SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended February 28, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ________________ to __________________.
Commission file number 0-18352
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
Delaware 59-2223025
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1954 Airport Road, Suite 200, Atlanta, GA 30341
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 455-7575
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 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 __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The number of shares of the Company's common stock outstanding as
of April 15, 1997 was 2,395,095.
<PAGE>
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
May 31, 1996 and February 28, 1997
Condensed Consolidated Statements of Operations 4
Three Months and Nine months
Ended February 29, 1996 and February 28, 1997
Condensed Consolidated Statements of Cash Flows 5
Nine months
Ended February 29, 1996 and February 28, 1997
Notes to Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Part II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 3. Defaults upon Senior Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
Form 10-Q
International Airline Support Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
February 28,
May 31, 1997
1996* (unaudited)
Current assets ----------- ----------
<S> <C> <C>
Cash and cash equivalents $ 940,274 $ 681,107
Accounts receivable, net of
allowance for doubtful accounts
of approximately $735,000 at
May 31, 1996 and $881,000 at
February 28, 1997 2,014,691 2,078,877
Inventories 9,277,315 12,075,983
Deferred tax benefit - current,
net of valuation allowance
of $960,000 at May 31, 1996 and
February 28, 1997 - -
Other current assets 68,798 240,682
----------- ----------
Total current assets 12,301,078 15,076,649
Property and equipment
Aircraft and engines held for lease 2,974,760 1,214,458
Building and leasehold improvements 36,815 -
Machinery and equipment 972,507 887,359
---------- ----------
3,984,082 2,101,817
Accumulated depreciation 2,051,620 980,825
Land and building held for sale 750,000 750,000
---------- ----------
Property and equipment, net 2,682,462 1,870,992
Other assets
Deferred debt costs, net 762,431 597,952
Deferred tax benefit, net of
valuation allowance of
$3,011,000 at May 31, 1996 and
February 28, 1997 - -
Deferred restructuring fees 334,860 -
Deposits and other assets 51,500 -
---------- ----------
Total other assets 1,148,791 597,952
---------- ----------
$ 16,132,331 $ 17,545,593
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current maturities of
long-term obligations $ 3,695,108 $ 846,880
Long-term obligations in default
classified as current 14,041,667 -
Accounts payable 2,171,496 1,037,851
Accrued expenses 3,233,231 1,923,918
---------- ----------
Total current liabilities 23,141,502 3,808,649
Long-term obligations, less
current maturities
Credit Facility - revolver - 7,494,438
Credit Facility - term loan - 2,433,336
Other long-term obligations 406,760 -
---------- ----------
Total long-term obligations,
less current maturities 406,760 9,927,774
Commitments and contingencies
Stockholders' equity (deficit)
Preferred stock - $.001
par value; authorized 2,000,000
shares;
0 shares outstanding at May 31, 1996
and February 28, 1997. - -
Common stock - $.001 par value;
authorized 20,000,000 shares;
issued and outstanding 149,695 shares
at May 31, 1996 and
2,395,095 shares at
February 28, 1997. 150 2,395
Additional paid-in capital 2,658,224 13,033,686
Accumulated deficit (10,074,305) (9,226,911)
---------- ----------
Total stockholders' equity
(deficit) (7,415,931) 3,809,170
---------- ----------
$ 16,132,331 $ 17,545,593
========== ==========
</TABLE>
*Condensed from audited Financial Statements
Form 10-Q
International Airline Support Group, Inc. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine months Ended
February 29, February 28, February 28,
1996 1997 1996 1997
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Net sales $ 7,318,730 $ 5,398,573 $ 16,247,134 $ 14,240,684
Lease revenue 529,133 279,667 1,277,169 573,000
----------- ----------- ---------- ----------
Total revenues 7,847,863 5,678,240 17,524,303 14,813,684
