SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.For the quarterly period
ended November 30, 1999 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _____________ to _____________.
Commission file number 0-18352
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INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
--------------------------------------------
Delaware 59-2223025
---------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1954 Airport Road, Suite 200, Atlanta, GA 30341
----------------------------------------- -----
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 455-7575
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of the Company's common stock outstanding as of
January 4, 2000 was 2,187,198.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARYINDEX
Page No.
---------
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of 3
May 31, 1999 and November 30, 1999
Condensed Consolidated Statements of Earnings 4
for the Three Months and Six Months
Ended November 30,1998 and 1999
Condensed Consolidated Statements of Cash Flows 5
for the Six Months Ended
November 30, 1998 and 1999
Notes to Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 9
Part II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a
Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
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<PAGE>
3
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31, November 30
1999* 1999
------------- -----------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 892,283 $ 797,703
Accounts receivable, net of allowance for
doubtful accounts of approximately
$342,000 at May 31, 1999 and $436,000
at November 30, 1999 2,812,500 2,109,760
Inventories 11,131,059 12,405,723
Deferred tax benefit - current 1,128,302 1,128,302
Other current assets 134,274 592,525
------- -------
Total current assets 16,098,418 17,034,013
Property and equipment
Aircraft and engines held for lease 4,593,854 10,968,854
Leasehold improvements 157,175 164,059
Machinery and equipment 988,983 1,048,940
------- ---------
5,740,012 12,181,853
Accumulated depreciation 1,734,503 2,301,440
--------- ---------
Property and equipment, net 4,005,509 9,880,413
Other assets
Investment in joint venture 2,373,572 3,042,219
Deferred debt costs, net 360,406 333,194
Deferred tax benefit 1,071,959 400,238
Deposits and other assets 66,155 50,206
------ ------
Total other assets 3,872,092 3,825,857
--------- ---------
$ 23,976,019 $ 30,740,283
= ========== = ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term
obligations $ 1,455,600 $ 2,340,805
Accounts payable 910,029 1,037,840
Accrued expenses 2,209,191 1,851,566
--------- ---------
Total current liabilities 4,574,820 5,230,211
Long-term obligations, less current maturities 8,138,059 13,256,910
Stockholders' equity
Preferred stock - $.001 par value;
authorized 2,000,000 shares; 0 shares
outstanding at May 31, 1999 and
November 30, 1999 - -
Common stock - $.001 par value;
authorized 20,000,000 shares; issued and
outstanding 2,655,723 shares at May 31,
1999 and 2,658,723 shares at
November 30, 1999 2,655 2,658
Additional paid-in capital 13,936,089 13,946,793
(Accumulated deficit) retained earnings (728,824) 279,033
Common stock held in treasury, at
cost - 467,325 shares at May 31, 1999 and
471,525 shares at November 30, 1999 (1,946,780) (1,975,322)
----------- ----------
Total stockholders' equity 11,263,140 12,253,162
----------- ----------
$ 23,976,019 $ 30,740,283
= ========== = ==========
</TABLE>
*Condensed from audited Financial Statements
The accompanying notes are an integral part of these condensed financial
statements
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<PAGE>
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
1998 1999 1998 1999
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Net sales $ 5,041,727 $ 5,249,175 $ 9,830,111 $13,578,257
Lease and service revenue 794,236 958,258 1,580,798 1,627,687
------------ ----------- ---------- ----------
Total revenues 5,835,963 6,207,433 11,410,909 15,205,944
Cost of sales 3,501,982 3,843,089 6,758,905 9,961,421
Selling, general and administrative expenses 1,117,854 1,354,107 2,160,738 3,060,978
Depreciation and amortization 337,842 313,187 595,672 590,954
------------ ----------- ---------- ----------
Total operating costs 4,957,678 5,510,384 9,515,315 13,613,353
Equity in net earnings of
unconsolidated joint venture 348,106 420,737 348,106 821,802
------------ ----------- ---------- ----------
Earnings from operations 1,226,391 1,117,786 2,243,700 2,414,393
Interest expense 341,539 390,574 652,028 719,740
Interest income and other (income) expenses 15,003 (23,887) 9,387 (27,829)
------------ ----------- ---------- ----------
Earnings before income taxes 869,849 751,099 1,582,285 1,722,482
Provision for income taxes 330,541 297,532 601,267 671,720
------------ ----------- ---------- ----------
Net earnings $ 539,308 $ 453,567 981,018 $ 1,050,762
============ =========== ========== ==========
Per share data:
Earnings per share available for
common stockholders - basic $ 0.21 $ 0.21 $ 0.38 $ 0.48
Weighted average number of common
stock outstanding - basic 2,569,167 2,187,198 2,566,520 2,187,762
============ =========== ========== ==========
Earnings per share available for
common stockholders - diluted $ 0.20 $ 0.20 $ 0.35 $ 0.45
Weighted average number of common
stock outstanding - diluted 2,723,198 2,324,796 2,779,285 2,326,034
============ =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements
- 4 -
<PAGE>
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months ended
November 30,
1998 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 981,018 $ 1,050,762
Adjustments to reconcile net earnings to net cash
(used in) provided by operating activities:
Depreciation and amortization 595,672 590,954
Loss on sale of investment 20,074 -
Undistributed equity in earnings of joint venture (348,106) (821,802)
Provision for income taxes - deferred 330,541 671,720
Changes in assets and liabilities (1,834,010) (1,312,291)
Total adjustments (1,235,829) (871,419)
Net cash (used in) provided by
operating activities (254,811) 179,343
Cash flows from investing activities:
Capital equipment additions (43,421) (66,841)
Investment in unconsolidated joint venture (1,514,000) -
Proceeds from sale of investment 94,665 -
Distributions received from joint venture, net - 153,155
Additions to aircraft and engines held for lease, net (1,949,917) (6,375,000)
Net cash used in investing activities (3,412,673) (6,288,686)
Cash flows from financing activities:
Net increase in debt obligations 3,809,507 6,004,056
Proceeds from exercise of employee stock options 23,250 10,707
Net cash provided by financing activities 3,832,757 6,014,763
Net increase (decrease) in cash 165,273 (94,580)
Cash and cash equivalents at beginning of period 438,403 892,283
Cash and cash equivalents at end of period $ 603,676 $ 797,703
= ======= = =======
</TABLE>
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<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain adjustments (consisting only of normal
and recurring adjustments) necessary to present fairly International Airline
Support Group, Inc. and its Subsidiary's condensed consolidated balance sheets
as of May 31, 1999 and November 30, 1999, the condensed consolidated statements
of earnings for the three and six months ended November 30, 1998 and 1999, and
the condensed consolidated statements of cash flows for the six months ended
November 30, 1998 and 1999.
The accounting policies followed by the Company are described in the May
31, 1999 financial statements.
The results of operations for the three and six months ended November 30,
1999 are not necessarily indicative of the results to be expected for the full
year.
