,593)
Payment of cash dividends -- (1,223)
Other (308) (933)
--------- --------
Net cash provided by financing
activities 13,216 3,876
--------- --------
Net increase (decrease) in cash and
cash equivalents 1,308 (1,536)
Cash and cash equivalents at
beginning of period 2,968 3,521
--------- --------
Cash and cash equivalents at end of
period $ 4,276 $ 1,985
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest $ 5,523 $ 3,330
Cash paid during the period for
income taxes, net $ 24 $ 439
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Purchase of flight equipment
accrued but not paid $ 16,643 $ 1,595
Purchase of flight equipment
financed through debt $ 5,867 $ 57,600
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Tower Air,
Inc. (the "Company") in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, these financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position, results of operations and
cash flows for the periods indicated. These interim financial statements and
related notes should be read in conjunction with the financial statements and
notes included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. The results of operations for the three months and the six
months ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the full year.
2. LONG-TERM DEBT
In November 1996, the Company borrowed $2,000,000 from a commercial finance
institution. The note bears interest at 10.27% and is due December 1997. In
January 1997, the Company borrowed an additional $2,000,000 from the same
commercial finance institution also at the same interest rate of 10.27% and also
due December 1997. The notes required monthly interest payments of approximately
$30,000 through June 1997. Commencing July 1997, the notes require monthly
principal and interest payments of approximately $700,000 through December 1997.
In February 1997, the Company purchased six engines for an aggregate purchase
price of $11,900,000. In connection with this purchase, the Company will
exchange engines with an aggregate value of $1,800,000 and issue to the seller
$1,100,000 of credits toward the purchase of aircraft and engine parts. Any
unused portion of the credits will be paid to the seller by the Company on
August 31, 1997. In addition, the Company issued a $9,000,000 promissory note to
the seller. The promissory note bears interest at prime plus 2.75% and is
payable over a term of twenty-four months. In May 1997, the Company amended this
contract to purchase only four engines for an aggregate price of $7,700,000 and
to exchange engines with an aggregate value of $1,200,000 with purchase credits
for aircraft and engine parts of $633,333. At June 30, 1997, the outstanding
loan amount was $5,133,333.
In March 1997, the Company purchased two engines for an aggregate purchase price
of $2,600,000. In connection with this purchase, the Company paid this amount
with interest through June 1997.
In June 1997, the Company borrowed $1,000,000 from its Chairman and paid this
amount with interest through July 1997.
6
<PAGE>
3. STOCKHOLDERS' EQUITY
In an effort to conserve cash, the Company did not pay a cash dividend on the
Common Stock during the six months ended June 1997.
4. INCOME TAXES
Income taxes are calculated at the estimated annual effective tax rate, which
differs from the federal statutory rate of 35%, primarily due to the effect of
state income taxes and certain nondeductible items.
7
<PAGE>
TOWER AIR, INC.
SELECTED OPERATING DATA
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1997 1996 1997 1996
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Scheduled Passenger Service:
Revenue passengers carried
(in thousands) 253 293 475 579
Revenue passenger miles
(in thousands) (RPMs) (1) 706,595 790,322 1,277,072 1,566,084
Available seat miles
(in thousands) (ASMs) (2) 959,510 1,098,858 1,763,988 2,179,323
Passenger load factor (3) 73.64% 71.92% 72.40% 71.86%
Yield per RPM (4) $ .0779 $ .0709 $ .0766 $ .0712
Block hours flown (5) 4,530 5,160 8,338 10,375
Operating expense per ASM (6) $ .0464 $ .0492 $ .0498 $ .0512
Revenue per block hour (7) $ 12,156 $ 10,860 $ 11,735 $ 10,754
Variable expense per block hour (8) $ 8,655 $ 9,471 $ 8,898 $ 9,773
Commercial Charter Service:
Block hours flown (5) 5,973 5,470 8,593 6,774
Revenue per block hour (7) $ 6,443 $ 6,905 $ 6,577 $ 6,806
Variable expense per block hour (8) $ 3,448 $ 3,838 $ 3,484 $ 4,078
Military Charter Service:
Block hours flown (5) 1,387 1,399 2,694 2,869
Revenue per block hour (7) $ 11,723 $ 11,092 $ 11,793 $ 10,914
Variable expense per block hour (8) $ 6,226 $ 8,067 $ 7,529 $ 8,212
Cargo Service:
Block hours flown (5) 198 620 239 1,647
Revenue per block hour (7) $ 3,293 $ 4,492 $ 4,042 $ 4,336
Variable expense per block hour (8) $ 2,094 $ 2,004 $ 1,804 $ 2,043
Total:
Block hours flown (5) 12,088 12,649 19,864 21,665
Revenue per block hour (7) $ 9,138 $ 8,863 $ 9,419 $ 9,053
Variable expense per block hour (8) $ 5,695 $ 6,514 $ 6,285 $ 7,198
Average hours of daily utilization (9) 14.8 9.4 11.4 8.5
Employees (at period-end) 1,565 1,665 1,565 1,665
Number of aircraft in service
(at period-end) 17* 18* 17* 18*
*One cargo aircraft temporarily out of service for mandatory modifications.
