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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended MAY 31, 1996
[ ] 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 0-18352
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 59-2223025
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8095 N.W. 64th Street, Miami, Florida 33166
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(Address of principal executive offices) (Zip Code)
(305) 593-2658
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of class Name of each exchange on which registered
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Common Stock, $.001 par value None
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 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 the 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/A. [ X]
At August 15, 1996, the aggregate market value of common stock held by non-
affiliates of the Registrant was approximately $757,646.
The number of shares of the Registrant's Common Stock outstanding as of
August 15, 1996 was 4,041,779.
DOCUMENTS INCORPORATED BY REFERENCE: [NONE]
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INTERNATIONAL AIRLINE SUPPORT GROUP INC.
ANNUAL REPORT OF FORM 10-K/A
FOR THE YEAR ENDED MAY 31, 1996
TABLE OF CONTENTS
PAGE
PART I........................................................................1
Item 1. Business........................................................1
Item 2. Properties......................................................9
Item 3. Legal Proceedings...............................................9
Item 4. Submission of Matters to a Vote of Security Holders.............9
PART II......................................................................10
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters............................................10
Item 6. Selected Financial Data........................................10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................13
Item 8. Financial Statements and Supplementary Data....................20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................20
PART III.....................................................................21
Item 10. Directors and Executive Officers of the Registrant.............21
Item 11. Executive Compensation.........................................22
Item 12. Security Ownership of Certain Beneficial Owners and
Management.....................................................24
Item 13. Certain Relationships and Related Transactions.................25
PART IV......................................................................26
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.......................................................26
SIGNATURES...................................................................32
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PART I
ITEM 1. BUSINESS.
ALL STATEMENTS CONTAINED HEREIN THAT ARE NOT HISTORICAL FACTS ARE BASED ON
CURRENT EXPECTATIONS. THESE STATEMENTS ARE FORWARD LOOKING IN NATURE AND
INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER
MATERIALLY. AMONG THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY ARE THE FOLLOWING: BUSINESS CONDITIONS AND THE GENERAL ECONOMY,
COMPETITIVE FACTORS SUCH AS THE DEMAND FOR OLDER AIRCRAFT, THE COMPANY'S ABILITY
TO MAINTAIN INVENTORY THAT MEETS APPLICABLE REGULATORY STANDARDS AND CLIENT
DEMAND, THE AVAILABILITY OF NEW PARTS AND GENERAL RISKS OF INVENTORY
OBSOLESCENCE, THE ONGOING TREND FOR CUSTOMERS TO USE FEWER SUPPLIERS CAUSING A
LOSS OF CUSTOMERS, THE LOSS OF A PRINCIPAL CUSTOMER IN A GIVEN PERIOD IF THE
COMPANY IS UNABLE TO REPLACE SALES TO SUCH CUSTOMER AND THE OTHER RISK FACTORS
DESCRIBED IN THE COMPANY'S REPORTS FILED FROM TIME TO TIME WITH THE SECURITIES
AND EXCHANGE COMMISSION. THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE
UNDUE RELIANCE ON ANY SUCH FORWARD LOOKING STATEMENTS, WHICH STATEMENTS ARE MADE
PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND, AS SUCH,
SPEAK ONLY AS OF THE DATE MADE.
GENERAL
International Airline Support Group, Inc. (the "Company") is a worldwide
supplier of spare parts to the aviation redistribution market. The Company
sells spare parts to major commercial passenger airlines, air cargo carriers,
maintenance and repair facilities and other redistributors. The parts sold by
the Company include avionics, rotable and expendable airframe and engine
components for commercial aircraft, including Airbus, Boeing and
McDonnell-Douglas aircraft and Pratt & Whitney and Rolls-Royce jet engines.
During fiscal 1996, the Company supplied parts to over 771 customers worldwide,
approximately 676 of whom were domestic customers and approximately 95 of whom
were foreign customers. Currently, the Company specializes in replacement parts
for McDonnell Douglas DC-9 aircraft. Management believes that the Company has
one of the most extensive inventories of aftermarket DC-9 parts in the industry.
The Company believes that the annual worldwide market for aircraft spare
parts is approximately $10 billion, of which approximately $1.3 billion
represents sales of aircraft spare parts to the redistribution market and that
the Company's sales represented approximately 2% of such market during fiscal
1996. The redistribution market is highly fragmented, with a limited number of
large, well capitalized companies selling a broad range of aircraft spare parts,
and numerous smaller competitors serving distinct market niches. The Company
believes that significant trends affecting the redistribution market will
continue to increase its overall size while reducing the number of competitors.
Factors causing the expansion of the redistribution market include the
increasing size and age of the world-wide airline fleet and the increasing
pressures on airlines and maintenance and repair facilities to control their
costs.
RECENT DEVELOPMENTS
On July 12, 1996, the Company announced that it did not intend to pay the
scheduled $3.7 million principal installment due on its 12% Senior Secured Notes
due July 17, 1997 (the "Senior Notes"), pending redemption of the Senior Notes
in connection with a restructuring of its indebtedness (the "Restructuring").
The Company did not make the payment, which was due on July 17, 1996. The
Restructuring was described in a Registration Statement on Form S-4 filed by the
Company with the Securities and Exchange Commission, on July 12, 1996, as
amended. Pursuant to the proposed restructuring, the Company offered to
exchange (the "Exchange Offer") 224.54 shares of its Common Stock, $.001 par
value per share, for each $1,000 principal amount of its 8% Convertible
Subordinated Debentures due August 31, 2003 (the "Convertible Debentures").
In connection with the restructuring, the Company also solicited
proxies from the holders of its Common Stock to approve a 1-for-27 reverse
stock split, to effect certain amendments to its Certificate of Incorporation
and to approve a stock option plan.
The Company consummated the Restructuring on October 3, 1996. In addition
to the consummation of the Exchange Offer and the reverse stock split, the
Company redeemed $7,700,000 principal amount outstanding of the Senior Notes
with the proceeds of an advance pursuant to a credit agreement entered into
by the Company simultaneously with the consummation of the Restructuring.
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COMPANY STRATEGY
The Company's operating strategy has two components. First, the Company
intends to increase its revenues and operating income through continued customer
penetration in its existing markets and expansion into new markets. The Company
intends to achieve this by continuing to increase its share of the market for
spare parts for certain widely operated aircraft models, including, in
particular, the DC-9 (which is no longer in production) and the MD-80. Although
the MD-80 is still in production, many of the DC-9's parts are interchangeable
with the MD-80, which, given the Company's experience and knowledge with the
DC-9, gives it a competitive advantage. The Company intends to capitalize on
the limited availability of spare parts for such aircraft models by acquiring
(i) pools of inventory from airlines that cease to operate such aircraft or that
desire to reduce their levels of parts inventory and (ii) aircraft for parting
out when the purchase price justifies doing so. In this regard, the Company
purchased an inventory of DC-9 and MD-80 parts from Pt. Garuda Indonesia, an
Indonesian airline, in May 1996 for total consideration of approximately $2.6
million. This inventory, which has an appraised fair market value in excess of
$7.5 million, became available following Garuda's decision to discontinue
operating DC-9 aircraft. The Company believes that its knowledge of the fleets
of DC-9 and MD-80 aircraft currently in operation and its worldwide contacts in
the commercial aviation industry will permit it to acquire other inventory pools
and aircraft for parting out on favorable terms in the future.
The second component of the Company's operating strategy is to achieve
revenue and earnings growth by acquiring other companies engaged in the sale of
aircraft parts as well as companies with product lines that would complement the
Company's existing redistribution business. The Company competes in a
fragmented market in which numerous small companies serve distinct market
niches. The Company believes that small aircraft parts redistributors, many of
which are family owned and capital constrained, are unable to provide the
extensive inventory and quality control necessary to comply with applicable
regulatory and customer requirements and will provide acquisition opportunities
for the Company. The Company believes that such acquisitions will permit it to
expand its customer base by selling aircraft parts to airlines and others that
are not now customers, to expand its product line with respect to aircraft in
which the Company currently specializes, to strengthen its relationships with
existing customers and to expand the types of aircraft in which the Company
specializes. The Company, however, is not presently in negotiations with
any such Company and has not entered into an agreement to acquire
any such company and there can be no assurance that the Company will be able to
do so. Further, the Company will be unable to make acquisitions if the
Restructuring is not consummated.
HISTORY
The Company became a supplier of aircraft parts in the early 1980s by
parting out DC-8 aircraft and reselling the resulting spare parts. Based upon
the Company's success in parting out DC-8 aircraft, which ceased production in
1972, the Company began purchasing and parting out DC-9 aircraft in 1991.
Production of DC-9 aircraft ceased in 1982. The DC-8 and DC-9 aircraft have
life expectancies that have exceeded the manufacturer's original estimates.
Beginning in 1992, the Company began purchasing and parting out Boeing 727
aircraft. The Company has acquired thirty-eight DC-8, eight DC-9, and six
Boeing 727 aircraft for parting out since the Company began operations. In
addition, the Company purchased the original testbed MD-80 from McDonnell
Douglas and parted it out. The Company's extensive inventory of DC-9 parts also
enables it to sell parts to operators of the MD-80 because a substantial number
of DC-9 parts may be used on the MD-80.
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Traditionally, the Company obtained most of its parts inventory by parting
out high quality aircraft. Although management expects that, if financing is
available, it may acquire additional aircraft for parting out, management
believes that the principal source of its inventory acquisitions during the next
fiscal year will be purchases of excess inventory from aircraft operators. In
the past, the Company acquired aircraft for parting out only if its initial
estimate of the timing and value of parts sales for such aircraft would allow
the Company to recover the purchase price within 180 days through the sale of a
portion of parts, and to sell the remaining parts for amounts in excess of the
purchase price over the subsequent five years. Aircraft that are available at
appropriate prices are increasingly difficult to locate because of, among other
things, the continued trend of start-up, low-cost airlines to use narrow-body
aircraft such as the DC-9. However, the emergence of the start-up, low-cost
airlines has enhanced the value of the Company's existing inventory because in
order to assure reliable operations, such airlines need to maintain a minimum
supply of spare parts or establish relationships with spare parts suppliers.
Because of the Company's position as a primary source of spare parts for the
DC-9 aircraft and because the start-up airlines generally lack the resources to
maintain extensive supplies of spare parts, the Company believes that it will
continue to be an active parts supplier for such airlines.
In addition to its DC-9 spare parts, the Company maintains inventories of
spare parts for the Boeing 727, 737 and 747 aircraft, the McDonnell Douglas
DC-8 and MD-80 aircraft and the Lockheed L1011 and L100/C130. The Company also
generates additional revenues by brokering third party spare parts on behalf of
customers and by arranging for the repair or exchange of customers' spare parts
with FAA-certified repair facilities.
Management believes that its customer relationships are important to the
Company's operational success. The Company has established relationships with
many domestic and foreign aircraft operators and, subject to the availability of
financing, maintains an adequate level of inventory in order to service such
customers in a timely manner. Management believes that availability and timely
delivery of quality spare parts are the primary factors considered by customers
when making a spare parts purchase decision.
INDUSTRY OVERVIEW
GENERAL. The Company believes that the world-wide aircraft fleet is both
growing and getting older. According to the World Jet Airplane Inventory for
calendar 1995, the combined aircraft fleets of aircraft operators throughout the
world at December 31, 1995 consisted of approximately 12,452 jet aircraft, the
average age of which was approximately 13.1 years. A significant number of the
spare parts used in these aircraft are supplied by different types of companies,
including original equipment manufacturers ("OEMs") and numerous redistributors,
such as the Company, fixed-base operators, FAA-certified overhaul facilities,
traders and brokers. Management believes that the fragmented nature of the
aircraft spare parts industry creates opportunities for small well-capitalized
and financed companies with proven infrastructures to exploit niche markets in
certain types of aircraft, such as the DC-9 and MD-80.
Economic factors have prompted many airlines to defer aircraft procurement
programs and extend the useful life of older equipment. Consequently, many
aircraft operators are postponing, deferring or canceling orders for new
aircraft and are retaining their older aircraft. Certain U.S. and European
operators have implemented measures such as the installation of FAA-approved
hush kits and extended life maintenance programs to extend the useful lives of
older aircraft in their fleets. In addition, many foreign and domestic start-up
aircraft operators are establishing their fleets through the acquisition of the
less expensive second generation aircraft even though such older aircraft
typically require more maintenance and replacement parts than new aircraft.
Furthermore, increased competition in the airline industry has led to the
emergence of several start-up low-cost airlines which use DC-9s and MD-80s,
including ValuJet, Spirit Airlines and Reno Air. The start-up airlines
generally offer service on specific high traffic, short-haul routes rather than
attempting to compete with the extensive hub-and-spoke systems used by the major
carriers to obtain long-haul traffic. Second generation aircraft (such as the
DC-9) are able to operate profitably on these high-traffic, short-haul routes.
In addition to the growth in the number of older aircraft in service, cost
and availability considerations are causing airlines to reduce the size of their
spare parts inventories and, therefore, to utilize aircraft spare parts sold by
redistributors to provide parts that are no longer in production. As airlines
adopt just-in-time inventory procurement
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processes, inventory storage and handling devolves to suppliers such as the
Company, thus increasing the percentage of parts sold by redistributors relative
to those sold by parts manufacturers. Furthermore, in order to reduce
purchasing costs, airlines have been reducing the number of "approved"
suppliers.
As a result of these supplier reductions, there has been and the Company
believes there will continue to be a consolidation in the redistribution market
even as the redistribution market is expected to grow. The Company believes
that only those redistributors with extensive inventories, adequate capital and
the ability to comply with applicable regulatory and customer requirements
regarding part quality and traceability will be able to capitalize on these
trends. The Company currently maintains an inventory of over 50,500 line items
consisting of more than 565,000 parts, which the Company believes will enhance
its ability to respond well to such market trends.
AVAILABILITY OF REPLACEMENT PARTS. Aircraft and parts manufacturers
typically provide their customers with replacement parts throughout the
production life of the aircraft. Other sources for new aircraft parts include
authorized subcontractors for the OEMs, new parts distributors and aircraft
operators with excess inventories. Once an aircraft is no longer in production,
a manufacturer will continue to supply spare parts to its customers for an
extended period of time, which varies among aircraft types. For example, spare
parts for the DC-8 aircraft were available from the aircraft manufacturer until
1987, 15 years after the DC-8 model type ceased production. However,
manufacturers generally have no obligation to supply or maintain parts for an
aircraft operator that was not the original purchaser of the aircraft.
As OEMs cease manufacturing replacement parts, and as other sources of new
parts become increasingly scarce, aircraft operators must locate alternative
sources for quality aftermarket parts to maintain the reliable operation of
their aircraft. Often, aircraft operators will opt for quality aftermarket
parts even when new parts are still in production. Aftermarket aircraft parts
must meet the same FAA standards as new parts but generally cost less than new
parts, and are often more readily available.
NOISE ABATEMENT REGULATIONS. The FAA classifies aircraft in three groups,
Stage 1, Stage 2 and Stage 3, in order of decreasing noise characteristics. In
1980 the FAA adopted a rule prohibiting the operation of Stage 1 aircraft in or
to the United States. In response to a Congressional requirement, the FAA
submitted a report to Congress in April 1986 which presented various approaches
to encourage or require the replacement of Stage 2 aircraft with Stage 3
aircraft. The FAA noise abatement regulations that were adopted require
aircraft operators to phase out their noisier aircraft gradually by either
replacing them with quieter Stage 3 aircraft or equipping them with hush kits to
comply with noise abatement regulations according to the following schedule: by
December 31, 1994, each aircraft operator was required either to reduce the
number of Stage 2 aircraft it operated by 25% or operate a fleet composed of not
less than 55% Stage 3 aircraft; by December 31, 1996, each aircraft operator
must either reduce its Stage 2 aircraft by 50% or operate a fleet composed of
not less than 65% Stage 3 aircraft; by December 31, 1998 at least 75% of an
aircraft operator's Stage 2 aircraft must be eliminated, or its overall fleet
must be composed of 75% Stage 3 aircraft; and by December 31, 1999, 100% of the
fleet must be composed of Stage 3 aircraft, subject to certain waivers.
OPERATIONS OF THE COMPANY
"PARTING OUT" AND INVENTORY ACQUISITION. The purchase and dismantling of
an aircraft and the resale of the dismantled parts for use on other aircraft is
commonly called "parting out." Traditionally, the Company obtained most of its
spare parts inventory by parting out high quality aircraft. When the Company
acquires an aircraft for parting out, the aircraft is delivered to an inventory
storage facility. The aircraft is then removed from the U.S. registry. The
seller of the aircraft will often provide the Company with a computerized data
base listing all the parts and equipment on the aircraft which is verified by
the Company. If a computerized listing of parts is not available, the Company
will conduct its own inventory of the aircraft to be parted out. The parts and
equipment are catalogued and all the relevant information regarding the parts,
including each part's repair history, is entered into the Company's computer
database. Management believes that it is essential that such information be
immediately available in order to facilitate sales by the Company's sales
personnel. In certain instances, parts which are in high demand are pre-sold
prior to the delivery of the aircraft to the Company. High value parts such as
engines and engine components are also often pre-sold. Pre-selling allows the
Company to recover a significant amount of its investment within a short time
from the date of the aircraft delivery.
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An aircraft purchased for parting out is often in the same condition as the
aircraft that will utilize the spare parts. Sellers are usually motivated to
dispose of their aircraft at part out prices for a variety of reasons, including
the seller's need for immediate liquidity or inability to economically lease the
aircraft to third parties. Additionally, such aircraft may require extensive
maintenance or overhaul or may require government-mandated improvements which
are uneconomical for the seller to perform.
In addition to purchasing whole aircraft, the Company also acquires spare
parts by bidding on the inventory of companies that are eliminating certain
portions of their spare parts inventories due to the retirement of an aircraft
type from their fleets, the downsizing of their operations or the dissolution of
their businesses as a whole. Management believes that its principal source of
inventory acquisitions during the next fiscal year will be from such sales.
Modern aircraft design emphasizes the use of components that may be reused
repeatedly after inspection and overhaul. Because of the reusable nature of
such "rotable" parts, sales of rotable parts offer greater profit potential than
the nonreusable "consumable" parts. Vendors offer rotable parts in different
conditions, designated by industry standards. A component may be sold in
"serviceable" condition, meaning that the unit may be installed on an aircraft
without further inspection. "As removed - not for failure" designates a
component that was removed from an aircraft for some reason other than
malfunction and may be reinstalled after inspection. The remaining condition,
"unserviceable," designates the need for the part to be overhauled prior to
inspection and installation. The FAA requires rotable and other spare parts to
be inspected at FAA-certified repair facilities prior to installation on an
aircraft. However, the FAA does not prohibit the sale of aftermarket parts that
have not been inspected and certified.
PRODUCT LINES. Historically, the Company maintained a large inventory of
aftermarket parts for the DC-8 aircraft. The DC-8, an early model Stage 1
aircraft, has not been produced since 1972. The FAA's enactment of noise
abatement restrictions in 1980 grounded all DC-8s powered by JT3 and JT4 class
engines in use in the United States and required such aircraft to be refitted
with modern, quieter engines. Because of the expense involved in installing new
engines, the use of DC-8 aircraft in the United States declined. Certain
devices known as "hush kits" were invented in order to bring the JT3 engines
within acceptable noise limits. In late 1985, the FAA approved the first hush
kit for certain JT3 engines and an additional hush kit was approved for other
JT3 engines in 1987. The effect of these changes was to create new demand for
DC-8 parts because a DC-8 equipped with a hush kit is among the lowest cost
aircraft to operate per ton mile. Accordingly, the Company believes that the
DC-8s will continue to be used by freight carriers and other operators and that
the sale of DC-8 parts will continue to be a source of revenues in the
foreseeable future. However, it is expected that sales of DC-8 parts will
continue to decline in correspondence with the decrease of DC-8s in operation.
Because of the limited number of DC-8s in operation, the Company began
expanding its inventory to include parts for Stage 2 aircraft, such as the DC-9
aircraft. Currently, the Company specializes in replacement parts for DC-9
aircraft. The noise abatement regulations issued by the FAA require aircraft
operators to phase out their noisier Stage 2 jets by the year 2000 unless they
are retrofitted with hush kits to bring them into compliance with the Stage 3
noise requirements. The Company believes that retrofitting with hush kits as
well as the extended life maintenance programs instituted by many aircraft
operators will increase the useful life of DC-9s. In addition to the Company's
inventory of McDonnell Douglas DC-8 and DC-9 parts, the Company's inventory also
includes spare parts for the Boeing 727, 737, and 747 aircraft, the McDonnell
Douglas MD-80 aircraft and the Lockheed L1011 and L100/C130 aircraft and for the
Pratt & Whitney JT-8D engine series. Many of the parts on the MD-80, which is
still in production, are interchangeable with similar parts for the DC-9.
MARKETING. The Company has developed a sales and marketing infrastructure
which includes well-trained and knowledgeable sales personnel, computerized
inventory management, listing of parts in electronic industry data bank
catalogues and a home page on the Internet. Crucial to the successful marketing
of the Company's inventory is the Company's ability to make timely delivery of
spare parts in reliable condition. The Company believes aircraft operators are
more sensitive to reliability and timeliness than price.
The Company's account executives are experienced and knowledgeable about
the market segment in which the Company participates. Account executives
understand maintenance requirements, parts for the aircraft type utilized
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in their markets, as well as list prices and fair values of most items sold.
Furthermore, they are familiar with alternative sources for parts not
inventoried by the Company.
Market forces establish the price for aftermarket aircraft parts. No
pricing service or catalogue exists for aftermarket components. Aftermarket
aircraft parts prices are determined by referencing new parts catalogues with
consideration given to existing supply and demand conditions. Often, aircraft
operators will opt for quality aftermarket parts even when new parts are still
in production. Aftermarket aircraft parts that meet the same FAA standards as
new parts cost less than the same new parts and are often more readily
available.
In addition to directly marketing its inventory, the Company lists its
inventory in the Air Transport Association's computerized data bank ("AIRS") and
with the Inventory Locator Service ("ILS"), a proprietary computerized data
bank. Both of these data bases are 24 hour electronic "marketplaces" where
aircraft parts transactions take place.
CUSTOMERS
GENERAL. The Company's customer base includes major passenger and cargo
operators, smaller aircraft operators, overhaul facilities, FAA-certified repair
facilities and other redistributors who may in turn resell to end users.
Certain aircraft operators often buy through competitors instead of directly
through the Company because of the operator's existing relationship with the
competitor or the competitor's ability to overhaul the part sought.
In addition to selling parts, the Company also sells entire aircraft from
time to time. In a given period, a substantial portion of the Company's
revenues may be attributable to the sale of aircraft. Such sales are
unpredictable transactions, dependent, in part, upon the Company's ability to
purchase an aircraft at an attractive price
and resell it within a relatively brief period of time.
The revenues from the sale of aircraft during a given period may result in the
purchaser of the aircraft being considered a major customer of the Company for
that period. The Company does not expect to make repeat aircraft sales to a
given customer; therefore, changes in the identity of major customers are
frequently due to the occurrence of aircraft sales.
MAJOR CUSTOMERS. In fiscal 1993 and 1994, Transafrik Corp., a cargo
carrier operating in Africa, accounted for a significant amount of the Company's
revenue. Prior to fiscal 1993, no customer accounted for more than 10% of the
Company's net revenue, except for Transafrik. In fiscal 1994, sales to
Transafrik declined significantly. Transafrik accounted for less than one
percent of the Company's total revenue in fiscal 1995 and 1996, compared with
25%, 18% and 10% of total revenues in fiscal 1992, 1993 and 1994, respectively.
During fiscal 1995, the Company sought to reduce its vulnerability to a decrease
in sales to any single customer by focusing its marketing on the identification
and solicitation of new customers. As a result, the Company obtained
approximately 240 new parts customers during fiscal 1995 and 242 new customers
during fiscal 1996. In fiscal 1995, the Company instituted new compensation
policies for its parts sales force. Pursuant to the new policies, all salesman
are paid strictly on commission, sales to new customers are encouraged and
commissions are not paid until accounts are collected. In addition, the Company
has continued to decrease its exposure to more volatile international markets.
Its domestic revenues as a percentage of total revenues has increased in each of
the last four fiscal years, to approximately 85% in fiscal 1996 from 72% in
fiscal 1995, 59% in fiscal 1994, and 40% in fiscal 1993.
During fiscal 1996 and the first seven months of calendar year 1996, the
Company's parts sales to ValuJet represented approximately 21% and 25%,
respectively, of the Company's total revenues. On June 17, 1996, ValuJet
entered into a consent decree with the FAA, pursuant to which ValuJet agreed to
ground all its aircraft until it demonstrates compliance with specified safety
and maintenance procedures. The Company also conducts business with other
customers who provide services to ValuJet. Management cannot estimate the
effect that the grounding of ValuJet has had or will have on sales to such other
customers.
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The following table lists the Company's customers which, based upon net
revenues, accounted for more than 10% of net revenues for fiscal 1995 and 1996:
<TABLE>
<CAPTION>
Customer Net Revenues (000's) Percentage of Total Net Revenues
- ------- ------------------- ---------------------------------
1995:
- ----
<S> <C> <C>
Aeroservices Carabobo C.A. $2,716 10.9
Ajax Leasing Ltd. 5,625 22.5
1996:
- ----
ValuJet Airlines, Inc. 4,771 20.6
</TABLE>
GEOGRAPHIC DISTRIBUTION OF CUSTOMERS. The Company sells aircraft and
aircraft parts and leases aircraft to foreign and domestic customers. The
footnotes to the Consolidated Financial Statements of the Company, which are set
forth elsewhere in this Annual Report on Form 10-K, provide certain information
with respect to the geographic areas in which the Company has derived revenue
during the three fiscal years ended on May 31, 1996.
ADDITIONAL SERVICES
AIRCRAFT AND ENGINE SALES AND LEASING. The Company has determined that its
spare parts sales opportunities are enhanced by providing its existing and new
customers with whole aircraft and engines through sale transactions. Such
transactions allow the Company to expand its customer base for spare parts and
to reduce the cost basis in its aircraft. The Company currently owns four
aircraft. As of May 31, 1996, one of the aircraft was subject to a
month-to-month operating lease. The Company expects to continue to broker sales
of aircraft and engines when opportunities to do so arise.
EXCHANGE TRANSACTIONS. An "exchange transaction" generally involves a high
value/high turnover rotable part which an operator frequently replaces when
performing aircraft maintenance. In an exchange transaction, a customer pays an
exchange fee and returns a "core" unit to the Company within 14 days. A "core"
unit is the same part which is being delivered to the customer by the Company,
but in need of overhaul. The Company has the customer's core unit overhauled
and bills the customer for the overhaul charges and retains the overhauled core
unit in its inventory. The Company continues to emphasize exchange transactions
because they are profitable and ensure that scarce parts remain in stock for
future sales.
BROKERED TRANSACTIONS. In a "brokered transaction" the Company fills a
customer order for a part not held in the Company's inventory. The Company
locates the part for the customer from another vendor and then resells the part
to the customer. During fiscal 1996, brokered transactions accounted for
approximately 13% of total revenues, as compared to approximately 19% of total
revenues during fiscal 1995.
GOVERNMENT REGULATION
The aviation industry is highly regulated in the United States by the FAA
and in other countries by similar agencies. While the Company's business is not
regulated, the aircraft spare parts which it sells to its customers must be
accompanied by documentation that enables the customer to comply with applicable
regulatory requirements. There can be no assurance that new and more stringent
government regulations will not be adopted in the future or that any such new
regulations, if enacted, would not have an adverse impact on the Company.
7
<PAGE>
PRODUCT LIABILITY
The Company's business exposes it to possible claims for personal injury or
death which may result from the failure of an aircraft spare part sold by it.
In this regard, the Company maintains liability insurance in the amount of
$10 million. While the Company maintains what it believes to be adequate
liability insurance to protect it from such claims, and while no lawsuit has
ever been filed against the Company based upon a products liability theory, no
assurance can be given that claims will not arise in the future or that such
insurance coverage will be adequate. Additionally, there can be no assurance
that insurance coverages can be maintained in the future at an acceptable cost.
Any such liability not covered by insurance could have a material adverse effect
on the financial condition of the Company.
COMPETITION
The aircraft spare parts redistribution market is highly fragmented.
Customers in need of aircraft parts have access, through computer-generated
inventory catalogues, to a broad array of suppliers, including aircraft
manufacturers, airlines and aircraft service companies. The dominant companies
in the aircraft parts aftermarket are AAR Corp., Aviation Sales Company and
Banner Aerospace. These companies are larger than the Company and have greater
financial resources. The Company also competes with numerous smaller,
independent dealers, which generally participate in niche markets. The Company
believes that none of its competitors account for a significant amount of the
spare parts market for DC-8, DC-9 and MD-80 aircraft, the types of narrow-bodied
aircraft in which the Company specializes. Competition in the redistribution
market is generally based on price, availability and quality of product,
including traceability.
EMPLOYEES
As of August 15, 1996, the Company had approximately 25 employees. Of
these, two are executive officers, six are sales personnel, seven are
accounting, finance, data processing, and administrative personnel, one is a
quality assurance specialist and the remainder are inventory and warehouse
operations personnel. The Company is not a party to any collective bargaining
agreement. The Company believes its relations with its employees are good.
8
<PAGE>
ITEM 2. PROPERTIES.
The Company's executive offices and operations are located at 8095
N.W. 64th Street, Miami, Florida. On August 8, 1996, the Company entered into a
contract to sell its corporate offices and adjacent warehouse. The Company
anticipates that the sale of its property will be consummated in the second
quarter of fiscal 1997, at which time the Company will relocate its facilities
into leased space that has not yet been identified.
The Company's property, as well as substantially all the other assets of
the Company, are subject to the lien of holders of the Senior Notes and,
following the consummation of the Restructuring, will be subject to a lien
securing amounts advanced pursuant to the secured credit facility (the "Credit
Facility") that the Company expects to enter into in connection with the
Restructuring.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not now a party to any litigation or other legal
proceeding. The Company may become a defendant in legal proceedings in the
ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this Annual Report.
9
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock has been publicly traded since April 2, 1990.
From April 2, 1990 through July 22, 1994, the Common Stock was listed and traded
on the Nasdaq/National Market System under the symbol IASG. Effective July 22,
1994, the Nasdaq Qualifications Committee delisted the Company's Common Stock
from quotation on the Nasdaq/National Market System. Since that time, the
Common Stock has been traded through the National Quotation Bureau's National
Daily Quotation Price Sheets (the "Pink Sheets"). The following table sets
forth the high and low closing prices of the Common Stock for the fiscal periods
indicated below as reported by Nasdaq/National Market System, prior to July 22,
1994, and the high and low bid quotations as reported by the National Quotation
Bureau thereafter.
1995 Fiscal Year High Low
---------------- ---- ---
First Quarter (through July 22) $ 15/16 $ 5/16
First Quarter (from July 22) 3/8 1/4
Second Quarter 3/8 1/16
Third Quarter 13/32 1/32
Fourth Quarter 1/2 5/32
1996 Fiscal Year High Low
---------------- ---- ---
First Quarter $ 7/16 $ 9/32
Second Quarter 9/32 5/32
Third Quarter 3/16 1/8
Fourth Quarter 7/32 1/8
At May 31, 1996, there were 105 holders of record of the Company's Common
Stock and no holders of the Company's Preferred Stock.
The Company has not paid dividends on the Common Stock. The Company's
financial condition and the existence of defaults pursuant to the Senior Notes
and the Convertible Debentures make it unlikely that the Company will be able to
pay dividends on the Common Stock in the foreseeable future. If the
Restructuring is consummated, covenants contained in the Credit Agreement will
prohibit the Company from paying dividends on the Common Stock as long as
indebtedness issued pursuant to the Credit Agreement remains outstanding.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data presented below for, and as of the
end of, each of the fiscal years in the five year period ended May 31, 1996 have
been derived from the Company's audited consolidated financial statements. The
consolidated financial statements of the Company as of May 31, 1995 and 1996 and
for the three-year period ended May 31, 1996 and the accountant's reports
thereon are included in Item 8 of this Form 10-K.
10
<PAGE>
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
OPERATING DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales $26,527 $32,032 $16,747 $21,999 $21,410
Lease revenue -- 1,473 1,986 2,984 1,795
------- ------- ------- ------- -------
Total revenues $26,527 $33,505 $18,733 $24,983 $23,205
Cost of sales 16,311 21,494 22,104 17,712 13,208
Selling, general and
administrative expenses 5,281 6,469 6,943 4,358 3,922
Provision (recovery) for
doubtful accounts 374 493 1,488 (335) 464
Depreciation and
amortization 201 1,000 2,474 1,401 1,153
Losses of service center
subsidiary -- -- 1,923 676 --
------- ------- ------- ------- -------
Unusual and nonreccuring
items -- -- -- (177) --
------- ------- ------- ------- -------
Total operating expenses 22,167 29,456 34,932 23,635 18,747
------- ------- ------- ------- -------
Income from continuing
operations 4,360 4,049 (16,199) 1,348 4,458
Interest expense 871 2,569 2,953 2,564 2,192
Interest and other
income, net (94) (66) (87) (603) (34)
------- ------- ------- ------- -------
Earnings (loss) before
income taxes, equity in
loss of joint
venture and extraordinary
item $ 3,583 $ 1,546 $(19,065) $ (614) $ 2,300
Provision for income taxes
(benefit) 1,370 510 (2,476) -- 14
Equity in loss
of joint venture (229) (59) (424) -- --
Extraordinary loss on
extinguishment of debt -- -- (363) -- --
------- ------- ------- ------- -------
Net earnings (loss) $1,984 $977 $(17,376) $(614) $2,286
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
PER SHARE DATA:
<S> <C> <C> <C> <C> <C>
Primary earnings (loss) per
common and common
equivalent share
Earnings (loss) before $ 0.52 $ 0.22 $(4.21) $(0.15) $ 0.57
extraordinary item
Extraordinary item -- -- (0.09) -- --
------ ------- ------- ------- ------
Net earnings (loss) $ 0.52 $ 0.22 $ (4.30) $ (0.15) $ 0.57
------ ------ -------- -------- ------
------ ------ -------- -------- ------
Weighted average shares
outstanding used in primary
calculation 3,849,852 5,312,046 4,041,779 4,041,779 4,041,779
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Fully-diluted earnings (loss) per
common and common
equivalent share
Earnings (loss) before $ 0.52 $ 0.22 $ (4.21) $ (0.15) $ 0.47
extraordinary item
Extraordinary item -- -- (0.09) -- --
------ ------ -------- ---- ------
Net earnings (loss) $ 0.52 $ 0.22 $ (4.30) $ (0.15) $ 0.47
------ ------ -------- -------- ------
------ ------ -------- -------- ------
Weighted average shares
outstanding used in fully-diluted
calculation 3,849,852 5,312,046 4,041,779 4,041,779 6,541,779
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
At May 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Working capital (deficit) $2,938 $17,088 $(18,312) $(13,489) $(10,841)
Total assets 20,303 35,709 25,553 14,511 16,132
Short-term debt 7,296 4,905 3,531 1,812 3,695
Long-term debt in
technical default
classified as current -- -- 22,157 18,083 14,042
Long-term debt 309 18,579 485 440 407
Stockholder's equity
(deficit) 7,080 8,173 (9,088) (9,702) (7,416)
</TABLE>
12
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
THE RESTRUCTURING. As of September 27, 1996, the Company had entered into
Standstill Agreements with holders of approximately 100% of the outstanding
principal amount of the Senior Notes and had reached an agreement in principle
with the single largest holder of the Convertible Debentures and Dabney/Resnick,
Inc. ("D/R"), an investment banking and broker-dealer firm whose clients include
a substantial number of holders of the Convertible Debentures, providing for the
Restructuring. The Company expects that consummation of the Restructuring will
result in the following:
- A reduction of its indebtedness from approximately $18.1 million to
approximately $8.1 million and reclassification of long-term debt from
a current to a long-term obligation.
- A capital structure that will permit the Company to implement its
operating strategy.
- Reduced debt service obligations and a resulting cash flow adequate to
fund such obligations and operations.
- An improved operating income to fixed charge ratio.
If the Restructuring is not consummated, the Company's highly leveraged
financial position will result in the continuation of the defaults with respect
to the Senior Notes and the Convertible Debentures and may result in a number of
other serious financial and operational problems, including the following:
(i) the Company will experience a severe liquidity crisis; (ii) the Company will
be unable to invest adequate capital in its business or maintain its current
capital assets; (iii) the Company will have little, if any, ability to access
capital markets; (iv) the Company's senior management will be required to spend
an excessive amount of time and effort dealing with the Company's financial
problems, instead of focusing on the operation of its business; (v) the Company
may be unable to retain top managers and other key personnel and build the value
of its business; (vi) the Company may lose business if customers become
concerned about the Company's ability to supply quality replacement parts in a
timely manner or to comply with applicable regulatory requirements; and
(vii) suppliers to the Company may stop providing supplies or may provide
supplies only on shortened payment or cash terms. If these problems occur, the
Company believes that the value of its business will deteriorate.
Accordingly, if the Restructuring is not consummated, the Company will have
little choice but to devise alternative actions. Considering the Company's
limited financial resources and the existence of unwaived defaults with respect
to the Senior Notes and the Convertible Debentures, there can be no assurance
that the Company would succeed in formulating and consummating an acceptable
alternative financial restructuring. In such case, the Company most likely
would be forced to cease operations or to file for protection under Chapter 11
of the Bankruptcy Code. In addition, because payment defaults currently exist
under the Senior Notes and Convertible Debentures, it is possible that creditors
of the Company could file an involuntary petition seeking to place the Company
in bankruptcy. There can be no assurance that a bankruptcy proceeding would
result in a reorganization of the Company rather than a liquidation, or that any
reorganization would be on terms as favorable to the holders of the Convertible
Debentures, Senior Notes and Common Stock as the terms of the Restructuring. If
a liquidation or a protracted reorganization were to occur, there is a risk that
there would be no cash or property available for distribution to holders of the
Convertible Debentures and the Common Stock and that the holders of Senior Notes
would incur a significant discount on their claims.
THE COMPANY'S CURRENT FINANCIAL CONDITION. At May 31, 1996, the Company's
total long-term debt amounted to $18.1 million, consisting primarily of $7.7
million principal amount of the Senior Notes, $10.0 million principal amount of
the Convertible Debentures and $.4 million principal amount of a mortgage loan
secured by its corporate headquarters. The entire principal amount of the
Senior Notes and the Convertible Debentures was classified as current at May 31,
1996, because of the existence of defaults under the governing documents. The
Senior Notes, which were issued during fiscal 1993, bear interest at the fixed
rate of 12% per annum, payable quarterly, and mature in 1997. The Convertible
Debentures, which were issued during fiscal 1994, bear interest at the fixed
rate of 8% per annum, payable quarterly, are convertible into shares of the
Company's Common Stock at $4.00 per share and mature in 2003.
13
<PAGE>
On May 26, 1995, the Company received a notice of payment blockage from the
holder of a majority of the outstanding principal amount of the Senior Notes
(the "Majority Noteholder"). Citing a continuing Event of Default under the
agreement governing the Senior Notes as a result of the Company's noncompliance
with certain financial covenants, the Majority Noteholder demanded that the
scheduled interest payment which would otherwise have been payable on May 31,
1995 to holders of the Convertible Debentures not be paid. As a result of the
Company's receipt of the notice of payment blockage, the Company did not make
its scheduled May 31, 1995 and August 31, 1995 interest payments due to holders
of the Convertible Debentures, totaling $400,000. Pursuant to the terms of the
Senior Notes, the Company was prohibited from making any other payments with
respect to the Convertible Debentures prior to the expiration of the payment
blockage period on November 22, 1995. Notwithstanding the expiration of the
payment blockage period, the Company did not pay the November 30, 1995 and the
February 29 and May 31, 1996 interest payments on the Convertible Debentures.
The Company does not intend to resume making payments of interest on the
Convertible Debentures.
The Company did not make its scheduled July 17, 1995 principal payment on
the Senior Notes in the approximate amount of $1.8 million. The Company cured
the default in part by making a principal payment of $1.45 million on the Senior
Notes on December 12, 1995. The Company made an additional principal payment of
$.7 million on May 13, 1996, which cured such principal payment default and
prepaid, without penalty, approximately $.35 million of the $4.1 million
principal payment due on the Senior Notes on July 17, 1996. The Company did not
make its July 17, 1996 principal payment on the Senior Notes, which was due in
the amount of approximately $3.7 million, pending redemption of the Senior Notes
in connection with the Restructuring. If the Restructuring is not consummated,
the Company will be unable to make such principal payment, the only remaining
principal payment on the Senior Notes due during the current fiscal year, and
will continue to be unable to make interest payments on the Convertible
Debentures for the remainder of the current fiscal year.
The failure to make the interest payments to the holders of the Convertible
Debentures and the principal payment to the holders of the Senior Notes due on
July 17, 1996 referred to above constituted an Event of Default under the
agreements governing the Senior Notes and Convertible Debentures. Further, the
Company is in default in the observance of certain financial covenants
applicable to the Senior Notes and the Convertible Debentures. If the Company
remains in default under the terms of the Senior Notes and Convertible
Debentures, the holders of such instruments could accelerate the debt, resulting
in principal of $17.7 million becoming immediately due and payable. The Company
would have no ability to repay such indebtedness if it were to be accelerated.
The foregoing circumstances most likely would require the Company to cease
operations or to file for protection under Chapter 11 of the Bankruptcy Code.
In addition, if the holders of any of the Company's Senior Notes or Convertible
Debentures demand repayment or if the holders of the Senior Notes seek to
realize upon the collateral securing the Senior Notes, there is a substantial
likelihood that the Company will be forced to cease operations or to file for
protection under Chapter 11 of the Bankruptcy Code.
At May 31, 1996, the Company had a working capital deficit of $10.8 million
and a current ratio of .5 to 1.0, compared to a working capital deficit of $13.5
million and a current ratio of .4 to 1.0 at May 31, 1995. The $2.7 million
reduction in the working capital deficit was primarily the result of proceeds
from the sale of certain aircraft (that were previously leased), being used to
pay down current liabilities. This is reflected in the Company's cash flows
which show cash flow provided by operating activities of approximately $2.1
million, but cash flows from financing activities using approximately $2.6
million.
The Company does not have any bank lines of credit or other sources of
liquidity beyond cash flows from operating activities due to profitable
operations, if any, or further asset sales. However, the Company does not
currently have any significant commitments for capital outlays. The Company has
received a commitment from a major money-center bank for a Credit Facility
consisting of (i) a revolving line of credit in an amount equal to the lesser of
(a) $11.0 million and (b) an amount based on the sum of eligible accounts
receivables, eligible lease payment receivables and eligible inventory minus
revolver reserve and (ii) a term loan in an amount equal to the lesser of
(a) $3.0 million and (b) an amount based on a percentage of the forced
liquidation value of aircraft approved by the lender plus the revolver reserve.
It is a condition to the consummation of the Restructure that the Company
enter into the Credit Agreement. The Company expects that it will have the
ability to borrow approximately $11.7 million under the Credit Agreement and it
expects to incur approximately $7.9 million of indebtedness under the Credit
Agreement upon consummation of the Restructuring. The Company believes that
its remaining available borrowing will be adequate together with cash from
operations, to meet its projected expenditures.
14
<PAGE>
RESULTS OF OPERATIONS
OVERVIEW.
The following table sets forth percentage relationships of expense items to
total revenues for the periods indicated:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
YEARS ENDED MAY 31,
-------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Operating Data:
Net Sales 89.4% 88.1% 92.3
Lease revenue 10.6 11.9 7.7
---- ---- ---
Total revenues 100.0 100.0 100.0
Cost of sales 118.0 70.9 56.9
Selling, general and administrative expenses 37.1 17.4 16.9
Provision (recovery) for doubtful accounts 7.9 (1.3) 2.0
Depreciation and amortization expense 13.2 5.6 5.0
Losses of service center subsidiary 10.3 2.7 --
Unusual and nonrecurring item - (.7) --
---- ---- ---
Total operating expenses 186.5 94.6 80.8
---- ---- ---
Income from operations (86.5) 5.4 19.2
Interest expense 15.8 10.3 9.4
Interest and other income, net (.5) (2.4) (.1)
---- --- --
Earnings (loss) before income taxes, equity in loss (101.8) (2.5) 9.9
of joint venture and extraordinary item
Provision for income taxes (benefit) (13.2) -- 0.0
Equity in loss of joint venture (2.3) -- --
Extraordinary loss on extinguishment of debt ( 1.9) -- --
------ -- --
Net earnings (loss) ( 92.8)% ( 2.5)% 9.9%
-------- ------- ---
-------- ------- ---
</TABLE>
Inventories are valued at the lower of cost or market. The cost of
aircraft spare parts purchased individually or in lots, as opposed to whole
aircraft purchases, is determined on a specific identification basis. As of May
31, 1996, such parts represented approximately 83% of the inventory cost value.
The cost of parts acquired through whole aircraft purchases is assigned to the
pool of parts (the aircraft) based on the purchase price of the aircraft. As
parts are sold from the pool, the amount of cost amortized is based upon the
relationship of the cost basis of the pool to the estimated sales value of the
pool. As parts sales take place, the costs are charged to cost of sales based
on the estimated cost of sales percentage. As of May 31, 1996, such parts
represented approximately 3% of the inventory cost value. The revenue estimates
for the pool of parts (the aircraft) is determined by management based upon the
individual sales values of all the parts in the pool. The revenue estimates are
then projected by quarter over a five-year period beginning with the date on
which management determines the aircraft is to be parted out. Management
monitors its initial estimates and may make adjustments if warranted by market
conditions. If the actual revenue exceeds the quarterly estimates, no
amortization adjustment is required. The amortization schedule is established
to write the pool of parts to zero over a five-year period even though there may
be parts in the pool remaining for future sale after such period.
15
<PAGE>
Certain aircraft held for sale, which were previously leased, are accounted
for as inventory. As of May 31, 1996, such aircraft represented approximately
14% of the inventory cost value.
FISCAL 1996 COMPARED WITH FISCAL 1995.
Net parts sales increased by 37% or $5.1 million, from $13.8 million in
fiscal 1995 to $18.9 million in fiscal 1996. The increase in net parts sales is
attributable in part to the Company's sales to ValuJet Airlines, which
sales amounted to $4.8 million in fiscal 1996 compared to $1.4 million in 1995.
Additionally, an improved operating environment within the airline industry led
to increased parts sales to new and existing customers. Aircraft sales
decreased to $2.5 million in fiscal 1996, compared to $8.1 million in fiscal
1995. Aircraft sales are unpredictable transactions and may fluctuate
significantly from year to year, dependent, in part, upon the Company's ability
to purchase an aircraft at an attractive price and resell it within a relatively
brief period of time, as well as the overall market for used aircraft. During
fiscal 1996, the Company acquired one aircraft and sold three aircraft, as
compared to fiscal 1995, during which the Company sold eight aircraft and
acquired none. Lease revenue deceased to $1.8 million in fiscal 1996 from $3.0
million in fiscal 1995, as certain leases that were in existence during the
prior year were terminated and not renewed (two of the aircraft under such
terminated leases were sold during fiscal 1996). The increase in parts sales
was insufficient to offset the decrease in aircraft sales and lease revenue and,
as a result, total revenues for fiscal 1995 decreased 7% to $23.2 million from
$25.0 million for fiscal 1995.
