<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997 COMMISSION FILE NUMBER 1-10561
BANNER AEROSPACE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-2039311
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
300 WEST SERVICE ROAD 20041
WASHINGTON DULLES INTERNATIONAL AIRPORT (ZIP CODE)
WASHINGTON, D.C.
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 478-5790
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
- ----------------------------------------------------------------------------------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant based on the closing price at which stock was sold on the New York
Stock Exchange on June 6, 1997: $187,388,880.
<TABLE>
<CAPTION>
SHARES OUTSTANDING
TITLE OF CLASS AS OF JUNE 6, 1997
- ----------------------------------------------------------------------------------------------
<S> <C>
Common Stock 23,423,610
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Registrant intends to file with the Securities and Exchange Commission a
definitive Proxy Statement for the 1997 Annual Meeting of Stockholders to be
held on September 12, 1997 pursuant to Regulation 14A of the Securities Exchange
Act of 1934 within 120 days of the close of its fiscal year ended March 31,
1997, portions of which document are incorporated by reference in Part III
(Items 10, 11, 12 and 13) of this Annual Report on Form 10-K from the date such
document is filed.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<C> <S> <C>
P A R T I
1. Business........................................................................ 3
2. Properties...................................................................... 7
3. Legal Proceedings............................................................... 8
4. Submission of Matters to a Vote of Security Holders............................. 8
P A R T I I
5. Market for Registrant's Common Equity and Related Stockholder Matters........... 9
6. Selected Consolidated Financial Information..................................... 10
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 10
8. Consolidated Financial Statements and Supplementary Data........................ 15
9. Disagreements with Accountants on Accounting and Financial Disclosure........... 33
P A R T I I I
Statement of Omission........................................................... 33
P A R T I V
14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K............... 33
Signatures...................................................................... 37
</TABLE>
<PAGE> 3
P A R T I
ITEM 1. BUSINESS
GENERAL
Banner Aerospace, Inc. (the "Company") is a leading international supplier
to the aerospace industry as a distributor, providing a wide range of aircraft
parts and related support services. The Company's products are divided into
three product groups: hardware, rotables and engines. Hardware includes
bearings, nuts, bolts, screws, rivets and other types of fasteners. Rotables
include flight data recorders, radar and navigation systems, instruments,
landing gear and hydraulic and electrical components. Engines include jet
engines and engine parts for use on both narrow and wide body aircraft and
smaller engines for corporate and commuter aircraft. The Company provides a
number of services such as immediate shipment of parts in aircraft on ground
("AOG") situations. The Company provides products to original equipment
manufacturers and subcontractors ("OEMs") in the aerospace industry under
just-in-time ("JIT") and inventory management programs. The Company also
provides both long term and short term engine leasing services to several
commercial airlines and air freight carriers. The Company, through its
subsidiaries, sells its products in the United States and abroad to most of the
world's commercial airlines and to air cargo carriers, as well as to many OEMs,
other distributors, fixed-base operations, corporate aircraft operators and
other aerospace and non-aerospace companies.
The Company's long-term strategies are: (i) to become the most cost
efficient supplier of quality parts to the aerospace industry; (ii) to grow both
internally through increased market share at each subsidiary and externally by
acquisitions and/or strategic alliances; and (iii) to continuously focus on its
customers' needs and to provide products and services which best address their
requirements. The Company's immediate goals are: (i) to reduce operating costs
in the hardware group by consolidating operations in California and (ii) to
integrate new computer systems to enhance inventory management and delivery
systems.
According to Boeing's 1997 Current Market Outlook, the total market
potential for new commercial aircraft from 1997 through 2016 will reach 16,160
new deliveries. The delivery rate of new aircraft reached an industry high in
1991 of 844 aircraft and declined precipitously to 485 units in 1995. Boeing's
pro-rated annual forecast between 1997 and 2001 increases to an average of 742
aircraft per year, or a 53.0% increase over 1995 rates. Boeing predicts that the
greatest geographical needs are expected to occur in the Asian market with
predictions of average annual growth of 8.4% in revenue passenger miles between
1997 and 2006. Travel in China and Hong Kong alone is expected to grow by over
9.6% per year. This bodes well for the Company's strategy of delivering services
around the world, including the expansion of two facilities in that region,
Singapore and Australia.
