SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended MAY 31, 1999
[ ] 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.
(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 Employer
Incoproration or Organization) Identification Number)
1954 Airport Road, Suite 200,
Atlanta, Georgia 30341
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(Address of Principal Executive Offices) (Zip Code)
(770) 455-7575
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of class Name of each exchange on which registered
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Common Stock, $.001 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: 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. [X]
At August 10, 1999, the aggregate market value of common stock held by
non-affiliates of the Registrant was approximately $8,795,936.
The number of shares of the Registrant's Common Stock outstanding as
of August 10, 1999 was 2,187,598.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the 1999 Annual Meeting of the
Company's Stockholders are incorporated by reference in Parts III and IV.
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INTERNATIONAL AIRLINE SUPPORT GROUP INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MAY 31, 1999
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 1
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for the Registrant's Common Stock
and related Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial
Owners and Management 20
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 21
SIGNATURES
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[THIS PAGE INTENTIONALLY LEFT BLANK]
PART I
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ITEM 1. BUSINESS.
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE "EXCHANGE ACT"), INCLUDING THE PLANS AND
OBJECTIVES OF MANAGEMENT FOR THE BUSINESS, OPERATIONS AND ECONOMIC
PERFORMANCE OF THE COMPANY. THE FORWARD-LOOKING STATEMENTS AND ASSOCIATED
RISKS SET FORTH IN THIS ANNUAL REPORT MAY INCLUDE OR RELATE TO, AMONG OTHER
THINGS, (I) INCREASING THE COMPANY'S MARKET SHARE OF PARTS FOR CERTAIN
COMMUTER AIRCRAFT, WHILE MAINTAINING ITS POSITION AS A LEADING
REDISTRIBUTOR OF PARTS FOR MD-80 AND DC-9 AIRCRAFT, (II) POTENTIAL
ACQUISITIONS OF ADDITIONAL INVENTORIES OF AIRCRAFT SPARE PARTS AND THE
ACQUISITION OF OTHER COMPANIES, ASSETS OR PRODUCT LINES THAT WOULD
COMPLEMENT OR EXPAND THE COMPANY'S EXISTING AIRCRAFT SPARE PARTS BUSINESS,
(III) DEMAND AMONG THE COMPANY'S PRINCIPAL CUSTOMERS, INCLUDING CARGO
CARRIERS AND REGIONAL COMMERCIAL AIRLINES, FOR THE COMPANY'S INVENTORY OF
PARTS, (IV) THE SIZE AND GROWTH RATE OF THE AIRCRAFT PARTS REDISTRIBUTION
INDUSTRY AND THE AIRCRAFT AND ENGINE LEASING INDUSTRY, (V) INCREASES OR
CHANGES IN GOVERNMENT REGULATIONS REGARDING THE AVIATION INDUSTRY, (VI)
COMPETITION FROM OTHER AIRCRAFT PARTS REDISTRIBUTORS AND (VII) PROPOSED
EXPANSION OF THE COMPANY'S PRODUCT LINE. SEE "CAUTIONARY STATEMENTS"
HEREIN.
THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN ARE BASED UPON CURRENT
EXPECTATIONS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. THESE
FORWARD-LOOKING STATEMENTS ARE BASED UPON ASSUMPTIONS THAT THE COMPANY WILL
CONTINUE TO MANAGE ITS INVENTORY EFFECTIVELY, THAT COMPETITIVE CONDITIONS
WITHIN THE AIRCRAFT PARTS REDISTRIBUTION INDUSTRY WILL NOT CHANGE
MATERIALLY OR ADVERSELY, THAT DEMAND FOR AIRCRAFT SPARE PARTS WILL REMAIN
STRONG, THAT THE COMPANY WILL BE ABLE TO ENTER INTO NEW LEASES OF AIRCRAFT
AS EXISTING LEASES EXPIRE, THAT THE COMPANY WILL BE ABLE TO PURCHASE
AIRCRAFT THAT ARE SUBJECT TO LEASES, AND THAT THERE WILL BE NO MATERIAL
ADVERSE CHANGE IN THE COMPANY'S BUSINESS, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. ASSUMPTIONS RELATING TO THE FOREGOING INVOLVE JUDGMENTS
WITH RESPECT, AMONG OTHER THINGS, TO FUTURE ECONOMIC COMPETITIVE MARKET
CONDITIONS AND FUTURE BUSINESS DECISIONS, ALL OF WHICH ARE DIFFICULT OR
IMPOSSIBLE TO PREDICT ACCURATELY AND MOST OF WHICH ARE BEYOND THE CONTROL
OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS
UNDERLYING THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE
ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE, THERE CAN BE NO
ASSURANCE THAT THE RESULTS CONTEMPLATED IN SUCH FORWARD-LOOKING INFORMATION
WILL BE REALIZED. IN ADDITION, AS DISCLOSED ABOVE, THE BUSINESS AND
OPERATIONS OF THE COMPANY ARE SUBJECT TO SUBSTANTIAL RISKS THAT INCREASE
THE UNCERTAINTY INHERENT IN SUCH FORWARD-LOOKING STATEMENTS. ANY OF THE
OTHER FACTORS DISCLOSED ABOVE COULD CAUSE THE COMPANY'S REVENUES OR NET
EARNINGS, OR GROWTH IN REVENUES OR NET EARNINGS, TO DIFFER MATERIALLY FROM
PRIOR RESULTS. FURTHERMORE, A CHANGE IN THE MARKET FOR AIRCRAFT AND ENGINE
PARTS COULD RESULT IN THE COMPANY'S INVENTORY BEING OVERVALUED AND COULD
REQUIRE THE COMPANY TO WRITE DOWN ITS INVENTORY VALUATIONS IN ORDER TO
BRING THEM IN LINE WITH THE REVISED FAIR MARKET VALUE. THERE IS NO
ASSURANCE THAT A WRITE-DOWN WOULD NOT ADVERSELY AFFECT THE COMPANY'S
BUSINESS, OPERATING RESULTS OR FINANCIAL CONDITION. GROWTH IN ABSOLUTE
AMOUNTS OF COST OF SALES AND GENERAL AND ADMINISTRATIVE EXPENSES OR THE
OCCURRENCE OF EXTRAORDINARY EVENTS COULD CAUSE ACTUAL RESULTS TO VARY
MATERIALLY FROM THE RESULTS CONTEMPLATED IN THE FORWARD-LOOKING STATEMENTS.
BUDGETING AND OTHER MANAGEMENT DECISIONS ARE SUBJECTIVE IN MANY RESPECTS
AND THUS SUSCEPTIBLE TO INTERPRETATIONS AND PERIODIC REVISIONS BASED ON
ACTUAL EXPERIENCE AND BUSINESS DEVELOPMENTS, THE IMPACT OF WHICH MAY CAUSE
THE COMPANY TO ALTER ITS MARKETING, CAPITAL EXPENDITURE OR OTHER BUDGETS,
WHICH MAY IN TURN AFFECT THE COMPANY'S RESULTS OF OPERATIONS. IN LIGHT OF
THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING INFORMATION
INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED
AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES
OR PLANS OF THE COMPANY WILL BE ACHIEVED.
General
The Company is a leading redistributor of aftermarket aircraft spare
parts used primarily for McDonnell Douglas MD-80 and DC-9 aircraft and
commuter turboprop aircraft. According to the World Jet Inventory Year-End
1998 (the "World Jet Inventory"), MD-80 and DC-9 aircraft accounted for
approximately 14% of the commercial jet aircraft in service worldwide at
December 31, 1998. Management believes that the Company has one of the
most extensive inventories of aftermarket MD-80, DC-9 and Embraer EMB-120
Brasilia parts in the industry. In addition, the Company provides aircraft
spare parts for Boeing, Lockheed, Airbus and other McDonnell Douglas and
commuter turboprop aircraft. The aircraft spare parts distributed by the
Company, including avionics, rotable and expendable airframe and engine
parts, are sold to a wide variety of domestic and international air cargo
carriers, major commercial and regional passenger airlines, maintenance and
repair facilities and other redistributors. The wide variety of aircraft
spare parts distributed by the Company are acquired through purchase or
consignment of surplus or bulk inventories from airlines, purchases from
other redistributors and disassembly of aircraft.
In addition to being a provider of aircraft spare parts, the Company
leverages its industry expertise to purchase, sell and lease aircraft and
engines. The Company has periodically acquired, leased and sold a variety
of narrow-body commercial jet aircraft, such as Boeing 727 and 737 and
McDonnell Douglas MD-80 and DC-9 aircraft, and commuter turboprop aircraft,
such as Embraer EMB-120 aircraft. The Company currently leases two Embraer
EMB-120 aircraft and five Pratt & Whitney JT8D series engines. The Company
also owns a 50% interest in a joint venture that leases 20 DC-9-41H
aircraft to Scandinavian Airlines System ("SAS"). The Company derives
revenue from lease payments and seeks to sell spare parts to the lessee
both for the leased aircraft and other aircraft in the lessee's fleet.
Upon return of the aircraft, the Company either re-leases, sells or
disassembles the aircraft for parts in order to achieve the highest
utilization of the asset. The Company believes that its aircraft trading
activities and its parts redistribution business complement one another.
Therefore, the Company is increasing its focus on aircraft trading and
leasing activities.
COMPANY HISTORY
The Company was founded in 1982 in Miami, Florida. Initially the
Company focused on parting out DC-8 aircraft and reselling the resulting
spare parts. Based upon the Company's success in parting out DC-8
aircraft, in 1991, the Company began purchasing and parting out DC-9 and
MD-80 aircraft. Beginning in 1992, the Company began purchasing and
parting out Boeing 727 aircraft. Since its founding, the Company has
acquired over 50 aircraft for parting out. The Company has also engaged in
aircraft and engine trading throughout its history. During fiscal 1999 and
the first quarter of fiscal 2000, the Company expanded its core aftermarket
parts business by acquiring significant parts inventories for McDonnell
Douglas DC-10 and Embraer EMB-120 aircraft. The Company also expanded its
aircraft trading activities during fiscal 1999 and the first quarter of
fiscal 2000, completing the purchase of six and the sale of two EMB-120
aircraft.
INDUSTRY OVERVIEW
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. The Company believes that this market will continue to grow due to
the following factors:
INCREASE IN THE NUMBER OF OLDER COMMERCIAL AIRCRAFT. Increased demand
for air travel and the need for aircraft operators to reduce operating and
capital costs have prompted many airlines to extend the useful life of
older equipment. According to the World Jet Inventory, at December 31,
1998, the average age of the worldwide jet fleet was 13.6 years. The
installation of FAA-approved hush-kits and extended life maintenance
programs have also increased the useful life of many older aircraft. As a
result, most aircraft types have had longer service lives than originally
certified. In addition, many foreign and domestic aircraft operators and
cargo carriers are increasing their fleets through the acquisition of less
expensive used aircraft. As older aircraft are transitioned from major
domestic passenger airlines to lower cost international and regional
domestic passenger airlines and cargo carriers, used aircraft have enjoyed
longer service lives than originally anticipated. Older aircraft typically
require more maintenance and replacement parts than new aircraft.
REDUCTION IN NUMBER OF APPROVED SUPPLIERS. Cost considerations cause
many aircraft operators to reduce the size of their spare parts
inventories, while efficiency and quality concerns may cause aircraft
operators to maintain relationships with a more limited number of approved
suppliers. Quality concerns are causing aircraft operators to demand that
their suppliers be quality certified by organizations such as the Airline
Suppliers Association ("ASA") or the International Standards Organization
("ISO") and at least one major commercial airline has begun to demand that
its suppliers carry product liability insurance. In addition, as aircraft
operators adopt just-in-time inventory procurement processes, inventory
storage is increasingly handled by suppliers such as the Company. The
Company believes that these trends will continue in the future and will
benefit well-positioned aircraft parts suppliers such as the Company.
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INCREASED INVENTORY CONSIGNMENT. Certain of the Company's customers
adjust inventory levels on a periodic basis by disposing of excess aircraft
spare parts. Traditionally, larger airlines have used internal sales
agents to manage such dispositions. The Company believes that major
airlines and other owners of aircraft spare parts, in order to concentrate
on their core businesses and to more effectively monetize their excess
parts and inventories, are increasingly entering into long-term consignment
agreements with redistributors. By consigning inventories through a
redistributor such as the Company, customers are able to offer their
aircraft spare parts to a larger number of prospective inventory buyers,
allowing the customer to maximize the value of its inventory. Consignment
also enables a consignee to offer for sale significant parts and inventory
at minimal capital cost.
MODERNIZATION OF COMMUTER FLEETS. Many of the larger regional
commuter airlines are modernizing their fleets by retiring their turboprop
aircraft and acquiring short-range commuter jet aircraft. As a result, the
retired commuter turboprop aircraft and related spare parts inventories are
available for purchase at favorable prices. The Company believes that
smaller regional commuter airlines will upgrade their fleets by replacing
the small turboprop aircraft they currently operate with larger, more
efficient turboprop aircraft being retired by the larger regional commuter
airlines. Accordingly, the Company believes that small regional commuter
airlines are potential customers for the aircraft and related spare parts
being retired by the larger regional commuter airlines. The Company also
believes that there is a significant opportunity for the redeployment of
certain types of the commuter turboprop aircraft as cargo aircraft.
COMPANY STRATEGY
The Company's strategy is to capitalize upon its position as a leading
redistributor of MD-80, DC-9 and commuter turboprop aircraft spare parts
and to broaden its product lines to include other high-use aircraft as the
world fleet grows. Key elements of the Company's strategy include:
EXPAND AIRCRAFT AND ENGINE TRADING AND LEASING. The Company believes
that due to the increasing costs of commercial aircraft, the anticipated
growth of the worldwide aircraft fleet, and the emergence of new regional
airlines, aircraft operators will increasingly turn to operating leases as
an alternative method to finance their aircraft and engine needs. The
Company believes that leasing used commercial aircraft and engines should
grow due to the emphasis on airline cost reduction, the desire of airlines
for fleet flexibility and the growth in air travel. In addition, several
smaller and regional airlines have recently chosen to lease inventories of
aircraft spare parts in order to preserve capital while maintaining
adequate spare parts support.
The Company has periodically acquired, leased and sold a variety of
aircraft and engines. The Company derives revenue from lease payments and
seeks to sell spare parts to the lessee both for the leased aircraft as
well as other aircraft in the lessee's fleet. Upon return of the aircraft,
the Company either re-leases, sells or disassembles the aircraft for parts
in order to achieve the highest utilization of the asset. In the case of
aircraft that are disassembled for parts, the lease revenues reduce the
Company's cost of the aircraft and, therefore, the parts acquired from
disassembly of the aircraft. The Company purchases aircraft and engines
for resale when it believes the aircraft or engines can be purchased at an
attractive price and resold within a relatively brief period of time. The
Company has determined that its spare parts sales opportunities are
enhanced by providing existing and new customers with whole aircraft and
engines through sale and lease transactions. Therefore, the Company
believes that its aircraft trading activities and its parts redistribution
business complement one another. The Company has increased its aircraft
trading and leasing activities and intends to do so further.
BROADEN PRODUCT LINE. The Company has recently expanded its product
line to include aftermarket parts for Airbus A-300, McDonnell Douglas DC-10
and Boeing 747 aircraft and certain commuter aircraft including Embraer,
Shorts, Saab, de Havilland, British Aerospace and ATR aircraft. In
addition, the Company intends to expand further its product line to include
parts for Boeing 767 aircraft. As fleets of these aircraft age and as air
cargo carriers transition larger portions of their fleets to wide-body
aircraft, the Company will seek to capitalize on the demand for parts
resulting from the aging and continued use of these aircraft models.
Several air cargo carriers currently utilize DC-10, 767 and A-300 series
aircraft, and the Company believes use of these models will continue to
increase. The Company believes that a significant number of these aircraft
types have been or will be converted to cargo use and that its relationship
with cargo carriers will provide an advantage in supplying parts for these
aircraft to such customers. The Company also believes that there is a
significant opportunity for the redeployment of the Embraer EMB-120 and
Saab 340 aircraft as a cargo aircraft, as commuter carriers convert their
fleets to small jet aircraft.
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INCREASE SALES TO CARGO CARRIERS, REGIONAL COMMERCIAL AIRLINES AND
COMMUTER AIRLINES. Cargo carriers, regional commercial airlines and
commuter airlines are among the Company's principal customers. Cargo
carriers are important customers because the fleets of such operators
typically consist of older aircraft of the type for which the Company
maintains an extensive inventory of parts. Additionally, such customers
typically do not maintain extensive inventories of spare parts. Regional
commercial airlines are important customers because such airlines favor
narrow-body aircraft, such as MD-80 and DC-9 aircraft, for which the
Company is a primary source of spare parts. The smaller commuter airlines
are important customers because their fleets consist primarily of the
turboprop aircraft being retired by the larger commuter airlines. The
Company has acquired an extensive inventory of aftermarket parts for
several popular commuter turboprop aircraft types. The Company will direct
its marketing activities to broadening its customer base of cargo, regional
and commuter airlines in order to increase market share and leverage its
core competencies.
UTILIZE CONSIGNMENT AGREEMENTS TO ACQUIRE INVENTORY. In recent years,
the Company acquired most of its aircraft parts inventory by purchasing
large numbers of parts in bulk from aircraft operators. The Company has
recently begun to acquire inventory by means of strategic consignment
arrangements. Pursuant to a consignment arrangement, an aircraft operator
permits the Company to market and sell an inventory of aircraft parts. The
Company receives a percentage of the sales price of a consigned part.
Consignment arrangements allow the Company to obtain parts inventory on a
favorable basis without committing its capital to purchasing inventory.
The Company's margins on sales of consigned parts are, however, typically
lower than margins realized on sales of parts acquired by other methods.
During calendar year 1999, the Company completed three significant
consignment agreements. The Company believes that its market presence,
experience in evaluating parts inventories, sophisticated management
information systems and capital strength will enable the Company to enter
into additional consignment arrangements.
SEEK ADDITIONAL BULK PURCHASE OPPORTUNITIES. The Company will
continue to seek opportunities to purchase large spare parts inventories in
bulk. The Company cannot predict when such opportunities will arise. Bulk
purchase opportunities arise when airlines, in order to reduce capital
requirements, sell large amounts of inventory in a single transaction, when
inventories of aircraft spare parts are sold in conjunction with corporate
restructurings or reorganizations or when an aircraft operator realigns its
aircraft fleet, reducing the number of or exiting a particular aircraft
model. Bulk inventory purchases allow the Company to obtain large
inventories of aircraft spare parts at a lower cost than can ordinarily be
obtained by purchasing parts on an individual basis. Therefore, the
Company realizes higher gross margins on sales of parts acquired by bulk
purchases, as opposed to other methods. However, bulk inventory purchases
require a commitment of the Company's capital. The Company believes that
it has the ability, due to its market presence, experience in evaluating
parts inventories, sophisticated management information systems and capital
strength, to complete large bulk purchase opportunities to the extent such
purchases are considered favorable.
MAINTAIN MARKET SHARE OF PARTS FOR MD-80 AND DC-9 AIRCRAFT. Recently
several of the Company's competitors have increased their inventories of
parts for MD-80 and DC-9 aircraft. The Company intends to maintain its
market share of parts for such aircraft despite such competition.
According to the World Jet Inventory, MD-80 and DC-9 aircraft together
accounted for approximately 14% of the commercial jet aircraft in service
worldwide at December 31, 1998. Although the DC-9 is no longer in
production, many of the DC-9's parts are interchangeable with the MD-80,
which is still in production. The Company believes that its experience and
knowledge of the DC-9 gives it a competitive advantage in selling parts
into the MD-80 marketplace. Boeing has indicated its intention to cease
production of the MD-80 when current production commitments end. The
Company intends to capitalize on the limited availability of new 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 disassembly when economically
justified. The Company believes that its knowledge of the fleets of MD-80s
and DC-9s currently in operation and its worldwide contacts in the
commercial aviation industry will permit it to acquire other inventory
pools and aircraft for disassembly on favorable terms in the future.
CONTINUED COMMITMENT TO QUALITY AND TECHNOLOGICAL INNOVATION. The
Company emphasizes adherence to high quality standards during each stage of
its operations (product acquisition, documentation, inventory control and
delivery). In August 1997, the ASA, an FAA-recognized independent quality
assurance organization, accredited the Company as an aftermarket supplier.
In addition, the Company believes it was one of the first aftermarket
redistributors to bar-code its inventory and it has created and sponsors an
industry-wide Internet parts locator service for its customers, which
heightens awareness of the Company, enhances its position in the industry
and increases sales of parts.
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PURSUE STRATEGIC ACQUISITIONS. The Company competes in a fragmented
market in which numerous small companies serve distinct market niches. The
Company believes that small aftermarket parts redistributors, many of which
are family-owned or capital constrained, are unable to provide the
extensive inventory and quality control measures necessary to comply with
applicable regulatory and customer requirements, and will provide
acquisition opportunities for the Company. Similarly, the Company believes
that many small aircraft leasing companies are potential acquisition
targets. Acquisitions are expected to increase the Company's customer
base, expand its product line both with respect to aircraft in which the
Company currently specializes and into new aircraft types, to strengthen
its relationships with existing customers through availability of
additional inventory and permit the Company to expand its aircraft trading
opportunities.
AIRCRAFT SPARE PARTS
Aircraft spare parts can be categorized by their ongoing ability to be
repaired and returned to service. The general categories are as follows:
(i) rotable; (ii) repairable; and (iii) expendable. A rotable is a part
which is removed periodically as dictated by an operator's maintenance
program or on an as-needed basis and is typically repaired or overhauled
and re-used an indefinite number of times. An important subset of rotables
is life limited parts. A life limited rotable has a designated number of
allowable flight hours and/or cycles (one take-off and landing generally
constitutes one cycle) after which it is rendered unusable. A repairable
is similar to a rotable except that it can only be repaired a limited
number of times before it must be discarded. An expendable is generally a
part which is used and not thereafter repaired for further use.
Aircraft spare parts' conditions are classified within the industry as
(i) factory new, (ii) new surplus, (iii) overhauled, (iv) serviceable and
(v) as removed. A factory new or new surplus part is one that has never
been installed or used. Factory new parts are purchased from manufacturers
or their authorized distributors. New surplus parts are purchased from
excess stock of airlines, repair facilities or other redistributors. An
overhauled part has been completely disassembled, inspected, repaired,
reassembled and tested by a licensed repair facility. An aircraft spare
part is classified serviceable if it is repaired by a licensed repair
facility rather than completely disassembled as in an overhaul. A part may
also be classified serviceable if it is removed by the operator from an
aircraft or engine while operating under an approved maintenance program
and is functional and meets any manufacturer or time and cycle restrictions
applicable to the part. With appropriate documentation, a factory new, new
surplus, overhauled or serviceable part designation indicates that the part
can be immediately utilized on an aircraft. A part in as removed condition
requires functional testing, repair or overhaul by a licensed facility
prior to being returned to service in an aircraft. The aircraft spare
parts sold by the Company include avionics, rotable and expendable airframe
and engine parts for commercial aircraft. Currently, the Company
specializes in replacement parts for MD-80, DC-9 and commuter turboprop
aircraft and management believes that the Company has one of the most
extensive inventories of aftermarket MD-80, DC-9 and EMB-120 parts in the
industry. Currently, the Company has approximately 70,000 inventory line
items, many of which represent multiple unit quantities and relate to the
MD-80, DC-9 and EMB-120 aircraft. Many of these parts, such as avionics
and engine parts, can also be used by a wide variety of aircraft other than
MD-80, DC-9 and EMB-120 aircraft. In addition to the Company's inventory
of MD-80, DC-9 and EMB-120 parts, the Company's inventory also includes
spare parts for Boeing 727, 737 and 747 aircraft, Lockheed L-1011 aircraft,
McDonnell Douglas DC-8 and DC-10 aircraft, and Airbus, Shorts, Saab, de
Havilland, British Aerospace and ATR aircraft and for the Pratt & Whitney
JT8D engine series.
OPERATIONS OF THE COMPANY
The Company's core business is buying and selling aircraft spare
parts. In addition, the Company engages in the sale and leasing of
aircraft and engines. The Company believes that aircraft and engine
trading will become a more significant part of the Company's business in
the future and that it provides significant opportunities for expansion.
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INVENTORY ACQUISITION. The Company has recently begun to acquire
inventory by means of strategic consignment arrangements. The Company also
acquires inventory by purchasing individual parts from airlines, repair
facilities or other redistributors, by purchasing excess inventory from
aircraft operators or by purchasing aircraft for disassembly. The Company
may also fill a customer order for a part not held in the Company's
inventory by locating the part for the customer from another vendor,
purchasing the part and then reselling the part to the customer. The
Company obtains inventory on consignment from or purchases inventory in
bulk from airlines that are eliminating certain portions of their spare
parts inventory due to the retirement of an aircraft type from their
fleets, implementing inventory reduction programs to reduce costs,
downsizing their operations or ceasing to conduct business.
AIRCRAFT AND ENGINE SALES AND LEASING. The Company has determined
that its spare parts sales opportunities are enhanced by providing existing
and new customers with whole aircraft and engines through sale and lease
transactions. Such transactions allow the Company to expand its customer
base for spare parts and, through leasing, to reduce the cost basis in its
aircraft and engines. The Company derives revenue from lease payments and
seeks to sell spare parts to the lessee both for the leased aircraft as
well as other aircraft in the lessee's fleet. Upon return of the aircraft,
the Company either re-leases, sells or disassembles the aircraft for parts
in order to achieve the highest utilization of the asset.
The Company currently leases two Embraer EMB-120 aircraft and five
JT8D engines. The Company's aircraft leases are operating leases rather
than finance leases and expire during August 2003. The Company's engine
leases are "evergreen" leases which, although they have no termination
date, are cancelable by either party upon specified notice, typically 30 to
90 days. Under an operating lease, the Company retains title to the
aircraft or engine, thereby retaining the potential benefits and assuming
the risk of the residual value of the aircraft or engine. Operating leases
allow aircraft operators greater fleet and financial flexibility due to
their shorter-term nature, the relatively small initial capital outlay
necessary to obtain use of the aircraft or engine and off-balance sheet
accounting treatment. The Company currently focuses on leasing commuter
turboprop aircraft, particularly the EMB-120. The Company believes that
there is an increasing demand by customers for operating leases, which are
being used as an alternative to traditional financing arrangements.
During the second quarter of fiscal 1999, the Company entered into a
joint venture (the "Air41 Joint Venture") for the acquisition of 20 DC-9-
41H aircraft from SAS. The aircraft were leased back to SAS and the leases
had an average term of 39 months. The Company's original investment in the
Air41 Joint Venture was approximately $1.4 million. The Company's Air41
Joint Venture partner is AirCorp, Inc., a privately held company. The
aircraft were financed through the joint venture, utilizing non-recourse
debt to the partners. The Company is exploring opportunities for the
aircraft after the end of the term of the leases with SAS. Such
opportunities include releasing the aircraft to SAS, leasing the aircraft
to one or more different lessee(s), selling the aircraft, parting out the
aircraft, or directly placing the aircraft into either passenger or cargo
service, whereby the Company may have a principal interest in an airline.
At this time, the Company has no firm commitment for the aircraft after the
SAS leases expire.
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. If the
"core" unit cannot be repaired, it is returned to the customer and the
exchange transaction is converted to an outright sale at a sales price
agreed upon at the time the exchange transaction was negotiated. The
Company continues to emphasize exchange transactions because they are
profitable and ensure that scarce parts remain in stock for future sales.
SALES AND MARKETING; CUSTOMERS
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.
6
<PAGE>
In addition to directly marketing its inventory, the Company has
created and sponsors an industry-wide internet parts locator service, which
is found at http://www.ipls.com. The Company's internet service is a free
service available to any potential customer and lists all of the inventory
available for sale by the Company. In order to increase its value to
potential customers, the Company's Internet service also lists the
inventory of over 100 additional aftermarket parts redistributors,
representing more than 1.2 million individual parts. Similarly, the
Company lists its inventory in the Air Transport Association's computerized
databank ("AIRS") and with the Inventory Locator Service ("ILS")
proprietary computerized databank. Buyers of aircraft spare parts can
access any of the databases described above, as well as other parts
databases, to determine the companies which have the desired inventory
available. Neither the Company's service, AIRS or ILS list price
information relating to particular parts.
Market forces establish the price for aftermarket aircraft parts. No
pricing service or price catalogue exists for aftermarket parts.
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 meet the same FAA standard as new parts, cost less than the same new
parts and are often more readily available.
The Company's customers include a wide variety of domestic and
international air cargo carriers, major commercial, regional and commuter
passenger airlines, maintenance and repair facilities and other
redistributors. Management believes that its customer relationships are
important to the Company's operational success. The Company maintains an
adequate level of inventory in order to service its 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. Cargo carriers, regional
commercial airlines and commuter airlines are among the Company's principal
customers. Cargo carriers are important customers because the fleets of
such operators typically consist of older aircraft of the type for which
the Company maintains an extensive inventory of parts and because such
customers typically do not maintain extensive inventories of spare parts.
Regional commercial airlines are important customers because such airlines
favor narrow-body aircraft, such as MD-80 and DC-9 aircraft, for which the
Company is a primary source of spare parts. The smaller commuter airlines
are important customers because their fleets consist primarily of the
turboprop aircraft being retired by the larger commuter airlines. The
Company has acquired an extensive inventory of aftermarket parts for
several popular commuter turboprop aircraft types
Excluding aircraft and engine sales, in fiscal 1999, no customers
accounted for more than 5% of the Company's total revenues. Each aircraft
or engine sale is unique and the Company does not rely on previous
customers for repeat business. Currently, the Company believes that it has
no customer, the loss of which would have a material adverse effect on the
Company's business, financial condition and results of operations. In a
given period, a substantial portion of the Company's revenues may be
attributable to the sale of one or more aircraft or engines. Such sales
are unpredictable transactions dependent, in part, upon the Company's
ability to purchase an aircraft or engine at an attractive price and resell
it within a relatively brief period of time. The revenues from the sale of
an aircraft or engine, the timing of inventory sales or a lease transaction
during a given period may result in a customer being considered a major
customer of the Company for that period.
QUALITY ASSURANCE
The Company adheres to stringent quality control standards and
procedures in the purchase and sale of its products. In August 1997, the
ASA accredited the Company's quality assurance system after the completion
of an extensive facilities audit and numerous meetings with the Company's
management. Parts procured from an accredited supplier convey assurance to
the purchaser that the quality is as stated and the appropriate
documentation is on file at the supplier's place of business. Furthermore,
accreditation provides assurance that the supplier has implemented an
appropriate quality assurance system and has demonstrated the ability to
maintain that system. In addition, many of the Company's customers
periodically audit the Company's operations to ensure compliance with such
customer's quality standards.
Because aircraft operators require a readily available and
identifiable source of inventory meeting regulatory requirements, the
Company has implemented a total quality assurance program. This program
consists of numerous quality procedures, including the following:
7
<PAGE>
<circle> Inspection procedures mandating that procured aircraft,
engines and parts be traceable to a source approved by the
Company
<circle> Training and supervision of personnel to properly carry out
the total quality assurance program
<circle> On-going quality review board meetings conducted by senior
management to oversee the total quality assurance program
GOVERNMENT REGULATION
The aviation industry is highly regulated in the United States by the
FAA and in other countries by similar regulatory agencies. These
regulations are designed to ensure that all aircraft, engines and aircraft
components are continuously maintained in proper condition for the safe
operation of aircraft. Before spare parts are installed on an aircraft,
they must meet certain standards as to their condition and have appropriate
documentation. Parts owned or acquired by the Company may not meet
currently applicable standards, or standards may change in the future,
causing parts already contained in the Company's inventory to be scrapped
or modified. While the Company's operations are not currently regulated
directly by the FAA, the independent facilities that repair and overhaul
the Company's products and the aircraft operators that ultimately utilize
the Company's products are subject to extensive regulation. Accordingly,
the Company must consider the regulatory requirements of its customers and
provide them with parts that comply with airworthiness standards
established by the FAA, together with required documentation which enables
these customers to comply with other applicable regulatory requirements.
The inspection, maintenance and repair procedures for the various types of
aircraft, engines and aircraft components are prescribed by regulatory
authorities and can be performed only by FAA-licensed repair facilities
utilizing certified technicians. Compliance with applicable FAA and OEM
standards are required prior to installation of a part on an aircraft. The
Company only utilizes FAA-licensed repair facilities to repair and certify
aircraft, engines and aircraft components.
In September 1996, the FAA issued an advisory circular to support the
implementation of a voluntary accreditation program for civil aircraft
parts suppliers. This accreditation program establishes quality standards
applicable to aftermarket suppliers, such as the Company, and designates
FAA approved organizations such as the ASA to perform quality assurance
audits for initial accreditation of aftermarket suppliers. Quality
assurance audits are required on an on-going basis to maintain
accreditation. In addition, many of the Company's customers periodically
audit the Company's operations to ensure compliance with such customer's
quality standards. The Company believes that ongoing quality assurance
audits and strict adherence to its quality assurance system is essential to
meeting the needs of its existing and future customers. In August 1997,
the Company received accreditation from the ASA.
Because the Company's sales consist largely of parts for older
aircraft, regulations promulgated by the FAA governing noise emission
standards for older aircraft and the FAA's Aging Aircraft Program Plan (the
"Aging Aircraft Program") may increase the cost of operating such aircraft
and have a material impact on the market for the Company's products. All
stage two aircraft must install hush-kits pursuant to such noise emission
standards or be phased out of operation in the United States by December
31, 1999 and in the European Union by April 1, 2002. The Aging Aircraft
Program requires aircraft operators to perform structural modifications and
inspections to address airframe fatigue and to implement corrosion
prevention and control programs, which increase the operating and
maintenance costs of older aircraft. Furthermore, the EPA and the various
agencies of the European Union have sought the adoption of stricter
standards limiting the emission of nitrous oxide from aircraft engines.
The Company believes that notwithstanding the substantial costs imposed by
noise emission standards and the Aging Aircraft Program on older aircraft,
estimated by the Company to average less than $4 million per aircraft on
aircraft such as the DC-9, certain aircraft operators will continue to
utilize older aircraft due to the substantially greater cost of acquiring
new replacement aircraft.
8
<PAGE>
The inability of the Company to supply its customers with spare parts
on a timely basis, or any occurrence of the Company providing products
which subsequently fail, may adversely affect the Company's relationships
with its customers and have a material adverse effect on its business,
financial condition and results of operations. The core operations of the
Company may in the future be subject to FAA or other regulatory
requirements. The Company closely monitors the FAA and industry trade
groups in an attempt to understand how possible future regulations might
impact the Company. There can also be no assurance that new and more
stringent government regulations, if enacted, would not have a direct or
indirect adverse effect on the Company.
An important factor in the aircraft spare parts redistribution market
relates to the documentation and traceability of an aircraft spare part.
The Company requires all of its suppliers to provide adequate documentation
as dictated by the Company's customers. The Company utilizes electronic
data scanning and storage techniques to maintain complete copies of all
documentation. Documentation required includes, where applicable, (i) a
maintenance release from a certified FAA repair facility signed and dated
by a licensed airframe and/or power plant mechanic or other certified
inspector who repaired the aircraft spare part and an inspection to certify
that the proper methods, materials and workmanship were used, (ii) a "tear-
down" report detailing the discrepancies and corrective actions taken
during the last shop repair, and (iii) an invoice or purchase order for an
approved source.
PRODUCT LIABILITY
The commercial aviation industry periodically experiences catastrophic
losses. As a redistributor, the Company may be named as a defendant in a
lawsuit as a result of such catastrophic loss if a part sold by the Company
were installed in an incident-related aircraft. In this regard, the
Company maintains product liability insurance in an amount the Company
believes is sufficient. While the Company believes that it has liability
insurance to protect it from such claims, and while no lawsuit has ever
been filed against the Company based upon a product liability theory, no
assurance can be given that claims will not arise in the future or that
such insurance coverage will be adequate. However, an uninsured or
partially insured claim, or a claim for which third-party indemnification
is not available, could have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally,
there can be no assurance that insurance coverage 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 competitive.
The market consists of a limited number of well-capitalized companies
selling a broad range of products and numerous small competitors serving
distinct market niches. Certain of these competitors have substantially
greater financial, marketing and other resources than the Company. The
Company believes that current industry trends will benefit larger, well-
capitalized companies. The Company believes that range and depth of
inventories, quality and traceability of products, service and price are
the key competitive factors in the industry. The principal companies with
which the Company competes are AAR Corp., AGES, Aviation Sales Company,
Kellstrom Industries Inc., The Memphis Group, Inc. and AVTEAM, all of which
are significantly larger than the Company. Customers in need of aircraft
parts have access, through on-line inventory catalogues, to a broad array
of suppliers, including aircraft manufacturers, airlines and aircraft
services companies, which may have the effect of increasing competition
for, and lowering prices on, parts sales.
EMPLOYEES
As of May 31, 1999, the Company had 28 employees. The Company is not
a party to any collective bargaining agreement. The Company believes its
relations with its employees are good.
YEAR 2000 ISSUES
The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. These
programs can fail by misinterpreting dates beyond the year 1999, which
could cause possible miscalculations, and a disruption in the operation of
such systems. This is commonly referred to as the Year 2000 issue. The
Company has identified four major areas of concern regarding Year 2000:
Internal Information Systems, External Facilities, Materials Held for Sale,
and Outside Vendors' Information Systems and Materials.
9
<PAGE>
INTERNAL INFORMATION SYSTEMS. The Company has developed a plan to
address issues related to the impact of the Year 2000 problem on its
internal information systems ("IT"). Starting in fiscal 1997 the Company
began the process of upgrading or replacing all personal computers. This
process was completed in the third quarter of fiscal 1998. At the same time
all critical software systems were assessed for Year 2000 compliance. The
inventory system, which is written in PICK, required no further action. The
accounting package required a "patch" which sets an assumption for dates
between 1975 and 2035. The Company anticipates no further remediation
requirements on the part of either of these packages. The Company primarily
uses Microsoft Operating Systems and productivity packages. Microsoft
continues to find and fix Year 2000 issues as they appear throughout its
product line. To date all patches have been applied to the Windows NT
Servers. The Windows 95 and 98 machines were patched with all current
updates in the second quarter of calendar 1999. The Company is in the
process of replacing one Unix based system that is not Year 2000 compliant.
Incremental costs, which include consulting costs and costs associated with
internal resources to modify existing systems in order to achieve Year 2000
compliance, are charged to expense as incurred. The Company does not expect
the financial impact of making the required system changes, which are being
funded from operating cash flows, to be material to the Company's financial
position, results of operations or cash flows. The anticipated costs of
the project and the dates on which the Company believes it will complete
the Year 2000 modifications and assessments are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources. There
can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to,
the availability and cost of personnel trained in this area and the ability
to locate and correct the remaining relevant systems.
EXTERNAL FACILITIES. The Company has received assurances from the
owners of its facilities that the owners are taking steps that are
appropriate to assure uninterrupted access to these facilities and
uninterrupted fire protection and security services. The Company has not
sought or received assurances regarding the uninterrupted services provided
by the public utilities, financial institutions, governmental agencies
(e.g., Federal Aviation Administration) and other similar entities, the
services of which the Company utilizes. The Company believes, based on its
analysis of the Year 2000 issue, that it will not experience significant
disruptions of its business as a result of interruptions in the services
provided by such entities.
MATERIALS HELD FOR SALE. Like all other companies in the aircraft
parts redistribution industry, the Company lists parts to indicate their
condition. The parts are categorized as "serviceable", "as removed", or
"unserviceable." The Company makes no representation or warranty with
respect to the parts it sells. Specifically, the Company makes no
representation or warranty regarding whether there are Year 2000 issues
with respect to any of the parts available for sale. All parts purchasers'
concerns about the Year 2000 issue are therefore directed to the
manufacturer of such part.
OUTSIDE VENDORS INFORMATION SYSTEMS AND MATERIALS. The Company's Year
2000 issues, and any potential business interruptions, costs, damages or
losses related thereto, may be dependent upon the Year 2000 compliance of
its suppliers and vendors. However, the Company believes that it is
unlikely that it will be materially affected by the failure of any of its
suppliers, vendors or other third parties to be Year 2000 compliant. The
Company obtains its parts inventory from a variety of sources. If one or
more sources were to experience a business interruption as a result of its
failure to be Year 2000 complaint, the Company believes it would be able to
obtain inventory from another supplier. Furthermore, the Company does not
believe that its aircraft trading activities are likely to be disrupted by
the failure of the entities to which it sells and leases aircraft and
engines to be Year 2000 compliant.
A reasonable worst case scenario is that a large number of third
parties (including lessees and spare parts customers) may be unable to
operate and generate revenues and as a result may be unable to make lease
payments on a timely basis or purchase parts. The Company is unable to
estimate the likelihood or the magnitude of the resulting lost revenue at
this time should the worst case scenario come to pass. However, should it
occur, the Company would attempt to repossess leased engines, aircraft and
spare parts from non-compliant third parties and place such assets with
compliant third parties. The Company can offer no assurances that it would
be able to re-lease such assets at favorable terms or at all. Similarly,
the Company would attempt to find compliant customers for the Company's
spare part sales.
10
<PAGE>
CAUTIONARY STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE EXCHANGE ACT, INCLUDING THE PLANS AND
OBJECTIVES OF MANAGEMENT FOR THE BUSINESS, OPERATIONS AND ECONOMIC
PERFORMANCE OF THE COMPANY. THE FORWARD-LOOKING STATEMENTS AND ASSOCIATED
RISKS SET FORTH IN THIS ANNUAL REPORT MAY INCLUDE OR RELATE TO, AMONG OTHER
THINGS, THE FACTORS SET FORTH BELOW, TOGETHER WITH OTHER INFORMATION SET
FORTH IN THIS ANNUAL REPORT.
RISKS REGARDING THE COMPANY'S INVENTORY. The Company acquires
inventory by purchasing individual parts from airlines, repair facilities
or other redistributors, by purchasing excess inventory from aircraft
operators, or by purchasing aircraft for disassembly. The Company also
obtains parts inventory on consignment from airlines. The Company's
business is substantially dependent on its ability to acquire inventory by
one of these methods because its net sales are directly influenced by the
level and composition of inventory available for sale. Because the size
and composition of the Company's inventory is critical to its results of
operations and because there is no organized market to procure surplus
inventory, the Company's operations are materially dependent on the success
of management in identifying potential sources of inventory and obtaining a
consignment of the inventory on acceptable terms or purchasing it at
acceptable prices. There can be no assurance that inventory will be
available on acceptable terms or at the times required by the Company. In
addition, once acquired, the market value of the Company's inventory could
be adversely affected by factors beyond the Company's control, such as the
sudden availability of additional inventory, a sudden decline in demand for
the Company's parts due to a decline in use of certain aircraft types,
regulatory changes mandating uneconomic improvements to items in inventory,
or a decision by an OEM to begin manufacturing new parts that would compete
with aftermarket parts. Any of such factors could result in the Company's
inventory being overvalued and could require the Company to write down its
inventory valuations in order to bring them in line with the revised fair
market value. The failure to identify and acquire inventory in a timely
fashion on acceptable terms or a decline in the value of the Company's
inventory would have a material adverse effect on the Company's business,
financial condition and results of operations.
CONCENTRATION ON MD-80 AND DC-9 AIRCRAFT. The Company's net sales
are concentrated in the aftermarket for MD-80 and DC-9 aircraft, which
aircraft at December 31, 1998 accounted for approximately 14% of the
commercial jet aircraft in service worldwide according to the World Jet
Inventory. The DC-9 is no longer in production and Boeing has indicated
its intention to cease production of the MD-80 when current production
commitments end. Any decline in the use of MD-80 and DC-9 aircraft by
aircraft operators, the unscheduled removal from service of large numbers
of MD-80 and DC-9 aircraft or the grounding of such aircraft by
governmental authorities for any reason could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, all DC-9 aircraft operated in the United States
and European Union will need to be hush-kitted, relocated to other areas or
removed from service by 2000 or 2002, respectively. In the event these
aircraft are removed from service, demand for the Company's MD-80 and DC-9
parts could decline and the supply of spare parts may increase, which would
have a material adverse effect on the Company's business, financial
condition and results of operations.
BROADENING OF PRODUCT LINE. The Company has recently expanded its
product line to include aftermarket parts for Airbus A-300, McDonnell
Douglas DC-10 and Boeing 747 aircraft and certain commuter turboprop
aircraft including Embraer, Shorts, Saab, de Havilland, British Aerospace
and ATR aircraft. In addition, the Company intends to broaden further its
product line to include parts for Boeing 767 aircraft. The Company has
limited experience with respect to the purchase and sale of spare parts for
these aircraft models. There can be no assurance that the Company will
have the same level of success in managing its parts inventories for such
aircraft that it has had with parts for MD-80 and DC-9 aircraft. The
failure to successfully broaden its product line could have a material
adverse effect on the Company's ability to implement its growth strategy.
EFFECTS OF THE ECONOMY ON THE OPERATIONS OF THE COMPANY. The
Company's customers include a wide variety of domestic and international
air cargo carriers, major commercial, regional and commuter passenger
airlines, maintenance and repair facilities and other redistributors. As a
result, the Company's business can be impacted by the economic factors that
affect the airline and air cargo industries. When such factors adversely
affect the airline and air cargo industries, they tend to cause downward
pressure on the pricing for aircraft spare parts and increase the credit
risk associated with doing business with airlines and air cargo carriers.
Additionally, factors such as the price of fuel affect the aircraft spare
parts market for older aircraft, since older aircraft become less
competitive with newer model aircraft as the price of fuel increases.
There can be no assurance that economic and other factors which might
affect the airline and air cargo industries will not have a material
adverse effect on the Company's business, financial condition and results
of operations.
11
<PAGE>
RISKS ASSOCIATED WITH LEASES. The Company currently leases two
Embraer EMB-120 aircraft and five Pratt & Whitney JT8D series engines. The
Company also owns a 50% interest in a joint venture that leases 20 DC-9-41H
aircraft to SAS. The success of an operating lease depends in part upon
having the aircraft and engines returned to the Company in marketable
condition as required by the lease of such aircraft and engines. In
addition, the financial return to the Company from a leased aircraft or
engine depends in part on the re-lease of aircraft and engines on favorable
terms on a timely basis, the ability to sell the aircraft or engines at
favorable prices or realize sufficient value from the disassembly for parts
of the aircraft or engines at the end of the lease term. Numerous factors,
many of which are beyond the control of the Company, may have an impact on
the Company's ability to re-lease or sell aircraft, engines and parts.
These factors include general market conditions, regulatory changes
(particularly those imposing environmental, maintenance and other
requirements on the operation of aircraft and engines), changes in the
supply or cost of aircraft and engines and technological development.
Consequently, there can be no assurance that the Company's estimated
residual value for aircraft or engines will be realized. If the Company is
unable to re-lease, sell its aircraft or engines on favorable terms or
realize sufficient value from the disassembly for parts of the aircraft or
engines on a timely basis upon expiration of the related lease, its
business, financial condition and results of operations may be adversely
affected. In the event that a lessee defaults in the performance of its
obligations, the Company may be unable to enforce its remedies under a
lease. The Company's inability to collect lease payments when due or to
repossess aircraft or engines in the event of a default by a lessee could
have an adverse effect on the Company's business, financial condition and
results of operations. If the Company were to acquire an aircraft or
engines and such acquisitions were not financed by additional borrowing, it
could result in a reduction of the Company's liquidity.
RISKS ASSOCIATED WITH ACQUISITIONS. One of the Company's strategies
for growth is to pursue acquisitions of aftermarket redistributors and
small aircraft leasing companies. Currently, the Company has no
acquisition agreements, understandings or commitments for any acquisitions
and, in order to consummate an acquisition, the Company would be required
to receive the consent of the lender under its Credit Agreement. There can
be no assurance that any such acquisitions will be completed on reasonable
terms, if at all. Certain of the Company's competitors may also seek to
acquire the same companies which the Company seeks to acquire. This may
increase the price and related costs at which the Company could otherwise
have acquired such companies, perhaps materially. The Company's inability
to complete acquisitions on reasonable terms could limit the Company's
ability to grow its business.
The Company may expend significant funds to pursue and consummate
acquisitions. Such use of funds would reduce the Company's working
capital. In addition, the Company may fund acquisitions in whole or in
part by issuing equity securities, and any such issuances, individually or
in the aggregate, may be dilutive to holders of the Common Stock.
Acquisitions also may result in the Company incurring additional debt and
amortizing costs related to goodwill and other intangible assets, either of
which could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company may experience difficulties in assimilating the
operations, services and personnel of acquired companies and may be unable
to sustain or improve the historical revenue and earnings levels of
acquired companies, any of which may materially adversely affect the
Company's business, financial condition and results of operations. In
addition, to the extent it becomes necessary for the Company to fund the
working capital requirements of acquired companies, the Company's working
capital available for its currently existing operations would decrease.
Acquisitions involve a number of additional risks, including the diversion
of management's attention from ongoing business operations and the
potential loss of key employees of acquired companies. There can be no
assurance that the Company can successfully implement its acquisition
strategy. The failure to consummate acquisitions on reasonable terms or
the inability to successfully integrate and manage acquired operations and
personnel could have a material adverse impact on the Company's business,
financial condition and results of operations.
12
<PAGE>
RELIANCE ON EXECUTIVE OFFICERS. The continued success of the Company
is dependent to a significant degree upon the services of its executive
officers and upon the Company's ability to attract and retain qualified
personnel experienced in the various phases of the Company's business. The
ability of the Company to operate successfully could be jeopardized if one
or more of its executive officers were unavailable and capable successors
were not found. The Company does not maintain key man insurance on any of
its executive officers. The Company has employment agreements with Alexius
A. Dyer III, its Chairman of the Board, President and Chief Executive
Officer, and George Murnane III, its Executive Vice President and Chief
Operating Officer. The employment agreements between the Company and
Messrs. Dyer and Murnane are individually terminable by each executive
officer upon a change of control of the Company.
ITEM 2. PROPERTIES.
The Company's executive offices and operations are located at 1954
Airport Road, Suite 200, Atlanta, Georgia 30341, consisting of
approximately 3,600 square feet of leased space pursuant to a lease
expiring in January 2000. The Company leases approximately 29,500 square
feet of warehouse facilities in Fort Lauderdale, Florida pursuant to a
lease expiring in June 2002. The Company leases approximately 1,350 square
feet of office space as a sales and marketing office in Seattle, Washington
pursuant to a lease expiring in March 2001. All facilities are rented at
competitive rates for their location and utility. The Company believes
that its facilities are adequate for its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not now a defendant in any material 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.
None.
13
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock, which has been publicly traded since April
2, 1990, is listed and traded on the American Stock Exchange under the
symbol "YLF." The following table sets forth the high and low closing
prices of the Common Stock as reported on the American Stock Exchange for
each quarter in fiscal 1999 and 1998.
<TABLE>
<CAPTION>
1999 FISCAL YEAR HIGH LOW
- ---------------- ------- -------
<S> <C> <C>
First Quarter $ 8 1/2 $ 5 7/8
Second Quarter 7 1/8 3 3/4
Third Quarter 5 1/2 3 1/4
Fourth Quarter 4 5/8 3 3/4
1998 FISCAL YEAR HIGH LOW
- ---------------- ------ ------
First Quarter $ 8 1/4 $ 4 1/4
Second Quarter 11 7 5/8
Third Quarter 8 1/2 5 15/16
Fourth Quarter 10 11/16 6 15/16
</TABLE>
At August 10, 1999, there were 111 holders of record of the Company's
Common Stock.
The Company has never paid dividends on the Common Stock. The
Company's secured credit facility prohibits the Company from paying
dividends on the Common Stock as long as indebtedness issued pursuant to
such facility remains outstanding. It unlikely that the Company will pay
dividends on the Common Stock in the foreseeable future.
14
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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, 1999, have been derived from the Company's audited consolidated
financial statements. The consolidated financial statements of the Company
as of May 31, 1998 and 1999 and for the three-year period ended May 31,
1999 and the accountant's reports thereon are included in Item 8 of this
Form 10-K.
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Net sales $21,999 $21,410 $20,123 $25,648 $ 24,344
Lease and service revenue 2,984 1,795 1,109 2,315 3,328
------ ------ ------ ------ ------
Total revenue 24,983 23,205 21,232 27,963 27,672
Total operating expenses 23,343 18,528 17,423 23,186 24,406
Equity in earnings of joint
venture -- -- -- -- 1,026
------ ------ ------ ------ ------
Income from continuing
operations 1,640 4,677 3,809 4,777 4,292
Interest expense, net 2,254 2,377 1,550 1,934 1,302
------ ------ ------ ------ ------
Earnings (loss) before
income taxes (614) 2,300 2,259 2,843 2,990
and extraordinary item
Provision (benefit) for
income taxes -- 14 -- (2,820) 1,036
Earnings (loss) before
extraordinary item (614) 2,286 2,259 5,663 1,954
Extraordinary loss on
extinguishment of debt -- -- (531) -- --
------ ------ ------ ------ ------
Net earnings (loss) $(614) 2,286 $ 1,728 $ 5,663 $1,954
======= ====== ====== ====== ======
PER SHARE DATA:
Earnings (loss) per common
share - basic before effect
of extraordinary item $(4.10) $ 15.27 $ 1.37 $ 2.29 $ .77
Extraordinary item -- -- (0.32) -- --
------ ------ ------ ------ ------
Net earnings (loss) $(4.10) $ 15.27 $ 1.05 $ 2.29 $ .77
======= ====== ====== ====== ======
Weighted average shares
outstanding used in basic 149,696 149,696 1,646,629 2,471,025 2,550,940
calculation
Earnings (loss) per common
share - diluted before effect
of extraordinary item $(4.10) $ 12.69 $ 1.25 $ 2.03 $ .72
Extraordinary item
-- -- (0.29) -- --
------ ------ ------ ------ ------
Net earnings (loss) $(4.10) 12.69 $ 0.96 $ 2.03 $ .72
======= ====== ====== ====== ======
Weighted average shares
outstanding used in diluted 149,696 242,288 1,806,938 2,793,414 2,720,513
calculation
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AT MAY 31,
1995 1996 1997 1998 1999
------ ------- ----- ------- -------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital (deficit) $(13,489) $(10,841) 9,141 $10,228 $11,524
Total assets 14,511 16,132 21,287 23,636 23,976
Total debt 20,336 18,144 13,749 9,648 9,594
Stockholders' equity (deficit) (9,702) (7,416) 4,660 10,808 11,263
- ---------------------------------------------------------------------------------------------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company is primarily engaged in the sale of aircraft, aircraft
engines and aircraft parts, as well as leasing of aircraft and related
services. The Company's total revenue includes net parts sales revenue and
lease and service revenue. Net sales revenue includes revenue from
individual parts sales and revenue from aircraft and engine sales.
Aircraft and engine sales are unpredictable transactions, dependent, in
part, upon the Company's ability to purchase an aircraft or engine and
resell it within a relatively brief period of time. In a given period, a
substantial portion of the Company's revenue may be attributable to the
sale of aircraft or engines. Cost of sales consists primarily of
inventory, aircraft and engine costs and shipping charges. The cost of
aircraft parts is determined on a specific identification basis and
inventory is stated at the lower of cost or market. The Company's
operating results are affected by many factors, including the timing of
orders from large customers, the timing of aircraft and engine sales, the
timing of expenditures to purchase parts inventory, aircraft and engines
and the mix of parts contained in the Company's inventory. The Company
does not obtain long-term purchase orders or commitments from its
customers.
Revenue from the sale of parts is recognized when products are shipped
to the customer. Revenue from aircraft and engine sales is recognized when
the Company has received consideration for the sale price and the risk of
ownership has passed to the buyer. Lease and service revenue are
recognized on an accrual basis, unless collectability is uncertain.
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED WITH FISCAL 1998
Net sales decreased by 5.1% from $25.6 million in fiscal 1998 to $24.3
million in fiscal 1999. This decrease was primarily due to a decrease in
aircraft and engine sales, which was partially offset by an increase in
parts sales. During fiscal 1999, the Company acquired two aircraft and
sold three aircraft, as compared to fiscal 1998, during which the Company
acquired two aircraft and sold four aircraft. During fiscal 1999, the
Company sold three engines as compared to fiscal 1998, during which the
Company sold seven engines. Lease and service revenue increased to $3.2
million in fiscal 1999 from $2.3 million in fiscal 1998, due primarily to
the Company's acquisition and lease of three spare engines during the first
quarter of fiscal 1999. These engines remain on lease. Due primarily to
the decrease in aircraft and engine sales, partially offset by the increase
in parts sales and lease and service revenue, total revenue for fiscal 1999
decreased 1.0% to $27.7 million from $28.0 million for fiscal 1998.
Cost of sales increased 8.4% from $16.8 million in fiscal 1998 to
$18.2 million in fiscal 1999. Cost of sales as a percentage of total
revenue increased from 60.0% in fiscal 1998 to 65.8% in fiscal 1999. The
increase in the cost of sales as a percentage of total revenue was due
primarily to an increase in the cost of aircraft and engine sales as a
percent of revenue in fiscal 1999 compared to fiscal 1998, as well as an
increase in the cost of the parts sold. As the Company enters into more
consignment agreements, the Company anticipates that it will incur higher
cost of sales. These higher cost of sales should be partially offset by
lower inventory costs, including interest.
Selling, general and administrative expenses decreased 5.3% from $5.3
million in fiscal 1998 to $5.1 million in fiscal 1999. This decrease was
due primarily to lower expenses related to compensation, travel and
entertainment, investor relations, and the Company's provision for doubtful
accounts.
16
<PAGE>
Depreciation was $1,147,000 in fiscal 1999 compared to $1,060,000 in
fiscal 1998. The net increase from fiscal 1998 to fiscal 1999 was due
primarily to an increase in depreciation of engines held for lease,
resulting from the engines acquired in the first quarter of fiscal 1999.
Equity in Net Earnings of Unconsolidated Joint Venture for fiscal 1999
was $1,026,000 compared to $0 during fiscal 1998. This increase was due to
the Air41 Joint Venture, which was entered into during September 1998.
Interest expense decreased 20.2% from $1,648,000 in fiscal 1998 to
$1,315,000 in fiscal 1999. The reduction in interest expense resulted from
a lower outstanding average balance and a reduction in the interest rate
applicable to the outstanding balance. Interest and other expenses for
fiscal 1998 were $286,000 compared to other income of $13,000 in fiscal
1999. Included in the interest and other expense for fiscal 1998 is
$400,000 in expenses relating to a withdrawn secondary offering.
The Company's income tax benefit for fiscal 1998 was $2.8 million,
primarily due to a reduction in the valuation allowance applied against its
deferred tax assets and the utilization of net operating loss
carryforwards. The Company's income tax expense in fiscal 1999 was
$1,036,000. Income taxes have been provided at the Company's estimated
effective tax rate of approximately 35% for fiscal 1999. In the prior
year, the Company recognized deferred tax benefits as the realization of
such benefits was determined to be more likely than not because of the
Company's consistent profitability. The realization of the tax benefits
was accomplished through a reduction in the valuation allowance that had
been previously established against the Company's deferred tax assets.