Fiscal 1996 lease revenues include $139,000 in revenues arising from a
fiscal 1995 transaction. During fiscal 1995, the Company accepted lease
payments from a foreign customer in the customer's local currency because
conversion restrictions precluded the customer from obtaining and paying U.S.
dollars. Due to uncertainties regarding when and at what rate the local
currency could be converted to U.S. dollars, the Company valued the local
currency at an estimated value of $200,000 as of May 31, 1995 (included in
cash), such amount being less than the then current U.S. equivalent amount at
the official exchange rate. The Company subsequently was able to convert the
funds to U.S. dollars in the amount of $339,000, resulting in a gain of
$139,000, which is included in lease revenues during fiscal 1996.
In addition, fiscal 1996 revenues were increased as a result of the
settlement of certain disputes with a customer. Pursuant to the settlement, the
customer paid the Company $660,000 and the Company canceled a note receivable
from the customer. The Company also released all claims it had against the
customer, which included, among other things, claims for the purchase price of
parts purchased by the customer on open account or pursuant to a consignment
arrangement. The customer released certain claims it had against the Company as
part of the settlement. The transaction resulted in a net gain to the Company
of approximately $345,000, consisting of the excess of cash received over the
net carrying value of the note receivable and cost of inventory. The Company
recorded as net sales the cost of the inventory plus the amount of the net gain.
As noted above, the Company's net parts sales to ValuJet Airlines amounted
to $4.8 million, or 21% of total revenues, and $1.4 million, or 6% of total
revenues, during fiscal 1996 and 1995, respectively. On June 17, 1996, ValuJet
Airlines entered into a consent decree with the FAA, pursuant to which ValuJet
Airlines agreed to ground all of its aircraft until it demonstrated compliance
with specified safety and maintenance procedures. Further, the
consent decree provided that ValuJet may operate no more than 15 aircraft when
it initially resumes operations, which is less than half of its fleet.
Valujet resumed operations on September 30, 1996 with service to four cities.
The failure of ValuJet eventually to resume operations to
substantially the level conducted prior to the grounding could have a
material adverse effect on the Company. The Company also conducts business
with other customers who provide services to ValuJet.
Management cannot estimate the effect that the grounding of ValuJet has
had or will have on sales to such other customers.
Cost of sales decreased 25.4% from $17.7 million in fiscal 1995 to $13.2
million in fiscal 1996, primarily as a result of lower sales. In addition, cost
of sales as a percentage of total revenues also decreased from 70.9% to 56.9%
respectively. The decrease in cost of sales as a percentage of total revenues
from fiscal 1995 to fiscal 1996 was primarily due to higher margin aircraft
sales in fiscal 1996 as compared to fiscal 1995. Cost of aircraft sales was
34.8% of total revenues in fiscal 1996 compared to 98.6% in fiscal 1995. The
cost of aircraft sales during fiscal 1995 was in excess
16
<PAGE>
of normal levels as the result of the sale at cost of three DC-9 aircraft. Cost
of parts sales as a percentage of total parts sales was 63.4% in fiscal 1996
compared to 66.0% in fiscal 1995.
Selling, general and administrative expenses decreased $.5 million,
amounting to $3.9 million, or 16.9% of total revenues in fiscal 1996, compared
to $4.4 million, or 17.4% of total revenues in fiscal 1995, primarily as a
result of the Company's ongoing cost reduction program.
Provision (recovery) for doubtful accounts was $464,000 in fiscal 1996
compared to $(335,000) in fiscal 1995. During fiscal 1995, the Company,
primarily through litigation, recovered approximately $700,000 of accounts
receivable which had been written off or reserved during fiscal 1994. The
recoveries were offset during fiscal 1995 by a provision for doubtful accounts
of $350,000. During fiscal 1996, the Company instituted a policy whereby it
records a provision of approximately 2% of total revenues for estimated future
write-off's of accounts receivable. There were no other significant provisions
or recoveries made during fiscal 1996.
Depreciation and amortization were $1.2 million in fiscal 1996 compared to
$1.4 million in fiscal 1995. Included in fiscal 1996 depreciation is a
writedown of $190,000 to the Company's headquarters facility to reduce its cost
to estimated market value. On August 8, 1996, the Company entered into a
contract to sell its headquarters facility. The Company anticipates that the
sale will be consummated in the second quarter of fiscal 1997. The net
reduction from fiscal 1995 to fiscal 1996 was due primarily to a decrease in
depreciation of aircraft held for lease, resulting from the sale of certain of
the Company's aircraft which were previously held for lease during fiscal 1995.
The Company incurred losses from its service center subsidiary of $676,000
in fiscal 1995. The amounts recorded relate to the Company's wholly owned
subsidiary, International Airline Service Center, Inc., which ceased operations
in fiscal 1995.
During fiscal 1995, the Company incurred unusual and nonrecurring items of
$177,000. Included in these unusual and nonrecurring items is an expense of
$180,000 incurred in connection with the transactions between the Company and
Richard R. Wellman and Lynda Wellman and an affiliate of the Wellmans, and a
gain of $375,000 relating to settlement of litigation which had previously been
accrued in an amount in excess of the settlement amount. There were no unusual
and nonrecurring items in fiscal 1996.
Interest expense in fiscal 1996 was $2.2 million, compared to $2.6 million
in fiscal 1995. The decrease in interest expense from fiscal 1995 to fiscal
1996 was due to a net reduction in total debt outstanding, to $18.1 million at
May 31, 1996 compared to $20.3 million at May 31, 1995.
Interest and other income for fiscal 1996 was $34,000, compared to $.6
million in fiscal 1995. Included in the fiscal 1995 amounts were several non-
recurring transactions, including approximately $340,000 of interest income
collected on notes receivable (such notes were retired during the first quarter
of fiscal 1996), a $66,000 gain on the sale of certain land located in Kentucky,
and approximately $120,000 received in connection with consulting and other
services provided to an insurance company.
Although the Company had net operating loss carryforwards sufficient to
offset income, during fiscal 1996 it recorded a provision for income taxes of
$14,000. The Company has fully exhausted its carryback benefits and recorded a
one hundred percent (100%) valuation allowance against the deferred tax asset
for net operating loss carryforwards. The $14,000 provision recorded in fiscal
1996 relates to alternative minimum taxes and amendments of certain prior year
state and federal tax returns.
Net earnings during fiscal 1996 were $2,286,000, or $.57 per share,
compared to a net loss of $614,000, or $.15 per share, during fiscal 1995. On a
fully-diluted basis, earnings (loss) per share were $.47 and $(.15) per share
during fiscal 1996 and 1995, respectively.
17
<PAGE>
FISCAL 1995 COMPARED WITH FISCAL 1994.
Total revenues for fiscal 1995 increased 33.4% from total revenues for
fiscal 1994, to $25.0 million from $18.7 million. The increase in total
revenues is primarily attributable to an increase in aircraft sales, from $4.1
million in fiscal 1994 to $8.2 million in fiscal 1995. During fiscal 1995, the
Company sold three DC-9 aircraft to a leasing company for $5.6 million pursuant
to a contract entered into during fiscal 1994. Aircraft sales are unpredictable
transactions and may fluctuate significantly from year to year, dependant, in
part, upon the Company's ability to purchase an aircraft at an attractive price
and resell it within a relatively brief period of time. Lease revenue increased
to $3.0 million in fiscal 1995 from $2.0 million in fiscal 1994.
Cost of sales decreased 19.9% from $22.1 million in fiscal 1994 to $17.7
million in fiscal 1995, while cost of sales as a percentage of revenues
decreased from 118.0% in fiscal 1994 to 70.9% in fiscal 1995. During fiscal
1994, the Company recorded charges to cost of sales totaling $9.5 million for
writedowns and valuation adjustments to certain parts inventory and aircraft,
thus making a comparison of cost of sale percentages between fiscal 1994 and
fiscal 1995 not meaningful. During fiscal 1995, the Company realized no profit
on the $5.6 million sale of three DC-9 aircraft to a leasing company because the
carrying value of such aircraft equaled the sales price. Excluding the $5.6
million from sales and cost of sales during fiscal 1995, the Company's cost of
sales as a percentage of fiscal 1995 revenues was 60% compared to 64.0% and
61.2% in fiscal 1993 and 1992, respectively.
Selling, general and administrative expenses ("SG&A") for fiscal 1995
decreased 37.2% to $4.4 million in fiscal 1995 compared to $6.9 million in
fiscal 1994. As a percentage of revenues, SG&A expense was 17.4% in fiscal 1995
compared to 37.1% in fiscal 1994. The reduction in SG&A expense of $2.6 million
from fiscal 1994 to fiscal 1995 was due to several factors, including reductions
in the number of management personnel and ongoing efforts to reduce operating
costs. Payroll and commission costs were $1.3 million in fiscal 1995 compared
to $2.2 million in fiscal 1994. Travel and entertainment costs were $261,000 in
fiscal 1995 compared to $610,000 in fiscal 1994. Additionally, in the fourth
quarter of fiscal 1994 the Company accrued a charge of $825,000 in connection
with an unfavorable judgment arising from a lawsuit relating to commissions owed
on the sale of an aircraft in 1989.
Provision (recovery) for doubtful accounts was $(335,000) in fiscal 1995
compared to $1.5 million in fiscal 1994. During fiscal 1995, the Company,
primarily through litigation, recovered approximately $700,000 of accounts
receivable that had been written off or reserved during fiscal 1994. The
recoveries were offset during fiscal 1995 by a provision for doubtful accounts
of $350,000. During fiscal 1994, the Company wrote off approximately $900,000
of accounts receivable which were determined to be uncollectible, and reserved
additional funds for accounts that may not be collectible.
Depreciation and amortization was $1.4 million in fiscal 1995 compared to
$2.5 million in fiscal 1994. The net reduction from 1994 to 1995 was due
primarily to a decrease in depreciation of aircraft held for lease, as several
of the Company's aircraft that were being depreciated in fiscal 1994 were sold
either during the latter part of fiscal 1994 or during fiscal 1995.
Loss of service center subsidiary was approximately $.7 million in fiscal
1995 compared to a loss of $1.9 million in fiscal 1994.
Included in unusual and non-recurring items in fiscal 1995 is an expense of
$180,000 incurred in connection with the transactions between the Company and
Richard R. Wellman and Lynda Wellman and an affiliate of the Wellmans and a gain
of $375,000 relating to settlement of litigation which had previously been
accrued in an amount in excess of the settlement amount.
Interest expense for fiscal 1995 was $2.6 million compared to $3.0 million
in fiscal 1994. The decrease in interest expense is due to a net reduction in
total debt outstanding, from $26.2 million at May 31, 1994 to $20.3 million at
May 31, 1995. During fiscal 1995, the Company repaid $4.7 million of the
principal due on the Senior Notes.
Interest and other income was $.6 million in fiscal 1995 compared to
$88,000 in fiscal 1994. Included in interest and other income during fiscal
1995 is approximately $340,000 interest income collected on notes receivable, a
$66,000 gain on the sale of certain land located in Kentucky, and approximately
$120,000 received in connection with consulting and other services provided to
an insurance company.
18
<PAGE>
The net loss for fiscal 1995 was $614,000, or $(.15) per share, compared to
a net loss of $17.4 million or $(4.30) per share for fiscal 1994.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information with respect to this Item is contained in the Company's
consolidated financial statements and financial statement schedules indicated in
the Index on Page F-1 of this Annual Report on Form 10-K and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company as of May 31, 1996. A summary
of the background and experience of each of these individuals is set forth
following the table.
Name Age Position Held Director Since
---- --- ------------- --------------
Alexius A. Dyer III(1) 40 Chairman of the Board, 1992
President and Chief Executive
Officer
Kyle R. Kirkland (2)(3) 34 Director 1992
E. James 50 Director 1991
Mueller(1)(2)(3)
- ----------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
ALEXIUS A. DYER III has been the Chief Executive Officer of the Company and
Chairman of the Company's Board of Directors since February 1995. Mr. Dyer has
been a director of the Company since 1992. Mr. Dyer served as President of the
Company from February 1994 to February 1995. From February 1991 to February
1994, Mr. Dyer served as Executive Vice President of Capital Markets of the
Company. Additionally, during 1991, he served as the President and director of
the Company's subsidiary, Barnstorm Leasing, Inc., which was merged into the
Company in July 1992.
KYLE R. KIRKLAND has been a director of the Company since July 1992. Mr.
Kirkland was appointed to the Board in connection with the Company's issuance of
the Senior Notes. Mr. Kirkland has served as the President of Kirkland Messina,
Inc., an investment banking firm, since March 1994. Mr. Kirkland was employed
as Senior Vice President of D/R from June 1991 until February 1994. Dabney
acted as the placement agent for the Senior Notes and the Convertible
Debentures. Mr. Kirkland was employed as an investment banker with Canyon
Partners, Inc. and with Drexel Burnham Lambert, Inc. from March 1990 through
June 1991 and from July 1988 through March 1990, respectively. Mr. Kirkland is
also a director of Steinway Musical Instruments, Inc.
E. JAMES MUELLER has been a director of the Company since 1991. Mr.
Mueller has been a principal with J.M. Associates, Inc., a business development
consulting firm, since January 1992. From June 1978 through December 1991, Mr.
Mueller was the Vice President of Sales/Marketing of Air Cargo Associates, Inc.,
a Connecticut airline charter brokerage/sales corporation. The Company has
entered into a commission agreement with J.M. Associates, Inc., pursuant to
which J.M. Associates, Inc. is compensated for originating transactions for the
Company.
COMMITTEES OF THE BOARD
The Compensation Committee of the Board of Directors reviews all aspects of
compensation of executive officers of the Company and makes recommendations on
such matters to the full Board of Directors. The Compensation Committee was
created by action of the Board of Directors after the end of the 1992 fiscal
year. During the fiscal year ended May 31, 1996, the Compensation Committee met
two times.
The Audit Committee makes recommendations to the Board concerning the
selection of outside auditors, reviews the financial statements of the Company
and considers such other matters in relation to the internal and external audit
of the financial affairs of the Company as may be necessary or appropriate in
order to facilitate accurate and timely financial reporting. The Audit Committee
also reviews proposals for major transactions. During the fiscal year ended
May 31, 1996, the Audit Committee met one time.
21
<PAGE>
The Board of Directors also created an Executive Committee after the end of
the Company's 1992 fiscal year. During the fiscal year ended May 31, 1996, the
Executive Committee did not meet.
The Company does not maintain a standing nominating committee or other
committee performing similar functions.
During the fiscal year ended May 31, 1996, the Board of Directors of the
Company met on five occasions. Each of the directors attended in excess of 75%
of the meetings of the Board of Directors and 75% of all meetings held by all
committees of the Board on which he served.
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following sets forth certain information regarding the aggregate cash
compensation paid to or earned by the Company's Chief Executive Officer, Mr.
Alexius A. Dyer III, during fiscal 1994, 1995 and 1996. At May 31, 1996, Mr.
Dyer was the sole executive officer of the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
<S> <C> <C> <C> <C>
Name and Principal Position Year Salary ($) Bonus ($) Options/SARs (#)
- --------------------------- ---- ---------- --------- ----------------
Alexius A. Dyer III 1996 135,000 80,000(1) --
President and Chief 1995 133,108 -- 107,000
Executive Officer 1994 108,865 20,000 --
</TABLE>
- ----------
(1) Mr. Dyer's 1996 bonus consists of $80,000 paid to him upon execution of
his employment agreement and an additional amount to be earned by him
pursuant to the terms of his employment agreement and to be determined
by the Compensation Committee.
22
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUE
Shown below is information with respect to all unexercised options to
purchase the Company's Common Stock granted to Mr. Alexius A. Dyer, III, the
Company's sole executive officer at May 31, 1996, through the end of the fiscal
1996 under the Company's option plans. No options were granted or exercised
during fiscal 1996. At May 31, 1996, the exercise price of all such unexercised
options exceeded the market value of the underlying Common Stock.
Number of Unexercised Options of
FY-End
Name Exercisable/Unexercisable
---- -------------------------
Alexius A. Dyer III(1) 174,667/33,333(2)
- ----------
(1) All options granted under the prior stock option plan will be canceled in
connection with the Restructuring.
(2) Includes 66,667 shares of Common Stock that may be acquired pursuant to the
vested portion of a Stock Purchase Warrant granted to Mr. Dyer on October
15, 1993. The exercise price is $3.00 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee, Messrs. Kyle R. Kirkland and E.
James Mueller, have never been employees of the Company. No interlocks existed
and no insiders participated in the Compensation Committee's deliberations or
decisions regarding fiscal year 1996 salaries.
COMPENSATION OF DIRECTORS
The non-employee members of the Company's Board of Directors received a
$25,000 fee for their service on the Board during fiscal 1996 pursuant to a
Director's Compensation Plan that was adopted during fiscal 1995. During fiscal
1995, the non-employee members of the Company's Board of Directors received a
$25,000 fee for their service on the Board during fiscal 1995 pursuant to the
Director's Compensation Plan. During fiscal 1994, non-employee members of the
Board of Directors received options to purchase 15,000 shares of Common Stock
upon their appointment or election to the Board. Such grants vest in increments
of 5,000 shares per year. Additional grants of 15,000 shares are made upon
election to the Board after all previous grants have vested. These additional
grants also vest in 5,000 share increments. The exercise price of all grants is
the fair market value of the Common Stock at the date of grant. All options
granted under the prior stock option plan will be canceled in connection with
the Restructuring. Directors are also reimbursed for expenses incurred in
connection with the attendance of Board meetings.
23
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS AND STOCKHOLDINGS OF MANAGEMENT
The following table sets forth certain information regarding each person
known to the Company who may be considered a beneficial owner of more than 5% of
the outstanding shares of the Company's Common Stock as of May 31, 1996:
<TABLE>
<CAPTION>
Shares Percentage of
Name of Beneficial Owner Beneficially Owned Outstanding Shares
------------------------ ------------------ ------------------
<S> <C> <C>
LYNDA WELLMAN(1) 1,999,700 49.48
RICHARD R. WELLMAN(1)
7540 Loch Ness Drive
Miami Lakes, Florida 33014
SUNLIFE INSURANCE COMPANY OF AMERICA(2) 514,865 12.74
11601 Wilshire Boulevard, 12th Floor
Los Angeles, California 90025-1748
</TABLE>
- ----------
(1) For purposes of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), Mr. and Mrs. Wellman are deemed to be the beneficial
owners of the Common Stock owned by the other. Mr. and Mrs. Wellman
executed an irrevocable proxy, in connection with their resignation of
their positions with the Company on January 31, 1995, authorizing the Board
of Directors of the Company to vote 1,980,000 shares of the Company's
Common Stock owned by the Wellmans. The Wellmans affirmed the proxy in
October 1995. The proxy expires in January 1997.
(2) Sun Life Insurance Company of America ("Sun Life"), a subsidiary of
SunAmerica Corporation ("SunAmerica"), is the registered owner of
exercisable warrants to purchase 514,865 shares of the Company's Common
Stock at an exercise price of $5.3875. Sun Life acquired the warrants in
connection with its purchase of Senior Notes. Under the Exchange Act,
SunAmerica may be deemed the beneficial owner of the shares that may be
acquired upon exercise of such warrants.
24
<PAGE>
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 1996 by the Company's
Chief Executive Officer, who is the only officer of the Company whose salary
exceeds $100,000, and each of the Company's directors and by all directors and
executive officers as a group:
<TABLE>
<CAPTION>
Shares
Name of Beneficial Owner or Identity Group(1) Beneficially Percentage of
- --------------------------------------------- Owned Outstanding Shares
----- ------------------
<S> <C> <C>>
Alexius A. Dyer III 175,667(2) 4.32
E. James Mueller 15,000(3) *
Kyle R. Kirkland 107,237(4) 2.65
All Directors and Executive Officers
as a Group (3 persons) 297,904 7.37
</TABLE>
- ----------
* Less than one percent of the shares of Common Stock outstanding.
(1) The address for each person listed in this table is c/o International
Airline Support Group, Inc., 8095 N.W. 64th Street, Miami, Florida 33166.
(2) Includes 107,000 shares of Common Stock that may be obtained by Mr. Dyer
upon exercise by him of options granted to him pursuant to the Employee
Stock Option Plan and 67,667 shares of Common Stock that may be acquired
pursuant to the vested portion of a Stock Purchase Warrant granted to Mr.
Dyer on October 15, 1993. The exercise prices for the options and warrants
are $.19 and $3.00 per share, respectively. The options will be canceled
as part of the Restructuring and new options will be granted.
(3) Represents shares that may be obtained by Mr. Mueller upon exercise by him
of options granted to him pursuant to the Non-Employee Directors Stock
Option Plan. The exercise price is $4.625 per share. The options will be
canceled as part of the Restructuring and new options will be granted.
(4) Represents shares that may be obtained by Mr. Kirkland upon exercise of
options granted to him pursuant to the Non-Employee Directors Stock Option
Plan and upon the exercise of warrants granted to him as an officer of the
placement agent for the Senior Notes. The exercise prices for the options
and warrants are $5.125 and $5.3875 per share, respectively. The options
will be canceled as part of the Restructuring and new options will be
granted.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has engaged Kirkland Messina, Inc., an investment banking
firm, to act as the exclusive financial advisor and agent to the Company in
connection with the origination of the Credit Agreement. Mr. Kyle R. Kirkland,
a director of the Company, is an executive officer of Kirkland Messina, Inc.
Kirkland Messina, Inc. will receive a fee of $250,000, $150,000 of which is
payable upon the closing of the Credit Agreement and the balance of which is
payable in equal installments over the next succeeding four fiscal quaters,
for its services pursuant to such engagement. During fiscal 1996, the Company
paid commissions totaling $85,000 to J.M. Associates, Inc., a company
controlled by E. James Mueller, a director of the Company. Under the terms
of a commission agreement, J.M. Associates, Inc. is entitled to 3-4% of
revenues originated by Mr. Mueller.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
<S> <C>
(A) FINANCIAL STATEMENTS PAGE OR METHOD OF FILING
(1) Index to Consolidated Financial Statements Page F-1
(2) Report of Grant Thornton LLP Page F-2
(3) Consolidated Financial Statements and Notes to Page F-3
Consolidated Financial Statements of the
Company, including Consolidated Balance Sheets
as of May 31, 1995 and 1996 and related
Consolidated Statements of Operations,
Consolidated Cash Flows and Consolidated
Stockholders' Equity (Deficit) for each of the
years in the three-year period ended May 31,
1996
(B) FINANCIAL STATEMENTS SCHEDULES PAGE OR METHOD OF FILING
(1) Report of Grant Thornton LLP as to Included in the report
Consolidated Financial Statement
Schedules for listed in (a)(2) below
fiscal years ended May 31, 1996, 1995
and 1994
(2) Schedule II. Valuation and Qualifying Accounts Page S-1
</TABLE>
Schedules not listed above and columns within certain Schedules have been
omitted because of the absence of conditions under which they are required or
because the required material information is included in the Consolidated
Financial Statements or Notes to the Consolidated Financial Statements
included herein.
(c) EXHIBITS
Exhibit
Number Description Page Number or Method of Filing
------ ----------- -------------------------------
2.1.1 Form of Standstill Agreement Incorporated by reference to
dated July 8, 1996 among the Exhibit 2.1.1 to the Company's
Registrant and the holders of Registration Statement on Form
the Registrant's 12% Senior S-4 (File No. 333-08065), filed
Secured Notes due 1997 who are on July 12, 1996.
signatories thereto.
2.1.2 Form of Standstill Agreement Previously filed.
dated July 11, 1996 among the
Registrant and the holders of
the Registrant's 12% Senior
Secured Notes due 1997 who are
signatories thereto.
26
<PAGE>
Exhibit
Number Description Page Number or Method of Filing
------ ----------- -------------------------------
2.2 Form of Warrant Agreement Incorporated by reference to
Amendment No. 1, dated as of Exhibit 2.2 to the Company's
July 9, 1996, among the Registration Statement on Form
Registrant and the holders of S-4 (File No. 333-08065), filed
the Warrants, dated July 17, on July 12, 1996.
1992, who are signatories
thereto.
2.3 Letter, dated June 7, 1996, from Incorporated by reference to
BNY Financial Corporation to the Exhibit 2.3 to the Company's
Registrant with attached Term Registration Statement on Form
Sheet. S-4 (File No. 333-08065), filed
on July 12, 1996.
2.4 Form of Credit Agreement between Filed herewith.
BNY Financial Corporation and the
Registrant
3.1 Amended and Restated Filed herewith.
Certificate of Incorporation of
the Registrant.
3.2 Restated and Amended Bylaws of Filed herewith.
the Registrant.
4.1 Specimen Common Stock Filed herewith.
Certificate.
4.2 Form of Warrant issued to Incorporated by reference to
holders of Senior Notes. Exhibit 4-A to the Company's Form
8-K dated July 17, 1992 (the
"July 1992 Form 8-K").
4.3 Form of 8% Convertible Incorporated by reference to
Subordinated Debentures due Exhibit 4.3 to the 1993 Form
August 31, 2003. 10-K.
27
<PAGE>
Exhibit
Number Description Page Number or Method of Filing
------ ----------- -------------------------------
4.4 Form of 12% Senior Secured Incorporated by reference to
Notes. Exhibit 4.4 to the Company's
Registration Statement on Form
S-4 (File No. 333-08065), filed
on July 12, 1996.
10.1.1 Employment Agreement, dated as Filed herewith.
of December 1, 1995, between the
Registrant and Alexius A. Dyer
III, as amended on October
3, 1996.
10.1.2 Employment Agreement, dated as Filed herewith.
of October 3, 1996, between the
Registrant and George Murnane
III.
10.2.1 1996 Long-Term Incentive and Incorporated by reference to
Share Award Plan. Appendix B to the Proxy
statement/Prospectus included
in the Company's Registration
Statement on Form S-4 (FILE
NO. 333-08065).
10.2.2 401(k) Plan. Incorporated by reference to
Exhibit 10-H to the Company's
Annual Report in Form 10-K for
the fiscal year ended May 31,
1992 (the "1992 Form 10-K").
10.2.3 Bonus Plan. Incorporated by reference to
Exhibit 10.2.4 to the 1992
Form 10-K.
10.2.4 Cafeteria Plan. Incorporated by reference to
Exhibit 10.2.5 of the 1993
Form 10-K.
10.2.5 Form of Option Certificate Filed herewith.
(Employee Non-Qualified Stock
Option Plan
10.2.6 Form of Option Certificate Filed herewith.
(Incentive Stock Option).
10.3.1 Form of Securities Purchase Incorporated by reference to
Agreement dated as of July 17, Exhibit 10-A to the Registrant's
1992 among Registrant and the July 1992 Form 8-K.
Purchasers listed therein, as
amended.
10.3.2 Consent, Amendment and Waiver Incorporated by reference to
dated as of September 8, 1993 Exhibit 10.9.2 to the 1993
among Registrant and the parties Form 10-K.
listed therein.
28
<PAGE>
Exhibit
Number Description Page Number or Method of Filing
------ ----------- -------------------------------
10.4 Representative Indemnity Incorporated by reference to
Agreement between Registrant and Exhibit 10.12 to the 1993
its Directors and Executive Form 10-K.
Officers.
10.5.1 Securities Purchase Agreement Incorporated by reference to
dated as of September 8, 1993 Exhibit 10.13 to the 1993
among Registrant and the Form 10-K.
Purchasers listed therein.
10.6 Form of Registration Rights Incorporated by reference to
Agreement dated as of September Exhibit 10.14 to the 1993
8, 1993, among Registrant and Form 10-K.
the Purchasers listed therein.
10.7 Settlement Stipulation, dated Incorporated by reference to
January 31, 1995, among Admark Exhibit 10.7.3 to the Company's
International, Ltd., Plaintiff Annual Report in Form 10-K for
and Norville Trading Company the fiscal year ended May 31,
Ltd., International Airline 1995 (the "1995 Form 10-K").
Support Group, Inc., and Richard
10.8 Purchase Agreement, dated Incorporated by reference to
January 1995, among Exhibit 10.1 to the Company's
International Airline Support Form 10-Q/A for the quarter ended
Group, Inc., Richard R. Wellman, August 31, 1994.
Lynda Wellman, and Custom Air
Holdings, Inc., including as an
exhibit the "General Proxy"
executed by Richard R. Wellman
and Lynda Wellman.
10.10 Assignment and Assumption Incorporated by reference to
Agreement, dated January 31, Exhibit 10.2 to the Registrant's
1995, between International Form 10-Q/A for the quarter ended
Airline Service Center, Inc. and August 31, 1994.
Express One International, Inc.
10.11 Notice of Payment Blockage, Incorporated by reference to
dated May 25, 1995. Exhibit 10.11 to the 1995
Form 10-K.
10.12 Form of Engagement Letter dated Incorporated by reference to
February 16, 1996, between the Exhibit 10.12 to the Company's
Registrant and Kirkland Messina, Registration Statement on Form
Inc. (filed herewith). S-4 (File No. 333-08065), filed
on July 12, 1996.
10.13 Form of Depositary Agreement Previosly filed.
between the Registrant and First
Union National Bank of North
Carolina.
10.14 Commission Agreement dated Filed herewith.
December 1, 1995 between the
Registrant and J.M. Associates,
Inc.
10.15 Aircraft Parts Purchase Agreement, Incorporated by reference
dated May 16, 1996, bwetween to Exhibit 10.15 to the
Paxford Int'l, Inc. and the Company's Registration
Registrant. Statement on Form S-4
(File No. 333-08065).
11 Statement regarding computation Previously filed.
of per share earnings.
21 Subsidiaries. Previously filed.
27 Financial Data Schedule Filed herewith.
29
<PAGE>
Exhibit
Number Description Page Number or Method of Filing
------ ----------- -------------------------------
99.1 Form of Consent and Letter of Incorporated by reference to
Transmittal for the Registrant's Exhibit 99.1 to the Company's
8% Convertible Subordinated Registration Statement on Form
Debentures due August 31, 2003. S-4 (File No. 333-08065).
99.2 Form of Notice of Guaranteed Incorporated by reference to
Delivery for the Registrant's 8% Exhibit 99.2 to the Company's
Convertible Subordinated Registration Statement on Form
Debentures due August 31, 2003. S-4 (File No. 333-08065).
99.3 Form of Proxy with respect to Incorporated by reference to
the solicitation of the holders Exhibit 99.3 to the Company's
of the Registrant's Common Registration Statement on Form
Stock. S-4 (File No. 333-08065).
30
<PAGE>
(d) REPORTS ON FORM 8-K.
The Company did not file a Current Report on Form 8-K during the last
quarter of the fiscal year covered by this Annual Report.
31
<PAGE>
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 on Form 10-K/A to
be signed on its behalf by the undersigned, thereunto duly authorized this 10th
day of October, 1996.
International Airline Support Group, Inc.,
a Delaware corporation
By: /s/ Alexius A. Dyer III
-----------------------------------------
Alexius A. Dyer III
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K/A has been signed below by the following persons on behalf
of the Company and in the capacities and on the dates indicated.
Signature
- --------- Title Date
----- ----
/s/ Alexius A. Dyer III President and Director October 10, 1996
- -------------------------- (Principal Executive Officer)
Alexius A. Dyer III
32
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Audited Consolidated Financial Statements
Report of independent certified public accountants..................................................... F-2
Consolidated balance sheets as of May 31, 1995 and 1996................................................ F-3
Consolidated statements of operations for the years ended May 31, 1994, 1995 and 1996.................. F-4
Consolidated statements of stockholders' equity (deficit) for the years ended May 31, 1994, 1995 and
1996.................................................................................................. F-5
Consolidated statements of cash flows for the years ended May 31, 1994, 1995 and 1996.................. F-6
Notes to consolidated financial statements............................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
International Airline Support Group, Inc.
We have audited the accompanying consolidated balance sheets of International
Airline Support Group, Inc. and Subsidiaries as of May 31, 1995 and 1996, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended May 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of
International Airline Support Group, Inc. and Subsidiaries as of May 31, 1995
and 1996 and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period ended May
31, 1996, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B, the
Company is in default under its debt agreements which could result in the
lenders demanding payment under the Company's long-term debt agreements,
raising substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note B.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
We have also audited Schedule II of International Airline Support Group, Inc.
and Subsidiaries for each of the three years in the period ended May 31,
1996. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
GRANT THORNTON LLP
Miami, Florida
July 12, 1996
F-2
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents (Note A) $ 848,331 $ 940,274
Accounts receivable, net of allowance for doubtful accounts
of approximately $619,000 in 1995 and $735,000 in 1996 2,592,463 2,014,691
Notes receivable 313,490 -
Inventories (Notes A, C and D) 6,497,270 9,277,315
Deferred tax benefit - current, net of valuation allowance
of $1,146,000 in 1995 and $960,000 in 1996 (Note F) - -
Other current assets 31,480 68,798
----------- -----------
Total current assets 10,283,034 12,301,078
Property and equipment (Notes A, D, E and R)
Land 330,457 -
Aircraft held for lease 3,289,613 2,974,760
Building and leasehold improvements 715,772 36,815
Machinery and equipment 940,948 972,507
----------- -----------
5,276,790 3,984,082
Less accumulated depreciation 1,980,927 2,051,620
Land and building held for sale, net - 750,000
----------- -----------
Property and equipment, net 3,295,863 2,682,462
----------- -----------
Other assets
Deferred debt costs, net (Note A) 931,932 762,431
Deferred tax benefit, net of valuation allowance of
$3,894,000 in 1995 and $3,011,000 in 1996 (Note F) - -
Deferred restructuring fees - 334,860
Deposits and other assets - 51,500
----------- -----------
931,932 1,148,791
----------- -----------
$14,510,829 $16,132,331
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current maturities of long-term obligations (Note D) $ 1,812,040 $ 3,695,108
Long-term obligations in default classified as current (Notes B and D) 18,083,334 14,041,667
Accounts payable 1,650,078 2,171,496
Accrued expenses (Note O) 2,226,900 3,233,231
----------- -----------
Total current liabilities 23,772,352 23,141,502
Long-term obligations, less current maturities (Notes B and D) 440,377 406,760
Commitments and contingencies (Notes E, M and P) - -
Stockholders' equity (deficit) (Notes G and H)
Preferred Stock - $.001 par value; authorized 500,000 shares;
0 shares outstanding in 1995 and 1996. - -
Common stock - $.001 par value; authorized 20,000,000 shares;
issued and outstanding 4,041,779 shares in 1995 and 1996. 4,042 4,042
Additional paid-in capital 2,654,332 2,654,332
Accumulated deficit (12,360,274) (10,074,305)
----------- -----------
Total stockholders' deficit (9,701,900) (7,415,931)
----------- -----------
$14,510,829 $16,132,331
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MAY 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------ -------------
<S> <C> <C> <C>
Revenues
Net sales $ 16,746,932 $ 21,998,869 $ 21,410,201
Lease revenue 1,986,450 2,984,218 1,794,768
------------- ------------- -------------
Total revenues 18,733,382 24,983,087 23,204,969
Cost of sales (Note N) 22,104,131 17,712,427 13,207,671
Selling, general and administrative
expenses (Notes N and O) 6,943,147 4,358,119 3,921,795
Provision (recovery) for doubtful accounts 1,487,969 (334,571) 464,099
Depreciation and amortization 2,475,071 1,400,832 1,153,477
Losses of service center subsidiary (Note Q) 1,922,086 675,860 -
Unusual and nonrecurring items (Note P) - (177,115) -
------------- ------------- -------------
Total operating costs 34,932,404 23,635,552 18,747,042
------------- ------------- -------------
Income (loss) from operations (16,199,022) 1,347,535 4,457,927
Interest expense 2,953,220 2,564,318 2,191,968
Interest and other income (87,600) (602,943) (34,058)
------------- ------------- -------------
Earnings (loss) before income taxes,
equity in loss of joint venture, and
extraordinary item (19,064,642) (613,840) 2,300,017
Provision for income taxes (benefit) (Note F) (2,475,185) - 14,048
------------- ------------- -------------
Earnings (loss) before equity in loss of
joint venture and extraordinary item (16,589,457) (613,840) 2,285,969
Equity in loss of joint venture (Note J) (423,224) - -
------------- ------------- -------------
Earnings (loss) before extraordinary item (17,012,681) (613,840) 2,285,969
Extraordinary loss on the extinguishment of debt
(Note D) (363,022) - -
------------- ------------- -------------
Net earnings (loss) $ (17,375,703) $ (613,840) $ 2,285,969
------------- ------------- -------------
------------- ------------- -------------
Per share data:
Primary earnings (loss) per common and common
equivalent shares
Earnings (loss) before extraordinary item $ (4.21) $ (.15) $ .57
Extraordinary item (.09) - -
--------- --------- --------
Net earnings (loss) $ (4.30) $ (.15) $ .57
--------- --------- --------
--------- --------- --------
Weighted average shares outstanding used in
primary calculation 4,041,779 4,041,779 4,041,779
------------- ------------- -------------
------------- ------------- -------------
Fully-diluted earnings (loss) per common and
common equivalent shares
Earnings (loss) before extraordinary item $ (4.21) $ (.15) $ .47
Extraordinary item (.09) - -
--------- --------- --------
Net earnings (loss) $ (4.30) $ (.15) $ .47
--------- --------- --------
--------- --------- --------
Weighted average shares outstanding used in
fully-diluted calculation 4,041,779 4,041,779 6,541,779
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
------------------------- Additional Retained
Number of Par Paid-In Earnings
Shares Value Capital (Deficit) Total
----------- -------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 1, 1993 4,009,112 $ 4,009 $ 2,540,030 $ 5,629,269 $ 8,173,308
Issuance of common stock 32,667 33 114,302 - 114,335
Net loss - - - (17,375,703) (17,375,703)
----------- -------- ------------- -------------- -------------
Balance at May 31, 1994 4,041,779 4,042 2,654,332 (11,746,434) (9,088,060)
Net loss - - - (613,840) (613,840)
----------- -------- ------------- -------------- -------------
Balance at May 31, 1995 4,041,779 4,042 2,654,332 (12,360,274) (9,701,900)
Net earnings - - - 2,285,969 2,285,969
----------- -------- ------------- -------------- -------------
Balance at May 31, 1996 4,041,779 $ 4,042 $ 2,654,332 $ (10,074,305) $ (7,415,931)
----------- -------- ------------- -------------- -------------
----------- -------- ------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (17,375,703) $ (613,840) $ 2,285,969
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,865,610 1,693,301 1,372,979
Depreciation - service center 284,452 196,322 -
Gain on sale of aircraft held for lease - - (864,795)
Gain on Express One transaction - (70,631) -
Loss on Wellman transaction - 33,575 -
(Increase) decrease in deferred tax benefit 69,000 (23,696) -
Equity in loss of joint venture 423,224 - -
Decrease (increase) in accounts receivable (83,108) 1,224,560 577,770
Decrease in notes receivable 800,000 806,510 313,490
Decrease (increase) in income tax refund (1,930,000) 1,930,000 -
(Increase) decrease in inventories 8,243,147 4,910,834 (3,030,045)
(Increase) decrease in other current assets 981,557 154,271 (37,318)
(Increase) decrease in other assets (112,999) 178,322 (51,500)
Increase (decrease) in accounts payable and accrued expenses 5,012,896 (4,591,430) 1,527,750
(Decrease) in income taxes payable (211,666) - -
------------ ----------- -----------
Net cash provided by (used in) operating activities (1,033,590) 5,828,098 2,094,300
Cash flows from investing activities:
Proceeds from maturity of restricted certificates of deposit 356,115 - -
Capital expenditures (3,635,919) (135,936) (875,281)
Proceeds from sale of aircraft held for lease 1,000,000 - 1,450,000
------------ ----------- -----------
Net cash provided by (used in) investing activities (2,279,804) (135,936) 574,719
Cash flows from financing activities:
Net payments under line of credit (1,000,000) - -
Borrowings under notes and leases 10,000,000 - -
Increase in deferred restructuring costs - - (334,860)
Increase in deferred debt costs (341,326) - (50,000)
Repayments of debt obligations (5,760,432) (4,939,621) (2,192,216)
------------ ----------- -----------
Net cash (used in) provided by financing activities 2,898,242 (4,939,621) (2,577,076)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents (415,152) 752,541 91,943
Cash and cash equivalents at beginning of period 510,942 95,790 848,331
------------ ----------- -----------
Cash and cash equivalents at end of period $ 95,790 $ 848,331 $ 940,274
------------ ----------- -----------
------------ ----------- -----------
Supplemental disclosures of cash flow information (Note K):
Cash paid during the year for:
Interest $ 2,736,233 $ 2,167,279 $ 1,206,028
------------ ----------- -----------
------------ ----------- -----------
Income taxes $ - $ - $ 36,910
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1995 AND 1996
NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
International Airline Support Group, Inc. and Subsidiaries (the "Company")
is primarily engaged in the sale of aircraft, aircraft parts, leasing of
aircraft and related services. Since its inception in 1982, the Company has
become a primary source of replacement parts for widely operated aircraft
models which are no longer in production such as the McDonnell Douglas DC-8
and DC-9. The Company supplies parts to over 500 customers worldwide. The
Company previously was engaged in other activities through the Company's
wholly-owned subsidiary, International Airline Service Center, Inc. ("Service
Center"), which was an FAA certified repair facility engaged in the
performance of maintenance checks required by the FAA on narrow body aircraft
(see Note Q). The Company's other wholly-owned subsidiary, Brent Aviation,
Inc. d/b/a Custom Air Transport was previously engaged in the flight
operation of cargo aircraft (see Note P).
a) Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Investments in
nonconsolidated entities are reported on the equity method.
b) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash
equivalents. Included as cash equivalents at May 31, 1996 is $1,100,000 in
certificates of deposit with a stated maturity of seven days.
Cash balances in financial institution accounts are secured by the Federal
Deposit Insurance Corporation ("FDIC") for amounts up to $100,000, per
customer. At May 31, 1996, the Company's uninsured cash balances
approximated $1,472,000.
c) Inventories
Inventories are stated at the lower of cost or market. The cost of
aircraft parts is determined on a specific identification basis for those
parts purchased individually or in lots where specific identification is
practical. For parts acquired through whole aircraft purchases, the costs
are assigned to pools which are amortized as part sales take place. The
amortization is based upon the actual sales, except in any periods where
sales are lower than expected, the estimated sales per the initial sales
projection are used (which has a maximum life of 5 years). The amount of
cost amortized is based upon the gross profit percentage as calculated from
the estimated sales value of the parts. The sales value estimates are
monitored by management, and adjusted periodically as necessary. Certain
aircraft, which were previously leased have been classified as held for sale
and are included in inventory.
At May 31, 1995 and 1996, approximately 80% and 97%, respectively, of the
ending inventory (including aircraft held for sale) was costed under the
specific identification method, and the remaining 20% and 3%, respectively,
was costed under the pooling method.
d) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated life utilizing
straight-line and accelerated methods. The estimated lives of the
depreciable assets range from 5 to 31.5 years. Overhaul costs on aircraft
held for lease are capitalized and depreciated over the estimated service
life of the overhaul. For income tax purposes, accelerated methods of
depreciation are generally used. Deferred income taxes are provided for the
difference between depreciation expense for tax and financial reporting
purposes.
F-7
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1994, 1995 AND 1996
NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
- Continued
e) Deferred Debt Costs
Deferred debt costs principally relate to the costs associated with
obtaining the Company's Senior Secured Notes and Convertible Subordinated
Debentures. These costs are being amortized using the interest method over
the life of the respective debt issue. Accumulated amortization at May 31,
1995 and 1996, was approximately $1,094,000 and $1,307,000, respectively.
f) Earnings Per Share
Primary earnings (loss) per share is computed by dividing net earnings (loss)
by the weighted average number of common shares outstanding and common
stock equivalents. Stock options and warrants are considered common stock
equivalents unless their inclusion would be anti-dilutive. For the purpose
of computing common stock equivalents for stock options and warrants, the
modified treasury stock method was not used as the effect would be
antidilutive. The Company's Convertible Subordinated Debentures
("Debentures") are not considered common stock equivalents for the purpose
of computing primary earnings per share as the effective yield on the
securities exceeded 66-2/3% of the average Aa corporate bond rate at the
time of issuance.
Fully diluted earnings (loss) per shares is computed for 1996 as if the
Debentures were converted into common stock as of the beginning of the
period (see Note D). Stock options and warrants are not considered common
stock equivalents for the purpose of computing fully diluted earnings
(loss) per share as the effect would be antidilutive under the modified
treasury stock method. The Debentures and stock options and warrants are
not considered common stock equivalents in fiscal years 1994 and 1995 due
to the net losses for those periods.
g) Revenue Recognition
Revenue from the sale of parts is recognized when products are shipped to
the customer. Revenue from the sale of aircraft is recognized when all
consideration has been received and the buyer has taken delivery and
acceptance of the aircraft. Lease revenue is recognized on an accrual basis,
unless collectibility is uncertain.
h) Employee Benefit Plan
In fiscal 1992, the Company established a contributory 401(K) plan. The
plan is a defined contribution plan covering all eligible employees of the
Company, to which the Company makes certain discretionary matching
contributions based upon the level of its employees' contributions. The
amount charged to earnings in fiscal 1994, 1995 and 1996 were insignificant.
The Company does not provide any health or other benefits to retirees.
i) Stock Options
Options granted under the Company's Stock Option Plans are accounted for
under APB 25, "Accounting for Stock Issued to Employees," and related
interpretations. In November 1995, the Financial Accounting Standards Board
issued Statement 123, "Accounting for Stock-Based Compensation," which will
require additional proforma disclosures for companies that will continue to
account for employee stock options under the intrinsic value method specified
in APB 25. The Company plans to continue to apply APB 25 and the only effect
of adopting Statement 123 in fiscal 1997 will be the new disclosure
requirement.
F-8
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1994, 1995 AND 1996
NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
- Continued
j) Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, trade receivables, and
accounts payable approximate fair value due to the short term maturities of
these instruments.
k) Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
l) Income Taxes
Income taxes are provided based on earnings reported for tax return
purposes in addition to a provision for deferred income taxes. Deferred
income taxes are provided in order to reflect the tax consequences in future
years of differences between the financial statement and tax basis on assets
and liabilities at each year end.
m) Management Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
May 31, 1995 and 1996 and revenues and expenses during the periods then ended.
The actual outcome of the estimates could differ from these estimates made in
the preparation of the financial statements.
n) Land and Building Held for Sale
The land and building (the "property") held for sale represents the Company's
corporate offices and adjacent warehouse located in Miami, Florida.