2. Inventories consisted of the following:
May 31, 1999 November 30, 1999
-------------- --------------------
Aircraft parts $ 8,679,059 $ 7,168,762
Aircraft and Engines
available for sale 2,452,000 5,236,961
------------ -----------
$11,131,059 $12,405,723
============ ===========
3. Earnings Per Share
The Company's basic earnings per share are calculated by dividing net
earnings by the weighted average shares outstanding during the period. The
computation of diluted earnings per share includes all dilutive common stock
equivalents in the weighted average shares outstanding.
Financial Accounting Standards Board (FASB) Statement 128 "Earnings
Per Share" was adopted by the Company on January 1, 1998 and requires the dual
presentation of basic and diluted earnings per share on the face of the
statement of earnings. The reconciliation between the computation is as
follows:
Three Months
Ended Net Basic Basic Diluted Diluted
November 30, Earnings Shares EPS Shares EPS
------------- -------- ------ --- ------ ---
1998 $ 539,308 2,569,167 $0.21 2,723,198 $0.20
1999 $ 453,567 2,187,198 $0.21 2,324,796 $0.20
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months
Ended Net Basic Basic Diluted Diluted
November 30, Earnings Shares EPS Shares EPS
------------- -------- ------ --- ------ ---
1998 $ 981,018 2,566,520 $0.38 2,779,285 $0.35
1999 $1,050,762 2,187,279 $0.48 2,326,034 $0.45
Included in diluted shares are common stock equivalents relating to stock
options of 154,031 and 137,598 for the three months ended November 30, 1998 and
1999, respectively, and 212,765 and 138,755 for the six months ended November
30, 1998 and 1999, respectively.
4. Credit Facility
On October 3, 1996, the Company entered into the Credit Agreement, which
provided for a $3 million term loan and up to an $11 million revolving credit.
The Credit Agreement was amended on various occasions to create new term loan
facilities and to increase the revolving credit to $14 million (collectively
referred to as the "Credit Facility"). The Credit Facility is secured by
substantially all of the assets of the Company and availability of amounts for
borrowing is subject to certain limitations and restrictions. Such limitations
and restrictions are discussed in the Company's Proxy Statement/Prospectus filed
with the Securities and Exchange Commission on August 29, 1996.
5. Supplemental Cash Flow Disclosures:
Cash payments for interest were $537,611 and $550,127 for the six months
ended November 30, 1998 and November 30, 1999, respectively. Cash and cash
equivalents include $582,651 and $159,950 of restricted cash at May 31, 1999 and
November 30, 1999, respectively. Restricted cash includes customer receipts
deposited into the Company's lockbox account, which are applied the next
business day against the outstanding amount of the Credit Facility, and customer
deposits on aircraft and engines leases.
6. 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 approximately $1.5 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 Air41 Joint Venture is accounted for under the equity method and the leases
are treated as operating leases.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Joint Venture (cont.)
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.
7. Treasury Stock
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
Company's Board of Directors and lender in December 1998. During the six months
ended November 30, 1999, the Company repurchased 6,500 shares of its common
stock at an average price of $4.39 for a total expenditure of $28,542. This
repurchase brings the total number of shares repurchased to 471,525 at an
average price of $4.19 and a total expenditure of $1,975,322. The Company does
not 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 interest of the Company. The Company's lender must also approve any
such purchases.
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<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is management's discussion and analysis of certain
significant factors which have affected the Company's operating results and
financial position during the periods included in the accompanying condensed
consolidated financial statements.
RESULTS OF OPERATIONS:
- ------------------------
Revenues
- --------
Total revenue for the three and six months ended November 30, 1999 was $6.2
million and $15.2 million, respectively, compared to $5.8 million and $11.4
million, respectively, during the three and six months ended November 30, 1998.
Net sales for the three and six months ended November 30, 1999 were $5.2 million
and $13.6 million, respectively, compared to $5.0 million and $9.8 million,
respectively, during the three and six months ended November 30, 1998, primarily
relating to an increase in turboprop parts sales and aircraft and engine sales.
Net sales include parts sales as well as aircraft and engine sales. Aircraft
and engine sales are unpredictable transactions and may fluctuate significantly
from year to year, 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, as well as the overall market for used aircraft or
engines. Lease and service revenue increased to $958,000 and $1.6 million,
respectively, for the three and six months ended November 30, 1999 from $794,000
and $1.6 million, respectively, for the three and six months ended November 30,
1998, primarily due to an increase in service revenue and the lease of two
aircraft to Skywest Airlines. Under the equity method of accounting, lease
revenue from the Air41 Joint Venture is not included in the Company's revenue.
Cost of Sales
- ---------------
Cost of sales increased 10% from $3.5 million during the three months ended
November 30, 1998 to $3.8 million during the three months ended November 30,
1999. Cost of sales increased 47% from $6.8 million during the six months ended
November 30, 1998 to $10.0 million during the six months ended November 30,
1999. These increases were due primarily to increases in revenue, an increase
in the sale of brokered parts and a higher cost of sales for aircraft and
engines. As the Company continues to expand its brokered part sales, gross
margins should decrease from historical levels, which reflect higher levels of
sales of parts out of inventory. As a percentage of total revenues, cost of
sales for the three and six months ended November 30, 1998 was 60.0% and 59.2%,
respectively, compared to 61.9% and 65.5% during the three and six months ended
November 30, 1999, respectively. The increase in costs of sales as a percentage
of total revenue is due to an increase in the sale of brokered parts at a lower
gross margin than owned parts. As the sales of brokered parts is expected to
increase, the gross profit percentage should continue to decline in the future.
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<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
Selling, General and Administrative Expenses
- ------------------------------------------------
Selling, general and administrative expenses increased 21% from $1.1
million during the three months ended November 30, 1998 to $1.4 million during
the three months ended November 30, 1999. Selling, general and administrative
expenses increased 42% from $2.2 million during the six months ended November
30, 1998 to $3.1 million during the six months ended November 30, 1999. These
increases are due, in part, to the increase in revenue resulting in increases in
commissions, bonuses and outside professional fees, higher advertising and
promotional expenses, and an increase in the provision for doubtful accounts.
In addition during the six months ended November 30, 1998, the Company's
provision for doubtful accounts was offset by the recovery of a certain doubtful
account. Selling, general, and administrative costs as a percentage of total
revenue were 21.8% and 20.1%, respectively, for the three and six months ended
November 30, 1999 compared to 19.2% and 18.9%, respectively, for the three and
six months ended November 30, 1998.
Depreciation and Amortization
- -------------------------------
Depreciation and amortization for the three and six months ended November
30, 1998 totaled $338,000 and $596,000, respectively, compared to $313,000 and
$591,000, respectively, for the three and six months ended November 30, 1999,
respectively.
Interest Expense
- -----------------
Interest expense for the three and six months ended November 30, 1998 was
$342,000 and $652,000, respectively, compared to $391,000 and $720,000 for the
three and six months ended November 30, 1999, respectively. This increase in
interest expense was due to a higher average of total debt outstanding during
this period partially offset by a reduction in the interest rate assessed to the
Company (see Liquidity and Capital Resources).
Treasury Stock
- ---------------
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
Company's Board of Directors and lender in December 1998. During the three
months ended November 30, 1999, the Company repurchased 6,500 shares of its
common stock at an average price of $4.39 for a total expenditure of $28,542.