</TABLE>
_________________
(1) "Revenue passenger miles" or "RPMs" represent the number of miles flown by
revenue passengers.
(2) "Available seat miles" or "ASMs" represent the number of seats available
for passengers multiplied by the number of miles those seats are flown.
(3) "Passenger load factor" represents revenue passenger miles divided by
available seat miles.
(4) "Yield per RPM" represents total revenue from scheduled passenger service
divided by revenue passenger miles.
(5) "Block hours" represent the period of time between the aircraft's
departure from the place where it is parked to its arrival at its
destination.
(6) "Operating expense per ASM" represents certain direct variable costs for
scheduled passenger service, which include passenger liability insurance,
catering, crew costs, fuel, landing and handling fees, maintenance,
navigation fees, "power by the hour" rent, plus marketing and reservations,
and an allocation of other fixed costs based on block hours, divided by
total scheduled passenger service ASMs.
(7) "Revenue per block hour" represents total revenue from scheduled passenger
service, commercial charter service, military charter service and cargo
service divided by total block hours flown.
(8) "Variable expense per block hour" represents total direct variable costs,
which include passenger liability insurance, catering, crew costs,
commissions, fuel, landing and handling fees, maintenance, navigation fees
and insurance and "power by the hour" rent, divided by block hours.
(9) "Average hours of daily utilization" represents the actual number of block
hours per aircraft per operating day.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS:
Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements incorporate assumptions that entail uncertainties and unknown
risks. A variety of factors may cause the actual results and performance of the
Company or industry to differ materially from any future results or performance
expressed or implied by such forward-looking statements. These factors include,
among others, the following: general economic conditions affecting the industry
and the Company; competition within the industry; changes in consumer
preferences; regulatory changes; and political, social and economic conditions
in key markets.
RESULTS OF OPERATIONS
For the three-month period ended June 30, 1997 (the "1997 Second Quarter"), the
Company recorded an operating profit of $9.5 million and a net income of $3.6
million, or $0.23 per share. This compares with an operating profit of $5.1
million and a net income of $2.9 million, or $0.19 per share, for the three-
month period ended June 30, 1996 (the "1996 Second Quarter"). For the six-month
period ended June 30, 1997 (the "1997 First Half"), the Company reported an
operating profit of $2.4 million versus an operating loss of $8.0 million in the
six-month period ended June 30, 1996 (the "1996 First Half"). The net loss in
the 1997 First Half was $1.8 million, or $0.12 per share, versus a net loss of
$5.2 million, or $0.34 per share, in the 1996 First Half.
OPERATING REVENUES. The Company's operating revenues for the 1997 Second
Quarter declined by 1.2% to $112.6 million compared with operating revenues of
$113.9 million in the 1996 Second Quarter. Operating revenues for the 1997
First Half decreased $9.1 million, or 4.6%, to $190.6 million from $199.7
million for the 1996 First Half.
The decline in both periods occurred in scheduled passenger services where
scheduled passenger traffic (as measured in revenue passenger miles) in the 1997
Second Quarter decreased by 10.6% on a decline in capacity (as measured in
available seat miles) of 12.7%. These declines were due primarily to the
cessation of scheduled service to Brazil and between Miami and San Juan as well
as a reduction in domestic scheduled service. Load factor was 73.6% in the 1997
Second Quarter compared with 71.9% in the 1996 Second Quarter. Load factor
declines in domestic services, primarily to Los Angeles and San Francisco, were
offset by improvements in other markets. Passenger service yield (measured in
revenue per passenger mile) rose by 9.9% versus last year. Commercial charter
revenue increased by 1.9% versus last year. Military charter revenue was flat
versus 1996 while cargo charter revenue declined sharply with reduced aircraft
utilization due to earlier than expected heavy maintenance repair on one of the
Company's two cargo aircraft. In addition, the Company's other cargo aircraft
was grounded beginning in the 1996 First Quarter to comply with newly
restrictive Airworthiness Directive ("AD") requirements. Nine cargo aircraft
owned by other carriers are also subject to the same AD requirement. The return
of the grounded aircraft to full service is awaiting FAA approval of a repair
program. The Company expects to generate cargo charter revenue in the third
quarter from new charter contracts.
9
<PAGE>
OPERATING EXPENSES. The Company's operating expenses for the 1997 Second
Quarter decreased $5.7 million, or 5.2%, to $103.1 million from $108.8 million
for the 1996 Second Quarter. Operating expenses, excluding fuel and
depreciation, declined by 7.9% in the 1997 Second Quarter while block hours
declined by 4.4%. Operating expenses for the 1997 First Half decreased $19.6
million, or 9.4%, to $188.2 million from $207.7 million for the 1996 First Half.
Operating expenses, excluding fuel and depreciation, declined by 13.5% in the
1997 First Half versus the 1996 First Half while block hours declined by 8.3%.
The significant reduction in operating expenses in excess of the capacity
reductions is the result of the Company's cost cutting efforts that have been
directed towards renegotiation of service contracts, fixed cost reductions,
improved cost controls and operational enhancements.