Subsequent to May 31, 1996, the Company entered into a contract to sell the
property, with an expected sales date in November 1996. As of May 31, 1995
and 1996, the net book value of the property was approximately $963,000 and
$750,000, respectively. As of May 31, 1996, the property was written down
to its market value, less estimated selling expenses. Included in
depreciation expense for the year ended May 31, 1996 is approximately
$190,000 relating to this write down.
NOTE B - GOING CONCERN
Primarily as a result of the net losses experienced in fiscal 1994 and
1995, and the classification of certain debt obligations as current, the
Company has a significant deficit in working capital and stockholders'
equity. Currently, the Company is not in compliance with certain financial
and other covenants under the loan agreements relating to the 12% Senior
Secured Notes ("Notes"), issued July 1992, and the 8% Convertible
Subordinated Debentures ("Debentures"), issued September 1993 (see Long-Term
Obligations Note D). The Notes are secured by substantially all of the
assets of the Company and the Debentures are subordinated in right of payment
to the Notes.
Excluding amounts scheduled to be repaid in fiscal 1997 under the terms of
the agreements, $14,041,667 is subject to accelerated maturity and, as such,
has been classified as a current liability in the Consolidated Balance Sheets
at May 31, 1996. The Company has presented a restructuring proposal to the
holders of the Notes and the Debentures which is described in a Registration
Statement filed on Form S-4 filed by the Company with the Securities and
Exchange Commission on July 12, 1996 (see Note R). However, there can be no
assurance that the Company will be able to consummate a restructuring of its
indebtedness. If the lenders were to accelerate maturity, the Company would
not have sufficient funds to repay the debt obligations.
F-9
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1994, 1995 AND 1996
NOTE B - GOING CONCERN - Continued
As a result of the above factors, there exists substantial doubt about the
Company's ability to continue in existence.
NOTE C - INVENTORY
Inventories at May 31, 1995 and 1996 consisted of the following:
1995 1996
----------- -----------
Aircraft parts $ 4,063,352 $ 7,938,049
Aircraft available for sale 2,433,918 1,339,266
----------- -----------
$ 6,497,270 $ 9,277,315
----------- -----------
----------- -----------
NOTE D - LONG-TERM OBLIGATIONS
Long-term obligations at May 31, 1995 and 1996 consisted of the following:
1995 1996
----------- -----------
12% Senior Secured Notes $ 9,850,000 $ 7,700,000
8% Convertible Subordinated Debentures 10,000,000 10,000,000
Mortgage note payable to bank 455,420 429,260
Notes payable due in equal monthly
installments through October 1997,
bearing interest at 9.5% to 11.5%
collateralized by equipment 16,363 8,000
Capitalized lease obligations (Note E) 13,968 6,275
----------- ----------
20,335,751 18,143,535
Less: Current maturities and long-term
obligations in default classified
as current 19,895,374 17,736,775
----------- ----------
$ 440,377 $ 406,760
----------- ----------
----------- ----------
In July 1992, the Company issued $18.0 million of five (5) year 12% Senior
Secured Notes ("Notes") due July 1997. In September of 1993, the note
agreement was amended, to require a payment of $3,450,000 with the proceeds
from the issuance of the Convertible Subordinated Debentures ("Debentures")
and subsequent sinking fund payments of $3,233,333 in July 1994 and 1995 and
$4,041,667 in July 1996 and 1997.
In connection with this extinguishment, the Company recorded as an
extraordinary item the loss on retirement of debt. Such costs included a 6%
prepayment penalty as well as that portion of the deferred debt issuance
costs associated with the Notes retired. In May 1996, the Company prepaid,
without penalty $383,334 of the amount due in July 1996. The notes are
secured by substantially all the assets of the Company. Warrants to purchase
1,093,528 shares of common stock were issued to the Noteholders at an
exercise price of $5.38. The warrants have a five year term and carry
restrictions regarding exercise and registration of the underlying shares.
The security purchase agreement contains restrictive covenants requiring the
Company to maintain a minimum net worth as well as certain financial ratios,
restricts dividends and limits capital expenditures, indebtedness, liens,
certain business activities and inventory purchases. The Company is in
default of the loan agreement.
F-10
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1994, 1995 AND 1996
NOTE D - LONG-TERM OBLIGATIONS - Continued
In September 1993, the Company issued $10.0 million in Convertible
Subordinated Debentures ("Debentures"), due August 2003, through a private
placement offering. The Debentures may be redeemed in whole or in part after
August 1996, upon 30 days notice by the Company. The Debentures are
convertible to the Company's common stock at a price of $4.00 per share
(2,500,000 shares). The Debentures conversion options carry restrictions
regarding conversion and registration of the underlying shares. The
Debenture holders have certain demand and piggy-back registration rights on
the underlying shares. The Debentures have a fixed annual interest rate of
8%, with such interest payable quarterly. The securities purchase agreement
contains restrictive covenants requiring the Company to maintain a certain
level of consolidated net worth and certain financial ratios related to
interest expense coverage. The Company is in default of the loan agreement.
In May 1995, the Company received a notice of payment blockage from the
holder of a majority of the Notes. The payment blockage prevented the
Company from any scheduled interest payment on the Debentures, through
November 1995. Irrespective of the payment blockage, the Company has not
made any of the scheduled interest payments on the Debentures since February
1995. Included in the May 31, 1995 and 1996, financial statements is
$200,000 and $1,000,000 representing accrued interest on the Debentures.
In September 1992, the Company entered into a promissory note and mortgage
and security agreement with a bank. The promissory note is payable in equal
monthly installments of $2,180 plus interest through September 1997 when the
remaining balance is due. The note has an interest rate of 1% above the
bank's prime rate. The note is secured by a first mortgage on the land and
building in Miami, Florida (see Note A). This property also has a junior
mortgage in favor the holders of the notes.
The scheduled maturities of long-term obligations in each of the next five
years subsequent to May 31, 1996 are as follows: 1997 - $3,695,108, 1998 -
$4,448,426, 1999 - $0, 2000 - $0, 2001 -$0 and thereafter $10,000,000.
However, the Company is in default under the terms of the securities purchase
agreement for the Notes and the Debentures. If the holders were to demand
repayment, $14,041,667, which is scheduled to be paid subsequent to May 31,
1997, would be due immediately.
NOTE E - LEASES
The Company conducts a portion of its operations utilizing leased equipment
which has been capitalized. Following is a schedule of future minimum rental
payments under capital leases together with the present value of future
minimum rentals as of May 31, 1996.
Future minimum lease payments $ 7,890
Less amount representing interest 1,615
-------
Present value of future minimum lease payments 6,275
Current maturities 5,092
-------
Long term obligations under capital leases $1,183
-------
-------
Capitalized equipment leases are accounted for and amortized as
company-owned equipment. The following is a schedule of leased equipment
under capital leases:
1995 1996
---------- ----------
Equipment $ 298,279 $ 298,279
Less: Accumulated amortization 279,863 292,244
---------- ----------
$ 18,416 $ 6,035
---------- ----------
---------- ----------
F-11
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1994, 1995 AND 1996
NOTE E - LEASES - Continued
The Company leased warehouse and hangar facilities as well as certain
equipment under long-term operating lease agreements. Rental expense under
these leases for the years ended May 31, 1994, 1995 and 1996 was
approximately $242,000, $220,000 and $53,000, respectively. At May 31, 1996,
there are no future minimum payments on non-cancellable operating leases.
The Company currently leases an aircraft to a customer under a month to
month operating lease. In addition to minimum base rentals, the lease
agreement requires additional rent based upon aircraft usage. The net
investment in aircraft held for or leased to customers was $2,210,202 and
$1,849,143 at May 31, 1995 and 1996, respectively.
NOTE F - INCOME TAXES
The provision for income taxes for the years ended May 31, 1994, 1995 and
1996 is as follows:
1994 1995 1996
------------- --------- ----------
Current provision:
Federal $ (2,544,185) $ - $ 14,048
State - - -
------------ --------- ----------
(2,544,185) - 14,048
Deferred provision 69,000 - -
------------ --------- ----------
$ (2,475,185) $ - $ 14,048
------------ --------- ----------
------------ --------- ----------
The tax effect of the Company's temporary differences and carryforwards is
as follows:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Deferred tax (benefits) - current:
Reserve for overhaul costs $ (545,000) $ (332,000)
Bad debt reserve (233,000) (276,000)
Inventory capitalization (188,000) (145,000)
Accrued payroll (37,000) -
Accrued legal settlement costs (116,000) (1,000)
Accrued vacation (16,000) (15,000)
Accrued - other (11,000) (4,000)
Accrued repair costs - (187,000)
------------ ------------
$ (1,146,000) $ (960,000)
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
1995 1996
------------ -------------
<S> <C> <C>
Deferred tax liabilities (benefits) - non-current:
Depreciation $ 226,000 $ (17,000)
Aircraft - capitalized maintenance 36,000 36,000
Restructuring charges (702,000) (160,000)
Accrued interest income (106,000) -
Net operating loss carryforward - federal (2,941,000) (2,467,000)
Net operating loss carryforward - state (277,000) (260,000)
Minimum tax credit - federal (122,000) (135,000)
Other, net (8,000) (8,000)
------------ ------------
$ (3,894,000) $ (3,011,000)
------------ ------------
------------ ------------
</TABLE>
F-12
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1994, 1995 AND 1996
NOTE F - INCOME TAXES - Continued
The Company has recorded valuation allowances equal to the amount of the
deferred tax benefits at May 31, 1995 and 1996. The valuation allowance has
decreased by $1,069,000 in fiscal 1996.
The following table summarizes the differences between the Company's
effective tax rate and the statutory federal rate as follows:
1994 1995 1996
---- ---- ----
Statutory federal rate (34.0)% (34.0)% 34.0%
Operating losses with no current tax benefit 19.6 34.0 -.
Tax benefit from net operating loss carryforward -. -. (33.4)
------ ------ ------
Effective tax rate (14.4)% -. 0.6%
------ ------ ------
------ ------ ------
The Company has net operating loss carryforwards for federal and state
purposes of approximately $7.3 and $7.2 million, respectively. The net
operating losses will expire at various points through the year 2010. The
Company has a federal minimum tax credit carryover of approximately $135,000
which may be utilized in future years to the extent that the regular tax
liability exceeds the alternative minimum tax. Certain provisions of the tax
law may limit the net operating loss and credit carryforwards available for
use in any given year in the event of a significant change in ownership
interest.
NOTE G - COMMON AND PREFERRED STOCK
In July 1993, the Company amended the Articles of Incorporation to
authorize the issuance of up to 500,000 shares of preferred stock. No such
stock has been issued.
In June 1993, the Company issued 32,667 shares of common stock to an
individual in exchange for certain aircraft parts included in the Company's
inventory.
NOTE H - STOCK OPTIONS
The Stockholders in October 1989 approved a Stock Option Plan pursuant to
which 350,000 shares of the Company's common stock were reserved for the
grant of options to employees and directors of the Company or its
subsidiaries. The issuance of the options and the form of the options shall
be at the discretion of the Company's Compensation Committee. Information
with respect to stock options under the plan is as follows:
Number of Shares
--------------------------------------------
Reserved Outstanding Available
---------- ------------- -----------
Balance June 1, 1994 315,000 150,500 164,500
Granted - 265,000 (265,000)
Expired - (54,000) 54,000
Canceled - (66,500) 66,500
--------- ---------- --------
Balance May 31, 1995 315,000 295,000 20,000
Granted - - -
Expired - - -
Canceled - (25,500) 25,500
--------- ---------- --------
Balance May 31, 1996 315,000 269,500 45,500
--------- ---------- --------
--------- ---------- --------
F-13
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1994, 1995 AND 1996
NOTE H - STOCK OPTIONS - Continued
Effective in December 1994, the outstanding employee stock options were
canceled and new options were issued through an Incentive Stock Option
Agreement. Options were granted to purchase 265,000 shares at an exercise
price of $.19, which equaled the fair market value of the Company's stock on
the effective date of the grant. All options granted were fully vested at
May 31, 1995, and expire in December 1999. Included in the above table are
options granted to directors to purchase 30,000 shares at exercise prices
ranging from $4.625 to $4.875 per share.
In April 1992, the Company granted a lender options to purchase 100,000 and
50,000 shares with exercise prices of $4.875 and $4.625, respectively. The
options expire in October 1996.
In connection with the settlement of a legal dispute arising from a loan to
the Company, in April 1992, the Company issued an option to the lender to
purchase 200,000 shares at $3.25 per share, which approximated the market
price on the date of the grant.
NOTE I - SALES TO MAJOR CUSTOMERS/FOREIGN AND DOMESTIC
The Company sells aircraft and aircraft parts, and leases aircraft to
foreign and domestic customers. Most of the Company's sales take place on an
unsecured basis, and a majority of the sales are to aircraft operators.
The information with respect to sales and lease revenue, by geographic
area, is presented in the table below for the years ended May 31, 1994, 1995
and 1996.
(IN THOUSANDS)
1994 1995 1996
--------- --------- ----------
United States $ 10,978 $ 18,048 $ 19,800
Africa and Middle East 4,636 1,204 623
Europe 374 1,350 177
Latin America 2,178 4,347 2,454
Canada 558 34 -
Asia 9 - 151
--------- --------- ---------
$ 18,733 $ 24,983 $ 23,205
--------- --------- ---------
--------- --------- ---------
The Company had part sales to a domestic customer which accounted for
approximately 21% of net sales in fiscal 1996 and less than 10% of net sales
in fiscal 1995. The Company did not have any sales to this customer in
fiscal 1994. However, this customer has been the subject of intense scrutiny
by the FAA since the crash of one of its aircraft in early May 1996. On June
17, 1996, the customer entered into a consent decree with the FAA. Pursuant
to the consent decree, the customer agreed to ground all of its aircraft
until it demonstrates compliance with specified safety and maintenance
procedures. The customer has not yet resumed operations. Additionally,
the Company has customers which in turn do business with this customer.
There is no way to estimate the sales volumes to these other customers which
may also be impacted by the aforementioned events. No other customer
accounted for more than 10% of the Company's sales in fiscal 1996.
(continued)
F-14
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1994, 1995 AND 1996
NOTE I - SALES TO MAJOR CUSTOMERS/FOREIGN AND DOMESTIC - Continued
The Company had sales to a Venezuelan customer which accounted for
approximately 11% of net sales in fiscal 1995 and less than 10% in fiscal
year 1994. Additionally, the Company sold 3 aircraft to a United States
customer which represented 23% of net sales in fiscal 1995. The Company did
not have any sales to this customer in previous fiscal years. The Company
had sales to one African customer which accounted for less than 10% of net
sales during the years ended May 31, 1996 and 1995, and 10% of net sales
during the year ended May 31, 1994.
The Company's allowance for doubtful accounts is based on management's
estimates of the creditworthiness of its customers, and, in the opinion of
management is believed to be set in an amount sufficient to respond to normal
business conditions. Should such conditions deteriorate or any major credit
customer default on its obligations to the Company, this allowance may need
to be increased which may have an adverse impact upon the Company's earnings.
NOTE J - INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
The Company had a 50% interest in A.P. Number 1, Inc., a joint venture
corporation created to purchase, sell and lease aircraft and engines. In
fiscal 1993, the Company advanced $5,000 and executed as co-maker, together
with the Company's Joint Venture partner, a promissory note for $2,900,000
due October 31, 1993. The promissory note was also signed as co-maker by the
then Chairman of the Company personally. The proceeds of the loan were
advanced to the joint venture without any specific terms regarding repayment
of principal or payment of interest, and the funds were used to purchase
three aircraft.
The joint venture's operations were not successful, and the joint venture
was not able to make the required payments under the terms of the note. The
Company was in default under the terms of the note due to nonpayment of
principal and interest and in February 1994, the Company agreed upon a
settlement with the lender, whereby the lender received title to the three
(3) aircraft and $500,000 from the Company.
All remaining liabilities have been satisfied and the joint venture has
been dissolved. The Company's loss relating to the joint venture, as shown
in the statement of operations for fiscal 1994, includes its share of the
joint venture operating losses ($280,000) and its loss upon dissolution
($143,224).
NOTE K - SUPPLEMENTAL CASH FLOW DISCLOSURE
During fiscal 1994, the Company acquired approximately $1,140,000 in
equipment under a leasing arrangement which was classified as a capital lease
obligation at May 31, 1994.
The net change in inventory in fiscal 1995 and 1996, as derived from the
change in balance sheet amounts, has been adjusted for the following items:
<TABLE>
<CAPTION>
1995 1996
------------- -----------
<S> <C> <C>
Net increase (decrease) in inventory $ (2,222,504) $ 2,780,045
Write-down of aircraft - 250,000
Transfer of aircraft from held for lease to inventory (2,688,330) -
------------ -----------
Cash flow impact from change in inventory $ (4,910,834) $ 3,030,045
------------ -----------
------------ -----------
</TABLE>
In fiscal 1994, the Company issued 32,667 shares of common stock in
exchange for certain inventory.
F-15
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1994, 1995 AND 1996
NOTE L - RELATED PARTY TRANSACTIONS
During the year ended May 31, 1994, the Company sold an aircraft for $400,000
to a business partner of an outside director of the Company based upon
management's best estimate of the aircraft's fair market value. The Company
recorded a loss of approximately $106,000 on this transaction.
In fiscal 1994, the Company paid approximately $54,000 to a director under
a consulting agreement which originated in fiscal 1993. In 1994, the
consulting agreement was terminated and a commission agreement was entered
into. This consulting agreement, which originated in fiscal 1993, was
terminated in 1994, and a commission agreement was entered into. Under the
commission agreement, the director is entitled to 3-4% of revenues
generated from sales to customers brought in by the director. In fiscal
1995 and 1996, the Company paid commissions of approximately $33,000 and
$85,000, respectively.
In connection with the issuance of the Senior Secured Notes, the Company's
placement agent received a $720,000 placement fee, together with a warrant to
purchase 273,382 shares of common stock at $5.3875 per share. In connection
with the issuance of the Convertible Subordinated Debentures, this same
placement agent received a $600,000 placement fee. A director of the Company
was an employee of the placement agent.
In fiscal 1994, the Company rented a condominium unit from an entity
controlled by an officer/director. Total rent paid in fiscal 1994 was
approximately $9,000.
NOTE M - FOURTH QUARTER ADJUSTMENTS
The Company recorded a fourth quarter adjustment in 1994 in the amount of
approximately $2,476,000 which related to reducing certain estimated tax
benefits recorded in the third quarter, for which a 100% valuation allowance
was established at year-end. Also, an adjustment was made for $110,000
reversing an inventory part included erroneously twice in inventory in the
first, second, and third quarters. Also in the fourth quarter, certain
charges recorded initially as restructuring charges in the third quarter were
re-classified to cost of goods sold.
The Company recorded a fourth quarter adjustment in 1996 in the amount of
approximately $385,000 which related to capitalizing the costs incurred as a
result of the planned restructuring (see Note R). Approximately $306,000 of
these costs were expensed in the first three quarters of fiscal 1996.
NOTE N - COST OF SALES
In the third quarter of fiscal 1994, the Company adopted a restructuring
program designed to reduce costs, improve liquidity, and increase stockholder
value. The restructuring program included the termination of the Company's
President, other reductions in personnel, the sale of certain fixed assets
and an intensive review of the Company's product lines and inventories.
Cost of sales for fiscal 1994 includes charges aggregating $9.6 million
relating to the following:
1. Reductions of approximately $2.0 million in the carrying amount of the
Company's inventory part pools resulting from changes in sales
estimates and related inventory values, reflecting the deteriorating
economic conditions in the industry.
2. In March 1994, the Company entered into an agreement to sell three
aircraft upon completion of certain repairs and maintenance that was
expected to be completed in fiscal 1995. The Company recorded a
provision of approximately $2.4 million at May 31, 1994, for the
estimated excess of the final cost of the repairs and maintenance
over the sales price, after overhauling the aircraft to meet the
customer's contract specifications.
(continued)
F-16
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1994, 1995 AND 1996
NOTE N - COST OF SALES - Continued
3. Writedowns approximating $3.1 million relating to weak current market
conditions and the review of realizability of Company assets performed
during the Company's restructuring program.
4. Losses totaling approximately $2.1 million relating to the sale of a
leased aircraft and the write-off of another aircraft due to a default
by the lessee under the terms of the lease. In June 1995, the Company
recovered this aircraft.
NOTE O - ACCRUED LIABILITIES
Accrued liabilities consist of the following items:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Customer deposits $ 426,453 $ 367,669
Accrued repair costs 224,406 187,157
Accrued legal costs 60,000 -
Accrued interest 399,030 1,165,468
Accrued payroll 282,834 399,886
Accrued property taxes 2,730 31,144
Accrued commissions 159,536 167,741
Reserve for repair of leased aircraft 570,940 480,308
Other 100,971 433,858
---------- ----------
$2,226,900 $3,233,231
---------- ----------
---------- ----------
</TABLE>
NOTE P - WELLMAN TRANSACTION
In January 1995, the Company entered into an agreement with the former
President and former Secretary of the Company whereby the Company transferred
all of the outstanding stock of Brent Aviation, a wholly-owned subsidiary, to
an affiliate of the former employees. In addition, the Company also
transferred certain spare parts, components, inventory and equipment for
B-727 series aircraft, and a McDonnell Douglas DC-4 aircraft. In
consideration, the Company received $230,000 and agreed to lease a B-727 to
the affiliate on a month-to-month basis.
In addition, the employees resigned from all positions as officers or
directors, granted a proxy to the Company enabling the Company's directors to
vote 1.98 million shares of common stock held by the employees for a period
of two years, and agreed not to compete or interfere with any of the
businesses of the Company and its remaining subsidiaries for a period of two
years. The Company further agreed to pay the former Secretary one year's
salary as severance. As of May 31, 1995, $95,000 of the accrued severance
was unpaid and was recorded in accrued liabilities. In fiscal 1996, this
liability was paid in full. The Company also agreed to terminate its
leasehold interest in a facility located at Grayson County, Texas Airport,
allowing Brent Aviation to lease such facility for its operations.
NOTE Q - DISPOSAL OF SERVICE CENTER OPERATIONS
In June 1994, the Company's Board of Directors unanimously voted to cease
operations and to sell or otherwise dispose of the Company's wholly-owned
subsidiary, International Airline Service Center, Inc. ("IASC"), which was
an FAA certified repair facility engaged in the performance of maintenance
check required by the FAA on narrow body aircraft, following the sale of
certain of the Company's aircraft being serviced under contract by IASC.
(continued)
F-17
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1994, 1995 AND 1996
NOTE Q - DISPOSAL OF SERVICE CENTER OPERATIONS - Continued
During the third quarter of 1995, IASC fulfilled its obligations to service
the aircraft and ceased operations. On January 31, 1995, IASC entered into
an agreement with a third party, pursuant to which IASC assigned its interest
in a certain equipment lease with a net book value of $826,965 at May 31,
1995, to the third party, and the third party assumed IASC's interests and
obligations under such lease. IASC's interest in the lease as of May 31,
1995 was $897,596. Thus a gain of $70,631 was recognized as a result of the
transaction. Pursuant to the transaction, IASC disposed of substantially all
of its operating assets.
As of May 31, 1995, IASC had an insignificant amount of assets and
liabilities recorded on its books.
NOTE R - SUBSEQUENT EVENTS
Subsequent to May 31, 1996, the Company entered into a contact to sell its
premises in Miami, Florida for $850,000 in cash, less applicable selling
costs. As the premises were written down to the estimated net realizable
value as of May 31, 1996, no gain or loss is expected to be recognized upon
completion on this transaction. The write down is included in depreciation
expense in fiscal 1996.
On July 12, 1996, the Company announced that it did not intend to pay the
scheduled $3.7 million principal installment due on the Notes on July 17,
1996, pending redemption of the Senior Notes in connection with a
restructuring of its indebtedness. The debt restructuring is described in a
Registration Statement on Form S-4 filed by the Company with the Securities
and Exchange Commission, also on July 12, 1996. Pursuant to the proposed
restructuring, the Company would offer to exchange (the "Exchange Offer")
224.54 shares of its Common Stock for each $1,000 principal amount of the
Convertible Debentures. In connection with the restructuring, the Company
also intends to solicit proxies form the holders of its Common Stock to
approve a 1-for-27 reverse stock split, to effect certain amendments to its
Certificates of Incorporation and to approve a stock option plan.
Consummation of the restructuring is subject to certain conditions.
The Company also announced that, on July 11, 1996, the holder of a majority
of the outstanding principal amount of the Notes (the "Majority Noteholders")
executed a "Standstill Agreement" with the Company pursuant to which such
holder agreed that it would refrain (to the extent provided therein) from
exercising any rights or remedies it may have with respect to the Event of
Default with respect to the Notes that will occur upon the Event of Default
with respect to the Notes that will occur upon the Company's failure to pay
the July 17, 1996 installment of principal.
The obligations of the Majority Noteholder pursuant to the Standstill
Agreement terminate on the earlier of (i) the 120th day following the date of
the Standstill Agreement; (ii) the consummation of the restructuring; and
(iii) the occurrence of certain specified events, including, among other
things, the exercise by any creditor of the Company of any remedies against
the Company with respect to the Company's obligations to such creditor and
the first date on which, in the reasonable determination of the Majority
Noteholder, any one of the conditions precedent to the restructuring is no
longer capable of being satisfied.
F-18
CREDIT AGREEMENT between INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
Borrower, and BNY FINANCIAL CORPORATION Lender Dated as of
September 30, 1996
TABLE OF CONTENTS
Page SECTION 1
DEFINITIONS 1 1.1
Defined Terms 1 1.2
Other Definitional Provisions
16 SECTION 2
AMOUNT AND TERMS OF COMMITMENTS
17 2.1 Revolver Facility
17 2.2 Procedure for Borrowing under Revolver
17 2.3 Term Loan Facility
17 2.4 Procedure for Term Loan Borrowing
17 2.5 Discretionary Term Loan Advance Upon Substitution of
Approved Aircraft
18 SECTION 3
GENERAL PROVISIONS APPLICABLE TO LOANS
18 3.1 Interest Rates and Payment Dates
18 3.2 Optional Loan Prepayments
18 3.3 Mandatory Loan Prepayments
19 3.4 Computation of Interest and Fees
20 3.5 Obligations and Payments
20 3.6 Taxes
22 3.7 Lending Offices; Change of Lending Office
23 3.8 Repayment of Loans; Evidence of Debt
23 3.9 Closing Fee; Facility Fee.
23 3.10 Early Termination Fee
24 3.11 Bank Charges
24 3.12 Matured Funds
24 SECTION 4
REPRESENTATIONS AND WARRANTIES
25 4.1 Financial Condition
25 4.2 No Change
25 4.3 Existence; Compliance with Law
26 4.4 Power; Authorization; Enforceable Obligations
26 4.5 No Legal Bar
26 4.6 No Material Litigation
26 4.7 No Default
26 4.8 Ownership of Property; Liens
26 4.9 Intellectual Property
26 4.10 No Burdensome Restrictions
27 4.11 Taxes
27 4.12 Federal Regulations
27 4.13 ERISA
27 4.14 Investment Company Act; Other Regulations
27 4.15 Subsidiaries
27 4.16 Security Documents
28 4.17 Accuracy and Completeness of Information
28 4.18 Labor Relations
28 4.19 Insurance
29 4.20 Solvency
29 4.21 Purpose of Loans
29 4.22 Environmental Matters
29 4.23 Regulation
H
30 4.24 Not a Certificated Air Carrier
30 4.25 Schedule
1.1. 30 SECTION 5 CONDITIONS PRECEDENT
30 5.1 Conditions to Initial Extensions of Credit
30 5.2 Conditions to Each Extension of Credit
33 SECTION 6 AFFIRMATIVE COVENANTS
33 6.1 Financial Statements
33 6.2 Certificates; Other Information
34 6.3 Payment of Obligations
35 6.4 Conduct of Business and Maintenance of Existence
35 6.5 Maintenance of Property
35 6.6 Insurance
36 6.7 Inspection of Property;
Books and Records; Discussions
38 6.8 Notices
39 6.9 Environmental Laws
39 6.10 Periodic Audit of Collateral
40 6.11 Protection of Collateral and Additional Collateral
40 6.12 Compliance with Airworthiness Directives
40 6.13 Replacement of Aircraft Parts
40 6.14 Alterations, Modifications and Additions
41 6.15 Event of Loss with Respect to an Aircraft Engine
41 6.16 Operation
42 6.17 Requisition for Use of the Aircraft by the United
States Government or the Government of Registry of
the Aircraft
42 6.18 Requisition for Use of an Aircraft Engine by the
United States Government or the Government of
Registry of the Aircraft
42 SECTION 7 NEGATIVE COVENANTS
43 7.1 Financial Condition Covenants
43 7.2 Limitation on Indebtedness
44 7.3 Limitation on Liens
45 7.4 Limitation on Guarantee Obligations
46 7.5 Limitation on Fundamental Changes
46 7.6 Limitation on Sale of Assets
46 7.7 Limitation on Dividends
46 7.8 Limitation on Capital Expenditures
46 7.9 Limitation on Investments, Loans and Advances
47 7.10 Limitation on Optional Payments and Modifications
of Debt Instruments
47 7.11 Limitation on Transactions with Affiliates
47 7.12 Limitation on Sales and Leasebacks
47 7.13 Limitation on Changes in Fiscal Year
47 7.14 Limitation on Negative Pledge Clauses
47 7.15 Limitation on Lines of Business
48 7.16 Governing Documents
48 7.17 Limitation on Subsidiary Formation
48 7.18 Limitation on Aircraft Leases, Registration and
Operation
48 7.19 Certificated Air Carrier
48 7.20 Additional Collateral
48 SECTION 8 EVENTS OF DEFAULT
49 SECTION 9 MISCELLANEOUS
50 9.1 Amendments and Waivers
50 9.2 Notices
51 9.3 No Waiver; Cumulative Remedies
51 9.4 Survival of Representations and Warranties
51 9.5 Payment of Expenses and Taxes
51 9.6 Successors and Assigns; Participations and Assignments
52 9.7 Adjustments; Set-off
53 9.8 Counterparts
53 9.9 Severability
53 9.10 Integration
53 9.11 GOVERNING LAW
53 9.12 Submission To Jurisdiction; Waivers
53 9.13 Acknowledgments
54 9.14 WAIVERS OF JURY TRIAL
54 9.15 Confidentiality 54
SCHEDULES
Schedule I Approved Aircraft, Approved Aircraft
Leases, Permitted Jurisdictions and
Permitted Lessees
Schedule 1.1 Aircraft, Aircraft Engines and Aircraft
Leases
Schedule 2.3 Term Loan Principal Repayment Schedule
Schedule 4.4 Consents, Authorizations and Filings
Schedule 4.19 Insurance
Schedule 4.22 Environmental Matters
Schedule 7.2 Indebtedness to Remain Outstanding after the
Closing Date
Schedule 7.3 Liens to Remain Outstanding
Schedule 7.4 Guarantee Obligations to Remain Outstanding
EXHIBITS
Exhibit A Form of Borrowing Base Certificate
Exhibit B Form of Borrower Security Agreement
Exhibit C Form of Borrowing Certificate
Exhibit D-1 Form of Opinion of Special Counsel to the Borrower
Exhibit D-2 Form of Opinion of Special FAA Counsel
Exhibit E Form of Republic Intercreditor Agreement
Exhibit F Form of Aircraft Chattel Mortgage
Exhibit G Form of Consent and Agreement
Exhibit H Form of Landlord Waiver
Exhibit I Form of Stock Pledge Agreement
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of September 30, 1996, between International
Airline Support Group, Inc., a Delaware corporation (the "Borrower"), and BNY
Financial Corporation, a New York corporation (the "Lender").
RECITALS
The Borrower has requested that the Lender make available to the
Borrower senior secured revolving credit loans and a senior secured term loan,
in aggregate principal amounts at any one time outstanding not to exceed
$11,000,000.00 and $3,000,000.00, respectively, the proceeds of which would
be used (i) to repay certain existing senior debt of the Borrower, (ii) to
provide working capital requirements of the Borrower in the ordinary course of
business and (iii) to pay fees and expenses incurred in connection herewith.
The Lender is willing to make such extensions of credit available to the
Borrower, but only on the terms, and subject to the conditions, set forth in
this Agreement.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this
Agreement, the following terms shall have the following
meanings: "Accounts": as to any Person, all of the accounts,
contract rights, instruments, documents, chattel paper, general
intangibles relating to accounts, drafts and acceptances, and
all other forms of obligations owing to such Person, arising out
of or in connection with the sale or lease of Inventory or the
rendition of services, excluding Lease Payment Receivables, and
all guarantees and other security therefor, whether secured or
unsecured, now existing or hereafter created, and whether or not
specifically pledged to the Lender hereunder or pursuant to any
of the other Credit Documents. "Affiliate": as to any Person,
any other Person (other than a Subsidiary) which, directly or
indirectly, is in control of, is controlled by, or is under
common control with, such Person. For purposes of this
definition, "control" of a Person (including, with its
correlative meanings, "controlled by" and "under common control
with") means the power, directly or indirectly, either to (a)
vote 10% or more of the securities having ordinary voting power
for the election of directors or other similar managers of such
Person or (b) direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time. "Aircraft": each aircraft
in which the Borrower now has or may in the future acquire an
interest including all Aircraft Engines incorporated, installed
in or attached thereto and where the context permits the related
Manuals and Technical Records. "Aircraft Chattel Mortgages":
means each of the aircraft chattel mortgages in respect of each
of the Aircraft and/or Aircraft Engines in substantially the
form of Exhibit F attached hereto, as the same may be renewed,
modified, amended, supplemented or restated, from time to time
in the manner provided therein. "Aircraft Engine": shall mean
each aircraft engine in which the Borrower may now have or in
the future acquire an interest and any aircraft engine
substituted by a lessee pursuant to an Aircraft Lease, together
in each case with any and all Aircraft Parts incorporated or
installed in or attached thereto and any Aircraft Part removed
therefrom until such time as a replacement part shall be
substituted therefor. Except as otherwise set forth herein, at
such time as an aircraft engine shall be substituted by a lessee
pursuant to an Aircraft Lease, such replaced Aircraft Engine
shall cease to be an Aircraft Engine hereunder. "Aircraft
Inventory": all Aircraft, Airframes, Aircraft Engines and
Aircraft Parts of the Borrower other than any Approved Aircraft
and any Airframes, Aircraft Engines and Aircraft Parts
incorporated or installed in, attached to, or otherwise
identified as being related to or comprising part of an Approved
Aircraft. "Aircraft Lease": means each aircraft lease agreement
between the Borrower, as lessor, and any lessee in respect of an
Aircraft, as the same may be renewed, modified, amended,
supplemented or restated, from time to time in the manner
provided therein. "Aircraft Notes": notes received by the
Borrower as all or part of the consideration for the sale by the
Borrower of an Aircraft and pledged to the Lender pursuant to a
pledge agreement that is satisfactory in form and substance to
the Lender in its sole and absolute discretion. "Aircraft
Parts": shall mean all appliances, components, parts,
instruments, appurtenances, avionics, accessories, furnishings
and other equipment of whatever nature (other than complete
Aircraft Engines), which are now or from time to time may be
incorporated or installed in or attached to an aircraft
(including without limitation the airframe of such aircraft, any
related aircraft engines and any related appliances, components,
parts, instruments, appurtenances, avionics, accessories,
furnishings and other equipment of whatever nature). Except as
otherwise set forth in an Aircraft Lease, only at such time as a
replacement aircraft part shall be substituted for an Aircraft
Part in accordance with such Aircraft Lease, shall the Aircraft
Part so replaced cease to be an Aircraft Part hereunder.
"Airframe": each of the Aircraft, excluding any Aircraft
Engines or engines from time to time installed thereon, but
including any and all Aircraft Parts (except Aircraft Parts that
are incorporated or installed in or attached to any such
Aircraft Engine or engine), so long as: (i) such included
Aircraft Parts shall be incorporated or installed in or attached
to such Aircraft (but not in or to any Aircraft Engines from
time to time installed thereon); or (ii) such included Aircraft
Parts shall remain identified or connected with such Aircraft in
that they are subject to repair, alteration or modification as
provided in Sections 6.13 and 6.14 of this Agreement, except
Aircraft Engines from time to time installed thereon.
"Airworthiness Directive": any airworthiness directive or any
other mandatory regulation, directive or instruction (including
FAA-mandated manufacturers' changes, notices, and/or service
bulletins or changes, notices, advisory circulars or service
bulletins) issued by any Governmental Authority asserting
jurisdiction over any Aircraft, Aircraft Engine, Aircraft Part
or Airframe, over its use, operation or maintenance that may
from time to time be issued. "Alternate Base Rate": for any
day, a rate per annum equal to the higher of: (a) the Prime Rate
in effect on such day; or (b) the Federal Funds Effective Rate
in effect on such day plus one-half of one percent (0.5%).
"Applicable Margin": with respect to each Loan, 2.00% per annum.
"Appraisal": means an appraisal of the fair market value and
the Forced Liquidation Value of each and every Aircraft,
Airframe and Aircraft Engine and of all Aircraft Parts, which is
(i) conducted by the Appraiser, (ii) prepared for and addressed
to the Lender, (iii) based upon a physical inspection of such
Aircraft, Airframe, Aircraft Engine and Aircraft Part and a
review of related maintenance records and (iv) accompanied by
all back-up calculations made by such appraisal company.
"Appraiser": Avmark Services Ltd. or such other recognized
aircraft appraisal company, which shall in all cases be
unaffiliated with each of the Borrower and the Lender and
acceptable to the Lender. "Approved Aircraft": means each
Aircraft from time to time owned by Borrower and listed as an
Approved Aircraft and described on Schedule I. "Approved
Aircraft Lease": means each Aircraft Lease listed from time to
time as an Approved Aircraft Lease on Schedule I. "Assignee":
as defined in Section 9.6(c). "Assignment and Acceptance": as
defined in Section 9.6(c). "Available Revolver Facility": at any
time, an amount equal to the excess, if any, of (a) the Revolver
Facility over (b) the aggregate unpaid principal amount of all
Revolver Advances made by the Lender then outstanding. "BNY":
The Bank of New York, a New York banking corporation.
"Borrower": as defined in the heading to this Agreement.
"Borrower Security Agreement": the Security Agreement to be
executed and delivered by the Borrower, substantially in the
form of Exhibit B, as the same may be amended, supplemented or
otherwise modified from time to time. "Borrowing Base
Certificate": a certificate, substantially in the form of
Exhibit A, with appropriate insertions, showing the Borrowing
Base as of the date set forth therein, and executed on behalf of
the Borrower by a duly authorized officer thereof. "Borrowing
Certificate": a certificate substantially in the form of
Exhibit C. "Borrowing Date": any Business Day specified in a
notice pursuant to Section 2.2 or Section 2.4 as a date on which
the Borrower requests the Lender to make Loans hereunder.
"Business": as defined in Section 4.22. "Business Day": a day
other than a Saturday, Sunday or other day on which commercial
banks in New York City are authorized or required by law to
close. "Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of
capital stock of a corporation, any and all similar ownership
interests in a Person (other than a corporation) and any and all
warrants or options to purchase any of the foregoing. "Cash
Equivalents": (a) securities with maturities of 180 days or
less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof,
(b) certificates of deposit and eurodollar time deposits with
maturities of 180 days or less from the date of acquisition and
overnight bank deposits of the Lender or of any commercial bank
having capital and surplus in excess of $500,000,000, (c)
repurchase obligations of the Lender or of any commercial bank
satisfying the requirements of clause (b) of this definition,
having a term of not more than 180 days with respect to
securities issued or fully guaranteed or insured by the United
States Government, (d) commercial paper of a domestic issuer
rated at least A-1 or the equivalent thereof by Standard and
Poor's Ratings Group ("S&P") or P-1 or the equivalent thereof by
Moody's Investors Service, Inc. ("Moody's") and in either case
maturing within 270 days after the day of acquisition, (e)
securities with maturities of 180 days or less from the date of
acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth
or territory or by any foreign government, the securities of
which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are
rated at least A- by S&P or A3 by Moody's, (f) securities with
maturities of 180 days or less from the date of acquisition
backed by standby letters of credit issued by any Lender or any
commercial bank satisfying the requirements of clause (b) of
this definition or (g) shares of money market mutual or similar
funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.
"Certificated Air Carrier": a Citizen of the United States
holding a carrier operating certificate issued by the Secretary
of Transportation pursuant to Chapter 447 of Title 49, United
States Code, for aircraft capable of carrying ten or more
individuals or 6,000 pounds or more of cargo. "Citizen of the
United States": the meaning specified in Section 40102(a)(15) of
Title 49 of the United States Code or any similar legislation of
the United States of America enacted in substitution or
replacement therefor. "Closing Date": the date on which the
conditions precedent set forth in Section 5.1 are satisfied and
the initial Loans are made hereunder. "Code": the Internal
Revenue Code of 1986, as amended from time to time.
"Collateral": all property and interests in property of the
Borrower, now owned or hereinafter acquired, upon which a Lien
is purported to be created by any Security Document. "Collateral
Reserves": reserves for Eligible Accounts, Eligible Lease
Payment Receivables and Eligible Inventory, as are deemed
appropriate by the Lender in its sole discretion, including,
without limitation, (i) in respect of disputed items,
deductions, allowances, credits, bill and hold and consignment
sales, letters of credit, airway releases, steamship guarantees
and any other offsets asserted or granted and (ii) reserves in
an amount equal to 35% of the cost of all Inventory located at
FAA overhaul, repair or certification facilities. "Common
Stock": the Common Stock, $.001 par value per share, of the
Borrower. "Commonly Controlled Entity": an entity, whether or
not incorporated, which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is part
of a group which includes the Borrower and which is treated as a
single employer under Section 414 of the Code. "Consent and
Agreement": each Consent and Agreement by and among the Lender,
the Borrower and a Lessee under an Aircraft Lease in
substantially the form attached hereto as Exhibit G or in such
other form as the Lender may in its sole and absolute discretion
require. "Consolidated Current Assets": of any Person as of the
date of determination, all current assets of such Person and its
consolidated Subsidiaries (if any) determined in conformity with
GAAP as at such date; provided, however, that such amounts shall
not include any assets otherwise includable as such in
conformity with GAAP if such assets constitute (a) amounts for
any Indebtedness owing by an Affiliate of such Person, unless
such Indebtedness arose in connection with the sale of goods or
other property in the ordinary course of business, (b) shares of
stock issued by an Affiliate of such Person, (c) the cash
surrender value of any life insurance policy, or (d)
Consolidated Intangibles of such Person. "Consolidated Current
Liabilities": of any Person as of the date of determination,
all current liabilities of such Person and its consolidated
Subsidiaries (if any) determined in conformity with GAAP as at
such date, but in any event including the amounts of (a) all
Indebtedness of such Person payable on demand or, at the option
of the Person to whom such Indebtedness is owed, not more than
twelve months after such date, and (b) all reserves in respect
of such Indebtedness, the validity of which is contested at such
date. "Consolidated EBITDA": for any period with respect to any
Person, the sum for such period of (a) Consolidated Net Income
of such Person, and (b) the sum of, without duplication,
provisions for income taxes, distributions permitted by Section
7.7, Consolidated Interest Expense, and depreciation and
amortization expense and other non-cash expenses, in each case
as used in determining such Consolidated Net Income.
"Consolidated Intangibles": at a particular date with respect
to any Person, all assets of such Person and its consolidated
Subsidiaries, if any, determined on a consolidated basis at such
date, that would be classified as intangible assets in
accordance with GAAP, but in any event including, without
limitation, unamortized debt discount and expense, unamortized
organization and reorganization expense, costs in excess of the
net asset value (determined in accordance with GAAP) of acquired
companies, copyrights, patents, trade or service marks,
franchises, trade names, goodwill and the amount of any write-up
in the book value of any assets resulting from any revaluation
(other than revaluations arising out of foreign currency
valuations in accordance with GAAP) thereof after May 31, 1996.
"Consolidated Interest Expense": for any period with respect to
any Person, the amount which, in conformity with GAAP, would be
set forth opposite the caption "interest expense" or any like
caption (including without limitation, imputed interest included
in payments under Financing Leases) on a consolidated income
statement of such Person and its consolidated Subsidiaries (if
any) for such period excluding the amortization of any original
issue discount. "Consolidated Net Income": for any period with
respect to any Person, the consolidated net income (or deficit)
of such Person and its consolidated Subsidiaries (if any) for
such period (taken as a cumulative whole), determined in
accordance with GAAP, but without taking into account any gains
or losses resulting from any extraordinary or non-recurring
items as determined in accordance with GAAP. "Consolidated
Tangible Net Worth": at a particular date with respect to any
Person, all amounts which would be included under shareholders'
or partners' equity (or other equivalent category) on a
consolidated balance sheet of such Person and its consolidated
Subsidiaries (if any) determined on a consolidated basis in
accordance with GAAP as at such date, plus an amount equal to
the outstanding principal balance of the Subordinated Debentures
as at such date and any other Indebtedness that by its terms is
subordinated to the Obligations on terms and conditions
satisfactory to the Lender and has a maturity of more than one
year after the maturity of the Obligations, minus Consolidated
Intangibles of such Person as at such date, plus, to the extent
included in Consolidated Intangibles, deferred financing costs
in respect of the extensions of credit to be made on the Closing
Date not reflected in the projections referred to in Section
4.1(c). "Contractual Obligation": as to any Person, any
provision of any security issued by such Person or of any
agreement, instrument or other undertaking to which such Person
is a party or by which it or any of its property is bound. "CRAF
Program": the Civil Reserve Air Fleet Program currently
administered by the United States Air Force Mobility Command
pursuant to Executive Order No. 11490, as amended, or any
substantially similar program. "Credit Documents": this
Agreement, the Security Documents, the Republic Intercreditor
Agreement, each Consent and Agreement, any Term Note, any
Revolver Note and any other documents, agreements or instruments
executed and delivered to the Lender pursuant to Section 6.11.