This repurchase brings the total number of shares repurchased to 471,525 at an
average price of $4.19 and a total expenditure of $1,975,322. The Company does
not 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 interest of the Company. The Company's lender must also approve any
such purchases.
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<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
Net Earnings
- -------------
Earnings per share - diluted for the second quarter of fiscal 2000 were
$0.20, based on 2,324,796 weighted average shares outstanding, compared to
earnings per share - diluted for the second quarter of fiscal 1999 of $0.20,
based on 2,723,198 weighted average shares outstanding. Earnings per share -
diluted for the first six months of fiscal 2000 were $0.45, based on 2,326,034
weighted average shares outstanding, compared to earnings per share - diluted
for the first six months of fiscal 1999 of $0.35 per share - diluted, based on
2,779,285 weighted average shares outstanding. The decrease in the weighted
average shares outstanding - basic and diluted is the result of the Company's
stock repurchase program.
Liquidity and Capital Resources
- ----------------------------------
The Credit Agreement originally 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 several new term loan
facilities 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 January 4, 2000, the
interest rate under the Credit Facility was the lender's base rate (8.25%) minus
0.25%. 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/used in operating activities for the six months ended
November 30, 1999 and November 30, 1998 were $179,000 and $250,000,
respectively. The cash provided by operating activities for six months ended
November 30, 1999 was due primarily to improved collection of accounts
receivables. The cash used in operating activities for the six months ended
November 30, 1998 was due primarily to an increase in accounts receivables.
Net cash used for investing activities for the six months ended November
30, 1999 amounted to $6,289,000 compared to $3,413,000 for the six months ended
November 30, 1998. The net cash used for investing activities for the six
months ended November 30, 1999 was primarily the result of the use of $6,375,000
to purchase aircraft and engines. The net cash used for investing activities
for the six months ended November 30, 1998 was primarily the result of an
investment in the Air41 Joint Venture and the addition of three JT8D-15 engines
held for lease offset by the proceeds from the sale of an engine that had been
held for lease.
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<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
Liquidity and Capital Resources (cont.)
- -------------------------------------------
Net cash provided by financing activities for the six months ended November 30,
1999 amounted to $6,015,000 compared to $3,833,000 for the six months ended
November 30, 1998. The net cash provided by financing activities for the six
months ended November 30, 1999 was the result of a net increase in debt
obligations of $6 million due to the borrowing of funds for the acquisition of
aircraft and engines. The net cash provided by financing activities for the six
months ended November 30, 1998 was primarily the result of a net increase in
debt obligations of $3.8 million due to the borrowing of funds for the
acquisition of the three JT8D-15 engines and the investment in the Air41 Joint
Venture.
At January 4, 2000, the Company was permitted to borrow up to an additional
$2.4 million pursuant to the revolving credit facility. As operations are
currently conducted, the Company believes that amounts available to be borrowed
pursuant to the Credit Agreement and its working capital will be sufficient to
meet the requirements of the Company's business for the foreseeable future (see
discussion in Recent Developments below). The Company had no material
commitments for capital expenditures as of November 30, 1999.
Recent Developments
- --------------------
The Company intends to file an application for an Air Carrier Certificate
under Part 135 of the regulations of the Federal Aviation Administration or to
purchase a company that has a Part 135 certificate. A Part 135 certificate
permits the holder to operate aircraft for cargo transportation service up to a
maximum payload of 7,500 pounds or on-demand passenger charter service for up to
30 passengers. The Company intends to initiate service by the first quarter of
fiscal 2001. Earnings could be negatively impacted due to investment in this
subsidiary. The Company is evaluating the possibility of raising capital by
issuing debt or equity securities of the subsidiary to finance the startup and
initial operations of this subsidiary.
As of January 4, 2000, the Company owns four Embraer EMB-120 aircraft that
are not currently under lease. The Company intends to sell or lease these
aircraft; however, the aircraft are currently in maintenance for repairs. While
these aircraft are in maintenance and until they are utilized, future earnings
could be negatively impacted because the interest expense associated with debt
incurred to purchase the aircraft may not be offset by revenues generated from
the sale or lease of the aircraft.
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<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
Recent Accounting Pronouncements
- ----------------------------------
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.
Year 2000 Issues
- ------------------
The Company experienced no disruptions in the operation of its internal
information systems or in the availability of its facilities during its
transition to year 2000. The Company is not aware that any of its vendors
experienced any disruptions during their transitions to year 2000 or that there
have been any year 2000 problems with its material held for sale. The Company
will continue to monitor the transition to year 2000 and will act promptly to
resolve any problems that occur.
Forward Looking Statements
- ----------------------------
This Form 10-Q contains statements that may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Those statements include statements regarding the capital spending and future
financing plans of the Company and reflect the intent, belief or current
expectations of the Company and members of its management team. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements. The Company undertakes no obligation to update or
revise forward-looking statements to reflect changed assumptions, the occurrence
of unanticipated events or changes to future operating results over time.
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<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is from time to time subject to legal proceedings and claims
that arise in the ordinary course of its business. On the date hereof, no such
proceedings are pending and no such claims have been asserted.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant conducted an annual meeting of its stockholders on October
7, 1999. The Registrant solicited proxies pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. There was no solicitation in
opposition to management's solicitation and all persons nominated by the
Registrant for election to its Board of Directors at the annual meeting were so
elected. The following sets forth a brief description of each other matter
acted upon during the Annual Meeting, indicating the number of votes cast for,
against and withheld, and the number of non-broker votes as to each matter.
1. The approval of amendments to the Registrant's Restated and Amended
Certificate of Incorporation and Restated Bylaws to provide for a Board of
Directors of not less than one nor more than 15 directors, as may be determined
by the Board of Directors from time to time.
For: 974,986 Against: 452,857
Abstain: 10,282 Brokered Non-Vote: 0
2. The approval of an amendment to the Company's 1996 Long Term Incentive
and Share Award Program to increase by 109,000 the number of shares available
for grant under the Plan.
For: 901,724 Against: 530,222
Abstain: 6,179 Brokered Non-Vote: 0
3. To ratify the appointment of Grant Thornton LLP as the Company's
independent auditors for the fiscal year ending May 31, 2000.
For: 1,388,999 Against: 47,982
Abstain: 1,144 Brokered Non-Vote: 0
- 14 -
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
<TABLE>
<CAPTION>
Exhibit
NUMBER DESCRIPTION PAGE NUMBER OR METHOD OF FILING
<S> <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.
<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.
2.12 Eighth Amendment Filed herewith
dated as of December 8, 1998
1999, between BNY Financial
Corporation and the Registrant
and related to the Credit
Agreement.
2.13 Ninth Amendment Filed herewith
dated as of July 1, 1999
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.
16
<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 Incorporated by reference to Exhibit 10.14 to the
Air41 LLC, Exhibit 10.15 to the 1999 Form 10-K
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.
27 Financial Filed herewith.
Data
Schedule.
</TABLE>
(b) Reports on Form 8-K
----------------------
The Registrant filed a Current Report on Form 8-K on October 8, 1999. The
date of the report was also October 8, 1999. The report filed the consent of
Grant Thornton LLP to the incorporation of the audit report of such firm into
other filings made by the Registrant pursuant to the Securities Exchange Act of
1034, as amended.