Aircraft fuel expenses for the 1997 Second Quarter decreased $2.3 million, or
12.9%, to $15.5 million from $17.8 million for the 1996 Second Quarter.
Aircraft fuel expenses for the 1997 First Half decreased $3.5 million, or 9.9%,
to $32.3 million from $35.8 million for the 1996 First Half. The decreases in
both periods resulted primarily from a 12.0% reduction in consumption partially
offset by a change due to higher wet lease activities in which the lessee pays
all fuel costs. The average fuel price in the 1997 Second Quarter was flat
versus the 1996 Second Quarter while the average price in the 1997 First Half
increased by 4.8% versus the 1996 First Half.
Flight equipment rentals and insurance expenses for the 1997 Second Quarter
increased $1.2 million, or 23.9%, to $6.4 million from $5.2 million for the 1996
Second Quarter. Flight equipment rentals and insurance expenses for the 1997
First Half increased $1.1 million, or 10.2%, to $11.3 million from $10.3 million
for the 1996 First Half. The increases in both periods were attributable to an
increase in aircraft rental due to the sale and leaseback of three Boeing 747
aircraft in October 1996 and charges associated with the rental of additional
engines to support the Company's fleet during the 1997 First Half.
Maintenance costs for the 1997 Second Quarter increased $1.6 million, or 14.4%,
to $12.7 million from $11.1 million for the 1996 Second Quarter. Maintenance
costs for the 1997 First Half decreased $0.8 million, or 3.8%, to $20.7 million
from $21.5 million for the 1996 First Half. The decreases in both periods were
due to the lower level of flying and the impact of the Company's cost cutting
efforts.
Crew costs and other expenses for the 1997 Second Quarter were slightly below
the 1996 Second Quarter at $7.6 million. Crew costs and other expenses for the
1997 First Half decreased $1.4 million, or 9.6%, to $13.1 million from $14.5
million for the 1996 First Half. The decreases in both periods were primarily
due to decreases in block hours flown, improved crew management and renegotiated
hotel contracts at various locations.
Aircraft and traffic servicing expenses for the 1997 Second Quarter decreased
$3.3 million, or 17.1%, to $15.9 million from $19.2 million for the 1996 Second
Quarter. Aircraft and traffic servicing expenses for the 1997 First Half
decreased $8.9 million, or 22.7%, to $30.5 million from $39.4 million for the
1996 First Half. The decreases in both periods were attributable to the lower
level of flying in scheduled passenger services and a significant cost reduction
due to self handling of deicing, and renegotiated ground handling contracts.
Passenger servicing expenses for the 1997 Second Quarter decreased $3.8 million,
or 26.2%, to $10.7 million from $14.4 million for the 1996 Second Quarter.
Passenger servicing expenses
10
<PAGE>
for the 1997 First Half decreased $5.4 million, or 20.8%, to $20.6 million from
$26.1 million for the 1996 First Half. The decreases in both periods were the
result of the decline in total block hours and the impact of the Company's cost
cutting efforts which included a rationalization of its domestic food service
resulting in reduced catering costs.
Promotion, sales and commission expenses for the 1997 Second Quarter decreased
$1.4 million, or 7.6%, to $16.9 million from $18.3 million for the 1996 Second
Quarter. Promotion, sales and commission expenses for the 1997 First Half
decreased $4.1 million, or 13.1%, to $27.3 million from $31.4 million for the
1996 First Half. The decreases in both periods were primarily due to the
avoidance of higher commission expenses in 1996 relating to the Bombay route
(which was discontinued in March 1996) and the lower level of flying in
scheduled passenger service during the 1997 First Half.
General and administrative expenses for the 1997 Second Quarter decreased $0.7
million, or 13.5%, to $4.7 million from $5.4 million for the 1996 Second
Quarter. General and administrative expenses for the 1997 First Half decreased
$1.1 million, or 10.7%, to $9.4 million from $10.6 million for the 1996 First
Half. The decreases in both periods were the result of the Company's cost
cutting efforts.
Depreciation and amortization expenses for the 1997 Second Quarter increased
$3.0 million, or 30.5%, to $12.7 million from $9.7 million for the 1996 Second
Quarter. Depreciation and amortization expenses for the 1997 First Half
increased $4.7 million, or 25.7%, to $22.9 million from $18.2 million for the
1996 First Half. The increases in both periods were principally due to the
purchase of six spare engines, capitalized engine overhauls and heavy airframe
maintenance during the 1997 First Half.
OTHER EXPENSES AND INCOME. Interest expense for the 1997 Second Quarter
increased $0.7 million, or 34.3%, to $3.0 million from $2.3 million for the 1996
Second Quarter. Interest expense for the 1997 First Half increased $2.2 million,
or 62.6%, to $5.8 million from $3.6 million for the 1996 First Half. The
increases in both periods reflects a higher average outstanding debt balance in
1997, resulting from the use of the line of credit established in December 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its working capital and capital
expenditure requirements with cash flow generated from operations and through
lease, debt and equity financing.
The Company's cash, cash equivalents and certificates of deposit at June 30,
1997 and December 31, 1996 were $6.3 million and $3.2 million, respectively.