Cost of sales 4,369,628 3,662,379 9,761,700 8,880,392
Selling, general and
administrative expenses 1,141,055 943,219 3,046,450 2,598,178
Financial restructuring costs 112,776 - 305,685 -
Provision for doubtful accounts 317,084 55,351 317,084 146,790
Depreciation and amortization 183,232 167,702 613,737 585,840
----------- ----------- ---------- ----------
Total operating costs 6,123,775 4,828,651 14,044,656 12,211,200
----------- ----------- ---------- ----------
Income from operations 1,724,088 849,589 3,479,647 2,602,484
Interest expense 475,306 283,568 1,511,700 1,189,761
Interest and other income (578) (24,814) (4,557) (67,899)
----------- ----------- ---------- ----------
Earnings before income taxes 1,249,360 590,835 1,972,504 1,480,622
Provision for income taxes - 87,833 - 102,632
Net earnings before extraordinary
loss on debt restructuring 1,249,360 503,002 1,972,504 1,377,990
----------- ----------- ---------- ----------
Extraordinary loss on debt
restructuring - - - (530,596)
Net earnings $ 1,249,360 $ 503,002 $ 1,972,504 $ 847,394
========== ========= ========== =========
Per share data:
Earnings per common
and common equivalent share
before loss on debt
restructuring $ 8.35 $ 0.21 $ 13.18 $ 1.04
Extraordinary loss on debt
restructuring - - - (0.40)
----------- ----------- ---------- ----------
Earnings per share $ 8.35 $ 0.21 $ 13.18 $ 0.64
=========== =========== ========== ==========
Weighted average shares
outstanding used in
calculation 149,696 2,395,095 149,696 1,330,608
=========== =========== ========== ==========
</TABLE>
Form 10-Q
International Airline Support Group, Inc. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
February 29, February 28,
1996 1997
---------- ----------
<S> <C> <C>
Cash flows from
operating activities:
net earnings $ 1,972,504 $ 847,394
Adjustments to reconcile net
earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization 613,737 762,631
Provision for doubtful accounts 335,413 146,790
Increase in inventory (935,587) (2,479,066)
Changes in accounts payable and
accrued expenses 767,904 (1,169,624)
Changes in other assets and liabilities (1,649,742) 199,236
--------- ---------
Total adjustments (868,275) (2,540,034)
Net cash provided by operating activities 1,104,229 (1,692,640)
Cash flows from investing activities:
Capital equipment additions (240,044) (93,973)
--------- ---------
Net cash used in investing activities (240,044) (93,973)
Cash flows from financing activities:
Repayments of debt obligations (1,481,803) (7,296,654)
Proceeds of new borrowings - 9,927,774
Payment of deferred
restructuring costs - (593,731)
Payment of deferred debt issue
costs - (509,943)
--------- ---------
Net cash used in financing
activities (1,481,803) 1,527,446
--------- ---------
Net decrease in cash (617,618) (259,167)
Cash and cash equivalents at
beginning of period 848,331 940,274
--------- ---------
Cash and cash equivalents at
end of period $ 230,713 $ 681,107
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain adjustments
(consisting only of normal and recurring adjustments) necessary to
present fairly International Airline Support Group, Inc.'s condensed
consolidated balance sheets as of May 31, 1996 and February 28, 1997,
the condensed consolidated statements of operations for the three and
nine months ended February 29, 1996 and February 28, 1997, and the
condensed consolidated statements of cash flows for the nine months
ended February 29, 1996 and February 28, 1997.
The accounting policies followed by the Company are described in
the May 31, 1996 financial statements.
The results of operations for the three and nine months ended
February 28, 1997 are not necessarily indicative of the results to be
expected for the full year.
2. Inventories consisted of the following:
May 31,1996 February 28,1997
----------- ----------------
Aircraft parts $ 7,938,049 $ 9,997,722
Aircraft and Engines
available for sale 1,339,266 2,078,261
--------- -----------
$ 9,277,315 $12,075,983
========= ===========
At February 28, 1997, approximately 99% of the ending inventory
(including aircraft and engines held for sale) was costed under the
specific identification method, and the remaining 1% was costed as
part of pools of parts acquired through whole aircraft purchases.