Earnings before income taxes increased from $2,843,000 in fiscal 1998
to $2,990,000 in fiscal 1999. Earnings for fiscal 1999 were benefited by
equity in net earnings of unconsolidated joint venture, the Air41 joint
venture, of $1,026,000. Net earnings for fiscal 1998 were $5,663,000, or
$2.29 per share - basic and $2.03 per share - diluted, compared to net
earnings for fiscal 1999 of $2,550,000, or $0.77 per share - basic and
$0.72 per share - diluted. On a pro forma basis, adjusted as if the
company had been a full taxpayer in fiscal 1998, Earnings per share -
diluted for fiscal 1998 would have been $0.67.
In the third quarter of 1999, the Company began acquiring shares of
its common stock in connection with a stock repurchase program announced in
December 1998. During fiscal 1999, the Company repurchased 467,525 shares
of its common stock at an average price of $4.16.
FISCAL 1998 COMPARED WITH FISCAL 1997
Total revenue for fiscal 1998 increased 31.7% to $28.0 million from
$21.2 million for fiscal 1997. This increase was primarily due to an
increase in aircraft and engine sales. During fiscal 1998, the Company
acquired two aircraft and sold four aircraft, as compared to fiscal 1997,
during which the Company acquired three aircraft and sold two aircraft.
During fiscal 1998, the Company sold seven engines as compared to fiscal
1997, during which the Company sold four engines. Lease revenue increased
to $2.3 million in fiscal 1998 from $1.1 million in fiscal 1997, due
primarily to the Company's acquisition and lease of three aircraft during
the fourth quarter of fiscal 1997 which were on lease for all of fiscal
1998.
Cost of sales increased 32.3% from $12.7 million in fiscal 1997 to
$16.8 million in fiscal 1998. Cost of sales as a percentage of total
revenue increased from 59.7% in fiscal 1997 to 60.0% in fiscal 1998. The
increase in the cost of sales as a percentage of total revenue was due
primarily to a change in the mix of sales as well as an increase in the
cost of aircraft and engine sales as a percent of revenue in fiscal 1998
compared to fiscal 1997.
Selling, general and administrative expenses increased 36% to $5.3
million in fiscal 1998 compared to $3.8 million in fiscal 1997. This
increase was due primarily to expenses related to increased revenue, as
expenses for fiscal 1998 amounted to 19.1% of total revenue compared to
18.6% of total revenue in fiscal 1997, such as increased rent expense,
insurance costs, professional fees, investor relations costs, marketing
expenses and employee compensation.
17
<PAGE>
Depreciation was $1,060,000 in fiscal 1998 compared to $792,000 in
fiscal 1997. The net increase from fiscal 1997 to fiscal 1998 was due
primarily to an increase in depreciation of aircraft held for lease,
resulting from the aircraft acquired in the fourth quarter of fiscal 1997.
Interest expense in fiscal 1998 and fiscal 1997 was $1.6 million.
Interest and other expenses for fiscal 1998 was $286,000 compared to other
income of $61,000 in fiscal 1997. Included in the interest and other
expense for fiscal 1998 is $400,000 in expenses relating to a secondary
offering that was withdrawn.
The Company's benefit for income taxes for fiscal 1998 was $2.8
million, primarily due to a reduction in the valuation allowance applied
against its deferred tax assets and the utilization of net operating loss
carryforwards. The Company's income tax expense in fiscal 1997 was zero
primarily as a result of the utilization of net operating loss
carryforwards to offset taxes that would otherwise have been payable.
Net earnings for fiscal 1998 were $5,663,000, or $2.29 per share -
basic and $2.03 per share - diluted, compared to net earnings before an
extraordinary loss for fiscal 1997 of $2,259,000, or $1.37 per share -
basic and $1.25 per share - diluted. The Company recorded an extraordinary
loss of $530,596 in fiscal 1997 relating to the exchange of shares of its
common stock for certain debt securities. Net earnings, after considering
the extraordinary loss, were $1,728,000 or $1.05 per share - basic and $.96
per share - diluted, for fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Credit Agreement entered into by the Company in October of 1996
provided for a $3 million term loan and up to an $11 million revolving
credit. The Credit Agreement has been amended to create new term loan
facilities totaling $15.35 million and to increase the revolving credit to
$14 million (collectively referred to as the "Credit Facility"). The
revolving credit facility matures in October 2001 and the term loans mature
between March 2000 and October 2001. The interest rate that the Company is
assessed is subject to fluctuation and may change based upon certain
financial covenants. As of May 31, 1999, the interest rate under the
Credit Facility was the lender's base rate minus 0.25% (7.50%). 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.
Net cash provided by operating activities for the fiscal years ended
May 31, 1999 and 1998 amounted to $1.6 million and $4.2 million,
respectively. For fiscal 1999, the primary use of cash from operating
activities was an increase in accounts receivable offset partially by a
decrease in inventory. For fiscal 1998, the primary use of cash from
operating activities, excluding the purchase of two aircraft that were
subsequently sold during the same fiscal year, was an increase in
inventories.
Net cash provided by (used in) investing activities for fiscal 1999
and 1998 amounted to $856,000 and ($574,000), respectively. For fiscal
1999, the Company received proceeds from the sale of aircraft and engines
that had been held for lease of $5,875,000. The primary use of funds for
investing activities was the Company's investment in the Air41 Joint
Venture of $1,587,000 and capital expenditures for aircraft and engines of
$3,786,000. For fiscal 1998, the primary use of funds was the purchase of
engines held for lease. During fiscal 1998, the Company received proceeds
from the sale of an aircraft held for lease of $667,000.
Net cash used in financing activities for fiscal 1999 and 1998
amounted to $1.6 million and $3.6 million, respectively. For fiscal 1999,
net of borrowings, the Company prepaid $54,000 under the Credit Facility.
The primary use of cash in financing activities was the purchase of
treasury stock for $1,947,000. The Company received $288,000 in proceeds
from employees' exercise of stock options. For fiscal 1998, net of
borrowings, the Company repaid $4.0 million under the Credit Facility. The
Company received $508,000 in proceeds from employees' exercise of stock
options during fiscal 1998.
At May 31, 1999, the Company was permitted to borrow up to an
additional $5.7 million pursuant to the Credit Facility. The Company
believes that its working capital and amounts available under the Credit
Facility will be sufficient to meet the requirements of the Company for the
foreseeable future.
18
<PAGE>
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results, both on an annual and a quarterly
basis, are affected by many factors, including the timing of large orders
from customers, the timing of expenditures to purchase inventory in
anticipation of future sales, the Company's ability to obtain inventory on
consignment on acceptable terms, the mix of available aircraft spare parts
contained at any time in the Company's inventory, the timing of aircraft or
engine sales or leases, unanticipated aircraft or engine lease
terminations, default by any lessees and many other factors largely outside
the Company's control. Since the Company typically does not obtain long-
term purchase orders or commitments from its customers, it must anticipate
the future volume of orders based upon the historic purchasing patterns of
its customers and discussions with customers as to their future
requirements. Cancellations, reductions or delays in orders by a customer
or group of customers could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, due
to the value of a single aircraft or engine sale relative to the value of
parts typically sold by the Company, any concentration of aircraft or
engine sales in a particular quarter may obscure existing or developing
trends in the Company's business, financial condition and results of
operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1998 the AICPA issued Statement of Position (SOP) 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use."
SOP 98-1 establishes standards for accounting for internal use software
projects. This Statement is effective for financial statements for fiscal
years beginning after December 15, 1998 for costs incurred in those fiscal
years for all projects, including projects in progress when the SOP was
adopted. Management does not expect this Statement to have a material
impact on the Company's financial statements.
In 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities." SOP 98-5 provides guidance on
accounting for start-up costs and organization costs, which must be
expensed as incurred. This Statement is effective for financial statements
for fiscal years beginning after December 15, 1998. Management does not
expect this Statement to have a material impact on the Company's financial
statements.
In June 1998, the FASB issued Statement of Financial Accounting
Standards (FAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." FAS No. 133 establishes standards for accounting and
reporting for derivative instruments, and conforms the requirements for
treatment of different types of hedging activities. This statement is
effective for all fiscal years beginning after June 15, 2000. Management
does not expect this standard to have a significant impact on the Company's
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's major market risk exposure is to changing interest
rates. The Company's policy is to manage interest rate risk through the
use of floating rate debt instruments. The Company has loans under a
Credit Facility totaling approximately $9.6 million at May 31, 1999. The
interest rate on the Credit Facility, which fluctuates based on certain
financial ratios of the Company, was the lender's prime rate less .25% at
May 31, 1999 (7.50%). An immediate increase of 10% in interest rates would
increase the Company's annual interest expense by approximately $141,000.
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 AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading "Information as to
Directors and Executive Officers" in the Company's definitive proxy
statement for its 1999 Annual Meeting of stockholders (the "1999 Proxy
Statement") is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the heading "Executive Compensation"
in the 1999 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the headings "Directors and Executive
Officers" and "Principal Stockholders" in the 1999 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the heading "Executive Compensation--
Certain Transactions" in the 1999 Proxy Statement is incorporated by
reference.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-KITEM 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 F-1
(2) Report of Grant Thornton LLP F-2
(3) Consolidated Financial Statements and Notes to
Consolidated Financial Statements of the Company, F-3
including Consolidated Balance Sheets as of May 31, 1998
and 1997 and related Consolidated Statements of Earnings,
Consolidated Cash Flows and Consolidated Stockholders'
Equity (Deficit) for each of the years in the three-year
period ended May 31, 1998
(b) FINANCIAL STATEMENTS SCHEDULES PAGE OR
METHOD
OF FILING
(1) Schedule II. Valuation and Qualifying
Accounts 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
<TABLE>
<CAPTION>
Exhibit
NUMBER DESCRIPTION PAGE NUMBER OR METHOD OF FILING
<S> <C> <C> <C>
2.4 Credit Incorporated by reference to Exhibit 2.4 to
Agreement Amendment No. 2 to the Company's Registration
between BNY Statement on Form S-4 filed on August 29, 1996 (File
Financial No. 333-08065).
Corporation
and the
Registrant
(the "Credit
Agreement").
2.5 First
Amendment, Filed herewith.
Waiver and
Agreement,
dated as of
March 24,
1997, between
BNY Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
2.6 Second Filed herewith.
Amendment and
Agreement,
dated as of
September 9,
1997, between
BNY Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
21
<PAGE>
2.7 Third
Amendment and Filed herewith.
Agreement,
dated as of
October 15,
1997, between
BNY Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
2.8 Fourth
Amendment and Filed herewith.
Agreement,
dated as of
February 2,
1998, between
BNY Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
2.9 Fifth
Amendment, Filed herewith.
dated as of
July 16,
1998, between
BNY Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
2.10 Sixth
Amendment, Filed herewith.
dated as of
May 30, 1998,
between BNY
Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
2.11 Seventh
Amendment, Filed herewith.
dated as of
October 28,
1998, between
BNY Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
3.1 Amended and Incorporated by reference to Exhibit 3.1 to the
Restated Company's Annual Report on Form 10-K for the fiscal
Certificate year ended May 31, 1996 (the "1996 Form 10-K").
of
Incorporation
of the
Registrant.
3.2 Restated and Incorporated by reference to Exhibit 3.2 to the 1996
Amended Form 10-K.
Bylaws of the
Registrant.
4.1 Specimen Incorporated by reference to Exhibit 4.1 to the 1996
Common Stock Form 10-K.
Certificate.
10.1.1 Employment Incorporated by reference to Exhibit 10.1.1 to the
Agreement, 1996 Form 10-K
dated as of
December 1,
1995, between
the
Registrant
and Alexius
A. Dyer III,
as amended on
October 3,
1996.
10.1.2 Employment Incorporated by reference to Exhibit 10.1.2 to the
Agreement Company's Quarterly Report for the quarter ended
dated as of February 28, 1997.
October 3,
1996, between
the
Registrant
and George
Murnane III.
10.2.1 1996 Long- Incorporated by reference to Appendix B to the Proxy
Term Statement/Prospectus included in the Company's
Incentive and Registration Statement on Form S-4 (File
Share Award No. 333-08065), filed on July 12, 1996.
Plan.
22
<PAGE>
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 Incorporated by reference to Exhibit 10.2.5 of the
Plan. Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993.
10.2.5 Form of Incorporated by reference to Exhibit 10.2.5 to the
Option 1996 Form 10-K.
Certificate
(Employee
Non-Qualified
Stock
Option).
10.2.6 Form of Incorporated by reference to Exhibit 10.2.6 to the
Option 1996 Form 10-K.
Certificate
(Director
Non-Qualified
Stock
Option).
10.2.7 Form of Incorporated by reference to Exhibit 10.2.7 to the
Option 1996 Form 10-K.
Certificate
(Incentive
Stock
Option).
10.14 Commission Incorporated by reference to Exhibit 10.14 to the
Agreement 1996 Form 10-K.
dated
December 1,
1995 between
the
Registrant
and J.M.
Associates,
Inc.
10.15 Operating Filed herewith.
Agreement of
Air41 LLC,
dated as of
September 9,
1998, by and
between
AirCorp, Inc.
and the
Company
10.16 Office Lease Incorporated by reference to Exhibit 10.17 to the
Agreement 1997 Form 10-K.
dated January
31, 1997
between the
Registrant
and Globe
Corporate
Center, as
amended.
10.17 Lease Incorporated by reference to Exhibit 10.18 to the
Agreement 1997 Form 10-K.
dated March
31, 1997
between the
Registrant
and Port 95-
4, Ltd.
21 Subsidiaries. Filed herewith.
27 Financial Filed herewith.
Data
Schedule.
</TABLE>
(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.
23
<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
to be signed on its behalf by the undersigned, thereunto duly authorized
this 27{th} day of August, 1999.
International Airline Support Group, Inc.,
a Delaware corporation
By: /S/ A.A. DYER III
------------------
Alexius A. Dyer III
Chairman of the Board, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------- ------------------------------ ----------------
<S> <C> <C>
/s/ A.A. Dyer III Chairman of the Board, Chief August 27, 1999
- -------------------- Executive Officer and President
A.A. Dyer III and Director (Principal Executive
Officer)
/s/ George Murnane III Executive Vice President, Chief August 27, 1999
- -------------------- Operating Officer and Director
George Murnane III
/s/ James M. Isaacson Chief Financial Officer, Director August 27, 1999
- -------------------- an Secretary (Principal Financial
James M. Isaacson Officer and Principal Accounting
Officer)
/s/ Kyle R. Kirkland Director August 27, 1999
- --------------------
Kyle R. Kirkland
/s/ E. James Mueller Director August 27, 1999
- --------------------
E. James Mueller
</TABLE>
24
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of independent certified public accountants F-2
Consolidated balance sheets as of May 31, 1999 and 1998 F-3
Consolidated statements of earnings for the years ended
May 31, 1999, 1998 and 1997 F-4
Consolidated statements of stockholders' equity (deficit)
for the years ended May 31, 1999, 1998 and 1997 F-5
Consolidated statements of cash flow for the years ended
May 31, 1999, 1998 and 1997 F-6
Notes to consolidated financial statements F-7
Schedule II - Valuation and qualifying accounts S-1
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
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 Subsidiary as of May 31, 1999
and 1998, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years ended
May 31, 1999. 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
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
International Airline Support Group, Inc. and Subsidiary as of May 31, 1999
and 1998 and the consolidated results of its operations and its
consolidated cash flows for each of the three years ended May 31, 1999, in
conformity with generally accepted accounting principles.
We have also audited Schedule II of International Airline Support Group,
Inc. and Subsidiary for each of the three years ended May 31, 1999. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
Fort Lauderdale, Florida
July 20, 1999
F-2
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31,
----------------------
1999 1998
---------- ----------
Current assets
<S> <C> <C>
Cash and cash equivalents (Note A) $ 892,283 $ 438,403
Accounts receivable, net of allowance for doubtful
accounts of approximately $342,420 in 1999 and
$514,000 in 1998 2,812,500 1,179,760
Inventories (Notes A and D) 11,131,059 11,744,924
Deferred tax benefit (Note G) 1,128,302 1,202,345
Other current assets 134,274 194,618
---------- ----------
Total current assets 16,098,418 14,760,050
Investments (Note A) - 92,194
Property and equipment (Notes A and E)
Aircraft and engines held for lease 4,593,854 7,347,954
Leasehold improvements 157,175 65,881
Machinery and equipment 988,983 931,092
---------- ----------
5,740,012 8,344,927
Less accumulated depreciation 1,734,503 1,969,138
---------- ----------
Property and equipment, net 4,005,509 6,375,789
---------- ----------
Other assets
Investment in joint venture (Note B) 2,373,572 -
Deferred debt costs, net (Note A) 360,406 513,222
Deferred tax benefit (Note G) 1,071,959 1,760,565
Deposits and other assets 66,155 134,533
---------- ----------
3,872,092 2,408,320
---------- ----------
$ 23,976,019 $ 23,636,353
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations (Note E) $ 1,455,600 $ 1,351,805
Accounts payable 910,029 247,982
Accrued liabilities (Note M) 2,209,191 2,932,016
---------- ----------
Total current liabilities 4,574,820 4,531,803
Long-term obligations, less current maturities (Note E) 8,138,059 8,296,063
Commitments and contingencies (Note F) - -
Stockholders' equity (Notes H and I)
Preferred stock - $.001 par value; authorized
2,000,000 shares; no shares outstanding in 1999
and 1998, respectively - -
Common stock - $.001 par value; authorized 20,000,000
shares; issued and outstanding 2,655,723 and
2,562,667 shares in 1999 and 1998, respectively 2,655 2,562
Additional paid-in capital 13,936,089 13,511,610
Unrealized loss on equity security - (22,545)
Accumulated deficit (728,824) (2,683,140)
Common stock in treasury, at cost - 467,325
shares in 1999 (1,946,780) -
---------- ----------
Total stockholders' equity 11,263,140 10,808,487
---------- ----------
$ 23,976,019 $ 23,636,353
========== ==========
</TABLE>
The accompanying notes are an intergral part of these statement.
F-3
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------
1999 1998 1997
----------- ----------- ------------
Revenues
<S> <C> <C> <C>
Net sales $ 24,344,083 $ 25,647,782 $ 20,123,196
Lease and service revenue 3,327,859 2,314,830 1,108,702
----------- ----------- ------------
Total revenues 27,671,942 27,962,612 21,231,898
Cost of sales, parts 18,196,982 16,781,517 12,679,915
Selling, general and administrative expenses 5,062,525 5,344,171 3,951,419
Depreciation 1,146,912 1,060,397 791,517
----------- ----------- ------------
Total costs 24,406,419 23,186,085 17,422,851
Equity in net earnings of unconsolidated
joint venture (Note B) 1,026,359 - -
----------- ----------- ------------
Income from operations 4,291,882 4,776,527 3,809,047
Interest expense 1,314,503 1,647,770 1,610,590
Interest and other (income) expense (13,082) 286,018 (60,632)
----------- ----------- ------------
Earnings before income taxes and
extraordinary loss 2,990,461 2,842,739 2,259,089
Provision (benefit) for income taxes (Note G) 1,036,145 (2,819,933) -
----------- ----------- ------------
Earnings before extraordinary loss 1,954,316 5,662,672 2,259,089
Extraordinary loss on debt restructuring (Note C) - - 530,596
----------- ----------- ------------
Net earnings $ 1,954,316 $ 5,662,672 $ 1,728,493
=========== =========== ============
Per share data:
Earnings per common share - basic
before effect of extraordinary item $ .77 $ 2.29 $ 1.37
Extraordinary item - - (.32)
----------- ----------- ------------
Net earnings $ .77 $ 2.29 $ 1.05
=========== =========== ============
Weighted average shares outstanding used in basic
calculation 2,550,940 2,471,025 1,646,629
=========== =========== ============
Earnings per common share - diluted
before effect of extraordinary item $ .72 $ 2.03 $ 1.25
Extraordinary item - - (.29)
----------- ----------- ------------
Net earnings $ .72 $ 2.03 $ .96
=========== =========== ============
Weighted average shares outstanding used in diluted
calculation 2,720,513 2,793,414 1,806,938
=========== =========== ============
</TABLE>
The accompanying notes are an intergral part of these statement.
F-4
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Unrealized Common
COMMON STOCK Additional Loss on Stock in
------------------------
Number of Par Paid-In Equity Accumulated Treasury,
SHARES VALUE CAPITAL SECURITY DEFICIT AT COST TOTAL
---------- -------- ---------- -------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1,
1997 4,041,779 $ 4,042 $ 2,654,332 $ - $ (10,074,305) $ - $(7,415,931)
1 - for - 27 reverse
Stock Split (Note C) (3,892,084) (3,892) - - - - (3,892)
Issuance of Common
Stock in exchange
for extinguishment
of Subordinated
Debentures
(Note C) 2,245,400 2,245 11,224,755 - - - 11,227,000
Costs incurred related
to stock issuance
(Note C) - - (875,401) - - - (875,401)
Net earnings - - - - 1,728,493 - 1,728,493
---------- -------- ---------- -------- ------------ ------- -----------
Balance at May 31,
1997 2,395,095 2,395 13,003,686 - (8,345,812) - 4,660,269
Exercise of stock
options 167,572 167 507,924 - - - 508,091
Unrealized loss on
equity security - - - (22,545) - - (22,545)
Net earnings - - - - 5,662,672 - 5,662,672
---------- -------- ---------- -------- ------------ ------- -----------
Balance at May 31,
1998 2,562,667 2,562 13,511,610 (22,545) (2,683,140) - 10,808,487
Exercise of stock
options 93,056 93 288,394 - - - 288,487
Tax benefit from exercise
of stock options - - 136,085 - - - 136,085
Repurchase of common
stock - - - - - (1,946,780) (1,946,780)
Sale of equity security - - - 22,545 - - 22,545
Net earnings - - - - 1,954,316 - 1,954,316
---------- -------- ---------- -------- ------------ ------- -----------
Balance at May 31,
1999 2,655,723 $ 2,655 $ 13,936,089 $ - $ (728,824) $(1,946,780) $11,263,140
========== ========= ========== ========= =========== ========= ============
</TABLE>
The accompanying notes are an intergral part of these statement.
F-5
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------
1999 1998 1997
---------- --------- ----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 1,954,316 $ 5,662,672 $ 1,728,493
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,299,728 1,159,731 1,010,302
Gain on sale of aircraft and engines held for lease (865,276) (267,109) -
Unrealized loss on equity securities 22,545 - -
Loss on restructuring - - 530,596
Earnings of joint venture (1,026,339) - -
(Increase) decrease in deferred tax benefit 898,734 (2,890,247) (66,428)
(Increase) decrease in accounts receivable (1,632,740) 374,270 640,461
Decrease (increase) in inventories 613,865 (99,640) (2,433,481)
Decrease (increase) in other current assets 60,324 (95,833) (29,487)
Decrease (increase) in other assets 68,378 220,467 (303,500)
Increase (decrease) in accounts payable and
accrued liabilities (60,778) 104,669 (494,754)
----------- ---------- ----------
Net cash provided by operating activities 1,332,857 4,168,980 582,202
Cash flows from investing activities:
Distributions received from joint venture 240,000 - -
Capital expenditures (3,786,356) (1,126,085) (6,197,955)
Sale (purchase) of investments 92,194 ( 114,729) -
Investment in joint venture (1,587,213) - -
Proceeds from sale of aircraft and engines held
for lease 5,875,000 667,000 -
Proceeds from sale of land and building - - 750,000
----------- ---------- ----------
Net cash provided by (used in) investing
activities 833,625 (573,814) (5,447,955)
Cash flows from financing activities:
Net borrowings (payments) under line of credit 2,047,754 (2,391,856) 7,397,930
Borrowings under term loans 2,576,000 3,100,000 6,750,000
Payments under term loans (4,677,963) (4,807,347) (403,331)
Purchase of treasury stock (1,946,780) - -
Proceeds from the exercise of stock options 288,487 508,091 -
Increase in deferred restructuring costs - - (540,641)
(Increase) in deferred debt costs - (31,376) (675,785)
Repayments of debt obligations - - (8,136,969)
----------- ---------- ----------
Net cash (used in) provided by financing
activities (1,712,502) (3,622,488) 4,391,204
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 453,880 (27,322) (474,549)
Cash and cash equivalents at beginning of year 438,403 465,725 940,274
----------- ---------- ----------
Cash and cash equivalents at end of year $ 892,283 $ 438,403 $ 465,725
========== ========= =========
Supplemental disclosures of cash flow information
(Note I):
Cash paid during the year for:
Interest $ 1,161,687 $ 1,505,630 $ 1,321,259
========== ========= =========
Income taxes $ 58,298 $ 139,995 $ 1,400
========== ========= =========
</TABLE>
The accompanying notes are an intergral part of these statement.
F-6
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 AND 1997
NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES
International Airline Support Group, Inc. and Subsidiary (the "Company")
is primarily engaged in the sale of aircraft, aircraft parts, leasing of
aircraft and engines and related services. Since its inception in 1982,
the Company has become a primary source of replacement parts for widely
operated aircraft models such as the McDonnell Douglas MD-80 and DC-9,
and Embraer EMB-120.
a) BASIS OF PRESENTATION
The consolidated statements include the accounts of International
Airline Support Group and its wholly-owned subsidiary. The related
entities are collectively referred to as the ("Company"). All
material intercompany transactions and balances have been eliminated
in the consolidation and combination.
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 in cash and cash equivalents at May 31, 1999
and May 31, 1998 is $0 and $225,496, respectively, of restricted cash
representing maintenance reserves received on certain aircraft held
for lease.
c) INVENTORIES
Inventories are stated at the lower of cost or market. The cost
of aircraft and aircraft parts is determined on a specific
identification basis.
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 3 to 7 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.
e) DEFERRED DEBT COSTS
The deferred debt costs relate to the costs associated with
obtaining the Senior Secured Revolving Credit Loan Facility and the
Senior Secured Term Loans. These costs are being amortized using the
interest method over five years, the life of the respective debt
issue. Accumulated amortization at May 31, 1999 and 1998, was
$391,743 and $238,927, respectively.
f) EARNINGS PER SHARE
The Company adopted Financial Accounting Standards No. 128 (FAS
128), "Earnings Per Share" in fiscal 1998. FAS 128 requires dual
presentation of basic and diluted earnings per share on the face of
the statement of earnings as well as the restatement of prior periods
presented.
(continued)
F-7
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 AND 1997
NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES - Continued
f) EARNINGS PER SHARE - Continued
Basic net earnings per share equals net earnings divided by the
weighted average shares outstanding during the year. The computation
of diluted net earnings per share includes dilutive common stock
equivalents in the weighted average shares outstanding. The
reconciliation between the computations is as follows:
Basic Basic Diluted Diluted
NET EARNINGS SHARES EPS SHARES EPS
------------- --------- ------ --------- ------
1999 $ 1,954,316 2,550,940 $ .77 2,720,513 $ .72
1998 $ 5,662,672 2,471,025 $ 2.29 2,793,414 $ 2.03
1997 $ 1,728,493 1,646,629 $ 1.05 1,806,938 $ .96
Included in diluted shares are common stock equivalents relating
to options of 169,573, 322,389, and 160,309 for 1999, 1998 and 1997,
respectively.
Basic and diluted earnings per share for 1997 are $1.37 and
$1.25, respectively, before and $1.05 and $.96, respectively, after
the effect of the extraordinary charge of $530,596 or $.29 per share
related to the loss on debt restructuring (Note C).
g) REVENUE RECOGNITION
Revenue from the sale of parts is recognized when products are
shipped to the customer. Revenue from aircraft and engine sales is
recognized when the Company has received consideration for the sales
price and the risk of ownership has passed to the buyer. Lease and
service revenue are 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
1999, 1998 and 1997 was insignificant. The Company does not provide
any health or other benefits to retirees.
i) 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. The carrying value of the
debt under the Senior Facility approximates fair value as it is
floating rate debt.
j) 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 of assets and liabilities at each year end.
(continued)
F-8
<PAGE>
NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES - Continued
k) 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 and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting periods. Actual results could differ
from those estimates.
l) NEW ACCOUNTING PRONOUNCEMENT
In 1998, the AICPA issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 establishes standards for accounting for
internal use software projects. This Statement is effective for
financial statements for fiscal years beginning after December 15,
1998 for costs incurred in those fiscal years for all projects,
including projects in progress when the SOP was adopted. Management
does not expect this Statement to have a material impact on the
Company's financial statements.
In 1998, the AICPA issued Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities." SOP 98-5 provides
guidance on accounting for start-up costs and organization costs,
which must be expensed as incurred. This Statement is effective for
financial statements for fiscal years beginning after December 15,
1998. Management does not expect this Statement to have a material
impact on the Company's financial statements.
In June 1998, the FASB issued Statement of Financial Accounting
Standards (FAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities." FAS No. 133 establishes standards for accounting
and reporting for derivative instruments, and conforms the
requirements for treatment of different types of hedging activities.
This statement is effective for all fiscal years beginning after June
15, 2000. Management does not expect this standard to have a
significant impact on the Company's operations.
m) INVESTMENTS
Investments at May 31, 1998 represent equity securities, and are
classified as available-for-sale as of May 31, 1998. Investments
classified as available-for-sale are recorded at fair value and any
temporary difference between an investment's costs and its fair value
is presented as a separate component of stockholders' equity.
n) RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
o) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 130 (SFAS 130),
"Reporting Comprehensive Income." This statement is effective for
fiscal years commencing after December 15, 1997 and has no impact on
the Company's fiscal 1999 financial statements.
(continued)
F-9
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 AND 1997
NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES - Continued
p) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
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 Company's revenues are derived
primarily from customers located in the United States and all of the
Company's long lived assets are located in the United States. No
customer accounted for more than 10% of the Company's sales in fiscal
1999, 1998 and 1997.
q) ACCOUNTING FOR STOCK BASED COMPENSATION
Commencing June 1, 1996, the Company accounts for non-qualified
options issued to non-employees, under SFAS 123, "Accounting for Stock
Based Compensation." The exercise price of all options granted by the
Company equals the market price at the date of grant. Thus, no
compensation expense is recognized. The Company's employee stock
option plans are accounted for using the intrinsic value method under
APB 25. The Company provides disclosure of certain pro forma
information as if the fair value-based method had been applied in
measuring compensation expense (see Note H).
NOTE B - INVESTMENT IN JOINT VENTURE
On September 16, 1998, the Company entered into a joint venture (the
"Air41 Joint Venture") for the acquisition of 20 DC-9-41H aircraft from
Scandinavian Airlines System ("SAS"). The aircraft were leased back to
SAS and the leases had an average term of 39 months. The Company's
original investment in the Air41 Joint Venture was $1.4 million, which
represents a 50% ownership interest. The Company's Air41 Joint Venture
partner is AirCorp, Inc., a privately held company which is controlled
by officers of one of the Company's largest customers. The aircraft
purchases were financed through the joint venture, utilizing non-
recourse debt to the partners. In connection with this financing, the
Company had to post a $1.5 million letter of credit. The Company and
its joint venture partner are collectively guarantors on the Air41
Joint Venture's obligation as the lessor of the aircraft. The Air41
Joint Venture is accounted for under the equity method and the leases
are treated as operating leases.
The Company is exploring opportunities for the aircraft after the end of
the term of the leases with SAS. Such opportunities include releasing
the aircraft with SAS, leasing the aircraft to one or more different
lessee(s), selling the aircraft, parting out the aircraft, or directly
placing the aircraft into either passenger or cargo service, whereby the
Company may have a principal interest in an airline. At this time, the
Company has no firm commitment for the aircraft after the SAS leases
expire. A condensed summary of the joint venture's operations follows:
As of
MAY 31, 1999
------------
Partners' capital accounts $ 4,747,144
============
Period from September 16,
1998 (Date of Inception)
THROUGH MAY 31, 1999
-------------------
Revenues $ 10,200,000
Expenses 8,147,282
----------
Net earnings $ 2,052,718
==========
F-10
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 AND 1997
F-11
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 AND 1997
NOTE B - INVESTMENT IN JOINT VENTURE - Continued
Included in the Company's consolidated retained earnings is
approximately $670,000 relating to this joint venture.
NOTE C - RESTRUCTURING OF CAPITAL
On October 3, 1996, the Company completed a restructuring of its capital
structure. Pursuant to the restructuring, the Company effected a 1-for-
27 reverse split of its common stock, issued approximately 2,245,400
shares of common stock in exchange for the entire $10 million principal
amount outstanding and related accrued interest of its 8% Convertible
Debentures of $1,227,000, and redeemed the entire $7.7 million principal
amount outstanding of its 12% Senior Notes with the proceeds of an
advance under a credit agreement entered into on October 3, 1996 with
the Bank of New York (See Note E). Consummation of the restructuring
cured all defaults with respect to the Debentures and the Senior Notes.
Upon completion of the restructuring, costs incurred related to the
restructuring and issuance of common stock of $875,401 were recorded as
an offset to paid in capital. The transaction resulted in an after tax
charge of $530,596, which has been recorded as an extraordinary item.
NOTE D - INVENTORIES
Inventories at May 31, 1999 and 1998 consisted of the following:
1999 1998
----------- -----------
Aircraft parts $ 8,679,059 $ 11,294,924
Aircraft and engine available for sale 2,452,000 450,000
----------- -----------
$ 11,131,059 $ 11,744,924
=========== ==========
NOTE E - LONG-TERM OBLIGATIONS
Long-term obligations at May 31, 1999 and 1998 consisted of the
following:
1999 1998
----------- -----------
Senior Secured Revolving Credit Loans $ 7,053,829 $ 5,006,075
Senior Secured Term Loan - A 1,654,230 2,081,793
Senior Secured Term Loan - B - 2,560,000
Senior Secured Term Loan - C and D 885,600 -
9,593,659 9,647,868
Less: Current maturities 1,455,600 1,351,805
----------- -----------
$ 8,138,059 $ 8,296,063
=========== ===========
(continued)
F-12
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 AND 1997
NOTE E - LONG-TERM OBLIGATIONS - Continued
In October 1996 the Company entered into a Credit Agreement with the
Bank of New York, which provides for a $3 million term loan (Term Loan-
A) and up to an $11 million revolving credit. 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. The interest rate on the Credit Facility which
fluctuates based on certain financial ratios of the Company, was the
lenders prime rate less .25% at May 31, 1999 (7.50%). The revolving
line of credit was increased to $13 million in March 1997 and to $14
million in fiscal 1998. As of May 31, 1999, the available line of
credit is approximately $5.7 million. The credit agreement includes
certain covenants which provide, among other things, restrictions
relating to the maintenance of consolidated net worth and other
financial ratios, as well as a restriction on the payment of dividends.
In March 1997, the Company entered into a Second Term Loan (Term Loan-B)
with the Bank of New York under the Credit Facility for an additional
$3,750,000. The Term Loan is collateralized by certain aircraft
purchased by the Company with the proceeds from the loan. The Company
repaid this term loan in full in fiscal 1999.
During fiscal 1998, the Credit Agreement was amended twice to create two
additional term loan facilities (term loans C and D) in the amounts of
$1.5 million and $1.6 million and to add $1 million (for capital
expenditures) to the revolving credit line. The two additional term
loans were repaid in full in fiscal 1998. In fiscal 1999, the Company
borrowed an additional $1.8 million on these additional term loans of
which $900,000 was paid prior to end of fiscal 1999.
The scheduled maturities of long-term obligations in each of the next
four years until maturity subsequent to May 31, 1999 are as follows:
2000 - $1,455,600, 2001 - $698,641 and 2002 - $7,439,418.
Subsequent to year-end, the Company borrowed $5,500,000 under a new term
loan under the credit facility to finance the purchase of two aircraft
under lease. The Company borrowed an additional $1 million under the
Senior Secured Revolving Credit Loan to make a $1 million refundable
deposit related to the purchase of a third aircraft.
NOTE F - COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases warehouse facilities as well as certain equipment
under long-term operating lease agreements. Rental expense under these
leases for the years ended May 31, 1999, 1998 and 1997 was approximately
$286,900, $280,000 and $36,000, respectively. At May 31, 1999, the
future minimum payments on non-cancellable operating leases are as
follows: 2000 - $276,500, 2001 - $232,961, and 2002 - $223,619.
The Company currently leases aircraft and engines to customers under
long-term operating lease agreements. In addition to minimum base
rentals, the lease agreement requires additional rent based upon
aircraft and engine usage. The net investment in aircraft and engines
held for or leased to customers was approximately $3,749,380 and
$4,330,000 at May 31, 1999 and 1998, respectively.
F-13
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 AND 1997
NOTE G - INCOME TAXES
The provision (benefit) for income taxes for the years ended May 31,
1999, 1998 and 1997 is as follows:
1999 1998 1997
---------- --------- ---------
Current provision:
Federal $ 76,138 $ 69,906 $ 72,663
State - - -
---------- ----------- ---------
76,138 69,906 72,663
Deferred provision 960,007 (2,889,839) (72,663)
---------- --------- ---------
$ 1,036,145 $ (2,819,933) $ -
========== ========== =========
The tax effect of the Company's temporary differences and carryforwards
is as follows:
1999 1998
---------- ----------
Deferred tax (benefits) - current:
Reserve for overhaul costs $ - $ (82,000)
Bad debt reserve (129,000) (193,000)
Inventory capitalization (311,000) (191,000)
Accrued payroll (169,000) (358,000)
Accrued vacation (15,000) (15,000)
Reserve for inventory (504,000) (363,000)
---------- ----------
$ (1,128,000) $ (1,202,000)
=========== ============
1999 1998
------------ ------------
Deferred tax liabilities (benefits)
- non-current:
Air41 Joint Venture $ 210,000 $ -
Depreciation and amortization 513,000 553,000
Net operating loss carryforward - federal (1,327,000) (1,806,000)
Net operating loss carryforward - state (256,000) (307,000)
Minimum tax credit - federal (303,000) (227,000)
Other, net 91,000 26,000
------------ ------------
$ (1,072,000)$ (1,761,000)
============ =============
The Company recorded a valuation allowance equal to the amount of the
deferred tax benefits at May 31, 1997. In fiscal 1998, the Company
completely relieved the $2,586,000 valuation allowance as they
determined that it was more likely than not that the Company would
recognize the deferred tax benefits based on the Company's recent
earnings history and management's estimate that future profits will be
sufficient to realize these benefits.
(continued)
F-14
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 AND 1997
NOTE G - INCOME TAXES - Continued
The following table summarizes the differences between the Company's
effective tax rate and the statutory federal rate as follows:
1999 1998 1997
----- ------ -----
Statutory federal rate 34.0% 34.0% 34.0%
Tax benefit from net operating
loss carryforward - (134.2) (30.7)
State income taxes 1.7 - -
Other (1.1) 1.0 (3.3)
----- ------ -----
Effective tax rate 34.6% (99.2)% -. %
==== ====== =====
The Company has net operating loss carryforwards for federal tax
purposes of approximately $3.5 million. The net operating losses will
expire in years 2010 and 2011. The Company also has a federal minimum
tax credit carryover of approximately $303,000 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 H - STOCK OPTIONS
Under the terms of the Company's 1996 Stock Option Plan, the Company has
836,782 shares of common stock reserved. The exercise price of all
options granted by the Company to the employees equals the market price
at the date of the grant. No compensation expense has been recognized.
The options, other than those issued to the executive officers, vest
immediately and expire 10 years from the date of the grant.
On December 3, 1998, the Company's Board of Directors approved and
ratified the repricing of certain unexercised employee stock options
granted under the Company's stock option plans. As a result, options
granted to purchase 131,173 shares of the Company's common stock were
repriced from $4.50 - $6.94 per share to $3.31 per share. The 131,173
shares are reflected in both the granted and cancelled captions in the
accompanying table. The pro forma effect on earnings from this
repricing is included in the pro forma net earnings shown below.
Had compensation expense for the Stock Option Plan and non-qualified
options to employees been determined based on the fair value of the
options at the grant dates consistent with the method of SFAS 123, the
Company's net earnings and earnings per share would have been changed to
the pro forma amounts below.
1999 1998 1997
----------- ----------- -----------
Net earnings
As reported $ 1,954,316 $ 5,662,672 $ 1,728,493
Pro forma $ 1,743,076 $ 5,400,656 $ 1,150,122
Basic earnings per share
As reported $ .77 $ 2.29 $ 1.05
Pro forma $ .68 $ 2.19 $ .70
Diluted earnings per share
As reported $ .72 $ 2.03 $ .96
Pro forma $ .64 $ 1.93 $ .63
(continued)
F-15
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 AND 1997
NOTE H - STOCK OPTIONS - Continued
The above pro forma disclosures may not be representative of the effects
on reported net earnings for future years as certain options vest over
several years and the Company may continue to grant options to
employees.
The fair value of each option grant is estimated on the date of grant
using the binomial option-pricing model with the following weighted-
average assumptions used for grants in fiscal 1999, 1998 and 1997,
respectively: dividend yield of 0.0 percent for all years; expected
volatility of 40 percent, 40 percent and 30 percent; risk-free interest
rates of 5.50 percent; 5.50 percent and 6 percent; and expected holding
periods of 4 years.
A summary of the status of the Company's fixed stock options as of May
31, 1999, 1998 and 1997, and changes during the years ending on those
dates is as follows:
<TABLE>
<CAPTION>
MAY 31,1999 MAY 31, 1998 MAY 31, 1997
------------------ ------------------ --------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 563,210 $ 3.42 598,609 $ 2.99 269,500 $ .70
Granted 254,173 3.31 137,173 4.82 598,609 2.99
Exercised (93,056) 3.10 (167,572) 3.03 -
Cancelled (131,173) 4.78 (5,000) 3.00 (269,500) .70
Outstanding at
end of year 593,154 3.12 563,210 3.42 598,609 2.99
------- -------- ------- ----- ------- -------
Options exercisable
at end of year 437,174 415,012 392,430
Weighted-average
fair value of options
granted during
the year $ 1.28 $ 1.90 $ .97
The following information applies to options outstanding at May 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- ------------------------
Weighted -
Average
Remaining Weighted - Weighted -
Ranges of Contractual Average Average
EXERCISE PRICES SHARES LIFE EXERCISE PRICE SHARES EXERCISE PRICE
--------------- ------ ---- -------------- ------- --------------
$2.75 - $3.31 593,154 8.21 $ 3.12 437,174 $ 3.16
</TABLE>
F-16
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 AND 1997
NOTE I - STOCK REPURCHASE
In the third quarter of 1999, the Company began acquiring shares of its
common stock in connection with a stock repurchase program approved by
the Board of Directors in December 1998. During the six months ended
May 31, 1999, the Company repurchased 467,325 shares of its common stock
at an average price of $4.16 for a total expenditure of $1,946,780. The
Company does not currently have a formal plan in place to purchase any
additional shares; however, the Company is authorized by the Board to
make further purchases if deemed to be in the best interests of the
Company. Any such purchases must be also approved by the Company's
bank. In June 1999 and July 1999, the Company purchased an additional
4,200 shares of the Company's common stock for approximately $19,000.
NOTE J - SUPPLEMENTAL CASH FLOW DISCLOSURE
In fiscal 1997, the Company completed a restructuring of its capital
(See Note C). In conjunction with this restructuring, the Company
incurred the following noncash financing activity:
Decrease in Subordinated Debentures $ 10,000,000
Decrease in Accrued Interest 1,224,755
Decrease in Common Stock 2,245
Increase in Paid in Capital (10,892,140)
Decrease in Deferred Restructuring Fees (334,860)
In fiscal 1997, the Company exchanged an aircraft with a net book value
of $237,552 for certain inventory. No gain or loss was recorded on the
exchange.
The net change in inventory in fiscal 1999 and 1998, as derived from the
change in balance sheet amounts, has been adjusted for the following
items:
1999 1998 1997
----------- -------- ----------
Net (decrease) increase in
inventory $ (613,865) $ 99,640 $ 2,367,969
Transfer of aircraft from
inventory to held for lease - - 303,064
Exchange of aircraft held
for lease for inventory - - (237,552)
----------- -------- ----------
Cash flow impact from
change in inventory $ (613,865) $ 99,640 $ 2,433,481
=========== ======== ===========
NOTE K - RELATED PARTY TRANSACTIONS
Under the commission agreement entered into with the Company during
fiscal 1994, an outside director is entitled to 3-4% of revenues
generated from sales to customers brought in by the director plus a
fixed monthly fee. The Company paid the outside director approximately
$96,000, $96,000 and $6,000 for the years ended May 31, 1999, 1998 and
1997. This agreement expires in fiscal 2000, but is renewable annually.
(continued)
F-17
<PAGE>
NOTE K - RELATED PARTY TRANSACTIONS - Continued
In connection with obtaining the Credit Agreement with the Bank of New
York, the Company agreed to pay the placement agent a $250,000
placement fee. A director of the Company was a principal of the
placement agent. In fiscal 1997, the Company paid the placement agent
$200,000 of this fee, and the remaining $50,000 was paid in fiscal 1998.
In addition, the Company paid this director $86,000 during both fiscal
1999 and 1998 for services rendered to the Company in connection with
the identification and evaluation of acquisition opportunities.
An executive of one of the Company's significant customers is also an
executive of the Company's partner in the Air41 Joint Venture. Total
sales to this customer were approximately $1.6 million, $2 million, and
$339,000 in fiscal 1999, 1998, and 1997, respectively. As of May 31,
1999 and 1998, the accounts receivable from this customer was
approximately $109,000 and $16,000, respectively. During fiscal 1999,
the Company purchased three engines from the Company's joint venture
partner for $3,120,000. Currently, these engines are on lease to
unrelated third parties.
An executive officer of the Company is a member of the Board of
Directors of one of the Company's customers. The Company both purchases
and sells inventory to this customer. Total sales to this customer were
$33,847, $0 and $0 in fiscal 1999, 1998 and 1997, respectively. As of
May 31, 1999 and 1998, the accounts receivable from this customer was
approximately $69,000 and $0, respectively. Total purchases from this
customer were approximately $1.2 million, $0 and $0 in fiscal 1999, 1998
and 1997, respectively. In fiscal 1999, the Company received $250,000
of consulting income from this customer. As of May 31, 1999 and 1998,
the Company has a payable to this customer of $756,049 and $0,
respectively.
NOTE L - FOURTH QUARTER ADJUSTMENTS
In fiscal 1998, the Company recorded a fourth quarter tax benefit of
approximately $1,100,000 as a result of adjusting the Company's
estimated deferred tax assets.
In fiscal 1997, the Company recorded a fourth quarter tax benefit of
approximately $102,000 as a result of adjusting the estimated effective
tax rate used during the year.
NOTE M - ACCRUED LIABILITIES
Accrued liabilities consist of the following items:
1999 1998
----------- ----------
Customer deposits $ 350,097 $ 110,902
Accrued repair costs 1,124,859 582,319
Accrued legal costs - 209,550
Accrued payroll 597,442 1,019,883
Accrued property taxes 48,214 13,270
Accrued offering expenses - 129,032
Reserve for repair of leased aircraft - 698,818
Other 88,579 168,242
----------- ----------
$ 2,209,191 $ 2,932,016
F-18
<PAGE>
NOTE N - YEAR 2000
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The
potential effect of the Year 2000 issue on the Company and its business
partners will not be fully determinable until the Year 2000 and
thereafter. If Year 2000 modifications are not properly completed
either by the Company or entities with which the Company conducts
business, the Company's revenues and financial condition could be
adversely impacted.
NOTE O - EMPLOYMENT AGREEMENTS
In October 1996, the Company entered into employment agreements with two
of its executive officers for a period of five years. The agreements
provide the employees with a certain minimum annual salary plus bonus.
The agreements provide the employees with an option to terminate their
agreements and receive a lump sum payment equal to the employee's
average annual compensation paid by the Company for the most recent two
years upon a change in control of the Company.
NOTE P - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
YEAR QUARTER QUARTER QUARTER QUARTER TOTAL
- ------------------------ ------- ------- ------ ------- -------
(IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
1999
<S> <C> <C> <C> <C> <C>
Revenues $ 5,575 $ 5,836 $ 5,729 $ 10,532 $ 27,672
Operating income 1,017 1,226 1,246 803 4,292
Net earnings available
for common shareholders 442 529 555 418 1,954
Earnings per share - basic .17 .21 .22 .17 .77
Earnings per share - diluted .16 .20 .21 .15 .72
1998
Revenues $ 5,567 $ 6,092 $ 6,429 $ 9,875 $ 27,963
Operating income 1,184 1,166 1,219 1,208 4,777
Net earnings available
for common shareholders 985 912 1,713 2,053 5,663
Earnings per share - basic .41 .37 .70 .90 2.29
Earnings per share - diluted .36 .33 .61 .73 2.03
</TABLE>
F-19
<PAGE>
EXECUTION COPY
FIRST AMENDMENT, WAIVER AND AGREEMENT
FIRST AMENDMENT, WAIVER AND AGREEMENT, dated as of March 24, 1997
(this "AMENDMENT"), to the Existing Credit Agreement (as hereinafter
defined), by and among INTERNATIONAL AIRLINE SUPPORT GROUP, INC., a
Delaware corporation (the "BORROWER"), and BNY FINANCIAL CORPORATION, a New
York corporation (the "LENDER").
RECITALS
The Borrower and the Lender have entered into the Existing Credit
Agreement, pursuant to which the Lender is providing to the Borrower (i) an
$11,000,000.00 revolving credit facility (the "REVOLVER FACILITY") and a
$3,000,000.00 term loan facility (as specifically defined below, the "TERM
LOAN A FACILITY"), which is secured by accounts receivable, inventory and
other collateral of the Borrower. The Borrower has requested that the
Lender provide an additional $3,750,000.00 term loan facility (as
specifically defined below, the "TERM LOAN B FACILITY") for the acquisition
of three (3) Boeing 727-100 aircraft (bearing manufacturer's serial numbers
18892, 18903 and 18905, respectively) (the "AIRCRAFT ACQUISITION"). The
Borrower has also requested that the Lender increase the maximum amount
available under the Revolver Facility to $13,000,000.00. Subject to the
terms and conditions hereof, the Lender is willing (i) to provide the Term
Loan B Facility to the Borrower, (ii) to increase the maximum amount
available under the Revolver Facility to $13,000,000.00 and (iii) to amend
and waive certain provisions of the Existing Credit Agreement in order to
effectuate the foregoing.
In consideration of the foregoing and of the mutual covenants and
undertakings herein contained, the parties hereto hereby agree that the
Existing Credit Agreement is amended as hereinafter provided.
****ARTII.
Definitions
A.DEFINITIONS. (a) In addition to the definitions set forth in
the heading and the recitals to this Amendment, the following definitions
shall apply to this Amendment:
"AGREEMENT": means the Credit Agreement, dated as of September
30, 1996, between the Borrower and the Lender, as amended, supplemented or
otherwise modified from time to time up to and including this Amendment.
"EXISTING CREDIT AGREEMENT": means the Credit Agreement, dated as
of September 30, 1996, between the Borrower and the Lender, as the same may
have been amended, supplemented or modified from time to time up to but not
including the effectiveness of this Amendment.
"FIRST AMENDMENT DOCUMENTS": the First Amendment, Amendment No. 1
to Borrower Security Agreement, the Pledge Agreement, the Emery Consent and
Agreement, the Term Loan B Aircraft Chattel Mortgages, the Emery Leases,
the Emery Aircraft Lease Supplements, Term Note B, and any other
agreements, instruments and documents executed or delivered pursuant to or
in connection with the First Amendment and the transactions contemplated
thereby.
(b) Unless otherwise indicated, capitalized terms that are used
but not defined herein shall have the meanings ascribed to them in the
Existing Credit Agreement.
****ARTII.
Representations
A.REPRESENTATIONS. The Borrower hereby represents and warrants
as follows:
*a)It (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.
*a)It has the power and authority, and the legal right, to make,
deliver and perform this Amendment and the other First Amendment Documents
to which it is a party and to borrow under the Agreement and has taken all
necessary action to authorize the borrowings on the terms and conditions of
the Agreement and this Amendment and to authorize the execution, delivery
and performance of the First Amendment 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 under the Agreement or with the
execution, delivery, performance, validity or enforceability of the First
Amendment Documents to which it is a party. Each First Amendment Document
to which the Borrower is a party has been or will be duly executed and
delivered on behalf of the Borrower. Each First Amendment 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.
*a)The conditions contained in Article V hereof have been
satisfied.
*1.The Borrower represents that each of the Credit Documents is
on the date hereof in full force and effect.
****ARTII.
Amendments to Existing Credit Agreement
A.AMENDMENTS TO SECTION 1. Section 1.1 of the Existing Credit
Agreement is hereby amended by inserting the following new definitions
therein in alphabetical order:
"AMENDMENT NO. 1 TO BORROWER SECURITY AGREEMENT": that
certain Amendment No. 1 to Borrower Security Agreement, dated as of
the First Amendment Effective Date, from the Borrower to the Lender.
"EMERY": Emery Worldwide Airlines, Inc., a Nevada
corporation.
"EMERY AIRCRAFT LEASE SUPPLEMENTS": the collective reference
to the Lease Assignment Assumption and Releases, dated as of March 24,
1997 by and among AAR Engine Group, Inc., the Borrower and Emery,
pursuant to which the Borrower becomes the lessor under each of the
Emery Leases.
"EMERY CONSENT AND AGREEMENT": that certain Consent and
Agreement, dated as of the date hereof, by and among Emery, the
Borrower and the Lender, in respect of the Emery Leases.
"EMERY LEASES": the collective reference to each Aircraft
Least Agreement in respect of a Term Loan B Aircraft, dated as of
February 17, 1994 September 22, 1993 and September 23, 1993,
respectively, and each of which is between Emery (as lessee) and the
Borrower (as successor lessor), as the same may be amended,
supplemented or modified from time to time.
"FIRST AMENDMENT": that certain First Amendment, Waiver and
Agreement, dated as of March 24, 1997, between the Borrower and the
Lender.
"FIRST AMENDMENT DOCUMENTS": the First Amendment, Amendment
No. 1 to Borrower Security Agreement, the Pledge Agreement, the Emery
Consent and Agreement, the Term Loan B Aircraft Chattel Mortgages, the
Emery Leases, the Emery Aircraft Lease Supplements, Term Note B, and
any other agreements, instruments and documents executed or delivered
pursuant to or in connection with the First Amendment and the
transactions contemplated thereby.
"FIRST AMENDMENT EFFECTIVE DATE": the date on which all of
the conditions precedent to the effectiveness of the First Amendment
set forth in Article V of the First Amendment are first satisfied or
waived.
"PLEDGE AGREEMENT": that certain Borrower Pledge Agreement,
dated as of the First Amendment Effective Date, from the Borrower to
the Lender pursuant to which the Borrower pledges to the Lender 100%
of the outstanding Capital Stock of IASG-Virgin Islands, Inc., its
wholly-owned subsidiary.
"TERM LOAN A": as defined in Section 2.3(a) (together with
any advance made in connection with the substitution of a Term Loan A
Aircraft or a Term Loan A Aircraft Engine pursuant to Section 2.5(a)).
"TERM LOAN A AIRCRAFT": means each Aircraft owned from time
to time by the Borrower and listed as a Term Loan A Aircraft and
described on SCHEDULE I hereto, as the same may be amended or modified
from time to time in accordance with this Agreement.
"TERM LOAN A AIRCRAFT ENGINE": means each Aircraft Engine
owned from time to time by the Borrower and listed as a Term Loan A
Aircraft Engine and described on SCHEDULE I hereto, as the same may be
amended or modified from time to time in accordance with this
Agreement.
"TERM LOAN A BORROWING BASE": at any time, an amount equal
to (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 Term
Loan A Aircraft domiciled in jurisdictions other than Kenya and all
Term Loan A Aircraft Engines 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 Term Loan A Aircraft domiciled in
Kenya.
"TERM LOAN A FACILITY": at any time, the obligation of the
Lender to make Term Loan A 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 2.3A.
"TERM LOAN B": as defined in Section 2.3(b) (together with
any advance made in connection with the substitution of a Term Loan B
Aircraft or a Term Loan B Aircraft Engine pursuant to Section 2.5(b)).
"TERM LOAN B AIRCRAFT": means each Aircraft owned from time
to time by the Borrower and listed as a Term Loan B Aircraft and
described on SCHEDULE I hereto, as the same may be amended or modified
from time to time in accordance with this Agreement.
"TERM LOAN B AIRCRAFT ENGINE": means each Aircraft Engine
owned from time to time by the Borrower and listed as a Term Loan B
Aircraft Engine and described on SCHEDULE I hereto, as the same may be
amended or modified from time to time in accordance with this
Agreement.
"TERM LOAN B AIRCRAFT CHATTEL MORTGAGES": the collective
reference to each Aircraft Chattel Mortgage, dated as of the First
Amendment Effective Date, from the Borrower to the Lender with respect
to a Term Loan B Aircraft.
"TERM LOAN B BORROWING BASE": at any time, an amount equal
to 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 Term Loan B
Aircraft and all Term Loan B Aircraft Engines.
"TERM LOAN B FACILITY": at any time, the obligation of the
Lender to make Term Loan B in accordance with the provisions of this
Agreement, which shall not exceed an amount equal to $3,750,000.00
MINUS the aggregate amount of repayments of principal then required to
have been made in accordance with SCHEDULE 2.3B.
"TERM LOAN BORROWING BASES": the collective reference to
the Term Loan A Borrowing Base and the Term Loan B Borrowing Base.
"TERM LOAN FACILITIES": the collective reference to the
Term Loan A Facility and the Term Loan B Facility.
"TERM LOANS": the collective reference to Term Loan A and
Term Loan B.
"TERM NOTE A": a promissory note of the Borrower evidencing
Term Loan A, in form and substance acceptable to the Lender.
"TERM NOTE B": a promissory note of the Borrower evidencing
Term Loan B, in form and substance acceptable to the Lender.
*1.The definition of the term "Approved Aircraft" in Section 1.1
of the Existing Credit Agreement is hereby deleted in its entirety and
replaced by the following:
""APPROVED AIRCRAFT": means the collective reference to the
Term Loan A Aircraft, the Term Loan A Aircraft Engines, the Term
Loan B Aircraft and the Term Loan B Aircraft Engines."
*1.The definition of the term "Credit Documents" in Section 1.1
of the Existing Credit Agreement is hereby deleted in its entirety and
replaced by the following:
""CREDIT DOCUMENTS": this Agreement, the First Amendment,
the Security Documents, the Republic Intercreditor Agreement, each
Consent and Agreement, Term Note A, Term Note B, any Revolver Note and
any other documents, agreements or instruments executed and delivered
to the Lender pursuant to Section 6.11."
*1.The definition of the term "Facilities" in Section 1.1 of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by
the following:
""FACILITIES": the collective reference to the Revolver
Facility and the Term Loan Facilities."
*1.Clause I of the definition of "Revolver Borrowing Base" in
Section 1.1 of the Existing Credit Agreement is hereby deleted in its
entirety and replaced by the following:
"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 subtracting any Collateral Reserves,
of then Eligible Accounts and Eligible Lease Payment Receivables, (b)
100% (or such other percentage as the Lender shall determine in its
sole and absolute discretion) of the aggregate amount of all
maintenance reserves held in a restricted account pursuant to Section
3.5(f), and (c) 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 any Collateral Reserves, of 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) $9,500,000.00;"
*1.The definition of "Revolver Facility" in Section 1.1 of the
Existing Credit Agreement is hereby amended by deleting in the third line
thereof the number "$11,000,000.00" and replacing it with the number
"$13,000,000.00".