- 17 -
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
- --------------------------------------------
(Registrant)
/s/James M. Isaacson January 5, 2000
- ---------------------- -----------------
James M. Isaacson Date
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> May-31-2000
<PERIOD-END> Nov-30-1999
<CASH> 797,703
<SECURITIES> 0
<RECEIVABLES> 2,545,760
<ALLOWANCES> 436,000
<INVENTORY> 12,405,723
<CURRENT-ASSETS> 17,034,013
<PP&E> 12,181,853
<DEPRECIATION> 2,301,440
<TOTAL-ASSETS> 30,740,283
<CURRENT-LIABILITIES> 5,230,211
<BONDS> 13,256,910
<COMMON> 2,658
0
0
<OTHER-SE> 12,250,504
<TOTAL-LIABILITY-AND-EQUITY> 30,740,283
<SALES> 5,249,175
<TOTAL-REVENUES> 6,207,433
<CGS> 3,843,089
<TOTAL-COSTS> 5,510,384
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 55,032
<INTEREST-EXPENSE> 366,687
<INCOME-PRETAX> 751,099
<INCOME-TAX> 297,532
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 453,567
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.20
</TABLE>
EIGHTH AMENDMENT AND AGREEMENT
EIGHTH AMENDMENT AND AGREEMENT, dated as of December 8, 1998 (this "Eighth
------
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 (vi) a $1,000,000.00
revolving credit facility and (vi) a $2,000,000 letter of 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 make certain changes in the method of calculating of the Revolver
Borrowing Base (as defined in 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.
ARTICLE I
Definitions
1. Definitions. (a) In addition to the definitions set forth in the
-----------
heading and the recitals to this Eighth Amendment, the following definitions
shall apply to this Eighth Amendment:
"Agreement": means the Existing Credit Agreement as amended by this Eighth
---------
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, the Sixth Amendment, dated as of May 30, 1998,
between the Borrower and the Lender, and the Seventh Amendment dated as of
October 28, 1998 as the same may have been further amended, supplemented or
modified from time to time up to but not including the effectiveness of this
Eighth Amendment.
"Eighth Amendment Documents": this Eighth Amendment and any other agreements,
----------------------------
instruments and documents executed or delivered pursuant to or in connection
-
with this Eighth 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 Eighth Amendment and the other Eighth 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 Eighth Amendment and to authorize the execution, delivery and
performance of the Eighth 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 Eighth Amendment
Documents to which it is a party. Each Eighth Amendment Document to which the
Borrower is a party has been or will be duly executed and delivered on behalf of
the Borrower. Each Eighth 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 Section 1 of the Existing Credit Agreement
1. Section 1.1 of the Existing Credit Agreement is hereby amended by
inserting the following new definitions therein in alphabetical order:
"Eighth Amendment": that certain Eighth Amendment and Agreement, dated as
-----------------
of December __, 1998, between the Borrower and the Lender.
"Eighth Amendment Documents": the Eighth Amendment and any other agreements,
----------------------------
instruments and documents executed or delivered pursuant to or in connection
--
with the Eighth Amendment and the transactions contemplated thereby.
--
"Eighth Amendment Effective Date": the date on which all of the conditions
----------------------------------
precedent to the effectiveness of the Eighth Amendment set forth in Article IV
----
of the Eighth Amendment are first satisfied or waived.
"Orderly Liquidation Value": as to any Aircraft, Airframe, Aircraft Engine or
---------------------------
Aircraft Part, or group of any of the foregoing, as determined by the Lender or
-
the Appraiser, the value of such Aircraft, Airframe, Aircraft Engine, Aircraft
Part or group based on the assumption that it is sold in a one-year, orderly
marketing period.
2. 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) 50% (or such other percentage as the Lender shall determine in
its sole and absolute discretion) of the Orderly Liquidation Value, after
subtracting any Collateral Reserves, of such Eligible Inventory and (iii)
$11,500,000.00;"
3. 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 Eighth 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."
ARTICLE IV
Conditions to Effectiveness
This Eighth Amendment, and the modifications to the Credit Agreement
provided for herein, shall become effective on the date (the "Eighth Amendment
----------------
Effective Date") on which all of the following conditions have been (or are
--------------
concurrently being) satisfied:
---
1. This Eighth Amendment shall have been executed and delivered by each
party hereto.
2. All payments required under Article V, Section 1 of this Eighth
Amendment shall have been paid to the Lender by the Borrower.
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 revision in the Revolver Borrowing Base and the execution,
delivery and performance of this Eighth Amendment, certified by the Secretary or
an Assistant Secretary of the Borrower as of the Eighth 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 Eighth Amendment Effective Date,
as to the incumbency and signature of the officer(s) of the Borrower executing
this Eighth 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. 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 Eighth 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).
6. No Default or Event of Default shall have occurred and be continuing.
7. All corporate and other proceedings, and all documents, instruments and
other legal matters in connection with the transactions contemplated by this
Eighth 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.
8. 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. Amendment Fee. In connection with this Eighth Amendment, the
--------------
Borrower shall pay to the Lender an amendment fee of $10,000.00.
2. Payment of Expenses. Without limiting its obligations under Section 9.5
--------------------
of the Existing Agreement and Section 1 of this Article of this Eighth
Amendment, the Borrower agrees to pay or reimburse the Lender for all of its
reasonable costs and expenses incurred in connection with this Eighth Amendment
and the other Eighth 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.
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 consents to the execution and
--------------
delivery of this Eighth Amendment and each of the other Eighth Amendment
Documents to which Borrower is a party and reaffirms its obligations under the
Credit Documents.
5. 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:
NINTH AMENDMENT AND AGREEMENT
NINTH AMENDMENT AND AGREEMENT, dated as of July 1, 1999 (this "Ninth
-----
Amendment"), to the Existing Credit Agreement (as hereinafter defined), by and
---
between INTERNATIONAL AIRLINE SUPPORT GROUP, INC., a Delaware corporation (the
"Borrower"), and BNY FACTORING LLC, a New York limited liability company (the
--------
"Lender"), as successor in interest to BNY FINANCIAL CORPORATION ("BNYFC").
------
RECITALS
The Borrower and BNYFC 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, (vi) a $1,000,000.00 revolving credit facility
and (vii) a $2,000,000 letter of credit facility, all of which are secured by
accounts receivable, inventory and other collateral of the Borrower. The
Borrower has requested that the Lender provide an additional $5,500,000.00 term
loan facility (as more specifically defined below, the "Term Loan E Facility")
--------------------
for the acquisition of two Embraer EMB-120RT Brasilia aircraft (bearing
manufacturer's serial numbers 120.194 and 120.191, respectively) (the "Aircraft
--------
Acquisition"). Subject to the terms and conditions hereof, the Lender is
- -----------
willing to provide the Term Loan E 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 Ninth Amendment, the following definitions
shall apply to this Ninth Amendment:
"Agreement": means the Existing Credit Agreement as amended by this Ninth
---------
Amendment.