"Customer": the account debtor with respect to any Account
and/or the prospective purchaser of goods, services or both or
with respect to any contract or other arrangement with the
Borrower pursuant to which the Borrower is to deliver any
personal property or perform any services in the ordinary course
of business, including without limitation each lessee under an
Aircraft Lease. "Default": any of the events specified in
Section 8, whether or not any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has
been satisfied. "Dispute": any defense, counterclaim, offset,
dispute or other claim, whether arising from or relating to an
Account, a Lease Payment Receivable, an Aircraft Lease or an
Aircraft, or arising from or relating to any other transaction
or occurrence. "Dollars" and "$": dollars in lawful currency of
the United States of America. "Eligible Accounts": all Accounts
of the Borrower arising in the ordinary course of its business,
evidencing the sale of goods and services by the Borrower and
which the Lender, in its sole discretion, shall deem to be an
Eligible Account based upon such considerations as the Lender
may from time to time deem appropriate. Without in any way
limiting the generality of the foregoing, (i) in general, unless
otherwise determined by the Lender as aforesaid, an Account
shall not constitute an Eligible Account unless it is subject to
a perfected first priority Lien in favor of the Lender, is free
and clear of all Liens other than Liens permitted pursuant to
Section 7.3 and is evidenced by invoice, contract or other
document reasonably satisfactory to the Lender, and (ii) no
Account of a Customer shall be included within this definition
if: (a) such Account arises out of a sale made by the Borrower
to (i) an Affiliate or a Subsidiary of the Borrower or to a
Person controlled by an Affiliate or a Subsidiary of the
Borrower, or (ii) a Customer that is the Borrower's creditor or
supplier, except that the net amount, if any, owing to the
Borrower may be an Eligible Account; (b) more than sixty (60)
days have elapsed from the due date of such Account or one
hundred twenty (120) days from the invoice date of such Account;
(c) fifty percent (50%) or more of the aggregate account balance
of Accounts due from such Customer is more than sixty (60) days
past due date or one hundred twenty (120) days past invoice
date; (d) any covenant, representation or warranty contained in
this Agreement or in any other Credit Document with respect to
such Account has been breached in a material respect; (e) the
Lender is not and continues not to be satisfied with the credit
standing of such Customer, or the Lender is insecure or
otherwise believes, in its sole judgment, that collection of
such Account is doubtful or that such Account may not be paid by
reason of such Customer's financial inability to pay; (f) other
than as provided in paragraph (a) above, such Customer has
asserted any Dispute, offset or counterclaim against the
Borrower, such Account or any other Account due from such
Customer to the Borrower, or such Account is or could be
expected to become subject to any offset, deduction, defense,
Dispute, or counterclaim, or is contingent in any respect or for
any reason, but only to the extent of the amount in dispute;
(g) such Customer resides outside Canada, the continental United
States, Alaska, Hawaii, the U.S. Virgin Islands or such other
jurisdiction listed on Schedule I as a Permitted Jurisdiction,
unless the sale is covered by a letter of credit or credit
insurance in form and substance acceptable to the Lender in its
sole discretion; provided, however, that the Lender may approve
Accounts denominated in Dollars of Customers residing outside of
the foregoing jurisdictions as Eligible Accounts in its sole
judgment on a case-by-case basis; (h) such Account is on a
sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper;
(i) such Customer is the United States of America, any state or
any department, agency or instrumentality of any of them, unless
the Borrower assigns its right to payment of such Account to the
Lender pursuant to the Federal Assignment of Claims Act of 1940,
as amended, or has otherwise complied with all other applicable
statutes or ordinances; (j) any of the following events occur or
conditions exist with respect to the goods giving rise to such
Account: (i) if such goods have not been shipped to, delivered
to or accepted by such Customer, or if possession and/or control
of such goods is held, maintained or retained by the Borrower or
any Affiliate or Subsidiary thereof (or any agent or custodian
of the Borrower or any Affiliate or Subsidiary thereof) for the
account of or subject to further and/or future direction from
such Customer, or (ii) if such Account otherwise does not
represent a final sale, or (iii) such goods have been
repossessed, unless, in the case of each of (i), (ii) or (iii),
such goods are subject to a bill and hold letter in form and
substance satisfactory to the Lender; (k) the amount of all
Accounts of such Customer exceeds any credit limit determined by
the Lender, in its sole discretion, to the extent that the
amount of such Account exceeds such limit; (l) such Customer has
commenced or has had commenced against it a case under any
federal, state or other bankruptcy or insolvency laws, as now
constituted or hereafter amended, or made an assignment for the
benefit of creditors, or if a decree or order for relief has
been entered by a court having jurisdiction in the premises in
respect of such Customer in an involuntary case under any state
or federal bankruptcy laws, as now constituted or hereafter
amended, or if any other petition or other application for
relief under any state or federal bankruptcy law has been filed
against such Customer, or if such Customer has failed, suspended
business, ceased to be solvent, called a meeting of its
creditors (in order to discuss financial insolvency or lack of
liquidity), or consented to or suffered a receiver, trustee,
liquidator or custodian to be appointed for it or for all or a
significant portion of its assets or affairs; (m) to the extent
that the Borrower has made any agreement with such Customer for
any deduction therefrom, except for discounts or allowances made
in the ordinary course of business for prompt payment, all of
which discounts or allowances shall be reflected in the
calculation of the face value of each respective invoice related
thereto; (n) such Account is not payable to the Borrower; or
(o) in the case of each Aircraft Note, such note does not mature
prior to ninety (90) days before the Termination Date. "Eligible
Inventory": all Inventory of the Borrower (including, without
limitation, Aircraft Inventory) other than Approved Aircraft,
which is located in the United States of America, which is in
good and saleable condition and which is not, in the Lender's
sole opinion, obsolete, damaged, slow moving or unmerchantable
and which the Lender, in its sole discretion, shall deem
Eligible Inventory based upon such considerations as the Lender
may from time to time deem appropriate, including, without
limitation, the Borrower's compliance in all material respects
with Environmental Laws and other Requirements of Law and the
waiver by landlords of any leased property on which Inventory is
located of any landlord's liens thereon. In general, unless
otherwise determined by the Lender as aforesaid, Inventory shall
not constitute Eligible Inventory unless it is subject to a
perfected first priority Lien in favor of the Lender and is free
and clear of all Liens other than Liens permitted pursuant to
Section 7.3. "Eligible Lease Payment Receivables": all Lease
Payment Receivables of the Borrower which the Lender, in its
sole discretion, shall deem to be an Eligible Lease Payment
Receivable based upon such considerations as the Lender may from
time to time deem appropriate. Without in any way limiting the
generality of the foregoing, (i) in general, unless otherwise
determined by the Lender as aforesaid, a Lease Payment
Receivable shall not constitute an Eligible Lease Payment
Receivable unless it is subject to a perfected first priority
Lien in favor of the Lender, and is free and clear of all Liens
other than Liens permitted pursuant to Section 7.3, and (ii) no
Lease Payment Receivable of a Customer shall be included within
this definition if: (a) such Lease Payment Receivable arises out
of an Aircraft Lease (i) which is not an Approved Aircraft Lease
with a Permitted Lessee, (ii) with an Affiliate or Subsidiary of
the Borrower or with a Person controlled by an Affiliate or a
Subsidiary of the Borrower, or (iii) with a Customer that is the
Borrower's creditor or supplier, except that the net amount if
any owing to the Borrower may be an Eligible Lease Payment
Receivable; (b) more than forty-five (45) days have elapsed from
the due date of such Lease Payment Receivable; (c) any covenant,
representation or warranty contained in this Agreement, the
related Aircraft Lease or any other Credit Document with respect
to such Lease Payment Receivable has been breached in a material
respect; (d) the Lender is not and continues not to be satisfied
with the credit standing of such Customer, or the Lender is
insecure or otherwise believes, in its sole judgment, that
collection of such Lease Payment Receivable is doubtful or that
such Lease Payment Receivable may not be paid by reason of such
Customer's financial inability to pay; (e) other than as
provided in paragraph (a) above, such Customer has asserted any
Dispute, offset or counterclaim against the Borrower, such Lease
Payment Receivable or any other Lease Payment Receivable due
from such Customer to the Borrower, or such Account is or could
be expected to become subject to any offset, deduction, defense,
Dispute, or counterclaim, or is contingent in any respect or for
any reason, but only to the extent of the amount in dispute;
(f) such Customer resides outside Canada, the continental United
States, Alaska, Hawaii or the U.S. Virgin Islands or such other
jurisdiction listed on Schedule I as a Permitted Jurisdiction;
provided, however, that the Lender may approve Lease Payment
Receivables denominated in Dollars of Customers residing outside
of the foregoing jurisdictions as Eligible Lease Payment
Receivables in its sole judgment on a case-by-case basis;
(g) such Customer is the United States of America, any state or
any department, agency or instrumentality of any of them, unless
the Borrower assigns its right to payment of such Lease Payment
Receivable to the Lender pursuant to the Federal Assignment of
Claims Act of 1940, as amended, or has otherwise complied with
all other applicable statutes or ordinances; (h) such Customer
has commenced or has had commenced against it a case under any
federal, state or other bankruptcy or insolvency laws, as now
constituted or hereafter amended, or made an assignment for the
benefit of creditors, or if a decree or order for relief has
been entered by a court having jurisdiction in the premises in
respect of such Customer in an involuntary case under any state
or federal bankruptcy laws, as now constituted or hereafter
amended, or if any other petition or other application for
relief under any state or federal bankruptcy law has been filed
against such Customer, or if such Customer has failed, suspended
business, ceased to be solvent, called a meeting of its
creditors (in order to discuss financial insolvency or lack of
liquidity), or consented to or suffered a receiver, trustee,
liquidator or custodian to be appointed for it or for all or a
significant portion of its assets or affairs; and (i) such
Customer has not executed and delivered a valid and binding
Consent and Agreement and the Approved Aircraft Lease does not
in the opinion of the Lender contain all of the substantive
provisions of a Consent and Agreement and afford the rights,
privileges and protections thereof to the Lender as a party or
third party beneficiary thereof, or in each case has not
delivered such other documents, instruments, and opinions of
counsel as the Lender may in its sole and absolute discretion
require. "Environmental Laws": any and all foreign, Federal,
state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, requirements of any
Governmental Authority or other Requirements of Law (including
common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health,
natural resources, wildlife or the environment, as now or may at
any time hereafter be in effect. "Equipment": with respect to
any Person, all of the equipment, machinery and goods (excluding
Inventory) of such Person, wherever located and whether now
owned or hereafter acquired, including, without limitation, all
apparatus, motor vehicles, fittings, furniture, furnishing,
fixtures, parts, accessories and all replacements and
substitutions therefor or accessions thereto. "ERISA": the
Employee Retirement Income Security Act of 1974, as amended from
time to time. "Event of Default": any of the events specified
in Section 8; provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has
been satisfied. "Event of Loss": with respect to the Aircraft,
Airframes, Aircraft Engines and Aircraft Parts, any of the
following events: (i) the loss of such property or the use
thereof due to the destruction of or damage to such property
that renders repair uneconomic or that renders such property
permanently unfit for normal use by the Borrower or any lessee
of such property for any reason whatsoever; (ii) any damage to
such property that results in an insurance settlement with
respect to such property on the basis of a total loss; (iii) the
theft or disappearance of such property that results in loss of
use or possession of such property by the Borrower or any lessee
of such property for a period in excess of one hundred and
twenty (120) days; (iv) the confiscation, condemnation, or
seizure of, or requisition of title to such property by any
governmental or purported governmental authority of the United
States or any agency or instrumentality of any thereof (other
than a requisition for use by any such authority, such as the
CRAF Program), that in the case of any event referred to in this
clause (iv) shall have resulted in the loss of possession or use
of such property by the Borrower or any lessee of such property
for a period in excess of one hundred and twenty (120)
consecutive days; (v) the confiscation, condemnation, or seizure
of or requisition of title to such property by any foreign
governmental authority or purported governmental authority or
any agency or instrumentality of any thereof (other than a
requisition of use by any such authority described in clause
(vii) below) that in the case of any event referred to in this
clause (v) shall have resulted in the loss of possession or use
of such property by the Borrower or any lessee of such property
for a period in excess of one hundred and twenty (120)
consecutive days, (vi) as a result of any law, rule, regulation,
order or other action by the FAA or other governmental body of
the government of registry of the Aircraft having jurisdiction,
the use of such property in the normal course of the business of
air transportation shall have been prohibited for a period of
one hundred eighty (180) consecutive days, unless the Borrower
(or any lessee of such property), prior to the expiration of
such one hundred eighty day (180-day) period, shall have
undertaken and shall be diligently carrying forward all steps
that are necessary or desirable to permit the normal use of such
property by the Borrower (or any lessee of such property) but in
no case shall such use have been prohibited for a period in
excess of two consecutive years; (vii) the requisition for use
(which does not involve or threaten to involve the confiscation,
condemnation, seizure or requisition of title to such property)
by any foreign governmental authority or any agency or
instrumentality thereof that continues for a period in excess of
one hundred eighty (180) consecutive days; provided, that the
time periods referenced in clauses (iii), (iv) and (v) above,
whichever is applicable, shall be increased to one hundred
eighty (180) days if such event is covered by insurance
referenced in Section 6.6(a), (b) or (c) below (as applicable).
An Event of Loss with respect to the Aircraft shall be deemed to
have occurred if an Event of Loss occurs with respect to the
Airframe. "Existing Mortgages": collectively, the Republic
Mortgage and the Senior Notes Mortgage. "FAA": the U.S. Federal
Aviation Administration. "Federal Funds Effective Rate": for
any day, the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by BNY from three federal funds brokers of
recognized standing selected by it. "Facilities": the
collective reference to the Revolver Facility and the Term Loan
Facility. "Financing Lease": any lease of property, real or
personal, the obligations of the lessee in respect of which are
required in accordance with GAAP to be capitalized on a balance
sheet of the lessee. "Fixed Charge Coverage Ratio": for any
period with respect to any Person, the ratio of (a) Consolidated
EBITDA of such Person for such period minus the aggregate amount
of all expenditures made or committed to be made by such Person
and its consolidated Subsidiaries, if any, during such period in
respect of the purchase or other acquisition of fixed or capital
assets (other than any such expenditures financed with
Indebtedness permitted under Section 7.2(b)) minus the amount of
all taxes paid by such Person and its consolidated Subsidiaries
(and, without duplication, the amount of all distributions made
by such Person and its Subsidiaries as permitted by Section
7.7), if any, during such period, to (b) the sum of (i) all
scheduled payments of principal of Indebtedness of such Person
and its consolidated Subsidiaries, if any, during such period
and (ii) all cash interest expense of such Person and its
consolidated Subsidiaries, if any, during such period (including
without limitation all imputed interest in respect of Financing
Leases), in each such case determined in accordance with GAAP.
"Forced Liquidation Value": as to any Aircraft, Airframe,
Aircraft Engine or Aircraft Part, or group of any of the
foregoing, as determined by the Lender or the Appraiser, the
value of such Aircraft, Airframe, Aircraft Engine, Aircraft Part
or group based on the assumption that it is sold under an
immediate "auction" sale. "GAAP": generally accepted accounting
principles in the United States of America in effect from time
to time. "Governing Documents": as to any Person, its articles
or certificate of incorporation and by-laws, its partnership
agreement, its certificate of formation and operating agreement,
and/or the other organizational or governing documents of such
Person. "Governmental Authority": any nation or government, any
state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b)
another Person (including, without limitation, any bank under
any letter of credit) to induce the creation of which the
guaranteeing person has issued a reimbursement, counterindemnity
or similar obligation, in either case guaranteeing or in effect
guaranteeing any Indebtedness, leases, dividends or other
obligations (the "primary obligations") of any other third
Person (the "primary obligor") in any manner, whether directly
or indirectly, including, without limitation, any obligation of
the guaranteeing person, whether or not contingent, (i) to
purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any
such primary obligation or (2) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain
the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of
the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless
the owner of any such primary obligation against loss in respect
thereof; provided, however, that the term Guarantee Obligation
shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The terms
"Guarantee" and "Guaranteed" used as a verb shall have a
correlative meaning. The amount of any Guarantee Obligation of
any guaranteeing person shall be deemed to be the lower of (a)
an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Guarantee Obligation
is made and (b) the maximum amount for which such guaranteeing
person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing
person may be liable are not stated or determinable, in which
case the amount of such Guarantee Obligation shall be such
guaranteeing person's maximum reasonably anticipated liability
in respect thereof as determined by the Borrower in good faith.
"Indebtedness": of any Person at any date, without duplication,
(a) all indebtedness of such Person for borrowed money (whether
by loan or the issuance and sale of debt securities) or for the
deferred purchase price of property or services (other than
current trade liabilities incurred in the ordinary course of
business and payable in accordance with customary practices),
(b) any other indebtedness of such Person which is evidenced by
a note, bond, debenture or similar instrument, (c) all
obligations of such Person under Financing Leases, (d) all
obligations of such Person in respect of letters of credit,
acceptances or similar instruments issued or created for the
account of such Person and (e) all liabilities secured by any
Lien on any property owned by such Person even though such
Person has not assumed or otherwise become liable for the
payment thereof. "Insolvency": with respect to any
Multiemployer Plan, the condition that such Plan is insolvent
within the meaning of Section 4245 of ERISA. "Insolvent":
pertaining to a condition of Insolvency. "Interest Payment
Date": as to any Loan, the last day of each calendar month.
"Inventory": with respect to any Person, all now owned or
hereafter acquired inventory (including without limitation
Approved Aircraft and Aircraft Inventory), wherever located,
including any such inventory which is in transit, as would be
reflected on the financial statements of such Person in
accordance with GAAP, and all documents of title or other
documents representing such property. "Lease Payment
Receivables": means all rights to payment or receipt of money
owing or to be owing to Borrower under any Aircraft Lease, all
proceeds thereof and all files in which Borrower has any
interest whatsoever containing information identifying or
pertaining thereto and all Borrower's right, title, security and
guaranties with respect to each such Aircraft Lease. "Ledger
Debt": as defined in Section 3.5(d). "Lending Office": the
lending office of the Lender located at 1290 Avenue of the
Americas, New York, New York, 10104, or as may from time to time
be designated as such in a writing delivered to the Borrower.
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other),
charge or other security interest or any preference, priority or
other security agreement or preferential arrangement of any kind
or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any
Financing Lease having substantially the same economic effect as
any of the foregoing), and the filing of any financing statement
under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing. "Loan": any
loan, including without limitation any Revolver Advance and any
Term Loan, made by any Lender pursuant to this Agreement.
"Manuals and Technical Records:" all such manuals, technical
data, log books and other records pertaining to the Aircraft to
be maintained by the Borrower or any lessee under an Aircraft
Lease or as shall be required to comply with the requirements of
the FAA or any Regulatory Authority from time to time applicable
and in force. "Material Adverse Effect": a material adverse
effect on (a) the business, operations, property, condition
(financial or otherwise) or prospects of the Borrower, and its
Subsidiaries, if any, taken as a whole or (b) the validity or
enforceability of this or any of the other Credit Documents or
the rights or remedies of the Lender hereunder or thereunder.
"Material Environmental Amount": an amount payable by the
Borrower in excess of $100,000 for remedial costs, compliance
costs, compensatory damages, punitive damages, fines, penalties
or any combination thereof. "Materials of Environmental
Concern": any gasoline or petroleum (including crude oil or any
fraction thereof) or petroleum products or any hazardous or
toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without
limitation, asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation. "Matured Funds Rate": as defined
in Section 3.12. "Multiemployer Plan": a Plan which is a
multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"Net Proceeds": (i) the aggregate cash consideration received
by the Borrower in connection with any transaction referred to
in clause (i) of Section 3.3(d) or in Section 3.3(e) less (ii)
the expenses (including out-of-pocket expenses) incurred by the
Borrower in connection with such transaction (including, in the
case of any issuance of debt or equity securities, underwriters'
commissions and fees) and the amount of any federal and state
taxes incurred in connection with such transaction, in each case
as certified by a Responsible Officer to the Lender at the time
of such transaction, less (iii) with respect to any sale, lease,
assignment, exchange or other disposition of any asset, all
amounts required to repay outstanding Indebtedness of the
Borrower permitted hereunder secured by a Lien on such asset
permitted hereunder and which is senior to any Lien of the
Lender on such asset under the Security Documents. "Non-Excluded
Taxes": as defined in Section 3.6. "Obligations": the unpaid
principal amount of, and interest (including, without
limitation, interest accruing after the maturity of the Loans
and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower,
whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) on the Loans, and all other
obligations and liabilities of the Borrower to the Lender,
whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may
arise under, or out of or in connection with this Agreement, the
Security Documents or any other Credit Document, or any other
document made, delivered or given in connection therewith or
herewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses
(including, without limitation, all fees and disbursements of
counsel to the Lender that are required to be paid by the
Borrower pursuant to the terms of the Credit Documents) or
otherwise. "Participant": as defined in Section 9.6(b). "PBGC":
the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA. "Permitted Jurisdiction":
with respect to any Eligible Account, Eligible Lease Payment
Receivable or Approved Aircraft, any jurisdiction listed in
Schedule 1.1 as a Permitted Jurisdiction and, in the case of
Eligible Accounts and Eligible Lease Payment Receivables, in
which the obligor thereon resides and, in the case of the
Approved Aircraft, in which such Approved Aircraft is
registered. "Permitted Lessee": each lessee under an Aircraft
Lease listed as a Permitted Lessee in Schedule 1.1. "Person":
an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature. "Plan": at a
particular time, any employee benefit plan which is covered by
ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an
"employer" as defined in Section 3(5) of ERISA. "Prime Rate":
the rate of interest publicly announced from time to time by BNY
at its principal office in New York as its prime rate or prime
lending rate. This rate of interest is determined from time to
time by BNY as a means of pricing some loans to its customers
and is neither tied to any external rate of interest or index
nor does it necessarily reflect the lowest rate of interest
actually charged by BNY to any particular class or category of
customers of BNY. BNY and the Lender may make commercial loans
or other loans at rates of interest at, above or below the Prime
Rate. "Properties": as defined in Section 4.22. "Real Estate":
with respect to any Person, all of the right, title, and
interest of such Person in any and all real property, whether
now owned or hereafter acquired, or in which it has an interest
at any time and from time to time, including, without
limitation, all rights and easements in connection therewith and
all buildings and improvements now or hereafter constructed
thereon. "Regulation G": Regulation G of the Board of Governors
of the Federal Reserve System as in effect from time to time.
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System as in effect from time to time.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning
of Section 4241 of ERISA. "Reportable Event": any of the events
set forth in Section 4043(b) of ERISA, other than those events
as to which the thirty day notice period is waived under
Sections .13, .14, .16, .18, .19 or .20 of PBGC Reg. ' 2615.
"Republic Mortgage": that certain existing Mortgage and
Security Agreement made as of the 18th day of September, 1992 by
the Borrower to Republic , as the same may be amended,
supplemented or otherwise modified from time to time.
"Republic": Republic National Bank of Miami. "Republic
Intercreditor Agreement": that Intercreditor Agreement between
the Lender and Republic in substantially the form attached
hereto as Exhibit E. "Requirement of Law": as to any Person,
the partnership agreement, certificate of incorporation and
by-laws or other organizational or Governing Documents of such
Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of
its property or to which such Person or any of its property is
subject. "Responsible Officer": the chief executive officer and
president of the Borrower or the executive vice president and
chief financial officer of the Borrower. "Revolver Advances":
as defined in Section 2.1. "Revolver Borrowing Base": at any
time, the excess of: I. the sum of (a) 85% (or such other
percentage as the Lender shall determine in its sole and
absolute discretion) of the total outstanding balance, after
subtraction of any Collateral Reserves, of then Eligible
Accounts and Eligible Lease Payment Receivables and (b) the
least of (i) 100% (or such other percentage as the Lender shall
determine in its sole and absolute discretion) of the total
cost, after subtracting Collateral Reserves, of the then
Eligible Inventory plus $500,000.00, (ii) 75% (or such other
percentage as the Lender shall determine in its sole and
absolute discretion) of the Forced Liquidation Value, after
subtracting any Collateral Reserves, of such Eligible Inventory
and (iii) $8,000,000.00; over II. the Revolver Reserve at such
time. The Revolver Borrowing Base in effect at any time shall be
the Revolver Borrowing Base as shown on the Borrowing Base
Certificate most recently delivered by the Borrower pursuant to
this Agreement; provided, however, that if the Borrower shall
fail to deliver a Borrowing Base Certificate when required
pursuant to Section 6.2(c), the Borrowing Base in effect shall
be zero until such Borrowing Base Certificate is delivered.
"Revolver Facility": at any time, the obligation of the Lender
to make Revolver Advances to the Borrower hereunder in an
aggregate principal amount at any one time outstanding not to
exceed $11,000,000.00, as such obligation may be reduced from
time to time in accordance with the provisions of this
Agreement. "Revolver Reserve": as of any date, an amount equal
to the lesser of (i) the amount equal to the excess, if any, of
the amount of the Term Loan Facility on such date (without
regard to any borrowing of Term Loans made prior to or on such
date) over the Term Loan Borrowing Base on such date and (ii) an
amount equal to the excess, if any, of the sum determined in
accordance with clause I of the definition of Revolver Borrowing
Base on such date and the aggregate outstanding Revolver
Advances on such date. "Revolver Note": as defined in Section
3.5(f). "Security Documents": the collective reference to the
Borrower Security Agreement, the Aircraft Chattel Mortgages
(including all mortgage supplements thereto) and all other
security documents hereafter delivered to the Lender granting a
Lien on any asset or assets of any Person to secure any of the
Obligations or to secure any guarantee of any such Obligations.
"Senior Notes Mortgage": the Mortgage and Security Agreement
made as of September 18, 1992 by International Airline Support
Group Inc. given to Dabney/Resnick and Wagner Inc., as agent for
the purchasers (as defined therein) and any other holders from
time to time of the Notes (as defined therein), assigned to IBJ
Schroder Bank & Trust Company by the Assignment of Mortgage
dated December 29, 1992. "Senior Secured Notes": the 12% Senior
Secured Notes due July 17, 1997 of the Borrower issued pursuant
to the Senior Secured Notes Purchase Agreements. "Senior Secured
Notes Purchase Agreements": the collective reference to the
Securities Purchase Agreements, each dated as of July 17, 1992,
between the Borrower and the original purchasers of the Senior
Secured Notes. "Single Employer Plan": any Plan which is
covered by Title IV of ERISA, but which is not a Multiemployer
Plan. "Subordinated Debentures": the 8% Convertible
Subordinated Debentures due August 31, 2003, issued by the
Borrower pursuant to the Subordinated Debenture Purchase
Agreements. "Subordinated Debenture Conversion": the exchange,
pursuant to the exchange offer, dated August 29, 1996, of
Subordinated Debentures representing at least 80% of the
outstanding principal balance of all Subordinated Debentures at
the time of the commencement of such exchange offer for Common
Stock. "Subordinated Debenture Purchase Agreements": the
collective reference to the Securities Purchase Agreements, each
dated as of September 8, 1993, between the Borrower and the
original purchasers of the Subordinated Debentures.
"Subsidiary": as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of
the happening of a contingency) to elect a majority of the board
of directors or other managers of such corporation, partnership
or other entity are at the time owned, or the management of
which is otherwise controlled, directly or indirectly through
one or more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower. "Term Loan Borrowing Base": at any
time, an amount equal to the sum of (i) 80% (or such other
percentage as the Lender shall determine in its sole discretion)
of the Forced Liquidation Value, after deduction of any
applicable Collateral Reserves, at such time, of all Approved
Aircraft domiciled in jurisdictions other than Kenya and (ii)
50% (or such other percentage as the Lender shall determine in
its sole discretion) of the Forced Liquidation Value, after
deduction of any applicable Collateral Reserves, at such time,
of all Approved Aircraft domiciled in Kenya. "Term Loan
Facility": at any time, the obligation of the Lender to make
the Term Loan in accordance with the provisions of this
Agreement, which shall not exceed an amount equal to
$3,000,000.00 minus the aggregate amount of repayments of
principal then required to have been made in accordance with
Schedule 2.3. "Term Loan": as defined in Section 2.3 (together
with any advance made in connection with the substitution of
Approved Aircraft pursuant to Section 2.5). "Term Note:" as
defined in Section 3.5(f). "Termination Date": September 30,
2001. "Transferee": as defined in Section 9.6(d). 1.2 Other
Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the
defined meanings when used in any certificate or other document
made or delivered pursuant hereto. (b) As used herein and in any
certificate or other document made or delivered pursuant hereto,
accounting terms relating to the Borrower or its Subsidiaries,
if any, not defined in Section 1.1 and accounting terms partly
defined in Section 1.1, to the extent not defined, shall have
the respective meanings given to them under GAAP. (c) The words
"hereof", "herein" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and
Section, Schedule and Exhibit references are to this Agreement
unless otherwise specified. (d) The meanings given to terms
defined herein shall be equally applicable to both the singular
and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF
FACILITIES 2.1 Revolver Facility. Subject to the terms and
conditions hereof, the Lender agrees in its reasonable
discretion to make revolving credit loans ("Revolver Advances")
to the Borrower from time to time during the period commencing
with and including the Closing Date and ending with the
termination of this Agreement in an aggregate principal amount
at any one time outstanding not to exceed the lesser of the
Revolver Facility then in effect and the Revolver Borrowing Base
then in effect. During the term of this Agreement the Borrower
may use the Revolver Facility by borrowing, prepaying the
Revolver Advances in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof. 2.2 Procedure
for Borrowing under Revolver. The Borrower may borrow under the
Revolver Facility during the term of this Agreement on any
Business Day in an aggregate principal amount not exceeding the
Available Revolver Facility then in effect; provided that the
Borrower shall give the Lender irrevocable notice, which notice
must be received by the Lender prior to 12:00 noon, New York
City time on the requested Borrowing Date, specifying (i) the
amount to be borrowed and (ii) the requested Borrowing Date.
Upon receipt of any such notice from the Borrower, the Lender
shall make the amount of each borrowing available to the
Borrower by wire transfer of immediately available funds to the
Borrower's account at First Union National Bank, Jacksonville,
Florida, Account No. 2090000628791, ABA No. 063-000-021 or, with
respect to Revolver Advances deemed to have been requested, by
disbursing the amount thereof to the Lender in payment of
outstanding Obligations. 2.3 Term Loan Facility. Subject to the
terms and conditions hereof, the Lender agrees to make a term
loan to the Borrower in one advance (such advance, together with
any advances made in connection with the substitution of
Approved Aircraft pursuant to Section 2.5 hereof, the "Term
Loan") on the Closing Date in the principal amount of the lesser
of (a) the Term Loan Facility on such date and (b) the Term Loan
Borrowing Base on such date plus the Revolver Reserve on such
date. The Term Loan shall be dated the Closing Date, stated to
mature in the installments and amounts payable on the dates set
forth in Schedule 2.3 hereto, and bear interest for the period
from the Closing Date on the unpaid principal amount thereof at
the applicable interest rates per annum specified in Section
3.1. All payments of principal shall reduce the Term Loan
Facility on a dollar-for-dollar basis. 2.4 Procedure for Term
Loan Borrowing. The Borrower shall give the Lender irrevocable
notice, which notice must be received by the Lender prior to
12:00 noon, New York City time, on the requested Borrowing Date
for the Term Loan (other than any advance requested to be made
in connection with the substitution of Approved Aircraft
pursuant to Section 2.5 (each such advance, a "Substitution
Advance") and at least ten (10) Business Days prior to the
requested Borrowing Date for any Substitution Advance, in each
case requesting that the Lender make such advance on the
requested Borrowing Date. The amount of the Term Loan
(including any advance agreed by the Lender to be made in
connection with the substitution of Approved Aircraft pursuant
to Section 2.5) shall be made available to the Borrower by wire
transfer of immediately available funds to the Borrower's
account at First Union National Bank, Jacksonville, Florida,
Account No. 2090000628791, ABA No. 063-000-021.
2.5 Discretionary Term Loan Advance Upon Substitution of
Approved Aircraft. At the request of the Borrower and after
substitution of an Approved Aircraft (the "Substitute Aircraft")
for an Approved Aircraft within six months after repayment of
the Term Loan to the extent and as required by Section 3.3(d)
hereunder, the Lender may make an advance in an amount equal to
the lesser of (i) 80% (or such other percentage as the Lender
shall determine in its sole discretion) of the Forced
Liquidation Value of the Substitute Aircraft if it is domiciled
in a jurisdiction other than Kenya, less any applicable
Collateral Reserve, and 50% (or such other percentage as the
Lender shall determine in its sole discretion) of the Forced
Liquidation Value of the Substitute Aircraft domiciled in Kenya,
less any applicable Collateral Reserve and (ii) the amount, if
any, by which (A) $3,000,000.00 minus all repayments of
principal made, or required to have been made on or prior to the
date of such advance in accordance with Schedule 2.3 hereto
exceeds (B) the outstanding principal balance of the Term Loan
on such date (prior to the making of such Advance). Each such
advance, if any, shall be made in the sole and absolute
discretion of the Lender and shall be deemed to be a Term Loan
for all purposes hereunder and shall increase the Term Loan
Facility on a dollar-for-dollar basis. From and after the
making of such advance the outstanding principal balance of the
Term Loan shall include the amount of such advance, interest
shall be payable on such amount, and the amount of each
scheduled principal repayments shall be increased pro rata by
such amount. SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS
3.1 Interest Rates and Payment Dates. (a) Loans shall bear
interest at a rate per annum equal to the Alternate Base Rate
plus the Applicable Margin. (b) If on any five Business Days
(whether or not consecutive) occurring in any calendar month the
amount of Revolver Advances outstanding on each such Business
Day exceeds the lesser of the Revolver Borrowing Base and the
Revolver Facility as in effect for each such Business Day with
the permission of the Lender pursuant to Section 3.3(c), then
the average daily balance of all Loans outstanding on each day
during such month shall bear interest at the rate determined
pursuant to clause (a) of this Section 3.1 plus a per annum rate
of one-half of one percent (0.50%). (c) If (i) all or a portion
of (A) any principal of any Loan, (B) any interest payable
thereon, (C) any fee payable hereunder or (D) any other amount
payable hereunder shall not be paid when due (whether at the
scheduled payment date or stated maturity, or by acceleration or
otherwise, but in the case of clauses (B), (C) and (D) after
giving effect to any applicable cure or grace period under
Section 8(a)), or (ii) an Event of Default not occurring as a
result of the failure to pay any such amount when due shall
exist and be continuing, then, in each such case, the principal
of the Loans and any such overdue interest, fee or other amount
shall bear interest at a rate per annum which is the rate that
would otherwise be applicable thereto pursuant to the foregoing
provisions of this Section plus 2%, in each case from the date
of such non-payment until such overdue principal, interest, fee
or other amount is paid in full (as well after as before
judgment). (d) Interest shall be payable in arrears on each
Interest Payment Date, provided that interest accruing pursuant
to paragraph (c) of this Section shall be payable from time to
time on demand. (e) In no event shall any of the interest rates
charg
ed pursuant to the terms of this Agreement exceed the highest
rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable
hereto. In the event that such a court determines that the
Lender has received interest hereunder in excess of the highest
applicable rate, such excess interest shall be first applied to
any unpaid principal balance owed by the Borrower, and if the
then remaining excess interest is greater than the unpaid
principal balance, the Lender shall promptly refund such excess
interest to the Borrower. 3.2 Optional Loan Prepayments. (a)
The Borrower may at any time and from time to time prepay the
Revolver Advances, in whole or in part, without premium or
penalty, after giving to the Lender notice, which must be
received by the Lender no later than 12:00 noon, New York City
time on the date of such prepayment and which must specify the
date and amount of prepayment. If any such notice is given, the
amount specified in such notice shall be due and payable on the
date specified therein. (b) The Borrower may at any time and
from time to time prepay the Term Loan, in whole or in part,
without premium or penalty after giving to the Lender notice,
which must be received by the Lender no later than 12:00 noon,
New York City time on the date of such prepayment and which must
specify the date and amount of prepayment. If any such notice
is given, the amount specified in such notice shall be due and
payable on the date specified therein and the amount of such
payments shall be applied against scheduled repayments of
principal on a pro rata basis and shall reduce the Term Loan
Facility on a dollar-for-dollar basis. 3.3 Mandatory Loan
Prepayments. (a) If on any date on which a Borrowing Base
Certificate is required to be delivered pursuant to Section
6.2(c), the aggregate outstanding principal amount of the
Revolver Advances as of such date exceeds the Revolver Borrowing
Base, the Borrower shall prepay the Revolver Advances in an
amount equal to the amount of such excess no later than the
Business Day immediately following the date of delivery of such
Borrowing Base Certificate. Without in any way limiting the
foregoing, the Borrower shall upon receipt of any insurance
proceeds paid in connection with the occurrence of an Event of
Loss with respect to an Aircraft other than an Approved
Aircraft, prepay the Revolver Advances in an amount equal to
such insurance proceeds. (b) If on any date on which a Borrowing
Base Certificate is required to be delivered pursuant to Section
6.2(c), the aggregate outstanding principal amount of the Term
Loan as of such date exceeds an amount equal to the sum of the
Term Loan Borrowing Base and the Revolver Reserve, the Borrower
shall immediately prepay the Term Loan in an amount equal to the
amount of such excess. The amount of such payment shall be
applied against scheduled repayments of principal on a pro rata
basis and shall reduce the Term Loan Facility on a
dollar-for-dollar basis. (c) Notwithstanding the provisions of
paragraphs (a) and (b) of this Section and subject to Section
3.1(b), the Lender may, in its sole and absolute discretion and
without waiver of any right hereunder, permit the amount of the
Revolver Advances to exceed the Revolver Borrowing Base for such
time and upon such terms and conditions as it may determine.
(d) The Borrower shall (i) immediately upon each sale of an
Approved Aircraft prepay the Term Loan in an amount equal to the
lesser of (A) 100% of the Net Proceeds thereof and (B) the sum
of the Revolver Reserve and amount by which the Term Loan
Borrowing Base is reduced by such sale and (ii) within two (2)
Business Days after the occurrence of any Event of Loss with
respect to an Approved Aircraft prepay the Term Loan in an
amount equal to the sum of the Revolver Reserve and amount by
which the Term Loan Borrowing Base is reduced by such Event of
Loss. Amounts so paid shall be applied to the scheduled
repayments of principal on a pro rata basis and shall reduce the
Term Loan Facility on a dollar-for-dollar basis. (e) Unless the
Lender otherwise agrees, the Borrower shall prepay the Revolver
Advances in an amount equal to 100% of the Net Proceeds of any
sale, lease, assignment, exchange or other disposition for cash
of any asset or group of assets (including, without limitation,
insurance proceeds paid as a result of any destruction, casualty
or taking of any property of the Borrower), other than Approved
Aircraft and the Real Estate of the Borrower upon which its
principal executive offices are located on the Closing Date, not
made in the ordinary course of business by the Borrower, in any
such case no later than three Business Days following receipt by
the Borrower of such proceeds, together with accrued interest to
such date on the amount prepaid; provided that no such
prepayment shall be required pursuant to this Section 3.3(e)
unless the aggregate amount of such Net Proceeds received by the
Borrower and not previously applied to prepayment of the
Revolver Advances is at least $100,000. Nothing in this Section
3.3(e) shall be construed to derogate any restriction or
limitation contained in any Credit Document imposed on any
transaction of the types described in this Section 3.3(e),
including without limitation the restrictions set forth in
Sections 7.2, 7.5, and 7.6 hereof. 3.4 Computation of Interest
and Fees. (a) All fees and interest shall be calculated on the
basis of a 360-day year for the actual days elapsed. (b) Each
determination of an interest rate by the Lender pursuant to any
provision of this Agreement shall be conclusive and binding on
the Borrower in the absence of manifest error. The Lender
shall, at the request of the Borrower, deliver to the Borrower a
statement showing the quotations used by the Lender in
determining any interest rate pursuant to Section 3.1(a).
3.5 Obligations and Payments. (a) Unless otherwise specified,
all Obligations, including all Loans and any debit balance(s) in
the Borrower's account(s), shall be payable on the Termination
Date, or if earlier, the effective termination date of this
Agreement. Recourse to the Collateral will not be required at
any time. All credit balances or other sums at any time
outstanding to the Borrower's credit and all reserves on the
Lender's books, and all of the Borrowers property in the
possession of the Lender at any time or in the possession of any
parent, Affiliate or Subsidiary of the Lender, or in which the
Lender or any parent, Affiliate or Subsidiary of any of them has
a Lien or security interest, may be held and reserved by the
Lender as security for all Obligations. (b) The Borrower
recognizes that the amounts evidenced by checks, notes, drafts
or any other items of payment relating to and/or proceeds of
Accounts or Lease Payment Receivables may not be collectible by
the Lender on the date received. The Lender shall only
conditionally credit the Borrower's account(s) on the Lender's
books at such time as the Lender receives such payment. In
making computations under this Agreement, the settlement date
for each payment received, and the date on which the
corresponding Account or Lease Payment Receivable shall be
deemed paid for purposes of calculating the Revolver Borrowing
Base, shall be three (3) Business Days after the date on which
the payment is actually received by the Lender, provided that
such items of payment have been collected in good funds and
finally credited to the Lender's account. The Lender shall not,
however, be required to credit the Borrower's account for the
amount of any item of payment which is unsatisfactory to the
Lender in its reasonable discretion and the Lender may charge
the Borrower's account(s) for the amount of any item of payment
which is returned to the Lender unpaid. (c) All payments
(including prepayments) of principal, interest and other amounts
payable hereunder, or under any of the related agreements shall
be made to the Lender, without set-off or counterclaim at the
Lending Office not later than 1:00 p.m. (New York City time) on
the due date therefor in lawful money of the United States of
America in federal or other funds immediately available to the
Lender. If any payment hereunder becomes due and payable on a
day other than a Business Day, such payment shall be extended to
the next succeeding Business Day, and, with respect to payments
of principal, interest thereon, shall be payable at the then
applicable rate during such extension. The Lender shall have
the right to effectuate payment on any and all Obligations due
and owing hereunder by charging the account(s) of the Borrower
and shall promptly notify the Borrower thereafter. (d) The
Borrower shall pay principal, interest, and all other
Obligations payable hereunder, or under any related agreement,
without any deduction whatsoever, including, but not limited to,
any deduction for any setoff or counterclaim. Until the earlier
to occur of a Default or an Event of Default, any payment(s)
theretofore made in the ordinary course of the Borrower's
business of Ledger Debt (as defined immediately below) due from
the Borrower, as an account debtor, may be made to the Lender
(only), with such deduction(s) as may be found in the ordinary
course of business to be proper and valid with respect to
related sales, but following the occurrence of a Default or an
Event of Default, any payment(s) made thereafter as to Ledger
Debt due from the Borrower to the Lender shall be made without
any deduction whatsoever, including but not limited to any
deduction for setoff or counterclaim. For purposes of this
subparagraph, the term "Ledger Debt" shall mean and include all
indebtedness and obligations due or to become due to the Lender
from the Borrower by reason of or in connection with the sale of
goods and/or the rendering of services from any factored client
of the Lender to the Borrower, as an account debtor, as to which
the resulting account receivable is sold or assigned to the
Lender at any time and from time to time by such factored
client(s). (e) All payments received or realized at any time and
from time to time by the Lender from or for the account of the
Borrower, other than proceeds of insurance applied pursuant to
Section 6.6(d) and security deposits and maintenance payments of
lessees under Aircraft Leases held under paragraph (f) of this
Section 3.5, and any proceeds thereof shall be applied as
follows: FIRST, to the payment of all reasonable and invoiced
costs and expenses of the Lender in connection with the
collection of such payments or the sale of any Collateral or
otherwise in connection with this Agreement or any of the other
Loan Documents, including all court costs and the fees and
expenses of its agents and legal counsel, the repayment of all
advances made by the Lender on behalf of the Borrower in
connection with the preservation of any Collateral or any
exercise of remedies under the Loan Documents and any other
costs or expenses incurred in connection with the exercise of
any right or remedy hereunder or under any of the other Loan
Documents; SECOND, to the payment in full of any interest
accrued and unpaid on the Loans; THIRD, to the payment in full
of the outstanding principal of the Revolver Advances and, upon
the occurrence and during the continuance of an Event of
Default, at the option of the Lender to the payment in full of
the outstanding principal of the Term Loan; FOURTH, to the
payment in full of all other Obligations then due and payable
(including, without limitation, any installment of principal of
the Term Loan then due and payable); and FIFTH, to the Borrower,
its successors or assigns, or as a court of competent
jurisdiction may otherwise direct. All such payments made to the
Lender by or for the account of the Borrower in immediately
available funds not constituting proceeds of Accounts or Lease
Payment Receivables (whether such proceeds are paid by the
Customer to the Lender under the Borrower Security Agreement or
to directly to the Borrower), shall be so applied on the date of
receipt thereof by the Lender and all payments received or
realized at any time and from time to time by the Lender from or
for the account of the Borrower constituting proceeds of
Accounts and Lease Payment Receivables (other than proceeds of
insurance applied pursuant to Section 6.6(d) and Aircraft Lease
maintenance payments and security deposits), and any proceeds of
such payments, shall be so applied three Business Days after
receipt thereof by the Lender. (f) All security deposits and
maintenance payments made by a lessee under an Aircraft Lease
shall be delivered to the Lender and held in a restricted
account which shall bear interest at the Matured Funds Rate
until termination of such Aircraft Lease and applied as follows:
(i) the Lender shall upon request pay such funds to such Lessee
if and to the extent such lessee is entitled to them under such
Aircraft Lease; (ii) if, after termination of such Aircraft
Lease, return to the Borrower of the related Aircraft and
receipt by the Lender of an Appraisal with respect thereto, the
amount of Loans outstanding does not exceed the sum of the Term
Loan Borrowing Base and the Revolver Borrowing Base and no Event
of Default shall have occurred and be continuing, the Lender
shall, upon request of the Borrower, pay such funds to the
Borrower if and to the extent required by such Aircraft Lease;
and (iii) if, after termination of such Aircraft Lease such
funds are not required to be paid to the lessee thereunder and
the amount of Loans outstanding exceeds the sum of the Term Loan
Borrowing Base and the Revolver Borrowing Base or an Event of
Default shall have occurred and be continuing, the Lender shall
apply such funds in accordance with the provisions of paragraph
(e) of this Section 3.5. (g) The Borrower agrees that, upon the
request by the Lender, the Borrower will execute and deliver to
the Lender (i) a promissory note of the Borrower evidencing the
Term Loan of the Lender, in form and substance acceptable to the
Lender (a "Term Note"), and/or (ii) a promissory note of the
Borrower evidencing the Revolver Advances of the Lender in form
and substance acceptable to the Lender (a "Revolver Note").