*1.The definition of "Revolver Reserve" in Section 1.1 of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by
the following:
""REVOLVER RESERVE": as of any date, an amount equal to the
lesser of (i) the amount, if any, by which the sum determined in
accordance with clause I of the definition of Revolver Borrowing Base
on such date exceeds the aggregate outstanding Revolver Advances on
such date and (ii) the amount, if any, by which the sum of the Term
Loan A Facility (without regard to any Term Loan A borrowings made
prior to or on such date) on such date and the Term Loan B Facility
(without regard to any Term Loan B borrowings made prior to or on such
date) on such date exceeds the sum of the Term Loan A Borrowing Base
on such date and the Term Loan B Borrowing Base on such date."
*1.The definition of "Security Documents" in Section 1.1 of the
Existing Credit Agreement is hereby amended by adding in the second line
thereof the words "Amendment No. 1 to Borrower Security Agreement, the
Pledge Agreement," after the words "Borrower Security Agreement,".
*1.The term "Term Loan Borrowing Base" and its related definition
in Section 1.1 of the Existing Credit Agreement are hereby deleted in their
entirety.
*1.The term "Term Loan Facility" and its related definition in
Section 1.1 of the Existing Credit Agreement are hereby deleted in their
entirety.
*1.The term "Term Note" and its related definition in Section 1.1
of the Existing Credit Agreement are hereby deleted in their entirety.
A.AMENDMENTS TO SECTION 2.3. Section 2.3 of the Existing Credit
Agreement is hereby deleted in its entirety and replaced by the following:
"2.3 TERM LOAN FACILITIES. (a) 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 Term Loan A Aircraft or a Term
Loan A Aircraft Engine pursuant to Section 2.5(a) hereof, "TERM
LOAN A") on the Closing Date in the principal amount of the lesser of
(a) the Term Loan A Facility on such date and (b) the Term Loan A
Borrowing Base on such date plus the Revolver Reserve on such date
(without regard to the Term Loan B Facility or the Term Loan B
Borrowing Base). Term Loan A shall be dated the Closing Date, stated
to mature in the installments and amounts payable on the dates set
forth in SCHEDULE 2.3A 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 thereof shall reduce the Term Loan A Facility on
a dollar-for-dollar basis.
(b) 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 Term Loan B Aircraft or Term Loan B Aircraft Engines
pursuant to Section 2.5(b) hereof, "TERM LOAN B") on the First
Amendment Effective Date in the principal amount of the lesser of (a)
the Term Loan B Facility on such date and (b) the Term Loan B
Borrowing Base on such date. Term Loan B shall be dated the First
Amendment Effective Date, stated to mature in the installments and
amounts payable on the dates set forth in SCHEDULE 2.3B hereto, and
bear interest for the period from the First Amendment Effective Date
on the unpaid principal amount thereof at the applicable interest
rates per annum specified in Section 3.1. Notwithstanding the
foregoing, no payment of principal of Term Loan B scheduled to be made
during the period commencing with and including month 25 and ending
with and including month 35, in each case as set forth on SCHEDULE
2.3B shall be required if at the time such payment is scheduled to be
made the Forced Liquidation Value of the Term Loan B Aircraft and the
Term Loan B Aircraft Engines equals or exceeds 125% of the outstanding
principal balance of Term Loan B. All payments of principal thereof
shall reduce the Term Loan B Facility on a dollar-for-dollar basis."
A.AMENDMENTS TO SECTION 2.4. Section 2.4 of the Existing Credit
Agreement is hereby deleted in its entirety and replaced by the following:
"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 each 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 each such advance (including any Substitution Advance) 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.
063000-021."
A.AMENDMENTS TO SECTION 2.5. Section 2.5 of the Existing Credit
Agreement is hereby deleted in its entirety and replaced by the following:
"2.5 DISCRETIONARY TERM LOAN ADVANCE UPON SUBSTITUTION OF
APPROVED AIRCRAFT. (a) At the request of the Borrower and after
substitution of a Term Loan A Aircraft or a Term Loan A Aircraft
Engine (the "SUBSTITUTE TERM LOAN A AIRCRAFT OR ENGINE") for a Term
Loan A Aircraft or a Term Loan A Aircraft Engine which has been sold
or has suffered an Event of Loss within six months after repayment of
Term Loan A to the extent and as required by Section 3.3(d) hereof,
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
Term Loan A Aircraft or Engine, 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 2.3A
hereto exceeds (B) the outstanding principal balance of Term Loan A 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 comprise part of Term Loan A for all
purposes hereunder and shall increase the Term Loan A Facility on a
dollar-for-dollar basis. From and after the making of such advance
the outstanding principal balance of Term Loan A shall include the
amount of such advance, interest shall be payable on such amount, and
the amount of each remaining scheduled principal repayment shall be
increased by an amount equal to (x) the amount of such advance TIMES
(y) a fraction the numerator of which is an amount equal to such
scheduled principal repayment and the denominator of which is the
aggregate amount of all remaining scheduled principal repayments.
(b) At the request of the Borrower and after substitution
of a Term Loan B Aircraft or a Term Loan B Aircraft Engine (the
"SUBSTITUTE TERM LOAN B AIRCRAFT OR ENGINE") for a Term Loan B
Aircraft or a Term Loan B Aircraft Engine which has been sold or has
suffered an Event of Loss within six months after repayment of Term
Loan B to the extent and as required by Section 3.3(d) hereof, 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 Term
Loan B Aircraft or Engine, less any applicable Collateral Reserve, and
(ii) the amount, if any, by which (A) $3,750,000.00 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 2.3B
hereto exceeds (B) the outstanding principal balance of Term Loan B 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 comprise part of Term Loan B for all
purposes hereunder and shall increase the Term Loan B Facility on a
dollar-for-dollar basis. From and after the making of such advance
the outstanding principal balance of Term Loan B shall include the
amount of such advance, interest shall be payable on such amount, and
the amount of each remaining scheduled principal repayment shall be
increased by an amount equal to (x) the amount of such advance TIMES
(y) a fraction the numerator of which is an amount equal to such
scheduled principal repayment and the denominator of which is the
aggregate amount of all remaining scheduled principal repayments."
A.AMENDMENTS TO SECTION 3.2(B). Section 3.2(b) of the Existing
Credit Agreement is hereby deleted in its entirety and replaced by the
following:
"(b) The Borrower may at any time and from time to time
prepay either or both of the Term Loans, 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 and identify the Term Loan as to which such prepayment
relates. If any such notice is given, the amount specified in such
notice shall be due and payable on the date specified therein with
respect to the Term Loan specified therein and the amount of such
payments shall be applied against scheduled repayments of principal
thereof on a PRO RATA basis and shall reduce the related Term Loan
Facility on a dollar-for-dollar basis."
A.AMENDMENTS TO SECTION 3.3. Paragraphs (b), (c) and (d) of
Section 3.3 of the Existing Credit Agreement are hereby deleted in their
entirety and replaced by the following:
"(b) (i) 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 Loans exceeds
an amount equal to the sum of the Term Loan Borrowing Bases and the
Revolver Reserve, the Borrower shall immediately prepay the Term Loans
in an aggregate amount equal to the amount of such excess. The amount
of such payment shall reduce the Term Loan Facilities on a dollar-for-
dollar basis and shall be applied (A) first against the repayment of
Term Loan A to the extent that the outstanding principal amount of
Term Loan A exceeds the Term Loan A Borrowing Base, and then against
the repayment of Term Loan B, and (B) in each such case, against
scheduled repayments of principal on a PRO RATA basis.
(ii) Without in any way limiting the provisions of clause
(i) of this Section 3.3(b), if on any day the Forced Liquidation Value
of the Term Loan B Aircraft and the Term Loan B Aircraft Engines is
less than 125% of the outstanding principal balance of Term Loan B on
such day, the Borrower shall immediately prepay Term Loan B in an
amount equal to such deficiency.
(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 (A) immediately upon each sale of an
Approved Aircraft either substitute, with the consent of the Lender
(in its sole and absolute, discretion), Approved Aircraft having an
aggregate Forced Liquidation Value at least equal to the Forced
Liquidation Value of such sold Approved Aircraft or prepay the related
Term Loan in an amount equal to the lesser of (x) 100% of the Net
Proceed thereof and (y) the sum of the Revolver Reserve and the amount
by which the related Term Loan Borrowing Base is reduced by such sale,
and (B) within two (2) Business Days after the occurrence of any Event
of Loss with respect to an Approved Aircraft prepay the related Term
Loan in an amount equal to the lesser of (x) the greater of 100% of
the Forced Liquidation Value of such Approved Aircraft immediately
prior to such Event of Loss and the insurance proceeds received or to
be received in respect thereof and (y) the sum of the Revolver Reserve
and the amount by which the related 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 applicable Term Loan Facility on a dollar-for-dollar
basis."
A.AMENDMENTS TO SECTION 3.5(E). The THIRD and FOURTH enumerated
paragraphs of Section 3.5(e) of the Existing Credit Agreement are hereby
deleted in their entirety and replaced by the following:
"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 either or both of
the Term Loans;
FOURTH, to the payment in full of all other Obligations then
due and payable (including, without limitation, any installment of
principal of either or both of the Term Loans then due and payable);
and"
A.AMENDMENTS TO SECTION 3.5(F). Clauses (ii) and (iii) of Section
3.5(f) of the Existing Credit Agreement are hereby amended by deleting the
term "Term Loan Borrowing Base" wherever it occurs therein and replacing it
with the term "Term Loan Borrowing Bases" in each such case.
A.AMENDMENTS TO SECTION 3.5(G). Section 3.5(g) of the Existing
Credit Agreement is hereby deleted in its entirety and replaced by the
following:
"(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 Term Loan A of the Lender,
in form and substance acceptable to the Lender ("TERM NOTE A"), (ii) a
promissory note of the Borrower evidencing Term Loan B of the Lender,
in form and substance acceptable to the Lender ("TERM NOTE B"), and/or
(iii) a promissory note of the Borrower evidencing the Revolver
Advances of the Lender in form and substance acceptable to the Lender
(a "REVOLVER NOTE")."
A.AMENDMENTS TO SECTION 3.9(A). Section 3.9(a) of the Existing
Credit Agreement is hereby amended by deleting in the last line thereof the
words "the Term Loan" and replacing them with the words "Term Loan A".
A.Amendments to Section 5.1(e). Section 5.1(e) to the Existing
Credit Agreement is hereby amended by deleting in the second line thereof
the words "the Term Loan" and replacing them with the words "Term Loan A".
A.AMENDMENTS TO SECTION 6.2(C). Section 6.2(c) is hereby deleted
in its entirety and replaced by the following:
"(c) prior to 2:00 p.m., New York City time on each Business
Day, a Borrowing Base Certificate showing the Revolver Borrowing Base,
the Term Loan A Borrowing Base and the Term Loan B Borrowing Base (but
only, (i) in the case of the Term Loan A Borrowing Base, in connection
with the delivery of the first such certificate hereunder and in each
case that the Term Loan A Borrowing Base changes from the amount
thereof most recently reported and (ii) in the case of the Term Loan B
Borrowing Base, in connection with the delivery of such certificate on
the First Amendment Effective Date and in each case that the Term
Loan B 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;"
A.AMENDMENTS TO SECTION 9.2. Section 9.2 of the Existing Credit
Agreement is hereby amended by deleting the Borrower's address for notices
in its entirety and replacing it with the following:
"International Airline Support Group, Inc.
1954 Airport Road, Suite 200
Atlanta, Georgia 30341
Attention: Chief Financial Officer
Fax: (770) 455-7550"
A.AMENDMENTS TO SCHEDULE I. Schedule I to the Existing Credit
Agreement is hereby amended in its entirety to read as is set forth on
Schedule I hereto.
A.AMENDMENTS TO SCHEDULE 1.1. Schedule 1.1 to the Existing Credit
Agreement is hereby amended in its entirety to read as is set forth on
Schedule 1.1 hereto.
A.AMENDMENTS TO SCHEDULE 2.3. Schedule 2.3 to the Existing Credit
Agreement is hereby deleted in its entirety and replaced with Schedule
2.3A, which shall read as is set forth on Schedule 2.3A hereto, and
Schedule 2.3B, which shall read as is set forth or Schedule 2.3B hereto.
A.AMENDMENTS TO SCHEDULE 4.19. Schedule 4.19 to the Existing
Credit Agreement is hereby amended in its entirety to read as is set forth
on Schedule 4.19 hereto.
****ARTII.
Waiver
A.WAIVER. The Lender hereby waives any Default or Event of
Default arising as a result of the failure by the Borrower to comply with
or to satisfy the requirements of Section 7.18 of the Existing Credit
Agreement, but only with respect to the Aircraft Acquisition.
****ARTII.
Conditions to Effectiveness
This Amendment, and the modifications to the Credit Agreement
provided for herein, shall become effective on the date (the "FIRST
AMENDMENT EFFECTIVE DATE") on which all of the following conditions have
been (or are concurrently being) satisfied:
A.The following documents shall have been executed and delivered
by each party thereto:
*a)this Amendment;
*a)Amendment No. I to Borrower Security Agreement;
*a)the Term Loan B Aircraft Chattel Mortgages;
*a)the Emery Aircraft Lease Supplements;
*a)the Emery Consent and Agreement;
*a)the Term B Note;
*a)the Pledge Agreement; and
*a)all Uniform Commercial Code financing statements on Form UCC-1
and UCC-3 required by the Lender.
A.The Lender shall have received executed legal opinions of King
& Spalding, special counsel to the Borrower, in form and substance
satisfactory to the Lender and taking into account this Amendment and the
matters contemplated hereby (including, without limitation, opinions with
respect to the validity of the First Amendment Documents and the
effectiveness of UCC filings in each state where Collateral described
therein is located). Such legal opinion shall cover such matters incident
to the transactions contemplated by this Amendment and the other First
Amendment Documents as the Lender may reasonably require.
A.The Lender shall have received the executed legal opinion of
Daugherty, Fowler & Peregrin, special FAA counsel to the Borrower, in form
and substance satisfactory to the Lender taking into account this Amendment
and the matters contemplated hereby (including, without limitation,
opinions as to the effectiveness of the filing of the Term Loan B Aircraft
Chattel Mortgages and the Emery Aircraft Lease Supplements with the FAA).
Such legal opinion shall cover such matters incident to the transactions
contemplated by this Amendment and the other First Amendment Documents as
the Lender may reasonably require.
A.The Lender shall have received a copy, in form and substance
reasonably satisfactory to the Lender, of the corporate resolutions of the
Borrower, authorizing the Aircraft Acquisition and the execution, delivery
and performance of this Amendment and the other First Amendment Documents
to which the Borrower is a party, certified by the Secretary or an
Assistant Secretary of the Borrower as of the First Amendment Effective
Date, which certificates shall state that the resolutions or authorizations
thereby certified have not been amended, modified, revoked or rescinded as
of the date of such certificate.
A.The Lender shall have received a certificate of the Secretary
or an Assistant Secretary of the Borrower, dated the First Amendment
Effective Date, as to the incumbency and signature of the officer(s) of the
Borrower executing each First Amendment Document to which it is a party and
any certificate or other document to be delivered by it pursuant hereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary.
A.The Lender shall have received certificates from the Borrower,
stating that its Governing Documents have not been amended since September
30, 1996.
A.The Lender shall have received copies of certificates dated as
of a recent date from the Secretary of State or other appropriate authority
of such jurisdiction, evidencing the good standing of the Borrower in the
State of its organization and in each State where the ownership, lease or
operation of property or the conduct of business requires it to qualify as
foreign corporation or other entity except where the failure to so qualify
would not have a Material Adverse Effect.
A.The Lender shall have received all chattel paper original
copies of the Emery Leases and all documents required to be delivered under
Article Three of each of the Term Loan B Aircraft Chattel Mortgages.
A.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 the First Amendment Effective Date as if
made on and as of such date (except to the extent the same relate to
another, earlier date, in which case they shall be true and correct in all
material respects as of such earlier date).
A.Except as provided for in Article IV, no Default or Event of
Default shall have occurred and be continuing.
A.All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by the First Amendment Documents, the Existing Credit
Agreement, the Credit Agreement and the other Credit Documents shall be
reasonably satisfactory in form and substance to the Lender, and the Lender
shall have received such other documents in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as it shall
reasonably request.
A.The Lender shall have received a Borrowing Base Certificate
showing the Revolver Borrowing Base, the Term Loan A Borrowing Base and the
Term Loan B Borrowing Base, in each case as of the Business Day immediately
preceding the First Amendment Effective Date, with appropriate insertions
and dated the First Amendment Effective Date, satisfactory in form and
substance to the Lender, executed by a Responsible Officer or any Vice
President of the Borrower.
A.The Lender shall have received evidence in form and substance
satisfactory to it that all of the requirements of Section 6.6 of the
Existing Credit Agreement and Section 5(o) of the Borrower Security
Agreement shall have been satisfied with respect to the Term Loan B
Aircraft.
A.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 with respect to the Term Loan B
Aircraft shall have been completed.
A.The Lender shall have received each additional document,
instrument, legal opinion or item of information reasonably requested by
the Lender, including, without limitation, a copy of any debt instrument,
security agreement or other material contract to which the Borrower is be a
party.
****ARTII.
Miscellaneous
A.CLOSING FEE; PAYMENT OF EXPENSES. On the First Amendment
Effective Date, the Borrower shall pay to the Lender in immediately
available funds a fee equal to $50,000.00 (which shall be in addition to
all fees paid to the Lender prior to the execution and delivery of this
Amendment). The Lender is hereby authorized to withhold the amount of such
fee from the proceeds of Term Loan B.
*1.Without limiting its obligations under Section 9.5 of the
Existing Agreement, the Borrower agrees to pay or reimburse the Lender for
all of its reasonable costs and expenses incurred in connection with this
Amendment and the other First Amendment Documents, including, without
limitation, the reasonable costs and expenses of Cadwalader, Wickersham &
Taft, counsel to the Lender and expressly acknowledge that their
obligations hereunder constitute "Obligations" within the meaning of the
Existing Credit Agreement.
A.NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly
amended, modified and supplemented hereby and by the documents related
hereto, the provisions of the Existing Credit Agreement and the other
Credit Documents shall remain in full force and effect.
A.ACKNOWLEDGMENT. The Borrower hereby acknowledges that the
Emery Consent and Agreement constitutes a Consent and Agreement under the
Agreement and each of the Term Loan B Aircraft Chattel Mortgages
constitutes an Aircraft Chattel Mortgage under the Agreement.
A.AFFIRMATION BY BORROWER. The Borrower hereby consents to the
execution and delivery of this Amendment and each of the other First
Amendment Documents to which Borrower is a party and reaffirms its
obligations under the Credit Documents.
A.GOVERNING LAW; COUNTERPARTS. This Amendment and the rights
and obligations of the parties hereto shall be governed by, and construed
and interpreted in accordance with, the laws of the State of New York.
*1.This Amendment may be executed by one or more of the parties
hereto on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
A set of the counterparts of this Amendment signed by all the parties shall
be lodged with the Borrower and the Lender. This Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
[SIGNATURE PAGE FOLLOWS ]
-1-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
INTERNATIONAL AIRLINE SUPPORT
GROUP, INC.
By:
Name:
Title:
BNY FINANCIAL CORPORATION
By:
Name:
Title:
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
INTERNATIONAL AIRLINE SUPPORT
GROUP, INC.
By:
Name:
Title:
BNY FINANCIAL CORPORATION
By:
Name:
Title:
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<PAGE>
SCHEDULE I
APPROVED AIRCRAFT, APPROVED AIRCRAFT LEASES,
PERMITTED JURISDICTIONS AND PERMITTED LESSEES
TERM LOAN A AIRCRAFT:
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. Boeing B-727-100F N723JE 18896{1}
2. McDonnell Douglas DC9-14 N949L 45844
3. McDonnell Douglas DC9-15F N9357 47156
TERM LOAN A ENGINES
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney JT8D-7 657462
2. Pratt & Whitney JT8D-7 654823
3. Pratt & Whitney JT8D-7 649055
4. Pratt & Whitney JT8D-7 653893
5. Pratt & Whitney JT8D-7 656961
6. Pratt & Whitney JT8D-7 653327
7. Pratt & Whitney JT8D-7 655163{2}
8. Pratt & Whitney JT8D-7 654475{3}
9. Pratt & Whitney JT8D-7 653700{4}
10. Pratt & Whitney JT8D-9 666227{5}
11. Pratt & Whitney JT8D-9 687850{6}
12. Pratt & Whitney JT8D-9 687868{7}
13. Pratt & Whitney JT8D-9 687869{8}
TERM LOAN B AIRCRAFT
______________________
{1} Pending Sale
{2} Pending Sale
{3} Pending Sale
{4} Pending Sale
{5} Pending Purchase
{6} Pending Purchase
{7} Pending Purchase
{8} Pending Purchase
-4-
<PAGE>
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. Boeing B-727-044F N94GS 18892
2. Boeing B-727-031 F N210NE 18903
3. Boeing B-727-031 F N220NE 18905
TERM LOAN B ENGINES
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney JT8D-7 654550
2. Pratt & Whitney JT8D-7 655463
3. Pratt & Whitney JT8D-7 649033
4. Pratt & Whitney JT8D-7 654150
5. Pratt & Whitney JT8D-7 654055
6. Pratt & Whitney JT8D-7 655321
7. Pratt & Whitney JT8D-7 648897
8. Pratt & Whitney JT8D-7 649406
9. Pratt & Whitney JT8D-7 649368
APPROVED AIRCRAFT LEASES:
1. Property subject to lease: (1) Boeing B-727-100F freighter
aircraft,{9} (3) Pratt & Whitney JT8D engines and other related
equipment.
Lessee: Custom Air Holdings, Inc.
Term: Month to Month
Amount: $40,000 per month plus engine reserves of $60 per engine per
flight hour or cycle, whichever is greater per engine (total of
$180 for all three engines), and airframe reserves of $70 per
flight hour.
2. Property subject to lease: (1) Boeing 727-044F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: February 17, 1994 through February 17, 1999, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
3. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
______________________
{9} Pending Sale
Lessee: Emery Worldwide Airlines, Inc.
Term: September 22, 1993 through September 22, 1998, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
4. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 23, 1993 through September 23, 1998, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
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<PAGE>
SCHEDULE I (CONTINUED)
PERMITTED JURISDICTIONS:
WITH RESPECT TO APPROVED AIRCRAFT:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii
and
the U.S. Virgin Islands
United States of Mexico
WITH RESPECT TO ELIGIBLE ACCOUNTS:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii
and
the U.S. Virgin Islands
WITH RESPECT TO ELIGIBLE LEASE PAYMENT RECEIVABLES:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii
and the
U.S. Virgin Islands
United States of Mexico
PERMITTED LESSEES:
1. Property subject to lease: (1) Boeing B-727-100F freighter aircraft
and (3) Pratt & Whitney JT8D engines and other related equipment
Lessee: Custom Air Holdings, Inc.
Term: Month to Month
Amount: $40,000 per month plus engine reserves of $60 per engine per
flight hour or cycle, whichever is greater per engine (total of
$180 for all three engines), and airframe reserves of $70 per
flight hour.
-6-
<PAGE>
SCHEDULE I (CONTINUED)
2. Property subject to lease: (1) Boeing 727-044F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: February 17, 1994 through February 17, 1999, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
3. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 22, 1993 through September 22, 1998, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
4. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Tenn: September 23, 1993 through September 23, 1998, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
5. Add Express One
(See Schedule 1.1. Item 5)
-7-
<PAGE>
SCHEDULE 1.1
AIRCRAFT, AIRCRAFT ENGINES AND AIRCRAFT LEASES
AIRCRAFT AND AIRCRAFT ENGINES:
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. Aircraft:
Boeing B-727-100F{10} N723JE 18896
AIRCRAFT ENGINES:
Pratt & Whitney JT8D engine{11} 655163
Pratt & Whitney JT8D engine{12} 654475
Pratt & Whitney JT8D engine{13} 653700
2. AIRCRAFT:
McDonnell Douglas DC9-14 N949L 45844
AIRCRAFT ENGINES:
Pratt & Whitney JT8D engine 656961
Pratt & Whitney JT8D engine 653327
3. AIRCRAFT:
McDonnell Douglas DC9-15F N9357 47156
AIRCRAFT ENGINES:
Pratt & Whitney JT8D engine 653893
Pratt & Whitney JT8D engine 649055
4. AIRCRAFT ENGINES:
Pratt & Whitney JT8D engine 654823
Pratt & Whitney JT8D engine 657243
5. AIRCRAFT:
Boeing 727-044F N94GS 18892
AIRCRAFT ENGINE:
Pratt & Whitney JT8D-7 engine 654550
Pratt & Whitney JT8D-7 engine 655463
Pratt & Whitney JT8D-7 engine 649033
_________________________
{10} Pending Sale
{11} Pending Sale
{12} Pending Sale
{13} Pending Sale
-8-
<PAGE>
6. AIRCRAFT:
Boeing 727-031F N210NE 18903
AIRCRAFT ENGINES:
Pratt & Whitney JT8D-7 engine 654150
Pratt & Whitney JT8D-7 engine 654055
Pratt & Whitney JT8D-7 engine 655321
7. AIRCRAFT:
Boeing 727-031F N220NE 18905
AIRCRAFT ENGINES:
Pratt & Whitney JT8D-7 engine 648897
Pratt & Whitney JT8D-7 engine 649406
Pratt & Whitney JT8D-7 engine 649368
8. AIRCRAFT ENGINES:
Pratt & Whitney JT8D-9 engine {14} 666227
Pratt & Whitney JT8D-9 engine {15} 689850
Pratt & Whitney JT8D-9 engine {16} 687868
Pratt & Whitney JT8D-9 engine {17 } 687869
_______________________
{14} Pending Purchase
{15} Pending Purchase
{16} Pending Purchase
{17} Pending Purchase
-9-
<PAGE>
SCHEDULE 1.1 (CONTINUED)
AIRCRAFT LEASES:
1. Property subject to lease: (1) Boeing B-727-100F freighter aircraft,
Serial No. 18996 and (3) Pratt & Whitney JT8D engines, Serial Nos.
655163, 654475 and 653700, and other related equipment
Lessee: Custom Air Holdings, Inc.
Term: Month to Month
Amount: $40,000 per month plus engine reserves of $60 per engine per
flight hour or cycle, whichever is greater per engine (total of
$180 for all three engines), and airframe reserves of $70 per
flight hour.
2. Property subject to lease: (1) Boeing 727-044F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: February 17, 1994 through February 17, 1999, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
3. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 22, 1993 through September 22, 1998, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 flight hour.
Sublessee: Ryan International Airlines
-10-
<PAGE>
4. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt
& Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 23, 1993 through September 23, 1998, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
5. Property subject to lease: (3) Pratt & Whitney JT8D-7 engines and
other related equipment.
Lessee: Express One International, Inc.
Term: _________ through ____________ in accordance with Section 2.2 of
the Lease.
Amount: $8,000 per engine per month plus $65 per operating cycle or hour
per engine (whichever is greater).
-11-
<PAGE>
SCHEDULE 2.3A
TERM LOAN A PRINCIPAL REPAYMENT SCHEDULE
PRINCIPAL PRINCIPAL
PAYMENT DATE: AMOUNT DUE:
October 31, 1996 $33,333.00
November 30, 1996 $33,333.00
December 31, 1996 $33,333.00
January 31, 1997 $33,333.00
February 28, 1997 $33,333.00
March 31, 1997 $33,333.00
April 30, 1997 $33,333.00
May 31, 1997 $33,333.00
June 30, 1997 $33,333.00
July 31, 1997 $33,333.00
August 31, 1997 $33,333.00
September 30, 1997 $33,333.00
October 31, 1997 $41,666.00
November 30, 1997 $41,666.00
December 31, 1997 $41,666.00
January 31, 1998 $41,666.00
February 28, 1998 $41,666.00
March 31, 1998 $41,666.00
April 30, 1998 $41,666.00
May 31, 1998 $41,666.00
June 30, 1998 $41,666.00
July 31, 1998 $41,666.00
August 31, 1998 $41,666.00
September 30, 1998 $41,666.00
October 31, 1998 $50,000.00
November 30, 1998 $50,000.00
December 31, 1998 $50,000.00
January 31, 1999 $50,000.00
February 28, 1999 $50,000.00
March 31, 1999 $50,000.00
April 30, 1999 $50,000.00
May 31, 1999 $50,000.00
June 30, 1999 $50,000.00
July 31, 1999 $50,000.00
August 31, 1999 $50,000.00
-12-
<PAGE>
SCHEDULE 2.3A (CONTINUED)
TERM LOAN A PRINCIPAL REPAYMENT SCHEDULE
PRINCIPAL PRINCIPAL
PAYMENT DATE: AMOUNT DUE:
September 30, 1999 $50,000.00
October 31, 1999 $58,333.00
November 30, 1999 $58,333.00
December 31, 1999 $58,333.00
January 31, 2000 $58,333.00
February 29, 2000 $58,333.00
March 31, 2000 $58,333.00
April 30, 2000 $58,333.00
May 31, 2000 $58,333.00
June 30, 2000 $58,333.00
July 31, 2000 $58,333.00
August 31, 2000 $58,333.00
September 30, 2000 $58,333.00
October 31, 2000 $66,666.00
November 30, 2000 $66,666.00
December 31, 2000 $66,666.00
January 31, 2001 $66,666.00
February 28, 2001 $66,666.00
March 31, 2001 $66,666.00
April 30, 2001 $66,666.00
May 31, 2001 $66,666.00
June 30, 2001 $66,666.00
July 31, 2001 $66,666.00
August 31, 2001 $66,666.00
September 30, 2001 $66,666.00
-13-
<PAGE>
SCHEDULE 2-3B
TERM LOAN B PRINCIPAL REPAYMENT SCHEDULE
PRINCIPAL PRINCIPAL
PAYMENT DATE AMOUNT DUE
March 31, 1997
April 30, 1997 $85,000.00
May 31, 1997 $85,000.00
June 30, 1997 $85,000.00
July 31, 1997 $85,000.00
August 31, 1997 $85,000.00
September 30, 1997 $85,000.00
October 31, 1997 $85,000.00
November 30, 1997 $85,000.00
December 31, 1997 $85,000.00
January 31, 1998 $85,000.00
February 28, 1998 $85,000.00
March 31, 1998 $85,000.00
April 30, 1998 $95,000.00
May 31, 1998 $95,000.00
June 30, 1998 $95,000.00
July 31, 1998 $95,000.00
August 31, 1998 $95,000.00
September 30, 1998 $95,000.00
October 31, 1998 $95,000.00
November 30, 1998 $95,000.00
December 31, 1998 $95,000.00
January 31, 1999 $95,000.00
February 28, 1999 $95,000.00
March 31, 1999 $95,000.00
April 30, 1999 $0.00
May 1, 1999 $0.00
June 30, 1999 $0.00
July 31, 1999 $0.00
August 31, 1999 $0.00
September 30, 1999 $0.00
October 31, 1999 $0.00
November 30, 1999 $0.00
December 31, 1999 $0.00
January 31, 2000 $0.00
February 29, 2000 $0.00
-14-
<PAGE>
PRINCIPAL PRINCIPAL
PAYMENT DATE AMOUNT DUE
March 31, 2000 $1,590,000.00
-1-
<PAGE>
SCHEDULE 4.19
International Airline Support Group, Inc.
Schedule of Insurance Policies
1996-1997
<TABLE>
<CAPTION>
COVERAGE LIMITS TERM EXPIRES BROKER INSURER POLICY NO
<S> <C> <C> <C> <C> <C> <C>
Aviation $10,000,000 1 07/01/97 Nation 100% National AP 3383087-
Premises/Products any one yr Air Union Fire 01
Liability accident Insurance Co.
combined
single limit
Aviation Parts $10,000,000 1 07/01/97 Nation 100% National AV 3383086-
Coverage any one yr Air Union Fire 01
occurrence Insurance Co.
Deductible $2,500
each and
every loss
Commercial Property 1 06/10/97 Hamilton 100% Crum & 505046326
- - Florida yr. Dorsey Forster
8095 NW 64th $650,000
St. $500,000
Real Property $100,000
Endorsement - $75,000
Building $75,000
Personal Property $125,000
Valuable Papers & 06/01/97 505046326
Records $10,000 Hamilton
EDP - Hardware Dorsey
EDP - Software 100% Crumm &
Extra Expense Forster
Commercial Property
- - Atlanta
Personal Property
Flood 1 09/16/97 100% Bankers 9000724613402
8095 NW 64th yr. Insurance Group
St. $250,000
Building $0
Contents
Worker's $100,000 1 08/19/97 100% 00914-000
Compensation & BI by yr. Riscorp/Commerce
Employers Liability Accident/Each Mutual
- - Florida accident
$500,000
BI by
Disease/Policy
Limit
$100,000
BI by
Disease/Each
Employee
Commercial Auto - $1,000,000 1 06/01/97 Hamilton 100% Crum & BINDER46064
Florida Combined yr. Dorsey Forster
single
Policy includes: limit/
FLORIDA each
80 Mack Flat Bed accident
#0140 (Liability $2,500
only) PIP - Texas
97 Chev Van #7168 $1,000,000
96 Chev 3/4 Ton P/U Uninsured
#6645 Motorist-
Fl,Tx
$1,000,000
Hired &
nonowned
ACV
Comprehensive
& Collision
DEDUCTIBLE
$250 -
Comprehensive
$1,000 -
Collision
Crime Policy - $20,000 3 06/16/97 Fidelity & 3062974
Pension Plan Bond yrs. Deposit
Employee Dishonesty
- - 401(k) Plan
Disability $5,640.00 Northwestern D921753
Insurance Policy Monthly Mutual Life
Benefit
</TABLE>
-2-
EXECUTION COPY
SECOND AMENDMENT AND AGREEMENT
SECOND AMENDMENT AND AGREEMENT, dated as of September 9, 1997
(this "AMENDMENT"), to the Existing Credit Agreement (as hereinafter
defined), by and among INTERNATIONAL AIRLINE SUPPORT GROUP, INC., a
Delaware corporation (the "BORROWER"), and BNY FINANCIAL CORPORATION, a New
York corporation (the "Lender").
RECITALS
The Borrower and the Lender have entered into the Existing Credit
Agreement, pursuant to which the Lender is providing to the Borrower (i) a
$13,000,000.00 revolving credit facility (the "REVOLVER FACILITY "), a
$3,000,000.00 term loan facility (the "TERM LOAN A FACILITY"), and a
$3,750,000.00 term loan facility (the "TERM LOAN B FACILITY") which is
secured by accounts receivable, inventory and other collateral of the
Borrower. The Borrower has requested that the Lender provide an additional
$1,500,000.00 term loan facility (as more specifically defined below, the
'TERM LOAN C FACILITY") for the acquisition of one (1) McDonnell Douglas
DC-9-51 aircraft (bearing manufacturer's serial number 47663) (the
"AIRCRAFT ACQUISITION"). Subject to the terms and conditions hereof, the
Lender is willing to provide the Term Loan C Facility to the Borrower and
to amend certain provisions of the Existing Credit Agreement in order to
effectuate the foregoing.
In consideration of the foregoing and of the mutual covenants and
undertakings herein contained, the parties hereto hereby agree that the
Existing Credit Agreement is amended as hereinafter provided.
ARTICLE I
Definitions
1 DEFINITIONS. (a) In addition to the definitions set forth in
the heading and the recitals to this Amendment, the following definitions
shall apply to this Amendment:
"AGREEMENT": means the Credit Agreement, dated as of September
30, 1996, between the Borrower and the Lender, as amended by the First
Amendment, Waiver and Agreement, dated as of March 24, 1997, between the
Borrower and the Lender, as further amended, supplemented or otherwise
modified from time to time up to and including this Amendment.
"EXISTING CREDIT AGREEMENT": means the Credit Agreement, dated as
of September 30, 1996, between the Borrower and the Lender, as amended by
the First Amendment, Waiver and Agreement, dated as of March 24, 1997,
between the Borrower and the Lender, as the same may have been further
amended, supplemented or modified from time to time up to but not including
the effectiveness of this Amendment.
"SECOND AMENDMENT DOCUMENTS": this Amendment, the Sun Jet Consent
and Agreement (as defined in Article III, Section 1 hereof), the Term Loan
C Aircraft Chattel Mortgage (as defined in Article III, Section 1 hereof),
the Sun Jet Lease (as defined in Article III, Section 1 hereof), the Sun
Jet Aircraft Lease Supplement and Receipt (as defined in Article III,
Section 1 hereof), Term Note C (as defined in Article III, Section 1
hereof), and any other agreements, instruments and documents executed or
delivered pursuant to or in connection with this Amendment and the
transactions contemplated thereby.
(b) Unless otherwise indicated, capitalized terms that are used
but not defined herein shall have the meanings ascribed to them in the
Existing Credit Agreement.
ARTICLE II
Representations
1 REPRESENTATIONS. (a) The Borrower hereby represents and
warrants as follows:
(i) It (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.
(ii) It has the power and authority, and the legal right, to
make, deliver and perform this Amendment and the other Second Amendment
Documents to which it is a party and to borrow under the Agreement and has
taken all necessary action to authorize the borrowings on the terms and
conditions of the Agreement and this Amendment and to authorize the
execution, delivery and performance of the Second Amendment 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 under the
Agreement or with the execution, delivery, performance, validity or
enforceability of the Second Amendment Documents to which it is a party.
Each Second Amendment Document to which the Borrower is a party has been or
will be duly executed and delivered on behalf of the Borrower. Each Second
Amendment 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.
(iii) The conditions contained in Article IV hereof have been
satisfied.
(b) The Borrower represents that each of the Credit Documents is
on the date hereof in full force and effect.
ARTICLE III
Amendments to Existing Credit Agreement
1. AMENDMENTS TO SECTION 1. (a) Section 1.1 of the Existing
Credit Agreement is hereby amended by inserting the following new
definitions therein in alphabetical order:
"SECOND AMENDMENT": that certain Second Amendment and
Agreement, dated as of September 9, 1997, between the Borrower and the
Lender.
"SECOND AMENDMENT DOCUMENTS": the Second Amendment, the Sun
Jet Consent and Agreement, the Term Loan C Aircraft Chattel Mortgage,
the Sun Jet Lease, the Sun Jet Aircraft Lease Supplement and Receipt,
Term Note C, and any other agreements, instruments and documents
executed or delivered pursuant to or in connection with the Second
Amendment and the transactions contemplated thereby.
"SECOND AMENDMENT EFFECTIVE DATE": the date on which all of
the conditions precedent to the effectiveness of the Second Amendment
set forth in Article IV of the Second Amendment are first satisfied or
waived.
"SUN JET": means Sun Jet International, Inc., a Delaware
corporation.
"SUN JET AIRCRAFT LEASE SUPPLEMENT AND RECEIPT": the
collective reference to the Lease Supplement and Receipt, dated as of
the date of its execution and delivery between the Borrower and Sun
Jet.
"SUN JET CONSENT AND AGREEMENT": that certain Consent and
Agreement, dated as of the date hereof, by and among Sun Jet, the
Borrower and the Lender, in respect of the Sun Jet Lease.
"SUN JET LEASE": the Aircraft Lease Agreement in respect of
the Term Loan C Aircraft, dated as of August 8, 1997, and between Sun
Jet (as lessee) and the Borrower (as lessor), as the same may be
amended, supplemented or modified from time to time.
"TERM LOAN C": as defined in Section 2.3(c) (together with
any advance made in connection with the substitution of a Term Loan C
Aircraft or a Term Loan C Aircraft Engine pursuant to Section 2.5(c)).
"TERM LOAN C AIRCRAFT": means each Aircraft owned from time
to time by the Borrower and listed as a Term Loan C Aircraft and
described on SCHEDULE I hereto, as the same may be amended or modified
from time to time in accordance with this Agreement.
"TERM LOAN C AIRCRAFT CHATTEL MORTGAGE": the Aircraft
Chattel Mortgage, dated as of the Second Amendment Effective Date,
from the Borrower to the Lender with respect to a Term Loan C
Aircraft.
"TERM LOAN C AIRCRAFT ENGINE": means each Aircraft Engine
owned from time to time by the Borrower and listed as a Term Loan C
Aircraft Engine and described on SCHEDULE I hereto, as the same may be
amended or modified from time to time in accordance with this
Agreement.
"TERM LOAN C BORROWING BASE": at any time, an amount equal
to 60% (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 Term Loan C
Aircraft.
"TERM LOAN C FACILITY": at any time, the obligation of the
Lender to make Term Loan C in accordance with the provisions of this
Agreement, which shall not exceed an amount equal to $1,500,000.00
MINUS the aggregate amount of repayments of principal then required to
have been made in accordance with SCHEDULE 2.3C.
"TERM NOTE C": a promissory note of the Borrower evidencing
Term Loan C, in form and substance acceptable to the Lender.
(b) The definition of the term "Approved Aircraft" in Section
1.1 of the Existing Credit Agreement is hereby deleted in its entirety and
replaced by the following:
""APPROVED AIRCRAFT": means the collective reference to the
Term Loan A Aircraft, the Term Loan A Aircraft Engines, the Term Loan
B Aircraft, the Term Loan B Aircraft Engines, the Term Loan C Aircraft
and the Term Loan C Aircraft Engines."
(c) The definition of the term "Credit Documents" in Section 1.1
of the Existing Credit Agreement is hereby deleted in its entirety and
replaced by the following:
""CREDIT DOCUMENTS": this Agreement, the First Amendment,
the Second Amendment, the Security Documents, each Consent and
Agreement, Term Note A, Term Note B, Term Note C, any Revolver Note
and any other documents, agreements or instruments executed and
delivered to the Lender pursuant to Section 6.11."
(d) The definition of "Revolver Reserve" in Section 1.1 of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by
the following:
""REVOLVER RESERVE": as of any date, an amount equal to the
lesser of (i) the amount, if any, by which the sum determined in
accordance with clause I of the definition of Revolver Borrowing Base
on such date exceeds the aggregate outstanding Revolver Advances on
such date and (ii) the amount, if any, by which the sum of the Term
Loan A Facility (without regard to any Term Loan A borrowings made
prior to or on such date) on such date, the Term Loan B Facility
(without regard to any Term Loan B borrowings made prior to or on such
date) on such date and the Term Loan C Facility (without regard to any
Term Loan C borrowings made prior to or on such date) on such date
exceeds the sum of the Term Loan A Borrowing Base on such date, the
Term Loan B Borrowing Base and the Term Loan C Borrowing Base on such
date."
(e) The definition of "Term Loan Borrowing Bases" in Section 1.1
of the Existing Credit Agreement is hereby deleted in its entirety and
replaced by the following:
"TERM LOAN BORROWING BASES": the collective reference to the
Term Loan A Borrowing Base, the Term Loan B Borrowing Base and the
Term Loan C Borrowing Base.
(f) The definition of "Term Loan Facilities" in Section 1.1 of
the Existing Credit Agreement is hereby deleted in its entirety and
replaced by the following:
"TERM LOAN FACILITIES": the collective reference to the Term
Loan A Facility, the Term Loan B Facility and the Term Loan C
Facility.
(f) The definition of "Term Loans" in Section 1.1 of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by
the following:
"TERM LOANS": the collective reference to Term Loan A, Term
Loan B and Term Loan C.
2. AMENDMENTS TO SECTION 2.3. (a) subsection (a) of Section 2.3
of the Existing Credit Agreement is hereby amended by deleting the
parenthetical in the seventh line thereof in its entirety and replacing it
with the following: "(without regard to the Term Loan B Facility, the Term
Loan B Borrowing Base, the Term Loan C Facility or the Term Loan C
Borrowing Base)"
(b) Section 2.3 of the Existing Credit Agreement is hereby
amended by deleting subsection (b) in its entirety and replacing it with
the following:
"(b)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 Term Loan B Aircraft or Term Loan B Aircraft Engines
pursuant to Section 2.5(b) hereof, "TERM LOAN B") on the First
Amendment Effective Date in the principal amount of the lesser of (a)
the Term Loan B Facility on such date and (b) the Term Loan B
Borrowing Base on such date. Term Loan B shall be dated the First
Amendment Effective Date, stated to mature in the installments and
amounts payable on the dates set forth in SCHEDULE 2.3B hereto, and
bear interest for the period from the First Amendment Effective Date
on the unpaid principal amount thereof at the applicable interest
rates per annum specified in Section 3.1. All payments of principal
thereof shall reduce the Term Loan B Facility on a dollar-for-dollar
basis.
(c) 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 Term Loan C Aircraft or Term Loan C Aircraft Engines
pursuant to Section 2.5(c) hereof, "TERM LOAN C") on the Second
Amendment Effective Date in the principal amount of the lesser of (a)
the Term Loan C Facility on such date and (b) the Term Loan C
Borrowing Base on such date. Term Loan C shall be dated the Second
Amendment Effective Date, stated to mature in the installments and
amounts payable on the dates set forth in SCHEDULE 2.3C hereto, and
bear interest for the period from the Second Amendment Effective Date
on the unpaid principal amount thereof at the applicable interest
rates per annum specified in Section 3.1. All payments of principal
thereof shall reduce the Term Loan C Facility on a dollar-for-dollar
basis. "
3. AMENDMENTS TO SECTION 2.5. Section 2.5 of the Existing
Credit Agreement is hereby amended by inserting the following as subsection
(c) at the end of such Section:
"(c) At the request of the Borrower and after substitution
of a Term Loan C Aircraft or a Term Loan C Aircraft Engine (the
"SUBSTITUTE TERM LOAN C AIRCRAFT OR ENGINE") for a Term Loan C
Aircraft or a Term Loan C Aircraft Engine which has been sold or has
suffered an Event of Loss within six months after repayment of Term
Loan C to the extent and as required by Section 3.3(d) hereof, the
Lender may make an advance in an amount equal to the lesser of (i) 60%
(or such other percentage as the Lender shall determine in its sole
discretion) of the Forced Liquidation Value of the Substitute Term
Loan C Aircraft or Engine, less any applicable Collateral Reserve, and
(ii) the amount, if any, by which (A) $1,500,000.00 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 2.3C
hereto exceeds (B) the outstanding principal balance of Term Loan C 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 comprise part of Term Loan C for all
purposes hereunder and shall increase the Term Loan C Facility on a
dollar-for-dollar basis. From and after the making of such advance
the outstanding principal balance of Term Loan C shall include the
amount of such advance, interest shall be payable on such amount, and
the amount of each remaining scheduled principal repayment shall be
increased by an amount equal to (x) the amount of such advance TIMES
(y) a fraction the numerator of which is an amount equal to such
scheduled principal repayment and the denominator of which is the
aggregate amount of all remaining scheduled principal repayments."
4. AMENDMENTS TO SECTION 3.2(B). Section 3.2(b) of the Existing
Credit Agreement is hereby deleted in its entirety and replaced by the
following:
"(b) The Borrower may at any time and from time to time
prepay any or all of the Term Loans, 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 and identify the Term Loan as to which such prepayment
relates. If any such notice is given, the amount specified in such
notice shall be due and payable on the date specified therein with
respect to the Term Loan specified therein and the amount of such
payments shall be applied against scheduled repayments of principal
thereof on a PRO RATA basis and shall reduce the related Term Loan
Facility on a dollar-for-dollar basis."
5. AMENDMENTS TO SECTION 3.3. Paragraph (b) of Section 3.3 of
the Existing Credit Agreement is hereby deleted in its entirety and
replaced by the following:
"(b) (i) 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 Loans exceeds
an amount equal to the sum of the Term Loan Borrowing Bases and the
Revolver Reserve, the Borrower shall immediately prepay the Term Loans
in an aggregate amount equal to the amount of such excess. The amount
of such payment shall reduce the Term Loan Facilities on a dollar-for-
dollar basis and shall be applied (A) first against the repayment of
Term Loan A to the extent that the outstanding principal amount of
Term Loan A exceeds the Term Loan A Borrowing Base, then against the
repayment of Term Loan B to the extent that the outstanding principal
amount of Term Loan B exceeds the Term Loan B Borrowing Base, and then
against the repayment of Term Loan C, and (B) in each such case,
against scheduled repayments of principal on a PRO RATA basis.
(ii) Without in any way limiting the provisions of clause
(i) of this Section 3.3(b), if at any time during the period
commencing with and including month 25 and ending with and including
month 35, in each case as set forth on SCHEDULE 2.3B hereto, the
outstanding principal amount of Term Loan B exceeds the sum of (i) the
Term Loan B Borrowing Base, (ii) the excess if any of the Term Loan A
Borrowing Base over the outstanding principal amount of Term Loan A
and (iii) the excess, if any, of the Term Loan C Borrowing Base over
the outstanding principal amount of Term Loan C, the Borrower shall
immediately prepay Term Loan B in an amount equal to such deficiency.
(iii) Without in any way limiting the provisions of clause
(i) of this Section 3.3(b), if at any time during the period
commencing with and including month 22 and ending with and including
month 26, in each case as set forth on SCHEDULE 2.3C hereto, the
outstanding principal amount of Term Loan C exceeds the sum of (i) the
Term Loan C Borrowing Base, (ii) the excess if any of the Term Loan A
Borrowing Base over the outstanding principal amount of Term Loan A
and (iii) the excess if any of the Term Loan B Borrowing Base over the
outstanding principal amount of Term Loan B, the Borrower shall
immediately prepay Term Loan C in an amount equal to such deficiency."
6. AMENDMENTS TO SECTION 3.5(E). The THIRD and FOURTH
enumerated paragraphs of Section 3.5(e) of the Existing Credit Agreement
are hereby deleted in their entirety and replaced by the following:
"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 any or all of the
Term Loans;
FOURTH, to the payment in full of all other Obligations then
due and payable (including, without limitation, any installment of
principal of any or all of the Term Loans then due and payable); and"
7. AMENDMENTS TO SECTION 3.5(F). Subsections (ii) and (iii) of
Section 3.5(f) of the Existing Credit Agreement are hereby deleted in their
entirety and replaced by the following:
"(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, (x) the amount of Loans outstanding
does not exceed the sum of the Term Loan Borrowing Bases and the
Revolver Borrowing Base, (y) no Event of Default shall have occurred
and be continuing, and (z) Borrower certifies in writing to Lender
that it does not intend to take the related Aircraft out of service
and/or part out such Aircraft, 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 (x) the
amount of Loans outstanding exceeds the sum of the Term Loan Borrowing
Base and the Revolver Borrowing Base, (y) an Event of Default shall
have occurred and be continuing, or (z) Borrower fails to certify in
writing to the Lender that it does not intend to take the related
Aircraft out of service and/or part out such Aircraft, the Lender
shall apply such funds in accordance with the provisions of paragraph
(e) of this Section 3.5.
8. AMENDMENTS TO SECTION 3.5(G). Section 3.5(g) of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by
the following:
"(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 Term Loan A of the Lender,
in form and substance acceptable to the Lender ("TERM Note A"), (ii) a
promissory note of the Borrower evidencing Term Loan B of the Lender,
in form and substance acceptable to the Lender ("TERM NOTE B"), (iii)
a promissory note of the Borrower evidencing Term Loan C of the
Lender, in form and substance acceptable to the Lender ("TERM NOTE
C"), and/or (iv) a promissory note of the Borrower evidencing the
Revolver Advances of the Lender in form and substance acceptable to
the Lender (a "REVOLVER NOTE")."
9. AMENDMENTS TO SECTION 6.2(C). Section 6.2(c) is hereby
deleted in its entirety and replaced by the following:
"(c) prior to 2:00 p.m., New York City time on each Business
Day, a Borrowing Base Certificate showing the Revolver Borrowing Base,
the Term Loan A Borrowing Base, the Term Loan B Borrowing Base and the
Term Loan C Borrowing Base (but only, (i) in the case of the Term Loan
A Borrowing Base, in connection with the delivery of the first such
certificate hereunder and in each case that the Term Loan A Borrowing
Base changes from the amount thereof most recently reported, (ii) in
the case of the Term Loan B Borrowing Base, in connection with the
delivery of such certificate on the First Amendment Effective Date and
in each case that the Term Loan B Borrowing Base changes from the
amount thereof most recently reported), and (iii) in the case of the
Ten-n Loan C Borrowing Base, in connection with the delivery of such
certificate on the Second Amendment Effective Date and in each case
that the Term Loan C 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;
10. AMENDMENTS TO SCHEDULE I. Schedule I to the Existing Credit
Agreement is hereby amended in its entirety to read as is set forth on
Schedule I hereto.
11. AMENDMENTS TO SCHEDULE 1.1. Schedule 1.1 to the Existing
Credit Agreement is hereby amended in its entirety to read as is set forth
on Schedule 1.1 hereto.
12. AMENDMENTS TO SCHEDULES 2.3A AND 2.3B. Schedules 2.3A and
2.3B are hereby amended to include Schedule 2.3C, which shall read as is
set forth on Schedule 2.3C hereto.
ARTICLE IV.
Conditions to Effectiveness
This Amendment, and the modifications to the Credit Agreement
provided for herein, shall become effective on the date (the "SECOND
AMENDMENT EFFECTIVE DATE") on which all of the following conditions have
been (or are concurrently being) satisfied:
1. The following documents shall have been executed and
delivered by each party thereto:
(i) this Amendment;
(ii) the Term Loan C Aircraft Chattel Mortgage;
(iii) the Sun Jet Aircraft Lease;
(iv) the Sun Jet Consent and Agreement;
(v) the Term Note C; and
(vi) all Uniform Commercial Code financing statements on Form
UCC-1 and UCC-3 required by the Lender.
2. The Lender shall have received executed legal opinions of
King & Spalding, special counsel to the Borrower, in form and substance
satisfactory to the Lender and taking into account this Amendment and the
matters contemplated hereby (including, without limitation, opinions with
respect to the validity of the Second Amendment Documents and the
effectiveness of UCC filings in each state where Collateral described
therein is located). Such legal opinion shall cover such matters incident
to the transactions contemplated by this Amendment and the other Second
Amendment Documents as the Lender may reasonably require.
3. The Lender shall have received the executed legal opinion of
Crowe & Dunlevy, special FAA counsel to the Borrower, in form and substance
satisfactory to the Lender taking into account this Amendment and the
matters contemplated hereby (including, without limitation, opinions as to
the effectiveness of the filing of the Term Loan C Aircraft Chattel
Mortgage and the Sun Jet Aircraft Lease with the FAA). Such legal opinion
shall cover such matters incident to the transactions contemplated by this
Amendment and the other Second Amendment Documents as the Lender may
reasonably require.
4. The Lender shall have received a copy, in form and substance
reasonably satisfactory to the Lender, of the corporate resolutions of the
Borrower, authorizing the Aircraft Acquisition and the execution, delivery
and performance of this Amendment and the other Second Amendment Documents
to which the Borrower is a party, certified by the Secretary or an
Assistant Secretary of the Borrower as of the Second Amendment Effective
Date, which certificates shall state that the resolutions or authorizations
thereby certified have not been amended, modified, revoked or rescinded as
of the date of such certificate.
5. The Lender shall have received a certificate of the
Secretary or an Assistant Secretary of the Borrower, dated the Second
Amendment Effective Date, as to the incumbency and signature of the
officer(s) of the Borrower executing each Second Amendment Document to
which it is a party and any certificate or other document to be delivered
by it pursuant hereto, together with evidence of the incumbency of such
Secretary or Assistant Secretary.
6. The Lender shall have received certificates from the
Borrower, stating that its Governing Documents have not been amended since
September 30, 1996.
7. The Lender shall have received copies of certificates dated
as of a recent date from the Secretary of State or other appropriate
authority of such jurisdiction, evidencing the good standing of the
Borrower in the State of its organization and in each State where the
ownership, lease or operation of property or the conduct of business
requires it to qualify as a foreign corporation or other entity except
where the failure to so qualify would not have a Material Adverse Effect.
8. The Lender shall have received all chattel paper original
copies of the Sun Jet Lease and all documents required to be delivered
under Article Three of the Term Loan C Aircraft Chattel Mortgage.
9. 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 the Second Amendment Effective Date
as if made on and as of such date (except to the extent the same relate to
another, earlier date, in which case they shall be true and correct in all
material respects as of such earlier date).
10. No Default or Event of Default shall have occurred and be
continuing.
11. All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by the Second Amendment Documents, the Existing Credit
Agreement, the Credit Agreement and the other Credit Documents shall be
reasonably satisfactory in form and substance to the Lender, and the Lender
shall have received such other documents in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as it shall
reasonably request.
12. The Lender shall have received a Borrowing Base Certificate
showing the Revolver Borrowing Base, the Term Loan A Borrowing Base, the
Term Loan B Borrowing Base, and the Term Loan C Borrowing Base, in each
case as of the Business Day immediately preceding the Second Amendment
Effective Date, with appropriate insertions and dated the Second Amendment
Effective Date, satisfactory in form and substance to the Lender, executed
by a Responsible Officer or any Vice President of the Borrower.
13. The Lender shall have received evidence in form and
substance satisfactory to it that all of the requirements of Section 6.6 of
the Existing Credit Agreement and Section 5(o) of the Borrower Security
Agreement shall have been satisfied with respect to the Term Loan C
Aircraft.
14. 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 a duly
executed Aircraft Chattel Mortgage 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 with respect to the
Term Loan C Aircraft shall have been completed.
15. The Lender shall have received each additional document,
instrument, legal opinion or item of information reasonably requested by
the Lender, including, without limitation, a copy of any debt instrument,
security agreement or other material contract to which the Borrower is a
party.
ARTICLE V.
Miscellaneous
1. CLOSING FEE; PAYMENT OF EXPENSES. (a) On the First Amendment
Effective Date, the Borrower shall pay to the Lender in immediately
available funds a fee equal to $15,000.00 (which shall be in addition to
all fees paid to the Lender prior to the execution and delivery of this
Amendment). The Lender is hereby authorized to withhold the amount of such
fee from the proceeds of Term Loan C.
(b) Without limiting its obligations under Section 9.5 of the
Existing Agreement, the Borrower agrees to pay or reimburse the Lender for
all of its reasonable costs and expenses incurred in connection with this
Amendment and the other Second Amendment Documents, including, without
limitation, the reasonable costs and expenses of Cadwalader, Wickersham &
Taft, counsel to the Lender and expressly acknowledge that their
obligations hereunder constitute "Obligations" within the meaning of the
Existing Credit Agreement.
2. SUN JET AIRCRAFT LEASE SUPPLEMENT AND RECEIPT. Borrower
hereby agrees that it shall deliver to the Lender an original executed copy
of the Sun Jet Aircraft Lease Supplement and Receipt immediately upon its
execution and delivery by the Borrower and Sun Jet.
3. NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly
amended, modified and supplemented hereby and by the documents related
hereto, the provisions of the Existing Credit Agreement and the other
Credit Documents shall remain in full force and effect.
4. ACKNOWLEDGMENT. The Borrower hereby acknowledges that the
Sun Jet Consent and Agreement constitutes a Consent and Agreement under the
Agreement and the Term Loan C Aircraft Chattel Mortgage constitutes an
Aircraft Chattel Mortgage under the Agreement.
5. AFFIRMATION BY BORROWER. The Borrower hereby consents to
the execution and delivery of this Amendment and each of the other Second
Amendment Documents to which Borrower is a party and reaffirms its
obligations under the Credit Documents.
6. GOVERNING LAW, COUNTERPARTS. (a) This Amendment and the
rights and obligations of the parties hereto shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New
York.