-----
"Aircraft Acquisition Documents" : the collective reference to (i) the Purchase
--------------------------------
and Sale Agreement made and entered into as of June 30, 1999 among Newcourt
Capital USA Inc. ("Newcourt"), First Security Bank, National Association, as
owner trustee (the "Owner Trustee") and Borrower, (ii) the Warranty Bill of Sale
given by the Owner Trustee to the Borrower in respect of the Term Loan &
Aircraft (as defined in Article III, Section 1 hereof), (iii) the Assignment and
Assumption Agreement dated as of June 30, 1999 between the Owner Trustee and the
Borrower, (iv) the Escrow Deposit Agreement dated as of June 30, 1999 between
[the Owner Trustee][Newcourt] and the Borrower and (v)the Consent and Agreement
dated as of June 30, 1999 between SkyWest and the Borrower.
"Existing Credit Agreement": means the Credit Agreement, dated as of September
---------------------------
30, 1996, between the Borrower and BNYFC, as amended by the First Amendment,
Waiver and Agreement, dated as of March 24, 1997, between the Borrower and
BNYFC, the Second Amendment and Agreement, dated as of September 9, 1997,
between the Borrower and BNYFC, the Third Amendment and Agreement, dated as of
October 15, 1997, between the Borrower and BNYFC, the Fourth Amendment and
Agreement, dated as of February 2, 1998, between the Borrower and BNYFC, the
Fifth Amendment and Agreement, dated as of July 16, 1998, between the Borrower
and BNYFC, the Sixth Amendment and Agreement, dated as of May 30, 1998, between
the Borrower and BNYFC, the Seventh Amendment and Agreement, dated as of October
28, 1998, between the Borrower and BNYFC and the Eighth Amendment and Agreement,
dated as of December 8, 1998, between the Borrower and BNYFC, as the same may
have been further amended, supplemented or modified from time to time up to but
not including the effectiveness of this Ninth Amendment.
"Ninth Amendment Documents": this Ninth Amendment, the SkyWest Consent and
---------------------------
Agreement (as defined in Article III, Section 1 hereof), the Term Loan E
----
Aircraft Chattel Mortgages (as defined in Article III, Section 1 hereof), the
----
SkyWest Aircraft Lease Supplement and Receipt (as defined in Article III,
-
Section 1 hereof), the Term Note E (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 Ninth 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 Ninth Amendment and the other Ninth 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 Ninth Amendment and to authorize the execution, delivery and performance of
the Ninth 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 Ninth Amendment Documents to which it is a
party. Each Ninth Amendment Document to which the Borrower is a party has been
or will be duly executed and delivered on behalf of the Borrower. Each Ninth
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:
"Aircraft Propeller": each aircraft propeller in which the Borrower may now
------------------
have or in the future acquire an interest and any aircraft propeller substituted
therefor by a lessee pursuant to an Aircraft Lease, together in each case with
any and all Aircraft Parts incorporated or installed in or attached thereto and
any Aircraft Part removed therefrom until such time as a replacement part shall
be substituted therefor. Except as otherwise set forth herein, at such time as
an aircraft propeller shall be substituted by a lessee pursuant to an Aircraft
Lease, such replaced Aircraft Propeller shall cease to be an Aircraft Propeller
hereunder.
"Ninth Amendment": that certain Ninth Amendment and Agreement, dated as of July
----------------
1, 1999, between the Borrower and the Lender.
"Ninth Amendment Documents": the Ninth Amendment, the SkyWest Consent and
---------------------------
Agreement, the Term Loan E Aircraft Chattel Mortgages, Term Note E and any other
-----
agreements, instruments and documents executed or delivered pursuant to or in
connection with the Ninth Amendment and the transactions contemplated thereby.
"Ninth Amendment Effective Date": the date on which all of the conditions
---------------------------------
precedent to the effectiveness of the Ninth Amendment set forth in Article IV of
-----
the Ninth Amendment are first satisfied or waived.
"Sky West": means SkyWest Airlines, Inc., a Utah corporation.
---------
"Sky West Aircraft Lease Supplement and Receipt": the collective reference to
-------------------------------------------------
the Equipment Schedule and the Certificate of Acceptance, each dated as of the
-
date of its execution and delivery between First Security Bank, National
Association, predecessor in interest under the SkyWest Leases to Borrower, and
SkyWest.
"SkyWest Consent and Agreement": that certain Consent and Agreement, dated as of
-----------------------------
July ___, 1999, by and among SkyWest, the Borrower and the Lender, in respect of
the SkyWest Leases.
"SkyWest Leases": the collective reference to (i) that Amended and Restated
---------------
Aircraft Lease Agreement (N269UE) dated as of December 9, 1998, between SkyWest
---
and First Security Bank, National Association, as Owner Trustee, as lessor, as
supplemented by an Equipment Schedule dated December 9, 1998, between the
Company and SkyWest and by a Certificate of Acceptance dated December 9, 1998 by
SkyWest, as the same may hereafter be further amended, supplemented or modified
(ii) that Amended and Restated Aircraft Lease Agreement (N289UE) dated as of
December 9, 1998, between SkyWest and First Security Bank, National Association,
as Owner Trustee, as lessor, as supplemented by an Equipment Schedule dated
December 9, 1998, between the Company and SkyWest and by a Certificate of
Acceptance dated December 9, 1998 by SkyWest, as the same may hereafter be
further amended, supplemented or modified and the Sky West lease Supplement and
Receipt.
"Term Loan E": as defined in Section 2.3(f) (together with any advance made in
-------------
connection with the substitution of a Term Loan E Aircraft, Term Loan E Aircraft
Engine or Term Loan E Aircraft Propeller pursuant to Section 2.5(e)).
"Term Loan E Aircraft": each Aircraft owned from time to time by the Borrower
-----------------------
and listed as a Term Loan E 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 E Aircraft Chattel Mortgages": the collective reference to each
-------------------------------------------
Aircraft Chattel Mortgage, dated as of July 1, 1999, from the Borrower to the
----
Lender with respect to a Term Loan E Aircraft.
-
"Term Loan E Aircraft Engine": each Aircraft Engine owned from time to time by
-----------------------------
the Borrower and listed as a Term Loan E 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 E Aircraft Propeller": each Aircraft Propeller owned from time to
----------------------------------
time by the Borrower and listed as a Term Loan E Aircraft Propeller 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 E Borrowing Base": at any time, 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, after deduction of any applicable
Collateral Reserves, at such time, of all Term Loan E Aircraft and (ii) the
purchase therefor price paid by the Borrower to SkyWest.
"Term Loan E Facility": at any time, the obligation of the Lender to make Term
----------------------
Loan E in accordance with the provisions of this Agreement, which shall not
exceed an amount equal to $5,500,000.00 minus the aggregate amount of repayments
-----
of principal then required to have been made in accordance with Schedule 2.3E.
-------------
"Term Note E": a promissory note of the Borrower evidencing Term Loan E, in form
-----------
and substance acceptable to the Lender.