Federal Aviation Administration data forecasts that regional and commuter
markets will also reflect steady increases in annual growth rates.
Equally as important, industry trends show OEM and aftermarket customers
are continuing to rely on outsourcing programs, looking for low-cost, single
source providers. With the Company's broad product lines, distribution
experience, procurement expertise and low cost-structure, it is well-positioned
to take advantage of these trends.
DESCRIPTION OF BUSINESS
The Company distributes a wide variety of aircraft parts, which it carries
in inventory. In addition to selling products that it has purchased on the open
market, the Company also acts as a non-exclusive, authorized distributor of many
different product lines. No single distributor arrangement is material to the
Company's financial condition taken as a whole.
The Company believes it is the world's largest independent stocking
distributor of aircraft hardware, including bearings, nuts, bolts, screws,
rivets and other types of fasteners that are used on aircraft. The Company
purchases its inventory of hardware parts principally from manufacturers. An
extensive inventory of products and a quick response time are essential in
providing services to the Company's customers. Another
3
<PAGE> 4
key factor in selling to its customers is the Company's ability to maintain a
system that provides for traceability of parts back to the manufacturer.
In fiscal 1996, the Company opened its distribution center in Salt Lake
City, Utah ("Distribution Center"), which currently houses a significant portion
of the Company's hardware inventory. The Distribution Center has an automated
storage and retrieval system ("ASRS") with integrated bar-coding capabilities,
optical scanning for a paperless environment, a computer imaging system for more
accurate traceability and an on-line document reference. All of these are
expected to improve the Company's productivity and efficiency, as well as
provide an additional source of cost savings. Although the Distribution Center
was fully operational in fiscal 1997, it is anticipated that the forecasted
savings will not be fully realized until the end of fiscal 1998.
The Company's largest subsidiary, Burbank Aircraft Supply, Inc. ("Burbank
Aircraft"), sells fasteners to most commercial airlines and air cargo carriers
and many OEMs in the world, as well as to aircraft overhaul facilities and to
other distributors. Burbank Aircraft is not dependent on any single customer,
the loss of which would have a material adverse effect on the Company's
operating results or financial position taken as a whole. Burbank Aircraft's
computerized inventory system and its ability to ship products from the
Distribution Center in Salt Lake City, Utah enable Burbank Aircraft to respond
promptly to customer needs and offer immediate shipment in AOG situations
virtually anywhere in the world, 24 hours a day, 365 days a year. In addition,
Burbank Aircraft has a distribution facility in Hamburg, Germany to enhance
service to its European customers.
In 1993, Burbank Aircraft began supplying Rohr, Inc. ("Rohr"), a leading
manufacturer of aircraft engine nacelle systems, on a JIT basis. Currently, the
agreement with Rohr calls for supplying more than 15,000 different line items of
aircraft fasteners and electrical components to eight Rohr plants. The JIT
contract is supported through warehouses in Utah and California, as well as
three forward stocking locations in Arkansas, Texas and Alabama.
In addition, Burbank Aircraft has a non-exclusive support arrangement with
Airbus Industrie ("Airbus") pursuant to which Burbank Aircraft maintains an
inventory of fasteners for aircraft manufactured by Airbus. Burbank Aircraft has
been designated by Airbus as its recommended worldwide supplier of standard
hardware for its aircraft. Management believes that Burbank Aircraft is the
largest supplier of replacement hardware for Airbus aircraft in the world.
However, there are other suppliers and thus competition in the sale of fasteners
for Airbus aircraft exists.
In March 1996, the Company acquired Harco, Inc. ("Harco"), a former
subsidiary of The Fairchild Corporation ("Fairchild"). Harco is an authorized
stocking distributor for numerous self-locking nut manufacturers and has an
automated CD-ROM retrieval system for manufacturer certifications and test
reports to maintain traceability to the original manufacturer of each fastener
production lot. Harco supplies directly or through indirect distribution to many
commercial and military aerospace customers in the United States and Europe.
Inventory has been strategically provisioned near customers to allow immediate
delivery of locknuts and gang-channels required by OEMs. Harco also provides
replacement and spare parts to commercial airlines and overhaul and repair
facilities.