3.6 Taxes. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges,
fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes
(imposed in lieu of net income taxes) imposed on the Lender as a
result of a present or former connection between the Lender and
the jurisdiction of the Governmental Authority imposing such tax
or any political subdivision or taxing authority thereof or
therein (other than any such connection arising solely from the
Lender having executed, delivered or performed its obligations
or received a payment under, or enforced, this Agreement). If
any such non-excluded taxes, levies, imposts, duties, charges,
fees deductions or withholdings ("Non-Excluded Taxes") are
required to be withheld from any amounts payable to the Lender
hereunder, the amounts so payable to the Lender shall be
increased to the extent necessary to yield to the Lender (after
payment of all Non-Excluded Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts
specified in this Agreement, provided, however, that the
Borrower shall not be required to increase any such amounts
payable to the Lender if it shall cease to be, or any successor
or assign shall not be, organized under the laws of the United
States of America or a state thereof and shall fail to comply
with the requirements of clause (b) of this Section. Whenever
any Non-Excluded Taxes are payable by the Borrower, as promptly
as possible thereafter the Borrower shall send to the Lender a
certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay
any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Lender the required receipts
or other required documentary evidence, the Borrower shall
indemnify the Lender for any incremental taxes, interest or
penalties that may become payable by the Lender as a result of
any such failure. The agreements in this Section shall survive
the termination of this Agreement and the payment of the Loans
and all other amounts payable hereunder. (b) If the Lender shall
cease to be, or any successor to or assign of the Lender shall
not be, incorporated under the laws of the United States of
America or a state thereof, the Lender or its successor lender,
as the case may be, shall deliver to the Borrower (i) two duly
completed copies of United States Internal Revenue Service Form
1001 or 4224 or successor applicable form, as the case may be,
and (ii) an Internal Revenue Service Form W-8 or W-9 or
successor applicable form. The Lender or such successor or
assignee, as the case may be, also agrees to deliver to the
Borrower two further copies of the said Form 1001 or 4224 and
Form W-8 or W-9, or successor applicable form or other manner of
certification, as may be required, on or before the date that
any such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent
form previously delivered by it to the Borrower, and such
extensions or renewals thereof as may reasonably be requested by
the Borrower, unless in any such case an event (including,
without limitation, any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and
delivering any such form with respect to it and the Lender or
such successor or assignee, as the case may be, so advises the
Borrower. The Lender or such successor lender, as the case may
be, shall certify (i) in the case of a Form 1001 or 4224, that
it is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income
taxes and (ii) in the case of a Form W-8 or W-9, that it is
entitled to an exemption from United States backup withholding
tax. 3.7 Lending Office; Change of Lending Office. Loans made
by the Lender shall be made and maintained at the Lending
Office. 3.8 Repayment of Loans; Evidence of Debt. (a) The
Borrower hereby unconditionally promises to pay to the Lender
the then unpaid principal amount of each Loan on the Termination
Date (or such earlier date on which the Loans become due and
payable pursuant to Section 8). The Borrower hereby further
agrees to pay interest on the unpaid principal amount of the
Loans from time to time outstanding from the date hereof until
payment in full thereof at the rates per annum, and on the
dates, set forth in Section 3.1. (b) The Lender shall maintain
in accordance with its usual practice a loan account or accounts
evidencing the indebtedness of the Borrower to the Lender
resulting from each Loan from time to time, including the dates
and amounts of principal and interest payable and paid to the
Lender from time to time under this Agreement. (c) The entries
made in the accounts of the Lender maintained pursuant to
Section 3.8(b) shall, to the extent permitted by applicable law,
be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however,
that the failure of the Lender to maintain any such account, or
any error therein, shall not in any manner affect the obligation
of the Borrower to repay (with applicable interest) the Loans
made to such Borrower by the Lender in accordance with the terms
of this Agreement. (d) For each month, the Lender shall send to
the Borrower a statement showing the accounting for the Loans
made to the Borrower, payments made or credited in respect
thereof, and other transactions between the Lender and the
Borrower during such month. Each such monthly statement shall
be deemed correct and binding upon the Borrower in the absence
of manifest error and shall constitute an account stated between
the Lender and the Borrower unless the Lender receives a written
statement of the Borrower's specific exceptions thereto within
sixty (60) days after such statement is sent by the Lender to
the Borrower. 3.9 Closing Fee; Facility Fee . (a) On the
Closing Date, the Borrower shall pay to the Lender in
immediately available funds a fee equal to $70,000.00 (which
shall be in addition to all fees paid to the Lender prior to the
execution and delivery of this Agreement). The Lender is hereby
authorized to withhold the amount of such fee from the proceeds
of the Term Loan. (b) The Borrower agrees to pay to the Lender a
facility fee of $7,500.00 per month for each month commencing
with the month in which the Closing Date occurs and ending with
and including the month in which the Termination Date (or such
earlier date on which both of the Facilities shall have
terminated as provided herein) occurs. The fee for the month in
which the Closing Date occurs shall be pro rated based upon the
number of days from and including the Closing Date to and
including the last day of such month. 3.10 Early Termination
Fee. Except as set forth in Section 9.6(a), if the Borrower
shall terminate the Facilities during any annual period
following the Closing Date set forth below, the Borrower shall
concurrently pay to the Lender an early termination fee in the
amount equal to the percentage of the Facilities in effect
immediately prior to such termination set forth opposite such
period below: Year Following Closing Date Amount Year 1 3.00%
Year 2 2.00% Year 3 and thereafter 1.00% 3.11 Bank Charges.
The Borrower shall additionally pay to the Lender all reasonable
and customary bank charges paid or incurred by the Lender for
the Borrower's account, including, without limitation, charges
for wire transfers. 3.12 Matured Funds. In the event that any
amounts payable by the Lender to the Borrower under this
Agreement or any Security Agreement (as confirmed by the Lender
by appropriate credit to the Borrower's account(s) with the
Lender) are not drawn by the Borrower, the Lender shall pay to
the Borrower interest on such amounts while so held by the
Lender (such amounts, while so held, being hereinafter referred
to as "Matured Funds"), at rates announced by the Lender from
time to time as the Lender's matured funds rate (the "Matured
Funds Rate", which Matured Funds Rate may not be made available
at all times to all customers of the Lender). Interest hereunder
at the Matured Funds Rate shall be paid to the Borrower by
credit to the Borrower's account(s) monthly on the last day of
the month in which such interest accrues. Any change announced
by the Lender in the Matured Funds Rate shall be effective only
after ten (10) days prior written notice to the Borrower of the
Lender's intention to make such change. As of the Effective
Date, the Matured Funds Rate on the average daily balance of
Matured Funds held by the Borrower during any month shall be a
rate per annum equal to three percent (3%) less than the average
Alternate Base Rate in effect during such month. 3.13 Increased
Costs. If any change in any Requirement of Law or in the
interpretation or application thereof by any court or
administrative agency or other Governmental Authority charged
with the administration thereof shall either impose, modify,
assess or deem applicable any reserve, special deposit,
assessment or similar requirement against Loans made by the
Lender or impose on the Lender any other condition regarding any
Loans or the performance by the Lender of its obligations under
this Agreement, and the result thereof shall be to increase the
cost to the Lender of making or maintaining such Loans or
otherwise performing its obligations hereunder (which increase
in cost shall be the result of the Lender's reasonable
allocation of the aggregate of such cost increases resulting
from such events) or shall reduce any amount receivable by the
Lender in respect thereof, then, upon demand by the Lender, the
Borrower shall immediately pay to the Lender, from time to time
as specified by the Lender, additional amounts which shall be
sufficient to compensate the Lender for such increased cost or
reduced amount receivable, together with interest on each such
amount from the date demanded until payment in full thereof at
the rate provided in Section 3.1. A certificate as to the fact
and amount of such increased cost incurred by the Lender as a
result of any such event shall be submitted by the Lender to the
Borrower, shall be conclusive, absent manifest error. SECTION
4. REPRESENTATIONS AND WARRANTIES To induce the Lender to enter
into this Agreement and to make the Loans, the Borrower hereby
represents and warrants to the Lender that: 4.1 Financial
Condition. (a) The audited consolidated balance sheet of the
Borrower as at May 31, 1996 and the related unaudited
consolidated statements of income and of cash flows for the
fiscal year ended on such date, copies of which have heretofore
been furnished to the Lender, are complete and correct in all
material respects and present fairly the consolidated financial
condition of the Borrower as at such date, and the consolidated
results of its operations and its consolidated cash flows for
the fiscal year then ended. All such financial statements,
including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout
the periods involved (except as approved by such accountants or
Responsible Officer of the Borrower, as the case may be, and as
disclosed therein). At the date of the most recent balance
sheet referred to above, the Borrower had (i) no material
Guarantee Obligation, (ii) to its knowledge, no contingent
liability, (iii) no liability for taxes, (iv) no long-term
lease, and (v) no unusual forward or long-term commitment,
including, without limitation, any interest rate or foreign
currency swap or exchange transaction, in each case which is not
reflected in the foregoing statements or in the notes thereto.
During the period from May 31, 1996 to and including the date
hereof there has been no sale, transfer or other disposition by
the Borrower of any material part of its business or property
and no purchase or other acquisition of any business or property
(including any Capital Stock of any other Person) material in
relation to the financial condition of the Borrower at May 31,
1996. (b) The unaudited consolidated balance sheet of the
Borrower as at August 31, 1996 and the related unaudited
consolidated statements of income and of cash flows for the
three-month period ended on such date, certified by an
Responsible Officer of the Borrower, copies of which have
heretofore been furnished to the Lender, are complete and
correct in all material respects and present fairly the
consolidated financial condition of the Borrower as at such
date, and the results of its operations and its cash flows for
the three-month period then ended (subject to normal year-end
audit adjustments). All such financial statements, including
the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods
involved (except as approved by such accountants or Responsible
Officer, as the case may be, and as disclosed therein). At the
date of the most recent balance sheet referred to above, the
Borrower had (i) no material Guarantee Obligation, (ii) to its
knowledge, no contingent liability, (iii) no liability for
taxes, (iv) and no long-term lease, and (v) no unusual forward
or long-term commitment, including, without limitation, any
interest rate or foreign currency swap or exchange transaction,
in each case which is not reflected in the foregoing statements
or in the notes thereto. (c) The operating forecast and cash
flow projections of the Borrower, copies of which have
heretofore been furnished to the Lender, have been prepared in
good faith under the direction of a Responsible Officer of the
Borrower, and in accordance with GAAP except that such forecast
and projections do not include footnotes and other disclosures
which may be required pursuant to GAAP. The Borrower has no
reason to believe that as of the date of delivery thereof such
operating forecast and cash flow projections are not a fair and
reasonable presentation of the projected financial position,
results of operations and changes in cash flows of the Borrower
for the periods indicated, based upon the assumptions stated
therein, which assumptions the Borrower believes to be
reasonable. 4.2 No Change. (a) Since May 31, 1996 there has
been no development or event which has had or could reasonably
be expected to have a Material Adverse Effect, and (b) during
the period from May 31, 1996 to and including the date hereof no
distributions have been declared, paid or made upon the Capital
Stock of the Borrower nor has any of the Capital Stock of the
Borrower been redeemed, retired, purchased or otherwise acquired
for value by the Borrower or any of its Affiliates.
4.3 Existence; Compliance with Law. The Borrower (a) is duly
organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, (b) has the power and
authority, and the legal right, to own and operate its property,
to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified
and in good standing under the laws of each jurisdiction where
its ownership, lease or operation of property or the conduct of
its business requires such qualification and (d) is in
compliance with all Requirements of Law except to the extent
that the failure to comply therewith reasonably could not, in
the aggregate, be expected to have a Material Adverse Effect.
4.4 Power; Authorization; Enforceable Obligations. The Borrower
has the power and authority, and the legal right, to make,
deliver and perform the Credit Documents to which it is a party
and to borrow hereunder and has taken all necessary action to
authorize the borrowings on the terms and conditions of this
Agreement and to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. No
consent or authorization of, filing with, notice to or other act
by or in respect of, any Governmental Authority or any other
Person is required in connection with the borrowings hereunder
or with the execution, delivery, performance, validity or
enforceability of the Credit Documents to which the Borrower is
a party other than as listed on Schedule 4.4 hereto. Each
Credit Document to which the Borrower is a party has been or
will be duly executed and delivered on behalf of the Borrower.
Each Credit Document to which the Borrower is a party when
executed and delivered will constitute a legal, valid and
binding obligation of the Borrower enforceable against it in
accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied
covenant of good faith and fair dealing. 4.5 No Legal Bar. The
execution, delivery and performance of the Credit Documents to
which the Borrower is a party, the borrowings hereunder and the
use of the proceeds thereof will not violate any Requirement of
Law or Contractual Obligation (other than Contractual
Obligations that will terminate upon our initial funding of the
Loans) of the Borrower and will not result in, or require, the
creation or imposition of any Lien on any of its properties or
revenues pursuant to any such Requirement of Law or Contractual
Obligation (other than Liens created by the Security Documents
in favor of the Lender). 4.6 No Material Litigation. No
litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrower, threatened by or against the
Borrower, or against any of its properties or revenues (a) with
respect to any of the Credit Documents or any of the
transactions contemplated hereby or thereby, or (b) which could
reasonably be expected to have a Material Adverse Effect. 4.7 No
Default. The Borrower is not in default under or with respect
to any of its Contractual Obligations (other than any such
Contractual Obligations that will terminate upon the initial
funding of the Loans) in any respect which could reasonably be
expected to have a Material Adverse Effect. No Default or Event
of Default has occurred and is continuing. 4.8 Ownership of
Property; Liens. The Borrower has good record and marketable
title in fee simple to, or a valid leasehold interest in, all
its real property, and good title to, or a valid leasehold
interest in, all its other property, including, without
limitation, its Aircraft, and none of such property is subject
to any Lien except as permitted by Section 7.3. 4.9 Intellectual
Property. The Borrower owns, or is licensed to use, all
trademarks, tradenames, copyrights, technology, know-how and
processes necessary for the conduct of its business as currently
conducted except for those the failure to own or license which
could not reasonably be expected to have a Material Adverse
Effect (the "Intellectual Property"). No claim has been
asserted and is pending by any Person challenging or questioning
the use of any such Intellectual Property or the validity or
effectiveness of any such Intellectual Property, nor does the
Borrower know of any valid basis for any such claim. The use of
such Intellectual Property by the Borrower does not infringe on
the rights of any Person, except for such claims and
infringements that, in the aggregate, could not reasonably be
expect to have a Material Adverse Effect. 4.10 No Burdensome
Restrictions. No Requirement of Law or Contractual Obligation
(other than any such Contractual Obligations that will terminate
upon the funding of the Loans) of the Borrower has a Material
Adverse Effect. 4.11 Taxes. The Borrower has filed or caused to
be filed all tax returns which, to the knowledge of the
Borrower, are required to be filed and has paid all taxes shown
to be due and payable on said returns or on any assessments made
against it or any of its property and all other taxes, fees or
other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity
with GAAP have been provided on the books of the Borrower, as
the case may be); no tax Lien has been filed (other than
property tax Liens of record permitted under Section 7.3(a)),
and, to the knowledge of the Borrower, no claim is being
asserted, with respect to any such tax, fee or other charge.
4.12 Federal Regulations. No part of the proceeds of any Loans
will be used for "purchasing" or "carrying" any "margin stock"
within the respective meanings of each of the quoted terms under
Regulation G or Regulation U of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in
effect, or for any purpose which violates, or which would be
inconsistent with, the provisions of the regulations of such
Board of Governors. If requested by the Lender, the Borrower
will furnish to the Lender a statement to the foregoing effect
in conformity with the requirements of FR Form G-3 or FR Form
U-1 referred to in said Regulation G or Regulation U, as the
case may be. 4.13 ERISA. Neither a Reportable Event nor an
"accumulated funding deficiency" (within the meaning of Section
412 of the Code or Section 302 of ERISA) has occurred during the
five-year period prior to the date on which this representation
is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable
provisions of ERISA and the Code. No termination of a Single
Employer Plan has occurred, and no Lien in favor of the PBGC or
a Plan has arisen, during such five-year period. The present
value of all accrued benefits under each Single Employer Plan
(based on those assumptions used to fund such Plans) did not, as
of the last annual valuation date prior to the date on which
this representation is made or deemed made, exceed the value of
the assets of such Plan allocable to such accrued benefits.
Neither the Borrower nor any Commonly Controlled Entity has had
a complete or partial withdrawal from any Multiemployer Plan,
and neither the Borrower nor any Commonly Controlled Entity
would become subject to any liability under ERISA if the
Borrower or any such Commonly Controlled Entity were to withdraw
completely from all Multiemployer Plans as of the valuation date
most closely preceding the date on which this representation is
made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent. The present value (determined
using actuarial and other assumptions which are reasonable in
respect of the benefits provided and the employees
participating) of the liability of the Borrower and each
Commonly Controlled Entity for post retirement benefits to be
provided to their current and former employees under Plans which
are welfare benefit plans (as defined in Section 3(1) of ERISA)
does not, in the aggregate, exceed the assets under all such
Plans allocable to such benefits. 4.14 Investment Company Act;
Other Regulations. The Borrower is not an "investment company",
or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended. The
Borrower is not subject to regulation under any Federal or State
statute or regulation (other than Regulation X of the Board of
Governors of the Federal Reserve System) which limits its
ability to incur Indebtedness. 4.15 Subsidiaries. As of the
Closing Date, except for IASG-Virgin Islands, Inc., a Virgin
Islands corporation, the Borrower has no Subsidiaries.
4.16 Security Documents. (a) The provisions of each Security
Document are effective to create in favor of the Lender a legal,
valid and enforceable security interest in all right, title and
interest of the Borrower in the "Collateral" described therein.
(b) (i) When financing statements on forms UCC-1, have been
filed or recorded, as applicable, in the offices in the
jurisdictions listed in Schedules IV and VI to the Borrower
Security Agreement, the Borrower Security Agreement shall
constitute a fully perfected first Lien on, and security
interest in, all right, title and interest of the Borrower in
the "Collateral" described therein, which can be perfected by
such filing. (ii) When the Aircraft Chattel Mortgages have been
filed with the FAA in Oklahoma City, Oklahoma, each Aircraft
Chattel Mortgage shall constitute a fully perfected first
mortgage lien on, and security interest in, all right, title and
interest of the Borrower in the "Mortgaged Property" described
therein, which can be perfected by such filing. 4.17 Accuracy
and Completeness of Information. (a) All factual information,
reports and other papers and data with respect to the Borrower
(other than projections) furnished, and all factual statements
and representations made, to the Lender by the Borrower, or on
behalf of the Borrower, were, at the time the same were so
furnished or made, when taken together with all such other
factual information, reports and other papers and data
previously so furnished and all such other factual statements
and representations previously so made, complete and correct in
all material respects, and did not, as of the date so furnished
or made, contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the
statements contained therein not misleading in light of the
circumstances in which the same were made. (b) All projections
with respect to the Borrower furnished by or on behalf of the
Borrower to the Lender were prepared and presented in good faith
by or on behalf of the Borrower. No fact is known to the
Borrower which materially and adversely affects or in the future
is reasonably likely (so far as the Borrower can reasonably
foresee) to have a Material Adverse Effect which has not been
set forth in the financial statements referred to in Section 6.1
or in such information, reports, papers and data or otherwise
disclosed in writing to the Lender prior to the Closing Date.
4.18 Labor Relations. The Borrower is not engaged in any unfair
labor practice which could reasonably be expected to have a
Material Adverse Effect. There is (a) no unfair labor practice
complaint pending or, to the best knowledge of the Borrower,
threatened against the Borrower before the National Labor
Relations Board which could reasonably be expected to have a
Material Adverse Effect and no grievance or arbitration
proceeding arising out of or under a collective bargaining
agreement is so pending or threatened; (b) no strike, labor
dispute, slowdown or stoppage pending or, to the best knowledge
of the Borrower, threatened against the Borrower; and (c) no
union representation question existing with respect to the
employees of the Borrower and no union organizing activities are
taking place with respect to any thereof. 4.19 Insurance. The
Borrower has, with respect to its properties and business,
insurance covering the risks, in the amounts, with the
deductible or other retention amounts, and with the carriers,
listed on Schedule 4.19, which insurance meets the requirements
of Section 6.6 hereof and Section 5(o) of the Borrower Security
Agreement, in each case as of the Closing Date. 4.20 Solvency.
On the Closing Date, after giving effect to the consummation of
the repayment of the Senior Secured Notes and the Subordinated
Debenture Conversion, and to the incurrence of all indebtedness
and obligations being incurred on or prior to such date in
connection herewith and therewith, (i) the amount of the
"present fair saleable value" of the assets of the Borrower
will, as of such date, exceed the amount of all "liabilities of
the Borrower, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable
federal and state laws governing determinations of the
insolvency of debtors, (ii) the present fair saleable value of
the assets of the Borrower will, as of such date, be greater
than the amount that will be required to pay the liabilities of
the Borrower on its debts as such debts become absolute and
matured, (iii) the Borrower will not have, as of such date, an
unreasonably small amount of capital with which to conduct its
business, and (iv) the Borrower will be able to pay its debts as
they mature. For purposes of this Section 4.20, "debt" means
"liability on a claim", and "claim" means any (x) right to
payment, whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured,
and (y) right to an equitable remedy for breach of performance
if such breach gives rise to a right to payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured or unmatured, disputed, undisputed, secured
or unsecured. 4.21 Purpose of Loans. The proceeds of the Loans
shall be used by the Borrower for repayment of the Senior
Secured Notes, for working capital purposes in the ordinary
course of business and to pay fees and expenses incurred in
connection herewith and therewith. 4.22 Environmental Matters.
Except as set forth on Schedule 4.22: (a) The facilities and
properties subject to the Republic Mortgage and each other
parcel, if any, owned or operated by the Borrower (the
"Properties") do not contain, and have not previously contained,
any Materials of Environmental Concern in amounts or
concentrations which (i) constitute or constituted a violation
of any Environmental Law, which violations, individually or in
the aggregate with all other such violations, could reasonably
be expected to give rise to liability in excess of the Material
Environmental Amount, or (ii) could otherwise reasonably be
expected to give rise to liability or result in a payment in
excess of the Material Environmental Amount under any
Environmental Law. (b) The Properties and all operations at the
Properties are in compliance, and have in the last five years
been in compliance, with all applicable Environmental Laws, and
there is no contamination at, under or about the Properties or
violation of any Environmental Law with respect to the
Properties or the businesses operated by the Borrower (the
"Business") which could interfere with the continued operation
of the Properties or impair the fair saleable value thereof, in
each case except to the extent the same in the aggregate could
not reasonably be expected to give rise to a liability, or cause
such an impairment of value, in an amount in excess of the
Material Environmental Amount. (c) The Borrower has received no
notice of violation, alleged violation, non-compliance,
liability or potential liability regarding environmental matters
or compliance with Environmental Laws with regard to any of the
Properties or the Business, except any such notices with respect
to any such matters that in the aggregate could not reasonably
be expected to give rise to liability in excess of the Material
Environmental Amount, nor does the Borrower have knowledge or
reason to believe that any such notice will be received or is
being threatened. (d) Materials of Environmental Concern have
not been transported or disposed of from the Properties in
violation of, or in a manner or to a location which could
reasonably be expected to give rise to liability or result in a
payment in excess of the Material Environmental Amount under any
Environmental Law, nor have any Materials of Environmental
Concern been generated, treated, stored or disposed of at, on or
under any of the Properties in violation of, or in a manner that
could reasonably be expected to give rise to liability or result
in a payment in excess of the Material Environmental Amount
under any applicable Environmental Law. (e) No judicial
proceeding or governmental or administrative action is pending
or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower is or will be named as a
party with respect to the Properties or the Business, nor are
there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental Law
with respect to the Properties or the Business, in each case
except to the extent the same could not in the aggregate
reasonably be expected to give rise to a liability in an amount
in excess of the Material Environmental Amount. (f) There has
been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from
or related to the operations of the Borrower in connection with
the Properties or otherwise in connection with the Business, in
violation of or in amounts or in a manner that could reasonably
be expected to give rise to liability or result in a payment in
excess of the Material Environmental Amount under Environmental
Laws. 4.23 Regulation H. No mortgage of any of the Real Estate
of the Borrower granted to the Lender, if any, encumbers
improved real property which is located in an area that has been
identified by the Secretary of Housing and Urban Development as
an area having special flood hazards and in which flood
insurance has been made available under the National Flood
Insurance Act of 1968. 4.24 Not a Certificated Air Carrier. The
Borrower is not on the Closing Date a Certificated Air Carrier.
4.25 Schedule 1.1 and Schedule 4.19. Schedule 1.1 contains a
true, complete and accurate list and description of all
Aircraft, Aircraft Engines and Aircraft Leases and Schedule 4.19
contains a true complete and accurate list and description of
all insurance in effect with respect to the properties and
business of the Borrower. SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extensions of Credit. The agreement
of the Lender to make the initial extension of credit requested
to be made by it is subject to the satisfaction, immediately
prior to or concurrently with the making of such extension of
credit on the Closing Date, of the following conditions
precedent: (a) Credit Documents. The Lender shall have
received: (i) this Agreement, executed and delivered by a duly
authorized officer of the Borrower, (ii) the Borrower Security
Agreement, executed and delivered by a duly authorized officer
of the Borrower, (iii) the Republic Intercreditor Agreement,
executed by a duly authorized officer of Republic , (iv) an
Aircraft Chattel Mortgage in respect of each Aircraft and
Aircraft Engine, executed and delivered by a duly authorized
officer of the Borrower, (v) a Consent and Agreement with
respect to the assignment of each Aircraft Lease, if any, other
than the Aircraft Lease between the Borrower and Custom Air
Holdings, Inc., and (vi) an original of each Aircraft Lease,
executed by each of the parties thereto. (b) Related Agreements.
The Lender shall have received true and correct copies,
certified as to authenticity by the Borrower, of the Republic
Mortgage, the Senior Note Purchase Agreement, the Subordinated
Debenture Purchase Agreement, the FAA Bill of Sale with respect
to each Aircraft, the Purchase Agreement with respect to each
Aircraft and Aircraft Engine and such other agreements,
documents or instruments as may be requested by the Lender,
including, without limitation, a copy of any debt instrument,
security agreement or other material contract to which the
Borrower may be a party (whether before, on, or after the
Closing Date) and all other agreements, documents and
instruments relating in any way to the Aircraft, the Aircraft
Engines, or any Aircraft Leases. (c) Concurrent Transactions.
(i) All amounts owing under the Senior Secured Notes shall have
been or shall be, concurrently with the making of the initial
Loans, repaid in full, and any Liens created pursuant to the
Senior Note Purchase Agreements, the Existing Mortgages other
than the Republic Mortgage and any and all related financing
documents shall have been or shall be, concurrently with the
making of the initial Loans, released, and the Senior Note
Purchase Agreements, the Existing Mortgages other than the
Republic Mortgage and all such related financing documents shall
terminate and be of no further force and effect upon such
repayment (except for indemnification and similar rights which
by their terms continue after the termination of the Senior Note
Purchase Agreements), in each case pursuant to such payout
letters, Lien releases, termination statements, mortgage
satisfactions, back-up letter of credit arrangements, lock-box
agreements and assignments and other documents as the Lender may
require, each of which shall be in form and substance
satisfactory to the Lender. (ii) The Subordinated Debentures
shall be subordinate in all respects to the Loans and the Lien
of this Agreement and the Security Documents. (d) Borrowing
Certificate. The Lender shall have received, a certificate of
the Borrower, dated the Closing Date, substantially in the form
of Exhibit C, with appropriate insertions and attachments,
satisfactory in form and substance to the Lender, executed by a
Responsible Officer or any Vice President and the Secretary or
any Assistant Secretary of the Borrower. (e) Borrowing Base
Certificate. The Lender shall have received a Borrowing Base
Certificate showing the Revolver Borrowing Base and the Term
Loan Borrowing Base, in each case as of the Business Day
immediately preceding the Closing Date, with appropriate
insertions and dated the Closing Date, satisfactory in form and
substance to the Lender, executed by a Responsible Officer or
any Vice President of the Borrower. (f) Proceedings of the
Borrower. The Lender shall have received a copy of the
resolutions, in form and substance satisfactory to the Lender,
of the Board of Directors of the Borrower authorizing (i) the
execution, delivery and performance of this Agreement and the
other Credit Documents to which it is a party, (ii) the
borrowings contemplated hereunder and (iii) the granting by it
of the Liens created pursuant to the Security Documents,
certified by the Secretary or an Assistant Secretary of the
Borrower as of the Closing Date, which certificate shall be in
form and substance satisfactory to the Lender and shall state
that the resolutions thereby certified have not been amended,
modified, revoked or rescinded. (g) Borrower Incumbency
Certificate. The Lender shall have received a certificate of
the Borrower, dated the Closing Date, as to the incumbency and
signature of the authorized signatories of the Borrower
executing any Credit Document satisfactory in form and substance
to the Lender, executed by the President or any Vice President
and the Secretary or any Assistant Secretary of the Borrower.
(h) Governing Documents. The Lender shall have received true
and complete copies of the Governing Documents of the Borrower,
certified as of the Closing Date as complete and correct copies
thereof by the Secretary or an Assistant Secretary of the
Borrower. (i) Good Standing Certificates. The Lender shall have
received certificates dated as of a recent date from the
Secretary of State or other appropriate authority, evidencing
the good standing of the Borrower (i) in the jurisdiction of its
organization and (ii) in each other jurisdiction where its
ownership, lease or operation of property or the conduct of its
business requires it to qualify as a foreign Person except, as
to this subclause (ii), where the failure to so qualify could
not have a Material Adverse Effect. (j) Consents, Licenses and
Approvals. The Lender shall have received a certificate of a
Responsible Officer of the Borrower (i) attaching copies of all
consents, authorizations and filings referred to in Section 4.4,
and (ii) stating that such consents, licenses and filings are in
full force and effect, and each such consent, authorization and
filing shall be in form and substance satisfactory to the
Lender. (k) Fees. The Lender shall have received the fees to be
received on the Closing Date referred to in Section 3.9.
(l) Legal Opinions. The Lender shall have received the executed
legal opinion of King & Spalding, special counsel to the
Borrower, substantially in the form of Exhibit D-1, and of
Daugherty, Fowler & Peregrin, special FAA counsel to the
Borrower, in the form of Exhibit D-2. Each such legal opinion
shall cover such other matters incident to the transactions
contemplated by this Agreement as the Lender may reasonably
require. (m) Actions to Perfect Liens. The Lender shall have
received evidence in form and substance satisfactory to it that
all filings, recordings, registrations and other actions,
including, without limitation, the filing of duly executed
Aircraft Chattel Mortgages with the FAA and financing statements
on forms UCC-1, necessary or, in the opinion of the Lender,
desirable to perfect the Liens created by the Security Documents
shall have been completed. (n) Copies of Documents. The Lender
shall have received a copy of all recorded documents referred
to, or listed as exceptions to title in, the title policy or
policies referred to in Section 5.1(q) and a copy, certified by
such parties as the Lender may deem appropriate, of all other
documents affecting the property covered by each Mortgage.
(o) Landlord's Waiver. The Lender shall have received, with
respect to each parcel of real property in which the Borrower
holds a leasehold interest and which are used as the locations
of warehouses (other than 7820 N.W. 67th Street, Miami, Florida
33166) or at which Aircraft are stored, if any, a landlord's
waiver and consent, substantially in the form of Exhibit H, duly
executed by the landlord with respect to such property. (p) Lien
Searches. The Lender shall have received the results of a
recent search by a Person satisfactory to the Lender, of the
Uniform Commercial Code, judgment and tax lien filings which may
have been filed with respect to personal property of the
Borrower, and the results of such search shall be satisfactory
to the Lender. (q) Field Examination. The Lender shall have
received copies of a field examination, in form and substance
satisfactory to the Lender, of the accounts receivable and
inventory of the Borrower prepared by representatives of the
Lender. (r) Insurance. The Lender shall have received evidence
in form and substance satisfactory to it that all of the
requirements of Section 6.6 hereof and Section 5(o) of the
Borrower Security Agreement shall have been satisfied.
5.2 Conditions to Each Extension of Credit. The agreement of
the Lender to make any extension of credit requested to be made
by it on any date (including, without limitation, its initial
extension of credit) is subject to the satisfaction of the
following conditions precedent: (a) Representations and
Warranties. Each of the representations and warranties made by
the Borrower in or pursuant to the Credit Documents shall be
true and correct in all material respects on and as of such
date, except for each representation and warranty made as of a
specified date which shall be true and correct in all material
respects as of such specified date. (b) No Default. No Default
or Event of Default shall have occurred and be continuing on
such date or after giving effect to the extensions of credit
requested to be made on such date. (c) Borrowing Base. In the
case of any Loans requested to be made, the Lender shall have
timely received a Borrowing Base Certificate for the most recent
day for which such Borrowing Base Certificate is required to be
delivered, in accordance with Section 6.2(c). (d) Additional
Matters. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection
with the transactions contemplated by this Agreement and the
other Credit Documents shall be satisfactory in form and
substance to the Lender, and the Lender shall have received such
other documents and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or thereby
as it shall reasonably request. Each borrowing by the Borrower
hereunder shall constitute a representation and warranty by the
Borrower as of the date thereof that the conditions contained in
this Section 5.2 have been satisfied. SECTION 6. AFFIRMATIVE
COVENANTS The Borrower hereby agrees that, so long as any of the
Facilities remain in effect or any amount is owing to the Lender
hereunder or under any other Credit Document, the Borrower
shall: 6.1 Financial Statements. Furnish to the Lender: (a) as
soon as available, but in any event within 120 days after the
end of each fiscal year of the Borrower, a copy of the balance
sheet of the Borrower as at the end of such year and the related
statements of income and retained earnings and of cash flows for
such year, setting forth in each case in comparative form the
figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification
arising out of the scope of the audit, certified by the Chief
Financial Officer of the Borrower and Grant Thornton LLP or such
other independent certified public accountants of nationally
recognized standing acceptable to the Lender; (b) as soon as
available, but in any event not later than 60 days after the end
of each of the quarterly periods of each fiscal year (including
the fourth quarter) of the Borrower, the unaudited balance sheet
of the Borrower as at the end of such quarter and the related
unaudited statements of income and retained earnings and of cash
flows of the Borrower for such quarter and the portion of the
fiscal year through the end of such quarter, setting forth in
each case in comparative form the figures for the previous year,
certified by the Chief Financial Officer of the Borrower as
being fairly stated in all material respects (subject to normal
year-end audit adjustments); (c) as soon as available, but in
any event not later than 30 days after the end of each calendar
month other than the last calendar month of the Borrower's
fiscal year and not later than 60 days after such last month,
the unaudited balance sheet of Borrower as at the end of such
month and the related unaudited statements of income and
retained earnings and of cash flows of the Borrowers for such
month and the portion of the fiscal year through the end of such
month, setting forth in each case in comparative form the
figures for the previous year, certified by the Chief Financial
Officer of the Borrower as being fairly stated in all material
respects (subject to normal year-end audit adjustments); all
such financial statements shall be complete and correct in all
material respects and shall be prepared in reasonable detail and
in accordance with GAAP applied consistently throughout the
periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and
disclosed therein). 6.2 Certificates; Other Information.
Furnish to the Lender: (a) concurrently with the delivery of the
financial statements referred to in Section 6.1(a) and (c), a
certificate of the independent certified public accountants
reporting on such financial statements stating that in making
the examination necessary therefor no knowledge was obtained of
any Default or Event of Default, except as specified in such
certificate; (b) concurrently with the delivery of each of the
financial statements referred to in Section 6.1, a certificate
of a Responsible Officer on behalf of the Borrower (i) stating
that, to the best of such Responsible Officer's knowledge, the
Borrower during such period has observed or performed all of its
covenants and other agreements, and satisfied every condition,
contained in this Agreement and the other Credit Documents to be
observed, performed or satisfied by it, and that such Officer
has obtained no knowledge of any Default or Event of Default
except as specified in such certificate and (ii) showing in
detail the calculations supporting such Responsible Officer's
certification of the Borrower's compliance with the requirements
of Section 7.1(a) through 7.1(c); (c) prior to 2:00 p.m., New
York City time on each Business Day, a Borrowing Base
Certificate showing the Revolver Borrowing Base and the Term
Loan Borrowing Base (but only, in the case of the Term Loan
Borrowing Base, in connection with the delivery of the first
such certificate hereunder and in each case that the Term Loan
Borrowing Base changes from the amount thereof most recently
reported), in each case as of the immediately preceding Business
Day, certified as complete and correct by a Responsible Officer
or any vice president on behalf of the Borrower, which Borrowing
Base Certificate shall disclose daily updates of the amount of
Eligible Accounts and Eligible Lease Payment Receivables, weekly
updates of the amount of Eligible Inventory; and the Forced
Liquidation Value of Approved Aircraft when required; (d) not
later than thirty days prior to the end of each fiscal year of
the Borrower or such other period requested by the Lender, a
copy of the projections by the Borrower of the operating budget
and cash flow budget of the Borrower for the succeeding fiscal
year, such projections to be accompanied by a certificate of a
Responsible Officer on behalf of the Borrower to the effect that
such projections have been prepared on the basis of sound
financial planning practice and that such Responsible Officer
has no reason to believe they are incorrect or misleading in any
material respect; (e) within five days after the same are sent,
copies of all financial statements and reports which the
Borrower sends to its shareholders, and within five days after
the same are filed, copies of all financial statements and
reports which the Borrower may make to, or file with, the
Securities and Exchange Commission or any successor or analogous
Governmental Authority; (f) within 20 days following the end of
each calendar month, (i) a detailed trial balance of all
Accounts and Lease Payment Receivables of the Borrower as of the
end of such calendar month, and (ii) a detailed invoice listing
of all accounts payable of the Borrower (
such accounts payable to include any book overdrafts or held
checks); (g) during the month of September in each calendar
year, a report of a reputable insurance broker with respect to
the insurance maintained by the Borrower in accordance with
Section 6.6 of this Agreement and Section 5(o) of the Borrower
Security Agreement and such supplemental reports as the Lender
may from time to time request; and (h) promptly, such additional
financial and other information as the Lender may from time to
time reasonably request. In preparing the Borrowing Base
Certificate to be delivered pursuant to paragraph (c) of this
Section 6.2 on each Business Day, the Borrower may treat any
Account then owned by the Borrower on such Business Day as an
Eligible Account if on the first Business Day of the month it
satisfied the eligibility criteria of clauses (b), (c), (f),
(g), (j) and (m) and, unless otherwise notified by the Lender,
clauses (e), (k) and (l) of the definition of Eligible Account.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy
at or before maturity or before they become delinquent, as the
case may be, all its obligations of whatever nature, except
where the amount or validity thereof is currently being
contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided
on the books of the Borrower, as the case may be, except for
such obligations as to which the failure to so pay, discharge or
otherwise satisfy would not, in the aggregate, have a Material
Adverse Effect on the Borrower. 6.4 Conduct of Business and
Maintenance of Existence. Continue to engage in business of the
same general type as now conducted by it and preserve, renew and
keep in full force and effect its existence and take all
reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its
business except as otherwise permitted pursuant to Section 7.5;
comply with all Contractual Obligations and Requirements of Law
except to the extent that failure to comply therewith could not,
in the aggregate, have a Material Adverse Effect.
6.5 Maintenance of Property . (a) Keep all property useful and
necessary in its business in good working order and condition.
Without in any way limiting the generality of the foregoing, the
Borrower agrees to keep and maintain, or cause to be kept and
maintained, the Aircraft, the Airframes, the Aircraft Engines
and the Aircraft Parts in good operating condition, except for
ordinary wear and tear, and to make or cause to be made all
necessary repairs and replacements thereof so that the value and
operating efficiency thereof shall at all times be maintained
and preserved in accordance with industry standards and any and
all applicable Requirements of Law and, in the case of each
Approved Aircraft not registered with the FAA, so as to maintain
such Approved Aircraft as readily certifiable as airworthy under
Part 121 or Part 125 of the U.S. Federal Aviation Regulations,
and any successor, substitute or equivalent regulations
applicable to the operation of commercial aircraft (regardless
of the jurisdiction of its registration), and any applicable
provisions of Aircraft Leases. Without in any way limiting the
foregoing, all Aircraft held by the Borrower for lease or sale
and all Approved Aircraft shall, while not in passenger or cargo
operation, be stored and maintained in accordance with all
manufacturers approved storage procedures for long-term or
short-term storage, as the case may be. Except as provided in
Section 6.13, no Airframe, no Aircraft Engine, and no Aircraft
Part which is material in value or to the airworthiness of an
Approved Aircraft, may be removed from an Approved Aircraft for
use as part of or to support any other Aircraft which is not an
Approved Aircraft or the other operations of the Borrower and no
Airframe, Aircraft Engine, or Aircraft Part may be removed from
an Approved Aircraft for use as part of or to support any other
Approved Aircraft if the effect of such removal and use would be
to diminish the fair market value of the Approved Aircraft taken
as a whole. The Borrower shall give the Lender at least five
(5) Business Days prior written notice of (i) the removal of any
Airframe, Aircraft Engine or Aircraft Part from any Approved
Aircraft for use as part of or to support any other Aircraft
which is not an Approved Aircraft or the operations of the
Borrower other than another Approved Aircraft (except in
connection with a replacement permitted under Section 6.13) and
(ii) any such removal for use in another Approved Aircraft if
the effect thereof would be to render any Approved Aircraft not
airworthy or to materially diminish the fair market value of the
Approved Aircraft taken as a whole. Notwithstanding the
foregoing, nothing in this clause (a) shall prohibit the
Borrower from "parting-out" or removing Aircraft Engines or
Aircraft Parts from any Aircraft which is not an Approved
Aircraft while such Aircraft is on the ground and not in
passenger or cargo service. (b) Maintain or cause to be
maintained in the English language, or provide or cause to be
provided promptly upon the request of the Lender English
translations of, all records, logs and other materials required
to be maintained in respect of the Aircraft under each
applicable Requirement of Law. (c) Maintain a lawful certificate
of registration for each of the Approved Aircraft. 6.6 Insurance
(a) Public Liability and Property Damage Insurance. Carry or
cause to be carried with insurers of recognized responsibility
acceptable to the Lender (i) with respect to each Aircraft,
aircraft public liability (including, without limitation,
passenger legal liability, contractual liability and, to the
extent war risk insurance is required by Section 6.6(b) hereof,
war risk liability) insurance and property damage insurance
(exclusive of manufacturer's product liability insurance) and
(ii) cargo liability insurance, in each such case of a type,
covering the risks and in scope and amount consistent from time
to time with prudent industry custom and practice. All policies
of insurance carried in accordance with this Section 6.6(a) and
any policies taken out in substitution or replacement for such
policies (A) shall be amended to name the Lender (and, if any
Aircraft Lease shall be in effect, the Borrower in its capacity
as lessor under the Aircraft Lease) as additional insureds as
their respective interests may appear (but without imposing on
the Lender liability to pay the premiums for such insurance),
(B) shall provide that in respect of the interests of the Lender
in such policies, the insurance shall not be invalidated by any
action or inaction of the Borrower (or, if any Aircraft Lease is
then in effect, any lessee or sublessee) and shall insure the
Lender (and, if any Aircraft Lease shall be in effect, the
Borrower in its capacity as lessor under the Aircraft Lease)
regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by the
Borrower (or, if any Aircraft Lease is then in effect, any
lessee or sublessee), and (C) shall provide that if the insurers
cancel such insurance for any reason whatever or if any material
change is made in such insurance that adversely affects the
interest of the Lender (or, if any Aircraft Lease shall be in
effect, the Borrower in its capacity as lessor under the
Aircraft Lease), or such insurance shall lapse for non-payment
of premium, such cancellation, lapse or change shall not be
effective as to the Lender (or, if any Aircraft Lease shall be
in effect, the Borrower in its capacity as lessor under the
Aircraft Lease) for thirty days (seven days in the case of war
risk and allied perils coverage) after receipt by the Lender
(and, if any Aircraft Lease shall be in effect, the Borrower in
its capacity as lessor under the Aircraft Lease), respectively,
of written notice by such insurers of such cancellation, lapse
or change; provided, however, that if any notice period
specified above is not reasonably obtainable, such policies
shall provide for as long a period of prior notice as shall then
be reasonably obtainable. Each liability policy (1) shall be
primary without right of contribution from any other insurance
that is carried by the Lender (or, if any Aircraft Lease shall
be in effect, the Borrower in its capacity as lessor under the
Aircraft Lease), (2) shall expressly provide that all of the
provisions thereof, except the limits of liability, shall
operate in the same manner as if there were a separate policy
covering each insured, and (3) shall waive any right of the
insurers to any set-off or counterclaim or any other deduction,
whether by attachment or otherwise, in respect of any liability
of (and shall waive any right of subrogation against) the Lender
(or, if any Aircraft Lease shall be in effect, the Borrower in
its capacity as lessor under the Aircraft Lease) to the extent
of any moneys due to the Lender (or, if any Aircraft Lease shall
be in effect, the Borrower in its capacity as lessor under the
Aircraft Lease). (b) Insurance Against Loss or Damage to the
Aircraft. Maintain or cause to be maintained in effect with
insurers of recognized responsibility acceptable to the Lender,
all risk aircraft hull insurance covering the Aircraft and all
risk coverage of the related Aircraft Engines (including,
without limitation, war risk and governmental confiscation and
expropriation (other than by the government of registry of the
Aircraft) and hijacking insurance, in respect of all Aircraft
flown outside of the United States and Canada), which is of a
type as from time to time is in accordance with prudent industry
custom and practice for an amount and in no event less than the
fair market value thereof. Any policies of insurance carried in
accordance with this paragraph (b) covering the Aircraft and any
policies taken out in substitution or replacement for any such
policies (i) shall name the Lender (and, if any Aircraft Lease
shall be in effect, the Borrower in its capacity as lessor under
the Aircraft Lease) as additional insureds, as their respective
interests may appear (but without imposing on any such party
liability to pay premiums with respect to such insurance), (ii)
shall provide that all proceeds shall be payable to the Lender
(for application pursuant to paragraph (d) of this Section 6.6,
(iv) shall provide that if the insurers cancel such insurance
for any reason whatever, or if any material change is made in
the insurance that adversely affects the interest of the Lender
(or if any Aircraft Lease shall be in effect, the Borrower in
its capacity as lessor under the Aircraft Lease), such
cancellation or change shall not be effective as to the Lender
(or, if any Aircraft Lease shall be in effect, the Borrower in
its capacity as lessor under the Aircraft Lease) for thirty (30)
days (seven days in the case of hull war risk and allied perils
coverage) after receipt by the Lender (and, if any Aircraft
Lease shall be in effect, the Borrower in its capacity as lessor
under the Aircraft Lease), respectively, of written notice by
such insurers of such cancellation or change, provided, however,
that if any notice period specified above is not reasonably
obtainable, such policies shall provide for as long a period of
prior notice as shall then be reasonably obtainable, (v) shall
provide that in respect of the respective interests of the
Lender (and, if any Aircraft Lease shall be in effect, the
Borrower in its capacity as lessor under the Aircraft Lease) in
such policies the insurance shall not be invalidated by any
action or inaction of the Borrower (or, if a Aircraft Lease is
then in effect, any lessee or the Borrower) and shall insure the
respective interests of the Lender (and, if any Aircraft Lease
shall be in effect, the Borrower in its capacity as lessor under
the Aircraft Lease), as they appear, regardless of any breach or
violation of any warranty, declaration or condition contained in
such policies by the Borrower (or, if a Aircraft Lease is then
in effect, any lessee), (vi) shall be primary without any right
of contribution from any other insurance that is carried by the
Lender (or, if any Aircraft Lease shall be in effect, the
Borrower in its capacity as lessor under the Aircraft Lease),
(vii) shall waive any right of subrogation of the insurers
against the Lender (and, if any Aircraft Lease shall be in
effect, the Borrower in its capacity as lessor under the
Aircraft Lease), and (viii) the Borrower shall waive any right
of the insurers to set-off or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any
liability of the Borrower (or any lessee) to the extent of any
moneys due to the Lender. In the case of a loss with respect to
an engine (other than an Aircraft Engine) installed on the
Airframe, the Borrower shall hold any payment to it of any
insurance proceeds in respect of such loss for the account of
the Borrower or any other third party that is entitled to
receive such proceeds. In the case of any policy that contains
an exclusion for war or allied perils risks, the Borrower will
cause such policy, as well as each policy covering war or allied
perils risks to have a "50-50" provisional settlement clause
applicable to such policy, if commercially available.