(b) This Amendment may be executed by one or more of the parties
hereto on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
A set of the counterparts of this Amendment signed by all the parties shall
be lodged with the Borrower and the Lender. This Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
[SIGNATURE PAGE FOLLOWS
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
INTERNATIONAL AIRLINE SUPPORT
GROUP, INC.
By
Name:
Title:
BNY FINANCIAL CORPORATION
By
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to b(
duly executed and delivered as of the day and year first above written.
INTERNATIONAL AIRLINE SUPPORT
GROUP, INC.
By
Name:
Title:
BNY CORPORATION
By
Name:
Title:
<PAGE>
SCHEDULE I
APPROVED AIRCRAFT, APPROVED AIRCRAFT LEASES-
PERMITTED JURISDICTIONS AND PERMITTED LESSEES
TERM LOAN A AIRCRAFT:
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. McDonnell Douglas DC9-14 N949L 45844
2. McDonnell Douglas DC9-15F N9357 47156
TERM LOAN A ENGINES
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney JT8D-7 654823
2. Pratt & Whitney JT8D-7 649055
3. Pratt & Whitney JT8D-7 653893
4. Pratt & Whitney JT8D-7 656961
5. Pratt & Whitney JT8D-7 653327
6. Pratt & Whitney JT8D-9 666227
<PAGE>
TERM LOAN B AIRCRAFT
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. Boeing B-727-044F N94GS 18892
2. Boeing B-727-031F N21ONE 18903
3. Boeing B-727-031F N22ONE 18905
TERM LOAN B ENGINES
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney JT8D-7 654550
2. Pratt & Whitney JT8D-7 655463
3. Pratt & Whitney JT8D-7 649033
4. Pratt & Whitney JT8D-7 654150
5. Pratt & Whitney JT8D-7 654055
6. Pratt & Whitney JT8D-7 655321
7. Pratt & Whitney JT8D-7 648897
8. Pratt & Whitney JT8D-7 649406
9. Pratt & Whitney JT8D-7 649368
TERM LOAN C AIRCRAFT
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. McDonnell Douglas DC-9-51 N919PJ 47663
TERM LOAN C ENGINES
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney JT8D-17 P688741
2. Pratt & Whitney JT8D-17 P688116B
APPROVED AIRCRAFT LEASES:
1. Property subject to lease: (1) Boeing 727-044F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: February 17, 1994 through March 19,1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
2. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 2, 1993 through January 22, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
3. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 2, 1993 through February 1, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
5. Property subject to lease: (1) McDonnell Douglas DC-9-51 Aircraft, two
(2) Pratt & Whitney JT8D-17 engines and other related equipment.
Lessee: Sun Jet International, Inc.
Term: From not later than October 1, 1997 through the earlier of (i)
October 1, 1999 and (ii) the date on which the next scheduled "D"
check is due in accordance with Section 3(b) of the Lease.
Amount: $60,000 per month plus "D" check reserves of $75 per flight hour,
$55 per
Engine flight hour per Engine and $25 per Airframe flight hour
for APU overhaul.
<PAGE>
SCHEDULE I (continued)
PERMITTED JURISDICTIONS:
WITH RESPECT TO APPROVED AIRCRAFT OTHER THAN TERM LOAN C AIRCRAFT:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
United States of Mexico
WITH RESPECT TO TERM LOAN C AIRCRAFT:
Canada
Mexico
United States of America (including the continental U.S. and
Alaska, Hawaii
and the U.S. Virgin Islands)
the Bahamas
Bermuda
Honduras
Guatemala
Belize
Costa Rica
Panama
Jamaica
Cayman Islands
Dominican Republic
Puerto Rico
British Virgin Islands
Turks and Caios Islands
Anguilla
Saint Vincent and Grenadines
Montserrat
Antigua and Barbuda
Guadeloupe
Dominica
Martinique
Barbados
Grenada
Aruba
Saint Lucia
Netherlands Antilles
Trinidad and Tobago
<PAGE>
WITH RESPECT TO ELIGIBLE ACCOUNTS:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
WITH RESPECT TO ELIGIBLE LEASE PAYMENT RECEIVABLES:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
United States of Mexico
PERMITTED LESSEES:
1. Property subject to lease: (1) Boeing 727-044F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: February 17, 1994 through March 19, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
2. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 2, 1993 through January 22, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
3. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 2, 1993 through February 1, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the
Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
5. Property subject to lease: (5) Pratt & Whitney JT8D-7 engines and
other related equipment.
Lessee: Express One International, Inc.
Term: March 3. 1997 through ___________ in accordance with Section 2.2 of
the Lease.
Amount: $8,000 per engine per month plus $65 per operating cycle or hour
per engine (whichever is greater).
6. Property subject to lease: (1) McDonnell Douglas DC-9-51 Aircraft, two
(2) Pratt & Whitney JT8D-17 engines and other related equipment.
Lessee: Sun Jet International, Inc.
Term: From not later than October 1, 1997 through the earlier of (i)
October 1, 1999 and (ii) the date on which the next scheduled "D"
check is due in accordance with Section 3(b) of the Lease.
Amount: $60,000 per month plus "D" check reserves of $75 per flight hour,
$55 per Engine flight hour per Engine and $25 per Airframe flight
hour for APU overhaul.
<PAGE>
SCHEDULE 1.1
AIRCRAFT. AIRCRAFT ENGINES AND AIRCRAFT LEASES
AIRCRAFT AND AIRCRAFT ENGINES:
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. AIRCRAFT:
McDonnell Douglas DC9-14 N949L 45844
AIRCRAFT ENGINES:
Pratt & Whitney JT8D engine 656961
Pratt & Whitney JT8D engine 653327
2. AIRCRAFT:
McDonnell Douglas DC9-15F N9357 47156
AIRCRAFT ENGINES:
Pratt & Whitney JT8D engine 653893
Pratt & Whitney JT8D engine 649055
3. AIRCRAFT ENGINES:
Pratt & Whitney JT8D engine 654823
4. AIRCRAFT:
Boeing 727-044F N94GS 18892
AIRCRAFT ENGINE:
Pratt & Whitney JT8D-7 engine 654550
Pratt & Whitney JT8D-7 engine 655463
Pratt & Whitney JT8D-7 engine 649033
5. AIRCRAFT:
Boeing 727-031F N21ONE 18903
AIRCRAFT ENGINES:
Pratt & Whitney JT8D-7 engine 654150
Pratt & Whitney JT8D-7 engine 654055
Pratt & Whitney JT8D-7 engine 655321
6. AIRCRAFT:
Boeing 727-03 IF N22ONE 18905
AIRCRAFT ENGINES:
Pratt & Whitney JT8D-7 engine 648897
Pratt & Whitney JT8D-7 engine 649406
Pratt & Whitney JT8D-7 engine 649368
7. AIRCRAFT ENGINES:
Pratt & Whitney JT8D-9 engine 666227
9. AIRCRAFT
McDonnell Douglas DC-9-51 N919PJ 47663
10. AIRCRAFT ENGINE
Pratt & Whitney JT8D-17 P688741
Pratt & Whitney JT8D-17 P688116B
<PAGE>
SCHEDULE 1.1 (CONTINUED)
AIRCRAFT LEASE
1 Property subject to lease: (1) Boeing 727-044F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: February 17, 1994 through March 19, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D' check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
2. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 2, 1993 through January 22, 1999, plus one day for each day
that the Aircraft is undergoing the First 'C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 flight
hour.
Sublessee: Ryan International Airlines
3. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 2, 1993 through February 1, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
5. Property subject to lease: (5) Pratt & Whitney JT8D-7 engines and
other related equipment.
Lessee: Express One International, Inc.
Term: March 3, 1997 through in accordance with Section
2.2 of the Lease.
Amount: $8,000 per engine per month plus $65 per operating cycle or hour
per engine (whichever is greater).
6. Property subject to lease: (1) McDonnell Douglas DC-9-51 Aircraft, two
(2) Pratt & Whitney JT8D-17 engines and other related equipment.
Lessee: Sun Jet International, Inc.
Term: From not later than October 1, 1997 through the earlier of (i)
October 1, 1999 and (ii) the date on which the next scheduled "D"
check is due in accordance with Section 3(b) of the Lease.
Amount: $60,000 per month plus "D" check reserves of $75 per flight hour,
$55 per Engine flight hour per Engine and $25 per Airframe flight
hour for APU overhaul.
<PAGE>
SCHEDULE 2.3A
TERM LOAN A PRINCIPAL REPAYMENT SCHEDULE
PRINCIPAL PRINCIPAL
PAYMENT DATE: AMOUNT DUE:
October 31, 1996 $33,333.00
November 30, 1996 $33,333.00
December 31, 1996 $33,333.00
January 31, 1997 $33,333.00
February 28, 1997 $33,333.00
March 31, 1997 $33,333.00
April 30, 1997 $33,333.00
May 31, 1997 $33,333.00
June 30, 1997 $33,333.00
July 31, 1997 $354,321.00
August 31, 1997 $29,321.00
September 30, 1997 $29,321.00
October 31, 1997 $36,651.00
November 30, 1997 $36,651.00
December 31, 1997 $36,651.00
January 31, 1998 $36,651.00
February 28, 1998 $36,651.00
March 31, 1998 $36,651.00
April 30, 1998 $36,651.00
May 31, 1998 $36,651.00
June 30, 1998 $36,651.00
July 31, 1998 $36,651.00
August 31, 1998 $36,651.00
September 30, 1998 $36,651.00
October 31, 1998 $43,981.00
November 30, 1998 $43,981.00
December 31, 1998 $43,981.00
January 31, 1999 $43,981.00
February 28, 1999 $43,981-00
March 31, 1999 $43,981.00
April 30, 1999 $43,981.00
May 31, 1999 $43,981.00
June 30, 1999 $43,981.00
July 31, 1999 $43,981.00
August 31, 1999 $43,981.00
<PAGE>
SCHEDULE 2.3A (CONTINUED)
TERM LOAN A PRINCIPAL REPAYMENT SCHEDULE
PRINCIPAL PRINCIPAL
PAYMENT DATE: AMOUNT DUE:
September 30, 1999 $43,981.00
October 31, 1999 $51,311.00
November 30, 1999 $51,311.00
December 31, 1999 $51,311.00
January 31, 2000 $51,311.00
February 29, 2000 $51,311.00
March 31, 2000 $51,311.00
April 30, 2000 $51,311.00
May 31, 2000 $51,311.00
June 30, 2000 $51,311.00
July 31, 2000 $51,311.00
August 31, 2000 $51,311.00
September 30, 2000 $51,311.00
October 31, 2000 $58,641.00
November 30, 2000 $58,641.00
December 31, 2000 $58,641.00
January 31, 2001 $58,641.00
February 28, 2001 $58,641.00
March 31, 2001 $58,641.00
April 30, 2001 $58,641.00
May 31, 2001 $58,641.00
June 30, 2001 $58,641.00
July 31, 2001 $58,641.00
August 31, 2001 $58,641.00
September 30, 2001 $58,641.00
<PAGE>
SCHEDULE 2.3B
TERM LOAN B PRINCIPAL REPAYMENT SCHEDULE
PRINCIPAL PRINCIPAL
PAYMENT DATE AMOUNT DUE
March 31, 1997 $85,000.00
April 30, 1997 $85,000.00
May 31, 1997 $85,000.00
June 30, 1997 $85,000.00
July 31, 1997 $85,000.00
August 31, 1997 $85,000.00
September 30, 1997 $85,000.00
October 31, 1997 $85,000.00
November 30, 1997 $85,000.00
December 31, 1997 $85,000.00
January 31, 1998 $85,000.00
February 28, 1998 $85,000.00
March 31, 1998 $85,000.00
April 30, 1998 $95,000.00
May 31, 1998 $95,000.00
June 30, 1998 $95,000.00
July 31, 1998 $95,000.00
August 31, 1998 $95,000.00
September 30, 1998 $95,000.00
October 31, 1998 $95,000.00
November 30, 1998 $95,000.00
December 31, 1998 $95,000.00
January 31, 1999 $95,000.00
February 28, 1999 $95,000.00
March 31, 1999 $95,000.00
April 30, 1999 $0.00
May 1, 1999 $0.00
June 30, 1999 $0.00
July 31, 1999 $0.00
August 31, 1999 $0.00
September 30, 1999 $0.00
October 31, 1999 $0.00
November 30, 1999 $0.00
December 31, 1999 $0.00
January 31, 2000 $0.00
February 29, 2000 $0.00
<PAGE>
PRINCIPAL PRINCIPAL
PAYMENT DATE AMOUNT DUE
March 31, 2000 $1,590,000.00
<PAGE>
SCHEDULE 2.3C
TERM LOAN C PRINCIPAL REPAYMENT SCHEDULE
PRINCIPAL PRINCIPAL
PAYMENT DATE AMOUNT DUE
September 30, 1997 $50,000.00
October 31, 1997 $50,000.00
November 30, 1997 $50,000.00
December 31, 1997 $50,000.00
January 31, 1998 $50,000.00
February 28, 1998 $50,000.00
March 31, 1998 $50,000.00
April 30, 1998 $50,000.00
May 31, 1998 $50,000.00
June 30, 1998 $50,000.00
July 31, 1998 $50,000-00
August 31, 1998 $50,000.00
September 30, 1998 $50,000-00
October 31, 1998 $50,000.00
November 30, 1998 $50,000-00
December 31, 1998 $50,000.00
January 31, 1999 $50,000.00
February 28, 1999 $50,000.00
March 31, 1999 $50,000.00
April 30, 1999 $50,000.00
May 1, 1999 $50,000.00
June 30, 1999 $0.00
July 31, 1999 $0.00
August 31, 1999 $0.00
September 30, 1999 $0.00
October 31, 1999 $0.00
November 30, 1999 $450,000.00
EXECUTION COPY
THIRD AMENDMENT AND AGREEMENT
THIRD AMENDMENT AND AGREEMENT, dated as of October 15, 1997 (this
"AMENDMENT"), to the Existing Credit Agreement (as hereinafter defined), by
and among INTERNATIONAL AIRLINE SUPPORT GROUP, INC., a Delaware corporation
(the "BORROWER"), and BNY FINANCIAL CORPORATION, a New York corporation
(the "LENDER").
RECITALS
The borrower and the Lender have entered into the Existing Credit
Agreement, pursuant to which the Lender is providing to the Borrower (i) a
$13,000,000.00 revolving credit facility (the "REVOLVER FACILITY"), (ii) a
$3,000,000.00 term loan facility (the "TERM LOAN A FACILITY"), (iii) a
$3,750,000.00 term loan facility (the "TERM LOAN B FACILITY") and (iv) a
$1,5000,000.00 term loan facility (the "TERM LOAN C FACILITY") which are
secured by accounts receivable, inventory and other collateral of the
Borrower. The Borrower has requested that the Lender provide an additional
$1,600,000.00 term loan facility (as more specifically defined below, the
"TERM LOAN D FACILITY") for the acquisition of one (1) McDonnell Douglas
DC-9-51 aircraft (bearing manufacturer's serial number 47667) (the
"AIRCRAFT ACQUISITION"). Subject to the terms and conditions hereof, the
Lender is willing to provide the Term Loan D Facility to the Borrower and
to amend certain provisions of the Existing Credit Agreement in order to
effectuate the foregoing.
In consideration of the foregoing and of the mutual covenants and
undertakings herein contained, the parties hereto hereby agree that the
Existing Credit Agreement is amended as hereinafter provided.
****ARTII.
Definitions
A.DEFINITIONS. (A) IN ADDITION TO THE DEFINITIONS SET FORTH IN THE
HEADING AND THE RECITALS TO THIS AMENDMENT, THE FOLLOWING DEFINITIONS SHALL
APPLY TO THIS AMENDMENT:
"AGREEMENTS": means the Credit Agreement, dated as of September 30,
1996, between the Borrower and the Lender, as amended by the First
Amendment, Waiver and Agreement, dated as of March 24, 1997, between the
Borrower and the Lender and the Second Amendment, Waiver and Agreement,
dated as of September 9, 1997, between the Borrower and the Lender, as
further amended, supplemented or otherwise modified from time to time up to
and including this Amendment.
"EXISTING CREDIT AGREEMENT": means the Credit Agreement, dated as of
September 30, 1996, between the borrower and the Lender, as amended by the
First Amendment, Waiver and Agreement, dated as of March 24, 1997, between
the Borrower and the Lender and the Second Amendment, Waiver and Agreement,
dated as of September 9, 1997, between the Borrower and the Lender, as the
same may have been further amended, supplemented or modified from time to
time up to but not including the effectiveness of this Amendment.
"THIRD AMENDMENT DOCUMENTS": this Amendment, the Sun Jet Consent and
Agreement (as defined in Article III, Section 1 hereof), the Term Loan D
Aircraft Chattel Mortgage (as defined in Article III, Section 1 hereof),
the sun Jet Lease (as defined in Article III, Section 1 hereof) the Sun Jet
Aircraft Lease Supplement and Receipt (as defined in Article III, Section 1
hereof), Term Note D (as defined in Article III, Section 1 hereof), and any
other agreements, instruments and documents executed or delivered pursuant
to or in connection with this Amendment and the transactions contemplated
thereby.
*1.UNLESS OTHERWISE INDICATED, CAPITALIZED TERMS THAT ARE USED BUT NOT
DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE EXISTING
CREDIT AGREEMENT.
****ARTIII.
Representations
A.REPRESENTATIONS. (A) THE BORROWER HEREBY REPRESENTS AND WARRANTS
AS FOLLOWS:
*a) IT (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.
*b) IT HAS THE POWER AND AUTHORITY, AND THE LEGAL RIGHT, TO MAKE,
DELIVER AND PERFORM THIS AMENDMENT AND THE OTHER THIRD AMENDMENT
DOCUMENTS TO WHICH IT IS A PARTY AND TO BORROW UNDER THE AGREEMENT AND
HAS TAKEN ALL NECESSARY ACTION TO AUTHORIZE THE BORROWINGS ON THE
TERMS AND CONDITIONS OF THE AGREEMENT AND THIS AMENDMENT AND TO
AUTHORIZE THE EXECUTION, DELIVERY AND PERFORMANCE OF THE THIRD
AMENDMENT 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 UNDER THE AGREEMENT OR WITH THE
EXECUTION, DELIVERY, PERFORMANCE, VALIDITY OR ENFORCEABILITY OF THE
THIRD AMENDMENT DOCUMENTS TO WHICH IT IS A PARTY. EACH THIRD
AMENDMENT DOCUMENT TO WHICH THE BORROWER IS A PARTY HAS BEEN OR WILL
BE DULY EXECUTED AND DELIVERED ON BEHALF OF THE BORROWER. EACH THIRD
AMENDMENT 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 CONVENANT OF GOOD FAITH AND FAIR DEALING.
*c) THE CONDITIONS CONTAINED IN ARTICLE IV HEREOF HAVE BEEN
SATISFIED.
(B) THE BORROWER REPRESENTS THAT EACH OF THE CREDIT DOCUMENTS IS ON
THE DATE HEREOF IN FULL FORCE AND EFFECT.
****ARTII.
****ARTIII. AMENDMENTS TO EXISTING CREDIT AGREEMENT
A.AMENDMENTS TO SECTION 1. (a) Section 1.1 of the Existing Credit
Agreement is hereby amended by inserting the following new definitions
therein in alphabetical order:
"THIRD AMENDMENT": that certain Third Amendment and
Agreement, dated as of October ______, 1997, between the Borrower
and the Lender.
"THIRD AMENDMENT DOCUMENTS": the Third Amendment, the Sun
Jet Consent and Agreement, the Term Loan D Aircraft Chattel
Mortgage, the Sun Jet Lease, the Sun Jet Aircraft lease
Supplement and Receipt, Term Note D, and any other agreements,
instruments and documents executed or delivered pursuant to or in
connection with the Third Amendment and the transactions
contemplated thereby.
"THIRD AMENDMENT EFFECTIVE DATE": the date on which all of
the conditions precedent to the effectiveness of the Third
Amendment set forth in Article IV of the Third Amendment are
first satisfied or waived.
"SUN JET": means Sun Jet International, Inc., a Delaware
corporation.
"SUN JET AIRCRAFT LEASE SUPPLEMENT AND RECEIPT": the
collective reference to the Lease Supplement and Receipt, dated
as of the date of its execution and delivery between the Borrower
and Sun Jet.
"SUN JET CONSENT AND AGREEMENT": that certain Consent and
Agreement, dated as of the date hereof, by and among Sun Jet, the
Borrower and the Lender, in respect of the Sun Jet Lease.
"SUN JET LEASE": the Aircraft Lease Agreement in respect of
the Term Loan D Aircraft, dated as of September 5, 1997, and
between Sun Jet (as lessee) and the Borrower (as lessor), as
amended by that certain Amendment No. 1 to Aircraft Lease
Agreement dated as of September 16, 1997, as the same may be
further amended, supplemented or modified from time to time.
"TERM LOAN D": as defined in Section 2.3(c) (together with
any advance made in connection with the substitution of a Term
Loan D Aircraft or a Term Loan D Aircraft Engine pursuant to
Section 2.5(c)).
"TERM LOAN D AIRCRAFT": means each Aircraft owned from time
to time by the Borrower and listed as a Term Loan D Aircraft and
described on SCHEDULE I hereto, as the same may be amended or
modified from time to time in accordance with this Agreement.
"TERM LOAN D AIRCRAFT CHATTEL MORTGAGE": the Aircraft
Chattel Mortgage, dated as of the Third Amendment Effective Date,
from the Borrower to the Lender with respect to a Term Loan D
Aircraft.
"TERM LOAN D AIRCRAFT ENGINE": means each Aircraft Engine
owned from time to time by the borrower and listed as a Term Loan
D Aircraft Engine and described on SCHEDULE I hereto, as the same
may be amended or modified from time to time in accordance with
this Agreement.
"TERM LOAN D BORROWING BASE": at any time, an amount equal
to 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 Term Loan D Aircraft.
"TERM LOAN D FACILITY": at any time, the obligation of the
Lender to make Term Loan D in accordance with the provisions of
this Agreement, which shall not exceed an amount equal to
$1,600,000.00 MINUS the aggregate amount of repayments of
principal then required to have been made in accordance with
SCHEDULE 2.3C.
"TERM NOTE D": a promissory note of the Borrower evidencing
Term Loan D, in form and substance acceptable to the Lender.
*1.THE DEFINITION OF THE TERM "APPROVED AIRCRAFT" IN SECTION 1.1 OF
THE EXISTING CREDIT AGREEMENT IS HEREBY DELETED IN ITS ENTIRETY AND
REPLACED BY THE FOLLOWING:
"APPROVED AIRCRAFT": means the collective reference to the
Term Loan A Aircraft, the Term Loan A Aircraft Engines, the Term
Loan B Aircraft, the Term Loan B Aircraft Engines, the Term Loan
C Aircraft, the Term Loan C Aircraft Engines, the Term Loan D
Aircraft and the Term Loan D Aircraft Engines."
*1.THE DEFINITION OF THE TERM "CREDIT DOCUMENTS" IN SECTION 1.1 OF THE
EXISTING CREDIT AGREEMENT IS HEREBY DELETED IN ITS ENTIRETY AND REPLACED BY
THE FOLLOWING:
"CREDIT DOCUMENTS": this Agreement, the First Amendment,
the Second Amendment, the Third Amendment, the Security
Documents, each Consent and Agreement, Term Note A, Term Note B,
Term Note C, Term Note D, any Revolver Note and any other
documents, agreements or instruments executed and delivered to
the Lender pursuant to Section 6.11."
*1.THE DEFINITION OF "REVOLVER RESERVE" IN SECTION 1.1 OF THE EXISTING
CREDIT AGREEMENT IS HEREBY DELETED IN ITS ENTIRETY AND REPLACED BY THE
FOLLOWING:
"REVOLVER RESERVE": as of any date, an amount equal to the
lesser of (i) the amount, if any, by which the sum determined in
accordance with clause I of the definition of Revolver Borrowing
Base on such date exceeds the aggregate outstanding Revolver
Advances on such date and (ii) the amount, if any, by which the
sum of the Term Loan A Facility (without regard to any Term Loan
A borrowings made prior to or on such date) on such date, the
Term Loan B Facility (without regard to any Term Loan B
borrowings made prior to or on such date) on such date, the Term
Loan C Facility (without regard to any Term Loan C borrowings
made prior to or on such date) and the Term Loan D Facility
(without regard to any Term Loan D borrowings made prior to or on
such date) on such date exceeds the sum of the Term Loan A
Borrowing Base on such date, the Term Loan B Borrowing Base, the
Term Loan C Borrowing Base and the Term Loan D Borrowing Basse on
such date."
*1.THE DEFINITION OF "TERM LOAN BORROWING BASES" IN SECTION 1.1 OF THE
EXISTING CREDIT AGREEMENT IS HEREBY DELETED IN ITS ENTIRETY AND REPLACED BY
THE FOLLOWING:
"TERM LOAN BORROWING BASES": the collective reference to
the Term Loan A Borrowing Base, the Term Loan B Borrowing Base,
the Term Loan C Borrowing Base and the Term Loan D Borrowing
Base.
*1.THE DEFINITION OF "TERM LOAN FACILITIES" IN SECTION 1.1 OF THE
EXISTING CREDIT AGREEMENT IS HEREBY DELETED IN ITS ENTIRETY AND REPLACED BY
THE FOLLOWING:
"TERM LOAN FACILITIES": the collective reference to the
Term Loan A Facility, the Term Loan B Facility, the Term Loan C
Facility and the Term Loan D Facility.
*1.THE DEFINITION OF "TERM LOANS" IN SECTION 1.1 OF THE EXISTING
CREDIT AGREEMENT IS HEREBY DELETED IN ITS ENTIRETY AND REPLACED BY THE
FOLLOWING:
"TERM LOANS": the collective reference to Term Loan A, Term
Loan B, Term Loan C and Term Loan D.
A.AMENDMENTS TO SECTION 2.3. (a) subsection (a) of Section 2.3 of the
Existing Credit Agreement is hereby amended by deleting the parenthetical
in the seventh line thereof in its entirety and replacing it with the
following: "(without regard to the Term Loan B Facility, the Term Loan B
Borrowing Base, the Term Loan C Facility, the Term Loan C Borrowing Base,
the Term Loan D Facility or the Term Loan D Borrowing Base)".
(b) Section 2.3 of the Existing Credit Agreement is hereby amended by
inserting the following as subsection (d) at the end of such Section:
"(d) 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 Term Loan D Aircraft or Term Loan D Aircraft
Engines pursuant to Section 2.5(c) hereof, "TERM LOAN D") on the
Third Amendment Effective Date in the principal amount of the
lesser of (a) the Term Loan D Facility on such date and (b) the
Term Loan Borrowing Base on such date. Term Loan D shall be
dated the Third Amendment Effective Date, stated to mature in the
installments and amounts payable on the dates set forth in
SCHEDULE 2.3D hereto, and bear interest for the period from the
Third Amendment Effective Date on the unpaid principal amount
thereof at the applicable interest rates per annum specified in
Section 3.1. All payments of principal thereof shall reduce the
Term Loan D Facility on a dollar-for-dollar basis."
A.AMENDMENTS TO SECTION 2.5. Section 2.5 of the Existing Credit
Agreement is hereby amended by inserting the following as subsection (d) at
the end of such Section:
"(d) At the request of the Borrower and after substitution
of a Term Loan D Aircraft or a Term Loan D Aircraft Engine (the
"SUBSTITUTE TERM LOAN D AIRCRAFT OR ENGINE") for a Term Loan D
Aircraft or a Term Loan D Aircraft Engine which has been sold or
has suffered an Event of Loss within six months after repayment
of Term Loan D to the extent and as required by Section 3.3(d)
hereof, 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 Term Loan D Aircraft or Engine, less any
applicable Collateral Reserve, and (ii) the amount, if any, by
which (A) $1,600,000.00 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 2.3D hereto exceeds (B) the
outstanding principal balance of Term Loan D 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 comprise part of Term Loan D for all purposes
hereunder and shall increase the Term Loan D Facility on a
dollar-for-dollar basis. From and after the making of such
advance the outstanding principal balance of Term Loan D shall
include the amount of such advance, interest shall be payable on
such amount, and the amount of each remaining scheduled principal
repayment shall be increased by an amount equal to (x) the amount
of such advance TIMES (y) a fraction the numerator of which is an
amount equal to such scheduled principal repayment and the
denominator of which is the aggregate amount of all remaining
scheduled principal repayments."
A.AMENDMENTS TO SECTION 3.3. Paragraph (b) of Section 3.3 of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by
the following:
"(b) (i) 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 Loans exceeds an amount equal to the sum of the Term
Loan Borrowing Bases and the Revolver Reserve, the Borrower
shall immediately prepay the Term Loans in an aggregate
amount equal to the amount of such excess. The amount of
such payment shall reduce the Term Loan Facilities on a
dollar-for-dollar basis and shall be applied (A) first
against the repayment of Term Loan A to the extent that the
outstanding principal amount of Term Loan A exceeds the Term
Loan A Borrowing Base, then against the repayment of Term
Loan B to the extent that the outstanding principal amount
of Term Loan B exceeds the Term Loan B Borrowing Base, then
against the repayment of Term Loan C to the extent that the
outstanding principal amount of Term Loans C exceeds the
Term Loan C Borrowing Base, and then against the repayment
of Term Loan D, and (B) in each such case, against scheduled
repayments of principal on a PRO RATA basis.
*a) WITHOUT IN ANY WAY LIMITING THE PROVISIONS OF
CLAUSE (I) OF THIS SECTION 3.3(B), IF AT ANY TIME DURING THE
PERIOD COMMENCING WITH AND INCLUDING MONTH 25 AND ENDING
WITH AND INCLUDING MONTH 35, IN EACH CASE AS SET FORTH ON
SCHEDULE 2.3B hereto, the outstanding principal amount of
Term Loan B exceeds the sum of (i) the Term Loan B Borrowing
Base, (ii) the excess if any of the Term Loan A Borrowing
Base over the outstanding principal amount of Term Loan A,
(iii) the excess, if any, of the Term Loan C Borrowing Base
over the outstanding principal amount of Term Loan C, and
(iv) the excess, if any, of the Term Loan D Borrowing Base
over the outstanding principal amount of Term Loan D, the
Borrower shall immediately prepay Term Loan B in an amount
equal to such deficiency.
*b) WITHOUT IN ANY WAY LIMITING THE PROVISIONS OF
CLAUSE (I) OF THIS SECTION 3.3(B), IF AT ANY TIME DURING THE
PERIOD COMMENCING WITH AND INCLUDING MONTH 22 AND ENDING
WITH AND INCLUDING MONTH 26, IN EACH CASE AS SET FORTH ON
SCHEDULE 2.3C hereto, the outstanding principal amount of
Term Loan C exceeds the sum of (i) the Term Loan C Borrowing
Base, (ii) the excess if any of the Term Loan A Borrowing
Base over the outstanding principal amount of Term Loan A,
(iii) the excess if any of the Term Loan B Borrowing Base
over the outstanding principal amount of Term Loan B, and
(iv) the excess if any of the Term Loan D Borrowing Base
over the outstanding principal amount of Term Loan D, the
Borrower shall immediately prepay Term Loan C in an amount
equal to such deficiency.
*c) WITHOUT IN ANY WAY LIMITING THE PROVISIONS OF
CLAUSE (I) OF THIS SECTION 3.3(B), IF AT ANY TIME DURING THE
PERIOD COMMENCING WITH AND INCLUDING MONTH 22 AND ENDING
WITH AND INCLUDING MONTH 26, IN EACH CASE AS SET FORTH ON
SCHEDULE 2.3D hereto, the outstanding principal amount of
Term Loan D exceeds the sum of (i) the Term Loan D Borrowing
Base, (ii) the excess if any of the Term Loan A Borrowing
Base over the outstanding principal amount of Term Loan A,
(iii) the excess if any of the Term Loan B Borrowing Base
over the outstanding principal amount of Term Loan B, and
(iv) the excess if any of the Term Loan C Borrowing Base
over the outstanding principal amount of Term Loan C, the
Borrower shall immediately prepay Term Loan D in an amount
equal to such deficiency."
B.AMENDMENTS TO SECTION 3.5(G). SECTION 3.5(G) OF THE EXISTING CREDIT
AGREEMENT IS HEREBY DELETED IN ITS ENTIRETY AND REPLACED BY THE FOLLOWING:
"(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 TERM LOAN A
OF THE LENDER, IN FORM AND SUBSTANCE ACCEPTABLE TO THE
LENDER ("TERM NOTE A"), (ii) a promissory note of the
Borrower evidencing Term Loan B of the Lender, in form and
substance acceptable to the Lender ("TERM NOTE B"), (iii) a
promissory note of the Borrower evidencing Term Loan C of
the Lender, in form and substance acceptable to the Lender
("TERM NOTE C"), (iv) a promissory note of the Borrower
evidencing Term Loan D of the Lender, in form and substance
acceptable to the Lender ("TERM NOTE D"), an/or (v) a
promissory note of the Borrower evidencing the Revolver
Advances of the Lender in form and substance acceptable to
the Lender (a "REVOLVER NOTE")."
A.AMENDMENTS TO SECTION 6.2(C). SECTION 6.2(C) IS HEREBY DELETED IN
ITS ENTIRETY AND REPLACED BY THE FOLLOWING:
"(C) PRIOR TO 2:00 P.M., NEW YORK CITY TIME ON EACH
BUSINESS DAY, A BORROWING BASE CERTIFICATE SHOWING THE
REVOLVER BORROWING BASE, THE TERM LOAN A BORROWING BASE, THE
TERM LOAN B BORROWING BASE, THE TERM LOAN C BORROWING BASE
AND THE TERM LOAN D BORROWING BASE (BUT ONLY, (I) IN THE
CASE OF THE TERM LOAN A BORROWING BASE, IN CONNECTION WITH
THE DELIVERY OF THE FIRST SUCH CERTIFICATE HEREUNDER AND IN
EACH CASE THAT THE TERM LOAN A BORROWING BASE CHANGES FROM
THE AMOUNT THEREOF MOST RECENTLY REPORTED, (II) IN THE CASE
OF THE TERM LOAN B BORROWING BASE IN CONNECTION WITH THE
DELIVERY OF SUCH CERTIFICATE ON THE FIRST AMENDMENT
EFFECTIVE DATE AND IN EACH CASE THAT THE TERM LOAN B
BORROWING BASE CHANGES FROM THE AMOUNT THEREOF MOST RECENTLY
REPORTED), (III) IN THE CASE OF THE TERM LOAN C BORROWING
BASE, IN CONNECTION WITH THE DELIVERY OF SUCH CERTIFICATE ON
THE SECOND AMENDMENT EFFECTIVE DATE AND IN EACH CASE THAT
THE TERM LOAN C BORROWING BASE CHANGES FROM THE AMOUNT
THEREOF MOST RECENTLY REPORTED AND (IV) IN THE CASE OF THE
TERM LOAN D BORROWING BASE, IN CONNECTION WITH THE DELIVERY
OF SUCH CERTIFICATE ON THE THIRD AMENDMENT EFFECTIVE DATE
AND IN EACH CASE THAT THE TERM LOAN D 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;"
A.AMENDMENTS TO SCHEDULE I. SCHEDULE I TO THE EXISTING CREDIT
AGREEMENT IS HEREBY AMENDED IN ITS ENTIRETY TO READ AS IS SET FORTH ON
SCHEDULE I HERETO.
B.AMENDMENTS TO SCHEDULE 1.1. SCHEDULE 1.1 TO THE EXISTING CREDIT
AGREEMENT IS HEREBY AMENDED IN ITS ENTIRETY TO READ AS IS SET FORTH ON
SCHEDULE 1.1 HERETO,
C.AMENDMENTS TO SCHEDULES 2.3A, 2.3B AND 2.3C. SCHEDULES 2.3A, 2.3B
AND 2.3C ARE HEREBY AMENDED TO INCLUDE SCHEDULE 2.3D, WHICH SHALL READ AS
IS SET FORTH ON SCHEDULE 2.3D HERETO.
****ARTIII.
Conditions to Effectiveness
This Amendment, and the modification to the Credit Agreement provided
for herein, shall become effective on the date (the "THIRD AMENDMENT
EFFECTIVE DATE") on which all of the following conditions have been (or are
concurrently being) satisfied:
A.THE FOLLOWING DOCUMENTS SHALL HAVE BEEN EXECUTED AND DELIVERED BY
EACH PARTY THERETO:
*a) THIS AMENDMENT;
*b) THE TERM LOAN D AIRCRAFT CHATTEL MORTGAGE;
*c) THE SUN JET AIRCRAFT LEASE;
*d) THE SUN JET CONSENT AND AGREEMENT;
*e) THE TERM NOTE D; AND
*f) ALL UNIFORM COMMERCIAL CODE FINANCING STATEMENTS ON FORM UCC-
1 AND UCC-3 REQUIRED BY THE LENDER.
B.THE LENDER SHALL HAVE RECEIVED EXECUTED LEGAL OPINIONS OF KING &
SPALDING, SPECIAL COUNSEL TO THE BORROWER, IN FORM AND SUBSTANCE
SATISFACTORY TO THE LENDER AND TAKING INTO ACCOUNT THIS AMENDMENT AND THE
MATTERS CONTEMPLATED HEREBY (INCLUDING, WITHOUT LIMITATION, OPINIONS WITH
RESPECT TO THE VALIDITY OF THE THIRD AMENDMENT DOCUMENTS AND THE
EFFECTIVENESS OF UCC FILINGS IN EACH STATE WHERE COLLATERAL DESCRIBED
THEREIN IS LOCATED). SUCH LEGAL OPINION SHALL COVER SUCH MATTERS INCIDENT
TO THE TRANSACTION CONTEMPLATED BY THIS AMENDMENT AND THE OTHER THIRD
AMENDMENT DOCUMENTS AS THE LENDER MAY REASONABLY REQUIRE.
C.THE LENDER SHALL HAVE RECEIVED THE EXECUTED LEGAL OPINION OF CROWE &
DUNLEVY, SPECIAL FAA COUNSEL TO THE BORROWER, IN FORM AND SUBSTANCE
SATISFACTORY TO THE LENDER TAKING INTO ACCOUNT THIS AMENDMENT AND THE
MATTERS CONTEMPLATED HEREBY (INCLUDING, WITHOUT LIMITATION, OPINIONS AS TO
THE EFFECTIVENESS OF THE FILING OF THE SUN JET AIRCRAFT LEASE WITH THE
FAA). SUCH LEGAL OPINION SHALL COVER SUCH MATTERS INCIDENT TO THE
TRANSACTIONS CONTEMPLATED BY THIS AMENDMENT AND THE OTHER THIRD AMENDMENT
DOCUMENTS AS THE LENDER MAY REASONABLY REQUIRE.
D.THE LENDER SHALL HAVE RECEIVED A COPY, IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE LENDER, OF THE CORPORATE RESOLUTIONS OF THE
BORROWER, AUTHORIZING THE AIRCRAFT ACQUISITION AND THE EXECUTION, DELIVERY
AND PERFORMANCE OF THIS AMENDMENT AND THE OTHER THIRD AMENDMENT DOCUMENTS
TO WHICH THE BORROWER IS A PARTY, CERTIFIED BY THE SECRETARY OR AN
ASSISTANT SECRETARY OF THE BORROWER AS OF THE THIRD AMENDMENT EFFECTIVE
DATE, WHICH CERTIFICATES SHALL STATE THAT THE RESOLUTIONS OR AUTHORIZATIONS
THEREBY CERTIFIED HAVE NOT BEEN AMENDED, MODIFIED, REVOKED OR RESCINDED AS
OF THE DATE OF SUCH CERTIFICATE.
E.THE LENDER SHALL HAVE RECEIVED A CERTIFICATE OF THE SECRETARY OR AN
ASSISTANT SECRETARY OF THE BORROWER, DATED THE THIRD AMENDMENT EFFECTIVE
DATE, AS TO THE INCUMBENCY AND SIGNATURE OF THE OFFICER(S) OF THE BORROWER
EXECUTING EACH THIRD AMENDMENT DOCUMENT TO WHICH IT IS A PARTY AND ANY
CERTIFICATE OR OTHER DOCUMENT TO BE DELIVERED BY IT PURSUANT HERETO,
TOGETHER WITH EVIDENCE OF THE INCUMBENCY OF SUCH SECRETARY OR ASSISTANT
SECRETARY.
F.THE LENDER SHALL HAVE RECEIVED CERTIFICATES FROM THE BORROWER,
STATING THAT ITS GOVERNING DOCUMENTS HAVE NOT BEEN AMENDED SINCE SEPTEMBER
30, 1996.
G.THE LENDER SHALL HAVE RECEIVED COPIES OF CERTIFICATES DATED AS OF A
RECENT DATE FROM THE SECRETARY OF STATE OR OTHER APPROPRIATE AUTHORITY OF
SUCH JURISDICTION, EVIDENCING THE GOOD STANDING OF THE BORROWER IN THE
STATE OF ITS ORGANIZATION AND IN EACH STATE WHERE THE OWNERSHIP, LEASE OR
OPERATION OF PROPERTY OR THE CONDUCT OF BUSINESS REQUIRES IT TO QUALIFY AS
A FOREIGN CORPORATION OR OTHER ENTITY EXCEPT WHERE THE FAILURE TO SO
QUALIFY WOULD NOT HAVE A MATERIAL ADVERSE EFFECT.
H.THE LENDER SHALL HAVE RECEIVED ALL CHATTEL PAPER ORIGINAL COPIES OF
THE SUN JET LEASE AND ALL DOCUMENTS REQUIRED TO BE DELIVERED UNDER ARTICLE
THREE OF THE TERM LOAN D AIRCRAFT CHATTEL MORTGAGE.
I.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 THE THIRD AMENDMENT EFFECTIVE DATE AS IF
MADE ON AND AS OF SUCH DATE (EXCEPT TO THE EXTENT THE SAME RELATE TO
ANOTHER, EARLIER DATE, IN WHICH CASE THEY SHALL BE TRUE AND CORRECT IN ALL
MATERIAL RESPECTS AS OF SUCH EARLIER DATE).
J.NO DEFAULT OR EVENT OF DEFAULT SHALL HAVE OCCURRED AND BE
CONTINUING.
K.ALL CORPORATE AND OTHER PROCEEDINGS, AND ALL DOCUMENTS, INSTRUMENTS
AND OTHER LEGAL MATTERS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY
THE THIRD AMENDMENT DOCUMENTS, THE EXISTING CREDIT AGREEMENT, THE CREDIT
AGREEMENT AND THE OTHER CREDIT DOCUMENTS SHALL BE REASONABLY SATISFACTORY
IN FORM AND SUBSTANCE TO THE LENDER, AND THE LENDER SHALL HAVE RECEIVED
SUCH OTHER DOCUMENTS IN RESPECT OF ANY ASPECT OR CONSEQUENCE OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY AS IT SHALL REASONABLY REQUEST.
L.THE LENDER SHALL HAVE RECEIVED A BORROWING BASE CERTIFICATE SHOWING
THE REVOLVER BORROWING BASE, THE TERM LOAN A BORROWING BASE, THE TERM LOAN
B BORROWING BASE, THE TERM LOAN C BORROWING BASE, AND THE TERM LOAN D
BORROWING BASE, IN EACH CASE AS OF THE BUSINESS DAY IMMEDIATELY PRECEDING
THE THIRD AMENDMENT EFFECTIVE DATE, WITH APPROPRIATE INSERTIONS AND DATED
THE THIRD AMENDMENT EFFECTIVE DATE, SATISFACTORY IN FORM AND SUBSTANCE TO
THE LENDER, EXECUTED BY A RESPONSIBLE OFFICER OR ANY VICE PRESIDENT OF THE
BORROWER.
M.THE LENDER SHALL HAVE RECEIVED EVIDENCE IN FORM AN SUBSTANCE
SATISFACTORY TO IT THAT ALL OF THE REQUIREMENTS OF SECTION 6.6 OF THE
EXISTING CREDIT AGREEMENT AND SECTION 5(O) OF THE BORROWER SECURITY
AGREEMENT SHALL HAVE BEEN SATISFIED WITH RESPECT TO THE TERM LOAN D
AIRCRAFT.
N.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 FINANCING STATEMENTS
ON FORMS UCC-1, NECESSARY OR, IN THE OPINION OF THE LENDER, DESIRABLE TO
PERFECT THE LIENS CREATED BY THE SECURITY DOCUMENTS WITH RESPECT TO THE
TERM LOAN D AIRCRAFT SHALL HAVE BEEN COMPLETED.
O.THE LENDER SHALL HAVE RECEIVED EACH ADDITIONAL DOCUMENT, INSTRUMENT,
LEGAL OPINION OR ITEM OF INFORMATION REASONABLY REQUESTED BY THE LENDER,
INCLUDING, WITHOUT LIMITATION, A COPY OF ANY DEBT INSTRUMENT, SECURITY
AGREEMENT OR OTHER MATERIAL CONTRACT TO WHICH THE BORROWER IS BE A PARTY.
****ARTIII.
Miscellaneous
A.CLOSING FEE; PAYMENT OF EXPENSES. (a) On the Third Amendment
Effective Date, the Borrower shall pay to the Lender in immediately
available funds a fee equal to $16,000.00 (which shall be in addition to
all fees paid to the Lender prior to the execution and delivery of this
Amendment). The Lender is hereby authorized to withhold the amount of such
fee from the proceeds of Term Loan D.
*1.WITHOUT LIMITING ITS OBLIGATIONS UNDER SECTION 9.5 OF THE EXISTING
AGREEMENT, THE BORROWER AGREES TO PAY OR REIMBURSE THE LENDER FOR ALL OF
ITS REASONABLE COSTS AND EXPENSES INCURRED IN CONNECTION WITH THIS
AMENDMENT AND THE OTHER THIRD AMENDMENT DOCUMENTS, INCLUDING, WITHOUT
LIMITATION, THE REASONABLE COSTS AND EXPENSES OF CADWALADER, WICKERSHAM &
TAFT, COUNSEL TO THE LENDER AND EXPRESSLY ACKNOWLEDGE THAT THEIR
OBLIGATIONS HEREUNDER CONSTITUTE "OBLIGATIONS" WITHIN THE MEANING OF THE
EXISTING CREDIT AGREEMENT.
B.SUN JET AIRCRAFT LEASE SUPPLEMENT AND RECEIPTS. Borrower hereby
agrees that that it shall deliver to the Lender an original executed copy
of the Sun Jet Aircraft Lease Supplement and Receipt immediately upon its
execution and delivery by the Borrower and Sun Jet.
C.NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly amended,
modified and supplemented hereby and by the documents related hereto, the
provisions of the Existing Credit Agreement and the other Credit Documents
shall remain in full force and effect.
D.ACKNOWLEDGEMENT. The Borrower hereby acknowledges that the Sun Jet
Consent and Agreement constitutes a Consent and Agreement under the
Agreement and the Term Loan D Aircraft Chattel Mortgage constitutes an
Aircraft Chattel Mortgage under the Agreement.
E.AFFIRMATION BY BORROWER. The Borrower hereby consents to the
execution and delivery of this Amendment and each of the other Third
Amendment Documents to which Borrower is a party and reaffirms its
obligations under the Credit Documents.
F.GOVERNING LAW; COUNTERPARTS. (a) This Amendment and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
*1.THIS AMENDMENT MAY BE EXECUTED BY ONE OR MORE OF THE PARTIES HERETO
ON ANY NUMBER OF SEPARATE COUNTERPART, AND ALL OF SAID COUNTERPARTS TAKEN
TOGETHER SHALL BE DEEMED TO CONSTITUTE ONE AND THE SAME INSTRUMENT. A SET
OF THE COUNTERPARTS OF THIS AMENDMENT SIGNED BY ALL THE PARTIES SHALL BE
LODGED WITH THE BORROWER AND THE LENDER. THIS AMENDMENT MAY BE DELIVERED
BY FACSIMILE TRANSMISSION OF THE RELEVANT SIGNATURE PAGES HEREOF.
[SIGNATURE PAGE FOLLOWS]
-1-
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AMENDMENT TO BE
DULY EXECUTED AND DELIVERED AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN.
INTERNATIONAL AIRLINE SUPPORT GROUP,
INC.
BY
Name:
Title:
BNY FINANCIAL CORPORATION
By
Name:
Title:
-2-
<PAGE>
SCHEDULE I
APPROVED AIRCRAFT, APPROVED AIRCRAFT LEASES
PERMITTED JURISDICTIONS AND PERMITTED LESSEES
TERM LOAN A AIRCRAFT:
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. McDonnell Douglas DC9-14 N949L 45844
2. McDonnell Douglas DC9-15F N9357 47156
TERM LOAN A ENGINES
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney JT8D-7 654823
2. Pratt & Whitney JT8D-7 649055
3. Pratt & Whitney JT8D-7 653893
4. Pratt & Whitney JT8D-7 656961
5. Pratt & Whitney JT8D-7 653327
6. Pratt & Whitney JT8D-9 666227
-3-
<PAGE>
TERM LOAN B AIRCRAFT
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. Boeing B-727-044F N94GS 18892
2. Boeing B-727-031F N210NE 18903
3. Boeing B-727-031F N220NE 18905
TERM LOAN B ENGINES
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney JT8D-7 654550
2. Pratt & Whitney JT8D-7 655463
3. Pratt & Whitney JT8D-7 649033
4. Pratt & Whitney JT8D-7 654150
5. Pratt & Whitney JT8D-7 654055
6. Pratt & Whitney JT8D-7 655321
7. Pratt & Whitney JT8D-7 648897
8. Pratt & Whitney JT8D-7 649406
9. Pratt & Whitney JT8D-7 649368
TERM LOAN C AIRCRAFT
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. McDonnell Douglas DC-9-51 N919PJ 47663
TERM LOAN C ENGINES
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney JT8D-17 P688741
2. Pratt & Whitney JT8D-17 P688116B
TERM LOAN D AIRCRAFT
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. McDonnell Douglas DC-9-51 N920PJ 47667
-4-
<PAGE>
TERM LOAN D ENGINES
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney JT8D-17 P688724
2. Pratt & Whitney JT8D-17 P688721
APPROVED AIRCRAFT LEASES:
1. Property subject to lease: (1) Boeing 727-044F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment
LESSEE: EMERY WORLDWIDE AIRLINES, INC.
TERM: FEBRUARY 17, 1994 THROUGH MARCH 19, 1999, PLUS ONE DAY FOR EACH
DAY THAT THE
AIRCRAFT IS UNDERGOING THE FIRST "C" CHECK AND WORK REQUIRED TO COMPLY
WITH
THE "AGING AIRCRAFT" SERVICE BULLETINS IN ACCORDANCE WITH SECTION
6(D) OF THE
LEASE.
AMOUNT: $45,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR.
2. PROPERTY SUBJECT TO LEASE: (1) BOEING 727-031F AIRCRAFT, (3) PRATT &
WHITNEY JT8D-7 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: EMERY WORLDWIDE AIRLINES, INC.
TERM: SEPTEMBER 2, 1993 THROUGH JANUARY 22, 1999, PLUS ONE DAY FOR EACH DAY
THAT THE AIRCRAFT IS UNDERGOING THE FIRST "C" CHECK AND WORK
REQUIRED TO COMPLY WITH THE "AGING AIRCRAFT" SERVICE BULLETINS IN
ACCORDANCE WITH SECTION 6(D) OF THE LEASE.
AMOUNT: $45,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR.
3. PROPERTY SUBJECT TO LEASE: (1) BOEING 727-031F AIRCRAFT, (3) PRATT &
WHITNEY JT8D-7 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: EMERY WORLDWIDE AIRLINES, INC.
TERM: SEPTEMBER 2, 1993 THROUGH FEBRUARY 1, 1999, PLUS ONE DAY FOR EACH DAY
THAT THE AIRCRAFT IS UNDERGOING THE FIRST "C" CHECK AND WORK
REQUIRED TO COMPLY WITH THE "AGING AIRCRAFT" SERVICE BULLETINS IN
ACCORDANCE WITH SECTION 6(D) OF THE LEASE.
AMOUNT: $45,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR.
4. PROPERTY SUBJECT TO LEASE: (1) MCDONNELL DOUGLAS DC-9-51 AIRCRAFT,
TWO (2) PRATT & WHITNEY JT8D-17 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: SUN JET INTERNATIONAL, INC.
TERM: FROM NOT LATER THAN OCTOBER 1, 1997 THROUGH THE EARLIER OF
(I) OCTOBER 1, 1999 AND (II) THE DATE ON WHICH THE NEXT SCHEDULED
"D" CHECK IS DUE IN ACCORDANCE WITH SECTION 3(B) OF THE LEASE.
AMOUNT: $60,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR,
$55 PER ENGINE FLIGHT HOUR PER ENGINE AND $25 PER AIRFRAME FLIGHT
HOUR FOR APU OVERHAUL.
5. PROPERTY SUBJECT TO LEASE: (1) MCDONNELL DOUGLAS DC-9-51 AIRCRAFT,
TWO (2) PRATT & WHITNEY JT8D-17 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: SUN JET INTERNATIONAL, INC.
TERM: FROM NOT LATER THAN OCTOBER 1, 1997 THROUGH THE EARLIER OF
(I) OCTOBER 1, 1999 AND (II) THE DATE ON WHICH THE NEXT SCHEDULED
"D" CHECK IS DUE IN ACCORDANCE WITH SECTION 3(B) OF THE LEASE.
AMOUNT: $60,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR,
$55 PER ENGINE FLIGHT HOUR PER ENGINE AND $25 PER AIRFRAME FLIGHT
HOUR FOR APU OVERHAUL.
-5-
<PAGE>
SCHEDULE I (CONTINUED)
PERMITTED JURISDICTIONS:
WITH RESPECT TO APPROVED AIRCRAFT OTHER THAN TERM LOAN C AIRCRAFT AND
TERM LOAN D AIRCRAFT:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
United States of Mexico
WITH RESPECT TO TERM LOAN C AIRCRAFT AND TERM LOAN D AIRCRAFT:
Canada
Mexico
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
the Bahamas
Bermuda
Honduras
Guatemala
Belize
Costa Rica
Panama
Jamaica
Cayman Islands
Dominican Republic
Puerto Rico
British Virgin Islands
Turks and Caios Islands
Anguilla
Saint Vincent and Grenadines
Montserrat
Antigua and Barbuda
Guadeloupe
Dominica
Martinique
Barbados
Grenada
Aruba
Saint Lucia
Netherlands Antilles
Trinidad and Tobago
-6-
<PAGE>
WITH RESPECT TO ELIGIBLE ACCOUNTS:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
WITH RESPECT TO ELIGIBLE LEASE PAYMENT RECEIVABLES:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
United States of Mexico
PERMITTED LESSEES:
1. PROPERTY SUBJECT TO LEASE: (1) BOEING 727-044F AIRCRAFT, (3) PRATT &
WHITNEY JT8D-7 ENGINES AND OTHER RELATED EQUIPMENT
LESSEE: EMERY WORLDWIDE AIRLINES, INC.
TERM: FEBRUARY 17, 1994 THROUGH MARCH 19, 1999, PLUS ONE DAY FOR EACH DAY
THAT THE AIRCRAFT IS UNDERGOING THE FIRST "C" CHECK AND WORK
REQUIRED TO COMPLY WITH THE "AGING AIRCRAFT" SERVICE BULLETINS IN
ACCORDANCE WITH SECTIONS 6(D) OF THE LEASE.
AMOUNT: $45,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR.
SUBLESSEE: RYAN INTERNATIONAL AIRLINES
2. PROPERTY SUBJECT TO LEASE: (1) BOEING 727-031F AIRCRAFT, (3) PRATT &
WHITNEY JT8D-7 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: EMERY WORLDWIDE AIRLINES, INC.
TERM: SEPTEMBER 2, 1993 THROUGH JANUARY 22, 1999, PLUS ONE DAY FOR EACH DAY
THAT THE AIRCRAFT IS UNDERGOING THE FIRST "C" CHECK AND WORK
REQUIRED TO COMPLY WITH THE "AGING AIRCRAFT" SERVICE BULLETINS IN
ACCORDANCE WITH SECTION 6(D) OF THE LEASE.
AMOUNT: $45,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR.
SUBLESSEE: RYAN INTERNATIONAL AIRLINES
3. PROPERTY SUBJECT TO LEASE: (1) BOEING 727-031F AIRCRAFT, (3) PRATT &
WHITNEY JT8D-7 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: EMERY WORLDWIDE AIRLINES, INC.
TERM: SEPTEMBER 2, 1993 THROUGH FEBRUARY 1, 1999, PLUS ONE DAY FOR EACH DAY
THAT THE AIRCRAFT IS UNDERGOING THE FIRST "C" CHECK AND WORK
REQUIRED TO COMPLY WITH THE "AGING AIRCRAFT" SERVICE BULLETINS IN
ACCORDANCE WITH SECTION 6(D) OF THE LEASE.
AMOUNT: $45,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR.
SUBLESSEE: RYAN INTERNATIONAL AIRLINES
4. PROPERTY SUBJECT TO LEASE: (5) PRATT & WHITNEY JT8D-7 ENGINES AND
OTHER RELATED EQUIPMENT.
LESSEE: EXPRESS ONE INTERNATIONAL INC.
TERM: MARCH 3, 1997 THROUGH _______________ IN ACCORDANCE WITH SECTION 2.2
OF THE LEASE.
AMOUNT: $8,000 PER ENGINE PER MONTH PLUS $65 PER OPERATING CYCLE OR HOUR
PER ENGINE (WHICHEVER IS GREATER).
5. PROPERTY SUBJECT TO LEASE: (1) MCDONNELL DOUGLAS DC-9-51 AIRCRAFT,
TWO (20 PRATT & WHITNEY JT8D-17 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: SUN JET INTERNATIONAL, INC.
TERM: FROM NOT LATER THAN OCTOBER 1, 1997 THROUGH THE EARLIER OF
(I) OCTOBER 1, 1999 AND (II) THE DATE ON WHICH THE NEXT SCHEDULED
"D" CHECK IS DUE IN ACCORDANCE WITH SECTION 3(B) OF THE LEASE.
AMOUNT: $60,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR,
$55 PER ENGINE FLIGHT HOUR PER ENGINE AND $25 PER AIRFRAME FLIGHT
HOUR FOR APU OVERHAUL.
6. PROPERTY SUBJECT TO LEASE: (1) MCDONNELL DOUGLAS DC-9-51 AIRCRAFT,
TWO (2) PRATT & WHITNEY JT8D-17 ENGINES AND OTHER RELATED EQUIPMENT..
LESSEE: SUN JET INTERNATIONAL, INC.
TERM: FROM NOT LATER THAN OCTOBER 1, 1997 THROUGH THE EARLIER OF
(I) OCTOBER 1, 1999 AND (II) THE DATE ON WHICH THE NEXT SCHEDULED
"D" CHECK IS DUE IN ACCORDANCE WITH SECTION 3(B) OF THE LEASE.
AMOUNT: $60,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR,
$55 PER ENGINE FLIGHT HOUR PER ENGINE AND $25 PER AIRFRAME FLIGHT
HOUR FOR APU OVERHAUL.