In January 1997, the Company, through a subsidiary, consummated the
acquisition of PB Herndon Company ("PB Herndon") which is a wholesale
distributor of a diverse selection of high quality aerospace fasteners and
related components, effective October 1996. PB Herndon provides validation of
dimensional specifications, certification of testing levels and revision level
information on all parts. PB Herndon sells its products to OEMs and commercial
and military customers in the aerospace industry and to the U.S. Government. PB
Herndon has an on-site U.S. Government Quality Assurance Representative at its
facility which enhances its delivery capabilities to the U.S. Government.
Through its other hardware subsidiaries, the Company distributes bearings
to the aerospace industry and high-precision miniature and instrument ball
bearings to OEMs of medical equipment and to distributors that sell to the
medical, aerospace and computer industries. In a generally fragmented industry,
the Company believes that its relatively large size and financial strength
provide a competitive advantage, allowing its hardware group to purchase
inventory in large quantities at favorable prices.
4
<PAGE> 5
Solair, Inc. ("Solair") is the Company's largest subsidiary in the rotable
group. A rotable is a part that must be removed periodically as required by the
manufacturer or the Federal Aviation Administration ("FAA") and is then
typically overhauled and re-used. The Company stocks and sells a broad spectrum
of aircraft rotables and manages power by the hour contracts and overhaul
programs for several foreign airlines. Under the power by the hour contracts,
the Company is required to provide full management support for certain services
to the customers, overseeing maintenance and providing parts. These services
include engines, rotable/consumable parts, airframe, landing gear, or any
combination of these items.
The Company, through its engine group, sells jet engines and engine parts
for use on both narrow and wide body aircraft and smaller engines for corporate
and commuter aircraft. Dallas Aerospace, Inc. ("Dallas Aerospace"), the
Company's largest subsidiary in the engine group, also buys and sells large
commercial aircraft from time to time and provides engine repair management
services and engine leasing to a variety of airline customers.
In October 1994, the Company established a sales office in Singapore to
participate in business opportunities in the Pacific Rim. It is staffed by
representatives of several of its subsidiaries.
Hardware is usually purchased new from manufacturers, but may also be
purchased from other distributors. Hardware is sold only in new condition.
Rotable parts are sometimes purchased as new parts, but are generally purchased
as used parts which are then overhauled for the Company by outside contractors,
including the original manufacturers and FAA-licensed facilities. Rotables are
sold in a variety of conditions such as new, overhauled, serviceable and as is.
Rotables can also be exchanged instead of sold. An exchange occurs when an
overhauled aircraft part in inventory is exchanged for a used part from the
customer and the customer is charged an exchange fee plus the actual cost to
overhaul the used part. Engines and engine components are sold in overhauled
condition, as is or are disassembled for resale as parts.
In January 1995, the Company sold three operating units, AJ Aerospace
Services, Inc., Austin Jet Corporation and Barcel Wire and Cable Corp.
("Discontinued Subsidiaries"), to focus its resources on enhancing its position
as a marketer of aircraft hardware, rotables and engines.
FORMATION AND STOCK OWNERSHIP OF THE COMPANY
The term "Company" refers to Banner Aerospace, Inc. and its consolidated
subsidiaries. Prior to the initial public offering in 1990, Fairchild owned,
through a subsidiary, 100.0% of the shares of the Common Stock of the Company.
As a result of the initial public offering, Fairchild's indirect beneficial
ownership of Common Stock was reduced from 100.0% to 47.2%. However, as a result
of the additional shares of the Company's Common Stock issued in connection with
the acquisition of Harco in fiscal 1996, Fairchild became the majority owner of
the Company and currently owns 59.3% of the Company's Common Stock (refer to
Note 2 in the notes to consolidated financial statements).