(c) Grounded Aircraft and Aircraft Inventory. With respect to
all Aircraft (including Approved Aircraft) during any period
that such Aircraft is on the ground and not in normal passenger
or cargo service operation, in lieu of the insurance required by
clauses (a) and (b) of this Section 6.6, the Borrower may, and
with respect to all Aircraft Inventory the Borrower shall, carry
or cause to be carried, insurance otherwise conforming with the
provisions of said clauses (a) and (b) except that the amounts
of the coverage, the scope of the risks and the type of
insurance shall be the same as from time to time is in
accordance with prudent industry custom and practice and in an
amount at least equal to the fair market value thereof.
(d) Application of Insurance Proceeds. Proceeds of insurance
policies hereby required to be in effect shall be applied by the
Lender as follows: (i) If payable as the result of an Event of
Loss with respect to any of the Aircraft, Airframes, Aircraft
Engines or Aircraft Parts, and if the Borrower is obligated to
make payment pursuant to Section 3.3, such proceeds shall be
paid to the Lender and applied toward such obligation; (ii) If
payable as the result of any damage or loss not constituting an
Event of Loss with respect to any Airframe, Aircraft Engine or
Aircraft Part, but as to which the Borrower is obligated
(because of the diminution in Forced Liquidation Value thereof)
to make payment under Section 3.3, such proceeds shall be paid
to the Lender and applied toward such obligation; (iii) If
payable as the result of any damage or loss not constituting an
Event of Loss with respect to any Airframe, Aircraft Engine or
Aircraft Part, but as to which the Borrower is obligated to
repair or replace such Airframe or Aircraft Engine pursuant to
Section 6.13, such proceeds shall be applied to the
reimbursement of the Borrower for such repair or replacement;
and (iv) In all other cases, such proceeds shall be applied to
the repayment of the outstanding Revolver Advances, without
reduction of the Revolver Facility, and if no such advances
shall be outstanding, paid to the Borrower;
provided, however, that any amounts payable under subclause
(iii) or (iv) hereof shall not be paid to the Borrower if at the
time of such payment a Default or an Event of Default shall have
occurred and be continuing but shall be either held by the
Lender (in an interest-bearing account) (x) in the case of
subclause (iii), as security to ensure that the appropriate
repairs are made or maintenance undertaken, or applied to repair
the damage or undertake the maintenance, and (y) in the case of
subclause (iv), to ensure satisfaction of the Obligations. At
such time as there shall not be continuing any such Default or
Event of Default, such amount shall be paid to the Borrower to
the extent not previously applied in accordance with the
preceding sentence or otherwise under the Credit Documents.
(e) Payments from Governmental Authorities. Any payment,
received at any time by the Lender or the Borrower from any
Governmental Authority or other Person with respect to an Event
of Loss shall be applied in the same manner as insurance
proceeds are applied pursuant to Section 6.6(d) above.
(f) Periodic Reports. On or prior to the date hereof and at
least annually, prior to each anniversary of the Closing Date,
the Borrower shall furnish to the Lender a report and/or
certificate signed by a firm of independent aircraft insurance
brokers, appointed by the Borrower and reasonably acceptable to
the Lender, describing in reasonable detail the insurance then
carried and maintained on or with respect to the Aircraft and
stating that in the opinion of such firm such insurance complies
with the terms of this Section 6.6. The Borrower shall cause
such firm to advise the Lender in writing (i) promptly of any
default in the payment of any premium and of any other act or
omission on the part of the Borrower of which such firm has
knowledge and that might invalidate or render unenforceable in
whole or in part, any insurance on the Aircraft, Airframes,
Aircraft Engines and Aircraft Parts, and (ii) at least 10 days
prior to the expiration or termination date of any insurance
maintained with respect thereto if such insurance has not been
renewed by such date in accordance with the terms hereof.
6.7 Inspection of Property; Books and Records; Discussions.
(a) Keep proper books of records and account in which full, true
and correct entries in conformity with GAAP and all Requirements
of Law shall be made of all dealings and transactions in
relation to its business and activities; and permit
representatives of the Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books
and records at any reasonable time and as often as may
reasonably be desired and to discuss the business, operations,
properties and financial and other condition of the Borrower
with officers and employees of the Borrower and with its
independent certified public accountants. (b) Lender shall
cause, at the Borrower's sole cost and expense, physical
Appraisals of all Aircraft to be conducted annually; provided,
however, that upon the occurrence of an Event of Loss with
respect to any Aircraft or at any other time Lender shall deem
itself insecure or unsafe or shall fear diminution in value of
the Aircraft, Lender may cause, at the Borrower's sole cost and
expense, additional Appraisals and inspections to be conducted
with respect to the Approved Aircraft and Borrower shall use its
best efforts to facilitate such Appraisals or inspections
whether under an Aircraft Lease or otherwise. In addition,
Borrower shall provide, at its sole cost and expense, "desk top"
Appraisals to the Lender semi-annually. 6.8 Notices. Promptly
give notice to the Lender of: (a) the occurrence of any Default
or Event of Default and of any event that constitutes, or with
the passage of time would constitute, an Event of Loss with
respect to any Aircraft or Aircraft Engine; (b) any (i) default
or event of default under any Contractual Obligation of the
Borrower or (ii) litigation, investigation or proceeding which
may exist at any time between the Borrower and any Governmental
Authority, which in either case, if not cured or if adversely
determined, as the case may be, could have a Material Adverse
Effect; (c) any litigation or proceeding affecting the Borrower
in which the amount involved is $100,000 or more and not covered
by insurance or in which injunctive or similar relief is sought;
(d) the acquisition by the Borrower of any property or interest
in property (including, without limitation, Aircraft or Aircraft
Parts), that is not subject to a perfected Lien in favor of the
Lender pursuant to the Security Documents; (e) the occurrence of
any transaction or occurrence referred to in Section 3.3(d) or
Section 3.3(e), and the receipt of any Net Proceeds or any
insurance proceeds as a result thereof (whether or not such Net
Proceeds or proceeds are then required to be applied to the
repayment of Loans and reduction of Facilities as specified in
Section 3.3(d) or Section 3.3(e)); (f) the following events, as
soon as possible and in any event within 30 days after the
Borrower knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with
respect to any Plan, a failure to make any required contribution
to a Plan, the creation of any Lien in favor of the PBGC or a
Plan or any withdrawal from, or the termination, Reorganization
or Insolvency of, any Multiemployer Plan or (ii) the institution
of proceedings or the taking of any other action by the PBGC or
the Borrower or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the
terminating, Reorganization or Insolvency of, any Plan; and
(g) any development or event which has had or could reasonably
be expected to have a Material Adverse Effect. Each notice
pursuant to this Section shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence
referred to therein and stating what action the Borrower
proposes to take with respect thereto. 6.9 Environmental Laws.
(a) Comply with, and ensure compliance by all tenants and
subtenants, if any, with, all applicable Environmental Laws and
obtain and comply with and maintain, and ensure that all tenants
and subtenants obtain and comply with and maintain, any and all
licenses, approvals, notifications, registrations or permits
required by applicable Environmental Laws. (b) Conduct and
complete all investigations, studies, sampling and testing, and
all remedial, removal and other actions required under
Environmental Laws and promptly comply with all lawful orders
and directives of all Governmental Authorities regarding
Environmental Laws. 6.10 Periodic Audit of Collateral. The
Lender shall be entitled to perform due diligence inspections,
tests and reviews of the Collateral of the Borrower on any
Business Day at any time and from time to time as often as the
Lender shall determine to be necessary or desirable and shall in
each case be satisfied in all material respects with the results
thereof and the Borrower shall bear the reasonable expenses of
the Lender in connection with each such inspection, test and
review. 6.11 Protection of Collateral. The Borrower shall
defend and protect its title to, its possession of and the
Lender's Lien in the Collateral against all claims, Liens,
demands, penalties and rights asserted by any Person or Persons
other than Liens permitted under Section 7.3. Without
derogating the obligation of the Borrower under Section 7.20, in
the event that the Borrower enters into any Aircraft Lease or
acquires any interest in any property that is not subject to a
perfected Lien in favor of the Lender pursuant to the Security
Documents, the Borrower shall take such action (including,
without limitation, the preparation and filing of financing
statements and aircraft chattel mortgage in form and substance
satisfactory to the Lender) as the Lender shall request in order
to create and/or perfect a first priority Lien in favor of the
Lender on such property. 6.12 Compliance with Airworthiness
Directives. Each Aircraft shall at all times during which it
is registered with any Governmental Authority under any
Requirement of Law, including without limitation registration
with the FAA under the Federal Aviation Act, and in passenger or
cargo service operation have an appropriate, currently effective
airworthiness certificate issued by the Governmental Authority
of the jurisdiction of its registration and shall be in
compliance with all Airworthiness Directives applicable to the
Aircraft. All Airworthiness Directives shall be accomplished in
accordance with all applicable bulletins and manuals published
by the manufacturer of the Airframe or Aircraft Engines or
Aircraft Parts or FAA-approved or other applicable Governmental
Authority-approved data. The Borrower may determine not to have
or maintain any airworthiness certificate or comply with any
such Airworthiness Directive in respect of or applicable to any
Aircraft that is not in passenger or cargo operation, if the
Borrower gives to the Lender notice of such determination no
less than twenty (20) Business Days prior to the termination or
expiration of any airworthiness certificate in effect with
respect to such Aircraft or such non-compliance, as the case may
be, and five (5) Business Days after Receipt by the Borrower of
notice of such Airworthiness Directive and, further, if the
effect thereof is to materially decrease the fair market value
or Forced Liquidation Value of such Aircraft, the Borrower
provides at the expense of the Borrower to the Lender in advance
an Appraisal of such Aircraft which gives effect to such
termination, expiration or non-compliance. 6.13 Replacement of
Aircraft Parts. The Borrower shall promptly replace or cause to
be replaced all Aircraft Parts that may from time to time be
incorporated or installed in or attached to any Airframe or any
Aircraft Engine comprising part of an Approved Aircraft that may
from time to time become worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently
rendered unfit for use for any reason whatsoever, except as
otherwise provided in Section 6.14. In addition, the Borrower
(or any lessee) may remove in the ordinary course of
maintenance, service, repair, overhaul or testing, any Aircraft
Parts, whether or not worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit
for use, provided that the Borrower (or any lessee), except as
otherwise provided in Section 6.14, shall replace such Aircraft
Parts as promptly as practicable. Replacement Aircraft Parts
shall be owned by the Borrower free and clear of all Liens
(except for Liens permitted under paragraphs (a), (b) and (i) of
Section 7.3, pooling arrangements to the extent permitted by
Section 6.20 and except for replacement property temporarily
installed on an emergency basis) and shall be in as good
operating condition as, and shall have a value and utility at
least equal to, the Aircraft Parts replaced, assuming such
replaced Aircraft Parts were in the condition and repair
required to be maintained by the terms hereof. Aircraft Parts
at any time removed from the Airframe or any Aircraft Engine
comprising an Approved Aircraft that must be replaced as
provided in this Section shall remain subject to the Lien of the
Lender, no matter where located, until such time as such
Aircraft Parts shall be replaced by Aircraft Parts that have
been incorporated or installed in or attached to such Airframe
or such Aircraft Engine and that meet the requirements for
replacement parts specified above. Immediately upon any
replacement part becoming incorporated or installed in or
attached to any such Airframe or any such Aircraft Engine as
above provided, without further act (subject only to Permitted
Liens and any pooling arrangements to the extent permitted by
Section 6.20 and except for replacement property temporarily
installed on an emergency basis), (i) such replacement Aircraft
Part shall become subject to this Agreement and be deemed part
of such Airframe or such Aircraft Engine for all purposes hereof
to the same extent as the Aircraft Parts originally incorporated
or installed in or attached to such Airframe or such Aircraft
Engine, and (ii) the replaced Aircraft Part shall be free and
clear of the Lien of the Lender, and shall no longer be deemed
an Aircraft Part hereunder. 6.14 Alterations, Modifications and
Additions. Subject to Section 6.13, the Borrower, at its own
expense, shall make (or cause to be made) such alterations and
modifications in and additions to the Approved Aircraft as may
be required from time to time to meet the applicable standards
of the FAA or any other Governmental Authority in which such
Aircraft may then be registered; provided, however, that the
Borrower (or, if a Lease is then in effect, any lessee) may in
good faith contest the validity or application of any
Requirement of Law in any reasonable manner that does not
materially adversely affect the Lender or materially adversely
affect the use or diminish the value of the Approved Aircraft;
provided, further, that the Borrower's failure to make (or cause
to be made) any such alterations or modifications shall not
constitute noncompliance with the requirements of this Section
6.14 or a breach of the Borrower's undertaking hereunder for so
long a period as may be necessary to remedy such failure, if
such failure was not caused by the negligence or willful
misconduct of the Borrower and can be remedied, so long as
during such period the Borrower (or any lessee) is using due
diligence and best efforts to remedy such failure. In addition,
the Borrower (or any lessee), may from time to time add further
parts or accessories and make such alterations and modifications
in and additions to the Approved Aircraft as the Borrower (or
any lessee) may deem desirable in the proper conduct of its
business, including, without limitation, removal of Aircraft
Parts that the Borrower (or any lessee) deems obsolete or no
longer suitable or appropriate for use on the Approved Aircraft;
provided that no such alteration, modification, removal or
addition shall diminish the value or utility of the Approved
Aircraft or materially impair the condition or impair the
airworthiness thereof, below the value, utility, condition or
airworthiness thereof immediately prior to such alteration,
modification, removal or addition assuming the Approved Aircraft
was then of the value and utility and in the condition and
airworthiness required to be maintained by the terms of this
Agreement. The Borrower (or any lessee) may, at any time, so
long as no Event of Default shall have occurred and be
continuing, remove or suffer to be removed any Aircraft Part,
provided that such Aircraft Part (i) is in addition to, and not
in replacement of or substitution for, any Aircraft Part
originally incorporated or installed in or attached to the
Approved Aircraft on the Closing Date or any Aircraft Part in
replacement of or substitution for any such Aircraft Part, (ii)
is not required to be incorporated or installed in or attached
or added to the Approved Aircraft pursuant to the terms of
clause (a) of Section 6.5 or the first sentence of this Section
6.14, and (iii) can be removed from the Approved Aircraft
without diminishing or impairing the value, utility, condition
or airworthiness that the Approved Aircraft would have had at
such time had such alteration, modification or addition not
occurred. Upon the removal by the Borrower (or lessee) of any
Aircraft Part as provided above, such Aircraft Part shall no
longer be deemed part of the Approved Aircraft from which it was
removed. In addition, the Borrower may at any time remove
equipment, appliances and appurtenances (such as a video system)
owned by a third party that is in addition to Aircraft Parts so
long as such item is not required to be incorporated or
installed in or added to the Approved Aircraft pursuant to the
terms of clause (a) of Section 6.5 or the first sentence of this
Section 6.14, provided that such removal will not diminish the
value (determined as if such property had never been
incorporated or installed in or added to the Approved Aircraft)
or utility of the Approved Aircraft or materially impair the
condition of the Approved Aircraft. 6.15 Events of Loss.
(a) Upon the occurrence of an Event of Loss with respect to an
Aircraft, or the Airframe and the Aircraft Engines then
installed thereon, the Borrower shall promptly give the Lender
written notice of such Event of Loss and either prepay the Loans
pursuant to and as required by Section 3.3 hereof or, if such
Aircraft is an Approved Aircraft, with the consent of the Lender
in its sole discretion, substitute an Aircraft for such Approved
Aircraft. (b) Upon the occurrence of an Event of Loss with
respect to an Aircraft Engine under circumstances in which there
has not occurred an Event of Loss with respect to the Airframe
on which it is installed, the Borrower shall forthwith (and in
any event, within thirty (30) days after such occurrence) give
the Lender written notice thereof and shall promptly replace the
Aircraft Engine with another engine of the same make,
manufacturer and model as the Aircraft Engine (or replace any
Aircraft Engines on the related Aircraft so that all such
Aircraft Engines are of the same manufacturer, make and model
and are equivalent to or an improved model of the Aircraft
Engine being replaced and otherwise suitable for installation
and use on the Airframe) free and clear of all Liens (other than
Liens permitted pursuant to paragraphs (a), (b) and (i) of
Section 7.3) and having a value and utility equal to or greater
than, and being in as good operating condition as, the Aircraft
Engine with respect to which such Event of Loss occurred
(assuming that such Aircraft Engine had been maintained in
accordance with this Agreement). Prior to or at the time of any
such conveyance, the Borrower, at its own expense, will (a)
cause amendments to Schedule 1.1 hereof and to the related
Aircraft Chattel Mortgage to be duly executed by the Borrower
and, in the case of such Aircraft Chattel Mortgage, to be filed
for recording pursuant to the Federal Aviation Act, or the
applicable laws, rules and regulations or any other jurisdiction
in which the Airframe may then be registered, (b) furnish the
Lender with such evidence of compliance with the insurance
provisions of Section 6.6 hereof with respect to such
replacement aircraft engine as the Lender may reasonably
request, and (c) provide the Lender an opinion of counsel
reasonably satisfactory to the Lender concerning the absence of
Liens (other than Liens permitted pursuant to paragraphs (a),
(b) and (i) of Section 7.3) with respect to such replacement
engine. For all purposes hereof, each such replacement engine
shall, after such conveyance, be deemed part of the property
leased hereunder, and shall be deemed an Aircraft Engine. 6.16
Operation. Maintain, use, service, repair, overhaul and
operate the Aircraft, and cause all lessees to maintain, use,
service, repair, overhaul and operate the Aircraft, in
accordance with all applicable Requirements of Laws, and in
accordance with all airworthiness certificates, licenses and
registrations relating to the Aircraft issued by a Governmental
Authority, except to the extent the Borrower (or, if a Lease is
then in effect, any lessee) is contesting in good faith the
validity or application of any such Requirement of Law in any
reasonable manner which does not materially adversely affect the
Lender (including, without limitation, risk subjecting the
Lender to any criminal liability) or materially adversely affect
the use or diminish the value of the Aircraft. 6.17 Requisition
for Use of the Aircraft by the United States Government or the
Government of Registry of the Aircraft. In the event of the
requisition for use of any Aircraft or Airframe by the United
States Government or any other Governmental Authority in the
jurisdiction of registration thereof not constituting an Event
of Loss, the Borrower shall notify the Lender of such
requisition and shall assign all rights to receive payments for
such requisition (including without limitation insurance,
indemnity or reimbursement rights to the extent provided by the
United States Government or such other Governmental Authority)
to the Lender and all of the Borrower's obligations under this
Agreement with respect to the Aircraft (including insurance
obligations) shall continue to the same extent as if such
requisition had not occurred. 6.18 Requisition for Use of an
Aircraft Engine by the United States Government or the
Government of Registry of the Aircraft. In the event of the
requisition for use of an Aircraft Engine (but not the Airframe
to which it is affixed or relates) by the United States
Government or any other government of registry of the Aircraft
or any agency or instrumentality of any thereof (other than in
the circumstances contemplated by Section 6.16) the Borrower
shall replace such Aircraft Engine hereunder by complying (or
causing any lessee to comply) with the terms of Section 6.14 to
the same extent as if an Event of Loss had occurred with respect
thereto, and, upon compliance with Section 6.14 hereof, any
payments received by the Lender or the Borrower from such
government entity with respect to such requisition shall be paid
over to, or retained by, the Borrower. 6.19 Parting Out of
Aircraft. Notwithstanding anything to the contrary contained
therein, the provisions of Sections 6.13 and 6.16 shall not
apply to any Aircraft, Aircraft Frame or Aircraft Engine that is
not or not part of an Approved Aircraft or an Aircraft held by
the Borrower for sale or lease if and to the extent that it is
the intention of the Borrower to "part out" such Aircraft,
Aircraft Frame or Aircraft Engine. 6.20 Pooling of Parts. Any
Aircraft Part removed from any Airframe or any Aircraft Engine
as provided in Section 6.13 may be subjected by the Borrower (or
any lessee) to a normal pooling arrangement customary in the
airline industry of which the Borrower (or, if an Aircraft Lease
is then in effect, any lessee) is a part entered into in the
ordinary course of the Borrower's (or any lessee's) business;
provided that the Aircraft Part replacing such removed Aircraft
Part shall be incorporated or installed in or attached to such
Airframe or Aircraft Engine in accordance with Section 6.13 as
promptly as practicable after the removal of such removed
Aircraft Part. 6.21 IASG-Virgin Islands, Inc. Within thirty
days after the Closing Date, Borrower shall either (i) deliver
and pledge to the Lender all of the capital stock of IASG-Virgin
Islands, Inc. pursuant to a duly executed and delivered stock
pledge agreement in substantially the form of Exhibit I hereto
or (ii) dissolve IASG-Virgin Islands, Inc. and provide evidence
satisfactory to the Lender of such dissolution. SECTION
7. NEGATIVE COVENANTS The Borrower hereby agrees that, so long
as any of the Facilities remain in effect or any amount is owing
to the Lender hereunder or under any other Credit Document, the
Borrower shall not, directly or indirectly: 7.1 Financial
Condition Covenants. (a) Maintenance of Tangible Net Worth.
Permit Consolidated Tangible Net Worth of the Borrower at the
end of each fiscal quarter set forth below to be less than an
amount equal to the sum of the Consolidated Tangible Net Worth
of the Borrower at the Closing Date (after giving effect to the
transactions contemplated hereunder) and the amount set forth
opposite such fiscal quarter:
Period Amount
Fiscal quarter ending
November 1996 $0.00
Fiscal quarter ending
February 1997 $65,000.00
Fiscal quarter ending
May 1997 $130,000.00
Fiscal quarter ending
August 1997 $200,000.00
Fiscal quarter ending
November 1997 $285,000.00
Fiscal quarter ending
February 1998 $360,000.00
Fiscal quarter ending
May 1998 $440,000.00
Fiscal quarter ending
August 1998 $530,000.00
Fiscal quarter ending
November 1998 $625,000.00
Fiscal quarter ending
February 1999 $720,000.00
Fiscal quarter ending
May 1999 $800,000.00
Each fiscal quarter The amount required
ending after May 1999 by this covenant for
the immediately
preceding fiscal
quarter plus
$80,000.00
(b) Fixed Charge Coverage. Permit the Fixed Charge Coverage Ratio
for any period set forth below to fall below the ratio set forth
opposite such period.
Period Ratio
Closing Date through
end of first fiscal
quarter after the 1.00 to 1
Closing Date
Closing Date through
end of second fiscal
quarter after the 1.10 to 1
Closing Date
Closing Date through
end of third fiscal
quarter after the 1.10 to 1
Closing Date
Closing Date through
end of fourth fiscal
quarter thereafter 1.10 to 1
(if less than a full
fiscal year)
Each period of four
consecutive fiscal
quarters commencing
on or after the 1.10 to 1
Closing Date
(c) Current Ratio. Permit the ratio of (i)
Consolidated Current Assets of the Borrower to (ii) the
Consolidated Current Liabilities of the Borrower minus the
amount of any payments of principal of or interest on the Term
Loans included within such Consolidated Current Liabilities
plus, without duplication, the aggregate amount of outstanding
Revolver Advances at any time to be less than 1.0 to 1.0.
(d) Net Losses. Permit Consolidated Net Income of the Borrower
to be less than zero for more than two consecutive individual
fiscal quarters. 7.2 Limitation on Indebtedness. Create, incur,
assume or suffer to exist any Indebtedness, except:
(a) Indebtedness of the Borrower under this Agreement;
(b) Indebtedness of the Borrower incurred to finance the
acquisition of fixed or capital assets (whether pursuant to a
loan, a Financing Lease or otherwise) in an aggregate principal
amount not exceeding $100,000.00 at any time outstanding;
(c) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2; (d) additional Indebtedness not exceeding
$50,000.00 in aggregate principal amount at any one time
outstanding; (e) Indebtedness of the Borrower which is
subordinate in all respects to the Obligations on terms and
conditions satisfactory to the Lender and has a maturity in
excess of one-year later than the maturity of the Obligations;
and (f) Indebtedness of a wholly-owned subsidiary of the
Borrower, formed in accordance with Section 7.17 hereof, which
Indebtedness is non-recourse to the Borrower or any other Person
liable for any portion of the Obligations. 7.3 Limitation on
Liens. Create, incur, assume or suffer to exist any Lien upon
any of its property, assets or revenues, whether now owned or
hereafter acquired, except for: (a) Liens for taxes not yet due
or which are being contested in good faith by appropriate
proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the Borrower in
conformity with GAAP; (b) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the
ordinary course of business which are not overdue for a period
of more than 60 days or which are being contested in good faith
by appropriate proceedings; (c) pledges or deposits in
connection with workers' compensation, unemployment insurance
and other social security legislation; (d) deposits to secure
the performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which,
in the aggregate, are not substantial in amount and which do not
in any case materially detract from the value of the property
subject thereto or materially interfere with the ordinary
conduct of the business of the Borrower; (f) Liens in existence
on the date hereof listed on Schedule 7.3, securing Indebtedness
permitted by Section 7.2(c), provided that no such Lien is
spread to cover any additional property after the Closing Date
and that the amount of Indebtedness secured thereby is not
increased; (g) Liens securing Indebtedness of the Borrower
permitted by Section 7.2(b) and 7.2(f) incurred to finance the
acquisition of fixed or capital assets, provided that (i) such
Liens shall be created substantially simultaneously with the
acquisition of such fixed or capital assets, (ii) such Liens do
not at any time encumber any property other than the property
financed by such Indebtedness, (iii) the amount of Indebtedness
secured thereby is not increased and (iv) the principal amount
of Indebtedness secured by any such Lien shall at no time exceed
100% of the original purchase price of such property of such
property at the time it was acquired; (h) Liens (not otherwise
permitted hereunder), which secure obligations not exceeding
$50,000 in aggregate amount at any time outstanding; (i) Liens
created pursuant to the Security Documents (including, without
limitation, any Lien granted in favor of a depositary
institution pursuant to the Lockbox Agreement required under the
Security Agreement); (j) Liens which constitute rights of set
off of a customary nature or bankers liens with respect to
amounts on deposit, whether arising by law or by contract, in
connection with arrangements entered into with banks in the
ordinary course of business, to the extent such deposits or
arrangements are permitted under Section 4(m) of the Security
Agreement; (k) Liens arising out of judgments or awards with
respect to which at the time there shall have been secured a
stay of execution (but only for so long as such stay shall
remain in effect); (l) salvage and similar rights of insurers
under policies of insurance maintained with respect to Aircraft
in accordance with the provisions of this Agreement; and (m) any
other Lien with respect to which any lessee of Aircraft shall
have provided a bond or other security in an amount and from an
issuer and under terms satisfactory to Lender. 7.4 Limitation on
Guarantee Obligations. Create, incur, assume or suffer to exist
any Guarantee Obligation except: (a) Guarantee Obligations in
existence on the date hereof and listed on Schedule 7.4; and
(b) Guarantee Obligations incurred after the date hereof in an
aggregate amount not to exceed $50,000 at any one time
outstanding. 7.5 Limitation on Fundamental Changes. Enter into
any merger, consolidation or amalgamation, or liquidate, wind up
or dissolve itself (or suffer any liquidation or dissolution),
or convey, sell, lease, assign, transfer or otherwise dispose
of, all or substantially all of its property, business or
assets, or make any material change in its present method of
conducting business. 7.6 Limitation on Sale of Assets. Convey,
sell, lease, assign, transfer or otherwise dispose of any of its
property, business or assets (including, without limitation,
receivables and leasehold interests), whether now owned or
hereafter acquired, except: (a) the sale or other disposition of
obsolete or worn out property in the ordinary course of
business; (b) the sale or lease of Inventory in the ordinary
course of business; and (c) the conveyance, sale, lease,
assignment, transfer or other disposition of any asset provided
that the Borrower complies with the provisions of Section 3.3
with respect thereto. 7.7 Limitation on Dividends. Declare or
pay any dividend or distribution on, or make any payment on
account of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any shares of any class of Capital Stock
of the Borrower or any warrants or options to purchase any such
Stock, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Borrower.
7.8 Limitation on Capital Expenditures. Make or commit to make
(by way of the acquisition of securities of a Person or
otherwise) any expenditure in respect of the purchase or other
acquisition of fixed or capital assets (excluding any such asset
acquired in connection with normal replacement and maintenance
programs properly charged to current operations and any Aircraft
acquired in the ordinary course of business) except for
expenditures in the ordinary course of business not exceeding,
in the aggregate during any fiscal year of the Borrower, the sum
of (i) the amount of depreciation expense of the Borrower during
the immediately preceding fiscal year, determined in accordance
with GAAP, (ii) $100,000.00 and (iii) the excess if any over
$100,000.00 and the amount of such expenditures made in the
immediately preceding fiscal year pursuant to clause (ii) of
this Section 7.8. 7.9 Limitation on Investments, Loans and
Advances. Make any advance, loan, extension of credit or
capital contribution to, or purchase any stock, bonds, notes,
debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person,
except : (a) extensions of trade credit in the ordinary course
of business; (b) investments in Cash Equivalents; and
(c) investments consisting of notes received by the Borrower in
connection with the sale of any Aircraft. 7.10 Limitation on
Optional Payments and Modifications of Debt Instruments. (a)
Make any optional payment or prepayment on or redemption or
purchase of any Indebtedness (other than the Loans), or (b)
amend, modify or change, or consent or agree to any amendment,
modification or change to any of the terms of any such
Indebtedness (other than any such amendment, modification or
change which would extend the maturity or reduce the amount of
any payment of principal thereof or which would reduce the rate
or extend the date for payment of interest thereon), provided,
however, that the Borrower may make any such payment,
prepayment, redemption or purchase of (x) Subordinated
Debentures in an amount not to exceed in the aggregate
$500,000.00, if at the time of making any such payment,
prepayment, redemption or purchase no Default or Event of
Default shall exist and be continuing and if after giving effect
thereto the Available Revolver Facility exceeds $2,000,000.00
and (y) any other Indebtedness not subordinated to the
Obligations, in each and every such case if at the time of
making any such payment, prepayment, redemption or purchase no
Default or Event of Default shall exist and be continuing and if
after giving effect thereto the Available Revolver Facility
exceeds $1,500,000.00. 7.11 Limitation on Transactions with
Affiliates. Enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of property or
the rendering of any service with IASG-Virgin Islands, Inc. or
any other Affiliate unless, solely in the case of any such
Affiliate other than IASG-Virgin Islands, Inc., such transaction
is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Borrower's business and (c) upon fair and
reasonable terms no less favorable to the Borrower than it would
obtain in a comparable arm's length transaction with a Person
which is not an Affiliate. 7.12 Limitation on Sales and
Leasebacks. Enter into any arrangement with any Person
providing for the leasing by the Borrower of real or personal
property which has been or is to be sold or transferred by the
Borrower to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security
of such property or rental obligations of the Borrower.
7.13 Limitation on Changes in Fiscal Year. Permit the fiscal
year of the Borrower to end on a day other than May 31, without
the prior written consent of the Lender, which consent shall not
be unreasonably withheld or delayed. 7.14 Limitation on Negative
Pledge Clauses. Enter into with any Person any agreement, other
than (a) this Agreement; and (b) any purchase money mortgages or
Financing Leases permitted by this Agreement (in which cases,
any prohibition or limitation shall only be effective against
the assets financed thereby), which prohibits or limits the
ability of the Borrower to create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired. 7.15 Limitation on
Lines of Business. Enter into any business, either directly or
indirectly, except for those businesses in which the Borrower is
engaged on the date of this Agreement or which are directly
related thereto. 7.16 Governing Documents. Amend its
certificate of incorporation or other Governing Documents, if
the same would adversely affect any interest of the Lender
hereunder or under any other Credit Document, without the prior
written consent of the Lender. 7.17 Limitation on Subsidiary
Formation. Form or acquire any Subsidiary, unless (i) such
Subsidiary shall have been formed for the purpose of acquiring
aircraft or any other special purpose acceptable to the Lender,
(ii) all of the Capital Stock of such Subsidiary shall have
pledged to the Lender to secure the Obligations, (iii) the
formation, corporate and capital structure and all documentation
relating thereto, including without limitation the Credit
Documents, shall be in form and substance satisfactory to the
Lender, (iv) at the time of such formation no Default or Event
of Default shall have occurred and be continuing, and (v) the
Lender shall have received such opinions of counsel, financial
statements, appraisals and other documents and instruments as it
may require in form and substance satisfactory to it.
7.18 Limitation on Aircraft Leases, Registration and Operation.
Enter into any Aircraft Lease and shall not register or permit
the registration of any Aircraft under the laws of any country
other than the United States, in each such case without at least
twenty (20) Business Days prior written notice to the Lender.
The Borrower shall not operate the Aircraft, or permit any
lessee to operate the Aircraft, in any area excluded from
coverage by any insurance required by the terms of this
Agreement or in any area of hostilities unless the Aircraft is
covered by "war risk" insurance. 7.19 Certificated Air Carrier
Become a Certificated Air Carrier without notifying the Lender
at least sixty (60) days prior thereto and without taking all
steps necessary to continue and to maintain at all times the
perfected first priority Lien of the Lender in all of the
Collateral. 7.20 Additional Collateral Borrower shall not
enter into any Aircraft Lease or acquire any property or
interest in property (including, without limitation, Aircraft
and Aircraft Parts) other than property made subject to a Lien
permitted under Section 7.3(g), without (i) taking on or before
the acquisition thereof all steps necessary to create a
perfected first priority Lien in favor of the Lender therein,
and (ii) preparing and delivering to the Lender any and all
appropriate amendments to the Schedules to this Agreement (other
than Schedule I which may not be amended unilaterally),
including without limitation, in the case of Aircraft, Aircraft
Engines and Aircraft Leases, adding the same to Schedule 1.1.
SECTION 8. EVENTS OF DEFAULT If any of the following events
shall occur and be continuing: (a) The Borrower shall fail to
pay any principal of or interest on any Loan or any other amount
payable hereunder or under the other Credit Documents when due
in accordance with the terms thereof or hereof (including any
mandatory prepayment required pursuant to Section 3.5) and, in
the case of interest or other amount (other than principal of
any Loan), such failure shall continue for a period of three (3)
days; or (b) Any representation or warranty made or deemed made
by the Borrower herein or in any other Credit Document or which
is contained in any certificate, document or financial or other
statement furnished by it at any time under or in connection
with this Agreement or any such other Credit Document shall
prove to have been incorrect in any material respect on or as of
the date made or deemed made; or (c) The Borrower shall default
in the observance or performance of any agreement contained in
Section 7 of this Agreement, Section 5(a), (b), (i) and (j) of
the Borrower Security Agreement and Sections 3.1 and 3.5 of each
Aircraft Chattel Mortgage; or (d) The Borrower shall default in
the observance or performance of any other agreement contained
in this Agreement or any other Credit Document (other than as
provided in paragraphs (a) through (c) of this Section), and
such default shall continue unremedied for a period of 30 days;
or (e) The Borrower shall (i) default in any payment of
principal of or interest of any Indebtedness (other than the
Loans) or in the payment of any Guarantee Obligation, beyond the
period of grace (not to exceed 30 days), if any, provided in the
instrument or agreement under which such Indebtedness or
Guarantee Obligation was created, if the aggregate amount of the
Indebtedness and/or Guarantee Obligations in respect of which
such default or defaults shall have occurred is at least
$250,000.00; or (ii) default in the observance or performance of
any other agreement or condition relating to any such
Indebtedness or Guarantee Obligation or contained in any
instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause,
or to permit the holder or holders of such Indebtedness or
beneficiary or beneficiaries of such Guarantee Obligation (or a
trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of
notice if required, such Indebtedness to become due prior to its
stated maturity or such Guarantee Obligation to become payable;
or (f) (i) The Borrower shall commence any case, proceeding or
other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have
an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its
assets, or the Borrower shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced
against the Borrower any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the
entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded
for a period of 60 days; or (iii) there shall be commenced
against the Borrower any case, proceeding or other action
seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part
of its assets which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry
thereof; or (iv) the Borrower shall take any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii),
or (iii) above; or (v) the Borrower shall generally not, or
shall be unable to, or shall admit in writing its inability to,
pay its debts as they become due; or (g) (i) Any Person shall
engage in any "prohibited transaction" (as defined in Section
406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined in Section
302 of ERISA), whether or not waived, shall exist with respect
to any Plan or any Lien in favor of the PBGC or a Plan shall
arise on the assets of the Borrower or any Commonly Controlled
Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable
opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv)
any Single Employer Plan shall terminate for purposes of Title
IV of ERISA, (v) the Borrower or any Commonly Controlled Entity
shall, or in the reasonable opinion of the Required Lenders is
likely to, incur any liability in connection with a withdrawal
from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist
with respect to a Plan; and in each case in clauses (i) through
(vi) above, such event or condition, together with all other
such events or conditions, if any, involve an aggregate amount
in excess of $500,000.00; or (h) One or more judgments or
decrees shall be entered against the Borrower involving in the
aggregate a liability (to the extent not paid or covered by
insurance) of $500,000 or more, and all such judgments or
decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 30 days from the entry thereof; or
(i) (i) Any of the Security Documents shall cease, for any
reason, to be in full force and effect, or the Borrower shall so
assert or (ii) the Lien created by any of the Security Documents
shall cease to be enforceable and of the same effect and
priority purported to be created thereby; then, and in any such
event, (A) if such event is an Event of Default specified in
clause (i) or (ii) of paragraph (f) of this Section with respect
to the Borrower, automatically the Facilities shall immediately
terminate and the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and
the other Credit Documents shall immediately become due and
payable, and (B) if such event is any other Event of Default,
either or both of the following actions may be taken: (i) the
Lender may, by notice to the Borrower, declare the Facilities to
be terminated forthwith, whereupon the Facilities shall
immediately terminate; and (ii) the Lender may, by notice to the
Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and
the other it Credit Documents to be due and payable forthwith,
whereupon the same shall immediately become due and payable.
Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby
expressly waived. SECTION 9. MISCELLANEOUS 9.1 Amendments and
Waivers. Neither this Agreement nor any other Credit Document,
nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this
Section 9.1. The Lender may from time to time, (a) enter into
with the Borrower written amendments, supplements or
modifications hereto and to the other Credit Documents for the
purpose of adding any provisions to this Agreement or the other
Credit Documents or changing in any manner the rights of the
Lender or of the Borrower hereunder or thereunder or (b) waive,
on such terms and conditions as the Lender may specify in such
instrument, any of the requirements of this Agreement or the
other Credit Documents or any Default or Event of Default and
its consequences. Any such waiver and any such amendment,
supplement or modification shall be binding upon the Borrower,
the Lender and all future holders of the Loans. In the case of
any waiver, the Borrower and the Lender shall be restored to
their former positions and rights hereunder and under the other
Credit Documents, and any Default or Event of Default waived
shall be deemed to be cured and not continuing; but no such
waiver shall extend to any subsequent or other Default or Event
of Default or impair any right consequent thereon.
Notwithstanding the foregoing, the Borrower may, and shall be
under a continuing obligation to, unilaterally amend each
Schedule 1.1 and Schedule 4.19 so that each will at all times be
true, complete and correct and the Lender may unilaterally and
in its sole discretion delete from the list of Permitted
Jurisdictions on Schedule 1.1 any such jurisdiction. Such
amendment shall be effected by delivery of such schedule as
amended to the Lender in the manner provided in Section 9.2 and
such schedule shall be deemed to be amended upon receipt thereof
by the Lender. 9.2 Notices. All notices, requests and demands
to or upon the respective parties hereto to be effective shall
be in writing (including by facsimile transmission) and, unless
otherwise expressly provided herein, shall be deemed to have
been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, three days
after being deposited in the mails, postage prepaid, or (c) in
the case of delivery by facsimile transmission, when sent and
receipt has been electronically confirmed, addressed as follows
in the case of the Borrower and the Lender, or to such other
address as may be hereafter notified by the respective parties
hereto: The Borrower: International Airline Support Group, Inc.
8095 N.W. 64th Street Miami, Florida 33166 Attention: Chief
Financial Officer Fax: (305) 593-1751 The Lender: BNY
Financial Corporation 1290 Avenue of the Americas New York, New
York 10104 Attention: Mr. Frank Imperato Fax : (212) 408-7399
provided that any notice, request or demand to or upon the
Lender pursuant to Sections 2.2, 2.3, 3.2, 3.4, 3.8(d) or 9.1
shall not be effective until received. 9.3 No Waiver; Cumulative
Remedies. No failure to exercise and no delay in exercising, on
the part of the Lender, any right, remedy, power or privilege
hereunder or under the other Credit Documents shall operate as a
waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of
any rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other
Credit Documents and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall
survive the execution and delivery of this Agreement and the
making of the Loans hereunder. 9.5 Payment of Expenses and
Taxes. The Borrower agrees (a) to pay or reimburse the Lender
for all its out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of,
and any amendment, supplement or modification to, this Agreement
and the other Credit Documents and any other documents prepared
in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and
thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Lender, (b) to pay or reimburse
the Lender for all its costs and expenses incurred in connection
with the enforcement or preservation of any rights under this
Agreement, the other Credit Documents and any such other
documents, including, without limitation, the reasonable fees
and disbursements of counsel (including the allocated fees and
expenses of in-house counsel) to the Lender, (c) to pay,
indemnify, and hold the Lender harmless from, any and all
recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise
and other taxes, if any, which may be payable or determined to
be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this
Agreement, the other Credit Documents and any such other
documents, and (d) to pay, indemnify, and hold the Lender
harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other
Credit Documents and any such other documents, including,
without limitation, any of the foregoing relating to the
violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of the Borrower
or any of the Properties (all the foregoing in this clause (d),
collectively, the "indemnified liabilities"), provided, that the
Borrower shall have no obligation hereunder to the Lender with
respect to indemnified liabilities arising from (i) the gross
negligence or willful misconduct of the Lender or (ii) legal
proceedings commenced against the Lender by any security holder
or creditor thereof arising out of and based upon rights
afforded any such security holder or creditor solely in its
capacity as such. The agreements in this Section shall survive
repayment of the Loans and all other amounts payable hereunder.
9.6 Successors and Assigns; Participations and Assignments. (a)
This Agreement shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors
and assigns, except that the Borrower may not assign or transfer
any of its rights or obligations under this Agreement without
the prior written consent of the Lender and Lender may not
assign or transfer, or grant any participations in, any of its
rights or obligations under this Agreement except pursuant to
this Section 9.6. (b) The Lender may, in the ordinary course
of its commercial banking business and in accordance with
applicable law, at any time sell to one or more banks or other
entities ("Participants") participating interests in any Loan
owing to the Lender, any Facility of the Lender or any other
interest of the Lender hereunder and under the other Credit
Documents. In the event of any such sale by the Lender of a
participating interest to a Participant, the Lender's
obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, the Lender shall remain solely
responsible for the performance thereof, the Lender shall remain
the holder of any such Loan for all purposes under this
Agreement and the other Credit Documents, and the Borrower shall
continue to deal solely and directly with the Lender in
connection with the Lender's rights and obligations under this
Agreement and the other Credit Documents. The Borrower agrees
that if amounts outstanding under this Agreement are due or
unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each
Participant shall, to the maximum extent permitted by applicable
law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest
were owing directly to it as the Lender under this Agreement.
The Borrower also agrees that each Participant shall be entitled
to the benefits of Section 3.6, 3.13 and 9.5 with respect to its
participation in the Facilities and the Loans outstanding from
time to time as if it was the Lender; provided that, in the case
of Section 3.6, such Participant shall have complied with the
requirements of said Section and, provided, further, that no
Participant shall be entitled to receive any greater amount
pursuant to any such Section than the Lender would have been
entitled to receive in respect of the amount of the
participation transferred by the Lender to such Participant had
no such transfer occurred. (c) The Lender may, in the ordinary
course of its commercial banking business and in accordance with
applicable law, at any time and from time to time assign to any
affiliate of the Lender or to an additional bank or financial
institution ("Assignee") all or any part of its rights and
obligations under this Agreement and the other Credit Documents.
Upon notification to Borrower of Lender's intent to make such
assignment then Borrower shall cooperate with the Lender to (i)
amend the Credit Agreement and other loan documents to provide
for such assignment, (ii) provide for additional lenders and for
an agent to act on behalf of such lenders and (iii) take all
other actions that are reasonably required by the Lender and on
such terms that are customary for this type of assignment. In
the event of any assignment to Assignee which is not an
affiliate of BNY, the Lender shall give written notice thereof
to the Borrower and the Borrower shall have the right to prepay
the Loans in whole but not in part without penalty or premium
(including without limitation, any early termination fee set
forth in Section 3.10) at any time within sixty (60) days of the
delivery of such notice. (d) The Borrower authorizes the Lender
to disclose to any Participant or Assignee (each, a
"Transferee") and any prospective Transferee any and all
financial information in the Lender's possession concerning the
Borrower and its Affiliates which has been delivered to the
Lender by or on behalf of the Borrower pursuant to this
Agreement or which has been delivered to the Lender by or on
behalf of the Borrower in connection with the Lender's credit
evaluation of the Borrower and its Affiliates prior to becoming
a party to this Agreement provided that such prospective
Transferee expressly agrees to be bound by the provisions of
Section 9.15. (e) For avoidance of doubt, the parties to this
Agreement acknowledge that the provisions of this Section
concerning assignments of Loans relate only to absolute
assignments and that such provisions do not prohibit assignments
creating security interests, including, without limitation, any
pledge or assignment by the Lender of any Loan to any Federal
Reserve Bank in accordance with applicable law. 9.7 Set-off.
In addition to any rights and remedies of the Lender provided by
law, the Lender shall have the right, without prior notice to
the Borrower, any such notice being expressly waived by the
Borrower to the extent permitted by applicable law, upon any
amount becoming due and payable by the Borrower hereunder
(whether at the stated maturity, by acceleration or otherwise)
to set-off and appropriate and apply against such amount any and
all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any
time held or owing by the Lender or any branch or agency thereof
to or for the credit or the account of the Borrower. The Lender
agrees promptly to notify the Borrower after any such set-off
and application made by such Lender, provided that the failure
to give such notice shall not affect the validity of such
set-off and application. 9.8 Counterparts. This Agreement may
be executed by one or more of the parties to this Agreement on
any number of separate counterparts (including by facsimile
transmission of signature pages hereto), and all of said
counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and
the Lender. 9.9 Severability. Any provision of this Agreement
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 jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9.10 Integration. This Agreement and the other Credit Documents
represent the agreement of the Borrower and the Lender with
respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Lender
relative to subject matter hereof not expressly set forth or
referred to herein or in the other Credit Documents.
9.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK. 9.12 Submission To Jurisdiction; Waivers.