The Company generated cash from operations for the 1997 First Half and 1996
First Half of $22.7 million and $0.1 million, respectively.
Net cash used in investing activities was $34.6 million for the 1997 First Half
compared with $5.5 million for the 1996 First Half. The Company's expenditures
for flight equipment were $32.9 million for the 1997 First Half compared with
$29.2 million for the 1996 First Half. Expenditures for flight equipment in the
1997 First Half included the purchase of six spare engines, capitalized engine
overhauls and heavy airframes maintenance.
As of June 30, 1997, the Company had negative working capital of $111.2 million
compared to negative working capital of $84.2 million as of December 31, 1996.
Historically, the Company has operated with a working capital deficit.
11
<PAGE>
The Company established a new $12.5 million secured line of credit with a
financial institution in December 1996. The interest rate on this borrowing line
is the base rate, as defined, plus 1% (9.50% at June 30, 1997). The line was
further increased to $18.0 million in January 1997 and then to $20.0 million in
March 1997. The credit line is secured by trade receivables and inventory. This
agreement expired in June 1997 and has been further extended to September 1997.
The $20.0 million credit line declines by $2.0 million approximately every two
weeks from July 14, 1997 through September 7, 1997, and declines to $0 after
September 15, 1997. The Company is negotiating an extension of this $20.0
million line beyond September 1997 with this institution as well as other
institutions. Extension of this line and the development of other sources of
capital is critical for the funding of working capital needs and capital
expenditures in the winter months. The Company believes that cash generated from
operations, in conjunction with this and additional debt financing as required,
will be sufficient to finance the Company's working capital needs for its
existing business, as well as for planned capital expenditures and expected debt
repayments for the next year.
The Company borrowed $1.0 million from its Chairman in June 1997, using one JT9D
engine as collateral, at a rate of 1.5% above LIBOR. During early August 1997,
the repayment of this note, as well as $1.5 million remaining to be paid on four
other engines pledged to another institution, was made from proceeds of a loan
of $9.0 million that has been established with a financial institution secured
by eight JT9D engines. The note on this borrowing carries an interest rate of
prime plus 2.75% and has a term of 18 months.
The Company has been negotiating revised payment terms with vendors and other
creditors for settlement of current obligations, some of which are secured.
Payment agreements have been made with all major vendors and with several other
vendors.
In an effort to conserve cash, the Company did not pay a cash dividend during
the six months ended June 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The only changes in legal proceedings as disclosed in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 and in the Company's
Form 10-Q for the quarterly period ended March 31, 1997 are the following:
(1) In the Tennessee state court action, Federal Express Corporation v.
------------------------------
Tower Air, Inc., the plaintiff has filed an amended complaint and the Company
- ----------------
has filed a motion to dismiss for lack of jurisdiction.
(2) The Texas state court action, Dee Howard Company v. Tower Air, Inc.,
--------------------------------------
has been settled. The Company has agreed to pay plaintiff $745,000 in five
equal monthly installments beginning August 1997.
(3) The Company is a defendant in Solar Travel v. Tower Air, Inc., filed
--------------------------------
on March 24, 1997 in the United States District Court for the Eastern District
of New York, in which the plaintiff seeks $20 million in compensatory and
punitive damages for breach of contract and related claims as the Company's
general sales agent in India. The Company has denied plaintiff's allegations and
counterclaimed for $25 million in compensatory and punitive damages resulting
from the plaintiff's failure to perform its duties under the general sales agent
contract. Plaintiff's answer to the Company's Counterclaim has not yet been
filed.
(4) On or about August 8, 1997, UNC Camco, Incorporated, d/b/a/ UNC
Accessory Services and its affiliates (collectively "UNC") filed and served a
lawsuit in the Superior Court for the State of Delaware in and for New Castle
County. The Complaint, entitled UNC Camco, Incorporated, et al. v. Tower Air,
---------------------------------------------
Inc., contains eighteen counts, alleging breach of contract and seeking damages
- ----
of approximately $906,000. Alternatively, the Complaint seeks recovery on
theories of quantum meruit or unjust enrichment. The Company believes that it
has good defenses to the claims and has substantial Counterclaims against the
plaintiffs in amounts equal to or exceeding the amounts sought in the Complaint.
The Company has not yet answered the Complaint, but intends to defend itself and
pursue its Counterclaims vigorously.
(5) On April 16, 1997, in the New York state court action, Hart to Hart
------------
Aircraft Detailing, Inc. v. Tower Air, Inc., pursuant to a stipulation, the
- -------------------------------------------
plaintiff voluntarily withdrew a cause of action that alleged that the
termination of the Contract resulted from certain complaints by the plaintiff.