-7-
<PAGE>
SCHEDULE 1.1
AIRCRAFT, AIRCRAFT ENGINES AND AIRCRAFT LEASES
AIRCRAFT AND AIRCRAFT ENGINES:
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. AIRCRAFT:
MCDONNELL DOUGLAS DC9-14 N949L 45844
AIRCRAFT ENGINES:
PRATT & WHITNEY JT8D ENGINE 656961
PRATT & WHITNEY JT8D ENGINE 653327
2. AIRCRAFT:
MCDONNELL DOUGLAS DC9-15F N9357 47156
AIRCRAFT ENGINES:
PRATT & WHITNEY JT8D ENGINE 653893
PRATT & WHITNEY JT8D ENGINE 649055
3. AIRCRAFT ENGINES:
Pratt & Whitney JT8D engine 654823
1. AIRCRAFT:
BOEING 727-044F N94GS 18892
AIRCRAFT ENGINE:
PRATT & WHITNEY JT8D-7 ENGINE 654550
PRATT & WHITNEY JT8D-7 ENGINE 655463
PRATT & WHITNEY JT8D-7 ENGINE 649033
2. AIRCRAFT:
BOEING 727-031F N210NE 18903
AIRCRAFT ENGINES:
PRATT & WHITNEY JT8D-7 ENGINE 654150
PRATT & WHITNEY JT8D-7 ENGINE 654055
PRATT & WHITNEY JT8D-7 ENGINE 655321
3. AIRCRAFT:
BOEING 727-031F N220NE 18905
AIRCRAFT ENGINES:
PRATT & WHITNEY JT8D-7 ENGINE 648897
PRATT & WHITNEY JT8D-7 ENGINE 649406
PRATT & WHITNEY JT8D-7 ENGINE 649368
4. AIRCRAFT ENGINES:
PRATT & WHITNEY JT8D-9 ENGINE 666227
5. AIRCRAFT
MCDONNELL DOUGLAS DC-9-51 N919PJ 47663
6. AIRCRAFT ENGINES:
PRATT & WHITNEY JT8D-17 P688741
PRATT & WHITNEY JT8D-17 P688116B
7. AIRCRAFT
MCDONNELL DOUGLAS DC-9-51 N920PJ 47667
8. AIRCRAFT ENGINES:
Pratt & Whitney JT8D-17 P688724
Pratt & Whitney JT8D-17 P688721
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<PAGE>
SCHEDULE 1.1 (CONTINUED)
AIRCRAFT LEASES:
1. PROPERTY SUBJECT TO LEASE: (1) BOEING 727-044F AIRCRAFT, (3) PRATT &
WHITNEY JT8D-7 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: EMERY WORLDWIDE AIRLINES, INC.
TERM: FEBRUARY 17, 1994 THROUGH MARCH 19, 1999, PLUS ONE DAY FOR EACH DAY
THAT THE AIRCRAFT IS UNDERGOING THE FIRST "C" CHECK AND WORK
REQUIRED TO COMPLY WITH THE "AGING AIRCRAFT" SERVICE BULLETINS IN
ACCORDANCE WITH SECTION 6(D) OF THE LEASE.
AMOUNT: $45,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR.
SUBLESSEE: RYAN INTERNATIONAL AIRLINES
2. PROPERTY SUBJECT TO LEASE: (1) BOEING 727-031F AIRCRAFT, (3) PRATT &
WHITNEY JT8D-7 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: EMERY WORLDWIDE AIRLINES, INC.
TERM: SEPTEMBER 2, 1993 THROUGH JANUARY 22, 1999, PLUS ONE DAY FOR EACH DAY
THAT THE AIRCRAFT IS UNDERGOING THE FIRST "C" CHECK AND WORK
REQUIRED TO COMPLY WITH THE "AGING AIRCRAFT" SERVICE BULLETINS IN
ACCORDANCE WITH SECTION 6(D) OF THE LEASE.
AMOUNT: $45,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 FLIGHT HOUR.
SUBLESSEE: RYAN INTERNATIONAL AIRLINES
3. PROPERTY SUBJECT TO LEASE: (1) BOEING 727-031F AIRCRAFT, (3) PRATT &
WHITNEY JT8D-7 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: EMERY WORLDWIDE AIRLINES, INC.
TERM: SEPTEMBER 2, 1993 THROUGH FEBRUARY 1, 1999, PLUS ONE DAY FOR EACH DAY
THAT THE AIRCRAFT IS UNDERGOING THE FIRST "C" CHECK AND WORK
REQUIRED TO COMPLY WITH THE "AGING AIRCRAFT" SERVICE BULLETINS IN
ACCORDANCE WITH SECTION 6(D) OF THE LEASE.
AMOUNT: $45,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR.
SUBLESSEE: RYAN INTERNATIONAL AIRLINES
4. PROPERTY SUBJECT TO LEASE: (5) PRATT & WHITNEY JT8D-7 ENGINES AND
OTHER RELATED EQUIPMENT.
LESSEE: EXPRESS ONE INTERNATIONAL, INC.
TERM: MARCH 3, 1997 THROUGH ____________ IN ACCORDANCE WITH SECTION 2.2 OF
THE LEASE.
AMOUNT: $8,000 PER ENGINE PER MONTH PLUS $65 PER OPERATING CYCLE OR HOUR
PER ENGINE (WHICHEVER IS GREATER)
-9-
<PAGE>
5. PROPERTY SUBJECT TO LEASE: (1) MCDONNELL DOUGLAS DC-9-51 AIRCRAFT,
TWO (2) PRATT & WHITNEY JT8D-17 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: SUN JET INTERNATIONAL, INC.
TERM: FROM NOT LATER THAN OCTOBER 1, 1997 THROUGH THE EARLIER OF
(I) OCTOBER 1, 1999 AND (II) THE DATE ON WHICH THE NEXT SCHEDULED
"D" CHECK IS DUE IN ACCORDANCE WITH SECTION 3(B) OF THE LEASE.
AMOUNT: $60,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR,
$55 PER ENGINE FLIGHT HOUR PER ENGINE AND $25 PER AIRFRAME FLIGHT
HOUR FOR APU OVERHAUL.
6. PROPERTY SUBJECT TO LEASE: (1) MCDONNELL DOUGLAS DC-9-51 AIRCRAFT,
TWO (2) PRATT & WHITNEY JT8D-17 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: SUN JET INTERNATIONAL, INC.
TERM: FROM NOT LATER THAN OCTOBER 1, 1997 THROUGH THE EARLIER OF
(I) OCTOBER 1, 1999 AND (II) THE DATE ON WHICH THE NEXT SCHEDULED
"D" CHECK IS DUE IN ACCORDANCE WITH SECTIONS 3(B) OF THE LEASE.
AMOUNT: $60,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR,
$55 PER ENGINE FLIGHT HOUR PER ENGINE AND $25 PER AIRFRAME FLIGHT
HOUR FOR APU OVERHAUL.
7. PROPERTY SUBJECT TO LEASE: (1) MCDONNELL DOUGLAS DC-9-51 AIRCRAFT,
TWO (2) PRATT & WHITNEY JT8D-17 ENGINES AND OTHER RELATED EQUIPMENT.
LESSEE: SUN JET INTERNATIONAL, INC.
TERM: FROM NOT LATER THAN OCTOBER 1, 1997 THROUGH THE EARLIER OF
(I) OCTOBER 1, 1999 AND (II) THE DATE ON WHICH THE NEXT SCHEDULED
"D" CHECK IS DUE IN ACCORDANCE WITH SECTION 3(B) OF THE LEASE.
AMOUNT: $60,000 PER MONTH PLUS "D" CHECK RESERVES OF $75 PER FLIGHT HOUR,
$55 PER ENGINE FLIGHT HOUR PER ENGINE AND $25 PER AIRFRAME FLIGHT
HOUR FOR APU OVERHAUL.
-10-
<PAGE>
SCHEDULE 2.3D
TERM LOAN D PRINCIPAL REPAYMENT SCHEDULE
PRINCIPAL PAYMENT DATE PRINCIPAL AMOUNT DUE
October 31, 1997 $ 60,000.00
November 30, 1997 $ 60,000.00
December 31, 1997 $ 60,000.00
January 31, 1998 $ 60,000.00
February 28, 1998 $ 60,000.00
March 31, 1998 $ 60,000.00
April 30, 1998 $ 60,000.00
May 31, 1998 $ 60,000.00
June 30, 1998 $ 60,000.00
July 31, 1998 $ 60,000.00
August 31, 1998 $ 60,000.00
September 30, 1998 $ 60,000.00
October 31, 1998 $ 60,000.00
November 30, 1998 $ 60,000.00
December 31, 1998 $ 60,000.00
January 31, 1999 $ 60,000.00
February 28, 1999 $ 60,000.00
March 31, 1999 $ 60,000.00
April 30, 1999 $ 60,000.00
May 1, 1999 $ 60,000.00
June 30, 1999 $ 60,000.00
July 31, 1999 $0.00
August 31, 1999 $0.00
September 30, 1999 $0.00
October 31, 1999 $0.00
November 30, 1999 $0.00
December 31, 1999 $ 340,000.00
-11-
EXECUTION COPY
FOURTH AMENDMENT AND AGREEMENT
FOURTH AMENDMENT AND AGREEMENT, dated as of February 2, 1998 (this
"Amendment"), to the Existing Credit Agreement (as hereinafter defined), by
and among INTERNATIONAL AIRLINE SUPPORT GROUP, INC., a Delaware corporation
(the "Borrower"), and BNY FINANCIAL CORPORATION, a New York corporation
(the "Lender").
RECITALS
The Borrower and the Lender have entered into the Existing Credit
Agreement, pursuant to which the Lender is providing to the Borrower (i) a
$13,000,000.00 revolving credit facility (the "Revolver Facility "), (ii) a
$3,000,000.00 term loan facility (the "Term Loan A Facility"), (iii) a
$3,750,000.00 term loan facility (the "Term Loan B Facility"), (iv) a
$1,500,000.00 term loan facility (the "Term Loan C Facility") and (v) a
$1,600,000.00 term loan facility (the "Term Loan D Facility") which are
secured by accounts receivable, inventory and other collateral of the
Borrower. The Borrower has requested that the Lender provide an additional
$1,000,000.00 revolving credit facility (as defined below, the "Open
Purchasing Revolver Facility") and make additional amendments to the
Existing Agreement as more fully described below. Subject to the terms and
conditions hereof, the Lender is willing to provide the Open Purchasing
Revolver Facility to the Borrower and to amend certain provisions of the
Existing Credit Agreement in order to effectuate the foregoing.
In consideration of the foregoing and of the mutual covenants and
undertakings herein contained, the parties hereto hereby agree that the
Existing Credit Agreement is amended as hereinafter provided.
****ARTII.
DEFINITIONS
A.Definitions. (a) In addition to the definitions set forth in the
heading and the recitals to this Amendment, the following definitions shall
apply to this Amendment:
"AGREEMENT": means the Credit Agreement, dated as of September
30, 1996, between the Borrower and the Lender, as amended by the First
Amendment, Waiver and Agreement, dated as of March 24, 1997, between the
Borrower and the Lender, the Second Amendment and Agreement, dated as of
September 9, 1997, between the Borrower and the Lender and the Third
Amendment and Agreement, dated as of October 15, 1997, between the Borrower
and the Lender, as further amended, supplemented or otherwise modified from
time to time up to and including this Amendment.
"EXISTING CREDIT AGREEMENT": means the Credit Agreement, dated as
of September 30, 1996, between the Borrower and the Lender, as amended by
the First Amendment, Waiver and Agreement, dated as of March 24, 1997,
between the Borrower and the Lender, the Second Amendment and Agreement,
dated as of September 9, 1997, between the Borrower and the Lender and the
Third Amendment and Agreement, dated as of October 15, 1997, between the
Borrower and the Lender, as the same may have been further amended,
supplemented or modified from time to time up to but not including the
effectiveness of this Amendment.
"FOURTH AMENDMENT DOCUMENTS": this Amendment and any other
agreements, instruments and documents executed or delivered pursuant to or
in connection with this Amendment and the transactions contemplated
thereby.
(b) Unless otherwise indicated, capitalized terms that are used
but not defined herein shall have the meanings ascribed to them in the
Existing Credit Agreement.
****ARTII.
REPRESENTATIONS
A.REPRESENTATIONS. The Borrower hereby represents and warrants as
follows:
*1.It (i) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (ii) 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, (iii) 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
(iv) 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.
*2.It has the power and authority, and the legal right, to make,
deliver and perform this Amendment and the other Fourth Amendment Documents
to which it is a party and to borrow under the Agreement and has taken all
necessary action to authorize the borrowings on the terms and conditions of
the Agreement and this Amendment and to authorize the execution, delivery
and performance of the Fourth Amendment 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 under the Agreement or with the
execution, delivery, performance, validity or enforceability of the Fourth
Amendment Documents to which it is a party. Each Fourth Amendment Document
to which the Borrower is a party has been or will be duly executed and
delivered on behalf of the Borrower. Each Fourth Amendment 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.
*3.The conditions contained in Article IV hereof have been satisfied.
*4.Each of the Credit Documents is on the date hereof in full force
and effect.
****ARTIII.
AMENDMENTS TO EXISTING CREDIT AGREEMENT
A.AMENDMENTS TO SECTION 1.
*1. Section 1.1 of the Existing Credit Agreement is hereby amended by
inserting the following new definitions therein in alphabetical order:
"ABR RATE": as of any date of determination, a rate of interest
calculated in accordance with the following schedule:
DEBT TO EQUITY RATIO ON THE
IMMEDIATELY PRECEDING DEBT TO
EQUITY RATIO RESET DATE ABR RATE
Greater than or equal to 4.00 Alternate Base Rate PLUS .75 %
Greater than or equal to 3.00 but less than Alternate Base Rate PLUS .50%
4.00
Greater than or equal to 2.00 but less than Alternate Base Rate plus .25 %
3.00
Greater than or equal to 1.00 but less than Alternate Base Rate minus .25 %
2.00
Less than 1.00 Alternate Base Rate minus .75 %
; PROVIDED, however, that if such date of determination is a Debt to Equity
Ratio Reset Date, then the calculation of such rate of interest shall be
based upon the Debt to Equity Ratio on such date of determination.
"ABR RATE Loans:" Loans, the rate of interest applicable to which
is based upon the ABR Rate.
"AVAILABLE OPEN PURCHASING REVOLVER FACILITY": at any time, an
amount equal to the excess, if any, of (a) the Open Purchasing
Revolver Facility OVER (b) the aggregate unpaid principal amount of
all Open Purchasing Revolver Advances made by the Lender then
outstanding.
"CONSOLIDATED TOTAL LIABILITIES": of any Person, as of the date
of determination, all liabilities of such Person and its consolidated
Subsidiaries, if any, determined in conformity with GAAP, including
Consolidated Current Liabilities and funded Indebtedness .
"CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the
continuation of a LIBOR Loan from one Interest Period to the next
Interest Period.
"CONVERT", "CONVERSION" and "CONVERTED" shall refer to a
conversion of ABR Rate Loans into LIBOR Loans or of LIBOR Loans into ABR
Rate Loans.
"DEBT TO EQUITY RATIO": on any Debt to Equity Ratio Reset Date,
the ratio of Indebtedness to Consolidated Tangible Net Worth, determined
with reference to the balance sheet of the Borrower, delivered to the
Lender under Section 6. 1, as at the end of the second month preceding such
Debt to Equity Ratio Reset Rate.
"DEBT TO EQUITY RATIO RESET DATE": March 1, June 1, September 1
and December 1 of each year.
"FOURTH AMENDMENT": that certain Fourth Amendment and Agreement,
dated as of February 2, 1998, between the Borrower and the Lender.
"FOURTH AMENDMENT DOCUMENTS": the Fourth Amendment and any other
agreements, instruments and documents executed or delivered pursuant to or
in connection with the Fourth Amendment and the transactions contemplated
thereby.
"FOURTH AMENDMENT EFFECTIVE DATE": the date on which all of the
conditions precedent to the effectiveness of the Fourth Amendment set forth
in Article IV of the Fourth Amendment are first satisfied or waived.
"INTEREST PERIOD": with respect to any LIBOR Loan:
*a)initially, the period commencing on the borrowing date or
Conversion date, as the case may be, with respect to such LIBOR Loan
and ending one, two, three or six months thereafter, as selected by
the Borrower in its notice of borrowing or notice of Conversion, as
the case may be, given with respect thereto; and
*a)thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such LIBOR Loan and
ending one, two, three or six months thereafter, as selected by the
Borrower by irrevocable notice to the Lender not less than three
Business Days prior to the last day of the then current Interest
Period with respect thereto;
PROVIDED that, the foregoing provisions relating to Interest Periods are
subject to the following:
*(1)if any Interest Period pertaining to a LIBOR Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
*(1)any Interest Period that would otherwise extend beyond the
Termination Date or beyond the date final payment is due on the Term
Loans shall end on the Termination Date or such date of final payment,
as the case may be;
*(1)any Interest Period pertaining to a LIBOR Loan that begins on
the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last Business Day of a
calendar month; and
*(1)the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any LIBOR Loan during an Interest
Period for such LIBOR Loan.
"INTEREST RATE": the collective reference to the ABR Rate
and the LIBOR Rate.
"LIBOR": with respect to each day during each Interest
Period pertaining to a LIBOR Loan, the rate per annum equal to the
rate at which BNY is offered Dollar deposits at or about 10:00 A.M.,
New York City time, two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the
eurodollar and foreign currency and exchange operations in respect of
its LIBOR Loans are then being conducted for delivery on the first day
of such Interest Period for the number of days comprised therein and
in an amount comparable to the amount of its LIBOR Loan to be
outstanding during such Interest Period.
"LIBOR LOANS": The collective reference to each Loan, the
rate of interest applicable to which is based upon the LIBOR Rate.
"LIBOR RATE": as of any date of determination, a rate of
interest calculated in accordance with the following schedule:
DEBT TO EQUITY RATIO ON THE LIBOR RATE
IMMEDIATELY PRECEDING DEBT TO
EQUITY RATIO RESET DATE
Greater than or equal to 4.00 LIBOR PLUS 3.75 %
Greater than or equal to 3.00 but less than LIBOR PLUS 3.50%
4.00
Greater than or equal to 2.00 but less than LIBOR PLUS 3.25 %
3.00
Greater than or equal to 1.00 but less than LIBOR PLUS 2.75 % 2.00
Less than 1.00 LIBOR PLUS 2.25 %
; PROVIDED, however, that if such date of determination is a Debt to Equity
Ratio Reset Date, then the calculation of such rate of interest shall be
based upon the Debt to Equity Ratio on such date of determination.
"LIBOR RESERVE REQUIREMENTS": for any day as applied to a
LIBOR Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained
by a member bank of such system.
"OPEN PURCHASING REVOLVER FACILITY": at any time, the
obligation of the Lender to make Open Purchasing Revolver Advances to
the Borrower hereunder in an aggregate principal amount at any one
time outstanding not to exceed $1,000,000.00, as such obligation may
be reduced from time to time in accordance with the provisions of this
Agreement.
"OPEN PURCHASING REVOLVER ADVANCES": as defined in Section
2. 1(b).
"REVOLVING CREDIT FACILITIES": the collective reference to
the Revolver Facility and the Open Purchasing Revolver Facility.
"TRANCHE": the collective reference to LIBOR Loans, the
then current Interest Periods with respect to all of which begin on
the same date and end on the same later date (whether or not such
LIBOR Loans shall originally have been made on the same day).
*1.The definition of the term "Applicable Margin" is hereby deleted in
its entirety.
*2.The definition of the term "Business Day" in Section 1.1 of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by
the following:
`"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, and, if such day relates to a borrowing of,
a payment or prepayment of principal of or interest on. or a
Conversion of or into, or an Interest Period for, a LIBOR Loan or a
notice by the Borrower with respect to any such borrowing, payment,
prepayment, Conversion or Interest Period, which is also a day on
which dealings in Dollar deposits are carried out in the London
interbank market."
*1.The definition of the term "Credit Documents" in Section 1.1 of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by
the following:
`"CREDIT DOCUMENTS": this Agreement, the First Amendment,
the Second Amendment, the Third Amendment, the Fourth Amendment, the
Security Documents, each Consent and Agreement, Term Note A, Term Note
B, Term Note C, Term Note D, any Revolver Note and any other
documents, agreements or instruments executed and delivered to the
Lender pursuant to Section 6. 11."
*1.The definition of the term "Facilities" in Section 1.1 of the
Existing Agreement is hereby deleted in its entirety and replaced by the
following:
`"FACILITIES": the collective reference to the Revolver
Facility, the Open Purchasing Revolver Facility and the Term Loan A
Facility, the Term Loan B Facility, the Term Loan C Facility and the
Term Loan D Facility."
*1.The definition of the term "Interest Payment Date" in Section 1.1
of the Existing Credit Agreement is hereby deleted in its entirety and
replaced by the following:
`"INTEREST PAYMENT DATE": (a) as to any ABR Loan, the last
day of each calendar month, (b) as to any LIBOR Loan having an
Interest Period of three months or less, the last day of such Interest
Period, and (c) as to any LIBOR Loan having an Interest Period longer
than three months, (i) each day which is three months, or a whole
multiple thereof, after the first day of such Interest Period, and
(ii) the last day of such Interest Period."
*1.The definition of the term "Loans" in Section 1. 1 of the Existing
Agreement is hereby amended in its entirety and replaced by the following:
`"LOAN": any loan, including without limitation any
Revolver Advance, any Open Purchasing Revolver Advance, and any Term
Loan, made by any Lender pursuant to this Agreement.'
*1.The definition of the term "Revolver Advances" in Section 1. 1 of
the Existing Agreement is hereby amended in its entirety and replaced by
the following:
`"REVOLVER ADVANCES": as defined in Section 2.1(a).'
A.AMENDMENTS TO SECTION 2.1. Section 2.1 is hereby deleted in its
entirety and replaced by the following:
"2.1 REVOLVING CREDIT FACILITIES.
*a)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.
The Revolver Advances may from time to time be (i) LIBOR Loans, (ii)
ABR Rate Loans or (iii) a combination thereof, as determined by the
Borrower and notified to the Lender in accordance with Sections 2.2,
3.1 and 3.14, PROVIDED that no Revolver Advances shall be made as a
LIBOR Loan after the day that is one month prior to the Termination
Date.
*a)Subject to the terms and conditions hereof, the Lender agrees
in its reasonable discretion to make revolving credit loans ("Open
Purchasing Revolver Advances") to the Borrower from time to time
during the period commencing with and including the Fourth Amendment
Effective Date and ending with the termination of this Agreement in an
aggregate principal amount at any one time outstanding not to exceed
the Open Purchasing Revolver Facility. During the term of this
Agreement the Borrower may use the Open Purchasing Revolver Facility
by borrowing, prepaying the Open Purchasing Revolver Advances in whole
or in part, and reborrowing, all in accordance with the terms and
conditions hereof. The Open Purchasing Revolver Advances may from
time to time be (i) LIBOR Loans, (ii) ABR Rate Loans, or (iii) a
combination thereof, as determined by the Borrower and notified to the
Lender in accordance with Sections 2.2, 3.1 and 3.14, PROVIDED that no
Open Purchasing Revolver Advances shall be made as a LIBOR Loan after
the day that is one month prior to the Termination Date"
B.AMENDMENTS TO SECTION 2.2. Section 2.2 of the Existing Agreement is
hereby deleted in its entirety and replaced with the following:
"2.2 PROCEDURE FOR BORROWING UNDER REVOLVING CREDIT FACILITIES.
*a)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 or prior to the requested Borrowing Date,
specifying (i) the amount to be borrowed, (ii) the requested Borrowing
Date, (iii) whether the borrowing is to be a LIBOR Loan, an ABR Rate
Loan or a combination thereof and (iv) if the borrowing is to be
entirely or partly a LIBOR Loan, the respective amounts of each such
LIBOR Loan and the respective lengths of the initial Interest Periods
therefor. 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.
*a)The Borrower may borrow under the Open Purchasing Revolver
Facility during the term of this Agreement on any Business Day in an
aggregate principal amount not exceeding the Available Open Purchasing
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 or prior to the
requested Borrowing Date, specifying (i) the amount to be borrowed,
(ii) the requested Borrowing Date, (iii) whether the borrowing is to
be a LIBOR Loan, an ABR Rate Loan or a combination thereof and (iv) if
the borrowing is to be entirely or partly a LIBOR Loan, the respective
amounts of each such LIBOR Loan and the respective lengths of the
initial Interest Periods therefor. 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."
B.AMENDMENTS TO SECTION 2.3. Section 2.3 of the Existing Credit
Agreement is hereby amended by inserting the following as subsection (e) at
the end of such Section:
"(e) The Term Loans may from time to time be (i) LIBOR
Loans, (ii) ABR Rate Loans or (iii) a combination thereof, as
determined by the Borrower and notified to the Lender in accordance
with Sections 2.4, 3. 1 and 3.14. "
A.AMENDMENTS TO SECTION 2.4. Section 2.4 of the Existing Credit
Agreement is hereby deleted in its entirety and replaced with the
following:
"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 each 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 and
specifying (i) whether the Term Loans are to be LIBOR Loans, ABR Rate
Loans or a combination thereof, and (ii) if the Term Loans are to be
entirely or partly LIBOR Loans, the respective amounts of each such
LIBOR Loan and the respective lengths of the initial Interest Periods
therefor' The amount of each such advance (including any Substitution
Advance) 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."
A.AMENDMENTS TO SECTION 3. 1. Sections 3. 1 (a), 3. 1 (b) and 3. 1 (c)
of the Existing Credit Agreement are hereby deleted in their entirety and
replaced with the following:
"(a) Loans shall bear interest at a rate per annum equal to
the Interest Rate then in effect from time to time in accordance with
provisions of this Section 3.1 and Sections 2.2, 2.4 and 3.14 hereof.
(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
then applicable Interest Rate pursuant to Section 3.1(a) above, 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 Interest 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)."
A.AMENDMENTS TO SECTION 3.2. Section 3.2 of the Existing Credit
Agreement is hereby deleted in its entirety and replaced with the
following:
"(a) The Borrower may on the last day of any Interest Period
with respect thereto, in the case of LIBOR Loans, or at any time and
from time to time, in the case of ABR Rate Loans, prepay either or
both of the Revolver Advances and the Open Purchasing 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 on the last day of any Interest Period
with respect thereto, in the case of LIBOR Loans, or at any time and
from time to time, in the case of ABR Rate Loans, prepay any or all of
the Term Loans, 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,
identify the Term Loan as to which such prepayment relates and whether
the prepayment is of LIBOR Loans, ABR Rate Loans or a combination
thereof, and, if of a combination thereof the amount allocable to
each. If any such notice is given, the amount specified in such
notice shall be due and payable on the date specified therein with
respect to the Term Loan specified therein and the amount of such
payments shall be applied against scheduled repayments of principal
thereof on a PRO RATA basis and shall reduce the related Term Loan
Facility on a dollar-for-dollar basis."
A.AMENDMENTS TO SECTION 3.4. Section 3.4 of the Existing Credit
Agreement is hereby deleted in its entirety and replaced with the
following:
"(a) All fees and interest shall be calculated on the basis
of a 360-day year for the actual days elapsed. The Lender shall as
soon as practicable notify the Borrower of each determination of a
LIBOR Rate. Any change in the interest rate on a Loan resulting from
a change in the ABR Rate or the LIBOR Reserve Requirements shall
become effective as of the opening of business on the day on which
such change becomes effective. The Lender shall as soon as
practicable notify the Borrower of the effective date and the amount
of each such change in interest rate.
(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)."
A.AMENDMENTS TO SECTION 3.5(B). Section 3.5(b) of the Existing Credit
Agreement is hereby amended by deleting in the eighth line thereof, after
the words "shall be" the words "three (3) Business Days" and replacing them
with the words "two (2) Business Days".
B.AMENDMENTS TO SECTION 3.5(G). Section 3.5(g) of the Existing Credit
Agreement is hereby deleted in its entirety and replaced with the
following:
"(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 Term Loan A of the Lender,
in form and substance acceptable to the Lender ("Term Note A"), (ii) a
promissory note of the Borrower evidencing Term Loan B of the Lender,
in form and substance acceptable to the Lender ("Term Note B"), (iii)
a promissory note of the Borrower evidencing Term Loan C of the
Lender, in form and substance acceptable to the Lender ("Term Note
C"), (iv) a promissory note of the Borrower evidencing Term Loan D of
the Lender, in form and substance acceptable to the Lender ("Term Note
D"), (v) a promissory note of the Borrower evidencing the Revolver
Advances of the Lender in form and substance acceptable to the Lender
(a "Revolver Note"), and/or a promissory note of the Borrower
evidencing the Open Purchasing Revolver Advances of the Lender in form
and substance acceptable to the Lender (an "Open Purchasing Revolver
Note")."
A.AMENDMENTS TO SECTION 3. Section 3 of the Existing Credit Agreement
is hereby amended by incorporating the following new sections:
"3.14 CONVERSION AND CONTINUATION OPTIONS. (a)The Borrower may
elect from time to time to Convert any or all the Loans from LIBOR
Loans to ABR Rate Loans, by giving the Lender at least two Business
Days' prior irrevocable notice of such election, PROVIDED that any
such Conversion of Loans from LIBOR Loans may only be made on the last
day of an Interest Period with respect thereto. The Borrower may
elect from time to time to Convert any or all of the Loans from ABR
Rate Loans to LIBOR Loans by giving the Lender at least three Business
Days' prior irrevocable notice of such election. Any such notice of
Conversion of the Loans to LIBOR Loans shall specify the length of the
initial Interest Period or Interest Periods therefor. All or any part
of outstanding Loans may be Converted as provided herein, PROVIDED
that (i) no Loan may be Converted into a LIBOR Loan when any Event of
Default has occurred and is continuing and the Lender has determined
that such a Conversion is not appropriate, (ii) any such Conversion
may only be made if, after giving effect thereto, Section 3.15 shall
not have been contravened, and (iii) no Loan may be converted into a
LIBOR Loan after the date that is one month prior to the Termination
Date (in the case of Conversions of Revolver Advances or Open
Purchasing Revolver Advances) or the date of the final installment of
principal (in the case of Conversions of Term Loans).
(b) Any LIBOR Loan may be Continued as such upon the
expiration of the then current Interest Period with respect thereto by
the Borrower giving notice to the Lender, in accordance with the
applicable provisions of the term 'Interest Period" set forth in
Section 1. 1, of the length of the next Interest Period to be
applicable to such Loan, PROVIDED that no LIBOR Loan may be Continued
as such (i) when any Event of Default has occurred and is continuing
and the Lender has determined that such a Continuation is not
appropriate, (ii) if, after giving effect thereto, Section 3.15 would
be contravened or (iii) after the date that is one month prior to the
Termination Date (in the case of Continuations of Revolver Advances or
Open Purchasing Revolver Advances) or the date of the final
installment of principal (in the case of Continuations of Term Loans)
and PROVIDED, FURTHER, that if the Borrower shall fail to give such
notice or if such Continuation is not permitted such Loans shall be
automatically converted to ABR Rate Loans on the last day of such then
expiring Interest Period.
3.15 MINIMUM AMOUNTS OF TRANCHES; MAXIMUM NUMBER OF TRANCHES IN
EACH FACILITY. All borrowings, conversions and continuations of LIBOR
Loans hereunder and all selections of Interest Periods hereunder shall
be in such amounts and be made pursuant to such elections so that,
after giving effect thereto, the aggregate principal amount of the
Advances comprising each Tranche shall be greater than or equal to
$500,000.00. At no time shall there be outstanding under any Facility
more than three Tranches.
3.16 INABILITY TO DETERMINE INTEREST RATE. If prior to the first
day of any Interest Period the Lender shall have determined (which
determination shall be conclusive and binding upon the Borrower) that,
by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the LIBOR Rates for
such Interest Period, the Lender shall give telecopy or telephonic
notice thereof to the Borrower as soon as practicable thereafter. If
such notice is given (x) any LIBOR Loans requested to be made on the
first day of such Interest Period shall be made as ABR Rate Loans, (y)
any Loans that were to have been Converted on the first day of such
Interest Period to LIBOR Loans shall be Converted to or Continued as
ABR Rate Loans and (z) any outstanding LIBOR Loans shall be Converted,
on the first day of such Interest Period, to ABR Rate Loans. Until
such notice has been withdrawn by the Lender, no further LIBOR Loans
shall be made or Continued as such, nor shall the Borrower have the
right to Convert Loans to LIBOR Loans.
3.17 ILLEGALITY. Notwithstanding any other provision herein, if
the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for the
Lender to make or maintain LIBOR Loans as contemplated by this
Agreement, (a) the commitment of the Lender hereunder to make LIBOR
Loans, Continue LIBOR Loans as such and Convert Loans to LIBOR Loans
shall forthwith be canceled and (b) the Lender's Loans then
outstanding as LIBOR Loans, if any, shall be Converted automatically
to ABR Rate Loans on the respective last days of the then current
Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such Conversion of a LIBOR Loan
occurs on a day which is not the last day of the then current Interest
Period with respect thereto, the Borrower shall pay to the Lender such
amounts, if any, as may be required pursuant to Section 3.18.
3.18 INDEMNITY. The Borrower agrees to indemnify the Lender and
to hold the Lender harmless from any loss or expense which the Lender
may sustain or incur as a consequence of (a) default by the Borrower
in making a borrowing of, Conversion into or Continuation of LIBOR
Loans after the Borrower has given a notice requesting the same in
accordance with the provisions of this Agreement or (b) the making of
a prepayment of LIBOR Loans on a day which is not the last day of an
Interest Period with respect thereto. Such indemnification may
include an amount equal to the excess, if any, of (i) the amount of
interest which would have accrued on the amount so prepaid, or not so
borrowed, Converted or Continued, for the period from the date of such
prepayment or of such failure to borrow, Convert or Continue to the
last day of such Interest Period (or, in the case of a failure to
borrow, Convert or Continue, the Interest Period that would have
commenced on the date of such failure) in each case at the applicable
rate of interest for such Loans provided for herein over (ii) the
amount of interest (as reasonably determined by the Lender) which
would have accrued to the Lender on such amount by placing such amount
on deposit for a comparable period with leading banks in the interbank
eurodollar market. This covenant shall survive the termination of
this Agreement and the payment of the Loans and all other amounts
payable hereunder.
A.AMENDMENTS TO SECTION 6.1(C). Section 6.1(c) of the Existing Credit
Agreement is hereby deleted in its entirety and replaced with the
following:
"(c) as soon as available, but in any event not later than
the close of business on the last Business Day of each calendar month,
the unaudited balance sheet of Borrower as at the end of the
immediately preceding month and the related unaudited statements of
income and retained earnings and of cash flows of the Borrower for
such immediately preceding month and the portion of the fiscal year
through the end of such immediately preceding 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); PROVIDED, however, that the Borrower shall deliver
all financial statements required by this Section 6. 1 (c) with
respect to the last calendar month of the Borrower's fiscal year not
later than 60 days after such last month;"
A.AMENDMENTS TO SCHEDULE I. Schedule I to the Existing Credit
Agreement is hereby amended in its entirety to read as is set forth on
Schedule I hereto.
B.AMENDMENTS TO SCHEDULE 1.1. Schedule 1.1 to the Existing Credit
Agreement is hereby amended in its entirety to read as is set forth on
Schedule 1.1 hereto.
****ARTII.
CONDITIONS TO EFFECTIVENESS
This Amendment, and the modifications to the Credit Agreement
provided for herein, shall become effective on the date (the "Fourth
Amendment Effective Date") on which
all of the following conditions have been (or are concurrently being)
satisfied:
A.This Amendment shall have been executed and delivered by each party
hereto.
B.The Lender shall have received executed legal opinions of King &
Spalding, special counsel to the Borrower, in form and substance
satisfactory to the Lender and taking into account this Amendment and the
matters contemplated hereby. Such legal opinion shall cover such matters
incident to the transactions contemplated by this Amendment as the Lender
may reasonably require.
C.The Lender shall have received a copy, in form and substance
reasonably satisfactory to the Lender, of the corporate resolutions of the
Borrower, authorizing the Open Purchasing Revolving Facility and the
execution, delivery and performance of this Amendment, certified by the
Secretary or an Assistant Secretary of the Borrower as of the Fourth
Amendment Effective Date, which certificates shall state that the
resolutions or authorizations thereby certified have not been amended,
modified, revoked or rescinded as of the date of such certificate.
D.The Lender shall have received a certificate of the Secretary or an
Assistant Secretary of the Borrower, dated the Fourth Amendment Effective
Date, as to the incumbency and signature of the officer(s) of the Borrower
executing this Amendment and any certificate or other document to be
delivered by it pursuant hereto, together with evidence of the incumbency
of such Secretary or Assistant Secretary.
E.The Lender shall have received certificates from the Borrower,
stating that its Governing Documents have not been amended since September
30, 1996.
F.The Lender shall have received copies of certificates dated as of a
recent date from the Secretary of State or other appropriate authority of
such jurisdiction, evidencing the good standing of the Borrower in the
State of its organization and in each State where the ownership, lease or
operation of property or the conduct of business requires it to qualify as
a foreign corporation or other entity except where the failure to so
qualify would not have a Material Adverse Effect.
G.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 the Fourth Amendment Effective Date as if
made on and as of such date (except to the extent the same relate to
another, earlier date, in which case they shall be true and correct in all
material respects as of such earlier date).
H.No Default or Event of Default shall have occurred and be
continuing.
I.All corporate and other proceedings, and all documents, instruments
and other legal matters in connection with the transactions contemplated by
this Amendment, the Existing Credit Agreement, the Credit Agreement and the
other Credit Documents shall be reasonably satisfactory in form and
substance to the Lender, and the Lender shall have received such other
documents in respect of any aspect or consequence of the transactions
contemplated hereby or thereby as it shall reasonably request.
J.The Lender shall have received each additional document, instrument,
legal opinion or item of information reasonably requested by the Lender,
including, without limitation, a copy of any debt instrument, security
agreement or other material contract to which the Borrower is to be a
party.
****ARTIII.
MISCELLANEOUS
A.PAYMENT OF EXPENSES. (a) Without limiting its obligations under
Section 9.5 of the Existing Agreement, the Borrower agrees to pay or
reimburse the Lender for all of its reasonable costs and expenses incurred
in connection with this Amendment and the other Fourth Amendment Documents,
including, without limitation, the reasonable costs and expenses of
Cadwalader, Wickersham & Taft, counsel to the Lender, and expressly
acknowledge that their obligations hereunder constitute "Obligations"
within the meaning of the Existing Credit Agreement.
B.NO OTHER AMENDMENTS, CONFIRMATION. Except as expressly amended,
modified and supplemented hereby and by the documents related hereto, the
provisions of the Existing Credit Agreement and the other Credit Documents
shall remain in full force and effect.
C.AFFIRMATION BY BORROWER. The Borrower hereby consents to the
execution and delivery of this Amendment and each of the other Fourth
Amendment Documents to which Borrower is a party and reaffirms its
obligations under the Credit Documents.
D.GOVERNING LAW; COUNTERPARTS. (a) This Amendment and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties
hereto on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
A set of the counterparts of this Amendment signed by all the parties shall
be lodged with the Borrower and the Lender. This Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
[SIGNATURE PAGE FOLLOWS
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
INTERNATIONAL AIRLINE SUPPORT
GROUP INC.
By:
Name:
Title:
BNY FINANCIAL CORPORATION
By:
Name:
Title:
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
INTERNATIONAL AIRLINE SUPPORT
GROUP, INC.
By:
Name:
Title:
BNY FINANCIAL CORPORATION
By:
Name:
Title:
3
<PAGE>
SCHEDULE I
APPROVED AIRCRAFT, APPROVED AIRCRAFT LEASES.
PERMITTED JURISDICTIONS AND PERMITTED LESSEES
TERM LOAN A AIRCRAFT:
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
TERM LOAN A ENGINES
Description Manufacturer Serial No.
1. Pratt & Whitney JT8D-7 654823
2. Pratt & Whitney JT8D-7 649055
3. Pratt & Whitney JT8D-7 653893
4. Pratt & Whitney JT8D-9 653845
4
<PAGE>
TERM LOAN B AIRCRAFT
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL, NO.
1. Boeing B-727-044F N94GS 18892
2. Boeing B-727-031F N21ONE 18903
3. Boeing B-727-031F N22ONE 18905
TERM LOAN B ENGINES
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney JT8D-7 654550
2. Pratt & Whitney JT8D-7 655463
3. Pratt & Whitney JT8D-7 649033
4. Pratt & Whitney JT8D-7 654150
5. Pratt & Whitney JT8D-7 654055
6. Pratt & Whitney JT8D-7 655321
7. Pratt & Whitney JT8D-7 648897
8. Pratt & Whitney JT8D-7 649406
9. Pratt & Whitney JT8D-7 649368
TERM LOAN C AIRCRAFT
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. McDonnell Douglas DC-9-51 N919PJ 47663
TERM LOAN C ENGINES
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney JT8D-17 P688741
2. Pratt & Whitney JT8D-17 P688116B
TERM LOAN D AIRCRAFT
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. McDonnell Douglas DC-9-51 N920PJ 47667
TERM LOAN D ENGINES
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney JT8D-17 P688724
2. Pratt & Whitney JT8D-17 P688721
APPROVED AIRCRAFT LEASES:
1. Property subject to lease: (1) Boeing 727-044F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: February 17, 1994 through March 19,1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
2. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 2, 1993 through January 22, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus 'D" check reserves of $75 per flight hour.
3. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 2, 1993 through February 1, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
5. Property subject to lease: (1) McDonnell Douglas DC-9-51 Aircraft, two
(2) Pratt & Whitney JT8D-17 engines and other related equipment.
Lessee: Sun Jet International, Inc.
Term: From not later than October 1, 1997 through the earlier of (i)
October 1, 1999 and (ii) the date on which the next scheduled "D"
check is due in accordance with Section 3(b) of the Lease.
Amount: $60,000 per month plus "D" check reserves of $75 per flight hour,
$55 per Engine flight hour per Engine and $25 per Airframe flight
hour for APU overhaul.
6. Property subject to lease: (1) McDonnell Douglas DC-9-51 Aircraft, two
(2) Pratt & Whitney JT8D-17 engines and other related equipment.
Lessee: Sun Jet International, Inc.
Term: From not later than October 1, 1997 through the earlier of (i)
October 1, 1999 and (ii) the date on which the next scheduled "D"
check is due in accordance with Section 3(b) of the Lease.
Amount: $60,000 per month plus "D" check reserves of $75 per flight hour,
$55 per Engine flight hour per Engine and $25 per Airframe flight
hour for APU overhaul.
5
<PAGE>
SCHEDULE I (CONTINUED)
PERMITTED JURISDICTIONS:
WITH RESPECT TO APPROVED AIRCRAFT OTHER THAN TERM LOAN C AIRCRAFT AND TERM
LOAN D AIRCRAFT:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
United States of Mexico
WITH RESPECT TO TERM LOAN C AIRCRAFT AND TERM LOAN D AIRCRAFT:
Canada
Mexico
United States of America (including the continental U.S. and
Alaska, Hawaii
and the U.S. Virgin Islands)
the Bahamas
Bermuda
Honduras
Guatemala
Belize
Costa Rica
Panama
Jamaica
Cayman Islands
Dominican Republic
Puerto Rico
British Virgin Islands
Turks and Caios Islands
Anguilla
Saint Vincent and Grenadines
Montserrat
Antigua and Barbuda
Guadeloupe
Dominica
Martinique
Barbados
Grenada
Aruba
Saint Lucia
Netherlands Antilles
Trinidad and Tobago
6
<PAGE>
WITH RESPECT TO ELIGIBLE ACCOUNTS:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
WITH RESPECT TO ELIGIBLE LEASE PAYMENT RECEIVABLES:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
United States of Mexico
PERMITTED LESSEES:
1. Property subject to lease: (1) Boeing 727-044F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: February 17, 1994 through March 19, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
2. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 2, 1993 through January 22, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the 64 "Aging Aircraft" service bulletins
in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
3. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 2, 1993 through February 1, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with
the "Aging Aircraft" service bulletins in accordance with Section 6(d)
of the
Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
5. Property subject to lease: (5) Pratt & Whitney JT8D-7 engines and
other related equipment.
Lessee: Express One International, Inc.
Term: March 3, 1997 through in accordance with Section 2.2 of the Lease.
Amount: $8,000 per engine per month plus $65 per operating cycle or hour
per engine (whichever is greater).
6. Property subject to lease: (1) McDonnell Douglas DC-9-51 Aircraft, two
(2) Pratt & Whitney JT8D-17 engines and other related equipment.
Lessee: Sun Jet International, Inc.
Term: From not later than October 1, 1997 through the earlier of (i)
October 1, 1999 and (ii) the date on which the next scheduled "D"
check is due in accordance with Section 3(b) of the Lease.
Amount: $60,000 per month plus "D" check reserves of $75 per flight hour,
$55 per Engine flight hour per Engine and $25 per Airframe flight
hour for APU overhaul.
7. Property subject to lease: (1) McDonnell Douglas DC-9-51 Aircraft, two
(2) Pratt & Whitney JT8D-17 engines and other related equipment.
Lessee: Sun Jet International, Inc.
Term: From not later than October 1, 1997 through the earlier of (i)
October 1, 1999 and (ii) the date on which the next scheduled "D"
check is due in accordance with Section 3(b) of the Lease.
Amount: $60,000 per month plus 'D" check reserves of $75 per flight hour,
$55 per Engine flight hour per Engine and $25 per Airframe flight
hour for APU overhaul.
7
<PAGE>
SCHEDULE 1.1
AIRCRAFT, AIRCRAFT ENGINES AND AIRCRAFT LEASES
AIRCRAFT AND AIRCRAFT ENGINES:
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. AIRCRAFT ENGINES:
Pratt & Whitney JT8D engine 653893
Pratt & Whitney JT8D engine 649055
2. AIRCRAFT ENGINES:
Pratt & Whitney JT8D engine 654823
3. AIRCRAFT:
Boeing 727-044F N94GS 18892
AIRCRAFT ENGINES:
Pratt & Whitney JT8D-7 engine 654550
Pratt & Whitney JT8D-7 engine 655463
Pratt & Whitney JT8D-7 engine 649033
4. AIRCRAFT:
Boeing 727-031F N210NE 18903
AIRCRAFT ENGINES:
Pratt & Whitney JT8D-7 engine 654150
Pratt & Whitney JT8D-7 engine 654055
Pratt & Whitney JT8D-7 engine 655321
5. AIRCRAFT:
Boeing 727-031 F N220NE 18905
AIRCRAFT ENGINES:
Pratt & Whitney JT8D-7 engine 648897
Pratt & Whitney JT8D-7 engine 649406
Pratt & Whitney JT8D-7 engine 649368
6. AIRCRAFT ENGINES:
Pratt & Whitney JT8D-9 engine 666227
7. AIRCRAFT
McDonnell Douglas DC-9-51 N919PJ 47663
8. AIRCRAFT ENGINES:
Pratt & Whitney JT8D-17 P688741
Pratt & Whitney JT8D-17 P688116B
9. AIRCRAFT
McDonnell Douglas DC-9-51 N920PJ 47667
10. AIRCRAFT ENGINES:
Pratt & Whitney JT8D-17 P688724
Pratt & Whitney JT8D-17 P688721
11. AIRCRAFT ENGINES:
Pratt & Whitney JT8D-9 653845
8
<PAGE>
SCHEDULE 1.1 (CONTINUED)
AIRCRAFT LEASES:
1. Property subject to lease: (1) Boeing 727-044F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: February 17, 1994 through March 19, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft' service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
2. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 2, 1993 through January 22, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 flight hour.
Sublessee: Ryan International Airlines
7. Property subject to lease: (1) McDonnell Douglas DC-9-51 Aircraft, two
(2) Pratt Whitney JT8D-17 engines and other related equipment.
Lessee: Sun Jet International, Inc.
Term: From not later than October 1, 1997 through the earlier of (i)
October 1, 1999 and (ii) the date on which the next scheduled "D"
check is due in accordance with Section 3(b) of the Lease.
Amount: $60,000 per month plus "D" check reserves of $75 per flight hour,
$55 per Engine flight hour per Engine and $25 per Airframe flight
hour for APU overhaul.
3. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
Lessee: Emery Worldwide Airlines, Inc.
Term: September 2, 1993 through February 1, 1999, plus one day for each day
that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins in
accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight hour.
Sublessee: Ryan International Airlines
5. Property subject to lease: (5) Pratt & Whitney JT8D-7 engines and
other related equipment.
Lessee: Express One International, Inc.
Term: March 3, 1997 through in accordance with Section 2.2 of, the Lease.
Amount: $8,000 per engine per month plus $65 per operating cycle or hour
per engine (whichever is greater).
6. Property subject to lease: (1) McDonnell Douglas DC-9-51 Aircraft, two
(2) Pratt & Whitney JT8D-17 engines and other related equipment.
Lessee: Sun Jet International, Inc.
Term: From not later than October 1, 1997 through the earlier of (i)
October 1, 1999 and (ii) the date on which the next scheduled "D"
check is due in accordance with Section 3(b) of the Lease.
Amount: $60,000 per month plus "D" check reserves of $75 per flight hour,
$55 per Engine flight hour per Engine and $25 per Airframe flight
hour for APU overhaul.
7. Property subject to lease: (1) McDonnell Douglas DC-9-51 Aircraft, two
(2) Pratt & Whitney JT8D-17 engines and other related equipment.
Lessee: Sun Jet International, Inc.
Term: From not later than October 1, 1997 through the earlier of (i)
October 1, 1999 and (ii) the date on which the next scheduled "D"
check is due in accordance with Section 3(b) of the Lease.
Amount: $60,000 per month plus "D" check reserves of $75 per flight hour,
$55 per Engine flight hour per Engine and $25 per Airframe flight
hour for APU overhaul.
9
SCHEDULE I (CONTINUED)
EXECUTION COPY
FIFTH AMENDMENT AND AGREEMENT
FIFTH AMENDMENT AND AGREEMENT, dated as of July 16, 1998 (this "FIFTH
AMENDMENT"), to the Existing Credit Agreement (as hereinafter defined), by
and among INTERNATIONAL AIRLINE SUPPORT GROUP, INC., a Delaware corporation
(the "BORROWER"), and BNY FINANCIAL CORPORATION, a New York corporation
(the "LENDER").
****ARTII. RECITALS
The Borrower and the Lender have entered into the Existing Credit
Agreement, pursuant to which the Lender is providing to the Borrower (i) a
$13,000,000.00 revolving credit facility (the "REVOLVER FACILITY"),
(ii) $3,000,000.00 term loan facility (the "TERM LOAN A FACILITY"), (iii) a
$3,750,000.00 term loan facility (the "TERM LOAN B FACILITY"), (iv) a
$1,500,000.00 term loan facility (the "TERM LOAN C FACILITY"), (v) a
$1,600,000.00 term loan facility (the "TERM LOAN D FACILITY"), and (vi) a
$1,000,000.00 revolving credit facility (the "OPEN PURCHASING REVOLVER
FACILITY") which are secured by accounts receivable, inventory and other
collateral of the Borrower. In connection with the purchase by the
Borrower of three (3) Pratt & Whitney JT8D-15 aircraft engines bearing
manufacturer's serial numbers P688643, P666704 and P702898 (each such
engine an "ENGINE" and collectively, the "ENGINES"), the Borrower has
requested that the Lender (i) accept the Engine bearing manufacturer's
serial number P702898 as a Substitute Term Loan A Engine (as defined in the
Existing Credit Agreement) and make related advances to the Borrower in
accordance with Section 2.03(a) of the Existing Credit Agreement,
(ii) accept the Engine bearing manufacturer's serial number P688643 as a
Substitute Term Loan C (as defined in the Existing Credit Agreement) and
make related advances to the Borrower in accordance with Section 2.3(c) of
the Existing Credit Agreement; (iii) accept the Engine bearing
manufacturer's serial number P666704 as a Substitute Term Loan D (as
defined in the Existing Credit Agreement) and make related advances to the
Borrower in accordance with Section 2.3(d) of the Existing Credit
Agreement; and (iv) agree to the amendment of such provisions. Subject to
the terms and conditions hereof, the Lender is willing to accept the
Engines, make such advances and amend certain provisions of the Existing
Credit Agreement.
In consideration of the foregoing and of the mutual covenants and
undertakings herein contained, the parties hereto hereby agree that the
Existing Credit Agreement is amended as hereinafter provided.
****ARTII.
Definitions
A.DEFINITIONS. In addition to the definitions set forth in the
heading and the recitals to this Fifth Amendment, the following definitions
shall apply to this Fifth Amendment:
"AGREEMENT": means the Existing Credit Agreement as amended by this
Fifth Amendment.
"ENGINE CHATTEL MORTGAGE": means that certain Engine Chattel
Mortgage, dated as of July 16, 1998, between the Borrower and the Lender,
together with the Engine Chattel Mortgage Supplement, dated July 16, 1998,
between the Borrower and the Lender.
"EXISTING CREDIT AGREEMENT": means the Credit Agreement, dated as of
September 30, 1996, between the Borrower and the Lender, as amended by the
First Amendment, Waiver and Agreement, dated as of March 24, 1997, between
the Borrower and the Lender, the Second Amendment and Agreement, dated as
of September 9, 1997, between the Borrower and the Lender, the Third
Amendment and Agreement, dated as of October 15, 1997, between the Borrower
and the Lender, the Fourth Amendment and Agreement, dated as of February 4,
1998, between the Borrower and the Lender, as the same may have been
further amended, supplemented or modified from time to time up to but not
including the effectiveness of this Fifth Amendment.
"FIFTH AMENDMENT DOCUMENTS": means the Fifth Amendment, the Engine
Chattel Mortgage, and any other agreements, instruments and documents
executed or delivered pursuant to or in connection with the Fifth Amendment
and the transactions contemplated thereby.
*1.Unless otherwise indicated, capitalized terms that are used but not
defined herein shall have the meanings ascribed to them in the Existing
Credit Agreement.
****ARTII.
Representations and Agreements
A.REPRESENTATIONS. The Borrower hereby represents and warrants as
follows:
*1.It (i) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (ii) 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, (iii) 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
(iv) 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.
*2.It has the power and authority, and the legal right, to make,
deliver and perform this Fifth Amendment and to borrow under the Agreement
and has taken all necessary action to authorize the borrowings on the terms
and conditions of the Agreement and this Fifth Amendment and to authorize
the execution, delivery and performance of this Fifth Amendment. 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 under the Agreement or with the execution,
delivery, performance, validity or enforceability of this Fifth Amendment.
This Fifth Amendment has been or will be duly executed and delivered on
behalf of the Borrower. This Fifth Amendment 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.
*3.The conditions contained in Article IV hereof have been satisfied.
*4.Each of the representations and warranties made by the Borrower in
or pursuant to the Credit Documents is true and correct in all material
respects on and as of the Fifth Amendment Effective Date (as defined below)
as if made on and as of such date (except to the extent the same relate to
another, earlier date, in which case they are true and correct in all
material respects as of such earlier date).
*5.No Default or Event of Default has occurred and is continuing.
*6.Each of the Credit Documents is on the date hereof in full force
and effect.
B.AGREEMENTS. The Borrower and the Lender hereby agree that on the
Fifth Amendment Effective Date:
*1.The Lender shall accept the Engine bearing manufacturer's serial
number P702898 as a Substitute Term Loan A Engine and make an additional
advance to the Borrower under Term Loan A in an amount equal to
$790,400.00. After giving effect thereto, the outstanding principal amount
of Term Loan A shall be $1,998,551.00.
*2.The Lender shall accept the Engine bearing manufacturer's serial
number P688643 as a Substitute Term Loan C Engine and make an additional
advance to the Borrower under Term Loan C in an amount equal to
$896,000.00. After giving effect thereto, the outstanding principal amount
of Term Loan C shall be $896,000.00.
*3.The Lender shall accept the Engine bearing manufacturer's serial
number P666704 as a Substitute Term Loan D Engine and make an additional
advance to the Borrower under Term Loan D in an amount equal to
$889,600.00. After giving effect thereto, the outstanding principal amount
of Term Loan A shall be $889,600.00.
****ARTII.
Amendments to Existing Credit Agreement
A.AMENDMENTS TO SECTION 1. Section 1.1 of the Existing Credit
Agreement is hereby amended by inserting the following new definitions
therein in alphabetical order:
"FIFTH AMENDMENT": that certain Fifth Amendment and
Agreement, dated as of July 16, 1998, between the Borrower and
the Lender.
*1.The definition of the term "Credit Documents" in Section 1.1 of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by
the following:
"CREDIT DOCUMENTS": this Agreement, the First Amendment,
the Second Amendment, the Third Amendment, the Fourth Amendment,
the Fifth Amendment, the Security Documents, each Consent and
Agreement, Term Note A, Term Note B, Term Note C, Term Note D,
any Revolver Note and any other documents, agreements or
instruments executed and delivered to the Lender pursuant to
Section 6.11."
A.AMENDMENTS TO SCHEDULE 2.3A. Schedule 2.3A to the Existing Credit
Agreement is hereby amended in its entirety to read as set forth on
Schedule 2.3A hereto.
B.AMENDMENTS TO SCHEDULE 2.3C. Schedule 2.3C to the Existing Credit
Agreement is hereby amended in its entirety to read as set forth on
Schedule 2.3C hereto.
C.AMENDMENTS TO SCHEDULE 2.3D. Schedule 2.3D is hereby amended in its
entirety to read as set forth on Schedule 2.3D hereto.
D.AMENDMENTS TO SCHEDULE I. Schedule I to the Existing Credit
Agreement is hereby amended in its entirety to read as set forth on
Schedule I hereto.
E.AMENDMENTS TO SCHEDULE 1.1. Schedule 1.1 to the Existing Credit
Agreement is hereby amended in its entirety to read as set forth on
Schedule 1.1 hereto.
****ARTII.
Conditions to Effectiveness
This Fifth Amendment, and the modifications to the Credit Agreement
provided for herein, shall become effective on the date (the "FIFTH
AMENDMENT EFFECTIVE DATE") on which all of the following conditions have
been (or are concurrently being) satisfied:
A.Each of this Fifth Amendment and the Engine Chattel Mortgage shall
have been executed and delivered by each party hereto.
B.The Borrower is the legal and beneficial owner of good and
marketable title to the Engines free and clear of all Liens and
encumbrances.
C.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 the duly executed
Engine Chattel Mortgage with the FAA and financing statements on
Form UCC-1, necessary or in the opinion of the Lender, desirable to perfect
the Liens created by the Security Documents with respect to the Engines
shall have been completed.
D.The Lender shall have received each additional document, instrument,
legal opinion or item of information reasonably requested by the Lender,
including, without limitation, a copy of any debt instrument, security
agreement or other material contract to which the Borrower is to be a
party.
****ARTII.
Miscellaneous
A.PAYMENT OF EXPENSES. Without limiting its obligations under
Section 9.5 of the Existing Agreement, the Borrower agrees to pay or
reimburse the Lender for all of its reasonable costs and expenses incurred
in connection with this Fifth Amendment and the other Fourth Amendment
Documents, including, without limitation, the reasonable costs and expenses
of Cadwalader, Wickersham & Taft, counsel to the Lender, and expressly
acknowledge that their obligations hereunder constitute "Obligations"
within the meaning of the Existing Credit Agreement.
B.NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly amended,
modified and supplemented hereby and by the documents related hereto, the
provisions of the Existing Credit Agreement and the other Credit Documents
shall remain in full force and effect.