3. On October 3, 1996, the Company completed a restructuring of its
capital structure (the "Restructuring"). Pursuant to the
Restructuring, the Company effected a 1-for-27 reverse split of its
common stock, $.001 par value per share (the "Common Stock"); issued
approximately 2,245,400 shares of its Common Stock, after giving
effect to the reverse split, in exchange for the entire $10,000,000
principal amount outstanding of, and related accrued interest on, its
8% Convertible Debentures due November 30, 2003 (the "Debentures");
and redeemed the entire $7,700,000 principal amount outstanding of its
12% Senior Notes due July 17, 1997 (the "Senior Notes") with the
proceeds of an advance under a credit agreement entered into on
October 3 (the "Credit Agreement"). Consummation of the
Restructuring cured all defaults with respect to the Debentures and
the Senior Notes.
All references to the number of common shares and per common share
amounts throughout the financial statements have been restated to
reflect the reverse split.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Primary earnings per share is computed for the three months and
the nine months ended February 29, 1996 and February 28, 1997 by
dividing net earnings 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 antidilutive. 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 anti-dilutive. The
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.
5. Credit Facility
On October 3, 1996, the Company entered into the Credit
Agreement, which provides for a $3 million term loan and up to an
$11 million revolving credit (collectively referred to as the
"Credit Facility"). The Credit Facility is secured by
substantially all of the assets of the Company and availability of
amounts for borrowing is subject to certain limitations and
restrictions. Such limitations and restrictions are discussed in
the Company's Proxy Statement/Prospectus filed with the Securities
and Exchange Commission on August 29, 1996.
6. Supplemental Cash Flow Disclosures:
Cash payments for interest were $941,000 and $945,000 for the
nine months ended February 29, 1996 and February 28, 1997,
respectively. Cash and cash equivalents include $703,039 of
restricted cash at February 28, 1997. Restricted cash includes
customer receipts deposited into the Company's lockbox account, which
are applied the next business day against the outstanding amount of
the Credit Facility, and customer deposits on aircraft and engines
leases.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following is management's discussion and analysis of certain
significant factors which have affected the Company's operating
results and financial position during the periods included in the
accompanying condensed consolidated financial statements.
RESULTS OF OPERATIONS:
Revenues
Parts sales (excluding the sale of aircraft and engines) for the
three and nine months ended February 28, 1997 were $4.7 million and
$13.6 million, respectively, compared to $5.9 million and $14.4
million, respectively, during the three and nine months ended February
29, 1996. Aircraft and engine sales were $650,000 for both the three
and nine months ended February 28, 1997 compared to $1.5 million and
$1.8 million, respectively, for the three and nine months ended
February 29, 1996. Aircraft and engine sales are unpredictable
transactions and may fluctuate significantly from period to period,
dependent, in part, upon the Company's ability to purchase aircraft or
engines at attractive prices and resell them, as well as the overall
market for aircraft and engines. Lease revenue decreased to $280,000
and $573,000 during the three and nine months ended February 28, 1997,
respectively, compared to $529,000 and $1.3 million during the three
and nine months ended February 29, 1996, respectively. The decrease
in lease revenues was attributable to the termination of a lease
during fiscal year 1996. Total revenue during the three months ended
February 28, 1997 decreased to $5.7 million from $7.8 million during
the three months ended February 29, 1996, while total revenues during
the nine months ended February 28, 1997 decreased to $14.8 million
from $17.5 million during the nine months ended February 29, 1996.
This lower revenue was due primarily to extraordinary part sales
during the February 29, 1996 quarter attributable to the introduction
of a new aircraft type by one customer, lower lease revenue, and lower
aircraft and engine sales.
In addition, revenues during the nine months ended February 29,
1996 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 the inventory. The Company
recorded as net sales the cost of the inventory plus the amount of the
net gain.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
Cost of Sales
Cost of sales decreased 16.0% from $4.4 million during the three
months ended February 29, 1996 to $3.7 million during the three months
ended February 28, 1997, primarily as a result of lower revenues. Cost
of sales decreased 9.0% from $9.8 million during the nine months ended
February 29, 1996 to $8.9 million during the nine months ended
February 28, 1997, primarily as a result of lower revenues. As a
percentage of total revenues, cost of sales for the three and nine
months ended February 28, 1997 was 64% and 60%, respectively, compared
to 56% during both the three and nine months ended February 29, 1996.