Such stipulation was entered into by the Company in connection with settlement
negotiations which ceased in June 1997. On July 1, 1997, the Company filed its
Answer to the Complaint along with Counterclaims against the plaintiff in
amounts equal to or exceeding the amounts sought in the Complaint. In its
Answer, the Company denied each and every allegation which might give rise to a
cause of action against it. On July 14, 1997, plaintiff filed its Reply to the
Company's Counterclaims in which it denied each and every allegation contained
therein. The Company intends to vigorously defend itself and pursue its
Counterclaims.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Stockholders on May 20, 1997,
Leo-Arthur Kelmenson was elected to the Company's Board of Directors and Morris
K. Nachtomi, Stephen L. Gelband, Stephen A. Osborn, Henry P. Baer and Stanley S.
Shuman were re-elected to the Company's Board of Directors. The Directors were
elected by the following vote totals: Morris K. Nachtomi was elected with 12,
972,779 affirmative votes, 11,830 negative votes and no votes withheld and each
of Stephen L. Gelband, Steven A. Osborn, Henry P. Baer, Stanley S. Shuman and
Leo-Arthur Kelmenson were elected with 12,975,829 affirmative votes, 8,780
negative votes and no votes withheld. The proposal to ratify the appointment of
Ernst & Young LLP as auditors for the fiscal year ending December 31, 1997 was
approved by a vote of 12,909,800 affirmative votes, 71,695 negative votes and
3,114 votes withheld.
13
<PAGE>
ITEM 5. OTHER INFORMATION.
Subsequent to his reelection, Stanley S. Shuman resigned as a member
of the Company's Board of Directors for personal reasons.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 10 (13). Heller Financial, Inc. - Third Amendment
to Loan and Security Agreement, Dated
June 16, 1997
(b) Exhibit 27. Financial Data Schedule
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tower Air, Inc.
(Registrant)
Date: August 14, 1997 /s/ Morris K. Nachtomi
--------------------------------------
Morris K. Nachtomi
President, Chief Executive Officer
and Chairman of the Board of Directors
(Principal Executive Officer)
Date: August 14, 1997 /s/ Ramesh Punwani
--------------------------------------
Ramesh Punwani
Chief Financial Officer and
Vice President-Finance (Principal
Financial and Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------- ---------------------- ------
10(13) Heller Financial Inc. - Third Amendment to Loan Electronic
and Security Agreement, Dated June 16, 1997
27 Financial Data Schedule Electronic
<PAGE>
EXHIBIT 10.13
- --------------------------------------------------------------------------------
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
Dated June 16, 1997
between
TOWER AIR, INC.,
as Borrower,
and
HELLER FINANCIAL, INC.,
as Agent and as Lender
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 13
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT dated June 16, 1997
(this "Amendment") is between TOWER AIR, INC., a Delaware corporation, as
borrower under the below-defined Loan Agreement ("Borrower"), and HELLER
FINANCIAL, INC., a Delaware corporation ("Heller"), and amends that certain Loan
and Security Agreement dated as of December 1, 1996, as amended by that certain
First Amendment to Loan and Security Agreement dated as of January 31, 1997 (the
"First Amendment") and that certain Second Amendment to Loan Agreement dated
March 13, 1997 (the "Second Amendment") (as so amended, the "Loan Agreement"),
in each case between Borrower and Heller. Terms not otherwise defined herein
shall have the respective meanings assigned to them in the Loan Agreement.
WITNESSETH:
----------
WHEREAS, pursuant to the Loan Agreement, Lender loaned certain sums to
Borrower upon the terms and conditions set forth therein; and
WHEREAS, Borrower and Heller desire to amend the Loan Agreement in certain
respects;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
SECTION 1. Conditions Precedent to Effectiveness. The parties hereto
-------------------------------------
agree that this Amendment shall not become effective unless and until the
following conditions have been met:
(a) Closing Fee. Agent shall have received a closing fee in an amount
-----------
equal to $100,000.
(b) Secretary's Certificate. Agent shall have received a certificate of
-----------------------
the secretary of Borrower, which certificate shall be in form and substance
satisfactory to Agent.
(c) Opinion of Counsel. Agent shall have received an opinion of Hewes,
------------------
Gelband, Lambert & Dann, counsel to Borrower, which opinion shall be in form and
substance satisfactory to Agent.
1
<PAGE>
(d) No Change to Organizational Documents. There shall not have been any
-------------------------------------
amendment or other change to Borrower's certificate of incorporation, bylaws or
other organizational document since December 1, 1996.
(e) Representations and Warranties; Covenants. The representations,
-----------------------------------------
warranties and covenants contained herein and in the Loan Documents shall be
true, correct and affirmed in all material respects on and as of the effective
date hereof (the "Effective Date") to the same extent as though made on and as
of the Effective Date, except for any representation or warranty limited by its
terms to a specific date, in which case such representation or warranty shall
have been true, correct and complete as of such earlier date.
(f) No Default. No event shall have occurred and be continuing that
----------
constitutes or would constitute, with the giving of notice or the passage of
time or both, an Event of Default.
(g) No Prohibition. No order, judgment or decree of any court, arbitrator
--------------
or governmental authority shall purport to enjoin or restrain Agent or any
Lender from making any Loans or issuing any Lender Letters of Credit.