In May 1997, the Company submitted to the Company's shareholders for
approval the acquisition from RHI Holdings, Inc., which is a wholly-owned
subsidiary of Fairchild ("RHI"), of a business consisting of two companies: (i)
Fairchild Scandinavian Bellyloading Company AB, and (ii) Scandinavian
Bellyloading International, Inc. (the "Bellyloading Companies"). If this
acquisition is completed, the Company would initially issue 230,000 shares of
its Common Stock to RHI, increasing Fairchild's control position in the Company
from 59.3% to approximately 59.7% of the voting power of the Company. This
percentage could increase based upon the purchase price as ultimately adjusted,
but not to exceed 1,500,000 shares of Common Stock (refer to Note 15 in the
notes to consolidated financial statements). Consummation of this acquisition is
subject to the satisfaction of certain conditions. RHI may terminate this
transaction if it sells the Bellyloading Companies to a third party by reason of
an unsolicited offer, provided that RHI pays a reasonable termination fee to the
Company plus the Company's out-of-pocket expenses. As of June 23, 1997, this
transaction had not been consummated.
In June 1997, the Company's shareholders approved the following changes to
the Company's capital structure: (i) the total number of shares of capital stock
which the Company has the authority to issue were increased from 30,000,000 to
60,000,000; (ii) the number of authorized shares of the Company's Common
5
<PAGE> 6
Stock were increased from 30,000,000 to 50,000,000; and (iii) a new class of
Preferred Stock, par value $.01 per share was created , and the Company was
given the authority to issue 10,000,000 shares of such Preferred Stock
(collectively, the "Charter Amendments"). In May 1997, and in conjunction with
the Charter Amendments, the Company issued rights to its existing shareholders
pursuant to which each shareholder had the right to acquire one share of the
newly established 7.5% convertible Preferred Stock for every 4.5 shares owned.
Fairchild signed a commitment to subscribe for its pro rata share of such newly
established Preferred Stock. On June 18, 1997, the Company received
subscriptions for 3,710,955 shares of Preferred Stock or $34,140,786. By virtue
of this transaction, Fairchild's beneficial ownership of the Company increased
from 59.3% to approximately 62.6%. The proceeds received from the rights
offering will be used to reduce outstanding debt.
SALES
The Company's subsidiaries conduct marketing efforts, which may involve the
Company's direct sales force, outside representatives and, for some product
lines, overseas sales offices. Sales in the aviation aftermarket depend on
price, service, quality and reputation. The Company's business does not
experience significant seasonal fluctuations nor does the Company's business
depend on a single customer. No single customer of the Company accounts for more
than 10.0% of the Company's revenue. The sales order backlog amounted to $82.8
million and $63.4 million at March 31, 1997 and 1996, respectively. It is
anticipated that approximately 90.0% of the backlog at March 31, 1997 will be
shipped by March 31, 1998.
The table below shows the percentage of sales by each product group for the
fiscal years ended March 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
PRODUCT GROUPS 1997 1996 1995
- ---------------------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Hardware........................................................ 51.3% 47.6% 44.6%
Rotables........................................................ 31.4 34.1 40.9
Engines......................................................... 17.3 18.3 14.5
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Foreign sales accounted for 29.3%, 32.0% and 33.5% of the Company's total
sales for the fiscal years ended March 31, 1997, 1996 and 1995, respectively.
Export sales by geographic area for the fiscal years ended March 31, 1997, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
- ---------------------------------------------------------------- -------- ------- -------
<S> <C> <C> <C>
Europe.......................................................... $ 34,922 $29,797 $23,252
Asia (excluding Japan).......................................... 25,790 18,557 14,090
Canada.......................................................... 20,516 13,803 7,446
Japan........................................................... 15,672 13,006 15,887
Australia....................................................... 7,044 5,585 4,286
South America................................................... 4,013 3,950 2,463
Other........................................................... 6,008 7,490 7,048
-------- ------- -------
$113,965 $92,188 $74,472
======== ======= =======
</TABLE>
The increase in the export sales in fiscal 1997 compared to fiscal 1996 was
primarily attributable to the increases in sales to Europe, Asia (excluding
Japan) and Canada. The increased sales to Europe and Canada of approximately
17.2% and 48.6%, respectively, were primarily due to the inclusion of sales
recorded by Harco for the entire current fiscal year compared to one month of
sales included in fiscal 1996. The increased sales to Asia (excluding Japan) of
approximately 39.0% were primarily due to several large contracts obtained by
the rotable group in late fiscal 1996 and fiscal 1997.