The increase in the cost of sales as a percentage of revenues is in
large part due to lower aircraft and engine sales in fiscal year 1997.
Excluding aircraft and engine transactions, which transactions are
unpredictable and fluctuate from period to period, cost of sales as a
percentage of part sales during the three and nine months ended
February 29, 1996 was 65% and 62%, respectively, compared to 67% and
62% during the three and nine months ended February 28, 1997,
respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased from $1.1
million and $3.0 million during the three and nine months ended
February 29, 1996, respectively, to $943,000 and $2.6 million during
the three and nine months ended February 28, 1997, respectively. This
decrease is due, in part, to lower levels of salary and bonuses,
professional fees, commissions paid to outside representatives, and
expenses relating to the Company's Texas operation. These lower levels
of expenses resulted from the closure of the Company's Texas operation,
a reduction in the Company's workforce from fiscal 1996 levels,
and the capitalization of certain financial restructuring costs.
Financial Restructuring Costs
Included during the three and nine months ended February 29, 1996
were approximately $113,000 and $306,000, respectively, of legal,
accounting and other consulting fees in connection with the Company's
debt restructuring activities. Such costs were subsequently
capitalized as deferred restructuring fees during the fourth fiscal
quarter ended May 31, 1996. In connection with the successful
completion of the Restructuring on October 3, 1996, as described in
Note 3 of Notes to Condensed Consolidated Financial Statements,
deferred restructuring costs were charged to additional paid-in
capital, as of the closing date of the Restructuring.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
Depreciation and Amortization
Depreciation and amortization for the three and nine months ended
February 29, 1996 totaled $183,000 and $614,000, respectively,
compared to $168,000 and $586,000 for the three and nine months ended
February 28, 1997, respectively.
Interest Expense
Interest expense for the three and nine months ended February 29,
1996 was $475,000 and $1.5 million, respectively, compared to $284,000
and $1.2 million for the three and nine months ended February 28,
1997, respectively. The decrease in interest expense from 1996 to
1997 was due to a net reduction in total debt outstanding during this
period from $18.9 million at February 29, 1996 to $10.8 million at
February 28, 1997.
Income Taxes
The Company recorded an income tax provision of $88,000 and
$103,000 during the three and nine months ended February 28, 1997,
respectively. No income tax provision or benefits were recorded
during the three and nine months ended February 29, 1996,
respectively, as the Company had net operating loss carryforwards
sufficient to offset income.
Loss on Debt Restructuring
In connection with the Restructuring, the Company recorded an
extraordinary loss of $530,596 relating to the exchange of the
Debentures.
Liquidity and Capital Resources
On October 3, 1996, the Company completed a Restructuring of the
Senior Notes and Debentures. The terms of the Restructuring and
impact on the Company's liquidity and capital resources are discussed
in the Company's Proxy Statement/Prospectus filed with the Securities
and Exchange Commission on August 29, 1996.
Concurrently with the Restructuring, the Company entered into the
Credit Agreement, which provides for a $3 million term loan and up to
an $11 million revolving credit (collectively referred to as the
"Credit Facility"). The Credit Facility is secured by substantially
all of the assets of the Company and availability of amounts for
borrowing is subject to certain limitations and restrictions. Such
limitations and restrictions are discussed in the Company's Proxy
Statement/Prospectus filed with the Securities and Exchange Commission
on August 29, 1996.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
At February 28, 1997, the Company was permitted to borrow up to an
additional $2.5 million pursuant to the revolving credit facility.
The Company believes that amounts available to be borrowed pursuant to
the Credit Agreement and its working capital will be sufficient to
meet the requirements of the Company's business for the foreseeable
future. The Company had no material commitments for capital
expenditures as of February 28, 1997.