(h) No Litigation. There shall not be pending or, to the knowledge of
-------------
Borrower, threatened, any action, charge, claim, demand, suit, proceeding,
petition, governmental investigation or arbitration by, against or affecting any
Loan Party or any of its Subsidiaries or any property of any Loan Party or any
of its Subsidiaries which would reasonably be expected to have a Material
Adverse Effect that has not been disclosed to Agent by Borrower in writing, and
there shall have occurred no development in any such action, charge, claim,
demand, suit, proceeding, petition, governmental investigation or arbitration
that, in the opinion of Agent, would reasonably be expected to have a Material
Adverse Effect.
SECTION 2. Amendment of the Loan Agreement. The Loan Agreement is hereby
-------------------------------
amended as follows:
(a) The first paragraph of Section 2.1(A) of the Loan Agreement is hereby
--------------
amended by deleting the phrase "(i) from and after March 13, 1997 to and
including June 5, 1997, Twenty Million Dollars ($20,000,000) and (ii) on and
after June 6, 1997, Fifteen Million Dollars ($15,000,000)" as added pursuant to
the Second Amendment and inserting in lieu thereof the phrase "(i) from and
after March 13, 1997 to and including July 14, 1997, Twenty Million Dollars
($20,000,000), (ii) on and after July 14, 1997, to and including July 27, 1997,
Eighteen Million Dollars ($18,000,000)", (iii) or and after July 28, 1997 to and
including August 10, 1997, Sixteen Million Dollars ($16,000,000), (iv) on and
after August 11, 1997 to and including August 24, 1997, Fourteen Million Dollars
($14,000,000), (v) on and after August 25, 1997 to and including September 7,
1997, Twelve Million Dollars ($12,000,000), (vi) on and after
2
<PAGE>
September 8, 1997 to and including September 14, 1997, Ten Million Dollars
($10,000,000), and (vii) after September 15, 1997, zero (0).
(b) Section 2.5 of the Loan Agreement is hereby amended by deleting the
-----------
date "June 17, 1997" which appears therein and inserting in lieu thereof the
date "September 15, 1997".
SECTION 3. Expenses. Whether or not the transaction contemplated by this
--------
Amendment shall be consummated, Borrower agrees to promptly pay all reasonable
fees, costs and expenses incurred by Agent and each of the Lenders in connection
with any matters contemplated by or arising out of this Amendment or the other
Loan Documents including the following, and all such fees, costs and expenses
shall be part of the Obligations, payable on demand and secured by the
Collateral: (a) fees, costs and expenses (including attorneys' fees, allocated
costs of internal counsel and fees of environmental consultants, accountants and
other professionals retained by Agent) incurred in connection with the
examination, review, due diligence investigation, documentation and closing of
the financing arrangement evidenced by this Amendment and the other Loan
Documents; and (b) fees, costs and expenses (including attorneys' fees,
allocated costs of internal counsel and fees of environmental consultants,
accountants and other professionals retained by Agent) incurred in connection
with the review, negotiation, preparation, documentation, execution,
syndication, and administration of this Amendment and the other Loan Documents,
the Loans, and any amendments, waivers, consents, forbearances and other
modifications relating thereto or any subordination or intercreditor agreements.
SECTION 4. Borrower's Representations and Warranties.
-----------------------------------------
To induce Agent and each Lender to enter into this Amendment, Borrower
hereby represents and warrants to Agent and each Lender that the following
statements are and will be true, correct and complete:
4.1 Organization, Powers, Capitalization.
------------------------------------
(A) Organization and Powers. Each of the Loan Parties is a
-----------------------
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and qualified to do business in
all states where such qualification is required except where failure to be
so qualified could not be reasonably expected to have a Material Adverse
Effect. Each of the Loan Parties has all requisite corporate power and
authority to own and operate its properties, to carry on its business as
now conducted and proposed to be conducted and to enter into this
Amendment.
(B) Capitalization. The authorized capital stock of each of the
--------------
Loan Parties is as set forth on Schedule 4.1(B) to the Loan Agreement. All
---------------
issued and outstanding shares of capital stock of each of the Loan Parties
are duly authorized and
3
<PAGE>
validly issued, fully paid, nonassessable, free and clear of all Liens and
such shares were issued in compliance with all applicable state and federal
laws concerning the issuance of securities. The capital stock of each of
the Loan Parties is owned by the stockholders and in the amounts set forth
on Schedule 4.1(B) to the Loan Agreement. No shares of the capital stock
---------------
of any Loan Party, other than those described above, are issued and
outstanding. There are no preemptive or other outstanding rights, options,
warrants, conversion rights or similar agreements or understandings for the
purchase or acquisition from any Loan Party, of any shares of capital stock
or other securities of any such entity except as set forth on Schedule
--------
4.1(B) to the Loan Agreement.
------
4.2 Authorization of Borrowing, No Conflict. Borrower has the
---------------------------------------
corporate power and authority to enter into this Amendment. On the Effective
Date, the execution, delivery and performance of this Amendment by each Loan
Party signatory hereto will have been duly authorized by all necessary corporate
and shareholder action. The execution, delivery and performance of this
Amendment by each Loan Party signatory hereto and the consummation of the
transactions contemplated by this Amendment by each such Loan Party do not
contravene and will not be in contravention of any applicable law, the corporate
charter or bylaws of any Loan Party or any agreement or order by which any Loan
Party or any Loan Party's property is bound. This Amendment is the legally
valid and binding obligation of the applicable Loan Parties, enforceable against
such Loan Parties in accordance with its terms.