The increase in the export sales in fiscal 1996 compared to fiscal 1995 was
attributable to the increases in sales to Europe, Asia (excluding Japan) and
Canada. Sales to Europe increased approximately 28.2%
6
<PAGE> 7
primarily due to improved conditions of the European economy. Increased sales to
Asia (excluding Japan) of approximately 31.7% were primarily due to increased
sales efforts made in this region, specifically by opening a sales office in
Singapore. Sales to Canada increased approximately 85.4% primarily due to
several new hardware contracts obtained during fiscal 1996.
COMPETITION
The hardware product group competes with OEMs such as Boeing, which
supports the fleet of Boeing-produced aircraft; fastener manufacturers, as well
as independent distributors such as Wesco Aircraft Hardware Corp., M&M Aerospace
Hardware, Tri-Star Aerospace, Inc. and many other large and small companies. The
Company believes it generally has a price advantage over manufacturers in the
smaller quantities in which it usually deals, and can generally provide more
expeditious service. In the rotable group, the major competitors are AAR Corp.,
Air Ground Equipment Services ("AGES"), Aviation Sales Company, The Memphis
Group and other large and small companies in a very fragmented industry. The
major competitors for the Company's engine group are OEMs such as General
Electric Company and Pratt and Whitney, as well as the engine/engine parts
divisions of AAR Corp. and AGES and many smaller companies.
EMPLOYEES
As of March 31, 1997, the Company had approximately 820 employees. None of
the Company's employees are covered by collective bargaining agreements. The
Company believes that relations with its employees are satisfactory.
ENVIRONMENTAL MATTERS
Presently, there are no material expenditures anticipated for environmental
control for fiscal 1998 and thereafter.
ITEM 2. PROPERTIES
The Company's corporate office consists of approximately 10,000 square feet
and is located near the Washington Dulles International Airport in Northern
Virginia. The Company currently leases the space from Fairchild under an
operating lease which commenced on April 1, 1996. The lease term is ten years
with the option to terminate the lease after five years and requires annual
lease payments of approximately $170,000. The Company also has an office in
Cleveland, Ohio which has 20 months remaining on the original 84 month lease as
of March 31, 1997. The entire Cleveland office is currently subleased. The
Company leases another facility in Ft. Lauderdale, Florida, which is occupied by
its technology group. The Company owns and leases many other facilities
throughout the United States and has a distribution facility in Hamburg,
Germany. In addition, the Company leases sales offices and warehouses in other
foreign countries, including Australia, Canada, the United Kingdom and
Singapore. All of the Company's properties are maintained on a regular basis and
are adequate for the Company's present requirements. The following table
identifies the principal properties owned or leased by the Company. These are
primarily used for inventory storage and office space. In addition, the Company
leases a number of smaller facilities.
7
<PAGE> 8
DESCRIPTION OF PROPERTIES
<TABLE>
<CAPTION>
OWNED APPROX.
OR SQUARE
SUBSIDIARY LOCATION LEASED FOOTAGE
- ---------------------------------------- ------------------------ ------- -------
<S> <C> <C> <C>
Adams Industries, Inc................... Suffield, CT Owned 30,000
Cincinnati, OH Leased 1,000
Aerospace Bearing Support, Inc.......... Moorpark, CA Leased 12,000
Aircraft Bearing Corporation............ Aliso Viejo, CA Leased 15,000
BAI, Inc................................ S. San Francisco, CA Leased 9,000
Banner Aerospace-Singapore, Inc......... Singapore Leased 1,000
Banner Distribution, Inc................ West Valley City, UT Owned 81,000
Burbank Aircraft Supply, Inc............ El Segundo, CA Leased 30,000
Hamburg, Germany Leased 26,000
Chula Vista, CA Leased 8,000
Foley, AL Leased 7,500
Little Rock, AR Leased 5,000
Arlington, TX Leased 2,000
Edina, MN Leased 2,000
Wichita, KS Leased 1,500
DAC International, Inc.................. Austin, TX Leased 7,000
Cortaillod, Switzerland Leased 1,500
Dallas Aerospace, Inc................... Carrollton, TX Leased 80,000
Miami Spring, FL Leased 1,500
Georgetown Jet Center, Inc.............. Georgetown, TX Leased 19,000
Harco, Inc.............................. El Segundo, CA Leased 17,000
St. Louis, MO Leased 11,000
Ontario, Canada Leased 5,000
Leicester, England Leased 5,000
Matrix Aviation, Inc.................... Wichita, KS Owned 6,500