Forward Looking Statements
This Form 10-Q contains statements that may constitute "forward-
looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Those statements include statements
regarding the capital spending and future financing plans of the
Company and reflect the intent, belief or current expectations of the
Company and members of its management team. Prospective investors are
cautioned that any such forward-looking statements are not guarantees
of future performance and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements. The Company undertakes no obligation to
update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to
future operating results over time.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is from time to time subject to legal proceedings and
claims that arise in the ordinary course of its business. On the date
hereof, no such proceedings are pending and no such claims have been
asserted.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Prior to the Restructuring, the Company was in default in the
payment of principal and certain payments of interest on the Senior
Notes and was in default in the payment of interest on the Debentures.
On October 3, 1996, the Company completed the Restructuring.
Pursuant to the Restructuring, the Company effected a 1-for-27 reverse
split of its Common Stock; issued approximately 2,245,400 shares of
its Common Stock, after giving effect to the reverse split, in
exchange for the entire $10,000,000 principal amount outstanding of
the Debentures; and redeemed the entire $7,700,000 principal amount
outstanding of the Senior Notes with the proceeds of an advance under
the Credit Agreement. Consummation of the restructuring cured all
defaults with respect to the Debentures and the Senior Notes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Page Number or
Exhibit Number Description Method of Filing
- -------------- ----------- ----------------
2.1.1 Form of Standstill Incorporated by reference
Agreement dated July 8, to exhibit 2.1.1 to the
1996 among the Registrant Company's Registration
and the holders of the Statement on Form S-4
Registrant's 12% Senior (File No. 333-08065),
Secured Notes due 1997 filed July 12,1996
who are signatories
thereto.
2.1.2 Form of Standstill Incorporated by reference
Agreement dated July 11, to Exhibit 2.1.2 to the
1996 among the Registrant Company's Annual Report
and the holders of the on form 10-K for the fiscal
Registrant's 12% Senior year ended May, 31 1996,
Secured Notes due 1997 as amended (the "1996 Form
who are signatories 10K").
thereto.
2.2 Form of Warrant Agreement Incorporated by reference
Amendment No. 1, dated as to Exhibit 2.2 to the
of July 9, 1996, among Company's Registration
the Registrant and the Statement on Form S-4
holders of the Warrants, (File No. 333-08065),
dated July 17, 1992, who filed on July 12, 1996
are signatories thereto.
2.3 Letter, dated June 7, Incorporated by reference
1996, from BNY Financial to Exhibit 2.3 to the
Corporation to the Company's Registration
Registrant with attached Statement on Form S-4
Term Sheet. (File No. 333-08065),
filed on July 12, 1996.
2.4 Credit Agreement between Incorporated by reference
BNY Financial Corporation to Exhibit 2.4 to the
and the Registrant. 1996 Form 10-K.
3.1 Amended and Restated Incorporated by reference
Certificate of to Exhibit 3.1 to the
Incorporation of the 1996 Form 10-K.
Registrant.
3.2 Restated and Amended Incorporated by reference
Bylaws of the Registrant, to Exhibit 3.2 to the
as amended. 1996 Form 10-K.
4.1 Specimen Common Stock Incorporated by reference
Certificate. to Exhibit 4.1 to the
1996 Form 10-K.
4.2 Form of Warrant issued to Incorporated by reference
holders of Senior Notes. to 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
Subordinated Debentures to Exhibit 4.3 to the
due August 31, 2003. 1993 Form 10-K.
4.4 Form of 12% Senior Incorporated by reference
Secured Notes. to 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, Incorporated by reference
dated as of December 1, to Exhibit 10.1.1 to the
1995, between the 1996 Form 10-K.
Registrant and Alexius A.
Dyer III, as amended on
October 3, 1996.
10.1.2 Employment Agreement, Filed herewith.
dated as of October 3,
1996, between the
Registrant and George
Murnane III.
10.2.1 1996 Long-Term Incentive Incorporated by reference
and Share Award Plan. to 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
on 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 Incorporated by reference
Certificate (Employee to Exhibit 10.2.5 to the
Non-Qualified Stock 1996 Form 10-K.
Option).
10.2.6 Form of Option Incorporated by reference
Certificate (Director to Exhibit 10.2.6 to the
Non-Qualified Stock 1996 Form 10-K.