4.3 Financial Condition. All financial statements concerning
-------------------
Borrower and its Subsidiaries which have been or will hereafter be furnished by
Borrower and its Subsidiaries to Agent or any Lender pursuant to the Loan
Agreement have been or will be prepared in accordance with GAAP consistently
applied throughout the periods involved (except as disclosed therein) and do or
will present fairly the financial condition of the Borrower covered thereby as
at the dates thereof and the results of their operations for the periods then
ended. The most recent Projections delivered to Agent and all future
Projections have been and will be prepared by Borrower in light of the past
operations of the business of Borrower and its Subsidiaries, and such
Projections represent and will represent the good faith estimate of Borrower and
its senior management concerning the most probable course of its business as of
the date such Projections are prepared and delivered.
4.4 Indebtedness and Liabilities. As of the Effective Date, neither
----------------------------
Borrower nor any of its Subsidiaries has (a) any Indebtedness except as
reflected on the most recent financial statements delivered to Agent and
Lenders; or (b) any Liabilities other than as reflected on the most recent
financial statements delivered to Agent and Lenders or as incurred in the
ordinary course of business following the date of the most recent financial
statements delivered to Agent and Lenders.
4.5 Title to Properties; Liens. Borrower and each of its
--------------------------
Subsidiaries has good, sufficient and legal title, subject to Permitted
Encumbrances, to all its respective material
4
<PAGE>
properties and assets. Except for Permitted Encumbrances, all such properties
and assets are free and clear of Liens. To the best knowledge of Borrower after
due inquiry, there are no actual, threatened or alleged defaults with respect to
any leases of real property under which Borrower or any of its Subsidiaries is
lessee or lessor which would have a Material Adverse Effect.
4.6 Litigation; Adverse Facts. There are no judgments outstanding
-------------------------
against any Loan Party or affecting any property of any Loan Party nor is there
any action, charge, claim, demand, suit, proceeding, petition, governmental
investigation or arbitration now pending or, to the best knowledge of Borrower
after due inquiry, threatened against or affecting any Loan Party or any
property of any Loan Party which could reasonably be expected to result in any
Material Adverse Effect other than as set forth on Schedule 4.9 to the Loan
------------
Agreement. No Loan Party has received any opinion or memorandum or legal advice
from legal counsel to the effect that it is exposed to any liability which could
reasonably be expected to result in any Material Adverse Effect.
4.7 Payment of Taxes. All material tax returns and reports of
----------------
Borrower and each of its Subsidiaries required to be filed by any of them have
been timely filed, and all taxes, assessments, fees and other governmental
charges upon such Persons and upon their respective properties, assets, income
and franchises which are shown on such returns as due and payable have been paid
when due and payable. As of the Effective Date, none of the United States
income tax returns of Borrower or any of its Subsidiaries are under audit. No
tax liens have been filed and no claims (except as otherwise permitted by
subsection 5.9 of the Loan Agreement) are being asserted with respect to any
- --------------
such taxes. The charges, accruals and reserves on the books of Borrower and
each of its Subsidiaries in respect of any taxes or other governmental charges
are in accordance with GAAP.
4.8 Performance of Agreements. None of the Loan Parties and none of
-------------------------
their respective Subsidiaries is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
contractual obligation of any such Person, and no condition exists that, with
the giving of notice or the passage of time or both, would constitute such a
default.
4.9 Broker's Fees. No broker's or finder's fee or commission will be
-------------
payable with respect to any of the transactions contemplated hereby.
4.10 Solvency. From and after the date of this Amendment,
--------
Borrower: (a) owns and will own assets the fair salable value of which are (i)
greater than the total amount of its liabilities (including contingent
liabilities) and (ii) greater than the amount that will be required to pay the
probable liabilities of Borrower as they mature; (b) has capital that is not
unreasonably small in relation to its business as presently conducted or any
contemplated or undertaken transaction; and (c) does not intend to incur and
does not believe that it will incur
5
<PAGE>
debts beyond its ability to pay such debts as they become due. There is no
material fact known to Borrower that has or could have a Material Adverse Effect
and that has not been fully disclosed in the Loan Agreement or in such other
documents, certificates and statements furnished to Agent or Lenders for use in
connection with the transactions contemplated thereby.
4.11 Disclosure. No representation or warranty of Borrower, any
----------
of its Subsidiaries or any other Loan Party contained in this Amendment, the
financial statements, the other Loan Documents, or any other document,
certificate or written statement furnished to Agent or any Lender by or on
behalf of any such Person for use in connection with this Amendment or the other
Loan Documents contains any untrue statement of a material fact or omitted,
omits or will omit to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances in which the same were made. The Projections and pro forma
financial information contained in such materials are based upon good faith
estimates and assumptions believed by such Persons to be reasonable at the time
made, it being recognized by Agent and Lenders that such projections as to
future events are not to be viewed as facts and that actual results during the
period or periods covered by any such projections may differ from the projected
results. There is no material fact known to Borrower that has had or will have
a Material Adverse Effect and that has not been disclosed in the Loan Agreement
or in such other documents, certificates and statements furnished to Agent or
any Lender for use in connection with the transactions contemplated thereby.