C.AFFIRMATION BY BORROWER. The Borrower hereby consents to the
execution and delivery of this Fifth Amendment, the Engine Chattel
Mortgage, and each of the other Fifth Amendment documents reaffirms its
obligations under the Credit Documents.
D.GOVERNING LAW, COUNTERPARTS. This Fifth Amendment and the rights
and obligations of the parties hereto shall be governed by, and construed
and interpreted in accordance with, the laws of the State of New York.
*1.This Fifth Amendment may be executed by one or more of the parties
hereto on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
A set of the counterparts of this Fifth Amendment signed by all the parties
shall be lodged with the Borrower and the Lender. This Fifth Amendment may
be delivered by facsimile transmission of the relevant signature pages
hereof.
[SIGNATURE PAGE FOLLOWS]
- 1 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
Amendment to be duly executed and delivered as of the day and year first
above written.
INTERNATIONAL AIRLINE SUPPORT GROUP,
INC.
By:
Name:
Title:
BNY FINANCIAL CORPORATION
By:
Name:
Title:
- 1 -
<PAGE>
SCHEDULE 2.3A
TERM LOAN A PRINCIPAL REPAYMENT SCHEDULE
<TABLE>
<CAPTION>
PRINCIPAL PAYMENT DATE PRINCIPAL AMOUNT DUE
<S> <C>
August 31, 1998 $
35,000.00
September 30, 1998 $
35,000.00
October 31, 1998 $
35,000.00
November 30, 1998 $
35,000.00
December 31, 1998 $
35,000.00
January 31, 1999 $
35,000.00
February 28, 1999 $
35,000.00
March 31, 1999 $
35,000.00
April 30, 1999 $
35,000.00
May 31, 1999 $
35,000.00
June 30, 1999 $
35,000.00
July 31, 1999 $
35,000.00
August 31, 1999 $
50,000.00
September 30, 1999 $
50,000.00
October 31, 1999 $
50,000.00
November 30, 1999 $
50,000.00
December 31, 1999 $
50,000.00
January 31, 2000 $
50,000.00
February 29, 2000 $
50,000.00
March 31, 2000 $
50,000.00
April 30, 2000 $
50,000.00
May 31, 2000 $
50,000.00
June 30, 2000 $
50,000.00
July 31, 2000 $
50,000.00
</TABLE>
<TABLE>
<CAPTION>
August 31, 2000 $ 60,000.00
<S> <C>
September 30, 2000 $ 60,000.00
October 31, 2000 $ 60,000.00
November 30, 2000 $ 60,000.00
December 31, 2000 $ 60,000.00
January 31, 2001 $ 60,000.00
February 28, 2001 $ 60,000.00
March 31, 2001 $ 60,000.00
April 30, 2001 $ 60,000.00
May 31, 2001 $ 60,000.00
June 30, 2001 $ 60,000.00
July 31, 2001 $ 60,000.00
August 31, 2001 $ 60,000.00
September 30, 2001 $169,230.00
</TABLE>
- 1 -
<PAGE>
SCHEDULE 2.3A (CONTINUED)
TERM LOAN A PRINCIPAL REPAYMENT SCHEDULE
SCHEDULE 2.3C
TERM LOAN C PRINCIPAL REPAYMENT SCHEDULE
<TABLE>
<CAPTION>
PRINCIPAL PAYMENT DATE PRINCIPAL AMOUNT DUE
<S> <C>
August 31, 1998 $
50,000.00
September 30, 1998 $
50,000.00
October 31, 1998 $
50,000.00
November 30, 1998 $
50,000.00
December 31, 1998 $
50,000.00
January 31, 1999 $
50,000.00
February 28, 1999 $
50,000.00
March 31, 1999 $
50,000.00
April 30, 1999 $
50,000.00
May 1, 1999 $
50,000.00
June 30, 1999 $
0.00
July 31, 1999 $
0.00
August 31, 1999 $
0.00
September 30, 1999 $
0.00
October 31, 1999 $
0.00
November 30, 1999 $389,600.00
</TABLE>
- 1 -
<PAGE>
SCHEDULE 2.3A (CONTINUED)
TERM LOAN A PRINCIPAL REPAYMENT SCHEDULE
SCHEDULE 2.3D
TERM LOAN D PRINCIPAL REPAYMENT SCHEDULE
<TABLE>
<CAPTION>
PRINCIPAL PAYMENT DATE PRINCIPAL AMOUNT DUE
<S> <C>
August 31, 1998 $
50,000.00
September 30, 1998 $
50,000.00
October 31, 1998 $
50,000.00
November 30, 1998 $
50,000.00
December 31, 1998 $
50,000.00
January 31, 1999 $
50,000.00
February 28, 1999 $
50,000.00
March 31, 1999 $
50,000.00
April 30, 1999 $
50,000.00
May 1, 1999 $
50,000.00
June 30, 1999 $
50,000.00
July 31, 1999 $
0.00
August 31, 1999 $
0.00
September 30, 1999 $
0.00
October 31, 1999 $
0.00
November 30, 1999 $
0.00
December 31, 1999 $346,000.00
</TABLE>
- 1 -
<PAGE>
SCHEDULE 2.3A (CONTINUED)
TERM LOAN A PRINCIPAL REPAYMENT SCHEDULE
SCHEDULE I
APPROVED AIRCRAFT, APPROVED AIRCRAFT LEASES,
PERMITTED JURISDICTIONS AND PERMITTED LESSEES
<TABLE>
<CAPTION>
TERM LOAN A AIRCRAFT:
<S> <C> <C>
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
</TABLE>
<TABLE>
<CAPTION>
TERM LOAN A ENGINES:
<S> <C> <C>
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney 654823
JT8D-7
2. Pratt & Whitney 653845
JT8D-9
3. Pratt & Whitney P702898
JT8D-15
</TABLE>
<TABLE>
<CAPTION>
TERM LOAN B AIRCRAFT:
<S> <C> <C>
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. Boeing B-727- N94GS 18892
044F
2. Boeing B-727- N210NE 18903
031F
3. Boeing B-727- N220NE 18905
031F
</TABLE>
<TABLE>
<CAPTION>
TERM LOAN B ENGINES:
<S> <C> <C>
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney 654550
JT8D-7
2. Pratt & Whitney 655463
JT8D-7
3. Pratt & Whitney 649033
JT8D-7
4. Pratt & Whitney 654150
JT8D-7
5. Pratt & Whitney 654055
JT8D-7
6. Pratt & Whitney 655321
JT8D-7
7. Pratt & Whitney 648897
JT8D-7
8. Pratt & Whitney 649406
JT8D-7
9. Pratt & Whitney 649368
JT8D-7
</TABLE>
- 2 -
<PAGE>
SCHEDULE I (CONTINUED)
<TABLE>
<CAPTION>
TERM LOAN C AIRCRAFT:
<S> <C> <C>
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
</TABLE>
<TABLE>
<CAPTION>
TERM LOAN C ENGINES:
<S> <C> <C>
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney P688643
JT8D-15
</TABLE>
<TABLE>
<CAPTION>
TERM LOAN D AIRCRAFT:
<S> <C> <C>
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
</TABLE>
<TABLE>
<CAPTION>
TERM LOAN D ENGINES:
<S> <C> <C>
DESCRIPTION MANUFACTURER SERIAL NO.
1. Pratt & Whitney P666704
JT8D-15
</TABLE>
APPROVED AIRCRAFT LEASES:
PERMITTED JURISDICTIONS:
WITH RESPECT TO APPROVED AIRCRAFT OTHER THAN TERM LOAN C AIRCRAFT AND
TERM LOAN D AIRCRAFT:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
United States of Mexico
WITH RESPECT TO TERM LOAN C AIRCRAFT AND TERM LOAN D AIRCRAFT:
Canada
Mexico
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
The Bahamas
Bermuda
Honduras
Guatemala
Belize
Costa Rica
Panama
Jamaica
Cayman Islands
Dominican Republic
Puerto Rico
British Virgin Islands
Turks and Caios Islands
Anguilla
Saint Vincent and Grenadines
Montserrat
Antigua and Barbuda
Guadeloupe
Dominca
Martinique
Barbados
Grenada
Aruba
Saint Lucia
Netherlands Antilles
Trinidad and Tobago
WITH RESPECT TO ELIGIBLE ACCOUNTS:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
WITH RESPECT TO ELIGIBLE LEASE PAYMENT RECEIVABLES:
Canada
United States of America (including the continental U.S. and
Alaska, Hawaii and the U.S. Virgin Islands)
Unites States of Mexico
- 3 -
<PAGE>
SCHEDULE I (CONTINUED)
PERMITTED LESSEES:
1. Property subject to lease: (1) Boeing 727-044F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
<TABLE>
<CAPTION>
Lessee: Emery Worldwide Airlines, Inc.
<S> <C>
Term: February 17, 1994 through March 19, 1999, plus one day for each
day that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins
in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight
hour.
Sublessee: Ryan International Airlines
</TABLE>
1. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
<TABLE>
<CAPTION>
Lessee: Emery Worldwide Airlines, Inc.
<S> <C>
Term: September 2, 1993 through January 22, 1999, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight
hour.
Sublessee: Ryan International Airlines
</TABLE>
1. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
<TABLE>
<CAPTION>
Lessee: Emery Worldwide Airlines, Inc.
<S> <C>
Term: September 2, 1993 through February 1, 1999, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight
hour.
Sublessee: Ryan International Airlines
</TABLE>
1. Property subject to lease: (2) Pratt & Whitney JT8D-7B engines and
other related equipment.
<TABLE>
<CAPTION>
Lessee: Express One International, Inc..
<S> <C>
Term: April 25, 1998 through _____________ in accordance with Section 2.2
of the Lease.
Amount: $10,000 per engine per month plus $70 per operating cycle or hour
per engine (whichever is greater).
</TABLE>
- 1 -
<PAGE>
SCHEDULE I (CONTINUED)
SCHEDULE 1.1
AIRCRAFT, AIRCRAFT ENGINES AND AIRCRAFT LEASES
<TABLE>
<CAPTION>
AIRCRAFT AND AIRCRAFT ENGINES:
<S> <C> <C>
DESCRIPTION REGISTRATION NO. MANUFACTURER SERIAL NO.
1. AIRCRAFT ENGINES: 654823
Pratt & Whitney JT8D
engine
2. AIRCRAFT: N94GS 18892
Boeing 727-044F
AIRCRAFT ENGINE: 654550
Pratt & Whitney JT8D-7 655463
engine 649033
Pratt & Whitney JT8D-7
engine
Pratt & Whitney JT8D-7
engine
3. AIRCRAFT: N210NE 18903
Boeing 727-031F
AIRCRAFT ENGINES: 654150
Pratt & Whitney JT8D-7 654055
engine 655321
Pratt & Whitney JT8D-7
engine
Pratt & Whitney JT8D-7
engine
4. AIRCRAFT: N220NE 18905
Boeing 727-031F
AIRCRAFT ENGINES: 648897
Pratt & Whitney JT8D-7 649406
engine 649368
Pratt & Whitney JT8D-7
engine
Pratt & Whitney JT8D-7
engine
5. AIRCRAFT ENGINES: 653845
Pratt & Whitney JT8D-9
6. AIRCRAFT ENGINES: P688643
Pratt & Whitney JT8D-15 P666704
Pratt & Whitney JT8D-15 P702898
Pratt & Whitney JT8D-15
</TABLE>
- 1 -
<PAGE>
SCHEDULE I (CONTINUED)
AIRCRAFT LEASES:
1. Property subject to lease: (1) Boeing 727-044F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
<TABLE>
<CAPTION>
Lessee: Emery Worldwide Airlines, Inc.
<S> <C>
Term: February 17, 1994 through March 19, 1999, plus one day for each
day that the Aircraft is undergoing the First "C" Check and work
required to comply with the "Aging Aircraft" service bulletins
in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight
hour.
Sublessee: Ryan International Airlines
</TABLE>
1. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
<TABLE>
<CAPTION>
Lessee: Emery Worldwide Airlines, Inc.
<S> <C>
Term: September 2, 1993 through January 22, 1999, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight
hour.
Sublessee: Ryan International Airlines
</TABLE>
1. Property subject to lease: (1) Boeing 727-031F Aircraft, (3) Pratt &
Whitney JT8D-7 engines and other related equipment.
<TABLE>
<CAPTION>
Lessee: Emery Worldwide Airlines, Inc.
<S> <C>
Term: September 2, 1993 through February 1, 1999, plus one day for
each day that the Aircraft is undergoing the First "C" Check and
work required to comply with the "Aging Aircraft" service
bulletins in accordance with Section 6(d) of the Lease.
Amount: $45,000 per month plus "D" check reserves of $75 per flight
hour.
Sublessee: Ryan International Airlines
</TABLE>
1. Property subject to lease: (2) Pratt & Whitney JT8D-7B engines and
other related equipment.
<TABLE>
<CAPTION>
Lessee: Express One International, Inc..
<S> <C>
Term: April 25, 1998 through _____________ in accordance with Section 2.2
of the Lease.
Amount: $10,000 per engine per month plus $70 per operating cycle or hour
per engine (whichever is greater).
</TABLE>
- 2 -
EXECUTION COPY
SIXTH AMENDMENT AND AGREEMENT
SIXTH AMENDMENT AND AGREEMENT, dated as of May 30, 1998 (this "SIXTH
AMENDMENT"), to the Existing Credit Agreement (as hereinafter defined), by
and among INTERNATIONAL AIRLINE SUPPORT GROUP, INC., a Delaware corporation
(the "BORROWER"), and BNY FINANCIAL CORPORATION, a New York corporation
(the "LENDER").
****ARTII. RECITALS
The Borrower and the Lender have entered into the Existing Credit
Agreement, pursuant to which the Lender is providing to the Borrower (i) a
$13,000,000.00 revolving credit facility, (ii) $3,000,000.00 term loan
facility, (iii) a $3,750,000.00 term loan facility, (iv) a $1,500,000.00
term loan facility, (v) a $1,600,000.00 term loan facility, and (vi) a
$1,000,000.00 revolving credit facility which are secured by accounts
receivable, inventory and other collateral of the Borrower. The Borrower
and the Lender desire to amend the Existing Credit Agreement to clarify
their understanding with respect to the limitations on capital expenditures
of the Borrower.
In consideration of the foregoing and of the mutual covenants and
undertakings herein contained, the parties hereto hereby agree that the
Existing Credit Agreement is amended as hereinafter provided.
****ARTII.
Definitions
A.DEFINITIONS. In addition to the definitions set forth in the
heading and the recitals to this Sixth Amendment, the following definitions
shall apply to this Sixth Amendment:
"AGREEMENT": means the Existing Credit Agreement as amended by this
Sixth Amendment.
"EXISTING CREDIT AGREEMENT": means the Credit Agreement, dated as of
September 30, 1996, between the Borrower and the Lender, as amended by the
First Amendment, Waiver and Agreement, dated as of March 24, 1997, between
the Borrower and the Lender, the Second Amendment and Agreement, dated as
of September 9, 1997, between the Borrower and the Lender, the Third
Amendment and Agreement, dated as of October 15, 1997, between the Borrower
and the Lender, the Fourth Amendment and Agreement, dated as of February 4,
1998, between the Borrower and the Lender, and the Fifth Amendment, dated
as of July 16, 1998, between the Borrower and the Lender, as the same may
have been further amended, supplemented or modified from time to time up to
but not including the effectiveness of this Sixth Amendment.
Unless otherwise indicated, capitalized terms that are used but not defined
herein shall have the meanings ascribed to them in the Existing Credit
Agreement.
****ARTII.
Representations and Agreements
A.REPRESENTATIONS. The Borrower hereby represents and warrants as
follows:
*1.It (i) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (ii) 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, (iii) 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 (iv) 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.
*2.It has the power and authority, and the legal right, to make,
deliver and perform this Sixth Amendment and to borrow under the Agreement
and has taken all necessary action to authorize the borrowings on the terms
and conditions of the Agreement and this Sixth Amendment and to authorize
the execution, delivery and performance of this Sixth Amendment. 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 under the Agreement or with the execution,
delivery, performance, validity or enforceability of this Sixth Amendment.
This Six Amendment has been or will be duly executed and delivered on
behalf of the Borrower. This Sixth Amendment 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.
*3.The conditions contained in Article IV hereof have been
satisfied.
*4.Each of the representations and warranties made by the
Borrower in or pursuant to the Credit Documents is true and correct in all
material respects on and as of the Sixth Amendment Effective Date (as
defined below) as if made on and as of such date (except to the extent the
same relate to another, earlier date, in which case they are true and
correct in all material respects as of such earlier date).
*5.No Default or Event of Default has occurred and is continuing.
*6.Each of the Credit Documents is on the date hereof in full
force and effect.
****ARTII.
Amendments to Existing Credit Agreement
A.AMENDMENT TO SECTION 7.8. Section 7.8 of the Existing Credit
Agreement is hereby amended by inserting in the fifth line thereof, after
the words "and any Aircraft" the words "or any Aircraft Engine".
****ARTII.
Conditions to Effectiveness
This Sixth Amendment, and the modifications to the Credit Agreement
provided for herein, shall become effective on the date (the "SIXTH
AMENDMENT EFFECTIVE DATE") on which all of the following conditions have
been (or are concurrently being) satisfied:
A.This Sixth Amendment shall have been executed and delivered by each
party hereto.
B.The Lender shall have received each additional document, instrument,
legal opinion or item of information reasonably requested by the Lender,
including, without limitation, a copy of any debt instrument, security
agreement or other material contract to which the Borrower is to be a
party.
****ARTII.
Miscellaneous
A.PAYMENT OF EXPENSES. Without limiting its obligations under
Section 9.5 of the Existing Agreement, the Borrower agrees to pay or
reimburse the Lender for all of its reasonable costs and expenses incurred
in connection with this Sixth Amendment and the other Fourth Amendment
Documents, including, without limitation, the reasonable costs and expenses
of Cadwalader, Wickersham & Taft, counsel to the Lender, and expressly
acknowledge that their obligations hereunder constitute "Obligations"
within the meaning of the Existing Credit Agreement.
B.NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly amended,
modified and supplemented hereby and by the documents related hereto, the
provisions of the Existing Credit Agreement and the other Credit Documents
shall remain in full force and effect.
C.AFFIRMATION BY BORROWER. The Borrower hereby consents to the
execution and delivery of this Sixth Amendment and reaffirms its
obligations under the Credit Documents.
D.GOVERNING LAW; COUNTERPARTS. This Sixth Amendment and the rights
and obligations of the parties hereto shall be governed by, and construed
and interpreted in accordance with, the laws of the State of New York.
*1.This Sixth Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the counterparts of this Sixth Amendment signed by
all the parties shall be lodged with the Borrower and the Lender. This
Sixth Amendment may be delivered by facsimile transmission of the relevant
signature pages hereof.
[SIGNATURE PAGE FOLLOWS]
- 1 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sixth
Amendment to be duly executed and delivered as of the day and year first
above written.
INTERNATIONAL AIRLINE SUPPORT GROUP,
INC.
By:
Name:
Title:
BNY FINANCIAL CORPORATION
By:
Name:
Title:
- 2 -
SEVENTH AMENDMENT AND AGREEMENT
SEVENTH AMENDMENT AND AGREEMENT, dated as of October 28, 1998
(this "SEVENTH AMENDMENT"), to the Existing Credit Agreement (as
hereinafter defined), by and among INTERNATIONAL AIRLINE SUPPORT GROUP,
INC., a Delaware corporation (the "BORROWER"), and BNY FINANCIAL
CORPORATION, a New York corporation (the "Lender").
RECITALS
The Borrower and the Lender have entered into the Existing Credit
Agreement, pursuant to which the Lender is providing to the Borrower (i) a
$13,000,000.00 revolving credit facility, (ii) a $3,000,000.00 term loan
facility, (iii) a $3,750,000.00 term loan facility, (iv) a $1,500,000.00
term loan facility, (v) a $1,600,000.00 term loan facility and (vi) a
$1,000,000.00 revolving credit facility which are secured by accounts
receivable, inventory and other collateral of the Borrower. The Borrower
has requested that the Lender provide a letter of credit facility in the
amount of $2,000,000.00 (x) to provide for the satisfaction of certain
obligations of Air 41 LLC, a Delaware limited liability company ("AIR 41 ")
50 % of which is beneficially owned by the Borrower, under that certain
Secured Loan Agreement, made as of September 16, 1998, between Finova
Capital Corporation and Air 41 (the "SECURED LOAN AGREEMENT"), (y) to
assist the Borrower from time to time in importing goods and inventory and
(z) otherwise to provide assurance to third parties of payment of the
Borrower's obligations thereto. Subject to the terms and conditions
hereof, the Lender is willing to provide to Borrower the Letter of Credit
Facility (as defined below).
In consideration of the foregoing and of the mutual covenants and
undertakings herein contained, the parties hereto hereby agree that the
Existing Credit Agreement is amended as hereinafter provided.
ARTICLE I
Definitions
1. DEFINITIONS. (a) In addition to the definitions set forth
in the heading and the recitals to this Seventh Amendment, the following
definitions shall apply to this Seventh Amendment:
"AGREEMENT": means the Existing Credit Agreement as amended by
this Seventh Amendment.
"EXISTING CREDIT AGREEMENT": means the Credit Agreement, dated as
of September 30, 1996, between the Borrower and the Lender, as amended by
the First Amendment, Waiver and Agreement, dated as of March 24, 1997,
between the Borrower and the Lender, the Second Amendment and Agreement,
dated as of September 9, 1997, between the Borrower and the Lender, the
Third Amendment and Agreement, dated as of October 15, 1997, between the
Borrower and the Lender, the Fourth Amendment and Agreement, dated as of
February 4, 1998 between the Borrower and the Lender, the Fifth Amendment,
dated as of July 16, 1998, between the Borrower and the Lender, and the
Sixth Amendment, dated as of May 30, 1998, between the Borrower and the
Lender, as the same may have been further amended, supplemented or modified
from time to time up to but not including the effectiveness of this Seventh
Amendment.
"SEVENTH AMENDMENT DOCUMENTS": this Seventh Amendment and any
other agreements, instruments and documents executed or delivered pursuant
to or in connection with this Seventh Amendment and the transactions
contemplated thereby.
(b) Unless otherwise indicated, capitalized terms that are used
but not defined herein shall have the meanings ascribed to them in the
Existing Credit Agreement.
ARTICLE II
Representations
1. REPRESENTATIONS. The Borrower hereby represents and
warrants as follows:
(a) It (i) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (ii) 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, (iii) 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 (iv) 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.
(b) It has the power and authority, and the legal right, to
make, deliver and perform this Seventh Amendment and the other Seventh
Amendment Documents to which it is a party and to borrow under the
Agreement and has taken all necessary action to authorize the borrowings on
the terms and conditions of the Agreement and this Seventh Amendment and to
authorize the execution, delivery and performance of the Seventh Amendment
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
under the Agreement or with the execution, delivery, performance, validity
or enforceability of the Seventh Amendment Documents to which it is a
party. Each Seventh Amendment Document to which the Borrower is a party
has been or will be duly executed and delivered on behalf of the Borrower.
Each Seventh Amendment 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.
(c) The conditions contained in Article IV hereof have been
satisfied.
(d) Each of the Credit Documents is on the date hereof in full
force and effect.
(e) The Secured Loan Agreement is on the date hereof in full
force and effect and no Default (as defined therein) or Event of Default
(as defined therein) has occurred and is continuing on the date hereof.
ARTICLE III
Amendments to Existing Credit Agreement
1. AMENDMENTS TO SECTION 1. (a) Section 1.1 of the Existing
Credit Agreement is hereby amended by inserting the following new
definitions therein in alphabetical order:
"AGGREGATE OUTSTANDING REVOLVER EXTENSIONS OF CREDIT": at any
time, an amount equal to the sum of (a) the aggregate principal amount of
all Revolver Advances then outstanding and (b) the Letter of Credit
Liabilities then outstanding.
"GOODS": as defined in Section 2.6(g).
"DOCUMENTS": as defined in Section 2.6(g).
"LETTER OF CREDIT": as defined in Section 2.6.
"LETTER OF CREDIT DOCUMENTS" shall mean the collective reference
to each Letter of Credit and any other agreements, instruments, guarantees
or other documents (whether general in application or applicable only to
such Letter of Credit) governing or providing for (a) the rights and
obligations of the parties concerned or at risk with respect to such Letter
of Credit or (b) any collateral security for any such obligations, as each
may be modified and supplemented and in effect from time to time.
"LETTER OF CREDIT FACILITY": at any time, the obligation of the
Lender to join in applications for a Letter of Credit and/or guarantee
payment or performance thereunder in an aggregate principal amount at any
one time outstanding not to exceed $2,000,000.00, as such obligation may be
reduced from time to time in accordance with the provisions of this
Agreement.
"LETTER OF CREDIT LIABILITY": in respect of any Letter of Credit
at any time, the sum, without duplication at any time, of (a) the undrawn
face amount of such Letter of Credit at such time, PLUS (b) the aggregate
unpaid principal amount of all obligations of the Borrower at such time due
and payable in respect of all drawings made under such Letter of Credit.
"REIMBURSEMENT OBLIGATIONS": the obligations of the Borrower to
reimburse amounts paid by the Lender in respect of the Letters of Credit,
including without limitation all amounts due or which may become due under
the Letters of Credit, guarantees or any drafts or acceptances thereunder;
all amounts charged or chargeable to the Borrower or to the Lender by any
bank, other financial institution or correspondent bank which opens, issues
or is involved with such Letters of Credit; any other bank charges; fees
and commissions; duties and taxes; costs of insurance; all such other
charges and expenses which may pertain either directly or indirectly to
such Letters of Credit, drafts, acceptances, guarantees or to the goods or
documents relating thereto, and the Lender's charges as herein provided.
"SEVENTH AMENDMENT": that certain Seventh Amendment and
Agreement, dated as of October ___, 1998, between the Borrower and the
Lender.
"SEVENTH AMENDMENT DOCUMENTS": the Seventh Amendment and any
other agreements, instruments and documents executed or delivered pursuant
to or in connection with the Seventh Amendment and the transactions
contemplated thereby.
"SEVENTH AMENDMENT EFFECTIVE DATE": the date on which all of the
conditions precedent to the effectiveness of the Seventh Amendment set
forth in Article IV of the Seventh Amendment are first satisfied or waived.
(b) The definition of the term "Available Revolver Facility" in
Section 1.1 of the Existing Credit Agreement is hereby deleted in its
entirety and replaced with the following:
""AVAILABLE REVOLVER FACILITY": at any time, an amount equal to
the excess, if any, of (a) the Revolver Facility over (b) the Aggregate
Outstanding Revolver Extensions of Credit."
(c) The definition of the term "Credit Documents" in Section 1.1 of
the Existing Credit Agreement is hereby deleted in its entirety and
replaced with the following:
"CREDIT DOCUMENTS": this Agreement, the First Amendment, the
Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth
Amendment, the Sixth Amendment, the Seventh Amendment, the Letter of Credit
Documents, the Security Documents, each Consent and Agreement, Term Note A,
Term Note B, Term Note C, Term Note D, any Revolver Note and any other
documents, agreements or instruments executed and delivered to the Lender
pursuant to Section 6.11."
(d) The definition of the term "Facilities" in Section 1.1 of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by
the following:
"FACILITIES": the collective reference to the Revolver Facility,
the Open Purchasing Revolver Facility, the Letter of Credit Facility, the
Term Loan A Facility, the Term Loan B Facility, the Term Loan C Facility
and the Term Loan D Facility."
(e) The definition of the term "Obligations" in Section 1.1 of the
Existing Credit Agreement is hereby amended by inserting the words "and the
Reimbursement Obligations" in the fifth line of said definition after the
words "on the Loans" and before the comma (,) immediately following such
words.
(f) The definition of the term "Revolver Facility" in Section 1.1 of
the Existing Credit Agreement is hereby deleted in its entirety and
replaced with the following:
""REVOLVER FACILITY" the obligation of the Lender to make
Revolver Advances to the Borrower under Section 2.l(a) hereof and or to
join in applications for Letter of Credits and/or guarantee payment or
performance thereunder in an aggregate principal amount at any one time
outstanding not to exceed $13,000,000.00, as such obligation may be reduced
from time to time in accordance with the provisions of this Agreement."
2. AMENDMENTS TO SECTION 2. (a) Section 2.l(a) is hereby amended by
deleting the first sentence thereof in its entirety and replacing it with
the following:
"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
which, when added to the then outstanding Letter of Credit Liabilities,
shall not exceed the lesser of the Revolver Facility then in effect and the
Revolver Borrowing Base then in effect."
(b) Section 2 of the Existing Credit Agreement is hereby amended by
incorporating at the end thereof the following section:
"2.6 LETTER OF CREDIT FACILITY. Subject to the terms and
conditions hereof, and in the Lender's sole and absolute discretion, the
Lender, upon the request of the Borrower from and after the Seventh
Amendment Effective Date, may from time to time apply for, join in the
application for, or guarantee payment or performance of, one or more
letters of credit (each, a "LETTER OF CREDIT") and any drafts or
acceptances thereunder; PROVIDED, HOWEVER, without in any way limiting the
discretion of the Lender, that in no event shall (i) the aggregate amount
of the Letter of Credit Liabilities, PLUS the aggregate principal amount of
the Revolver Advances then outstanding exceed at any time the lesser of the
Revolver Facility and the Revolver Borrowing Base as in effect at such
time, (ii) the face amount of any Letter of Credit be less than $50,000.00,
or (iii) the expiration date of any Letter of Credit extend beyond the
earlier of (x) the fifth Business Day preceding the Termination Date and
(y) the date twelve months following the date of such issuance, unless the
Lender has approved such expiry date in writing (but never beyond the fifth
Business Day prior to the Termination Date), PROVIDED, HOWEVER, that each
Letter of Credit may be automatically extendible for periods of up to one
year (but never beyond the fifth Business Day preceding the Termination
Date) so long as such Letter of Credit provides that the Lender retains an
option satisfactory to the Lender to terminate such Letter of Credit prior
to each extension date. The following additional provisions shall apply to
each Letter of Credit:
(a) The amount and extent of each Letter of Credit and the terms
and conditions thereof and of any drafts or acceptances thereunder, shall
in all respects be determined solely by or with the consent of the Lender
in its sole and absolute discretion and shall be subject to change,
modification and revision by the Lender, at any time and from time to time.
(b) On each day during which any Letter of Credit is
outstanding, the Revolver Facility shall be deemed to be utilized (in
addition to the aggregate amount of all Revolver Advances then outstanding)
for all purposes hereof in an amount equal to the then aggregate undrawn
face amounts of all Letters of Credit then outstanding.
(c) The Borrower hereby unconditionally agrees to pay and
reimburse the Lender on demand for the amount of each payment made by the
Lender to the issuer of a Letter of Credit or otherwise constituting a
Reimbursement Obligation, together with interest thereon at the ABR Rate
from the date payment was made to the date on which payment is demanded by
the Lender. Any such payment due from the Borrower and not paid on the
required date shall bear interest at rates specified in Section 3.l(c).
The Lender is hereby authorized, but shall not be obligated, to make any
such payment to itself on behalf of the Borrower in whole or in part by
making a Revolver Advance or by otherwise charging the account of the
Borrower.
(d) Borrower shall pay to the Lender monthly in advance in
respect of each Letter of Credit a letter of credit commission in an amount
(not less than $500) equal to (x) one quarter of one percent (1/4%) per
month on the face amount of such Letter of Credit, either opened or amended
(as to expiry date or dollar amount) for the entire term of such Letter of
Credit (including for the purposes hereof the term of any time draft
thereunder payable after the expiry thereof); or (y) five sixteenths of one
percent (5/16%) per month for each month (or partial month) during the term
of such Letter of Credit (including for the purposes hereof the term of any
time draft thereunder payable after the expiry thereof) during which the
Loans bear interest at the rate set forth in Section 3. 1 (b). Upon and
after the occurrence of an Event of Default, such commission shall be
increased by an amount equal to one sixth of one percent (1/6%) per month.
(e) All Reimbursement Obligations shall be repaid to the Lender
solely in Dollars.
(f) All Letters of Credit used to assist the Borrower in
importing goods and inventory shall be opened to cover actual importation
of goods and inventory solely for the Borrower's account, and said goods
will not be sold or transferred, other than to customers in the ordinary
course of business, without our specific, prior written consent.
(g) In addition to any indemnification hereunder, the Borrower
unconditionally agrees to indemnify the Lender and hold the Lender harmless
from and against any and all loss, claim or liability arising from any
transactions, occurrences, errors or omissions relating to any Letter of
Credit; the goods acquired thereunder (the "Goods"); the documents
evidencing the Goods (the "Documents"); any discrepant or nonconforming
provisions thereof; steamship or airway guaranties, releases, indemnities
or delivery orders or similar documents; any drafts or acceptances; and all
Reimbursement Obligations hereunder, including, but not limited to, any
such loss, claim or liability due to any action, errors or omissions
attributable to the issuer, the Lender, any other entity, or any other
cause. The Borrower's unconditional obligation to the Lender hereunder
shall not be modified or diminished for any reason or in any manner
whatsoever. The Borrower agrees that any charges made by the Lender for
the Borrower's account shall be conclusive on the Lender and may be repaid
by the creation by Lender of a Revolver Advance or otherwise charged to the
Borrower's account.
(h) The Lender shall not be responsible for: the existence,
character, quality, quantity, condition, packing, value or delivery of the
goods purporting to be represented by any Documents; any difference or
variation in the character, quality, quantity, condition, packing, value or
delivery of the goods from that expressed in the Documents; the validity,
sufficiency, or genuineness of any Documents or of any endorsements
thereon, even if such Documents should in fact prove to be in any or all
respects invalid, insufficient, fraudulent or forged; any discrepant or
nonconforming provisions in any Documents; the time, place, manner or order
in which shipment is made; partial or incomplete shipment, or failure or
omission to ship any or all of the goods referred to in any Letter of
Credit or Documents; any deviation from instructions; delay, default, or
fraud by the shipper and/or anyone else in connection with the Goods or the
shipping thereof; or any breach of contract between the shipper or vendors
and the Borrower. Furthermore, without being limited by the foregoing, the
Lender shall not be responsible for any act or omission taken or made in
good faith with respect to or in connection with any of the Goods or the
Documents.
(i) The Borrower agrees that any action taken by the Lender, or
any action taken by the issuer if taken in good faith, under or in
connection with any Letter of Credit, the guarantees, the drafts or
acceptances, or the Goods or the Documents, shall be binding on the
Borrower and shall not put the Lender in any resulting liability to the
Borrower. In furtherance thereof, the Lender shall have the full right and
authority to take any of the following actions in the name of the Lender or
the Borrower (and the Borrower agrees that it shall not have the right to
take any such action without the Lender's express endorsement in writing):
to clear and resolve any questions of non-compliance of Documents; to give
any instructions as to acceptance or rejection of any Documents or Goods;
to execute any and all applications for steamship or airways guarantees,
releases, indemnities or delivery orders or similar documents; to grant any
extensions of the maturity of, time of payment for, or time of presentation
of, any drafts, acceptances, or documents; and to agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any of the
terms or conditions of any of the applications, Letters of Credit, drafts
or acceptances, all in the Lender's sole name; and the issuer shall be
entitled to comply with and honor any and all such documents or
instructions executed by or received solely from the Lender, all without
any notice to or any consent from the Borrower.
(j) The Borrower agrees that any necessary import, export or
other licenses or certificates for the import or handling of the Goods will
have been promptly procured; all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Goods, or the
financing thereof will have been promptly and fully compiled with; and any
certificates in that regard that the Lender may at any time request will be
promptly furnished. In this connection, the Borrower warrants and
represents that all shipments made under any such Letter of Credit will be
in accordance with the governmental laws and regulations of the countries
in which the shipments originate and terminate, and are not prohibited by
any such laws and regulations. The Borrower assumes all risk and liability
for, and agrees to pay and discharge, all present and future local, state,
federal or foreign taxes, duties or levies. Any embargo, restriction,
laws, customs or regulations of any country, state, city or other political
subdivision, where the Goods are or may be located, or wherein payments are
to be made, or wherein drafts may be drawn, negotiated, accepted, or paid,
shall be solely the Borrower's risk, liability and responsibility.
(k) Any rights, remedies, duties or obligations granted or
undertaken by the Borrower to the issuer in any application for any Letter
of Credit, or any standing agreement relating to any Letter of Credit or
otherwise, shall be deemed to have been granted to the Lender and apply in
all respects to the Lender and shall be in addition to any rights,
remedies, duties or obligations contained herein.
(1) The obligations of the Borrower under this Agreement and any
Letter of Credit Document to reimburse the Lender for a payment made by the
Lender to the issuer of a Letter of Credit or otherwise constituting a
Reimbursement Obligation, and to repay any Revolver Advance made in respect
thereof, shall be unconditional and irrevocable, and shall be paid strictly
in accordance with the terms of this Agreement and each such other Letter
of Credit Document under all circumstances, including the following: (i)
any lack of validity or enforceability of this Agreement or any Letter of
Credit Document; (ii) the existence of any claim, setoff, defense or other
right that the Borrower may have at any time against any issuer,
beneficiary, or any transferee of the Letter of Credit (or any Person for
whom any such issuer, beneficiary or any such transferee may be acting),
the Lender or any other Person, whether in connection with this Agreement,
the transactions contemplated hereby or by the Letter of Credit Documents
or any unrelated transaction; (iii) any draft, demand, certificate or other
document presented under the Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect, or any loss or delay in the
transmission or otherwise of any document required in order to make a
drawing under the Letter of Credit, or any defense based upon the failure
of any drawing under the Letter of Credit to conform to the terms of the
Letter of Credit or any non-application or misapplication by the
beneficiary of the proceeds of such drawing; or (iv) any other circumstance
or happening whatsoever, whether or not similar to any of the foregoing,
including any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Borrower. To the extent that any
provision of any Letter of Credit Document is inconsistent with the
provisions of this Section 2.6, the provisions of this Section 2.6 shall
control."
3. AMENDMENTS TO SECTION 3. (a) Section 3.1(b) of the Existing
Credit Agreement is hereby deleted in its entirety and replaced by the
following:
"(b) If on any five Business Days (whether or not
consecutive) occurring in any calendar month the sum of the amount of
Revolver Advances outstanding on each
such
Business Day and the Letter of Credit Liabilities 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 then applicable Interest Rate
pursuant to Section 3.1(a) above, plus a per annum rate of one-half of
one percent (0.50 %)."
(b) Section 3.3(a) of the Existing Credit Agreement is hereby
amended by deleting the first sentence thereof in its entirety and
replacing it with the following:
"If on any date on which a Borrowing Base Certificate is
required to be delivered pursuant to Section 6.2(c), the sum of the
aggregate outstanding principal amount of the Revolver Advances as of
such date and the Letter of Credit Liabilities as of such date exceeds
the Revolver Borrowing Base, the Borrower shall prepay the Revolver
Advances and deposit cash collateral in respect of the Letter of
Credit Liabilities in accordance with paragraph (f) of this Section
3.3 in an aggregate amount equal to such excess no later than the
Business Day immediately following the date of delivery of such
Borrowing Base Certificate."
(c) Section 3.3(e) of the Existing Credit Agreement is hereby
deleted in its entirety and replaced by the following:
"(e) Unless the Lender otherwise agrees, the Borrower shall
prepay the Revolver Advances and deposit cash collateral in respect of
the Letter of Credit Liabilities in accordance with paragraph (f) of
this Section 3.3 in an aggregate 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 or cash collateral
deposit 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.
(d) Section 3.3 of the Existing Credit Agreement is hereby
amended by incorporating at the end thereof the following section:
"(f) All cash collateral in respect of Letter of Credit
Liabilities required under Section 3.3(a), Section 3.3(e) and Section
8 hereof, shall be deposited by the Borrower in a cash collateral
account opened by the Lender. The Borrower hereby grants to the
Lender, for the benefit of the issuer, a security interest in such
cash collateral to secure all obligations of the Borrower under this
Agreement and the other Credit Documents. Amounts held in such cash
collateral account shall be applied by the Lender to the payment of
Reimbursement Obligations, and the unused portion thereof after all
Letters of Credit shall have expired or been fully drawn upon, if any,
shall be applied to repay other Obligations of the Borrower. After
all such Letters of Credit shall have expired or been fully drawn
upon, all Reimbursement Obligations shall have been satisfied and all
other Obligations of the Borrower shall have been paid in full, the
balance, if any, in such cash collateral account shall be returned to
the Borrower. The Borrower shall execute and deliver to the Lender,
for the account of the issuer, such further documents and instruments
as the Lender may request to evidence the creation and perfection of
the within security interest in such cash collateral account."
(e) Section 3.13 of the Existing Credit Agreement is hereby
amended by (i) inserting the words "or applications or guarantees made,
joined in or issued by the Lender in connection with Letters of Credit" in
the fifth line thereof immediately after the words "against Loans made by
the Lender" and before the words "or impose on the Lender", and (ii)
inserting the words "or such applications or guarantees" in the sixth line
thereof immediately after the word "Loans" and before the words "or the
performance by the Lender", and (iii) inserting the words "or making,
joining in or issuing such applications or guarantees or" at the beginning
of the eighth line thereof immediately before the words "otherwise
performing its obligations hereunder".
4. AMENDMENT TO SECTION 4. Section 4 of the Existing Credit
Agreement is hereby amended by deleting the first sentence thereof in its
entirety and replacing it with the following:
"To induce the Lender to enter into this Agreement, to make the
Loans and to apply for, join in the application for, or guarantee payment
or performance of Letters of Credit, the Borrower hereby represents and
warrants to the Lender that:
5. AMENDMENT TO SECTION 5. The last sentence of Section 5.2 of
the Existing Credit Agreement is hereby amended by inserting the words "and
Letter of Credit issued on behalf of" into the first line thereof
immediately after the words "Each borrowing by" and before the words "the
Borrower hereunder".
6. AMENDMENTS TO SECTION 8. (a) Section 8(a) of the Existing
Credit Agreement is hereby amended by inserting the words "or any
Reimbursement Obligation" into the first line thereof immediately after the
words "on any Loan" and before the words "or any other amount".
(b) Section 8 of the Existing Credit Agreement is hereby amended
by inserting the words "(including, without limitations all amounts of the
Letter of Credit Liabilities, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) into each of the fourth and ninth lines of the flush text of
the first paragraph thereof (which immediately succeeds Event of Default
(i)) immediately after the words "this Agreement" and before the words "and
the other" in each such line.
(c) Section 8 of the Existing Credit Agreement is hereby amended
by incorporating therein after the first paragraph thereof the following
paragraph:
"With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an
acceleration pursuant to the preceding paragraph, the Borrower shall
at such time deposit in a cash collateral account in accordance with
the provisions of Section 3.3(f) an amount equal to the aggregate then
undrawn and unexpired amount of such Letters of Credit."
ARTICLE IV
Conditions to Effectiveness
This Seventh Amendment, and the modifications to the Credit
Agreement provided for herein, shall become effective on the date (the
"SEVENTH AMENDMENT EFFECTIVE DATE") on which all of the following
conditions have been (or are concurrently being) satisfied:
1. This Seventh Amendment shall have been executed and
delivered by each party hereto.
2. The Lender shall have received executed legal opinions of
King & Spalding, special counsel to the Borrower, in form and substance
satisfactory to the Lender and taking into account this Seventh Amendment
and the matters contemplated hereby. Such legal opinion shall cover such
matters incident to the transactions contemplated by this Seventh Amendment
as the Lender may reasonably require.
3. The Lender shall have received a copy, in form and substance
reasonably satisfactory to the Lender, of the corporate resolutions of the
Borrower, authorizing the Letter of Credit Facility and the execution,
delivery and performance of this Seventh Amendment, certified by the
Secretary or an Assistant Secretary of the Borrower as of the Seventh
Amendment Effective Date, which certificates shall state that the
resolutions or authorizations thereby certified have not been amended,
modified, revoked or rescinded as of the date of such certificate.
4. The Lender shall have received a certificate of the
Secretary or an Assistant Secretary of the Borrower, dated the Seventh
Amendment Effective Date, as to the incumbency and signature of the
officer(s) of the Borrower executing this Seventh Amendment and any
certificate or other document to be delivered by it pursuant hereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary.
5. The Lender shall have received certificates from the
Borrower, stating that its Governing Documents have not been amended since
September 30, 1996.
6. The Lender shall have received copies of certificates dated
as of a recent date from the Secretary of State or other appropriate
authority of such jurisdiction, evidencing the good standing of the
Borrower in the State of its organization and in each State where the
ownership, lease or operation of property or the conduct of business
requires it to qualify as a foreign corporation or other entity except
where the failure to so qualify would not have a Material Adverse Effect.
7. 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 the Seventh Amendment Effective Date
as if made on and as of such date (except to the extent the same relate to
another, earlier date, in which case they shall be true and correct in all
material respects as of such earlier date).
8. No Default or Event of Default shall have occurred and be
continuing.
9. All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this Seventh Amendment, the Existing Credit Agreement, the
Credit Agreement and the other Credit Documents shall be reasonably
satisfactory in form and substance to the Lender, and the Lender shall have
received such other documents in respect of any aspect or consequence of
the transactions contemplated hereby or thereby as it shall reasonably
request.
10. The Lender shall have received each additional document,
instrument, legal opinion or item of information reasonably requested by
the Lender, including, without limitation, a copy of any debt instrument,
security agreement or other material contract to which the Borrower is to
be a party.
ARTICLE V
Miscellaneous
1. PAYMENT OF EXPENSES. Without limiting its obligations under
Section 9.5 of the Existing Agreement, the Borrower agrees to pay or
reimburse the Lender for all of its reasonable costs and expenses incurred
in connection with this Seventh Amendment and the other Seventh Amendment
Documents, including, without limitation, the reasonable costs and expenses
of Cadwalader, Wickersham & Taft, counsel to the Lender, and expressly
acknowledge that their obligations hereunder constitute "Obligations"
within the meaning of the Existing Credit Agreement.
2. NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly
amended, modified and supplemented hereby and by the documents related
hereto, the provisions of the Existing Credit Agreement and the other
Credit Documents shall remain in full force and effect.
3. ACKNOWLEDGMENT. The Borrower hereby consents to the
execution and delivery of this Seventh Amendment and each of the other
Seventh Amendment Documents to which Borrower is a party and reaffirms its
obligations under the Credit Documents.
4. GOVERNING LAW; COUNTERPARTS. (a) This Amendment and the
rights and obligations of the parties hereto shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New
York.
(b) This Amendment may be executed by one or more of the parties
hereto on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
A set of the counterparts of this Amendment signed by all the parties shall
be lodged with the Borrower and the Lender. This Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
[SIGNATURE PAGE FOLLOWS]
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
INTERNATIONAL AIRLINE SUPPORT
GROUP, INC.
By ________________________________
Name:
Title:
BNY FINANCIAL CORPORATION
By ________________________________
Name:
Title:
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
INTERNATIONAL AIRLINE SUPPORT
GROUP, INC.
By ________________________________
Name:
Title:
BNY FINANCIAL CORPORATION
By ________________________________
Name:
Title:
OPERATING AGREEMENT
OF
AIR 41 LLC
i
<PAGE>
TABLE OF CONTENTS
Section 1.1. General
Section 1.2. Certain Definitions
ARTICLE II: THE COMPANY
Section 2.1a Formation
Section 2.2a Name
Section 2.3a Purposes
Section 2.4a Principal Place of Business
Section 2.5a Term
Section 2.6a Filings; Agent for Service of Process
Section 2.7a Title to Property
Section 2.8a Payments of Individual Obligations
Section 2.9a Independent Activities
ARTICLE III: CAPITAL CONTRIBUTIONS
Section 3.1a Initial Capital Contributions
Section 3.2a Additional Capital Contributions
Section 3.3a Aircraft Loan Capital Contribution
ARTICLE IV: ALLOCATIONS OF PROFIT AND LOSS
Section 4.1a Profits
Section 4.2a Losses
Section 4.3a Special Allocations
Section 4.4a Curative Allocations
Section 4.5a Loss Limitation
Section 4.6a Other Allocation Rules
Section 4.7a Code Section 704(c) Tax Allocations
ARTICLE V: DISTRIBUTIONS
Section 5.1a Definitions
Section 5.2a Distribution of Net Operating Cash Flow
Section 5.3a Distribution of Capital Proceeds
Section 5.4a Amounts Withheld
Section 5.5a Limitations on Distributions
ARTICLE VI: MANAGEMENT
Section 6.1a Managers; Management Committee
Section 6.2a Meetings of the Management Committee
Section 6.3a Management Committee Powers
(a) GENERAL
(b) OFFICERS
Section 6.4a Duties and Obligations of the Management
Committee
Section 6.5. Reimbursements
Section 6.6. Indemnification of the Managers
Section 6.8. Manager Liability
ARTICLE VII: ROLE OF MEMBERS
Section 7.1. Rights or Powers
Section 7.2. Voting Rights
Section 7.3. Meetings of the Members
Section 7.4. Unanimous Consents Required
Section 7.5. Return on or of Capital Contributions
Section 7.6. Member Compensation
Section 7.7. Member Liability
Section 7.8. Partition
Section 7.9. Transactions Between a Member and the Company
Section 7.10. Covenant to Perform
Section 7.11. Confidentiality and Public Relations
ARTICLE VIII: REPRESENTATIONS AND WARRANTIES
Section 8.1. Survival
Section 8.2. Representations and Warranties
ARTICLE IX: ACCOUNTING, BOOKS AND RECORDS
Section 9.1. Books and Records; Accounting
Section 9.2. Reports
Section 9.3. Annual Budgets
Section 9.4. Tax Matters
ARTICLE X: TRANSFERS
Section 10.1. Restrictions on Transfers
Section 10.2. Permitted Transfers
Section 10.3. Other Transfers
Section 10.4. Conditions to Transfers
Section 10.5. Purchase Rights
Section 10.6. Approvals
Section 10.7. Prohibited Transfers
Section 10.8. Covenants and Representations
Section 10.9. Distributions and Allocations in Respect of
Transferred Units
ARTICLE XI: DISSOLUTION AND WINDING UP
Section 11.1. Dissolution Events
Section 11.2. Winding Up
Section 11.3. Compliance With Certain Regulations; Deficit
Capital Accounts
Section 11.4. Deemed Contribution and Distribution
Section 11.5. Rights of Members
Section 11.6. Notice of Dissolution/Termination
Section 11.7. Allocations During Period of Liquidation
Section 11.8. Character of Liquidating Distributions
Section 11.9. The Liquidator
ARTICLE XII: DISPUTE RESOLUTION
Section 12.1. General Provisions
Section 12.2. Consideration by Senior Executives
Section 12.3. Arbitration
ARTICLE XIII: MISCELLANEOUS
Section 13.1. Notices
Section 13.2. Binding Effect; Assignment
Section 13.3. Entire Agreement
Section 13.4. Waiver
Section 13.5. Interpretation
Section 13.6. Severability
Section 13.7. Governing Law
Section 13.8. Counterpart Execution
Section 13.9. Specific Performance
ii
<PAGE>
<PAGE>
OPERATING AGREEMENT
OF
AIR 41 LLC
THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT, dated as of
September 9, 1998 (the "AGREEMENT"), by and between AIRCORP, INC., a Texas
corporation ("AIRCORP"), and INTERNATIONAL AIRLINE SUPPORT GROUP, INC., a
Delaware company ("IASG").
WHEREAS, AirCorp and IASG desire to set forth their agreement
concerning the operations of Air 41 LLC (the "COMPANY") and certain other
matters set forth herein.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and undertakings of the parties hereto, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, do
hereby agree as of the date hereof as follows:
****ARTII. : GENERAL; CERTAIN DEFINITIONSARTICLE I GENERAL; CERTAIN
DEFINITIONS
ARTICLE
ARTICLE SECTION 1.1. GENERALSection 1.1. General . References in this
Agreement to "Articles", "Sections", "Exhibits" and "Schedules" are to
articles, sections, exhibits and schedules herein and hereto unless
otherwise indicated. Unless otherwise set forth herein, references in this
Agreement to any document, instrument or agreement (including, without
limitation, this Agreement) (a) shall include all exhibits, schedules and
other attachments thereto, (b) shall include all documents, instruments or
agreements issued or executed in replacement thereof and (c) shall mean
such document, instrument or agreement, or replacement or predecessor
thereto, as amended, modified or supplemented from time to time in
accordance with its terms and in effect at any given time. Wherever from
the context it appears appropriate, each term stated in either the singular
or plural shall include the singular and plural.
ARTICLE
ARTICLE SECTION 1.2. CERTAIN DEFINITIONSSection 1.2. Certain
Definitions .
ARTICLE
ARTICLE "ACT" means the Delaware Limited Liability Company Act, 6 Del.
C. <section>18-101, ET SEQ., as amended from time to time (or any
corresponding provisions of succeeding law).
ARTICLE
ARTICLE "ADDITIONAL CAPITAL CONTRIBUTIONS" means, with respect to each
Member, the Capital Contributions made by such Member pursuant to
Sections 3.2 and 3.3.
ARTICLE
ARTICLE "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of
the end of the relevant Allocation Year after giving effect to the
following adjustments:
ARTICLE
ARTICLE (i) credit to such Capital Account any amounts that such
Member is deemed to be obligated to restore pursuant to the
penultimate sentences in Sections 1.704-2(g)(1) and 1.704-2(i)(5) of
the Regulations; and
ARTICLE
ARTICLE (ii) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(D)(4), 1.704-1(b)(2)(ii)(D)(5) and 1.704-
1(b)(2)(ii)(D)(6) of the Regulations.
ARTICLE
ARTICLE This definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(D) of the
Regulations and shall be interpreted consistently therewith.
ARTICLE
ARTICLE "AFFILIATE" means, with respect to a given Member, (i) any
other Person directly or indirectly holding any beneficial interest in such
Member; or (ii) any other Person directly or indirectly controlling,
controlled by, or under common control with such Member; or (iii) any past
or present officer, director, employee, stockholder, member, partner or
beneficial owner of any Person referred to in the foregoing clauses (i) or
(ii); or (iv) any Person controlling, controlled by, or under common
control with any Person referred to in the foregoing clauses (i), (ii) or
(iii).
ARTICLE
ARTICLE "AGREEMENT" means this Limited Liability Company Operating
Agreement, as amended, modified, supplemented or restated from time to
time.
ARTICLE
ARTICLE "AIRCRAFT" means individually or collectively the twenty (20)
McDonnell Douglas DC-9-41 aircraft acquired from Scandinavian Airlines
System Denmark-Norway-Sweden, a consortium organized under the laws of
Denmark, Norway and Sweden with its principal office at S-195 87 Stockholm,
Sweden, pursuant to that certain Aircraft Purchase Agreement, to be
executed September 10, 1998, including the airframe and the Engines and all
appliances, accessories, instruments, components and other items of
equipment and all replacements, renewals and additions made to the
foregoing in accordance with the Aircraft Purchase Agreement. Where the
context permits, references to "the Aircraft" shall include the Manuals and
Technical Records and shall, unless otherwise provided herein, mean the
Aircraft as a whole and any part thereof.
ARTICLE
ARTICLE "AIRCRAFT LOAN CAPITAL CONTRIBUTION" has the meaning set forth
in Section 3.3.
ARTICLE
ARTICLE "ALLOCATION YEAR" means (i) the period commencing on the
Closing Date and ending on December 31, 1998, (ii) any subsequent
twelve-month period commencing on January 1 and ending on December 31 or
(iii) any portion of the period described in clauses (i) or (ii) of this
definition for which the Company is required to allocate Profits, Losses
and other items of income, gain, loss or deduction pursuant to Article IV.
ARTICLE
ARTICLE "ANNUAL BUDGETS" means the Annual Capital Budget and the
Annual Operating Budget.
ARTICLE
ARTICLE "ANNUAL CAPITAL BUDGET" has the meaning set forth in Section
9.3(a).
ARTICLE
ARTICLE "ANNUAL OPERATING BUDGET" has the meaning set forth in Section
9.3(a).
ARTICLE
ARTICLE "APPLICABLE LAW" means any statute, law, ordinance, rule,
regulation or judicial decision of any Government Authority that governs
the relevant matter, transaction or conduct.
ARTICLE
ARTICLE "BUSINESS DAYS" means Monday through Friday, excluding federal
holidays that fall on those days.
ARTICLE "BUYING PARTY" has the meaning set forth in Section 10.5(a).
ARTICLE
ARTICLE "CAPITAL ACCOUNT" means, with respect to any Member, the
capital account maintained for such Member in accordance with the following
provisions:
ARTICLE
ARTICLE (i) To each Member's Capital Account there shall be
credited (a) such Member's Capital Contributions, (b) such Member's
distributive share of Profits and any items in the nature of income or
gain that are specially allocated pursuant to Section 4.3 or 4.4 and
(c) the amount of any liabilities of the Company assumed by such
Member or secured by any Property distributed to such Member. The
principal amount of a promissory note that is not readily traded on an
established securities market and that is contributed to the Company
by the maker of the note (or a Member related to the maker of the note
within the meaning of Section 1.704-1(b)(2)(ii)(C) of the Regulations)
shall not be included in the Capital Account of any Member until the
Company makes a taxable disposition of the note or until (and to the
extent) principal payments are made on the note, all in accordance
with Section 1.704-1(b)(2)(iv)(D)(2) of the Regulations;
ARTICLE
ARTICLE (ii) To each Member's Capital Account there shall be
debited (a) the amount of money and the Gross Asset Value of any
Property distributed to such Member pursuant to any provision of this
Agreement, (b) such Member's distributive share of Losses and any
items in the nature of expenses or losses that are specially allocated
pursuant to Section 4.3 or 4.4 and (c) the amount of any liabilities
of such Member assumed by the Company or secured by any Property
contributed by such Member to the Company;
ARTICLE
ARTICLE (iii) In the event ownership of Units is transferred in
accordance with the terms of this Agreement, the transferee of such
Units shall succeed to the Capital Account of the transferor of such
Units to the extent such Capital Account relates to the transferred
Units; and
ARTICLE
ARTICLE (iv) In determining the amount of any liability for
purposes of clauses (i) and (ii) of this definition there shall be
taken into account Section 752(c) of the Code and any other applicable
provisions of the Code and the Regulations.
ARTICLE
ARTICLE The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to
comply with Section 1.704-1(b) of the Regulations and shall be interpreted
and applied in a manner consistent with such Regulations. In the event the
Management Committee shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities
secured by contributed or distributed Property or assumed by the Company or
any Members), are computed in order to comply with such Regulations, the
Management Committee may make such modification, PROVIDED that such
modification is not likely to have a material effect on the amounts
distributed to any Person pursuant to Article XI upon the dissolution of
the Company. The Management Committee also shall (a) make any adjustments
that are necessary or appropriate to maintain equality between the Capital
Accounts of the Members and the amount of capital reflected on the
Company's balance sheet, as computed for book purposes, in accordance with
Section 1.704-1(b)(2)(iv)(Q) of the Regulations and (b) make any
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Section 1.704-1(b) of the
Regulations.
ARTICLE
ARTICLE "CAPITAL CONTRIBUTIONS" means, with respect to any Member, the
amount of money and the initial Gross Asset Value of any Property (other
than money) contributed to the Company with respect to the Units held or
purchased by such Member, including, without limitation, Additional Capital
Contributions. To the extent that any Member incurs an expense that is
subsequently reimbursed by the Company, such amount shall not at any time
be construed or treated as a Capital Contribution.