The Borrower hereby irrevocably and unconditionally: (a) submits
for itself and its property in any legal action or proceeding
relating to this Agreement and the other Credit Documents to
which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general
jurisdiction of the courts of the State of New York, the courts
of the United States of America for the Southern District of New
York, and appellate courts from any thereof; (b) consents that
any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court
and agrees not to plead or claim the same; (c) agrees that
service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage
prepaid, to the Borrower at its address set forth in Section 9.2
or at such other address of which the Lender shall have been
notified pursuant thereto; (d) agrees that nothing herein shall
affect the right to effect service of process in any other
manner permitted by law or shall limit the right to sue in any
other jurisdiction; and (e) waives, to the maximum extent not
prohibited by law, any right it may have to claim or recover in
any legal action or proceeding referred to in this Section any
special, exemplary, punitive or consequential damages.
9.13 Acknowledgments. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement and the other Credit Documents;
(b) the Lender has no fiduciary relationship with or duty to the
Borrower arising out of or in connection with this Agreement or
any of the other Credit Documents, and the relationship between
the Borrower and the Lender in connection herewith or therewith
is solely that of debtor and creditor; and (c) no joint venture
is created hereby or by the other Credit Documents or otherwise
exists by virtue of the transactions contemplated hereby among
the Borrower and the Lender. 9.14 WAIVERS OF JURY TRIAL. THE
BORROWER AND THE LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN. 9.15 Confidentiality. The Lender agrees,
and each Transferee shall agree, to keep confidential all
non-public information provided to it by the Borrower pursuant
to this Agreement that is designated by the Borrower in writing
as confidential; provided that nothing herein shall prevent the
Lender from disclosing any such information (i) to any Assignee,
Transferee, or Participant which receives such information
having been made aware of the confidential nature thereof and
expressly agreeing to be bound by the terms of Section 9.5
hereof, (ii) to its employees, directors, agents, attorneys,
accountants and other professional advisors, (iii) upon the
request or demand of any examiner or other Governmental
Authority having jurisdiction over the Lender, (iv) in response
to any order of any court or other Governmental Authority or as
may otherwise be required pursuant to any Requirement of Law,
(v) which has been publicly disclosed other than in breach of
this Agreement, or (vi) in connection with the exercise of any
remedy hereunder. [Signature Page Follows] IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be duly
executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. By: Name: Title: BNY
FINANCIAL CORPORATION By: Name: Joseph A. Grimaldi Title:
President SCHEDULE I APPROVED AIRCRAFT, APPROVED AIRCRAFT LEASES
AND PERMITTED LESSEES SCHEDULE 1.1 AIRCRAFT AND AIRCRAFT ENGINES
[BORROWER TO SUPPLY ALL OTHER SCHEDULES]
RESTATED AND AMENDED
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
International Airline Support Group, Inc., a
corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
1. The name of the corporation is International
Airline Support Group, Inc. (the "Corporation"). The
original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware
on October 20, 1989.
2. Pursuant to Sections 242 and 245 of the Delaware
General Corporation Law, this Restated and Amended
Certificate of Incorporation restates and integrates and
further amends the provisions of the Certificate of
Incorporation of the Corporation.
3. This Restated and Amended Certificate of
Incorporation was duly adopted in accordance with the
provisions of Sections 242 and 245 of the Delaware General
Corporation Law.
4. Upon the filing in the Office of the Secretary of
State of the State of Delaware of this Restated and Amended
Certificate of Incorporation, the shares of common stock,
par value $.001 per share, of the Corporation (the "Common
Stock") issued and outstanding immediately prior to such
filing of this Restated and Amended Certificate of
Incorporation are hereby automatically reclassified and
changed without any action on the part of the stockholders
of the Corporation so that each twenty-seven (27) shares of
Common Stock become one (1) share of common stock, par value
$.001 per share, of the Corporation, neither increasing nor
decreasing the Corporation's stated capital thereby.
5. The text of the Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and
further amended to read in its entirety as follows:
I. ARTICLE
The name of the Corporation is International Airline
Support Group, Inc.
I. ARTICLE
The address of the Corporation's registered office in
the State of Delaware is 1209 Orange Street, New Castle
County, Wilmington, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust
Company.
I. ARTICLE
The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
I. ARTICLE
The Corporation shall have authority to issue
20,000,000 shares of common stock, par value $.001 per share
("Common Stock"), and 2,000,000 shares of preferred stock,
par value $.001 per share ("Preferred Stock").
I. ARTICLE
The Board of Directors is authorized, subject to any
limitations prescribed by law, to provide for the issuance
of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of
Delaware to establish from time to time the number of shares
to be included in each such series and to fix the
designations, powers, preferences and rights of the shares
of each such series and the qualifications, limitations and
restrictions thereof.
The authority of the Board of Directors with respect to
each series shall include, but not be limited to,
determination of the following:
A. The number of shares constituting that
series and the distinctive designation of that series;
A. The dividend rate on the shares of that
series, if any, whether dividends shall be cumulative,
and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on
shares of that series;
A. Whether that series shall have voting
rights, in addition to the voting rights provided by
law, and, if so, the terms of such voting rights;
A. Whether that series shall have
conversion privileges, and, if so, the terms and
conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the
Board of Directors shall determine;
A. Whether or not the shares of that series
shall be redeemable, and, if so, the terms and
conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and
the amount per share payable in case of redemption,
which amount may vary under different conditions and at
different redemption dates;
A. Whether that series shall have a sinking
fund for the redemption or purchase of shares of that
series, and, if so, the terms and amount of such
sinking fund;
A. The rights of the shares of that series
in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of
shares of that series; and
A. Any other relative rights, preferences
and limitations of that series.
I. ARTICLE
Upon the filing of this Restated and Amended
Certificate of Incorporation, the new Board of Directors of
the Corporation shall consist of seven (7) members, but the
number may be increased or decreased in the manner provided
in the Bylaws of the Corporation; provided, however, that
the number of directors constituting the full Board of
Directors shall not be changed without the affirmative vote
of at least seventy-five percent (75%) of the issued and
outstanding shares of Common Stock. The names and mailing
addresses of the persons who are to serve as the new
directors of the Corporation upon the filing of this
Restated and Amended Certificate of Incorporation are:
Alexius A. Dyer III
International Airline Support
Group, Inc.
8095 N.W. 64th Street
Miami, Florida 33166
George Murnane III
International Airline Support
Group, Inc.
8095 N.W. 64th Street
Miami, Florida 33166
E. James Mueller
International Airline Support
Group, Inc.
8095 N.W. 64th Street
Miami, Florida 33166
Kyle R. Kirkland
International Airline Support
Group, Inc.
8095 N.W. 64th Street
Miami, Florida 33166
The remaining three (3) directors shall be appointed by
the Board of Directors after the filing of this Restated and
Amended Certificate of Incorporation.
I. ARTICLE
1. Section . The Board of Directors shall have the
power to adopt, amend or repeal any provision of the Bylaws
of the Corporation. Notwithstanding any other provision of
this Restated and Amended Certificate of Incorporation or
the Bylaws of the Corporation (and notwithstanding that
some lesser percentage may be specified by law), no
provision of the Bylaws of the Corporation shall be amended,
modified or repealed by the stockholders of the Corporation,
nor shall any provision of the Bylaws of the Corporation
inconsistent with any such provision be adopted by the
stockholders of the Corporation, unless approved by the
affirmative vote of at least seventy-five percent (75%) of
the issued and outstanding shares of Common Stock.
1. Section . Notwithstanding any other provision of
this Restated and Amended Certificate of Incorporation or
the Bylaws of the Corporation (and notwithstanding that some
lesser percentage may be specified by law), no provision of
Articles IV, V, VI, VII, VIII, or X of this Restated and
Amended Certificate of Incorporation shall be amended,
modified or repealed, nor shall any provision of this
Restated and Amended Certificate of Incorporation
inconsistent with any such provision be adopted, by the
stockholders of the Corporation, unless approved by the
affirmative vote of at least seventy-five percent (75%) of
the issued and outstanding shares of Common Stock.
I. ARTICLE
A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as director, except for
liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation
Law or (iv) for any transaction from which the director
derived any improper personal benefit. If the Delaware
General Corporation Law is amended to authorize corporate
action further eliminating or limiting the personal
liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation
Law, as so amended. Any repeal or modification of this
Article by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of
the Corporation existing at the time of or prior to such
repeal or modification.
I. ARTICLE
The provisions of Section 203 of the Delaware General
Corporation Law, as in effect on the date hereof and as
amended hereafter, shall not be applicable to the
Corporation.
ARTICLE X
Notwithstanding any other provision of this Restated
and Amended Certificate of Incorporation or the Bylaws of
the Corporation, and notwithstanding anything to the
contrary specified by law, no action required or permitted
to be taken at any annual or special meeting of the
stockholders of the Corporation may be taken without such a
meeting, and the power of stockholders of the Corporation to
consent in writing to the taking of such action without a
meeting, as contemplated by Section 228 of the Delaware
General Corporation Law, is hereby specifically denied.
I. ARTICLE I
Elections of directors need not be by written ballot
except and to the extent provided in the Bylaws of the
Corporation.
IN WITNESS WHEREOF, this Restated and Amended
Certificate of Incorporation has been signed as of this 30th
day of September, 1996.
INTERNATIONAL AIRLINE SUPPORT
GROUP, INC.
By: /s/ A.A.
Dyer III
Title: Chairman of the Board,
President and Chief Executive Officer
Attest:
By: /s/ Robert K. Norris T
Title: Secretary
AMENDED AND RESTATED BYLAWS
OF
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
As amended and restated on September 30, 1996
I. ARTICLE
STOCKHOLDERS
1. Section . Annual Meeting. The annual meeting of
the stockholders for the election of directors and for the
transaction of such other business as may properly come
before the meeting shall be held at such place, either
within or without the State of Delaware, on such date and at
such time as the Board of Directors may by resolution
provide. The Board of Directors may specify by resolution
prior to any special meeting of stockholders held within the
year that such meeting shall be in lieu of the annual
meeting.
1. Section . Special Meetings. Special meetings of
the stockholders may be called at any time for any purpose
or purposes by the affirmative vote of a majority of the
Board of Directors, the Chairman of the Board, the
President, a duly authorized committee or the holders of a
majority of the outstanding shares entitled to vote, but no
such special meetings may be called by an other person or
persons. Special meetings shall be held at such place,
either within or without the State of Delaware, as is stated
in the call and notice thereof.
1. Section . Notice of Meetings. Unless otherwise
provided by law, whenever stockholders are required or
permitted to take any action at a meeting, a written notice
of the meeting stating the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be given
not less than ten (10) nor more than sixty (60) days prior
to such meeting to each stockholder entitled to vote at the
meeting. If mailed, such notice shall be deemed to be given
when deposited in the mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on
the records of the Corporation. Whenever notice is required
to be given to any stockholder, a written waiver thereof,
signed by the stockholder entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent
to notice. Attendance at a meeting shall constitute a
waiver of notice of such meeting, except when the
stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not
lawfully called or convened. Neither the business
transacted at, nor the purpose of, any regular or special
meeting need be stated in the written waiver of notice of
such meeting.
Notice of any meeting may be given by the President,
the Secretary or the person or persons calling such meeting.
No notice need be given of the time and place of reconvening
of any adjourned meeting if the time and place to which the
meeting is adjourned are announced at the adjourned meeting.
If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at
the meeting.
1. Section . List of Stockholders. The officer who
has charge of the stock ledger of the Corporation shall
prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical
order, showing the address of each stockholder and the
number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may
be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list
of stockholders or the books of the Corporation, or to vote
in person or by proxy at any meeting of the stockholders.
1. Section . Quorum; Amend and Restate Required
Stockholder Vote. Except as otherwise provided by the
Restated and Amended Certificate of Incorporation, each
stockholder entitled to vote at any meeting of stockholders
shall be entitled to one vote for each share of stock held
by such stockholder that has voting power upon the matter in
question. A quorum for the transaction of business at any
annual or special meeting of stockholders shall exist when
the holders of a majority of the outstanding shares entitled
to vote are represented either in person or by proxy at such
meeting. If a quorum is present, in all matters other than
the election of directors, the affirmative vote of a
majority of the shares present in person or represented by
proxy at the meeting and entitled to vote on the subject
matter shall be the act of the stockholders, unless a
greater vote is required by law, by the Restated and Amended
Certificate of Incorporation or by these Bylaws. If a
quorum is present, directors shall be elected by the
affirmative vote of a plurality of the shares present in
person or represented by proxy at the meeting and entitled
to vote on the election of directors. When a quorum is once
present to organize a meeting, the stockholders present may
continue to do business at the meeting or at any adjournment
thereof notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Shares of its own
stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in
the election of directors of such other corporation is held,
directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes;
provided, however, that the foregoing shall not limit the
right of the Corporation to vote stock, including but not
limited to its own stock, held by it in a fiduciary
capacity.
1. Section . Proxies. A stockholder may vote either
in person or by a proxy which such stockholder has duly
executed in writing. No proxy shall be valid after three
years from the date of its execution unless a longer period
is expressly provided in the proxy. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and
if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly
executed proxy bearing a later date with the Secretary of
the Corporation.
1. Section . Organization. Meetings of stockholders
shall be presided over by the Chairman of the Board, or in
his absence by the President, or in his absence by a Vice
President, or in the absence of the foregoing persons by a
chairman designated by the Board of Directors, or in the
absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
1. Section . Record Date. In order that the
Corporation may determine stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion
or exchange of stock or for any other lawful purpose, the
Board of Directors of the Corporation may fix a record date,
which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of
Directors, and which record date: (a) in the case of the
determination of stockholders entitled to vote at any
meeting of stockholders or adjournment thereof, shall not be
more than sixty (60) nor less than ten (10) days before the
date of such meeting; and (b) in the case of any other
action, shall not be more than sixty (60) days prior to such
other action. If no record date is fixed: (x) the record
date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close
of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the
meeting is held; and (y) the record date for determining
stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts
the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
1. Section . Notice of Stockholder Business. At any
meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the
meeting. To be properly brought before a meeting, business
must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the
Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the
meeting by a stockholder. For business to be properly
brought before a meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less
than 30 days nor more than 60 days prior to the meeting;
provided, however, that in the event that less than 40 days'
notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of
business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public
disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder
proposes to bring before the meeting (a) a brief description
of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting,
(b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder,
and (d) any material interest of the stockholder in such
business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any meeting
except in accordance with the procedures set forth in this
Section 9. The Chairman of the meeting shall, if the facts
warrant, determine that business was not properly brought
before the meeting in accordance with the provisions of this
Section 9, and if he should so determine, he shall so
declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
1. Section . Notice of Stockholder Nominees. Only
persons who are nominated in accordance with the procedures
set forth in this Section 10 shall be eligible for election
as Directors. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a
meeting of stockholders by or at the direction of the Board
of Directors or by any stockholder of the Corporation
entitled to vote for the election of Directors at the
meeting who complies with the notice procedures set forth in
this Section 10. Such nominations, other than those made by
or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal
executive offices of the Corporation not less than 30 days
nor more than 60 days prior to the meeting; provided,
however, that in the event that less than 40 days' notice or
prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder must be
so received no later than the close of business on the 10th
day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for
election or re-election as a Director, (i) the name, age,
business address and residence address of such person,
(ii) the principal occupation or employment of such person,
(iii) the class and number of shares of the Corporation
which are beneficially owned by such person, and (iv) any
other information relating to such person that is required
to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant
to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including, without limitation, a copy of such
person's written consent to being named in any applicable
proxy statement as a nominee and to serving as a Director if
elected); and (b) as to the stockholder giving the notice,
(i) the name and address, as they appear on the
Corporation's books, of such stockholder and (ii) the class
and number of shares of the Corporation which are
beneficially owned by such stockholder. At the request of
the Board of Directors, any person nominated by the Board
of Directors for election as a Director shall furnish to the
Secretary of the Corporation that information required to be
set forth in a stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for
election as a Director of the Corporation unless nominated
in accordance with the procedures set forth in this
Section 10. The Chairman of the meeting shall, if the facts
warrant, determine that a nomination was not made in
accordance with the procedure prescribed by this Section 10,
and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Nothing in this Section 10 shall be construed to effect the
requirements for proxy statements of the Corporation under
Regulation 14A of the Securities Exchange Act of 1934.
1. Section . Adjournment. After an annual or
special meeting of the stockholders has been convened, the
Chairman of the meeting, if so directed by the Board of
Director, may adjourn the meeting if no quorum is present
for the transaction of business properly brought before the
meeting or if the Board of Directors determines that such
adjournment is necessary or appropriate to enable the
stockholders to consider fully information which the Board
of Directors determines has not been made sufficiently on
timely available to stockholders or to otherwise effectively
exercise their voting rights.
I. ARTICLE
DIRECTORS
1. Section . Power of Directors. The business and
affairs of the Corporation shall be managed by or under the
direction of its Board of Directors, which may exercise all
of the powers of the Corporation, subject to any
restrictions imposed by law, by the Restated and Amended
Certificate of Incorporation or by these Bylaws.
1. Section . Composition of the Board. The number
of directors constituting the entire Board of Directors
shall be not less than one (1) nor more than fifteen (15),
and the exact number shall be fixed from time to time by the
Board of Directors; provided, however, that the number of
directors constituting the entire Board shall be seven (7)
until otherwise changed by the Board of Directors and with
the affirmative vote of seventy-five percent (75%) of the
issued and outstanding shares of Common Stock the
Corporation. No decrease in the number of directors shall
shorten the term of any director at the time in office.
Directors need not be residents of the State of Delaware or
stockholders of the Corporation.
1. Section . Meetings of the Board; Notice of
Meetings; Waiver of Notice. Regular meetings of the Board
of Directors may be held at such places within or without
the State of Delaware and at such times as the Board of
Directors may from time to time determine, and if so
determined, notices thereof need not be given. Special
meetings of the Board of Directors may be held at such
places within or without the State of Delaware and may be
called by the President or two or more directors. Written
notice of the time and place of such special meetings shall
be given to each director by the persons calling such
meeting by first class or registered mail at least four (4)
days before the meeting or by telephone, telecopy or in
person at least two (2) days before the meeting. Whenever
notice is required to be given to any director, a written
waiver thereof, signed by such director, whether before or
after the time stated therein, shall be deemed equivalent to
notice. Attendance at a meeting shall constitute a waiver
of any required notice of such meeting, except when the
director attends such meeting for the express purpose of
objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board
of Directors need be stated in the notice or waiver of
notice of such meeting.
1. Section . Quorum; Vote Requirement. A majority
of the total number of directors shall constitute a quorum
for the transaction of business at any meeting. When a
quorum is present, the vote of a majority of the directors
present shall be the act of the Board of Directors, unless a
greater vote is required by law, by the Restated and Amended
Certificate of Incorporation or by these Bylaws.
1. Section . Organization. Meetings of the Board of
Directors shall be presided over by the Chairman of the
Board, or in his absence by the President, or in his absence
by a chairman chosen at the meeting. The Secretary shall
act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as
secretary of the meeting.
1. Section . Action of Board without Meeting. Any
action required or permitted to be taken at a meeting of the
Board of Directors or any committee thereof may be taken
without a meeting if written consent, setting forth the
action so taken, is signed by all the directors or committee
members and filed with the minutes of the proceedings of the
Board of Directors or committee. Such consent shall have
the same force and effect as a unanimous affirmative vote of
the Board of Directors or committee, as the case may be.
1. Section . Resignations; Removal; Vacancies. Any
director may resign at any time upon written notice to the
Corporation. The entire Board of Directors or any
individual director may be removed, with or without cause,
by the holders of a majority of the shares then entitled to
vote at an election of directors. Any newly created
directorship or any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a
majority of the remaining directors, although such a
majority is less than a quorum of the Board of Directors, or
by a plurality of the votes cast at a meeting of the
stockholders. A director elected to fill a vacancy shall
serve for the unexpired term of his predecessor in office or
until the next election of directors by the stockholders and
the election and qualification of his successor.
1. Section . Conference Telephone Meetings. Unless
the Restated and Amended Certificate of Incorporation
otherwise provides, members of the Board of Directors, or
any committee designated by the Board of Directors, may
participate in a meeting of the Board or any such committee
by means of conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting
pursuant to this Section 8 shall constitute presence in
person at such meeting.
1. Section . Committees. The Board of Directors, by
resolution passed by a majority of all of the directors, may
designate one or more committees, each committee to consist
of one or more of the directors. The Board may designate
one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any
meeting of the committee. In the absence or
disqualification of a member of the committee, the member or
members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent
or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall
have and may exercise all the power and authority of the
Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of
the Corporation to be affixed to all papers which may
require it; provided that no committee shall have the power
or authority of the Board of Directors in reference to
(a) amending the Restated and Amended Certificate of
Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for
the issuance of shares of stock adopted by the Board of
Directors as provided in Section 151(a) of the Delaware
General Corporation Law fix the designations and any of the
preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any
other series of the same or any other class or classes of
stock of the Corporation), (b) adopting an agreement of
merger or consolidation under Sections 251 or 252 of the
Delaware General Corporation Law, (c) recommending to the
stockholders the sale, lease or exchange of all or
substantially all of the property and assets of the
Corporation, (d) recommending to the stockholders a
dissolution of the Corporation or a revocation thereof, or
(e) amending the Bylaws of the Corporation. In addition,
unless the resolution of the Board of Directors or the
Restated and Amended Certificate of Incorporation expressly
so provides, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance
of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the Delaware General Corporation
Law. Unless the Board of Directors otherwise provides, each
committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of
such rules each committee shall conduct its business in the
same manner as the Board of Directors conducts its business
pursuant to this Article II.
I. ARTICLE
OFFICERS
1. Section . Executive Structure of the Corporation.
The officers of the Corporation shall be elected by the
Board of Directors and shall consist of a Chairman of the
Board, a President and a Secretary and such other officers
or assistant officers, including one or more Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents,
Secretaries, Treasurers, Assistant Secretaries or Assistant
Treasurers, or any other officers that the Board of
Directors may establish, as may be elected by the Board of
Directors. Each officer shall hold office for the term for
which such officer has been elected or until such officer's
successor is elected and qualified, or until such officer's
earlier resignation, removal from office, or death. Any two
or more offices may be held by the same person.
1. Section . Duties and Authority. Each officer,
employee and agent of the Corporation shall have such duties
and authority as may be conferred upon such officer,
employee or agent by the Board of Directors or delegated to
such officer, employee or agent by the President.
1. Section . Resignations; Removal; Vacancies. Any
officer may resign at any time upon written notice to the
Corporation. The Board of Directors may remove any officer
with or without cause at any time, but such removal shall be
without prejudice to the contractual rights of such officer,
if any, with the Corporation. Any vacancy occurring in any
office of the Corporation by reason of death, resignation,
removal or otherwise may be filled for the unexpired portion
of the term by the Board of Directors at any regular or
special meeting.
1. Section . Compensation. The salaries of the
officers shall be fixed from time to time by the Board of
Directors or by any officer designated by the Board. No
officer shall be prevented from receiving such salary by
reason of the fact that such officer is also a director of
the Corporation.
I. ARTICLE
STOCK
1. Section . Stock Certificates. The shares of
stock of the Corporation shall be represented by
certificates, provided that the Board of Directors may by
resolution provide that some or all of any or all classes or
series of stock shall be uncertificated shares.
Certificates shall be in such form as may be approved by the
Board of Directors, which certificates shall be issued to
stockholders of the Corporation in numerical order from the
stock book of the Corporation, and each of which shall bear
the name of the stockholder, the number of shares
represented, and the date of issue; and which shall be
signed by the President or a Vice President and the
Secretary or an Assistant Secretary of the Corporation or
any other officer authorized to sign by the Board of
Directors; and which shall be sealed with the seal of the
Corporation. Any or all of the signatures on the
certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Within a reasonable time after the issuance or transfer
of uncertificated stock, the Corporation shall send to the
registered owner thereof a written notice containing the
information required to be set forth or stated on
certificates pursuant to Section 151, 156, 202(a) or 218(a)
of the Delaware General Corporation Law or a statement that
the Corporation will furnish without charge to each
stockholder who so requests the powers, designations,
preferences and relative participating, optional or other
special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such
preferences and/or rights.
1. Section . Transfer of Stock. Shares of stock of
the Corporation shall be transferred only on the books of
the Corporation upon surrender to the Corporation of the
certificate or certificates representing the shares to be
transferred accompanied by an assignment in writing of such
shares properly executed by the stockholder of record or
such stockholder's duly authorized attorney-in-fact and with
all taxes on the transfer having been paid. The Corporation
may refuse any requested transfer until furnished evidence
satisfactory to it that such transfer is proper. Upon the
surrender of a certificate for transfer of stock, such
certificate shall at once be conspicuously marked on its
face "Cancelled" and filed with the permanent stock records
of the Corporation. Upon receipt of proper transfer
instructions from the registered owner of uncertificated
shares such uncertificated shares shall be cancelled and
issuance of new equivalent uncertificated shares or
certificated shares shall be made to the person entitled
thereto and the transaction shall be recorded upon the books
of the Corporation. The Board of Directors may make such
additional rules concerning the issuance, transfer and
registration of stock.
1. Section . Lost, Stolen or Destroyed Stock
Certificates; Issuance of New Certificates. The Corporation
may issue a new certificate of stock or uncertificated
shares in the place of any certificate theretofore issued by
it, alleged to have been lost, stolen or destroyed, and the
Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give
the Corporation a bond sufficient to indemnify it against
any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate
or the issuance of such new certificate or uncertificated
shares.
1. Section . Registered Stockholders. The
Corporation may deem and treat the holder of record of any
stock as the absolute owner for all purposes and shall not
be required to take any notice of any right or claim of
right of any other person.
I. ARTICLE
DEPOSITORIES, SIGNATURES AND SEAL
1. Section . Depositories. All funds of the
Corporation shall be deposited in the name of the
Corporation in such bank, banks, or other financial
institutions as the Board of Directors may from time to time
designate and shall be drawn out on checks, drafts or other
orders signed on behalf of the Corporation by such person or
persons as the Board of Directors may from time to time
designate.
1. Section . Contracts and Deeds. All contracts,
deeds and other instruments shall be signed on behalf of the
Corporation by the President or by such other officer,
officers, agent or agents as the Board of Directors may
provide from time to time by resolution.
1. Section . Seal. The Board of Directors shall
provide for a suitable seal, which seal shall be in the
charge of the Secretary.
I. ARTICLE
INDEMNIFICATION
1. Section . Right to Indemnification. The
Corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently
exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide
prior to such amendment), any person who was or is made a
party or is threatened to be made a party to or is otherwise
involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a
"Proceeding"), by reason of the fact that he, or a person
for whom he is the legal representative, is or was a
director of the Corporation or is or was serving at the
request of the Corporation as a director of another
corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with
respect to employee benefit plans, against all expense,
liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts to be
paid in settlement) reasonably incurred by such person in
connection therewith and such indemnification shall
continue as to a person who has ceased to be a director of
the Corporation (or other entity) and shall inure to the
benefit of his heirs, executors and administrators. The
Corporation shall be required to indemnify a person in
connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
1. Section . Power of Indemnification. The
Corporation shall have the power to indemnify and hold
harmless, to the fullest extent permitted by applicable law
as it presently exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader
indemnification rights than said law permitted the
Corporation to provide prior to such amendment), any person
who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "Proceeding"), by reason of the
fact that he, or a person for whom he is the legal
representative, is or was an officer, employee or agent of
the Corporation or is or was serving at the request of the
Corporation as an officer, employee or agent of another
corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with
respect to employee benefit plans, against all expense,
liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts to be
paid in settlement) reasonably incurred by such person in
connection therewith and such indemnification may be
continued as to a person who has ceased to be an officer,
employee or agent of the Corporation (or other entity) and
shall inure to the benefit of his heirs, executors and
administrators.
1. Section . Prepayment of Expenses. The
Corporation may pay the expenses incurred in defending any
proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was
or is rendered by such person while a director or officer,
including, without limitation, service to an employee
benefit plan) in advance of the final disposition of the
proceeding shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Article VI or
otherwise.
1. Section . Payment of Indemnification. If a claim
for indemnification or payment of expenses under this
Article VI is not paid in full by the Corporation within 90
days after a written claim therefor has been received by the
Corporation, the claimant may at any time thereafter file
suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, shall be
entitled to be paid also the expense of prosecuting such
claim. In any such action the Corporation shall have the
burden of proving that the claimant was not entitled to the
requested indemnification or payment of expenses under
applicable law.
1. Section . Indemnification Not Exclusive. The
right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final
disposition conferred in this Article VI shall not be
exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the
Restated and Amended Certificate of Incorporation, these
Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
1. Section . Insurance. The Corporation may
maintain insurance, at its expense, to protect itself and
any director or officer of the Corporation or another
corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether
or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under
the Delaware General Corporation Law.
1. Section . Other Indemnification. The
Corporation's obligation, if any, to indemnify any person
who was or is serving at its request as a director of
another corporation, partnership, joint venture, trust,
enterprise or non-profit entity shall be reduced by any
amount such person may collect as indemnification from such
other corporation, partnership, joint venture, trust,
enterprise or non-profit enterprise.
1. Section . Amendment or Repeal. Any repeal or
modification of the foregoing provisions of this Article VI
shall not adversely affect any right or protection hereunder
of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
I. ARTICLE
AMENDMENT OF BYLAWS
These Bylaws may be altered, amended or repealed as
specified in the Restated and Amended Certificate of
Incorporation.
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C> <C>
[FRONT OF STOCK CERTIFICATE]
[STOCK CERTIFICATE SYMBOL]
COMMON STOCK COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 458865 20 1
CHARLOTTE, NC OR NEW YORK, NY SEE REVERSE FOR CERTAIN DEFINITIONS
NUMBER OF SHARES
NCM
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
THIS IS TO CERTIFY that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. (hereinafter called the "Corporation"),
transferable on the books of the Corporation by the holder hereof in person or by duly authorized
attorney, upon surrender of this certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the Certificate of Incorporation,
as amended, and the By-Laws of the Corporation, to all of which the holder of this certificate by
acceptance hereof assents.
This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
WITNESS the signatures of the duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
FIRST UNION BANK OF NORTH CAROLINA
(CHARLOTTE, N.C.) TRANSFER AGENT
AUTHORIZED SIGNATURE
/s/ George Murnane III
SECRETARY
/s/ Alexius A. Dyer III
PRESIDENT
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
The corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though
they were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIFGIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties ------------------- --------------------
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gift to Minors
in common Act
-------------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
-------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Shares
- ----------------------------------------------------------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
- -----------------------------------------------------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.
- -----------------------------------------------------------------------------------------------------------------------------
Dated,
----------------------------
----------------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
----------------------------------------------------------------------------------
SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. rule 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF LOST, STOLEN, MUTILATED OR DESTROYED,
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.
</TABLE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this
"Agreement"), is made and entered into as of this 3rd day of
October, 1996, by and between ALEXIUS A. DYER III, an
individual resident of the State of Georgia ("Executive"),
and INTERNATIONAL AIRLINE SUPPORT GROUP, INC., a Delaware
corporation ("Company").
W I T N E S S E T H
WHEREAS, Executive and Company entered into an
Employment Agreement as of December 1, 1995 (the "Employment
Agreement");
WHEREAS, Executive and Company desire to amend the
Employment Agreement on the terms and conditions set forth
herein;
WHEREAS, Company desires to employ Executive, and
Executive desires to be employed by Company on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
Section Employment.
Duties. Subject to the terms contained
herein, Company hereby agrees to the continued employment of
Executive, and Executive hereby accepts such continued
employment. Executive shall serve as President and Chief
Executive Officer of Company and as Chairman of its Board of
Directors. In his capacity as the President and Chief
Executive Officer of the Company, Executive shall (i) be in
charge of the operations and management of the business of
the Company; (ii) establish the Company's policies and
strategy, subject to the overall direction of the Board of
Directors; and (iii) assume and perform such further
reasonable responsibilities and duties assigned to him by
the Board of Directors of the Company. Executive shall
devote his full business time (except for periods of illness
and incapacity) and best efforts to rendering services on
behalf of Company. Nothing in this Agreement shall preclude
Executive from engaging, so long as, in the reasonable
determination of such Board of Directors, such activities do
not interfere with his duties and responsibilities
hereunder, in charitable and community affairs, from
managing any passive investment made by him or from serving,
subject to the prior approval of such Board of Directors, as
a member of the board of directors or as a trustee of any
other corporation, association or entity.
Directorship. The Executive shall serve as a
member of the Board of Directors of the Company so long as
he is employed by the Company. Executive shall serve as a
member of the Board of Directors of the Company pursuant to
this Agreement without any additional compensation.
I. Section Term.
The employment of Executive hereunder shall commence as
of the date hereof and shall continue for a period of five
years (the "Employment Term") from the date hereof.
Following the Employment Term, this Agreement shall continue
in force for successive one-year terms (each, a "Renewal
Term") unless either the Company or the Executive provides
not less than ninety days prior written notice to the other
that this Agreement shall terminate at the end of the
Employment Term. During any Renewal Term, either the
Company or the Executive may terminate this Agreement
effective at the end of a subsequent Renewal Term by giving
the other party not less than ninety days prior written
notice of such termination.
Section Compensation; Expenses.
Salary. During the Employment Term and any
Renewal Term, Executive shall be paid a salary by Company at
the annual rate of not less than One Hundred Thirty Five
Thousand Dollars ($135,000.00) (as from time-to-time
increased in accordance with the terms of this Agreement,
the "Salary"); provided, however, that (i) the Salary shall
be increased to an annual rate of not less than One Hundred
Seventy-five Thousand Dollars ($175,000) effective upon the
consummation of a transaction pursuant to which the
Company's payment obligations with respect to its
outstanding indebtedness are restructured in a manner
satisfactory to the Board of Directors (a "Restructuring").
The Salary shall be reviewed by the Board of Directors of
the Company on an annual basis and the Salary may be
increased based on the performance of Executive; provided
that the Executive shall be entitled to annual cost of
living increases. The Salary shall be paid to Executive in
equal weekly installments, less all applicable withholding
taxes in the same manner as other executive officers of the
Company.
3.2. [Reserved].
3.3. Bonuses. In addition to the Salary,
Executive shall be paid, subject to conditions set forth
herein, an annual bonus ("Bonus") during the Employment Term
and any Renewal Term in respect of each fiscal year of the
Company commencing on or after May 31, 1995. The Bonus
payable under this subsection 3.3 in each such fiscal year
shall be not less than an amount equal to five percent (5%)
of the Company's net income before extraordinary and non-
recurring items and income taxes, and before giving effect
to any bonuses paid to the Company's employees, including
the Bonus, as reported on the Company's periodic filings
with the Securities and Exchange Commission, subject to the
following adjustments: (i) there shall be excluded from the
computation of net income any item of revenue (including,
without limitation, cancellation of indebtedness income) or
expense attributable to the Restructuring or to any
litigation commenced by or against the Company and (ii)
items of revenue and expense attributable to the sale of
aircraft (whether now owned or acquired in the future) shall
not be considered extraordinary or non-recurring items
regardless of the treatment accorded such items under
generally accepted accounting principles or the rules of the
Securities and Exchange Commission. The Bonus shall be paid
in cash not later than the ninetieth (90th) day following
the last day of the fiscal year with respect to which such
Bonus was earned and in a manner in accordance with the
ordinary payroll practices of the Company. Notwithstanding
anything to the contrary set forth in this Agreement, the
Board of Directors of the Company shall be permitted to pay
to the Executive a bonus in an amount in excess of the
amount that would be paid pursuant to the formula described
in the second sentence of this paragraph based on the
performance of the Executive.
3.4. Participation in Employee Stock Option Plan.
During the Term, Executive shall be entitled to participate
in the Company's 1996 Long Term Incentive and Share Award
Plan (the "Stock Option Plan"), a copy of which is attached
hereto as Exhibit A. All Awards under the Plan shall be
made in accordance with and subject to the terms of the
Plan. Upon closing of the Restructuring and in accordance
with the terms thereof, Executive shall be entitled to
receive options for 224,543 shares of the Company's Common
Stock (after giving effect to the reverse stock split to be
effected in connection with the Restructuring), the terms of
which shall be in accordance with the Option Agreements
attached as Exhibit B.
3.5. Other Remuneration. Executive shall be
entitled to such other remuneration as the Board of
Directors of the Company may hereafter from time-to-time
approve for payment to Executive.
3.6. Expenses. Executive is authorized to
incur reasonable and necessary expenses in carrying out his
duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items
related to such duties and responsibilities, including
travel expenses to the Company's offices in Miami. The
Company will reimburse Executive for all such expenses upon
presentation by Executive from time-to-time of appropriately
itemized and approved (consistent with the Company's policy)
accounts of such expenditures.
Section Additional Employment Benefits.
During the Employment Term and any Renewal Term,
Company shall provide Executive with the following fringe
benefits (collectively, the "Benefits"):
Medical Insurance. Executive shall be
entitled to participate in such medical, dental, disability,
hospitalization, life insurance and other benefit plans
(such as pension and profit sharing plans) as shall be made
available to similarly situated officers of the Company on
the terms and subject to the conditions set forth in such
plans.
Vacation. Executive shall receive four
weeks of paid vacation time each fiscal year during the
Employment Term. In the event that this Agreement is
terminated by the Company other than for cause, Executive
shall be paid for each unused vacation day at the rate of
1/365th of the Salary in effect during the year in which the
vacation day accrued.
Other. In addition to the foregoing,
Executive shall be entitled to the prerequisites and other
fringe benefits made available to senior executives of the
Company.
Section Termination.
The following provisions relate solely to termination
of the Executive's employment during the Employment Term and
any Renewal Term:
Death or Disability.
Subject to Section 7 below, this
Agreement shall terminate automatically upon the
Executive's death.
Subject to Section 7 below, the Company
shall at all times have the right to terminate the
Executive's employment hereunder at any time after the
Executive shall be absent from his employment, for
whatever cause, including but not limited to mental or
physical incapacity, illness or disability
(collectively "Disability") for a continuous period of
more than twenty-six (26) weeks.
Cause. The Company may terminate the
Executive's employment for "Cause." For purposes of this
Agreement, "Cause" means (i) if Executive is convicted by a
court of competent jurisdiction of a felony, (ii) if
Executive engages in illegal or other wrongful conduct
substantially detrimental to the business or the reputation
of the Company, or (iii) repeated violations by the
Executive of the Executive's obligations under Sections 1.1
or 1.2 of this Agreement unless Executive corrects such
violation within ten (10) days after written notice from the
Company of such violation or if, having once received such
notice of violation and having so corrected such violation,
Executive at any time thereafter again violates Executive's
obligations under Sections 1.1 or 1.2 of this Agreement.
Change of Control or Change of Responsibilities.
Following a "Change of Control" (as defined below) of the
Company or a "Change of Responsibilities" (as defined
below), the Executive shall have the right to terminate his
employment (i) by resignation on not less than ninety (90)
days' prior written notice given within six (6) calendar
months after the occurrence of such Change of Control or
Change of Responsibilities, as the case may be, or (ii) by
resignation on not less than ninety (90) days' prior written
notice given within eighteen (18) calendar months after such
Change of Control or Change of Responsibilities, as the case
may be.
A "Change of Control" means:
(i) a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934 (the "Exchange Act") becomes the ultimate
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of voting stock representing more that
35% of the total voting power of the total voting stock
of the Company on a fully diluted basis;
(ii) individuals who on the date hereof constitute
the Board of Directors (together with any new directors
whose election by the Board of Directors or whose
nomination for election by the Company's stockholders
was approved by a vote of at least a majority of the
members of the Board of Directors then in office who
either were members of the Board of Directors on the
closing date with respect to the Restructuring or whose
election or nomination for election was previously so
approved) cease for any reason to constitute a majority
of the members of the Board of Directors then in
office; or
(iii) the sale of all or substantially all of
the Company's assets in one transaction or a series of
related transactions to any person or group.
A "Change of Responsibilities" shall occur upon
any of the following:
(i) the making of any material change by the
Company or a "Successor" (as defined below) in the
Executive's function, duties or responsibilities with
the Company or the Successor, as the case may be, that
would cause the Executive's position to become of less
dignity, responsibility, importance or scope;
(ii) the relocation of the Company's headquarters
from Miami, Florida (other than to Atlanta, Georgia);
or
iii) the occurrence of any material breach of this
Agreement by the Company, including, without
limitation, the failure to pay any material amounts
owed under this Agreement.
"Successor" means the person, or group of persons,
that (i) operates all or substantially all of the Company's
business following a Change of Control or (ii) that survives
a merger or consolidation of the Company that constitutes a
Change of Control.
Section Notice of Termination.
Any termination by the Company for Cause shall be
communicated in writing to the Executive and if the
termination date is other than the date of receipt, the
notice shall specify the termination date.
Section Obligations of the Company Upon Termination.
The following provisions apply only in the event the
Executive's employment hereunder is terminated.
Death. If the Executive's employment is
terminated by reason of the Executive's death, the Company
shall pay, in addition to any accrued benefits payable
hereunder, the Salary to the Executive's legal
representatives for a period of eighteen months subsequent
to such Termination. The Salary may be paid, at the option
of the Company, either in a lump sum or in equal monthly
installments. The Executive's family shall also be entitled
to receive benefits at least equal to those provided by the
Company to surviving families of executives of the Company
in comparable positions under such plans, programs and
policies relating to family death benefits, if any. The
Executive's family shall also be entitled to receive the
prior year's Bonus or any portion thereof remaining unpaid
at the time of Executive's death, plus a bonus equal to the
product of the prior year's Bonus multiplied by a fraction,
the numerator of which is the number of months Executive was
employed during the year of death and the denominator of
which is twelve.
Disability. If the Executive's employment is
terminated by reason of the Executive's Disability, the
Executive shall be entitled to receive, in addition to any
accrued benefits payable hereunder, the Salary for a period
of eighteen months subsequent to such termination. The
Salary may be paid, at the option of the Company, either in
a lump sum or in equal monthly installments. The Executive
shall also be entitled to receive benefits at least equal to
those provided by the Company to disabled employees of the
Company in accordance with such plans, programs and policies
relating to disability, if any. The Executive shall also be
entitled to receive the prior year's Bonus or any portion
thereof remaining unpaid at the time of Executive's
termination, plus a bonus equal to the product of the prior
year's Bonus multiplied by a fraction, the numerator of
which is the number of months Executive was employed during
the year of termination and the denominator of which is
twelve.
Cause. If the Executive's employment shall
be terminated for Cause, the Company shall pay the Executive
his Salary through the date of termination at the rate in
effect at the time notice of termination is given and shall
have no further obligation to the Executive under this
Agreement. The Executive shall also be entitled to receive
the prior year's Bonus or any portion thereof remaining
unpaid at the time of Executive's termination.
Termination Without Cause. If the Company
shall terminate the Executive's employment with the Company
without Cause:
the Company shall pay to the Executive
at the time such payments would otherwise be payable
hereunder, the Salary for the remaining Employment Term
or any Renewal Term. The Executive shall also be
entitled to receive the prior year's Bonus or any
portion thereof remaining unpaid at the time of
Executive's termination, plus a bonus equal to the
product of the prior year's Bonus multiplied by a
fraction, the numerator of which is the number of
months Executive was employed during the year of
termination and the denominator of which is twelve;
the Company shall, promptly upon
submission by the Executive of supporting
documentation, pay or reimburse, or cause to be paid or
reimbursed, to the Executive any business related costs
and expenses paid or incurred by the Executive on or
before the date of termination which would have been
payable if the Executive's employment had not
terminated;
until the eighteen month anniversary of
the Executive's termination, the Company shall
continue benefits (or equivalent coverage) to the
Executive and/or the Executive's family at least equal
to those which would have been provided to them in
accordance with the plans, programs and policies in
effect as of the date of termination; and
(d) until the eighteen month anniversary of
the Executive's termination, the Company shall furnish
the Executive with office space in Atlanta, Georgia
that is comparable to the office space now occupied by
the Executive; provided, however, that, the Company's
obligation to provide such office space shall
termination upon the Executive's commencement of other
employment.
Change of Control. Upon the occurrence of a
Change of Control (as defined in Section 5.3) or Change of
Responsibilities, and an election by the Executive to
terminate his employment, the Company (or the Successor)
shall pay the Executive severance pay equal to one (1) times
the "Base Amount" (as defined below). Upon the occurrence
of a Change of Control pursuant to which the Successor does
not assume the Company's obligations pursuant to this
Agreement, the Company shall pay the Executive severance pay
equal to one (1) times the Base Amount. The severance pay
payable pursuant to this Section 7.5 shall be paid in a lump
sum. In addition, the Executive shall be entitled to
receive the benefits described in Section 7.4 for the period
set forth in such Section. "Base Amount" means the
Executive's average annual compensation (including Salary,
bonus, fringe and pension benefits and deferred
compensation) paid by the Company for the most recent two
(2) years ending prior to the Change of Control.
Section Non-Disclosure.
Except as expressly permitted by the Company, or in
connection with the performance of his duties hereunder, the
Executive shall not at any time during or subsequent to his
employment by the Company, disclose, directly or indirectly
to any person, firm, corporation, partnership, association
or other entity any proprietary or confidential information
relating to the Company or any information concerning the
Company's financial condition or prospects, the Company's
customers or suppliers, the Company's sources of leads and
methods of obtaining new business, the Company's marketing
plans or strategy or the Company's methods of doing and
operating its business (collectively, "Confidential
Information") except when required to do so by a court of
competent jurisdiction, by any governmental agency having
supervisory authority over the business of the Company or,
as the case may be, an affiliate of the Company or by any
administrative body or legislative body (including a
committee thereof) with jurisdiction to order Executive to
divulge, disclose or make accessible such information.
Confidential Information shall not include information
which, at the time of disclosure, is known or available to
the general public by publication or otherwise through no
act or failure to act on the part of the Executive. The
Executive acknowledges and agrees that the Confidential
Information is a valuable, special and unique asset of the
Company's business.
Section Books and Records.
All books, records and accounts relating in any manner
to the Company's customers or suppliers, whether prepared by
the Executive or otherwise coming into the Executive's
possession, and all copies thereof in the Executive's
possession, shall be the exclusive property of the Company
and shall be returned immediately to the Company upon
termination of the Executive's employment hereunder or upon
the Company's request at any time.
I. Section Injunction.
Executive acknowledges that if he were to breach any of
the provisions of Sections 8 or 9, it would result in
immediate and irreparable injury to the Company which cannot
be adequately or reasonably compensated at law. Therefore,
Executive agrees that the Company shall be entitled, if any
such breach shall occur or be threatened or attempted, if it
so elects, to a decree of specific performance and to a
temporary and permanent injunction, without being required
to post a bond, enjoining and restraining such breach by the
Executive, his associates, his partners or agents, either
directly or indirectly, and that such right to injunction
shall be cumulative to whatever remedies or actual damages
the Company may possess.
Section Company's Covenant.
The Company agrees that it shall not enter into any
agreement pursuant to which a Change of Control would occur
unless it makes provision in such agreement for the
assumption by the Successor of the Company's obligations
pursuant to this Agreement.
Section Miscellaneous.