4.12 Compliance with Laws. Neither Borrower nor any of its
--------------------
Subsidiaries is in violation of any law, ordinance, rule, regulation, order,
policy, guideline or other requirement of any domestic or foreign government or
any instrumentality or agency thereof, having jurisdiction over the conduct of
its business or the ownership of its properties, including, without limitation,
any violation relating to any use, release, storage, transport or disposal of
any Hazardous Material, which violation would subject Borrower or any of its
Subsidiaries, or any of their respective officers to criminal liability or have
a Material Adverse Effect and no such violation has been alleged.
SECTION 5. Ratification; References to Loan Agreement. Except as
------------------------------------------
amended hereby, the Loan Agreement continues and shall remain in full force and
effect in all respects. From and after the date of this Amendment, each and
every reference in the Loan Agreement to "this Loan Agreement," "this
Agreement," "herein," "hereof" or similar words and phrases or any word or
phrase referring to a section or provision of the Loan Agreement is deemed for
all purposes to be a reference to the Loan Agreement or such section or
provision as amended pursuant to this Amendment.
SECTION 6. Severability; Headings; Amendment. Any provision of this
---------------------------------
Amendment which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any
6
<PAGE>
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. No term or provision of this Amendment may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by Borrower, Agent and Requisite Lenders. The section headings in this
Amendment are for convenience of reference only and shall not modify, define,
expand or limit any of the terms or provisions hereof.
SECTION 7. CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE
-----------------------
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK
STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT'S ELECTION, ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE OTHER
LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. BORROWER ACCEPTS FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-
EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM
NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS AMENDMENT, THE OTHER LOAN DOCUMENTS OR THE
OBLIGATIONS.
SECTION 8. WAIVER OF JURY TRIAL. BORROWER, AGENT AND EACH LENDER
--------------------
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AMENDMENT OR THE OTHER LOAN DOCUMENTS.
BORROWER, AGENT AND EACH LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS AND
THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
BORROWER, AGENT AND EACH LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
SECTION 9. Confidentiality. Agent and Lenders shall hold all
---------------
nonpublic information obtained pursuant to the requirements hereof and
identified as such by Borrower in accordance with such Person's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound business practices and in any event may make
disclosure to such of its respective Affiliates, officers, directors, employees,
agents and representatives as need to know such information in connection with
the Loans. If any Lender is otherwise a creditor of a Borrower, such Lender may
use the information in connection with its other credits. Agent and Lenders may
also make disclosure reasonably required by a bona fide offeree or assignee (or
participation), or as required or requested by any governmental authority or
representative thereof, or pursuant to legal process, or to its accountants,
lawyers and other
7
<PAGE>
advisors, and shall require any such offeree or assignee (or participant) to
agree (and require any of its offerees, assignees or participants to agree) to
comply with this Section 9. In no event shall Agent or any Lender be obligated
---------
or required to return any materials furnished by Borrower; provided, however,
each offeree shall be required to agree that if it does not become a assignee
(or participant) it shall return all materials furnished to it by Borrower in
connection herewith.
SECTION 10. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
--------------
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
SECTION 11. Successors and Assigns. This Amendment shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and assigns except that Borrower may not assign its rights or
obligations hereunder without the written consent of Lenders.
SECTION 12. Counterparts; Effectiveness. This Amendment may be
---------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which counterparts together shall constitute but
one and the same instrument. This Amendment shall become effective upon the
execution of a counterpart hereof by each of the parties hereto. Delivery of an
executed counterpart of a signature page to this Amendment by telecopier shall
be as effective as delivery of a manually executed counterpart thereof.
* * *
8
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Third
Amendment to Loan and Security Agreement to be duly executed on the date first
above written.
TOWER AIR, INC.,
Borrower
By: /s/ Ramesh Punwani
-------------------------------
Name: Ramesh Punwani
Title: CEO/VP Finance
HELLER FINANCIAL, INC.,
Agent and Lender
By: /s/ Joel Richards
-------------------------------
Name: Joel Richards
Title Vice-President
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q FOR THE QUARTER ENDED JUNE 30,
1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,276
<SECURITIES> 2,000
<RECEIVABLES> 35,197
<ALLOWANCES> 1,017
<INVENTORY> 0
<CURRENT-ASSETS> 42,540
<PP&E> 393,279
<DEPRECIATION> 157,934
<TOTAL-ASSETS> 281,018
<CURRENT-LIABILITIES> 153,748
<BONDS> 89,005
0
0
<COMMON> 155
<OTHER-SE> 51,319
<TOTAL-LIABILITY-AND-EQUITY> 281,018
<SALES> 0
<TOTAL-REVENUES> 112,576
<CGS> 0
<TOTAL-COSTS> 103,064
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,022
<INCOME-PRETAX> 6,513
<INCOME-TAX> 2,930
<INCOME-CONTINUING> 3,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,583
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