ARTICLE
ARTICLE "CAPITAL PROCEEDS" has the meaning set forth in Section 5.1.
ARTICLE
ARTICLE "CAPITAL TRANSACTION" has the meaning set forth in Section
5.1.
ARTICLE
ARTICLE "CERTIFICATE" means the certificate of formation filed with
the Office of the Secretary of State of the State of Delaware pursuant to
the Act to form the Company, as originally executed and amended, modified,
supplemented or restated from time to time, as the context requires.
ARTICLE
ARTICLE "CERTIFICATE OF CANCELLATION" means a certificate filed in
accordance with 6 Del. C.<section> 18-203.
ARTICLE
ARTICLE "CHIEF EXECUTIVE OFFICER" means the Chief Executive Officer of
the Company, including any interim Chief Executive Officer.
ARTICLE
ARTICLE "CODE" means the Internal Revenue Code of 1986, as amended.
All references to provisions of the Code or to any Regulations promulgated
thereunder shall be deemed to include any successor provisions thereto.
ARTICLE
ARTICLE "COMPANY" means Air 41 LLC.
ARTICLE
ARTICLE "CLOSING DATE" means September 9, 1998, the first date this
Agreement has been executed by both IASG and AirCorp.
ARTICLE
ARTICLE "DEBT" means, with respect to the Company, (i) any
indebtedness for borrowed money or the deferred purchase price of Property
as evidenced by notes, bonds or other instruments, (ii) obligations as
lessee under capital leases, (iii) obligations secured by any Lien existing
on any asset owned or held (whether or not the Company has assumed or
become liable for the obligations secured thereby), (iv) any obligation
under any interest rate swap agreement, (v) accounts payable and (vi)
obligations under direct or indirect guarantees of (including, but not
limited to, obligations (contingent or otherwise) to assure a creditor
against loss in respect of) indebtedness or obligations of the kinds
referred to in clauses (i), (ii), (iii), (iv) and (v) of this definition,
PROVIDED that Debt shall not include obligations in respect of any accounts
payable that are incurred in the ordinary course of the Company's business
and are not delinquent or are being contested in good faith by appropriate
proceedings.
ARTICLE
ARTICLE "DEFAULTER"has the meaning set forth in Section 3.3.
ARTICLE
ARTICLE "DEPRECIATION" means, for each Allocation Year, an amount
equal to the aggregate depreciation, amortization or other cost recovery
deduction allowable with respect to the assets owned by the Company
(including, but not limited to, such assets contributed to the Company by
AirCorp and IASG), except that if the Gross Asset Value of such an asset
differs from its adjusted basis for federal income tax purposes at the
beginning of such Allocation Year, Depreciation therefor shall be an amount
that bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization or other cost recovery
deduction for such Allocation Year bears to such beginning adjusted tax
basis; PROVIDED, HOWEVER, that if the adjusted basis for federal income tax
purposes of such an asset at the beginning of such Allocation Year is zero
(0), Depreciation shall be determined with reference to such beginning
Gross Asset Value using any reasonable method selected by the Management
Committee.
ARTICLE
ARTICLE "DISSOLUTION EVENT" has the meaning set forth in
Section 11.1(a).
ARTICLE
ARTICLE "ENGINE(S)" means the two (2) Pratt & Whitney JT8D-11 engines
installed on each Aircraft at the time of delivery or any other engines
installed on the Aircraft which become the property of the Company or which
having been removed therefrom remain the property of the Company, together
with all equipment and accessories from time to time belonging to,
installed in or appurtenant to such engines.
ARTICLE
ARTICLE "EQUITY INTEREST" has the meaning set forth in Section
10.5(b).
ARTICLE
ARTICLE "EXERCISE NOTICE" has the meaning set forth in Section
10.5(b).
ARTICLE
ARTICLE "EXERCISE NOTICE DATE" has the meaning set forth in Section
10.5(b).
ARTICLE
ARTICLE "FINAL FISCAL YEAR" means, with respect to the Company, the
period commencing on January 1 of the calendar year in which the last of
the Property is distributed to the Members pursuant to Article XI and
ending on the date on which such final distribution is made.
ARTICLE
ARTICLE "FISCAL QUARTER" means, with respect to the Company, (i) the
period commencing on the Closing Date and ending on September 30, (ii) any
subsequent three-month period commencing on each of January 1, April 1,
July 1, and October 1 and ending on the last date before the next such date
and (iii) the period commencing on the last to occur of January 1, April 1,
July 1 or October 1 in the Final Fiscal Year and ending on the final day of
the Final Fiscal Year.
ARTICLE
ARTICLE "FISCAL YEAR" means, with respect to the Company, (i) the
period commencing on the Closing Date and ending on December 31, (ii) any
subsequent twelve-month period commencing on January 1 and ending on
December 31 and (iii) the Final Fiscal Year.
ARTICLE
ARTICLE "GOVERNMENTAL AUTHORITY" means any court, arbitrator,
department, commission, board, bureau, agency, authority, instrumentality
or other governmental body, whether federal, state, municipal, foreign or
other.
ARTICLE "GROSS ASSET VALUE" means, with respect to any asset, such
asset's adjusted basis for federal income tax purposes, except as follows:
ARTICLE
ARTICLE (i) the initial Gross Asset Value of any asset contributed by
a Member to the Company shall be the gross fair market value of such
asset, as determined by the Management Committee;
ARTICLE
ARTICLE (ii) the Gross Asset Values of all assets of the Company
shall be adjusted to equal their respective gross fair market values
(taking Section 7701(g) of the Code into account), as determined by
the Management Committee as of the following times: (a) the
acquisition of Units by any new or existing Member in exchange for
more than a DE MINIMIS Capital Contribution; (b) the distribution by
the Company to a Member of more than a DE MINIMIS amount of Property
as consideration for Units; and (c) the liquidation of the Company
within the meaning of Section 1.704-1(b)(2)(ii)(G) of the Regulations,
PROVIDED that an adjustment described in clauses (a) and (b) of this
paragraph shall be made only if the Management Committee reasonably
determines that such adjustment is necessary to reflect the relative
economic interests of the Members in the Company;
ARTICLE
ARTICLE (iii) the Gross Asset Value of any item of assets of the
Company distributed to any Member shall be adjusted to equal the gross
fair market value (taking Section 7701(g) of the Code into account) of
such asset on the date of distribution as determined by the Management
Committee; and
ARTICLE
ARTICLE (iv) the Gross Asset Values of assets of the Company shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Section 734(b) or 743(b) of the Code,
but only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(M)
of the Regulations and clause (vi) of the definition of Profits and
Losses or Section 4.3(c); PROVIDED, HOWEVER, that Gross Asset Values
shall not be adjusted pursuant to this clause (iv) to the extent that
an adjustment pursuant to clause (ii) of this definition is required
in connection with a transaction that would otherwise result in an
adjustment pursuant to this clause (iv).
ARTICLE
ARTICLE If the Gross Asset Value of an asset has been determined or
adjusted pursuant to clause (ii) or (iv) of this definition, such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Profits and
Losses.
ARTICLE
ARTICLE "INTERVENOR" has the meaning set forth in Section 3.3.
ARTICLE
ARTICLE "ISSUANCE ITEMS" has the meaning set forth in Section 4.3(h).
ARTICLE
ARTICLE "LENDER" means FINOVA Capital Corporation and its successors
and assigns with respect to the Loan.
ARTICLE
ARTICLE "LIEN" means a lien (statutory or otherwise), security
interest, deed of trust, deed to secure debt, claim, charge, pledge,
license, equity, option, conditional sales contract, easement, assessment,
levy, covenant, condition, right of way, reservation, restriction,
exception, limitation, charge or encumbrance of any nature whatsoever.
ARTICLE
ARTICLE "LIQUIDATION PERIOD" has the meaning set forth in Section
11.7.
ARTICLE
ARTICLE "LIQUIDATOR" means a Person appointed by the Management
Committee to oversee the liquidation of the Company in accordance with the
terms hereof.
ARTICLE
ARTICLE "LOAN" shall mean the principal amount of the loan made by the
Lender pursuant to the Loan Agreement and outstanding from time to time and
due the Lender under the Loan Agreement.
ARTICLE
ARTICLE "LOAN AGREEMENT" shall mean the Secured Loan Agreement between
FINOVA Capital Corporation, as Lender, and AIR 41 LLC, as Borrower.
ARTICLE
ARTICLE "LOAN DOCUMENTS" means the Loan Agreement and any and all
other documents that are executed and delivered in connection with
obtaining the Loan.
ARTICLE
ARTICLE "LOSSES" has the meaning set forth in the definition of
"PROFITS" and "LOSSES".
ARTICLE
ARTICLE "MANAGEMENT COMMITTEE" has the meaning set forth in Section
6.1(a).
ARTICLE
ARTICLE "MANAGER" means any of the individuals designated by a Member
in accordance with Article VI to serve on the Management Committee and
"MANAGERS" means all of such individuals.
ARTICLE
ARTICLE "MANUALS AND TECHNICAL RECORDS" means all such manuals,
technical data, log books and other records pertaining to the Aircraft.
ARTICLE
ARTICLE "MEMBER" means, for the period such Person has not ceased to
be a member of the Company, AirCorp, IASG or any permitted successor to
their respective Units in accordance with Section 10.3, and "MEMBERS" means
all of such Persons.
ARTICLE
ARTICLE "MEMBER NONRECOURSE DEBT" has the meaning given the term
"partner nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.
ARTICLE
ARTICLE "MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with
respect to each Member Nonrecourse Debt, equal to the Minimum Gain that
would result if such Member Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
ARTICLE
ARTICLE "MEMBER NONRECOURSE DEDUCTIONS" has the meaning given the term
"partner nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-
2(i)(2) of the Regulations.
ARTICLE
ARTICLE "MINIMUM GAIN" has the meaning given the term "partnership
minimum gain" in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.
ARTICLE
ARTICLE "NET OPERATING CASH FLOW" has the meaning set forth in Section
5.1.
ARTICLE
ARTICLE "NONRECOURSE DEDUCTIONS" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
ARTICLE
ARTICLE "NONRECOURSE LIABILITY" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
ARTICLE
ARTICLE "PERCENTAGE INTEREST" means, with respect to any Member as of
any date, the ratio (expressed as a percentage) of the number of Units held
by such Member on such date to the aggregate Units held by all Members on
such date. The initial Percentage Interest of each Member is set forth in
Section 3.1.
ARTICLE
ARTICLE "PERSON" means an individual, partnership, joint venture,
corporation, trust or other association or entity.
ARTICLE
ARTICLE "PERMITTED TRANSFEREE" has the meaning set forth in Section
10.2.
ARTICLE
ARTICLE "PREFERRED RETURN" has the meaning set forth in Section 5.1.
ARTICLE
ARTICLE "PROFITS" and "LOSSES" mean, for each Allocation Year, an
amount equal to the Company's taxable income or loss for such Allocation
Year, determined in accordance with Section 703(a) of the Code (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss), with the following adjustments (without
duplication):
ARTICLE
ARTICLE (i) any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits
or Losses pursuant to this definition shall be added to such taxable
income or loss;
ARTICLE
ARTICLE (ii) any expenditures of the Company described in Section
705(a)(2)(B) of the Code or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Section 1.704-1(b)(2)(iv)(I) of the
Regulations, and not otherwise taken into account in computing Profits
or Losses pursuant to this definition shall be subtracted from such
taxable income or loss;
ARTICLE
ARTICLE (iii) in the event the Gross Asset Value of any asset of
the Company is adjusted pursuant to clauses (ii) or (iii) of the
definition of Gross Asset Value, the amount of such adjustment shall
be treated as an item of gain (if such adjustment increases the Gross
Asset Value of such asset) or an item of loss (if such adjustment
decreases the Gross Asset Value of such asset) from the disposition of
such asset and shall be taken into account for purposes of computing
Profits or Losses;
ARTICLE (iv) gain or loss resulting from any disposition of
Property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset
Value of Property disposed of, notwithstanding that the adjusted tax
basis of such Property differs from its Gross Asset Value;
ARTICLE
ARTICLE (v) in lieu of the depreciation, amortization and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such Allocation Year;
ARTICLE
ARTICLE (vi) to the extent an adjustment to the adjusted tax
basis of any asset of the Company in accordance with Section 734(b) of
the Code is required, pursuant to Section 1.704-(b)(2)(iv)(M)(4) of
the Regulations, to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a
Member's interest in the Company, the amount of such adjustment shall
be treated as an item of gain (if such adjustment increases the basis
of such asset) or loss (if such adjustment decreases such basis) from
the disposition of such asset and shall be taken into account for
purposes of computing Profits or Losses; and
ARTICLE
ARTICLE (vii) notwithstanding any other provision of this
definition, any items that are specially allocated pursuant to Section
4.3 or 4.4 shall not be taken into account in computing Profits or
Losses.
ARTICLE
ARTICLE The amounts of the items of income, gain, loss or deduction
available to be specially allocated pursuant to Sections 4.3 and 4.4 shall
be determined by applying rules analogous to those set forth in clauses (i)
through (vi) of this definition.
ARTICLE
ARTICLE "PROPERTY" means all real property and personal property
acquired by the Company (including, without limitation, cash) and any
improvements thereto, and shall include both tangible and intangible
property.
ARTICLE
ARTICLE "REGULATIONS" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such Regulations are
amended from time to time.
ARTICLE
ARTICLE "REGULATORY ALLOCATIONS" has the meaning set forth in Section
4.4.
ARTICLE
ARTICLE "SELLING PARTY" has the meaning set forth in Section 10.5(a).
ARTICLE
ARTICLE "SIGNIFICANT TRANSACTION" has the meaning set forth in Section
6.7.
ARTICLE
ARTICLE "TAX MATTERS MEMBER" has the meaning set forth in Section
9.4(a).
ARTICLE
ARTICLE "TRANSFER" has the meaning set forth in Section 10.1(a).
ARTICLE
ARTICLE "UNITS" means the ownership interest in the Company, which
includes, but is not limited to, any and all benefits to which the holder
of such Unit may be entitled as provided in this Agreement, together with
all obligations with which such interest holder must comply in accordance
with the terms and provisions of this Agreement. The number of initial
Units of each Member is set forth in Section 3.1.
ARTICLE
ARTICLE "UNPAID PREFERRED RETURN ACCOUNT" has the meaning set forth in
Section 5.1.
ARTICLE
ARTICLE "WHOLLY OWNED AFFILIATE" of any Person means (i) an Affiliate
of such Person one hundred percent (100%) of the voting stock or beneficial
ownership of which is owned directly by such Person or by any Person that,
directly or indirectly, owns one hundred percent (100%) of the voting stock
or beneficial ownership of such Person, (ii) an Affiliate of such Person
that, directly or indirectly, owns one hundred percent (100%) of the voting
stock or beneficial ownership of such Person and (iii) any Person one
hundred percent (100%) of the voting stock or beneficial ownership of which
is owned directly by an Affiliate described in clause (i) or (ii) of this
definition.
ARTICLE
****ARTII. : THE COMPANYARTICLE II THE COMPANY
ARTICLE
ARTICLE SECTION 2.1A FORMATIONSection 2.1a Formation . The Company
has been formed prior to the Closing Date as a limited liability company
under and pursuant to the provisions of the Act. The fact that the
Certificate is on file in the Office of the Secretary of State of the State
of Delaware shall constitute notice that the Company is a limited liability
company. Simultaneously with the execution of this Agreement, each of
AirCorp and IASG shall be admitted as members of the Company. The rights
and liabilities of the Members shall be as provided under the Act, the
Certificate and this Agreement. The Certificate, as amended, presented to
the Members prior to the Closing Date is hereby approved by the Members and
all actions taken by the Company's counsel, King & Spalding, in connection
with the formation of the Company are hereby ratified and approved by the
Members. A copy of such Certificate is attached as Exhibit A hereto.
ARTICLE
ARTICLE SECTION 2.2A NAMESection 2.2a Name . All business of the
Company shall be conducted in its name. The Management Committee may from
time to time change the name of the Company upon ten (10) Business Days'
prior written notice to the Members.
ARTICLE
ARTICLE SECTION 2.3A PURPOSESSection 2.3a Purposes . Notwithstanding
any other provision of this Agreement or any provision of law that
otherwise so empowers the Company, the purposes for which the Company is
organized are limited solely to (a) acquiring, owning, holding, leasing,
maintaining, managing, financing, pledging, mortgaging, selling,
transferring, exchanging and otherwise dealing with and exploiting the
Aircraft, the Engines and the airframes, (b) obtaining the Loan, entering
into the Loan Agreement and the other Loan Documents, and consummating the
transactions contemplated by the Loan Documents, and (c) transacting any
and all lawful business for which a limited liability company may be
organized under the laws of the State of Delaware that is incident,
necessary and appropriate to accomplish the foregoing.
ARTICLE
ARTICLE SECTION 2.4A PRINCIPAL PLACE OF BUSINESSSection 2.4a Principal
Place of Business . The principal place of business of the Company shall
initially be 1954 Airport Road, Suite 200, Atlanta, Georgia, 30341. The
registered office of the Company in the State of Delaware shall initially
be at 1209 Orange Street, Newcastle County, Wilmington, Delaware 19801.
The Management Committee may from time to time change the principal place
of business or the registered office of the Company to any other place upon
ten (10) Business Days' prior written notice to the Members.
ARTICLE
ARTICLE SECTION 2.5A TERMSection 2.5a Term . The term of the Company
shall commence on the date the Certificate is filed in the office of the
Secretary of State of the State of Delaware in accordance with the Act and
shall continue until the dissolution and the completion of the winding up
and liquidation of the Company in accordance with Article XI.
ARTICLE
ARTICLE SECTION 2.6A FILINGS; AGENT FOR SERVICE OF PROCESSSection 2.6a
Filings; Agent for Service of Process .
ARTICLE
*a)DELAWARE FILINGS. Subject to the terms hereof and Applicable Law,
the Management Committee shall take any and all actions reasonably
necessary to perfect and maintain the status of the Company as a limited
liability company under the Applicable Laws of the State of Delaware,
including, but not limited to, the preparation and filing of such
documents, instruments and publications as may be required by Applicable
Law.
(
*b)OTHER FILINGS. The Members and the Management Committee shall
execute and cause to be filed original or amended certificates and shall
take any and all other actions as may be reasonably necessary to perfect
and maintain the status of the Company as a limited liability company or
its qualification to do business under the Applicable Laws of any other
jurisdictions in which the Company engages in business.
(
*c)AGENT FOR SERVICE OF PROCESS. The registered agent for service of
process on the Company in the State of Delaware shall be the Corporation
Trust Company or any successor as appointed by the Management Committee
upon ten (10) Business Days' prior written notice to the Members.
(
*d)CERTIFICATE OF CANCELLATION. Upon the dissolution and completion
of the winding up and liquidation of the Company in accordance with Article
XI, the Management Committee shall promptly execute and cause to be filed a
Certificate of Cancellation in accordance with the Act and any similar
filing under the Applicable Laws of any other jurisdiction in which the
Management Committee deems such filing necessary or advisable.
(
(SECTION 2.7A TITLE TO PROPERTYSection 2.7a Title to Property . All
Property owned by the Company shall be owned by the Company as an entity
and no Member shall have any ownership interest in such Property in such
Member's name. At all times after the Closing Date, the Company shall hold
title to all Property in the name of the Company and not in the name of any
Member. Units shall be the personal property of the owner thereof for all
purposes.
(
(SECTION 2.8A PAYMENTS OF INDIVIDUAL OBLIGATIONSSection 2.8a Payments
of Individual Obligations . The Company's credit and assets shall be used
solely for the benefit of the Company, and no asset of the Company shall be
transferred or encumbered for, or in payment of, any individual obligation
of any Member.
(
(SECTION 2.9A INDEPENDENT ACTIVITIESSection 2.9a Independent
Activities . Each Manager shall be required to devote such time to the
affairs of the Company as may be necessary to fulfill such Manager's
responsibilities and obligations hereunder and under the Act, and shall be
free to serve any other Person or enterprise in any capacity that such
Manager may deem appropriate in such Manager's discretion.
(
****ARTIII. : CAPITAL CONTRIBUTIONSARTICLE III CAPITAL CONTRIBUTIONS
ARTICLE
ARTICLE SECTION 3.1A INITIAL CAPITAL CONTRIBUTIONSSection 3.1a Initial
Capital Contributions . The name, address, initial Capital Contribution
and initial Percentage Interest of each of the Members are as follows:
ARTICLE
ARTICLE
<TABLE>
<CAPTION>
ARTICLE ARTICLE ARTICLE ARTICLE
ARTICLE NAMES AND ADDRESSES ARTICLE ARTICLE ARTICLE
INITIAL PERCENTAGE INITIAL
CAPITAL INTEREST UNITS
CONTRIBUTION
<S> <C> <C> <C>
ARTICLE ARTICLE ARTICLE
ARTICLE AirCorp, Inc. ARTICLE $2 ARTICLE ARTICLE
ARTICLE 3890 West Northwest Highway million in 50% 2,000
ARTICLE Dallas, TX 75220 cash
ARTICLE ARTICLE ARTICLE
ARTICLE International Airline Support ARTICLE $2 ARTICLE ARTICLE
Group, Inc. million in 50% 2,000
ARTICLE 1954 Airport Road, Suite 200 cash
ARTICLE Atlanta, GA 30341
</TABLE>
ARTICLE
ARTICLE SECTION 3.2A ADDITIONAL CAPITAL CONTRIBUTIONSSection 3.2a
Additional Capital Contributions . Except as provided in Section 3.3
herein, the Members may make Additional Capital Contributions only with the
written consent of all Members. Except as provided in Section 3.3 herein,
the making of any Additional Capital Contribution shall not change the
Percentage Interest and Units of each Member unless the Members unanimously
agree otherwise.
ARTICLE
ARTICLE SECTION 3.3A AIRCRAFT LOAN CAPITAL CONTRIBUTIONSection 3.3a
Aircraft Loan Capital Contribution .
ARTICLE
*a)GENERAL. AirCorp and IASG shall each be obligated to make an
Additional Capital Contribution in accordance with the terms of the Loan
Documents (the "AIRCRAFT LOAN CAPITAL CONTRIBUTION"). The amount and
nature of the Aircraft Loan Capital Contribution may vary from time to
time, as provided for under the Loan Documents. At all times that the
Aircraft Loan Capital Contribution is in effect, AirCorp and IASG shall
each be liable for one-half ( 1/2 ) of such obligation. In lieu of
contributing cash, AirCorp and IASG may contribute a letter of credit or
other instrument, provided the Management Committee approves and provided
such instrument is permitted under the terms of the Loan Documents. The
Aircraft Loan Capital Contribution shall specifically not include the
"Limited Guarantee" provided by AirCorp under the Loan Documents.
(
*b)UNITS. As a result of the Aircraft Loan Capital Contribution, the
Company shall allocate an additional Units equal to (x) the amount of the
Aircraft Loan Capital Contribution divided by (y) one thousand dollars
($1,000). The Company will allocate these additional Units to the Members
in proportion to the respective shares of the Aircraft Loan Capital
Contribution made or maintained by the Members as of any given date.
(
*c)FAILURE OF MEMBER TO SATISFY ITS SHARE. If a Member, be it AirCorp
or IASG (the "DEFAULTER"), fails, in whole or in part, to make or maintain
its share of the Aircraft Loan Capital Contribution at any time that such
obligation is in effect, then the other Member (the "INTERVENOR") shall
have the rights described in this Section 3.3(c).
(
*(1)The Intervenor shall have the right, at its sole discretion,
to make and maintain all or a part of the portion of the Aircraft Loan
Capital Contribution that the Defaulter failed to make or maintain.
(
*(2)The Intervenor shall maintain a record of the costs and
expenses incurred in exercising its rights under this Section 3.3(c),
including, without limitation, any and all applicable banking,
accounting and legal fees, any interest expense (whether actual or a
reasonable deemed interest expense), and actual cash contributions.
The Intervenor shall provide a written summary of such costs and
expenses to the Company and the Defaulter on a periodic basis. Such
costs and expenses shall constitute a claim of the Intervenor against
the Defaulter. Notwithstanding anything else in this Agreement, the
Company shall offset the entire amount of any distributions to the
Defaulter to satisfy such claim, until such time as the entire claim
has been satisfied. The Intervenor shall also have all other remedies
provided for under Applicable Law.
(
*(3)On any day on which the Intervenor makes or maintains all or
a part of the Defaulter's share of the Aircraft Loan Capital
Contribution under this Section 3.3(c), the Company shall allocate the
additional Units described in Section 3.3(b) in accordance with each
Member's share of the Aircraft Loan Capital Contribution, after taking
into account the Intervenor's exercise of its rights under this
Section 3.3(c). The parties agree and acknowledge that except in the
case where AirCorp and IASG make and maintain equal shares of the
Aircraft Loan Capital Contribution, the Percentage Interests of such
Members shall increase or decrease, as the case may be, to reflect the
Company's allocation of additional Units, and the Intervenor may, as a
result, be allocated a greater share than the Defaulter of the
Company's Profit and Loss, and receive a greater distribution than the
Defaulter of the Company's Net Operating Cash Flow (including the
Preferred Return) and Capital Proceeds.
(
*(4)At any time after the Intervenor's exercise of its rights
under this Section 3.3(c), the Defaulter may provide notice to the
Company and the Intervenor of its intention to make and maintain its
full share of the Aircraft Loan Capital Contribution. The Defaulter
shall be entitled to make and maintain the portion of its share of the
Aircraft Loan Capital Contribution that it failed to make or maintain
at such earlier time only after the Defaulter has reimbursed the
Intervenor in cash the balance of any costs and expenses described in
Section 3.3(c)(ii). Upon the Defaulter making and maintaining its
full share of the Aircraft Loan Capital Contribution, the Company
shall allocate the additional Units in accordance with Section 3.3(b),
but in no event shall the Defaulter's reimbursement of costs and
expenses be treated as a Capital Contribution by the Defaulter or a
reduction in Capital Contributions with respect to the Intervenor.
(
****ARTIII. : ALLOCATIONS OF PROFIT AND LOSSARTICLE IV ALLOCATIONS OF
PROFIT AND LOSS
ARTICLE
ARTICLE SECTION 4.1A PROFITSSection 4.1a Profits . After giving
effect to the special allocations set forth in Sections 4.3 and 4.4,
Profits for any Allocation Year shall be allocated to each Member in
proportion to such Member's Percentage Interest.
ARTICLE
ARTICLE SECTION 4.2A LOSSESSection 4.2a Losses . After giving effect
to the special allocations set forth in Sections 4.3 and 4.4 and subject to
Section 4.5, Losses for any Allocation Year shall be allocated to each
Member in proportion to such Member's Percentage Interest.
ARTICLE
ARTICLE SECTION 4.3A SPECIAL ALLOCATIONSSection 4.3a Special
Allocations . The following special allocations shall be made in the
following order:
ARTICLE
*a)MINIMUM GAIN CHARGEBACK. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Article IV, if there is a net decrease in Minimum Gain during any
Allocation Year, each Member shall be specially allocated items of income
and gain for such Allocation Year (and, if necessary, subsequent Allocation
Years) in an amount equal to such Member's share of the net decrease in
Minimum Gain, determined in accordance with Section 1.704-2(g) of the
Regulations. Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each
Member pursuant thereto. The items to be so allocated shall be determined
in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the
Regulations. This Section 4.3(a) is intended to comply with the minimum
gain chargeback requirement in Section 1.704-2(f) of the Regulations and
shall be interpreted consistent therewith.
(
*b)MEMBER MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Section 1.704-2(i)(4) of the Regulations, notwithstanding any other
provision of this Article IV, if there is a net decrease in the Member
Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt
during any Allocation Year, each Member who has a share of such Member
Nonrecourse Debt Minimum Gain, determined in accordance with Section 1.704-
2(i)(5) of the Regulations, shall be specially allocated items of income
and gain for such Allocation Year (and, if necessary, subsequent Allocation
Years) in an amount equal to such Member's share of the net decrease in
such Member Nonrecourse Debt, determined in accordance with Section 1.704-
2(i)(4) of the Regulations. Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be
allocated to each Member pursuant thereto. The items to be so allocated
shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-
2(j)(2) of the Regulations. This Section 4.3(b) is intended to comply with
the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the
Regulations and shall be interpreted consistent therewith.
(
*c)QUALIFIED INCOME OFFSET. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described in Section
1.704-1(b)(2)(ii)(D)(4), 1.704-1(b)(2)(ii)(D)(5) or 1.704-1(b)(2)(ii)(D)(6)
of the Regulations, items of income and gain shall be specially allocated
to such Member in an amount and manner sufficient to eliminate, to the
extent required by the Regulations, the Adjusted Capital Account Deficit of
such Member as soon as possible, PROVIDED that an allocation pursuant to
this Section 4.3(c) shall be made only if and to the extent that such
Member would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Article IV have been tentatively made as
if this Section 4.3(c) were not in this Agreement.
(
*d)GROSS INCOME ALLOCATION. In the event any Member has a deficit
Capital Account at the end of any Allocation Year that is in excess of the
sum of (i) the amount such Member is obligated to restore pursuant to the
penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the
Regulations, each such Member shall be specially allocated items of income
and gain in the amount of such excess as quickly as possible, PROVIDED that
an allocation pursuant to this Section 4.3(d) shall be made only if and to
the extent that such Member would have a deficit Capital Account in excess
of such sum after all other allocations provided for in this Article IV
have been made as if Section 4.3(c) and this Section 4.3(d) were not in
this Agreement.
(
*e)NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any Allocation
Year shall be specially allocated to each Member in proportion to such
Member's Percentage Interest.
(
*f)MEMBER NONRECOURSE DEDUCTIONS. Any Member Nonrecourse Deductions
for any Allocation Year shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Member Nonrecourse Debt
to which such Member Nonrecourse Deductions are attributable in accordance
with Section 1.704-2(i)(1) of the Regulations.
(
*g)SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any asset of the Company pursuant to Section 734(b)
or 743(b) of the Code is required, in accordance with Section
1.704-1(b)(2)(iv)(M)(2) or 1.704-1(b)(2)(iv)(M)(4) of the Regulations, to
be taken into account in determining Capital Accounts as the result of a
distribution to a Member in complete liquidation of such Member's interest
in the Company, the amount of such adjustment to Capital Accounts shall be
treated as an item of gain (if such adjustment increases the basis of the
asset) or loss (if such adjustment decreases such basis) and such gain or
loss shall be specially allocated (i) to each Member in accordance with
such Member's Percentage Interest in the event
Section 1.704-1(b)(2)(iv)(M)(2) of the Regulations applies or (ii) to the
Member to whom such distribution was made in the event
Section 1.704-1(b)(2)(iv)(M)(4) of the Regulations applies.
(
*h)ALLOCATIONS RELATING TO TAXABLE ISSUANCE OF UNITS. Any income,
gain, loss or deduction realized as a direct or indirect result of the
issuance of Units by the Company to a Member (the "ISSUANCE ITEMS") shall
be allocated among the Members so that, to the extent possible, the net
amount of such Issuance Items, together with all other allocations under
this Agreement to each Member shall be equal to the net amount that would
have been allocated to each such Member if the Issuance Items had not been
realized.
(
(SECTION 4.4A CURATIVE ALLOCATIONSSection 4.4a Curative Allocations .
The allocations set forth in Sections 4.3(a), (b), (c), (d), (e), (f), (g)
and 4.5 (collectively, the "REGULATORY ALLOCATIONS") are intended to comply
with certain requirements of the Regulations. It is the intent of the
Members that, to the extent possible, all Regulatory Allocations shall be
offset either with other Regulatory Allocations or with special allocations
of other items of income, gain, loss or deduction pursuant to this
Section 4.4. Therefore, notwithstanding any other provision of this
Article IV (other than the Regulatory Allocations), the Management
Committee shall make such offsetting special allocations of income, gain,
loss or deduction in whatever manner it determines appropriate so that,
after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance
such Member would have had if the Regulatory Allocations were not part of
this Agreement and all the Company items were allocated pursuant to
Sections 4.1, 4.2 and 4.3(h).
(
(SECTION 4.5A LOSS LIMITATIONSection 4.5a Loss Limitation . Losses
allocated pursuant to Section 4.2 shall not exceed the maximum amount of
Losses that can be allocated without causing any Member to have an Adjusted
Capital Account Deficit at the end of any Allocation Year. In the event
some but not all of the Members would have Adjusted Capital Account
Deficits as a consequence of an allocation of Losses pursuant to Section
4.2, Losses not allocable to any Member as a result of the limitation set
forth in this Section 4.5 shall be allocated to the other Members in
accordance with the positive balances in such Member's Capital Accounts so
as to allocate the maximum permissible Losses to each Member under Section
1.704-1(b)(2)(ii)(D) of the Regulations.
(
(SECTION 4.6A OTHER ALLOCATION RULESSection 4.6a Other Allocation
Rules .
(
*i)PERIOD. For purposes of determining the Profits, Losses or any
other items allocable to any period, Profits, Losses and any such other
items shall be determined on a daily, monthly or other basis as determined
by the Management Committee using any permissible method under Section 706
of the Code and the Regulations thereunder.
(
*j)REPORTING. Each of the Members is aware of the income tax
consequences of the allocations made by this Article IV and shall be bound
by the provisions of this Article IV in reporting such Member's share of
the Company income and loss for income tax purposes.
(
*k)EXCESS NONRECOURSE LIABILITIES. Solely for purposes of determining
a Member's proportionate share of the "excess nonrecourse liabilities" of
the Company within the meaning of Section 1.752-3(a)(3) of the Regulations,
each Member's interest in the profits of the Company is in proportion to
such Member's Percentage Interest.
(
*l)NET CASH FLOW DISTRIBUTIONS. To the extent permitted by Section
1.704-2(h)(3) of the Regulations, the Management Committee shall endeavor
to treat distributions of Net Cash Flow as having been made from the
proceeds of a Nonrecourse Liability or a Member Nonrecourse Debt only to
the extent that such distributions would cause or increase an Adjusted
Capital Account Deficit for any Member.
(
(SECTION 4.7A CODE SECTION 704(C) TAX ALLOCATIONSSection 4.7a Code
Section 704(c) Tax Allocations . In accordance with Section 704(c) of the
Code and the Regulations thereunder, income, gain, loss and deduction with
respect to any Property contributed to the capital of the Company shall,
solely for tax purposes, be allocated among the Members so as to take
account of any variation between the adjusted basis of such Property to the
Company for federal income tax purposes and its initial Gross Asset Value
using the remedial allocation method pursuant to the Regulations under
Section 704(c) of the Code.
(
(In the event the Gross Asset Value of any asset of the Company is
adjusted pursuant to clause (ii) of the definition of Gross Asset Value,
subsequent allocations of income, gain, loss and deduction with respect to
such asset shall take account of any variation between the adjusted basis
of such asset for federal income tax purposes and its Gross Asset Value in
the same manner as under Section 704(c) of the Code and the Regulations
thereunder. Any elections or other decisions relating to such allocations
shall be made by the Management Committee in any manner that reasonably
reflects the purpose and intention of this Agreement. Allocations pursuant
to this Section 4.7 are solely for purposes of federal, state and local
taxes and shall not affect, or in any way be taken into account in
computing, any Member's Capital Account or share of Profits, Losses, other
items or distributions pursuant to any provision of this Agreement.
(
****ARTIIII. : DISTRIBUTIONSARTICLE V DISTRIBUTIONS
ARTICLE
ARTICLE SECTION 5.1A DEFINITIONSSection 5.1a Definitions .
ARTICLE
ARTICLE "CAPITAL PROCEEDS" means the gross receipts received by the
Company or a Wholly Owned Affiliate from a Capital Transaction.
ARTICLE
ARTICLE "CAPITAL TRANSACTION" means any transaction not in the
ordinary course of business which results in the Company's receipt of cash
or other consideration (exclusive of Capital Contributions), including
without limitation, the sale, exchange, or other disposition of Property
not in the ordinary course of business, financings, refinancings,
condemnations, recoveries of damage awards, and insurance proceeds. The
sale of Aircraft for cash or other property shall constitute a Capital
Transaction.
ARTICLE
ARTICLE "NET OPERATING CASH FLOW" means, with respect to a given
period, the amount equal to the excess (if any) of (a) the gross cash
proceeds of the Company (not including any proceeds of Capital
Transactions) for such period over (b) the portion thereof used during such
period to pay or establish reserves for all the Company expenses, Debt
payments, capital improvements, replacements and contingencies, all as
determined by the Management Committee (including for this purpose any
expenses incurred by AirCorp or IASG that are reimbursed by the Company).
Net Operating Cash Flow shall not be reduced by depreciation, amortization,
cost recovery deductions or similar allowances, but shall be increased by
any reductions of reserves previously established pursuant to the first
sentence of this definition. If any maintenance reserves or security
deposits are held by the Company incident to a lease of Aircraft, such
amounts shall not be treated as assets or income of the Company unless and
until and only to the extent such amounts become property of the Company
under the terms of the lease under which such amounts where delivered to
the Company. Such reversion to the Company shall not be treated as a
Capital Transaction and such amounts shall not be treated as Capital
Proceeds.
ARTICLE
ARTICLE "PREFERRED RETURN" means, with respect to a given period, the
amount equal to five percent (5%) of all rental payments received by the
Company with respect to leases of the Aircraft.
ARTICLE
ARTICLE "UNPAID PREFERRED RETURN ACCOUNT" means that account
maintained by the Company for AirCorp and IASG, computed as follows: (a) if
the Net Operating Cash Flow of the Company for a given period is less than
the Preferred Return for the same period, then the Unpaid Preferred Return
Account for each Member shall be increased by an amount equal to the
product of (x) such Member's Percentage Interest during such Period and (y)
the total shortfall during such period; and (b) the balance of the Unpaid
Preferred Return Account for each Member shall be decreased by the actual
amount of any distributions to such Member pursuant to Section 5.2(b).
Neither AirCorp nor IASG shall have any right to the balance of the Unpaid
Preferred Return Account except as provided in this Article V.
ARTICLE
ARTICLE SECTION 5.2A DISTRIBUTION OF NET OPERATING CASH FLOWSection
5.2a Distribution of Net
Operating Cash Flow . The Net Operating Cash Flow shall be distributed, no
more frequently than monthly, in the following order:
ARTICLE
*a)FIRST, to AirCorp and IASG in proportion to their Percentage
Interests and to the extent of the Preferred Return;
(
*b) SECOND, to AirCorp and IASG in proportion to and to the extent of
the balance of each such Member's Unpaid Preferred Return Account; and,
(
*c)THIRD, to AirCorp and IASG, in proportion to their Percentage
Interests.
(
(SECTION 5.3A DISTRIBUTION OF CAPITAL PROCEEDSSection 5.3a
Distribution of Capital Proceeds . Reasonably soon after the occurrence of
a Capital Transaction, the Capital Proceeds arising from such Capital
Transaction shall be distributed in the following order:
(
*d)FIRST, to the payment of all Debts of the Company;
(
*e)SECOND, to the payment of all expenses of the Company incident to
the Capital Transaction;
(
*f)THIRD, to the establishment of any reserves which the Management
Committee deems necessary for Debts of the Company;
(
*g)FOURTH, to AirCorp and IASG in proportion to and to the extent of
their Capital Accounts; and,
(
*h)FIFTH, to AirCorp and IASG in proportion to their Percentage
Interests.
(
(SECTION 5.4A AMOUNTS WITHHELDSection 5.4a Amounts Withheld . The
Company is authorized to withhold from payments and distributions (or with
respect to allocations) to the Members and to pay over to any Governmental
Authority, any amounts required to be so withheld pursuant to the Code or
any provisions of any other Applicable Law, and shall allocate any such
withheld amounts to the Members based upon the amount of such payment,
distribution or allocation thereto. All amounts so withheld shall be
treated as amounts paid, distributed or allocated, as the case may be, to
the Members with respect to such payment, distribution or allocation, as
the case may be, for all purposes under this Agreement.
(
(SECTION 5.5A LIMITATIONS ON DISTRIBUTIONSSection 5.5a Limitations on
Distributions .
(
*i)GENERAL. The Company shall make no distributions to the Members
except (i) as provided in this Article V and Article XI or (ii) as
otherwise agreed to by all of the Members.
(
*j)INSOLVENCY. A Member may not receive a distribution from the
Company to the extent that, after giving effect to the distribution, all
liabilities of the Company, other than liabilities to Members on account of
their Capital Contributions, would exceed the fair value of the Company's
assets.
(
****ARTIIV. : MANAGEMENTARTICLE VI MANAGEMENT
ARTICLE
ARTICLE SECTION 6.1A MANAGERS; MANAGEMENT COMMITTEESection 6.1a
Managers; Management Committee .
ARTICLE
*a)MANAGEMENT COMMITTEE. The management of the Company shall be
vested in the committee of Managers designated by the Members as provided
in this Section 6.1 (the "MANAGEMENT COMMITTEE").
(
*b)NUMBER AND DESIGNATION. The Management Committee shall consist of
four (4) Managers of which each of AirCorp and IASG has the right to
designate two (2) Managers. Each of AirCorp and IASG hereby designate the
individuals identified on Exhibit B as Managers of the Company until their
successors are designated, each such Manager being deemed designated by the
Member set forth opposite such Manager indicated on Exhibit B. Other than
with respect to the initial Managers listed on Exhibit B, each Member shall
designate its Managers by delivering to the Company its written statement
designating its Managers and setting forth the business address and
telephone number of such Managers. A Manager shall remain a member of the
Management Committee until removed by the Member designating such Manager
in accordance with Section 6.1(c). Any Manager shall be free to designate
an alternate to serve in his or her place.
(
*c)REMOVAL. Each Member shall have the right, in its sole discretion,
to cause the removal at any time, with or without cause, of the Managers
that such Member has previously designated. Such removal shall be effected
by such Member delivering written notice to the Company of such removal.
Such notice shall also designate the individual who shall fill the position
of the removed Manager, which designation shall be effected immediately
following such removal.
(
*d)VACANCY. If, as the result of death, disability, retirement or
resignation, there shall exist or occur any vacancy on the Management
Committee, the Member entitled to designate such former Manager shall
promptly following the creation of such vacancy designate another
individual to be the successor of such former Manager.
(
*e)VOTING; QUORUM. Each Manager shall have one (1) vote. Except as
otherwise provided in this Agreement or required by Applicable Law, all
actions of the Management Committee and all subcommittees thereof shall be
taken in accordance with the terms hereof and shall require the affirmative
vote of the majority of the entire Management Committee or entire
subcommittee thereof at a duly called and convened meeting at which quorum
is present. The presence in person or by proxy of not less than a majority
of the entire Management Committee shall constitute a quorum for the
transaction of business by the Management Committee. The presence in
person or by proxy of not less than a majority of an entire subcommittee of
the Management Committee shall constitute a quorum for the transaction of
business by such subcommittee.
(
*f)SIGNIFICANT TRANSACTION. Each party hereto shall take all
necessary action to prevent the Company and any Person controlled by the
Company or by a Member from taking any action with respect to any
Significant Transaction without (i) the prior approval of the Management
Committee, such approval to be in accordance with Section 6.1(e), (ii) the
appropriate vote of the Members, if any, as required by Applicable Law,
which vote shall be made in accordance with this Agreement, and (iii) the
prior written consent of the Lender, if required pursuant to Section 6.4.
(
*g)STANDARD. Each Manager shall perform his duties as a Manager in
good faith, in a manner he reasonably believes to be in the best interest
of the Company, and with such care as an ordinarily prudent individual in a
like position would use under similar circumstances. An individual who so
performs his duties shall not have any liability by reason of being or
having been an Manager.
(
*h)SUBCOMMITTEES. The Management Committee shall have the power to
delegate authority to such subcommittees of Managers, officers, employees,
agents and representatives of the Company as it may from time to time deem
appropriate. Any delegation of authority to take any action must be
approved in the same manner as would be required for the Management
Committee to approve such action directly.
(
*i)NO LIABILITY. A Manager shall not be liable under a judgment,
decree or order of court, or in any other manner, for a Debt, obligation or
liability of the Company.
(
*j)DEADLOCK. If an action (such as a lease, sale, or other activity)
is proposed with respect to an Aircraft, Engine, or airframe, and the
Managers on the Management Committee cannot agree because an equal number
of Managers oppose the action as support the action, then the deadlock
procedure of this Section 6.1(j) shall apply. In such event, the Member(s)
who designated the Manager(s) who oppose the action (the "Opposing
Members") shall be required to purchase for cash the Aircraft, Engine
and/or airframe which is the subject of the action within thirty (30) days
after the other Member(s) (the "Proposing Members") give notice to the
Opposing Members of (i) the existence and nature of the deadlock, and (ii)
that such Proposing Members are seeking remedy under this deadlock
procedure. The Opposing Members shall be obligated to purchase the
Aircraft for an amount equal to the sum of (x) the then-scheduled debt
balance with respect to such Aircraft plus (y) the portion of the Company's
Capital Contributions allocable to such Aircraft. In the event the action
relates to an Engine or airframe, the amount in the preceding sentence
shall be adjusted to reflect the relative values of the two components.
(
*k)INITIAL MANAGERS. As provided in the Certificate, the Company
shall initially have two Managers, Alexius A. Dyer, III, and James Wikert,
who shall constitute the initial Management Committee of the Company, and
who shall be the initial officers of the Management Committee, each holding
the title of "Managing Director" of the Company, with the powers set forth
herein and in the Certificate.
(
(SECTION 6.2A MEETINGS OF THE MANAGEMENT COMMITTEESection 6.2a
Meetings of the Management Committee .
(
*l)REGULAR MEETINGS. The Management Committee shall establish times,
dates and places and requisite notice requirements (not shorter than those
provided in Section 6.2(b)) for regular meetings of the Management
Committee and shall adopt rules or procedures with respect to such meetings
(and special meetings of the Management Committee) consistent with the
terms of this Agreement. Unless otherwise approved by the Management
Committee, each regular meeting of the Management Committee shall be held
at the Company's principal place of business. At such meetings, the
Management Committee shall transact such business as may properly be
brought before such meeting, whether or not notice of such meeting
referenced the action taken at such meeting.
(
*m)SPECIAL MEETINGS. A special meeting of the Management Committee
may be called by any Manager. Notice of each such meeting shall be given
to each Manager in person or by overnight courier, telecopy or telegram (in
each case, notice shall be given at least two (2) days before the meeting
is to take place) unless a longer notice period is established by the
Management Committee. Each such notice shall state (i) the time, date,
place or other means of conducting such meeting and (ii) the purpose of
such meeting. No actions other than those specified in the notice therefor
may be considered at a special meeting of the Management Committee unless
such consideration is unanimously approved by all the members thereof.
(
*n)WAIVER OF NOTICE. Any Manager may waive notice of any meeting of
the Management Committee in writing before, at, or after, such meeting.
The attendance of a Manager at a meeting of the Management Committee shall
constitute a waiver of notice of such meeting thereby, except when such
Manager attends such meeting for the express purpose of objecting to the
transaction of any business thereat because such meeting was not properly
called.
(
*o)MEETINGS BY CONFERENCE CALL. Any action required to be taken, or
that may be taken, at a meeting of the Management Committee may be taken at
a meeting thereof held by means of conference telephone or other
communications equipment by means of which all individuals participating in
such meeting can hear each other. Participation in such a meeting shall
constitute presence in person at such meeting.
(
*p)WRITTEN CONSENT. Notwithstanding anything to the contrary in this
Section 6.2, the Management Committee may take without a meeting thereof
any action that may be taken by the Management Committee under this
Agreement or the Act if a consent or consents in writing, setting forth the
action so taken, shall be signed by the Managers having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting of the Management Committee.
(
*q)PARTICIPATION RIGHTS. At any meeting of the Management Committee,
any Manager may be accompanied by one or more individuals, who may attend
and participate in the deliberations at such meeting; PROVIDED, HOWEVER,
such individuals shall not be deemed Managers for any purposes whatsoever,
nor shall such individuals be entitled to vote on any issue voted upon by
the Members or the Management Committee or be counted for quorum purposes;
and PROVIDED FURTHER, that nothing in this Section 6.2(f) shall prevent the
Management Committee (upon the joint determination of the Chairman of the
Management Committee and the deputy chairman of the Management Committee or
upon the request of either one of them if both are not present at such
meeting) from conducting any part of any such meeting in executive session
without the presence of any such individuals.
(
(SECTION 6.3A MANAGEMENT COMMITTEE POWERSSection 6.3a Management
Committee Powers .
(
*r)GENERAL(a) General . Except as otherwise provided in this
Agreement or by Applicable Law, all powers to control and manage the
business and affairs of the Company shall be exclusively vested in the
Management Committee and the Management Committee may exercise all powers
of the Company and do all such lawful acts as are not by Applicable Law,
the Certificate or this Agreement directed or required to be exercised or
done by the Members and in so doing shall have the right and authority to
take all actions that the Management Committee deems necessary, useful or
appropriate for the management and conduct of the business of the Company.
(
*s)OFFICERS(b) Officers . The Management Committee shall (i) appoint
the Chief Executive Officer and the other officers of the Company,
(ii) prescribe the respective duties and powers of the Chief Executive
Officer and such other officers and (iii) establish policies and guidelines
for the hiring of employees, if necessary in the sole discretion of the
Management Committee, to permit the Company to act as an operating company
with respect to its business. The Management Committee may adopt
appropriate management incentive plans and employee benefit plans. The
initial officers of the Company, including their respective titles, are set
forth on Exhibit C. The officers of the Company shall be responsible for
the day-to-day management of the Company, conducting, in the name and on
behalf of the Company, the day-to-day business and affairs thereof, the
preparation and execution of business plans and Annual Budgets and the
implementation of the actions and decisions of the Management Committee.
(
(SECTION 6.4A DUTIES AND OBLIGATIONS OF THE MANAGEMENT
COMMITTEESection 6.4a Duties and
Obligations of the Management Committee .
(
*t)SEPARATE OPERATIONS. Notwithstanding any other provision of this
Agreement or any provision of law that otherwise so empowers the Company,
(i) from and after the date of this Agreement and until the Loan and all
other monetary obligations of the Company under the Loan Documents are
indefeasibly and fully satisfied, the Company shall not take any of the
following actions without the prior written consent of the
Lender: (1) incur any indebtedness or liabilities other than the Loan and
other monetary obligations under the Loan Documents, trade payables and
taxes incurred in the ordinary course of the Company's business, and
indebtedness or liabilities permitted by the terms of the Loan Agreement,
(2) dissolve or liquidate, in whole or in part, consolidate or merge with
or into any other Person, or sell, convey, or transfer any of its assets
(except to the extent such actions are permitted by the terms of the Loan
Agreement); (3) amend, alter, change or repeal any of the provisions of
Sections 2.3 or 6.4(a) of this Agreement, and (ii) the Company shall
conduct its dealings with its Affiliates on an independent and arm's-length
basis and on commercially reasonable terms, and shall observe and maintain
its legal existence as separate and distinct from any other Person.
Without limiting the generality of the foregoing, the Company shall, in
order to preserve and ensure its separate and distinct
identity: (A) maintain books, financial records and bank accounts that are
separate and distinct from the books, financial records and bank accounts
of any other Person; (B) not commingle any of its assets, funds or
liabilities with the assets, funds or liabilities of any other Person;
(C) observe all appropriate limited liability company procedures and
formalities; (D) pay its own liabilities, losses and expenses only out of
its own funds; (E) not guarantee or become obligated for the debts or
obligations of any other Person; (F) not hold out its credit as being
available to satisfy the debts or obligations of any other Person; (G) hold
itself out as an entity separate and distinct from any other Person
(including its Affiliates); (H) correct any known misunderstanding
regarding its separate identity; (I) not make any loans to any Person or
buy or hold any indebtedness issued by any other Person (except for cash
and investment-grade securities); (J) conduct its own business in its own
name; (K) hold all of its assets in its own name; (L) not pledge its assets
for the benefit of any other Person; (M) not identify itself as a division
or department of any other Person; (N) conduct transactions between the
Company and third parties in the name of the Company and as an entity
separate and independent from each of its Affiliates; (O) cause
representatives, employees and agents of the Company to hold themselves out
to third parties as being representatives, employees or agents, as the case
may be, of the Company; and (P) not acquire or assume the obligations of
its Affiliates.
(
*u)CONTINUED EXISTENCE; ACCOMPLISHMENT OF PURPOSES. The Management
Committee shall take all actions that may be necessary or appropriate (i)
for the continuation of the Company's valid existence as a limited
liability company under the Applicable Laws of the State of Delaware and of
each other jurisdiction in which such existence is necessary to protect the
limited liability of the Members or to enable the Company to conduct the
business in which it is then engaged and (ii) for the accomplishment of the
purposes of the Company set forth in Section 2.3(a), including, without
limitation, the acquisition, development, maintenance, preservation and
operation of Property in accordance with the provisions of this Agreement
and Applicable Laws.
(
*v)RIGHTS OF INSPECTION; AUDIT. Within one (1) month following the
commencement of each calendar year, each Member shall consult with the
Management Committee regarding the number (if any), time, nature,
objective and scope of reviews, meetings, audits, inspections and visits
such Member intends to conduct under this Section 6.4(c) for such year.
Notwithstanding the foregoing, in the event a Member, from time to time,
has a question with respect to the Company operations, such Member shall be
entitled, upon reasonable notice to the Company, during regular business
hours, (a) to inspect and audit the books and records of the Company (and
its Wholly Owned Affiliates) relating to the Company operations, or
otherwise, and (b) to visit and inspect, to the extent the Company has
physical access thereto, any of the assets owned, leased, operated or
managed by the Company and any of the facilities at which the Company
operations take place. The purpose of any audit, inspection or visit under
this Section 6.4(c) may include, but shall not be required to be limited
to, financial auditing and the review and analysis of the business
procedures and operations of the Company. The Company shall cooperate with
all audits, inspections and visits under this Section 6.4(c), including,
but not limited to, the Management Committee, the Company's senior
management and other appropriate officers and employees of the Company
participating in reasonable interviews with employees or agents of such
Member and responding to any reasonable questions that such Member or its
agents may have. Any audit, inspection or visit under this Section 6.4(c)
shall be conducted by the personnel of a Member or its Affiliates or by an
independent certified public accounting firm or other qualified
representatives with relevant experience selected by such Member and
reasonably acceptable to the Company. Such Member shall be responsible for
its costs incurred in connection with such audit, inspection or visit and
the out-of-pocket expenses of the Company directly incurred as a result of
such audit, inspection and visit. The Company shall provide such
personnel, firm and other representatives, during regular business hours,
with access to its books and records and, to the extent the Company has
physical access thereto, any of the assets owned, leased, operated or
managed by the Company and any of the facilities at which its operations
take place. Such Member shall provide the Company and each other Member
with a copy of any report of the findings of, and recommendations with
respect to, such audit, inspection or visit prepared by or on behalf of
such Member, subject to legal privilege restrictions.
(
(SECTION 6.5. REIMBURSEMENTSSection 6.5. Reimbursements . The Company
shall reimburse the Members and the Managers for all expenses incurred and
paid by any of them as authorized by the Company in the conduct of the
Company's business. Such expenses shall not include any expenses incurred
in connection with the exercise of the rights of a Member or a Manager
apart from the authorized conduct of the Company's business. The
Management Committee's sole determination of which expenses are allocated
to and reimbursed as a result of the Company's activities or business and
the amount of such expenses shall be conclusive. Such reimbursement shall
be treated as expenses of the Company and shall not be deemed to constitute
distributions to any Member of Profit, Loss or capital of the Company.
(
(SECTION 6.6. INDEMNIFICATION OF THE MANAGERSSection 6.6.
Indemnification of the Managers .
(
*w)ACTIONS AND OMISSIONS OF MANAGERS. Subject to Section 6.6(d), the
Company, its receiver or its trustee shall indemnify, save harmless and pay
all judgments and claims (in the case of such receiver or trustee, to the
extent of Property) against any Manager relating to any liability or damage
incurred by reason of any act performed or omitted to be performed by any
Manager in connection with the business, including reasonable attorneys'
fees incurred by the Manager in connection with the defense of any action
based on any such act or omission, which attorneys' fees may be paid as
incurred.
(
*x)DERIVATIVE SUIT. Subject to Section 6.6(d), in the event of any
action by a Member against any Manager, including, but not limited to, a
Company derivative suit, the Company shall indemnify, save harmless and pay
all expenses of such Manager, including reasonable attorneys' fees incurred
in the defense of such action.
(
*y)CERTAIN ACTIONS ON BEHALF OF THE COMPANY. Subject to Section
6.6(d), in the event a Manager for the benefit of the Company and in
accordance with this Agreement makes any deposit or makes any other similar
payment or assumes any obligation in connection with any property proposed
to be acquired by the Company and suffers any financial loss as the result
of such action, the Company shall indemnify, save harmless and pay all such
losses.
(
*z)LIMITATION. Notwithstanding the provisions of Sections 6.6(a), (b)
and (c), such Sections shall be enforced only to the maximum extent
permitted by Applicable Law and no Manager shall be indemnified from any
liability for fraud, intentional misconduct, gross negligence or a knowing
violation of Applicable Law that was material to the subject cause of
action or indemnified matter.
(
*27)THIRD-PARTY BENEFICIARY. The obligations of the Company set forth
in this Section 6.6 are expressly intended to create third party
beneficiary rights in each of the Managers.