Binding Effect. This Agreement shall inure to
the benefit of and shall be binding upon Executive and his
executor, administrator, heirs, personal representatives and
assigns, and Company and its respective successors and
assigns; provided, however, that Executive shall not be
entitled to assign or delegate any of his rights or
obligations hereunder without the prior written consent of
Company.
Governing Law. This Agreement shall be deemed
to be made in, and in all respects shall be interpreted,
construed and governed by and in accordance with, the laws
of the State of Georgia (without giving effect to the
conflicts of law principles thereof). No provision of this
Agreement or any related document shall be construed against
or interpreted to the disadvantage of any party hereto by
any court or other governmental or judicial authority by
reason of such party having or being deemed to have
structured or drafted such provision.
Headings. The section and paragraph headings
contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or
interpretation of this Agreement.
Notices. Unless otherwise agreed to in writing
by the parties hereto, all communications provided for
hereunder shall be in writing and shall be deemed to be
given when delivered in person (by courier service or
otherwise) or seven days after being deposited in the United
States mail, first class, registered or certified, return
receipt requested, with proper postage prepaid, and
addressed as follows:
1. If to Company:
International Airline Support Group,
Inc.
8095 Northwest 64th Street
Miami, Florida 33166
1. If to Executive,
addressed to:
Mr. Alexius A. Dyer III
481 Manor Ridge Drive
Atlanta, Georgia 30305
Counterparts. This Agreement may be executed in
two counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and
the same instrument.
Entire Agreement. This Agreement is intended by
the parties hereto to be the final expression of their
agreement with respect to the subject matter hereof and is
the complete and exclusive statement of the terms thereof,
notwithstanding any representations, statements or agreement
to the contrary heretofore made. This Agreement may be
modified only by a written instrument signed by each of the
parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement under seal as of the date first above
written.
INTERNATIONAL AIRLINE SUPPORT
GROUP, INC.
By:
Title: Chairman,
Compensation Committee
EXECUTIVE
Alexius A. Dyer III
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made
and entered into as of this 3rd day of October, 1996, by and
between GEORGE MURNANE III, an individual resident of the
State of New York ("Executive"), and INTERNATIONAL AIRLINE
SUPPORT GROUP, INC., a Delaware corporation ("Company").
W I T N E S S E T H
WHEREAS, Company desires to employ Executive, and
Executive desires to be employed by Company on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
Section Employment.
Duties. Subject to the terms contained
herein, Company hereby agrees to the continued employment of
Executive, and Executive hereby accepts such continued
employment. Executive shall serve as Executive Vice
President and Chief Financial Officer of Company and as a
Director. In his capacity as the Executive Vice President
and Chief Financial Officer of the Company, Executive shall
(i) be in charge of all financial, treasury and corporate
finance activities and (ii) assume and perform such further
reasonable responsibilities and duties assigned to him by
the Board of Directors of the Company. Executive shall
devote his full business time (except for periods of illness
and incapacity) and best efforts to rendering services on
behalf of Company. Nothing in this Agreement shall preclude
Executive from engaging, so long as, in the reasonable
determination of such Board of Directors, such activities do
not interfere with his duties and responsibilities
hereunder, in charitable and community affairs, from
managing any passive investment made by him or from serving,
subject to the prior approval of such Board of Directors, as
a member of the board of directors or as a trustee of any
other corporation, association or entity.
Directorship. The Executive shall serve as a
member of the Board of Directors of the Company so long as
he is employed by the Company. Executive shall serve as a
member of the Board of Directors of the Company pursuant to
this Agreement without any additional compensation.
Section Term.
The employment of Executive hereunder shall commence as
of the date hereof and shall continue for a period of five
years (the "Employment Term") from the date hereof.
Following the Employment Term, this Agreement shall continue
in force for successive one-year terms (each, a "Renewal
Term") unless either the Company or the Executive provides
not less than ninety days prior written notice to the other
that this Agreement shall terminate at the end of the
Employment Term. During any Renewal Term, either the
Company or the Executive may terminate this Agreement
effective at the end of a subsequent Renewal Term by giving
the other party not less than ninety days prior written
notice of such termination.
Section Compensation; Expenses.
Salary. During the Employment Term and any
Renewal Term, Executive shall be paid a salary by Company at
the annual rate of not less than One Hundred Twenty Thousand
Dollars ($120,000.00) (as from time-to-time increased in
accordance with the terms of this Agreement, the "Salary");
provided, however, that (i) the Salary shall be increased to
an annual rate of not less than One Hundred Fifty Thousand
Dollars ($150,000) effective upon the consummation of a
transaction pursuant to which the Company's payment
obligations with respect to its outstanding indebtedness are
restructured in a manner satisfactory to the Board of
Directors (a "Restructuring"). The Salary shall be reviewed
by the Board of Directors of the Company on an annual basis
and the Salary may be increased based on the performance of
Executive; provided that the Executive shall be entitled to
annual cost of living increases. The Salary shall be paid
to Executive in equal weekly installments, less all
applicable withholding taxes in the same manner as other
executive officers of the Company.
3.2. Relocation Expenses. The Company shall
reimburse Executive for reasonable expenses incurred as a
result of Executive relocating his private residence to the
Atlanta, Georgia area.
3.3. Bonuses. In addition to the Salary, Executive
shall be paid, subject to conditions set forth herein, an
annual bonus ("Bonus") during the Employment Term and any
Renewal Term in respect of each fiscal year of the Company
commencing on or after May 31, 1996. The Bonus payable
under this subsection 3.3 in each such fiscal year shall be
not less than an amount equal to three percent (3%) of the
Company's net income before extraordinary and non-recurring
items and income taxes, and before giving effect to any
bonuses paid to the Company's employees, including the
Bonus, as reported on the Company's periodic filings with
the Securities and Exchange Commission, subject to the
following adjustments: (i) there shall be excluded from the
computation of net income any item of revenue (including,
without limitation, cancellation of indebtedness income) or
expense attributable to the Restructuring or to any
litigation commenced by or against the Company and (ii)
items of revenue and expense attributable to the sale of
aircraft (whether now owned or acquired in the future) shall
not be considered extraordinary or non-recurring items
regardless of the treatment accorded such items under
generally accepted accounting principles or the rules of the
Securities and Exchange Commission; provided that with
respect to the fiscal year ending May 31, 1997, the amount
due pursuant to this sentence shall be no less than $50,000.
The Bonus shall be paid in cash not later than the ninetieth
(90th) day following the last day of the fiscal year with
respect to which such Bonus was earned and in a manner in
accordance with the ordinary payroll practices of the
Company. Notwithstanding anything to the contrary set forth
in this Agreement, the Board of Directors of the Company
shall be permitted to pay to the Executive a bonus in an
amount in excess of the amount that would be paid pursuant
to the formula described in the second sentence of this
paragraph based on the performance of the Executive.
3.4. Participation in Employee Stock Option Plan.
During the Term, Executive shall be entitled to participate
in the Company's 1996 Long Term Incentive and Share Award
Plan (the "Stock Option Plan"), a copy of which is attached
hereto as Exhibit A. All Awards under the Plan shall be
made in accordance with and subject to the terms of the
Plan. Upon closing of the Restructuring and in accordance
with the terms thereof, Executive shall be entitled to
receive options for 104,787 shares of the Company's Common
Stock (after giving effect to the reverse stock split to be
effected in connection with the Restructuring), the terms of
which shall be in accordance with the Option Agreement
attached as Exhibit B.
3.5. Other Remuneration. Executive shall be
entitled to such other remuneration as the Board of
Directors of the Company may hereafter from time-to-time
approve for payment to Executive.
3.6. Expenses. Executive is authorized to
incur reasonable and necessary expenses in carrying out his
duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items
related to such duties and responsibilities, including
travel expenses to the Company's offices in Miami. The
Company will reimburse Executive for all such expenses upon
presentation by Executive from time-to-time of appropriately
itemized and approved (consistent with the Company's policy)
accounts of such expenditures.
Section Additional Employment Benefits.
During the Employment Term and any Renewal Term,
Company shall provide Executive with the following fringe
benefits (collectively, the "Benefits"):
Medical Insurance. Executive shall be
entitled to participate in such medical, dental, disability,
hospitalization, life insurance and other benefit plans
(such as pension and profit sharing plans) as shall be made
available to similarly situated officers of the Company on
the terms and subject to the conditions set forth in such
plans.
Vacation. Executive shall receive four weeks
of paid vacation time each fiscal year during the Employment
Term. In the event that this Agreement is terminated by the
Company other than for cause, Executive shall be paid for
each unused vacation day at the rate of 1/365th of the
Salary in effect during the year in which the vacation day
accrued.
Other. In addition to the foregoing,
Executive shall be entitled to the prerequisites and other
fringe benefits made available to senior executives of the
Company.
Section Termination.
The following provisions relate solely to termination
of the Executive's employment during the Employment Term and
any Renewal Term:
Death or Disability.
Subject to Section 7 below, this
Agreement shall terminate automatically upon the
Executive's death.
Subject to Section 7 below, the Company
shall at all times have the right to terminate the
Executive's employment hereunder at any time after the
Executive shall be absent from his employment, for
whatever cause, including but not limited to mental or
physical incapacity, illness or disability
(collectively "Disability") for a continuous period of
more than twenty-six (26) weeks.
Cause. The Company may terminate the
Executive's employment for "Cause." For purposes of this
Agreement, "Cause" means (i) if Executive is convicted by a
court of competent jurisdiction of a felony, (ii) if
Executive engages in illegal or other wrongful conduct
substantially detrimental to the business or the reputation
of the Company, or (iii) repeated violations by the
Executive of the Executive's obligations under Sections 1.1
or 1.2 of this Agreement unless Executive corrects such
violation within ten (10) days after written notice from the
Company of such violation or if, having once received such
notice of violation and having so corrected such violation,
Executive at any time thereafter again violates Executive's
obligations under Sections 1.1 or 1.2 of this Agreement.
Change of Control or Change of Responsibilities.
Following a "Change of Control" (as defined below) of the
Company or a "Change of Responsibilities" (as defined
below), the Executive shall have the right to terminate his
employment (i) by resignation on not less than ninety (90)
days' prior written notice given within six (6) calendar
months after the occurrence of such Change of Control or
Change of Responsibilities, as the case may be, or (ii) by
resignation on not less than ninety (90) days' prior written
notice given within eighteen (18) calendar months after such
Change of Control or Change of Responsibilities, as the case
may be.
A "Change of Control" means:
(i) a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934 (the "Exchange Act") becomes the ultimate
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of voting stock representing more that
35% of the total voting power of the total voting stock
of the Company on a fully diluted basis;
(ii) individuals who on the date hereof constitute
the Board of Directors (together with any new directors
whose election by the Board of Directors or whose
nomination for election by the Company's stockholders
was approved by a vote of at least a majority of the
members of the Board of Directors then in office who
either were members of the Board of Directors on the
closing date with respect to the Restructuring or whose
election or nomination for election was previously so
approved) cease for any reason to constitute a majority
of the members of the Board of Directors then in
office; or
(iii) the sale of all or substantially all of
the Company's assets in one transaction or a series of
related transactions to any person or group.
A "Change of Responsibilities" shall occur upon
any of the following:
(i) the making of any material change by the
Company or a "Successor" (as defined below) in the
Executive's function, duties or responsibilities with
the Company or the Successor, as the case may be, that
would cause the Executive's position to become of less
dignity, responsibility, importance or scope;
(ii) the relocation of the Company's headquarters
from Miami, Florida (other than to Atlanta, Georgia);
or
(iii) the occurrence of any material breach of
this Agreement by the Company, including, without
limitation, the failure to pay any material amounts
owed under this Agreement.
"Successor" means the person, or group of persons,
that (i) operates all or substantially all of the Company's
business following a Change of Control or (ii) that survives
a merger or consolidation of the Company that constitutes a
Change of Control.
Section Notice of Termination.
Any termination by the Company for Cause shall be
communicated in writing to the Executive and if the
termination date is other than the date of receipt, the
notice shall specify the termination date.
Section Obligations of the Company Upon Termination.
The following provisions apply only in the event the
Executive's employment hereunder is terminated.
Death. If the Executive's employment is
terminated by reason of the Executive's death, the Company
shall pay, in addition to any accrued benefits payable
hereunder, the Salary to the Executive's legal
representatives for a period of eighteen months subsequent
to such Termination. The Salary may be paid, at the option
of the Company, either in a lump sum or in equal monthly
installments. The Executive's family shall also be entitled
to receive benefits at least equal to those provided by the
Company to surviving families of executives of the Company
in comparable positions under such plans, programs and
policies relating to family death benefits, if any. The
Executive's family shall also be entitled to receive the
prior year's Bonus or any portion thereof unpaid at the time
of Executive's death, plus a bonus equal to the product of
the prior year's Bonus multiplied by a fraction, the
numerator of which is the number of months Executive was
employed during the year of death and the denominator of
which is twelve.
Disability. If the Executive's employment is
terminated by reason of the Executive's Disability, the
Executive shall be entitled to receive, in addition to any
accrued benefits payable hereunder, the Salary for a period
of eighteen months subsequent to such termination. The
Salary may be paid, at the option of the Company, either in
a lump sum or in equal monthly installments. The Executive
shall also be entitled to receive benefits at least equal to
those provided by the Company to disabled employees of the
Company in accordance with such plans, programs and policies
relating to disability, if any. The Executive shall also be
entitled to receive the prior year's Bonus or any portion
thereof unpaid at the time of Executive's termination, plus
a bonus equal to the product of the prior year's Bonus
multiplied by a fraction, the numerator of which is the
number of months Executive was employed during the year of
termination and the denominator of which is twelve.
Cause. If the Executive's employment shall
be terminated for Cause, the Company shall pay the Executive
his Salary through the date of termination at the rate in
effect at the time notice of termination is given and shall
have no further obligation to the Executive under this
Agreement. The Executive shall also be entitled to receive
the prior year's Bonus or any portion thereof unpaid at the
time of Executive's termination.
Termination Without Cause. If the Company
shall terminate the Executive's employment with the Company
without Cause:
the Company shall pay to the Executive
at the time such payments would otherwise be payable
hereunder, the Salary for the remaining Employment Term
or any Renewal Term. The Executive shall also be
entitled to receive the prior year's Bonus or any
portion thereof unpaid at the time of Executive's
termination, plus a bonus equal to the product of the
prior year's Bonus multiplied by a fraction, the
numerator of which is the number of months Executive
was employed during the year of termination and the
denominator of which is twelve;
the Company shall, promptly upon
submission by the Executive of supporting
documentation, pay or reimburse, or cause to be paid or
reimbursed, to the Executive any business related costs
and expenses paid or incurred by the Executive on or
before the date of termination which would have been
payable if the Executive's employment had not
terminated;
until the eighteen-month anniversary of
the Executive's termination, the Company shall
continue benefits (or equivalent coverage) to the
Executive and/or the Executive's family at least equal
to those which would have been provided to them in
accordance with the plans, programs and policies in
effect as of the date of termination; and
(d) until the eighteen-month anniversary of
the Executive's termination, the Company shall furnish
the Executive with office space that is comparable to
the office space now occupied by the Executive;
provided, however, that, the Companys obligation to
provide such office space shall termination upon the
Executives commencement of other employment.
Change of Control. Upon the occurrence of a
Change of Control (as defined in Section 5.3) or Change of
Responsibilities, and an election by the Executive to
terminate his employment, the Company (or the Successor)
shall pay the Executive severance pay equal to one (1) times
the "Base Amount" (as defined below). Upon the occurrence
of a Change of Control pursuant to which the Successor does
not assume the Company's obligations pursuant to this
Agreement, the Company shall pay the Executive severance pay
equal to one (1) times the Base Amount. The severance pay
payable pursuant to this Section 7.5 shall be paid in a lump
sum. In addition, the Executive shall be entitled to
receive the benefits described in Section 7.4 for the period
set forth in such Section. "Base Amount" means the
Executive's average annual compensation (including Salary,
bonus, fringe and pension benefits and deferred
compensation) paid by the Company for the most recent two
(2) years ending prior to the Change of Control.
Section Non-Disclosure.
Except as expressly permitted by the Company, or in
connection with the performance of his duties hereunder, the
Executive shall not at any time during or subsequent to his
employment by the Company, disclose, directly or indirectly
to any person, firm, corporation, partnership, association
or other entity any proprietary or confidential information
relating to the Company or any information concerning the
Company's financial condition or prospects, the Company's
customers or suppliers, the Company's sources of leads and
methods of obtaining new business, the Company's marketing
plans or strategy or the Company's methods of doing and
operating its business (collectively, "Confidential
Information") except when required to do so by a court of
competent jurisdiction, by any governmental agency having
supervisory authority over the business of the Company or,
as the case may be, an affiliate of the Company or by any
administrative body or legislative body (including a
committee thereof) with jurisdiction to order Executive to
divulge, disclose or make accessible such information.
Confidential Information shall not include information
which, at the time of disclosure, is known or available to
the general public by publication or otherwise through no
act or failure to act on the part of the Executive. The
Executive acknowledges and agrees that the Confidential
Information is a valuable, special and unique asset of the
Company's business.
Section Books and Records.
All books, records and accounts relating in any manner
to the Company's customers or suppliers, whether prepared by
the Executive or otherwise coming into the Executive's
possession, and all copies thereof in the Executive's
possession, shall be the exclusive property of the Company
and shall be returned immediately to the Company upon
termination of the Executive's employment hereunder or upon
the Company's request at any time.
I. Section Injunction.
Executive acknowledges that if he were to breach any of
the provisions of Sections 8 or 9, it would result in
immediate and irreparable injury to the Company which cannot
be adequately or reasonably compensated at law. Therefore,
Executive agrees that the Company shall be entitled, if any
such breach shall occur or be threatened or attempted, if it
so elects, to a decree of specific performance and to a
temporary and permanent injunction, without being required
to post a bond, enjoining and restraining such breach by the
Executive, his associates, his partners or agents, either
directly or indirectly, and that such right to injunction
shall be cumulative to whatever remedies or actual damages
the Company may possess.
Section Company's Covenant.
The Company agrees that it shall not enter into any
agreement pursuant to which a Change of Control would occur
unless it makes provision in such agreement for the
assumption by the Successor of the Company's obligations
pursuant to this Agreement.
Section Miscellaneous.
Binding Effect. This Agreement shall inure to
the benefit of and shall be binding upon Executive and his
executor, administrator, heirs, personal representatives and
assigns, and Company and its respective successors and
assigns; provided, however, that Executive shall not be
entitled to assign or delegate any of his rights or
obligations hereunder without the prior written consent of
Company.
Governing Law. This Agreement shall be deemed
to be made in, and in all respects shall be interpreted,
construed and governed by and in accordance with, the laws
of the State of Georgia (without giving effect to the
conflicts of law principles thereof). No provision of this
Agreement or any related document shall be construed against
or interpreted to the disadvantage of any party hereto by
any court or other governmental or judicial authority by
reason of such party having or being deemed to have
structured or drafted such provision.
Headings. The section and paragraph headings
contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or
interpretation of this Agreement.
Notices. Unless otherwise agreed to in writing
by the parties hereto, all communications provided for
hereunder shall be in writing and shall be deemed to be
given when delivered in person (by courier service or
otherwise) or seven days after being deposited in the United
States mail, first class, registered or certified, return
receipt requested, with proper postage prepaid, and
addressed as follows:
1. If to Company:
International Airline Support Group,
Inc.
8095 Northwest 64th Street
Miami, Florida 33166
If to Executive, addressed to:
Mr. George Murnane III
International Airline Support Group,
Inc.
8095 Northwest 64th Street
Miami, Florida 33166
Counterparts. This Agreement may be executed in
two counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and
the same instrument.
Entire Agreement. This Agreement is intended by
the parties hereto to be the final expression of their
agreement with respect to the subject matter hereof and is
the complete and exclusive statement of the terms thereof,
notwithstanding any representations, statements or agreement
to the contrary heretofore made. This Agreement may be
modified only by a written instrument signed by each of the
parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement under seal as of the date first above
written.
INTERNATIONAL AIRLINE SUPPORT
GROUP, INC.
By:
Title: Chairman, Compensation Committee
EXECUTIVE
George Murnane III
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
NON-QUALIFIED STOCK OPTION CERTIFICATE
International Airline Support Group, Inc. ("IASG"), in
accordance with the 1996 Long Term Incentive and Share Award
Plan ("Plan"), hereby grants a non-qualified stock option
("NQSO") to ______________ ("Employee") to purchase ____
shares of common stock, $.001 par value per share, ("Stock")
at an exercise price equal to the Market Value of such Stock
on the Option Grant Date (as herein defined). The NQSO is
granted effective as of , 1996 ("Option
Grant Date") and is subject to all of the following terms
and conditions:
I. Plan. The NQSO is subject to all of the
applicable terms and conditions set forth in the Plan, and
all of the terms defined in the Plan shall have the same
meaning in this Option Certificate when such terms start
with a capital letter. A copy of the Plan will be made
available to Employee upon written request to the corporate
Secretary of IASG.
I. Status as Incentive Stock Option. IASG
intends that the NQSO not qualify for any special income tax
benefits under 422 of the Code.
I. Accrual of Exercise Right. So long as
Employee remains in the employ of IASG or a subsidiary of
IASG ("Subsidiary"), the right to exercise the NQSO granted
by this Option Certificate shall accrue and first become
exercisable, or subject to surrender as provided in 8 of
this Option Certificate, according to the following
schedule:
(a) _____ shares of Stock first may be purchased
or surrendered on ______________ ;
(b) _____ shares of Stock first may be purchased
or surrendered on _______________;
(c) _____ shares of Stock first may be purchased
or surrendered on ______________;
(d) _____ shares of Stock first may be purchased
or surrendered on ______________;
(e) _____ shares of Stock first may be purchased
or surrendered on ______________.
Except as provided in 5(b) of this Option
Certificate, the aggregate number of shares of Stock subject
to exercise or surrender on any date shall equal (a) the
excess, if any, of the number of shares as to which the
right to exercise or surrender then has accrued over (b) the
number of shares for which the NQSO has been exercised, or
in accordance with 8 of this Option Certificate, has been
surrendered. The NQSO may be exercised or surrendered in
whole or in part at any time with respect to shares of Stock
as to which the exercise right has accrued as of that time;
provided, however, that the NQSO may not be exercised or
surrendered for fewer than twenty-five (25) shares of Stock
unless the total number of shares of Stock which can be
purchased under the NQSO at the time of such exercise or
surrender is fewer than twenty-five (25), in which event the
NQSO shall be exercised or surrendered for the total number
of such shares.
I. Term of NQSO. The NQSO shall expire when
exercised or surrendered in full; provided, however, the
NQSO shall expire, to the extent not exercised or
surrendered in full, on the date which is the earlier of:
a. the date provided under 5 of this Option
Certificate; or
b. the tenth anniversary of the date the NQSO
was granted.
I. Special Rules.
A. Termination of Employment. In the event
that Employee's employment by IASG is terminated on any
date, the NQSO and the related surrender right shall expire
immediately and automatically on the last day of the three
(3) consecutive month period which immediately follows the
last day of Employee's current continuous period of
employment by IASG; provided, however, that in the event
Employee's employment by IASG is terminated on any date
(1) by IASG for cause or (2) by Employee without the written
consent of IASG (other than as a result of "Change of
Control" or "Change of Responsibilities," as defined in the
Employment Agreement between IASG and the Employee, as in
effect from time to time), the NQSO and the related
surrender right shall expire immediately and automatically
on such date and shall be of no further force and effect
with respect to any shares of Stock not purchased or
surrendered before such date. In the event Employee's
employment by IASG is terminated on any date (1) as a result
of employee's death or disability, (2) by IASG without cause
or (3) by Employee with the written consent of IASG or
without written consent in the event of a Change of Control
or Change of Responsibilities, then, notwithstanding the
schedule set forth in 3 above, all options held by such
Employee shall become immediately exercisable.
For purposes of determining whether Employee has
terminated employment with IASG,
1. employment by a Subsidiary shall be
treated as employment by IASG,
1. a transfer of employment between or
among IASG and its Subsidiaries shall not be treated as
a termination of Employee's continuous employment with
IASG,
1. if Employee is employed by a Subsidiary,
the sale of such Subsidiary by IASG shall be treated as
a termination of Employee's continuous employment with
IASG, and
1. Employee's leave of absence from IASG or
a Subsidiary shall not be treated as a termination of
Employee's continuous employment with IASG, provided
such leave of absence is approved in writing by the
Committee.
A. Death. In the event that Employee
(1) dies while employed by IASG or a Subsidiary or
(2) terminates employment and is entitled to the three (3)
month exercise period described in 5(a) of this Option
Certificate but dies before the NQSO and the related
surrender right expire under such section, the NQSO may be
exercised or surrendered at any time during the twelve (12)
consecutive month period immediately following the date of
Employee's death by the person or persons to whom Employee's
rights under the NQSO pass in accordance with 7 of this
Option Certificate. The NQSO shall be exercisable or
subject to surrender during such twelve (12) consecutive
month period to the extent of (a) the excess, if any, of the
total number of shares of Stock subject to the NQSO
(determined without regard to the accrual of exercise rights
under 3 of this Option Certificate) over (b) the number of
shares of Stock subject to the NQSO which Employee had
purchased or surrendered before his death, and the NQSO
shall expire immediately and automatically on the last day
of such twelve (12) consecutive month period.
I. Method of Exercise. Employee may (subject to
the conditions of this Option Certificate) exercise the NQSO
in whole or in part (before the date the NQSO expires) on
any normal business day of IASG by (1) delivering to IASG at
its principal place of business in Miami, Florida, a written
notice (addressed to its corporate Secretary) of the
exercise of the NQSO and (2) simultaneously paying the
exercise price to IASG in cash or in Stock acceptable to the
Committee, or in any combination of cash or Stock acceptable
to the Committee. All or any portion of the exercise price
that is paid in Stock may be paid (1) by electing to have
IASG withhold Stock (that otherwise would be transferred to
Employee as a result of the exercise of the NQSO) to the
extent necessary to pay the exercise price (in whole or in
part) through the withholding of such Stock or (2) by
tendering Stock. Any payment made in Stock shall be treated
as equal to the Fair Market Value of such Stock on the date
the properly endorsed certificate for such Stock is
delivered to the Committee or the date the Stock is treated
by the Committee as withheld from the exercise of the NQSO.
I. Non-Transferability. Neither the NQSO nor
any related surrender rights under 8 of this Option
Certificate is transferable by Employee otherwise than by
will or by the applicable laws of descent and distribution,
and the NQSO shall be exercised or surrendered during
Employee's lifetime only by Employee. The person or persons
to whom the NQSO is transferred by will or by the applicable
laws of descent and distribution thereafter shall be treated
as the Employee under this Option Certificate.
I. Surrender of Option. During the period when
the NQSO is exercisable, the NQSO may be surrendered, in
whole or in part, on any normal business day of IASG (in
lieu of exercise) if the fair market value of the Stock on
such date exceeds the exercise price of such Stock. The
surrender of the NQSO (or a part of the NQSO) shall be
effected by delivering to the Committee (or to its delegate)
the Option Certificate and a written notice (signed by
Employee) which specifies (1) the number of shares of Stock
as to which Employee surrenders his NQSO under this Option
Certificate, (2) whether such shares are NQSOs or ISOs (if
his option includes NQSOs and ISOs), and (3) how he desires
payment to be made for the Surrendered Option. Employee, in
exchange for his Surrendered Option, may request that
payment be made for the Surrendered Option in the form of
cash or Stock, or a combination of Cash and Stock, equal in
amount to the excess, if any, of the Fair Market Value of
the Surrendered Option on the date such surrender is
effected over the exercise price for such Surrendered
Option. The Committee, acting in its absolute discretion,
shall determine the form and timing of such payment and the
Committee shall have the right to take into account whatever
factors the Committee deems appropriate under the
circumstances, including any written request made by
Employee and delivered to the Committee (or to its
delegate).
If IASG has a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of
1934, as amended, and Employee is an officer or director
(within the meaning of Section 16(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of
IASG, Employee shall not surrender his NQSO or, in the event
Employee exercises this NQSO, in whole or in part, within
six (6) months of the Option Grant Date, Employee shall not
sell or otherwise dispose of the Stock received upon
exercise of this NQSO, on any date (while he remains such an
officer or director) either within six (6) months after the
date the NQSO is granted if the grant of such NQSO was not
approved by the board of directors or the Company's
shareholders as provided in Rule 16b-3(d) under the Exchange
Act or which is outside each period beginning on the third
business day following the date of release for publication
of IASG's quarterly or annual summary statements of sales
and earnings and ending on the twelfth business day
following such date, and any surrender or request made
before the end of such six (6) month period or outside any
such ten (10) day period shall be null and void and shall be
rejected automatically by IASG.
I. Resale of Shares Acquired by Exercise of
Option. If the Stock underlying the NQSO is not registered
under the Securities Act of 1933 ("1933 Act") or the
applicable state securities law at the time or times
Employee exercises or surrenders the NQSO, Employee shall
execute a written representation to IASG, in form and
substance satisfactory to IASG at such time or times, that
by such exercise or surrender he shall purchase Stock only
for investment purposes for his own account and not with a
view to, or for resale in connection with, the distribution
of such Stock. In addition, upon the exercise or surrender
of the NQSO, Employee shall represent that, if Employee is
an "affiliate" (within the meaning of the 1933 Act or any
applicable state securities law) of IASG at the time of any
proposed sale of any shares of Stock acquired upon the
exercise or surrender of the NQSO, he shall not sell or
offer to sell any of such shares in the absence of (1) an
effective registration statement under the 1933 Act and any
applicable state securities law with respect to the proposed
sale of such shares or (2) an opinion, in form and substance
satisfactory to IASG, of legal counsel acceptable to IASG,
that an exemption from the registration requirements of the
1933 Act and any applicable state securities law is
available for the sale. In such case, the certificate
representing the shares of Stock that are transferred to
Employee upon exercise or surrender of the NQSO may, in the
discretion of IASG, bear a legend satisfactory to IASG to
the effect that there has been no registration under the
1933 Act or any applicable state securities law and that the
Stock may not be sold or offered for sale in the absence of
(1) an effective registration statement as to the Stock
under the 1933 Act and any applicable state securities law
or (2) the delivery to IASG of an opinion, in form and
substance satisfactory to IASG, of legal counsel acceptable
to IASG, that such registration is not required. By
exercising or surrendering the NQSO, Employee agrees that
any sales made by him of shares of Stock acquired through
the exercise or surrender of the NQSO shall be made in
accordance with Rule 144 under the 1933 Act and any
successor to such Rule.
I. Not Employment Contract; No Shareholder
Rights. This Option Certificate (1) shall not be deemed a
contract of employment, (2) shall not give Employee any
rights of any kind or description whatsoever as a
shareholder of IASG as a result of the grant of the NQSO or
his exercise or surrender of the NQSO before the date of the
actual delivery of Stock subject to the NQSO to such
Employee, (3) shall not affect or impair the right of IASG
or a Subsidiary to terminate the employment relationship
existing with Employee at any time, and (4) shall not confer
on Employee any rights upon his termination of employment in
addition to those rights expressly set forth in this Option
Certificate.
I. Modification, Amendment, Adjustment and
Cancellation. IASG shall have the right to modify, amend,
adjust or cancel the NQSO in accordance with the terms of
the Plan; provided, however, Employee consents to such
action if it adversely affects the rights of the Employee
under this Option Certificate.
I. Delivery. IASG's delivery of Stock pursuant
to the exercise in whole or in part of the NQSO (as defined
by 6 of this Option Certificate) shall discharge IASG of
all of its duties and responsibilities with respect to that
portion of the NQSO exercised.
I. Other Laws. IASG shall have the right to
refuse to issue or transfer any Stock under this Option
Certificate if IASG determines that the issuance or transfer
of such Stock might violate any applicable law or
regulation, and any payment tendered in such event to
exercise the NQSO shall be promptly refunded to Employee.
I. Other Conditions. If so requested by IASG
upon the exercise or surrender of the NQSO, Employee shall
(as a condition to the exercise or surrender of the NQSO)
enter into any other agreement or make such other
representations prepared by IASG which in relevant part will
restrict the transfer of Stock acquired pursuant to this
Option Certificate and will provide for the repurchase of
such Stock by IASG under certain circumstances.
I. Tax Withholding. Employee shall have the
right to satisfy any income tax or other applicable
withholding requirement arising out of the exercise or
surrender of the NQSO by electing to have IASG withhold
Stock that otherwise would be transferred to such Employee
as a result of the exercise or surrender of such NQSO. To
the extent Employee does not satisfy such income tax or
other applicable withholding requirements by withholding
Stock, IASG shall have the right upon the exercise or
surrender of the NQSO to take such action as IASG deems
necessary or appropriate to satisfy any income tax or other
applicable withholding requirements.
I. Governing Law. The Plan and the NQSO shall
be governed by the laws of the State of Delaware.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
By:
Title:
Date:
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
INCENTIVE STOCK OPTION CERTIFICATE
THIS OPTION CERTIFICATE evidences that an incentive
stock option ("ISO") has been granted by International
Airline Support Group, Inc. ("IASG") under the 1996 Long
Term Incentive and Share Award Plan ("Plan"), to
______________ ("Employee") as of ____________ ("Grant
Date") for the purchase of ____ shares of Common Stock,
$.001 par value per share, at an exercise price equal to
_______ dollars per share subject to the following terms and
conditions:
I. Plan. The ISO is subject to all the terms
and conditions set forth in the Plan for an ISO, and all of
the terms defined in the Plan shall have the same meaning in
this Option Certificate when such terms start with a capital
letter. A copy of the Plan will be made available to
Employee upon written request to the corporate Secretary of
IASG.
I. Status as Incentive Stock Option. IASG
intends that the ISO qualify for all special income tax
benefits for incentive stock options under 422 of the
Code.
I. Accrual of Exercise Right. So long as
Employee remains in the employ of IASG or a subsidiary of
IASG ("Subsidiary"), the right to exercise the ISO granted
by this Option Certificate shall accrue and first become
exercisable, or subject to surrender as provided in 8 of
this Option Certificate, according to the following
schedule:
(a) _____ shares of Stock first may be purchased
or surrendered on ______________ ;
(b) _____ shares of Stock first may be purchased
or surrendered on _______________;
(c) _____ shares of Stock first may be purchased
or surrendered on ______________;
(d) _____ shares of Stock first may be purchased
or surrendered on ______________;
(e) _____ shares of Stock first may be purchased
or surrendered on ______________.
Except as provided in 5(b) of this Option
Certificate, the aggregate number of shares of Stock subject
to exercise or surrender on any date shall equal (a) the
excess, if any, of the number
of shares as to which the right to exercise or surrender
then has accrued over (b) the number of shares for which the
ISO has been exercised, or in accordance with 8 of this
Option Certificate, has been surrendered. The ISO may be
exercised or surrendered in whole or in part at any time
with respect to shares of Stock as to which the exercise
right has accrued as of that time; provided, however, that
the ISO may not be exercised or surrendered for fewer than
twenty-five (25) shares of Stock unless the total number of
shares of Stock which can be purchased under the ISO at the
time of such exercise or surrender is fewer than twenty-five
(25), in which event the ISO shall be exercised or
surrendered for the total number of such shares.
I. Term of Option. The ISO and the related
surrender right shall expire when exercised in full;
provided, however, the ISO and the related surrender right
shall expire, to the extent not exercised in full, on the
earlier of (1) the date which is the tenth anniversary of
the date the ISO was granted, (2) if Employee is a Ten
Percent Shareholder on the date the ISO is granted, the date
which is the fifth anniversary of such date, or (3) the date
provided under 5 of this Option Certificate.
I. Special Rules.
A. Termination of Employment. In the event
that Employee's employment by IASG is terminated on any
date, the ISO and the related surrender right shall expire
immediately and automatically on the last day of the three
(3) consecutive month period which immediately follows the
last day of Employee's current continuous period of
employment by IASG; provided, however, that in the event
Employee's employment by IASG is terminated on any date
(1) by IASG for cause or (2) by Employee without the written
consent of IASG (other than as a result of "Change of
Control" or "Change of Responsibilities," as defined in the
Employment Agreement between IASG and the Employee, as in
effect from time to time), the ISO and the related surrender
right shall expire immediately and automatically on such
date and shall be of no further force and effect with
respect to any shares of Stock not purchased or surrendered
before such date; provided, further, that in the event
Employee's employment by IASG is terminated on any date (1)
as a result of employee's death or disability, (2) by IASG
without cause or (3) by Employee with the written consent of
IASG or without written consent of IASG in the event of a
Change of Control or Change of Responsibilities, then,
notwithstanding the schedule set forth in 3 above, all
options held by such Employee shall become immediately
exercisable.
For purposes of determining whether Employee has
terminated employment with IASG,
1. employment by a Subsidiary shall be
treated as employment by IASG,
1. a transfer of employment between or
among IASG and its Subsidiaries shall not be treated as
a termination of Employee's continuous employment with
IASG,
1. if Employee is employed by a Subsidiary,
the sale of such Subsidiary by IASG shall be treated as
a termination of Employee's continuous employment with
IASG, and
1. Employee's leave of absence from IASG or
a Subsidiary shall not be treated as a termination of
Employee's continuous employment with IASG, provided
such leave of absence is approved in writing by the
Committee.
A. Death. In the event that Employee
terminates employment and is entitled to the three (3) month
exercise period described in 5(a) of this Option
Certificate but dies before the ISO and the related
surrender right expire under such section, the ISO may be
exercised or surrendered at any time during the twelve (12)
consecutive month period immediately following the date of
Employee's death by the person or persons to whom Employee's
rights under the ISO pass in accordance with 7 of this
Option Certificate. The ISO shall be exercisable or subject
to surrender during such twelve (12) consecutive month
period to the extent of (a) the excess, if any, of the total
number of shares of Stock subject to the ISO (determined
without regard to the accrual of exercise rights under 3
of this Option Certificate) over (b) the number of shares of
Stock subject to the ISO which Employee had purchased or
surrendered before his death, and the ISO shall expire
immediately and automatically on the last day of such twelve
(12) consecutive month period.
I. Method of Exercise. Employee may (subject to
the conditions of this Option Certificate) exercise the ISO
in whole or in part (before the date the ISO expires) on any
normal business day of IASG by (1) delivering to IASG at its
principal place of business in Miami, Florida, a written
notice (addressed to its corporate Secretary) of the
exercise of such ISO and (2) simultaneously paying the
exercise price to IASG in cash or in Stock acceptable to the
Committee, or in any combination of cash or Stock acceptable
to the Committee. All or any portion of such exercise price
which is paid in Stock may be paid (1) by electing to have
IASG withhold Stock (that otherwise would be transferred to
such Employee as a result of the exercise of such ISO) to
the extent necessary to pay such exercise price (in whole or
in part) through the withholding of such Stock or (2) by
tendering Stock. Any payment made in Stock shall be treated
as equal to the Fair Market Value of such Stock on the date
the properly endorsed certificate for such Stock is
delivered to the Committee or the date the Stock is treated
by the Committee as withheld from the exercise of the ISO.
I. Non-Transferability. Neither the ISO nor any
related surrender rights under 8 is transferable by
Employee otherwise than by will or by the applicable laws of
descent and distribution, and the ISO shall be exercised or
surrendered during Employee's lifetime only by Employee.
The person or persons to whom the ISO is transferred by will
or by the applicable laws of descent and distribution
thereafter shall be treated as the Employee under this
Option Certificate.
I. Surrender of Option. During the period when
the ISO is exercisable, the ISO may be surrendered, in whole
or in part, on any normal business day of IASG (in lieu of
exercise) if the fair market value of the Stock on such date
exceeds the exercise price of such Stock. The surrender of
the ISO (or a part of the ISO) shall be effected by
delivering to the Committee (or to its delegate) the Option
Certificate and a written notice (signed by Employee) which
specifies (1) the number of shares of Stock as to which
Employee surrenders his ISO under this Option Certificate,
(2) whether such shares are ISOs or NQSOs (if his option
includes ISOs and NQSOs), and (3) how he desires payment to
be made for the Surrendered Option. Employee, in exchange
for his Surrendered Option, may request that payment be made
for the Surrendered Option in the form of cash or Stock, or
a combination of cash and Stock, equal in amount to the
excess, if any, of the Fair Market Value of the Surrendered
Option on the date such surrender is effected over the
exercise price for such Surrendered Option. The Committee,
acting in its absolute discretion, shall determine the form
and timing of such payment and the Committee shall have the
right to take into account whatever factors the Committee
deems appropriate under the circumstances, including any
written request made by Employee and delivered to the
Committee (or to its delegate).
If IASG has a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of
1934, as amended, and Employee is an officer or director
(within the meaning of Section 16(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of
IASG, Employee shall not surrender his ISO or, in the event
Employee exercises this ISO, in whole or in part, within six
(6) months of the Grant Date, Employee shall not sell or
otherwise dispose of the Stock received upon exercise of
this ISO, on any date (while he remains such an officer or
director) either within six (6) months after the Grant Date
if the grant of such ISO was not approved by the board of
directors or the Company's shareholders as provided in Rule
16b-3(d) under the Exchange Act or which is outside each
period beginning on the third business day following the
date of release for publication of IASG's quarterly or
annual summary statements of sales and earnings and ending
on the twelfth business day following such date, and any
surrender or request made before the end of such six (6)
month period or outside any such ten (10) day period shall
be null and void and shall be rejected automatically by
IASG.
I. Resale of Shares Acquired by Exercise of
Option. If the Stock underlying the ISO is not registered
under the 1933 Act or the applicable state securities law at
the time or times Employee exercises or surrenders the ISO,
Employee shall execute a written representation to IASG, in
form and substance satisfactory to IASG at such time or
times, that by such exercise or surrender he shall purchase
Stock only for investment purposes for his own account and
not with a view to, or for resale in connection with, the
distribution of such Stock. In addition, upon the exercise
or surrender of the ISO, Employee shall represent that, if
Employee is an "affiliate" (within the meaning of the 1933
Act or any applicable state securities law) of IASG at the
time of any proposed sale of any shares of Stock acquired
upon the exercise or surrender of the ISO, he shall not sell
or offer to sell any of such shares in the absence of (1) an
effective registration statement under the 1933 Act and any
applicable state securities law with respect to the proposed
sale of such shares or (2) an opinion, in form and substance
satisfactory to IASG, of legal counsel acceptable to IASG,
that an exemption from the registration requirements of the
1933 Act and any applicable state securities law is
available for the sale. In such case, the certificate
representing the shares of Stock which are transferred to
Employee upon exercise or surrender of the ISO may, in the
discretion of IASG, bear a legend satisfactory to IASG to
the effect that there has been no registration under the
1933 Act or any applicable state securities law and that the
Stock may not be sold or offered for sale in the absence of
(1) an effective registration statement as to the Stock
under the 1933 Act and any applicable state securities law
or (2) the delivery to IASG of an opinion, in form and
substance satisfactory to IASG, of legal counsel acceptable
to IASG, that such registration is not required. By
exercising or surrendering the ISO, Employee agrees that any
sales made by him of shares of Stock acquired through the
exercise or surrender of the ISO shall be made in accordance
with Rule 144 under the 1933 Act and any successor to such
Rule.
I. Not Employment Contract; No Shareholder
Rights; Construction of Option Certificate. This Option
Certificate (1) shall not be deemed a contract of
employment, (2) shall not give Employee any rights of any
kind or description whatsoever as a shareholder of IASG as a
result of the grant of the ISO or his exercise or surrender
of the ISO before the date of the actual delivery of Stock
subject to the ISO to such Employee, (3) shall not affect or
impair the right of IASG or a Subsidiary to terminate the
employment relationship existing with Employee at any time,
and (4) shall not confer on Employee any rights upon his
termination of employment in addition to those rights
expressly set forth in this Option Certificate.
I. Modification, Amendment, and Cancellation.
IASG shall have the right with Employee's consent to modify,
amend or cancel the ISO in accordance with the terms of the
Plan.
II. Delivery. IASG's delivery of Stock pursuant
to the exercise of this ISO (pursuant to 6 of this Option
Certificate) shall discharge IASG of all of its duties and
obligations with respect to that portion of the ISO
exercised.
I. Other Laws. IASG shall have the right to
refuse to issue or transfer any Stock under this ISO if IASG
determines that the issuance or transfer of such Stock might
violate any applicable law or regulation, and any payment
tendered in such event to exercise this ISO shall be
promptly refunded to Employee.
I. $100,000 Limit. Notwithstanding any other
provision in this Option Certificate to the contrary, in the
event the aggregate Fair Market Value of the shares of Stock
subject to the ISO and other incentive stock options (which
satisfy the requirements under 422 of the Code) granted to
Employee under the Plan and under any other stock option
plan adopted by IASG, a Subsidiary of IASG or a parent
corporation of IASG, which first become exercisable in any
calendar year exceed $100,000, the ISO shall be treated as
an option that is not an incentive stock option under 422
of the Code to the extent of such excess.
I. Other Conditions. If so requested by IASG
upon the exercise or surrender of the ISO, Employee shall
(as a condition to the exercise or surrender of any ISO
under this Option Certificate) enter into any other
agreement or make such other representations prepared by
IASG which in relevant part will restrict the transfer of
Stock acquired pursuant to this Option Certificate and will
provide for the repurchase of such Stock by IASG under
certain circumstances.
I. Tax Withholding. Employee shall have the
right to satisfy any income tax or other applicable
withholding requirement arising out of the exercise or
surrender of the ISO by electing to have IASG withhold Stock
that otherwise would be transferred to such Employee as a
result of the exercise or surrender of such ISO. To the
extent Employee does not satisfy such income tax or other
applicable withholding requirements by withholding Stock,
IASG shall have the right upon the exercise or surrender of
the ISO to take such action as IASG deems necessary or
appropriate to satisfy any income tax or other applicable
withholding requirements.
I. Governing Law. The Plan and the ISO shall be
governed by the laws of the State of Delaware.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
By:
Title:
Date:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 940,274
<SECURITIES> 0
<RECEIVABLES> 2,749,691
<ALLOWANCES> 735,000
<INVENTORY> 9,277,315
<CURRENT-ASSETS> 12,301,078
<PP&E> 4,734,082
<DEPRECIATION> 2,051,620
<TOTAL-ASSETS> 16,132,331
<CURRENT-LIABILITIES> 23,141,502
<BONDS> 406,760
0
0
<COMMON> 4,042
<OTHER-SE> (7,419,973)
<TOTAL-LIABILITY-AND-EQUITY> (7,415,931)
<SALES> 21,410,201
<TOTAL-REVENUES> 23,204,969
<CGS> 13,207,671
<TOTAL-COSTS> 18,747,042
<OTHER-EXPENSES> 2,157,910
<LOSS-PROVISION> 464,099
<INTEREST-EXPENSE> 2,191,968
<INCOME-PRETAX> 2,300,017
<INCOME-TAX> 14,048
<INCOME-CONTINUING> 2,285,969
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,285,969
<EPS-PRIMARY> .57
<EPS-DILUTED> .47
</TABLE>