(b) The definition of the term "Aircraft Engine" in Section 1.1 of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by the
following:
""Aircraft Engine": shall mean each aircraft engine in which the Borrower
----------------
may now have or in the future acquire an interest and any aircraft engine
substituted by a lessee pursuant to an Aircraft Lease, together in each case
with any and all Aircraft Parts incorporated or installed in or attached thereto
and any Aircraft Part removed therefrom until such time as a replacement part
shall be substituted therefor and in each case excluding any Aircraft Propellers
installed on or attached thereto. Except as otherwise set forth herein, at such
time as an aircraft engine shall be substituted by a lessee pursuant to an
Aircraft Lease, such replaced Aircraft Engine shall cease to be an Aircraft
Engine hereunder."
(c) The definition of the term "Aircraft Inventory" in Section 1.1 of
the Existing Credit Agreement is hereby deleted in its entirety and replaced by
the following:
""Aircraft Inventory": all Aircraft, Airframes, Aircraft Engines, Aircraft
-------------------
Propellers and Aircraft Parts of the Borrower other than any Approved Aircraft
and any Airframes, Aircraft Engines, Aircraft Propellers and Aircraft Parts
incorporated or installed in, attached to, or otherwise identified as being
related to or comprising part of an Approved Aircraft."
(d) The definition of the term "Aircraft Parts" in Section 1.1 of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by the
following:
""Aircraft Parts": shall mean all appliances, components, parts,
---------------
instruments, appurtenances, avionics, accessories, furnishings and other
---
equipment of whatever nature (other than complete Aircraft Engines and complete
Aircraft Propellers), which are now or from time to time may be incorporated or
installed in or attached to an aircraft (including without limitation the
airframe of such aircraft, any related aircraft engines and aircraft propellers
and any related appliances, components, parts, instruments, appurtenances,
avionics, accessories, furnishings and other equipment of whatever nature).
Except as otherwise set forth in an Aircraft Lease, only at such time as a
replacement aircraft part shall be substituted for an Aircraft Part in
accordance with such Aircraft Lease, shall the Aircraft Part so replaced cease
to be an Aircraft Part hereunder."
(e) The definition of the term "Airframe" in Section 1.1 of the
Existing Credit Agreement is hereby deleted in its entirety and replaced by the
following:
""Airframe": each of the Aircraft, excluding any Aircraft Engines or
--------
engines and any Aircraft Propellers or propellers from time to time installed
thereon, but including any and all Aircraft Parts (except Aircraft Parts that
are incorporated or installed in or attached to any such Aircraft Engine,
engine, Aircraft Propellers, or propellers), so long as: (i) such included
Aircraft Parts shall be incorporated or installed in or attached to such
Aircraft (but not in or to any Aircraft Engines or Aircraft Propellers from time
to time installed thereon); or (ii) such included Aircraft Parts shall remain
identified or connected with such Aircraft in that they are subject to repair,
alteration or modification as provided in Sections 6.13 and 6.14 of this
Agreement."
(f) 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, the Term Loan D Aircraft Engines, the Term
Loan E Aircraft, the Term Loan E Aircraft Engines and the Term Loan E Aircraft
Propellers."
(g) 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
Sixth Amendment, the Seventh Amendment, the Eighth Amendment, the Ninth
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, Term E Note,
any Revolver Note and any other documents, agreements or instruments executed
and delivered to the Lender pursuant to Section 6.11."
(h) 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) on such date, the Term Loan D Facility
(without regard to any Term Loan D borrowings made prior to or on such date) on
such date and the Term Loan E Facility (without regard to any Term Loan E
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 on such
date, the Term Loan C Borrowing Base on such date, the Term Loan D Borrowing
Base on such date and the Term Loan E Borrowing Base on such date."
(i) 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,
the Term Loan D Borrowing Base and the Term Loan E Borrowing Base."
(j) 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, the Term Loan D
Facility and the Term Loan E Facility."
(k) 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, Term Loan D and Term Loan E."
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, the Term Loan C Borrowing Base, the
Term Loan D Facility, the Term Loan D Borrowing Base, the Term Loan E Facility
and the Term Loan E Borrowing Base)".
(b) Section 2.3 of the Existing Credit Agreement is hereby amended by inserting
the following at the end of such Section:
"(f) 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 E Aircraft or
Term Loan E Aircraft Engines pursuant to Section 2.5(e) hereof, "Term Loan E")
-----------
on the Ninth Amendment Effective Date in the principal amount of the lesser of
(a) the Term Loan E Facility on such date and (b) the Term Loan E Borrowing Base
on such date. Term Loan E shall be dated the Ninth Amendment Effective Date,
stated to mature in the installments and amounts payable on the dates set forth
in Schedule 2.3E hereto, and bear interest for the period from the Ninth
--------------
Amendment Effective Date on the unpaid principal amount thereof at the
----
applicable interest rates per annum specified in Section 3.1 it being understood
----
and agreed that notwithstanding anything to the contrary in said Schedule 2.3E,
-------------
if the Termination Date shall occur prior to the final maturity date set forth
therein, then all amounts owing under Term Loan E, including accrued interest,
shall become due and payable on such Termination Date. All payments of
principal thereof shall reduce the Term Loan E 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 at the end of such
Section:
"(e) At the request of the Borrower and after substitution of a Term Loan E
Aircraft, a Term Loan E Aircraft Engine or a Term Loan E Propeller (the
"Substitute Term Loan E Aircraft, Engine or Propeller") for a Term Loan E
----------------------------------------------------
Aircraft, a Term Loan E Aircraft Engine or a Term Loan E Propeller which has
been sold or has suffered an Event of Loss within six months after repayment of
Term Loan E to the extent and as required by Section 3.3(d) hereof, the Lender
may make an advance in an amount equal to the least 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 E Aircraft or Engine, less any
applicable Collateral Reserve, (ii) the amount, if any, by which (A)
$5,500,000.00 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 2.3E
-------------
hereto exceeds (B) the outstanding principal balance of Term Loan E on such date
(prior to the making of such advance) and (iii) the purchase price paid by the
Borrower for the Substitute Term Loan E Aircraft, Engine or Propeller. 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 E for all purposes
hereunder and shall increase the Term Loan E Facility on a dollar-for-dollar
basis. From and after the making of such advance the outstanding principal
balance of Term Loan E 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 3.3. 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, then against the repayment of Term Loan D to the extent
that the outstanding principal amount of Term Loans D exceeds the Term Loan D
Borrowing Base, and then against the repayment of Term Loan E to the extent that
the outstanding principal amount of Term Loans E exceeds the Term Loan E
Borrowing Base, 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, (iii) the
excess, if any, of the Term Loan C Borrowing Base over the outstanding principal
amount of Term Loan C, (iv) the excess, if any, of the Term Loan D Borrowing
Base over the outstanding principal amount of Term Loan D, and (v) the excess,
if any, of the Term Loan E Borrowing Base over the outstanding principal amount
of Term Loan E, 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, (iii) the
excess if any of the Term Loan B Borrowing Base over the outstanding principal
amount of Term Loan B, (iv) the excess if any of the Term Loan D Borrowing Base
over the outstanding principal amount of Term Loan D, and (v) the excess, if
any, of the Term Loan E Borrowing Base over the outstanding principal amount of
Term Loan E, the Borrower shall immediately prepay Term Loan C in an amount
equal to such deficiency.