(
(SECTION 6.7. SIGNIFICANT TRANSACTION. A "Significant Transaction"
means, with respect to the Company, any of the following actions (whether
taken directly by the Company or by or through one or more Wholly Owned
Affiliates thereof):
(
*28)any acquisition of businesses or assets (including, without
limitation, by way of merger or consolidation) by the Company or any of its
Wholly Owned Affiliates, other than an acquisition specifically approved in
the Annual Budgets or by a meeting of the Management Committee, or which
falls within parameters established for acquisitions at the meeting of the
Management Committee immediately preceding the date of such acquisition;
(
*29)any disposition, including, without limitation, by way of
receivables financings, securitizations or similar transactions, of any of
the assets of the Company or any of its Wholly Owned Affiliates, other than
a disposition specifically approved in the Annual Budgets or by a meeting
of the Management Committee, or which falls within parameters established
for dispositions at the meeting of the Management Committee immediately
preceding the date of such disposition;
(
*30)any merger, consolidation or other business combination involving
the Company or any of its Wholly Owned Affiliates and any third party and
any relocation of the Company or any of its Wholly Owned Affiliates to
another jurisdiction;
(
*31)subject to the rights of the Members to Transfer their Units as
contemplated in this Agreement, any transaction that would constitute a
"change of control" of the Company (which, for the purposes of this
definition, means the acquisition of the power, directly or indirectly, to
direct the affairs of the Company or the ability to designate a majority of
the Management Committee);
(
*32)any liquidation or dissolution of the Company, or any action by
the Company relating to bankruptcy, insolvency, reorganization or relief
from creditors seeking to adjudicate it bankrupt or seeking reorganization,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to the Company or seeking appointment of a receiver,
trustee, custodian or other similar official for the Company or all or any
substantial part of its assets, or making a general assignment for the
benefit of its creditors;
(
*33)any (i) creation of any additional class of equity interest of the
Company or any Wholly Owned Affiliate of the Company or any equity interest
having a direct or indirect equity participation in the Company or any
entity controlled by the Company, (ii) sale or issuance by the Company of
Units or warrants, options or rights to acquire Units or other equity
interests convertible into or exchangeable for Units or any other equity
interest having a direct or indirect equity participation in the Company or
any entity controlled by the Company, (iii) disposition of Units, whether
by issuance or secondary disposition and whether by public or private
offering, or (iv) redemption or purchase of Units (except as provided in
this Agreement), any reorganization of Units or any variation of the rights
attaching to Units;
(
*34)any amendment to or modification of any provision of this
Operating Agreement or the Certificate or of the equivalent or similar
organizational documents of any of the Company's Wholly Owned Affiliates;
(
*35)any incurring of indebtedness for borrowed money at any time
outstanding in excess of $100,000 per occurrence;
(
*36)any declaration of distributions on, or redemptions of or with
respect to, any Units;
(
*37)any adoption of, or material amendment or modification to, (i) the
Annual Capital Budget, or (ii) the Annual Operating Budget;
(
*38)any adoption or revision of any policy for the Company with
respect to customer credit, risk management, financial accounting, public
relations or business ethics and integrity;
(
*39)any commencement or participation in any business other than the
business described in Section 2.3(a) and any activities incidental,
necessary and appropriate to such business, making any investment in, loan
to, or guarantee of the obligations of, any other Person, or creating any
Wholly Owned Affiliate of the Company;
(
*40)any adoption or amendment of (i) any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing or other
employee benefit plan or (ii) any stock option, stock purchase or other
equity-based plan;
(
*41)any acquisition of Property other than as approved in the Annual
Budgets;
(
*42)any (ii) appointment or dismissal of outside legal counsel or
outside auditors, or (ii) change in accounting principles, methods or
practices or any change in the taxable year or Fiscal Year or method of tax
accounting for income tax purposes of the Company or any of the Company's
Wholly Owned Affiliates;
(
*43)any initiation or settlement of any judicial, administrative or
arbitration proceedings involving the Company or any of its Wholly Owned
Affiliates or the payment or settlement of any material claim involving the
Company or any of its Wholly Owned Affiliates, excluding litigation and
proceedings against defaulting lessees, manufacturers supplying the Company
and their respective assets;
(
*44)the removal or appointment of an individual to any of the offices
of the Company set forth on Exhibit C;
*45)any agreement or other binding commitment to do any of the
foregoing unless such agreement or commitment is contingent upon the
approval of the Management Committee; or
(
*46)any press release by the Company.
(
(SECTION 6.8. MANAGER LIABILITYSection 6.8. Manager Liability . No
Manager shall have any personal liability for the repayment of any Capital
Contributions of any Member.
(
****ARTIV. : ROLE OF MEMBERSARTICLE VII ROLE OF MEMBERS
ARTICLE
ARTICLE SECTION 7.1. RIGHTS OR POWERSSection 7.1. Rights or Powers .
Except as set forth herein, the Members shall not have any right or power
to take part in the management or control of the Company or its business
and affairs or to act for or bind the Company in any way. Notwithstanding
the foregoing, the Members have all the rights and powers specifically set
forth in this Agreement and, to the extent not inconsistent with this
Agreement, in the Act.
ARTICLE
ARTICLE SECTION 7.2. VOTING RIGHTSSection 7.2. Voting Rights . No
Member has any voting right except with respect to those matters
specifically reserved for a Member vote that are set forth in this
Agreement and as required in the Act.
ARTICLE
ARTICLE SECTION 7.3. MEETINGS OF THE MEMBERSSection 7.3. Meetings of
the Members .
ARTICLE
*a)NOTICE; VOTING; QUORUM. Meetings of the Members may be called upon
the written request of any Member. Any such request shall state the
location of the meeting and the nature of the business to be transacted.
Notice of any such meeting shall be given to all Members not less than
seven (7) Business Days nor more than thirty (30) calendar days prior to
the date of such meeting. No actions other than those specified in the
notice therefor may be considered at a meeting of the Members unless such
consideration is unanimously approved by the Members. Members may vote in
person or by proxy at such meeting and may waive advance notice of such
meeting. The Management Committee shall adopt rules and procedures for the
operation of such meetings. The owner of Units shall have one (1) vote for
each Unit owned thereby. Except as otherwise provided in this Agreement or
required by Applicable Law, all actions of the Members shall be taken in
accordance with the terms hereof and shall require the affirmative vote of
the holders of a majority of the Units at a duly called and convened
meeting of the Members at which quorum is present. The presence in person
or by proxy of Members holding a majority of the Units shall constitute a
quorum for the transaction of business by the Members. Any action of the
Company required by this Agreement or Applicable Law to be approved by the
Members must also, subject to Applicable Law, be approved by the Management
Committee.
(
*b)RECORD DATE. For the purpose of determining the Members entitled
to vote on, or to vote at, any meeting of the Members, the Management
Committee or the Member requesting such meeting may fix, in advance, a date
as the record date for any such determination. Such date shall not be more
than thirty (30) calendar days nor less than ten (10) Business Days before
any such meeting.
(
*c)PROXIES. Each Member may authorize any individual to act for such
Member by proxy with respect to all matters in which a Member is entitled
to participate, including, but not limited to, waiving notice of any
meeting of the Members or voting or participating at such a meeting. All
such proxies must be signed by the applicable Member or its
attorney-in-fact. No proxy shall be valid after the expiration of eleven
(11) months from the date thereof unless otherwise provided in such proxy.
Every proxy shall be revocable by a written instrument executed by the
Member executing such proxy.
(
*d)CONDUCT OF MEETING. Each meeting of Members shall be conducted by
the Chief Executive Officer or such other individual as the Chief Executive
Officer deems appropriate.
(
*e)WAIVER OF NOTICE. Any Member may waive notice of any meeting of
the Members in writing before, at, or after, such meeting. The attendance
of a Member at a meeting of the Members shall constitute a waiver of notice
of such meeting thereby, except when such Member attends such meeting for
the express purpose of objecting to the transaction of any business thereat
because such meeting was not properly called.
(
*f)MEETINGS BY CONFERENCE CALL. Any action required to be taken, or
that may be taken, at a meeting of the Members may be taken at a meeting
thereof held by means of conference telephone or other communications
equipment by means of which all individuals participating in such meeting
can hear each other. Participation in such a meeting shall constitute
presence in person at such meeting.
(
*g)WRITTEN CONSENT. Notwithstanding anything to the contrary in this
Section 7.3, with respect to any action that may be taken by the Members at
a meeting thereof under this Agreement or the Act, the Members may take
such action without a meeting if a consent or consents in writing, setting
forth the action so taken, shall be executed by the Members having not less
than the minimum number of votes that would be necessary to authorize or
take such action at a meeting of the Members.
(
*h)PARTICIPATION RIGHTS. At any meeting of the Members, the
authorized voting representative of a Member may be accompanied by one or
more individuals, who may attend and participate in the deliberations at
such meeting; PROVIDED, HOWEVER, such individuals shall not be deemed the
authorized voting representative of such Member for any purposes
whatsoever, nor shall such individuals be entitled to vote on any issue
voted upon by the Members or be counted for quorum purposes; and PROVIDED
FURTHER, that nothing in this Section 7.3(h) shall prevent the Members
(upon the joint determination of the Chairman of the Management Committee
and the deputy chairman of the Management Committee or upon the request of
either one of them if both are not present at such meeting) from conducting
any part of any such meeting in executive session without the presence of
any such individuals.
(
(SECTION 7.4. UNANIMOUS CONSENTS REQUIREDSection 7.4. Unanimous
Consents Required . Notwithstanding any other provision of this Agreement,
to the extent required by the Act, no action may be taken by the Company
(whether by the Management Committee or otherwise) to transfer or transfer
and continue pursuant to Section 18-213 of the Act without the unanimous
consent of the Management Committee and the Members. In the event the Act
is amended to no longer require unanimous approval for transfers or
transfers and continuances under Section 18-213 thereof, then such a
transfer or transfer and continuance shall require the same vote as for a
merger of the Company under this Agreement and the first sentence of this
Section 7.4 shall be null and void.
(
(SECTION 7.5. RETURN ON OR OF CAPITAL CONTRIBUTIONSSection 7.5. Return
on or of Capital Contributions . Except as otherwise provided in Articles
V and XI, no Member shall receive a return on or of its Capital
Contributions.
(
(SECTION 7.6. MEMBER COMPENSATIONSection 7.6. Member Compensation .
No Member shall receive any interest, compensation or drawing with respect
to its Capital Contributions or its Capital Account or for services
rendered on behalf of the Company, or otherwise, in its capacity as a
Member, except as otherwise provided in this Agreement.
(
(SECTION 7.7. MEMBER LIABILITYSection 7.7. Member Liability . No
Member shall be liable under a judgment, decree or order of a court, or in
any other manner, for the Debts or any other obligations or liabilities of
the Company. A Member shall be liable only to make its Capital
Contributions and shall not be required to restore a deficit balance in its
Capital Account or to lend any funds to the Company or, after its Capital
Contributions have been made, to make any additional contributions,
assessments or payments to the Company, PROVIDED that a Member may be
required to repay distributions made to it as provided in Section 18-607 of
the Act.
(
(SECTION 7.8. PARTITIONSection 7.8. Partition . While the Company
remains in existence, each Member, on behalf of itself, its successors and
its assigns, hereby waives its rights to have any Property partitioned or
to file a complaint or to institute any proceeding to have any Property
partitioned.
(
(SECTION 7.9. TRANSACTIONS BETWEEN A MEMBER AND THE COMPANYSection
7.9.
Transactions Between a Member and the Company . Except as otherwise
provided by Applicable Law and subject to Section 6.1(g), any Member may,
but shall not be obligated to, lend money to the Company, act as surety for
the Company and transact other business with the Company and has the same
rights and obligations when transacting business with the Company as a
Person who is not a Member. Subject to Section 6.1(g), a Member, any
Affiliate thereof or an employee, stockholder, agent, director or officer
of a Member or any Affiliate thereof, may also be an employee or be
retained as an agent of the Company. The existence of these relationships
and acting in such capacities shall not result in the Member being deemed
to be participating in the control of the business of the Company or
otherwise affect the limited liability of the Member.
(
(SECTION 7.10. COVENANT TO PERFORMSection 7.10. Covenant to Perform .
(
*i)ACTIONS OF THE COMPANY AND MANAGEMENT COMMITTEE. Any agreement by
the Members herein to cause (or any requirement herein for) the Management
Committee or the Company to perform certain acts shall be deemed, in each
instance, to include an agreement by each Member to use such Member's best
efforts and to take all actions necessary to call, or cause the Company to
call, as promptly as practicable, a meeting of Members or to act by written
consent pursuant to the terms hereof.
(
*j)ACTIONS OF MEMBERS. When any action is required to be taken by a
Member pursuant to this Agreement, such Member shall take all steps
necessary to implement such action, including, without limitation,
executing or causing to be executed, as promptly as practicable, a written
consent in lieu of a meeting of Members in accordance with the terms
hereof.
(
(SECTION 7.11. CONFIDENTIALITY AND PUBLIC RELATIONSSection 7.11.
Confidentiality and Public Relations . Except as may be required by this
Agreement, Applicable Law (including laws applicable to disclosures
required by companies whose securities are listed on the American Stock
Exchange) or any applicable listing agreement with a national securities
exchange, none of the Members shall publicly disclose any financial or
other forecasts regarding the Company without the mutual agreement of IASG
and AirCorp. In addition, any press releases, analyst statements, investor
relations statements, question and answer holding statements or other
similar oral or written disclosures by any Member or its representatives
concerning the Company shall be subject to the prior consultation of IASG
and AirCorp.
(
(SECTION 7.12. AMENDMENTS. Amendments to this Agreement may be
proposed by any Manager or any Member. Following such proposal, the
Management Committee shall submit to the Members a verbatim statement of
such proposed amendment and the Management Committee shall include in any
such submission a recommendation as to the proposed amendment. The
Management Committee shall seek the written vote of the Members on the
proposed amendment or shall call a meeting to vote thereon and to transact
any other business that it may deem appropriate. A proposed amendment
shall be adopted and be effective as an amendment hereto if it receives the
affirmative vote of all Members.
(
(SECTION 7.13. OTHER ACTIVITIES. The Members and their Affiliates may
engage in or possess an interest in other business ventures of every nature
and description for their own account, independently or with others,
including, without limitation, the purchase, sale and lease of aircraft,
whether or not such other enterprises shall be in competition with any
activities of the Company; and neither the Company nor any other Member
shall have any rights by virtue of this Agreement in and to such
independent ventures or to the income or profits derived therefrom. Without
limiting the generality of the foregoing statement, AirCorp agrees that
IASG may sell aircraft parts to any entity that from time to time operates
the Aircraft on such terms as IASG shall deem appropriate.
(
****ARTIVI. : REPRESENTATIONS AND WARRANTIESARTICLE VIII REPRESENTATIONS
AND WARRANTIES
ARTICLE
ARTICLE SECTION 8.1. SURVIVALSection 8.1. Survival . Each of the
representations and warranties set forth in Section 8.2 shall survive the
execution of this Agreement.
ARTICLE
ARTICLE SECTION 8.2. REPRESENTATIONS AND WARRANTIESSection 8.2.
Representations and Warranties . Each of AirCorp and IASG hereby
represents and warrants, as of the date hereof and the Closing Date, that:
ARTICLE
*a)DUE INCORPORATION OR FORMATION; AUTHORIZATION OF AGREEMENT. Such
Member is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation and has
the corporate power and authority to own its property and carry on its
business as owned and carried on at the date hereof and as contemplated
hereby. Such Member is duly licensed or qualified to do business and in
good standing in each of the jurisdictions in which the failure to be so
licensed or qualified would have a material adverse effect on its financial
condition or its ability to perform its obligations hereunder. Such Member
has the corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and the execution, delivery and
performance of this Agreement has been duly authorized by all necessary
corporate action. This Agreement constitutes the legal, valid and binding
obligation of such Member.
(
*b)NO CONFLICT WITH RESTRICTIONS; NO DEFAULT. Neither the execution,
delivery and performance of this Agreement nor the consummation by such
Member of the transactions contemplated hereby (i) shall conflict with,
violate or result in a breach of any of the terms, conditions or provisions
of any Applicable Law applicable to such Member or any of its Wholly Owned
Affiliates, (ii) shall conflict with, violate, result in a breach of, or
constitute a default under any of the terms, conditions or provisions of
the articles of incorporation, bylaws or other organizational documents of
such Member or any of its Wholly Owned Affiliates or of any material
Contract to which such Member, its Parent or any of its Wholly Owned
Affiliates is a party or by which such Member or any of its Wholly Owned
Affiliates is or may be bound or to which any of its material properties or
assets is subject, (iii) shall conflict with, violate, result in a breach
of, constitute a default under (whether with notice or lapse of time or
both), accelerate or permit the acceleration of the performance required
by, give to others any material interests or rights, or require any
consent, authorization or approval under any indenture, mortgage, lease
agreement or instrument to which such Member or any of its Wholly Owned
Affiliates is a party or by which such Member or any of its Wholly Owned
Affiliates is or may be bound or (iv) shall result in the creation or
imposition of any Lien upon any of the material properties or assets of
such Member or any of its Wholly Owned Affiliates.
(
*c)GOVERNMENTAL APPROVALS. Any approvals by Governmental Authorities
that are required in connection with the valid execution, delivery,
acceptance and performance by such Member of this Agreement or the
consummation by such Member of any transaction contemplated hereby have
been completed, made or obtained on or before the Closing Date.
(
*d)LITIGATION. There are no proceedings pending or, to the knowledge
of such Member or any of its Wholly Owned Affiliates, threatened against or
affecting such Member or any of its Wholly Owned Affiliates or any of their
properties, assets or businesses before any Governmental Authority that
could, if adversely determined, reasonably be expected to materially impair
such Member's ability to perform its obligations under this Agreement or to
have a material adverse effect on the consolidated financial condition of
such Member; and such Member or any of its Wholly Owned Affiliates has not
received any currently effective notice of any default, and such Member or
any of its Wholly Owned Affiliates is not in default, under any applicable
order, writ, injunction, decree, permit, determination or award of any
Governmental Authority that could reasonably be expected to materially
impair such Member's ability to perform its obligations under this
Agreement or to have a material adverse effect on the consolidated
financial condition of such Member.
(
*e)INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
Neither such Member nor any of its Affiliates is, nor shall the Company as
a result of such Member's status as such be, an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of
1940. Neither such Member nor any of its Affiliates is, nor shall the
Company as a result of such Member's status as such be, a "holding
company," "an affiliate of a holding company," or a "subsidiary of a
holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
(
*f)INVESTIGATION. Such Member is acquiring its Units based upon its
own investigation, and the exercise by such Member of its rights and the
performance of its obligations under this Agreement shall be based upon its
own investigation, analysis and expertise. Such Member's acquisition of
its Units is being made for its own account for investment and not with a
view to the sale or distribution thereof. Such Member is a sophisticated
investor possessing an expertise in analyzing the benefits and risks
associated with acquiring investments that are similar to the acquisition
of its Units.
(
****ARTIVII. : ACCOUNTING, BOOKS AND RECORDSARTICLE IX ACCOUNTING, BOOKS
AND RECORDS
ARTICLE
ARTICLE SECTION 9.1. BOOKS AND RECORDS; ACCOUNTINGSection 9.1. Books
and Records; Accounting .
ARTICLE
*a)BOOKS AND RECORDS. The Company shall keep on site at its principal
place of business each of the following:
(
*(1)separate books of account for the Company that show a true
and accurate record of all costs and expenses incurred, all charges
made, all credits made and received and all income derived in
connection with the conduct of the Company and the operation of its
business;
(
*(2)a current list of the full name and last known business,
residence or mailing address of each Member and Manager, both past and
present;
(
*(3)a copy of the Certificate certified by the Secretary of State
of the State of Delaware as to its filing therewith;
(
*(4)copies of the Company's federal, state and local income tax
returns and reports, if any, for the three (3) most recent years;
(
*(5)a fully executed copy of this Agreement;
(
*(6)copies of any writings permitted or required under Section
18-502 of the Act regarding the obligation of a Member to perform any
enforceable promise to contribute cash or property or to perform
services as consideration for such Member's Capital Contribution;
(
*(7)unless contained in this Agreement, a statement prepared and
certified as accurate by the Management Committee that describes: (A)
the amount of cash and the agreed value of any other property or
services then contributed or agreed to be contributed in the future by
each Member; and (B) the times at which or events on the happening of
which any Additional Capital Contributions agreed to be made by each
Member are to be made; and
(
*(8)any written consents obtained from Members pursuant to
Section 18-302 of the Act regarding action taken by Members without a
meeting thereof.
(
*b)ACCOUNTING. The Company shall use the accrual method of accounting
in preparation of its financial reports and for tax purposes and shall keep
its books and records accordingly.
(
(SECTION 9.2. REPORTSSection 9.2. Reports .
(
*c)GENERAL. The chief financial officer of the Company shall be
responsible for causing the preparation of financial reports of the Company
and the coordination of financial matters of the Company with the Company's
accountants.
(
*d)PERIODIC AND OTHER REPORTS. The Company shall cause to be
delivered to each Member the financial statements set forth in Sections
9.2(b)(i), (ii) and (iii), prepared, in each case (other than with respect
to Member's Capital Accounts, which shall be prepared in accordance with
this Agreement) in accordance with generally accepted accounting principles
(GAAP), and such other reports as any Member may reasonably request from
time to time; PROVIDED that, if the Management Committee so determines
within thirty (30) calendar days of such request, such other reports shall
be provided at such requesting Member's sole cost and expense.
(
*(1)As soon as practicable following the end of each Fiscal Year
(and in any event not later than ninety (90) calendar days after the
end of such Fiscal Year) and at such time as distributions are made to
the Members pursuant to Article XI following the occurrence of a
Dissolution Event, a balance sheet of the Company as of the end of
such Fiscal Year and the related statements of operations, Members'
Capital Accounts (and changes therein), and cash flows for such
Fiscal Year, together with appropriate notes to such financial
statements and supporting schedules, all of which shall be audited and
certified by the Company's accountants, and in each case, to the
extent the Company was in existence, setting forth in comparative form
the corresponding figures for the two (2) immediately preceding Fiscal
Years.
(
*(2)As soon as practicable following the end of each of the first
three Fiscal Quarters of each Fiscal Year (and in any event not later
than sixty (60) calendar days after the end of each such Fiscal
Quarter), a balance sheet of the Company as of the end of such Fiscal
Quarter and the related statements of operations and cash flows for
such Fiscal Quarter and for the Fiscal Year to date, in each case, to
the extent the Company was in existence, setting forth in comparative
form the corresponding figures for the prior Fiscal Year's Fiscal
Quarter and the interim period corresponding to the Fiscal Quarter and
the interim period just completed.
(
*(3)As soon as practicable following the end of each calendar
month (and in any event not later than the last Business Day of the
immediately succeeding calendar month) statements of operations of the
Company for such month and for the Fiscal Year to date, in each case,
to the extent the Company was in existence, setting forth in
comparative form the corresponding figures for the prior Fiscal Year's
calendar month and the interim period corresponding to the calendar
month and the interim period just completed.
(
*(4)Financial and other information relating to the Company and
its business and operation necessary for the Members to prepare and
timely file all reports and other materials and information required
to be filed with, or provided to, any Taxing Authority or other
Governmental Authority with respect to a Member's ownership of Units.
(
(SECTION 9.3. ANNUAL BUDGETSSection 9.3. Annual Budgets .
(
*e)OPERATING AND CAPITAL BUDGETS. The Members shall take all actions
necessary to assist and cause the Company to prepare and deliver proposed
Annual Budgets to each Member no later than one (1) month prior to the
beginning of each Fiscal Year. The "ANNUAL OPERATING BUDGET" shall include
the then-current Fiscal Year's budgeted and actual results up to the end of
the third Fiscal Quarter of such Fiscal Year and forecast for the final
Fiscal Quarter of such Fiscal Year and the next Fiscal Year's budgeted
items of operating income and expenses (including, but not limited to,
budgeted amounts for repair and maintenance). The "ANNUAL CAPITAL BUDGET"
shall include the then-current Fiscal Year's budgeted and actual capital
expenditures up to the end of the third Fiscal Quarter of such Fiscal Year
and forecast for the final Fiscal Quarter of such Fiscal Year and the next
Fiscal Year's budgeted amount for capital expenditures.
(
*f)PROCEDURE. The Members shall cause a meeting of the Management
Committee to be held no later than one (1) month following the beginning of
each Fiscal Year to take action with respect to the Annual Budgets for such
Fiscal Year. The Annual Budgets shall be approved by the Management
Committee in accordance with Section 6.1(e). Until an Annual Operating
Budget is approved for such Fiscal Year by the Management Committee, the
Annual Operating Budget in effect for the immediately preceding Fiscal Year
shall continue to operate as the operating budget for such Fiscal Year.
Until an Annual Capital Budget is approved for the then-current Fiscal Year
by the Management Committee, seventy-five percent (75%) of the Annual
Capital Budget in effect for the immediately preceding Fiscal Year shall
constitute the capital budget for such current Fiscal Year.
(
(SECTION 9.4. TAX MATTERSSection 9.4. Tax Matters .
(
*g)TAX ELECTIONS. The Management Committee shall, without any further
consent of the Members being required (except as specifically required
herein), make any and all elections for federal, state, local and foreign
tax purposes, including, without limitation, any election, if permitted by
Applicable Law: (i) to adjust the basis of Property pursuant to Sections
754, 734(b) and 743(b) of the Code, or comparable provisions of state,
local or foreign law, in connection with Transfers of Units and the Company
distributions; (ii) with the consent of all of the Members, to extend the
statute of limitations for assessment of tax deficiencies against the
Members with respect to adjustments to the Company's federal, state, local
or foreign tax returns; and (iii) to the extent provided in Sections 6221
through 6231 of the Code and similar provisions of Applicable Law, to
represent the Company before Taxing Authorities or courts of competent
jurisdiction in tax matters affecting the Company, and to file any tax
returns and execute any agreements or other documents relating to or
affecting such tax matters. IASG is specifically authorized to act as the
"TAX MATTERS MEMBER" under the Code and in any similar capacity under state
or local law.
(
*h)TAX CLASSIFICATION. The Management Committee shall take such
action as may be required under the Code and the Regulations and other
Applicable Law to cause the Company to be taxable as a partnership for
federal, state and local income tax purposes.
(
****ARTIVIII. : TRANSFERSARTICLE X TRANSFERS
ARTICLE
ARTICLE SECTION 10.1. RESTRICTIONS ON TRANSFERSSection 10.1.
Restrictions on Transfers .
ARTICLE
*a)REQUIREMENTS. Except as set forth on Exhibit D, no Member shall,
directly or indirectly, offer, sell, transfer, assign, grant a
participation in, pledge or otherwise dispose of (collectively, "TRANSFER")
any of such Member's Units, except in a transaction that is expressly
contemplated by this Agreement and satisfies the applicable conditions set
forth in Section 10.4.
(
*b)OWNERSHIP AND POWER. Except as expressly permitted by this
Agreement, each Member shall, from and after the date hereof, (i) be the
record and beneficial owner of such Units indicated in the Company's
register of members (which register shall be conclusive with respect to the
Company membership and Unit ownership, absent manifest error) as being
owned by such Member, in each case free and clear of any Lien, and
(ii) have sole voting power with respect to such Member's Units and shall
not, except as permitted in accordance with the terms hereof, grant any
proxy with respect to such Units, enter into any voting trust or other
voting agreement or arrangement with respect to such Units or grant any
other rights to vote such Units.
(
*c)ADMISSION OF SUBSTITUTED MEMBERS. A transferee of the ownership of
Units made in a manner that complies with the terms of this Agreement shall
be deemed a substituted Member.
(
(SECTION 10.2. PERMITTED TRANSFERSSection 10.2. Permitted Transfers .
Notwithstanding any other provision of this Article X, subject to the
conditions and restrictions set forth in Section 10.4, and fifteen-days'
prior written notice to the Company and the other Members, any Member at
any time may Transfer all or any portion of its Units to any Affiliate of
such Member (a "PERMITTED TRANSFEREE"). Any such Transfer to such
Permitted Transferee shall not relieve the transferring Member of its
obligations under this Agreement with respect to the Units so Transferred.
Prior to and as a condition to such Transfer of Units to a Permitted
Transferee, the Permitted Transferee shall agree in writing to (a) be bound
by all of the terms and conditions of this Agreement in the same manner as
the Transferring Member, and (b) reassign its Units to the Transferring
Member if such Permitted Transferee is no longer an Affiliate of such
Transferring Member.
(
(SECTION 10.3. OTHER TRANSFERSSection 10.3. Other Transfers . A
Member may, subject to the conditions and restrictions set forth in Section
10.4, sell its Units only (a) to a Permitted Transferee, (b) pursuant to an
Significant Transaction approved by the Management Committee or (c) in
accordance with Section 10.5.
(SECTION 10.4. CONDITIONS TO TRANSFERSSection 10.4. Conditions to
Transfers . The conditions set forth in Section 10.4 are as follows:
(
*d)WRITTEN AGREEMENT. The proposed transferee of Units shall execute
and deliver to each Member, prior to the proposed transfer, an original
counterpart to an agreement acceptable to the Members whereby such
transferee shall be bound by all the applicable terms and provisions hereof
and which shall become effective upon the subsequent consummation of such
transfer.
(
*e)CERTAIN INFORMATION. The transferor and proposed transferee shall
furnish the Company with such proposed transferee's taxpayer identification
number, sufficient information to determine such proposed transferee's
initial tax basis in the Units proposed to be transferred, and any other
information reasonably necessary to permit the Company to file all required
federal and state tax returns and other legally required information
statements or returns.
(
*f)NO TERMINATION. Unless otherwise approved by the Management
Committee, no Transfer of Units shall be made except upon terms that would
not, in the opinion of counsel chosen by the Management Committee, result
in the termination of the Company within the meaning of Section 708 of the
Code or cause the application of the rules of Sections 168(g)(1)(B) and
168(h) of the Code or similar rules to apply to the Company. In
determining whether a particular proposed Transfer shall result in a
termination of the Company, such counsel shall take into account the
existence of prior written commitments to Transfer Units made pursuant to
this Agreement and such commitments shall always be given precedence over
subsequent proposed Transfers.
(
(SECTION 10.5. PURCHASE RIGHTSSection 10.5. Purchase Rights .
(
*g)CHANGE OF CONTROL. Each of AirCorp and IASG shall have the right
to purchase (such empowered party, the "BUYING PARTY") the entire Equity
Interest of such other Member in the Company, at the fair market value of
such Equity Interest determined pursuant to Section 10.5(b), in the event
that a change of control has occurred with respect to such other party (the
"SELLING PARTY"), PROVIDED, that prior to the time of such change in
control there has not occurred a sale pursuant to Section 10.3 of Units to
an Affiliate of the Selling Party. For the purposes of this Section 10.5,
a "change of control" shall mean the acquisition of the power, directly or
indirectly, to direct the affairs of the Selling Party, or to elect a
majority of the board of directors of the Selling Party, except that such
term shall not include the acquisition of such power with respect to the
Selling Party by any Affiliates of the Selling Party.
(
*h)NOTICE. At any time within six (6) months following the change in
control, the Buying Party may provide written notice (the "EXERCISE
NOTICE", and the date of its delivery, the "EXERCISE NOTICE DATE") to the
Selling Party of the Buying Party's exercise of its right to purchase the
entire equity interest of the Selling Party in the Company (the "EQUITY
INTEREST"). Thereafter, the Buying Party and the Selling Party shall
engage in good faith discussions to determine the fair market value of the
Equity Interest. If the Buying Party and the Selling Party cannot reach
agreement as to the fair market value of the Equity Interest within thirty
(30) calendar days following the Exercise Notice Date, then the fair market
value shall be deemed to be equal to the sum of (x) the balance of Capital
Contributions as of the Exercise Notice Date by the Selling Party (as
reduced by distributions of Capital Proceeds), and (y) a sum equal to a
fifteen percent (15%) compounded return on the Capital Contributions made
by the Selling Party (so computed to reflect any fluctuation in such amount
on account of the distribution of Capital Proceeds from time to time). The
Buying Party shall provide a computation of such fair market value within
ten (10) Business Days following the expiration of such thirty-day period.
(
*i)FAIR MARKET VALUE. A closing shall be held on the date, occurring
within sixty (60) days after the date on which the Buying Party delivered
such notice of computation of the amount described in Section 10.5(b) to
the Selling Party (subject to extension to permit any applicable
governmental reviews or to obtain any necessary approvals by Governmental
Authorities or to comply with applicable waiting periods), as is designated
by the Buying Party upon ten (10) Business Days' prior written notice,
which notice may only be given contemporaneously with or subsequent to the
date on which such acceptance notice has been given, or if such a date is
not so designated, on such sixtieth day (or the next succeeding Business
Day, if such sixtieth day is not a Business Day). The Selling Party shall,
not later than the date set for such closing, deliver to the Buying Party,
and the Buying Party shall accept, the transfer documentation required
hereby with respect to the Equity Interest (which Equity Interest shall be
free and clear of any Lien other than those Liens created by the Buying
Party), together with appropriate documentation of the corporate action
necessary to effect the transfer.
(
(SECTION 10.6. APPROVALSSection 10.6. Approvals . If any transfer of
ownership of a Member's Units in accordance with this Article X requires
any approvals by Governmental Authorities or the consent, approval, waiver
or authorization of the equity owners of a Member as a condition to the
lawful and valid transfer of such Member's Units to the proposed transferee
thereof, then each Member shall use its diligent efforts to obtain, or to
assist the affected Member or the Management Committee in obtaining, any
such approvals by Governmental Authorities or consent, approval, waiver or
authorization and shall cooperate and use its diligent efforts to respond
as promptly as practicable to all inquiries received by it, by the affected
Member or by the Management Committee from any Governmental Authority or
such equity owner for initial or additional information or documentation in
connection therewith.
(
(SECTION 10.7. PROHIBITED TRANSFERSSection 10.7. Prohibited Transfers
. Any attempt to Transfer any Units in a manner that does not comply with
this Agreement shall be null and void, and neither the Company nor any
transfer agent of such Units shall be required to (and the Company shall
not) give any effect to such attempted Transfer on its records. The
Company shall take all actions that are necessary to cause such transfer
agent not to give effect to any such attempted Transfer. Each Member shall
take all actions that are necessary, and shall cause its designated
Managers to take all actions that are necessary, to cause the Company and
such transfer agent not to give effect to any such attempted Transfer.
Notwithstanding the foregoing, if the Company is required by Applicable Law
or a Governmental Authority to recognize an attempted transfer of ownership
of Units that does not comply with this Agreement, the rights of the
transferor of such Units shall be strictly limited to rights to allocations
and distributions as provided by this Agreement with respect to such Units,
which allocations and distributions may be applied (without limiting any
other legal or equitable rights of the Company) to satisfy any debts,
obligations or liabilities for damages that the transferor or transferee of
such Units may have to the Company. Such transferee shall have no right to
any information or accounting of the affairs of the Company, shall not be
entitled to inspect the books or records of the Company and shall not have
any of the other rights of a Member under the Act or this Agreement.
(
(In the case of a Transfer or attempted Transfer of Units that does
not comply with this Agreement, the parties engaging or attempting to
engage in such Transfer shall be liable to indemnify and hold harmless the
Company and the other Members from and against all cost, liability and
damage that the Company or any of such indemnified Members may incur
(including, without limitation, incremental tax liabilities and attorneys'
fees and expenses) as a result of such Transfer or attempted Transfer and
efforts to enforce the indemnity granted hereby.
(
(SECTION 10.8. COVENANTS AND REPRESENTATIONSSection 10.8. Covenants
and Representations .
(
*j)COVENANTS. Each Member hereby covenants and agrees that (i) it is
not currently making a market in Units and shall not in the future make a
market in Units, (ii) it shall not Transfer its Units on an established
securities market, a secondary market (or the substantial equivalent
thereof) within the meaning of Section 7704(b) of the Code (and any
Regulations, proposed Regulations, revenue rulings or other official
pronouncements of the Internal Revenue Service or Treasury Department that
may be promulgated or published thereunder) and (iii) in the event such
Regulations, revenue rulings or other pronouncements treat any or all
arrangements that facilitate the selling of Units and that are commonly
referred to as "matching services" as being a secondary market or
substantial equivalent thereof, it shall not Transfer any Units through a
matching service that is not approved in advance by the Company.
(
*k)REPRESENTATIONS. Each Member hereby represents and warrants to the
Company and the other Members that such Member's acquisition of Units
hereunder is made for such Member's own account and not for resale or
distribution of such Units.
(
(SECTION 10.9. DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED
UNITSSection 10.9.
Distributions and Allocations in Respect of Transferred Units . If the
ownership of any Units is transferred during any Allocation Year in
compliance with the provisions of this Article X, Profits, Losses, each
item thereof and all other items attributable to the transferred Units for
such Allocation Year shall be divided and allocated between the transferor
and the transferee thereof by taking into account their varying Percentage
Interests during such Allocation Year in accordance with Section 706(d) of
the Code, using any conventions permitted by Applicable Law and selected by
the Management Committee. All distributions on or before the date of such
transfer shall be made to such transferor, and all distributions thereafter
shall be made to such transferee. Solely for purposes of making such
allocations and distributions, the Company shall recognize such transfer
not later than the end of the calendar month during which it is given
notice of such transfer, PROVIDED that, if the Company is given notice of a
transfer of ownership of Units at least ten (10) Business Days prior to
such transfer, the Company shall recognize such transfer as of the date of
such transfer, and PROVIDED FURTHER that if the Company does not receive a
notice stating the date such Units were transferred within thirty (30)
calendar days after the end of the Allocation Year during which such
transfer occurs, then all such items shall be allocated, and all
distributions shall be made, to the Person who, according to the books and
records of the Company, was the owner of the Units on the last day of such
Allocation Year. Neither the Company nor any Member shall incur any
liability for making allocations and distributions in accordance with the
provisions of this Section 10.9, whether or not the Company or any Member
or Manager has knowledge of any transfer of ownership of any Units.
(
****ARTIIX. : DISSOLUTION AND WINDING UPARTICLE XI DISSOLUTION AND
WINDING UP
ARTICLE
ARTICLE SECTION 11.1. DISSOLUTION EVENTSSection 11.1. Dissolution
Events .
ARTICLE
*a)DISSOLUTION. The Company shall dissolve and shall commence winding
up and liquidating upon the first to occur of any of the following (each, a
"DISSOLUTION EVENT"):
(
*(1)the unanimous vote of the Members to dissolve, wind up and
liquidate the Company; or
(
*(2)a judicial determination that an event has occurred that
makes it unlawful, impossible or impractical to carry on the business
of the Company.
(
(Notwithstanding any provision of the Act, the Company shall not
dissolve prior to the occurrence of a Dissolution Event.
(
*b)RECONSTITUTION. If it is determined, by a court of competent
jurisdiction, that the Company has dissolved prior to the occurrence of a
Dissolution Event, upon such determination all of the Members shall be
deemed to have elected to reconstitute the Company and to continue its
business on the same terms and conditions set forth in this Agreement in a
new limited liability company on terms identical to those set forth in this
Agreement. Promptly following such determination, but in no event more
that ninety (90) calendar days following such determination, the Members
shall form such new limited liability company. The Certificate, this
Agreement and the Managers shall automatically constitute the certificate
of formation, operating agreement and managers, respectively, of such
reconstituted limited liability company. All of the assets and liabilities
of the dissolved the Company shall be deemed to have been automatically
assigned, assumed, conveyed and transferred to the reconstituted limited
liability company. No bond, collateral, assumption or release of any
liabilities of the Company or any Member shall be required.
Notwithstanding the foregoing, such automatic election by the Members to
reconstitute and continue the business of the Company in accordance with
this Section 11.1(b) shall not be effective unless the Company prior to the
formation of such new limited liability company has received an opinion of
counsel that (i) the exercise of such right would not result in the loss of
limited liability of any Member and (ii) neither the Company nor the
reconstituted limited liability company would cease to be treated as a
partnership for federal income tax purposes upon the exercise of such right
to continue.
(
(SECTION 11.2. WINDING UPSection 11.2. Winding Up . Upon the
occurrence of (a) a Dissolution Event or (b) the determination by a court
of competent jurisdiction that the Company has dissolved prior to the
occurrence of a Dissolution Event (unless the Company is reconstituted
pursuant to Section 11.1(b)), the Company shall continue solely for the
purposes of winding up its affairs in an orderly manner, liquidating its
assets and satisfying the claims of its creditors and Members, and no
Member shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Company's business and affairs,
PROVIDED that all covenants contained in this Agreement and obligations
provided for in this Agreement shall continue to be fully binding upon the
Members until such time as all Property has been distributed pursuant to
this Section 11.2 and the Certificate has been canceled pursuant to the
Act. The Liquidator shall be responsible for overseeing the winding up and
dissolution of the Company, which winding up and dissolution shall be
completed within ninety (90) calendar days of the occurrence of the
Dissolution Event or within ninety (90) calendar days after the last day on
which the Company may be reconstituted pursuant to Section 11.1(b), as
applicable. The Liquidator shall take full account of all liabilities of
the Company and all Property and shall cause such Property or the proceeds
from the sale thereof (as determined pursuant to Section 11.9), to the
extent sufficient therefor, to be applied and distributed, to the maximum
extent permitted by Applicable Law, in the following order:
(
*c)FIRST, to creditors (including, but not limited to, Members and
Managers who are creditors, to the extent permitted by Applicable Law) in
satisfaction of all Debt and other liabilities of the Company, including,
without limitation, any claims and obligations as required by Section 18-
804(b) of the Act (whether by payment or the making of reasonable provision
for payment thereof), other than liabilities for which reasonable provision
for payment has been made and liabilities for distribution to Members under
Section 18-601 or 18-604 of the Act;
(
*d)SECOND, except as provided in this Agreement, to Members and former
Members in satisfaction of liabilities for distribution under Sections 18-
601 or 18-604 of the Act;
(
*e)THIRD, to the Members in proportion to and to the extent of the
positive balance in their Capital Accounts after giving effect to all
contributions, distributions and allocations for all periods; and
(
*f)FOURTH, to the Members in proportion to their Percentage Interests.
(
(No Member or Manager shall receive additional compensation for any
services performed pursuant to this Article XI.
(
(SECTION 11.3. COMPLIANCE WITH CERTAIN REGULATIONS; DEFICIT CAPITAL
ACCOUNTSSection 11.3.
Compliance With Certain Regulations; Deficit Capital Accounts . In the
event the Company is "liquidated" within the meaning of Section 1.704-
1(b)(2)(ii)(G) of the Regulations, (a) distributions shall be made pursuant
to this Article XI to the Members who have positive Capital Accounts in
compliance with Section 1.704-1(b)(2)(ii)(B)(2) of the Regulations. If any
Member has a deficit balance in its Capital Account (after giving effect to
all contributions, distributions and allocations for all Allocation Years,
including, but not limited to, the Allocation Year during which such
liquidation occurs), such Member shall have no obligation to make any
contribution to the capital of the Company with respect to such deficit,
and such deficit shall not be considered a debt owed to the Company or to
any other Person for any purpose whatsoever. In the discretion of the
Liquidator, a pro rata portion of the distributions that would otherwise be
made to the Members pursuant to this Article XI may be:
(
((a) Distributed to a trust established for the benefit of the Members
for the purposes of liquidating the assets of the Company, collecting
amounts owed to the Company and paying any contingent or unforeseen
liabilities or obligations of the Company. The assets of any such trust
shall be distributed to the Members from time to time, in the reasonable
discretion of the Liquidator, in the same proportions as the amount
distributed to such trust by the Company would otherwise have been
distributed to the Members pursuant to Section 11.2; or
(
((b) Withheld to provide a reasonable reserve for the liabilities
(contingent or otherwise) of the Company and to reflect the unrealized
portion of any installment obligations owed to the Company, PROVIDED that
such withheld amounts shall be distributed to the Members as soon as
practicable.
(
(SECTION 11.4. DEEMED CONTRIBUTION AND DISTRIBUTIONSection 11.4.
Deemed Contribution and Distribution . Notwithstanding any other provision
of this Article XI, in the event the Company is liquidated within the
meaning of Section 1.704-1(b)(2)(ii)(G) of the Regulations but no
Dissolution Event has occurred, Property shall not be liquidated, Debts and
other liabilities of the Company shall not be paid or discharged and the
Company's affairs shall not be wound up. Instead, solely for federal
income tax purposes, the Company shall be deemed to have contributed all
Property and all its liabilities to a new limited liability company in
exchange for an interest in such new company and, immediately thereafter,
the Company shall be deemed to liquidate by distributing interests in such
new limited liability company to the Members.
(
(SECTION 11.5. RIGHTS OF MEMBERSSection 11.5. Rights of Members .
Except as otherwise provided in this Agreement, each Member shall look
solely to Property for the return of its Capital Contribution.
(
(SECTION 11.6. NOTICE OF DISSOLUTION/TERMINATIONSection 11.6. Notice
of Dissolution/Termination .
(
*g)In the event a Dissolution Event occurs or an event occurs that
would, but for provisions of Section 11.1, result in a dissolution of the
Company, the Management Committee shall, within thirty (30) calendar days
thereafter, provide written notice thereof to each of the Members and to
all other parties with whom the Company regularly conducts business (as
determined in the discretion of the Management Committee) and shall publish
notice thereof in a newspaper of general circulation in each place in which
the Company regularly conducts business (as determined in the discretion of
the Management Committee).
(
*h)Upon completion of the distribution of all Property as provided in
this Article XI, the Company shall be terminated, and the Liquidator shall
cause the filing of the Certificate of Cancellation pursuant to Section 18-
203 of the Act and shall take all such other actions as may be necessary to
terminate the Company.
(
(SECTION 11.7. ALLOCATIONS DURING PERIOD OF LIQUIDATIONSection 11.7.
Allocations During Period of Liquidation . During the period commencing on
the first day of the Fiscal Year during which a Dissolution Event occurs
and ending on the date on which all Property has been distributed pursuant
to Section 11.2 (the "LIQUIDATION PERIOD"), the Members shall continue to
share Profits, Losses, and other items of income, gain, loss or deduction
in the manner provided in Article IV.
(SECTION 11.8. CHARACTER OF LIQUIDATING DISTRIBUTIONSSection 11.8.
Character of Liquidating Distributions . All payments made in liquidation
of the interest of a Member in the Company shall be made in exchange for
the interest of such Member in Property pursuant to Section 736(b)(1) of
the Code, including, but not limited to, the interest of such Member in the
goodwill of the Company.
(
(SECTION 11.9. THE LIQUIDATORSection 11.9. The Liquidator .
(
*i)FEES. The Company is authorized to pay a reasonable fee to the
Liquidator for services performed pursuant to this Article XI and to
reimburse the Liquidator for reasonable costs and expenses incurred in
performing such services.
(
*j)INDEMNIFICATION. The Company may indemnify, save harmless and pay
all judgments and claims against the Liquidator or any officers, directors,
managers, agents or employees thereof relating to any liability or damage
incurred by reason of any act performed or omitted to be performed by the
Liquidator or any officers, directors, managers, agents or employees
thereof in connection with the liquidation of the Company, including
reasonable attorneys' fees incurred thereby in connection with the defense
of any action based on any such act or omission, which attorneys' fees may
be paid as incurred, except to the extent such liability or damage is
caused by the fraud, intentional misconduct or knowing violation of
Applicable Law by the Liquidator or any officers, directors, managers,
agents or employees thereof that was material to the subject cause of
action.
(
*k)FORM OF LIQUIDATING DISTRIBUTIONS. For purposes of making
distributions required by Section 11.2, the Liquidator may determine
whether to distribute all or any portion of Property in-kind or to sell all
or any portion of Property and distribute the proceeds therefrom.
(
****ARTIX. : DISPUTE RESOLUTIONARTICLE XII DISPUTE RESOLUTION
ARTICLE
ARTICLE SECTION 12.1. GENERAL PROVISIONSSection 12.1. General
Provisions .
ARTICLE
*a)DISPUTE. Any dispute, controversy or claim arising out of or
relating to this Agreement or any related agreement or the validity,
interpretation, breach or termination hereof or thereof (other than a
dispute, controversy or claim (x) brought by a Person who is not a Member
or an Affiliate of a Member or (y) otherwise involving a Person who is not
a Member or an Affiliate of a Member and such Person is an indispensable
party for appropriate resolution of such dispute, controversy or claim) (a
"DISPUTE"), including, without limitation, claims seeking redress or
asserting rights under Applicable Law, shall be settled by arbitration in
New York City in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The decision and award of the arbitrator
shall be final and binding on all parties in interest. Judgment upon the
decision award (including the allocation of costs of any arbitration)
rendered by the arbitrator may be entered in any Court having jurisdiction
thereof. Until completion of such arbitration, no party hereto may take
any action not contemplated herein to force a resolution of the Dispute by
any judicial, arbitral or similar process, except to the limited extent
necessary to avoid expiration of a claim that might eventually be permitted
hereby or as provided in Section 12.3.
(
*b)All communications between the parties hereto that are a party to a
Dispute (each, a "DISPUTE PARTY") or their respective representatives in
connection with the attempted resolution of any Dispute shall be deemed to
have been delivered in furtherance of a Dispute settlement and shall be
exempt from discovery and production, and shall not be admissible in
evidence (whether as an admission or otherwise), in any arbitral or other
proceeding for the resolution of the Dispute.
(
*c)In connection with any Dispute, the parties hereto expressly waive
and forego any right to trial by jury.
(
(SECTION 12.2. CONSIDERATION BY SENIOR EXECUTIVESSection 12.2.
Consideration by Senior Executives . If a Dispute cannot be resolved at an
operational level, any Dispute Party may, by notice to the other Dispute
Parties, request referral to the highest officer of each Member (or such
officer's designee) for their consideration. Such request shall be
accompanied by a written statement of the Dispute and of each Dispute
Party's position. Within fifteen (15) calendar days after such request,
each of the non-requesting Dispute Parties shall either concur in such
statement or prepare its own, and such statement(s) shall be delivered to
the officers named above. Such officers shall meet in person or by
telephone within thirty (30) days thereafter to seek a resolution. If no
resolution is reached by the expiration of forty-five (45) calendar days
from the referral request, then any Dispute Party may submit such Dispute
to resolution as further provided in Section 12.3 by notice to the other
Dispute Parties.
(
(SECTION 12.3. ARBITRATIONSection 12.3. Arbitration .
(
*d)The arbitration shall be conducted in New York City. Each Dispute
Party shall present its case, witnesses and evidence, if any, in the
presence of the other Dispute Parties. A written transcript of the
proceedings shall be made and furnished to the Dispute Parties. The
arbitrator shall determine (i) any Dispute relating to the governance of
the Company in accordance with the law of the state of Delaware, and (ii)
any other Dispute in accordance with the law of the state of New York, in
each case without giving effect to any conflict of law rules or other rules
that might render such law inapplicable or unavailable, and shall apply
this Agreement according to its terms.
(
*e)The parties hereto shall be bound by any award or order resulting
from any arbitration conducted hereunder and:
(
((i) any monetary award shall include pre-award interest, to the
extent appropriate, and shall be made and payable in United States
currency through a bank selected by the recipient of such award, free
of any withholding tax or other deduction, together with interest
thereon at LIBOR in effect on the date of the award, from the date the
award is granted to the date it is paid in full;
(
((ii) in the context of an attempt by any Dispute Party to
enforce an arbitral award or order, the parties hereto hereby waive
any defenses relating to the Dispute Parties' capacity or the validity
of this Agreement or any related agreement under any law; and
(
((iii) judgment on any award or order resulting from an
arbitration conducted under this Section 12.3 may be entered and
enforced in any court (in any country) having jurisdiction thereof or
having jurisdiction over any of the Dispute Parties or any of their
assets.
(
*f)Except as expressly permitted by this Agreement, no party hereto
shall commence or voluntarily participate in any court action or proceeding
concerning a Dispute, except (I) for enforcement as contemplated by Section
12.3(b)(iii), (II) to restrict or vacate an arbitral decision based on the
grounds specified under Applicable Law and not waived in Section
12.3(b)(ii), or (III) for interim relief as provided in Section 12.3(d).
For purposes of the foregoing or enforcement of any undisputed obligation,
each of the parties hereto hereby irrevocably submits to the non-exclusive
jurisdiction of the courts of any state or federal court sitting in New
York City and any appellate court from any thereof.
(
*g)In addition to the authority otherwise conferred on the arbitral
tribunal, such tribunal hereunder shall have the authority to make such
orders for interim relief, including, without limitation, injunctive relief
and specific performance, as it may deem just and equitable. If the
tribunal shall not have been appointed, any Dispute Party may seek interim
relief from a court having jurisdiction if the award to which the applicant
may be entitled may be rendered ineffectual without such interim relief.
Upon appointment of the tribunal following any grant of interim relief by a
court, the tribunal may affirm or disaffirm such relief, and the Dispute
Parties shall seek modification or rescission of the court action as
necessary to accord with the tribunal's decision.
(
*h)The prevailing Dispute Party in any arbitration conducted under
this Section 12.3 shall be entitled to recover from the other Dispute
Parties (as part of the arbitral award or order) such prevailing Dispute
Party's reasonable attorneys' fees and other costs of arbitration.
(
*i)Insofar as it is within the control of the Dispute Parties, and
notwithstanding anything to the contrary in the applicable arbitration
rules:
(
((i) the arbitrator shall be selected within thirty (30) calendar
days after such Dispute is submitted to arbitration hereunder;
(
((ii) any discovery that may be permitted (A) shall be completed
within sixty (60) calendar days, (B) shall not exceed single
depositions of more than five (5) individuals per side who are
directly involved and (C) shall not exceed a single, reasonable
request for directly relevant documents;
(
((iii) any hearing that may be held shall take place within
ninety (90) calendar days after completion of discovery, and each
Dispute Party's presentation at the hearing shall not require more
than three (3) full days;
(
((iv) any written briefs submitted to the arbitrator shall not
exceed a total of twenty-five (25) pages prior to the hearing and
fifteen (15) pages subsequently, in each case excluding exhibits; and
((v) the decision shall be issued in writing, with reasons
therefor, within thirty (30) days after the hearing.
(
****ARTIXI. : MISCELLANEOUSARTICLE XIII MISCELLANEOUS
ARTICLE
ARTICLE SECTION 13.1. NOTICESSection 13.1. Notices . Except as
otherwise set forth herein, all notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of the date delivered if delivered by hand, by
telecopier (confirmed by hand delivery or overnight courier service) or by
overnight courier service to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
ARTICLE
ARTICLE
<TABLE>
<CAPTION>
ARTICLE ARTICLE
ARTICLE IF TO IASG: ARTICLE WITH A COPY TO:
<S> <C>
ARTICLE
ARTICLE International Airline Support Group, Inc. ARTICLE King & Spalding
ARTICLE 1954 Airport Road, Suite 200 ARTICLE 191 Peachtree
ARTICLE Atlanta, GA 30341 Street
ARTICLE Attention: Chief Financial Officer ARTICLE Atlanta, GA
ARTICLE Telephone: 770-455-7575 30303-1763
ARTICLE Telecopier: 770-455-7550 ARTICLE Attention:
Philip A. Theodore,
Esq.
ARTICLE Telephone: 404-527-4676
ARTICLE Telecopier: 404-572-5100
ARTICLE
ARTICLE IF TO AIRCORP: ARTICLE WITH A COPY TO:
ARTICLE
ARTICLE AirCorp, Inc. ARTICLE
ARTICLE 3890 West Northwest Highway, Suite 700
ARTICLE Dallas, TX 75220
ARTICLE Attention: Jim Wikert
ARTICLE Telephone: 214-902-2518
ARTICLE Telecopier: 214-350-1399
</TABLE>
ARTICLE
ARTICLE SECTION 13.2. BINDING EFFECT; ASSIGNMENTSection 13.2. Binding
Effect; Assignment . Except as otherwise provided in this Agreement, every
covenant, term and provision of this Agreement shall be binding upon and
inure to the benefit of the Members and their respective successors
transferees and assigns. Notwithstanding the preceding sentence, neither
this Agreement nor any right, remedy, obligation or liability arising
hereunder or by reason hereof shall be assignable by any party hereto
without the prior written consent of all other parties hereto, except for
such transfers that comply with Article X.
ARTICLE
ARTICLE SECTION 13.3. ENTIRE AGREEMENTSection 13.3. Entire Agreement .
This Agreement, together with the Omnibus Agreement, represents the entire
understanding of the parties hereto with reference to the matters set forth
herein and supersede all prior negotiations, discussions, correspondence,
communications and prior agreements among the parties hereto or their
Affiliates relating to the subject matter herein.
ARTICLE
ARTICLE SECTION 13.4. WAIVERSection 13.4. Waiver . Any failure of any
party hereto to comply with any obligation, covenant, agreement or
condition contained herein may be waived by the party entitled to the
benefits thereof, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
ARTICLE
ARTICLE SECTION 13.5. INTERPRETATIONSection 13.5. Interpretation .
ARTICLE
*a)CONSTRUCTION. Every covenant, term and provision of this Agreement
shall be construed simply according to its fair meaning and not strictly
for or against any Member.
(
*b)TIME. In computing any period of time pursuant to this Agreement,
the day of the act, event or default from which the designated period of
time begins to run shall not be included, but the time shall begin to run
on the next succeeding day.
(
*c)HEADINGS. Article, Section and other headings contained in this
Agreement are for reference purposes only and are not intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or
any provision hereof.
(
*d)INCORPORATION BY REFERENCE. Every exhibit, schedule and other
appendix attached to this Agreement and referred to herein is not
incorporated in this Agreement by reference unless this Agreement expressly
otherwise provides.
(
*e)VARIATION OF TERMS. All terms and any variations thereof shall be
deemed to refer to masculine, feminine or neuter, singular or plural, as
the identity of the Person or Persons may require.
SECTION 13.6. SEVERABILITYSection 13.6. Severability . Except as
otherwise provided in the succeeding sentence, every provision of this
Agreement is intended to be severable and, if any term or provision of this
Agreement is illegal or invalid for any reason whatsoever, such illegality
or invalidity shall not affect the validity or legality of the remainder of
this Agreement. The preceding sentence of this Section 13.6 shall be of no
force or effect if the consequence of enforcing the remainder of this
Agreement without such illegal or invalid term or provision would be to
cause any Member to lose the material benefit of its economic bargain.
SECTION 13.7. GOVERNING LAWSection 13.7. Governing Law . Except as
set forth in Section 12.3(a), this Agreement shall be governed by, and
construed in accordance with the laws of, the state of Delaware.
SECTION 13.8. COUNTERPART EXECUTIONSection 13.8. Counterpart Execution
. This Agreement may be executed in any number of counterparts with the
same effect as if all of the Members had signed the same document. All
counterparts shall be construed together and shall constitute a single
agreement.
SECTION 13.9. SPECIFIC PERFORMANCESection 13.9. Specific Performance .
Each Member hereby acknowledges and agrees that (a) the other Members would
be irreparably damaged if any of the provisions of this Agreement are not
performed in accordance with their specific terms and that monetary damages
would not provide
an adequate remedy in such event and (b) in addition to any other remedy to
which the non-breaching Members may be entitled, at law or in equity, the
non-breaching Members shall be entitled to injunctive relief to prevent
breaches of the provisions of this Agreement and specifically to enforce
the terms and provisions hereof in any action instituted in any court of
competent jurisdiction.
IN WITNESS WHEREOF, the parties have executed and entered into this
Operating Agreement of the Company as of the day first above set forth.
AIRCORP, INC.
By:
Name:
Title:
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
By:
Name:
Title:
[August 30, 1999 (5:06PM)] [2-848661-1]
<PAGE>
EXHIBIT A:
THE CERTIFICATE OF FORMATION
FILED WITH THE OFFICE OF THE SECRETARY OF STATE OF
THE STATE OF DELAWARE
<PAGE>
EXHIBIT B:
THE MANAGERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Address Designated by
<S> <C> <C>
</TABLE>
<PAGE>
EXHIBIT C:
THE INITIAL OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Address Title
<S> <C> <C>
</TABLE>
<PAGE>
EXHIBIT D:
EXCEPTIONS TO NONTRANSFER RULE OF SECTION 10.1
<EXHIBIT 21>
EXHIBIT 21
LIST OF SUBSIDIARIES
IASG --Virgin Islands, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> May-31-1999
<PERIOD-END> May-31-1999
<CASH> 892,283
<SECURITIES> 0
<RECEIVABLES> 3,154,920
<ALLOWANCES> 342,420
<INVENTORY> 11,131,059
<CURRENT-ASSETS> 16,098,418
<PP&E> 5,740,012
<DEPRECIATION> 1,734,503
<TOTAL-ASSETS> 23,976,019
<CURRENT-LIABILITIES> 4,574,820
<BONDS> 8,138,059
<COMMON> 2,655
0
0
<OTHER-SE> 11,263,140
<TOTAL-LIABILITY-AND-EQUITY> 23,976,019
<SALES> 24,344,083
<TOTAL-REVENUES> 27,671,942
<CGS> 18,196,982
<TOTAL-COSTS> 24,406,419
<OTHER-EXPENSES> (1,026,359)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,301,421
<INCOME-PRETAX> 2,990,461
<INCOME-TAX> 1,036,145
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,954,316
<EPS-BASIC> 0.77
<EPS-DILUTED> 0.72
</TABLE>