Option).
10.2.7 Form of Option Incorporated by reference
Certificate (Incentive to Exhibit 10.2.7 to the
Stock Option). 1996 Form 10-K.
10.7 Settlement Stipulation, Incorporated by reference
dated January 31, 1995, to Exhibit 10.7.3 to the
among Admark Company's Annual Report
International, Ltd., in Form 10-K for the
Plaintiff and Norville fiscal year ended
Trading Company Ltd., May 31, 1995 (the "1995
International Airline Form 10-K").
Support Group, Inc., and
Richard R. Wellman,
Defendants.
10.8 Purchase Agreement, dated Incorporated by reference
January 1995, among to Exhibit 10.1 to the
International Airline Company's 10-Q/A for the
Support Group, Inc., quarter ended August 31,
Richard R. Wellman, Lynda 1994.
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
Agreement, dated January to Exhibit 10.2 to the
31, 1995, between Registrant's Form 10-Q/A
International Airline for the quarter ended
Service Center, Inc. and August 31, 1994.
Express One International, Inc.
10.11 Notice of Payment Incorporated by reference
Blockage, dated May 25, to Exhibit 10.11 to the
1995. 1995 Form 10-K.
10.12 Form of Engagement Letter Incorporated by reference
dated February 16, 1996, to Exhibit 10.12 to the
between the Registrant Company's Registration
and Kirkland Messina, Statement on Form S-4
Inc. (filed herewith). (File No. 333-08065),
filed on July 12, 1996.
10.14 Commission Agreement Incorporated by reference
dated December 1, 1995 to Exhibit 10.14 to the
between the Registrant 1996 Form 10-K.
and J.M. Associates, Inc.
10.15 Aircraft Parts Purchase Incorporated by reference
Agreement, dated May 16, to Exhibit 10.15 to the
1996, between Paxford Company's Registration
Int'l, Inc. and the Statement on Form S-4
Registrant. (File No. 333-08065).
11 Statement regarding Incorporated by reference
computation of per share to Exhibit 11 to the 1996
earnings. Form 10-K.
21 Subsidiaries. Incorporated by reference
to Exhibit 21 to the 1996
Form 10-K.
27 Financial Data Schedule. Page no. 19
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on July 12, 1996.
The date of the report was July 12, 1996. The report
was with respect to Item 5.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
- -----------------------------------------
(Registrant)
/s/George Murnane III April 15, 1997
George Murnane III --------------
Executive Vice President and Date
Chief Financial Officer
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 1. Employment.
1.1. 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.
1.2. 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 2. 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 3. Compensation; Expenses.
3.1. 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 4. Additional Employment Benefits.
During the Employment Term and any Renewal Term, Company
shall provide Executive with the following fringe benefits
(collectively, the "Benefits"):
4.1. 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.
4.2. 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.
4.3. 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 5. Termination.
The following provisions relate solely to termination of the
Executive's employment during the Employment Term and any Renewal
Term:
5.1. Death or Disability.
(a) Subject to Section 7 below, this Agreement
shall terminate automatically upon the Executive's death.
(b) 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.
5.2. 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.
5.3. 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 6. 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 7. Obligations of the Company Upon Termination.
The following provisions apply only in the event the
Executive's employment hereunder is terminated.
7.1. 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.
7.2. 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.
7.3. 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.
7.4. Termination Without Cause. If the Company shall
terminate the Executive's employment with the Company without
Cause:
(a) 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;
(b) 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;
(c) 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 Company's obligation to provide such
office space shall termination upon the Executive's
commencement of other employment.
7.5. 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 8. 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 9. 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.
Section 10. 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 11. 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 12. Miscellaneous.
12.1. 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.
12.2. 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.
12.3. 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.
12.4. 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:
(a) If to Company:
International Airline Support Group, Inc.
8095 Northwest 64th Street
Miami, Florida 33166
(b) If to Executive, addressed to:
Mr. George Murnane III
International Airline Support Group, Inc.
8095 Northwest 64th Street
Miami, Florida 33166
12.5. 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.
12.6. 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
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