(iv) 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, (iv) the excess if any of the Term Loan C Borrowing Base
over the outstanding principal amount of Term Loan C, and (v) the excess, if
any, of the Term Loan E Borrowing Base over the outstanding principal amount of
Term Loan E, the Borrower shall immediately prepay Term Loan D in an amount
equal to such deficiency."
5. 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 of 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 Term Loan E of the Lender, in form and substance
acceptable to the Lender ("Term Note E"), (vi) 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 (vii) 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")."
-----------------------------
6. 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
the Term Loan D Borrowing Base and the Term Loan E Borrowing Base and the Term
Loan F 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, (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,
and (v) in the case of the Term Loan E Borrowing Base, in connection with the
delivery of such certificate on the Ninth Amendment Effective Date and in each
case that the Term Loan E 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;"
7. 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.
8. 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.
9. Amendments to Schedules 2.3A, 2.3B, 2.3C and 2.3D. Schedules
---------------------------------------------------
2.3A, 2.3B, 2.3C and 2.3D are hereby amended to include Schedule 2.3E, which
shall read as is set forth on Schedule 2.3E hereto.
ARTICLE IV
Conditions to Effectiveness
This Ninth Amendment, and the modifications to the Credit Agreement
provided for herein, shall become effective on the date (the "Ninth Amendment
---------------
Effective Date") on which all of the following conditions have been (or are
-------------
concurrently being) satisfied:
--
1. Each of the Ninth Amendment Documents shall have been executed and
delivered by each party thereto.
2. The Lender shall have received executed legal opinions of Smith
Gambrell & Russell, LLP, special counsel to the Borrower, in form and substance
satisfactory to the Lender and taking into account this Ninth Amendment and the
matters contemplated hereby (including, without limitation, opinions with
respect to the validity of the Ninth 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 Ninth Amendment and the other Ninth 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 Ninth Amendment and the matters
contemplated hereby (including, without limitation, opinions as to the
effectiveness of the filing of the SkyWest Aircraft Leases with the FAA). Such
legal opinion shall cover such matters incident to the transactions contemplated
by this Ninth Amendment and the other Ninth 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 Ninth Amendment and the other Ninth Amendment Documents to
which the Borrower is a party, certified by the Secretary or an Assistant
Secretary of the Borrower as of the Ninth 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 Ninth Amendment Effective Date,
as to the incumbency and signature of the officer(s) of the Borrower executing
each Ninth 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 true, correct and complete copies of
the Governing Documents of the Borrower, certified as of the Ninth Amendment
Effective Date, as true, correct and complete copies thereof by the Secretary or
an Assistant Secretary of the Borrower.
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 SkyWest Leases and all documents required to be delivered under Article
Three of the Term Loan E Aircraft Chattel Mortgages.
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 Ninth 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
Ninth 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, the Term Loan C Borrowing Base, the Term Loan D Borrowing Base
and the Term Loan E Borrowing Base, in each case as of the Business Day
immediately preceding the Ninth Amendment Effective Date, with appropriate
insertions and dated the Ninth 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 E 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 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 E
Aircraft shall have been completed.
15. The Borrower shall have acquired the Term Loan E Aircraft and all right
title and interest of the lessor in the SkyWest Aircraft Leases, in each case
free and clear of all Liens other than liens of SkyWest is responsible
thereunder, but only to the extent that such Liens are permissible thereunder.
16. 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.
ARTICLE V.
Miscellaneous
1. Closing Fee; Payment of Expenses. (a) On the Ninth
------------------------------------
Amendment Effective Date, the Borrower shall pay to the Lender in immediately
available funds a fee equal to $30,000.00 (which shall be in addition to all
fees paid to the Lender prior to the execution and delivery of this Ninth
Amendment). The Lender is hereby authorized to withhold the amount of such fee
from the proceeds of Term Loan E.
(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 Ninth Amendment
and the other Ninth 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. SkyWest Aircraft Lease Supplement and Receipt. Borrower hereby
--------------------------------------------------
agrees that that it shall deliver to the Lender an original executed copy of the
SkyWest Aircraft Lease Supplement and Receipt immediately upon its execution and
delivery by the Borrower and SkyWest.
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 (i) the
--------------
SkyWest Consent and Agreement constitutes a Consent and Agreement under the
Agreement, and (ii) each Term Loan E 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 Ninth Amendment and each of the other Ninth
Amendment Documents to which Borrower is a party and reaffirms its obligations
under the Credit Documents.
6. Governing Law; Counterparts. (a) This Ninth 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 Ninth 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 Ninth Amendment signed by all the parties shall be
lodged with the Borrower and the Lender. This Ninth 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 Ninth 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>
-2-
NYLIB1\CWT\NYLIB1\386221.3
SCHEDULE I
- -----------
APPROVED AIRCRAFT, APPROVED AIRCRAFT LEASES,
------------------------------------------------
PERMITTED JURISDICTIONS AND PERMITTED LESSEES
-------------------------------------------------
APPROVED AIRCRAFT:
------------------
TERM LOAN A AIRCRAFT:
- -----------------------
Description Registration No. Manufacturer Serial No.
----------- ----------------- -------------------------
None N/A N/A
TERM LOAN A ENGINES
- ----------------------
Description Manufacturer Serial No.
----------- -------------------------
1. Pratt & Whitney JT8D-7 654823
2. Pratt & Whitney JT8D-9 653845
3. Pratt & Whitney JT8D-15 P702898
TERM LOAN B AIRCRAFT
- -----------------------
Description Registration No. Manufacturer Serial No.
----------- ----------------- -------------------------
1. Boeing B-727-044F N94GS 18892
TERM LOAN B ENGINES
- ----------------------
Description Manufacturer Serial No.
----------- -------------------------
None N/A
<PAGE>
- ------
TERM LOAN C AIRCRAFT
- -----------------------
Description Registration No. Manufacturer Serial No.
----------- ----------------- -------------------------
None N/A N/A
TERM LOAN C ENGINES
- ----------------------
Description Manufacturer Serial No.
----------- -------------------------
1. Pratt & Whitney JT8D-15 P688643
TERM LOAN D AIRCRAFT
- -----------------------
Description Registration No. Manufacturer Serial No.
----------- ----------------- -------------------------
TERM LOAN D ENGINES
- ----------------------
Description Manufacturer Serial No.
----------- -------------------------
1. Pratt & Whitney JT8D-15 P666704
TERM LOAN E AIRCRAFT
- -----------------------
Description Registration No. Manufacturer Serial No.
----------- ----------------- -------------------------
1. Embraer EMB-120RT Brasilia N269UE 120.194
1. Embraer EMB-120RT Brasilia N593SW 120.191
TERM LOAN E ENGINES
- ----------------------
Description Manufacturer Serial No.
----------- -------------------------
1. Pratt & Whitney PW-118 PCE-115407
2. Pratt & Whitney PW-118 PCE-115179
3. Pratt & Whitney PW-118 PCE-115337
4. Pratt & Whitney PW-118 PCE-115435
TERM LOAN E AIRCRAFT PROPELLERS
- -----------------------------------
Description Manufacturer Serial No.
----------- -------------------------
1. Hamilton Standard 14RF-9 MFG-900412
2. Hamilton Standard 14RF-9 MFG-900413
3. Hamilton Standard 14RF-9 MFG-900511
4. Hamilton Standard 14RF-9 MFG-900508
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
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
APPROVED LEASES AND PERMITTED LESSEES:
-------------------------------------
1. 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
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 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
3. Property subject to lease: (2) Pratt & Whitney JT8D-7B engines and other
related equipment.
Lessee: Express One International, Inc.
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).
4. Property subject to lease: (1) Embraer EMB-120RT Brasilia Aircraft, (2)
Pratt & Whitney PW-118 engines and other related equipment.
Lessee: SkyWest Airline, Inc.
Term: *[December 9, 1999] through
Amount: *[December 9, 2004], subject to a three year renewal right of
SkyWest.
5. Property subject to lease: (1) Embraer EMB-120RT Brasilia Aircraft, (2)
Pratt & Whitney PW-118 engines and other related equipment.
Lessee: SkyWest Airline, Inc.
Term: *[December 9, 1999] through
Amount: *[December 9, 2004], subject to a three year renewal right of
SkyWest.
<PAGE>
SCHEDULE 1.1
-------------
AIRCRAFT, AIRCRAFT ENGINES, AIRCRAFT PROPELLERS AND AIRCRAFT LEASES
-------------------------------------------------------------------
AIRCRAFT, AIRCRAFT ENGINES AND AIRCRAFT PROPELLERS:
- -------------------------------------------------------
Description Registration No. Manufacturer Serial No.
----------- ----------------- -------------------------
1. Aircraft Engines:
-----------------
Pratt & Whitney JT8D engine 654823
2. Aircraft:
---------
Boeing 727-044F N94GS 18892
3. Aircraft Engines:
-----------------
Pratt & Whitney JT8D-9 653845
4. Aircraft Engines:
-----------------
Pratt & Whitney JT8D-15 P688643
Pratt & Whitney JT8D-15 P666704
Pratt & Whitney JT8D-15 P702898
5. Aircraft:
---------
Embraer EMB-120RT Brasilia N269UE 120.194
Aircraft Engines:
- -----------------
Pratt & Whitney PW-118 PCE-115407
Pratt & Whitney PW-118 PCE-115179
Aircraft Propellers:
- --------------------
Hamilton Standard 14RF-9 MFG-900511
Hamilton Standard 14RF-9 MFG-900179
6. Aircraft:
---------
Embraer EMB-120RT Brasilia N593SW 120.191
Aircraft Engines:
- -----------------
Pratt & Whitney PW-118 PCE-115337
Pratt & Whitney PW-118 PCE-115435
Aircraft Propellers:
---------------------
Hamilton Standard 14RF-9 MFG-900412
Hamilton Standard 14RF-9 MFG-900413
AIRCRAFT LEASES:
- ----------------
1. Property subject to lease: (2) Pratt & Whitney JT8D-7B engines and other
related equipment.
Lessee: Express One International, Inc.
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).
2. Property subject to lease: (1) Embraer EMB-120RT Brasilia Aircraft, (2)
Pratt & Whitney PW-118 engines and other related equipment.
Lessee: SkyWest Airline, Inc.
Term: December 9, 1998 through 5-year term, subject to one 3-year
renewal term at the option of Lessee.
Amount: $42,500 per month
3. Property subject to lease: (1) Embraer EMB-120RT Brasilia Aircraft, (2)
Pratt & Whitney PW-118 engines and other related equipment.
Lessee: SkyWest Airline, Inc.
Term: December 9, 1998 through 5-year term, subject to one 3-year
renewal term at the option of Lessee.
Amount: $42,500 per month
4. Property subject to lease: () Pratt & Whitney JT8D-7B engine and related
equipment.
Lessee: TEM Enterprises, Inc. d/b/a Casino Express Airlines
Term: July 8, 1999 through _____ in accordance with Section 2 of the
Lease
Amount: $22,000 per month plus a usage payment of $75 per flight hour or
cycle, whichever is greater, with a minimum of 100 per month (but not to exceed
$18,000 per month.
5. Property subject to lease: (2) Pratt & Whitney JT8D-7B engines and
related equipment.
Lessee: Investors Asset Holding Corp., not in its individual capacity but
solely for the benefit of Airfund II International Limited Partnership, a
Massachusetts limited partnership
Term: September 17, 1998 through ________, in accordance with Section 2
of the Lease
Amount: $41,000 per engine per month
<PAGE>
SCHEDULE 2.3E
-------------
TERM LOAN E PRINCIPAL REPAYMENT SCHEDULE
----------------------------------------
PRINCIPAL PRINCIPAL
PAYMENT DATE AMOUNT DUE
- ------------- -----------
July 31, 1999 $ 75,000.00
August 31, 1999 $ 75,000.00
September 30, 1999 $ 75,000.00
October 31, 1999 $ 75,000.00
November 30, 1999 $ 75,000.00
December 31, 1999 $ 75,000.00
January 31, 2000 $ 75,000.00
February 29, 2000 $ 75,000.00
March 31, 2000 $ 75,000.00
April 30, 2000 $ 75,000.00
May 31, 2000 $ 75,000.00
June 30, 2000 $ 75,000.00
July 31, 2000 $ 75,000.00
August 31, 2000 $ 75,000.00
September 30, 2000 $ 75,000.00
October 31, 2000 $ 75,000.00
November 30, 2000 $ 75,000.00
December 31, 2000 $ 75,000.00
January 31, 2001 $ 75,000.00
February 28, 2001 $ 75,000.00
March 31, 2001 $ 75,000.00
April 30, 2001 $ 75,000.00
May 31, 2001 $ 75,000.00
June 30, 2001 $ 75,000.00
July 31, 2001 $ 75,000.00
August 31, 2001 $ 75,000.00
September 30, 2001 $ 75,000.00
October 31, 2001 $ 75,000.00
November 30, 2001 $ 75,000.00
December 31, 2001 $ 75,000.00
January 31, 2002 $ 75,000.00
February 28, 2002 $ 75,000.00
March 31, 2002 $ 75,000.00
April 30, 2002 $ 75,000.00
May 31, 2002 $ 75,000.00
June 30, 2002 $ 75,000.00
July 31, 2002 $ 75,000.00
August 31, 2002 $ 75,000.00
September 30, 2002 $ 75,000.00
October 31, 2002 $ 75,000.00
November 30, 2002 $ 75,000.00
December 31, 2002 $ 75,000.00
January 31, 2003 $ 75,000.00
February 28, 2003 $ 75,000.00
March 31, 2003 $ 75,000.00
April 30, 2003 $ 75,000.00
May 31, 2003 $ 75,000.00
June 30, 2003 $ 75,000.00
July 31, 2003 $1,900,000.00
Notwithstanding the foregoing, the entire principal amount together with accrued
and unpaid interest is due and payable on the Termination Date (as extended) if
the same shall occur on or prior to August 1, 2003.