NASAM Incorporated...................... S. San Francisco, CA Leased 5,000
PacAero................................. Burbank, CA Leased 28,000
Melbourne, Australia Leased 3,500
Melbourne, Australia Owned 3,500
PB Herndon Company...................... Earth City, MO Leased 50,000
Professional Aviation Associates,
Inc................................... Atlanta, GA Leased 17,000
Titusville, FL Leased 15,000
Solair, Inc............................. Ft. Lauderdale, FL Leased 57,000
Carrollton, TX Leased 47,000
Luton, England Leased 1,000
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and lawsuits incidental to its
operations. In the opinion of management, the ultimate resolution of these
claims and lawsuits will not have a material adverse effect on the operating
results or financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
8
<PAGE> 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the New York Stock Exchange ("NYSE")
under the symbol BAR. The following tables set forth the quarterly high and low
prices as reported by the NYSE composite transactions for fiscal 1997 and 1996:
<TABLE>
<CAPTION>
FISCAL 1997
-----------
QUARTERS ENDED HIGH LOW
----------------------------------------------------------------- ---- ---
<S> <C> <C>
June 30, 1996.................................................... 9 5 3/8
September 30, 1996............................................... 8 3/8 7 3/8
December 31, 1996................................................ 8 5/8 7 3/4
March 31, 1997................................................... 9 3/4 7 1/4
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
-----------
QUARTERS ENDED HIGH LOW
----------------------------------------------------------------- ---- ---
<S> <C> <C>
June 30, 1995.................................................... 5 1/8 3 1/2
September 30, 1995............................................... 6 1/4 4 1/8
December 31, 1995................................................ 6 3/8 4 3/4
March 31, 1996................................................... 6 3/4 5 1/2
</TABLE>
DIVIDENDS
It is the Company's current policy to retain earnings to support the growth
of its present operations and to reduce its outstanding debt. Any future
determination as to the payment of dividends will be at the discretion of the
Company's Board of Directors and will depend on the Company's financial
condition, results of operations and capital requirements, restrictive covenants
in the credit agreement that limit the payment of dividends in any fiscal year
(refer to Note 5 in the notes to consolidated financial statements) and such
other factors as the Board of Directors deems relevant. No dividends were
declared in fiscal years 1997 or 1996.
HOLDERS OF RECORD
The Company had approximately 76 holders of record and 1,200 beneficial
holders at May 31, 1997.
9
<PAGE> 10
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected historical financial data and is
qualified in its entirety by the more detailed consolidated financial statements
contained elsewhere in this Form 10-K. The selected financial data for the years
ended March 31, 1997, 1996, 1995, 1994 and 1993 are extracted from the Company's
audited consolidated financial statements.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED MARCH 31,
--------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) 1997 1996 1995 1994 1993
- ------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................. $389,111 $287,880 $222,384 $212,391 $224,777
-------- -------- -------- -------- --------
Cost of goods sold........................ 279,041 209,609 153,261 144,245 159,728
Selling, general and administrative....... 84,557 64,704 52,389 50,815 59,791
Restructuring charges..................... -- -- 11,650 6,000 --
-------- -------- -------- -------- --------
Operating income.......................... 25,513 13,567 5,084 11,331 5,258
Unusual item.............................. -- -- 5,750 -- --
Interest expense, net..................... (13,090) (10,972) (9,809) (9,089) (7,510)
-------- -------- -------- -------- --------
Income (Loss) from continuing operations
before taxes on income.................. 12,423 2,595 1,025 2,242 (2,252)
Provision for taxes....................... 4,970 1,040 550 940 40
-------- -------- -------- -------- --------
Income (Loss) from continuing
operations.............................. 7,453 1,555 475 1,302 (2,292)
-------- -------- -------- -------- --------
Discontinued operations, net of tax (1):
Loss from operations................. -- -- -- (1,905) (848)
Loss on disposal..................... -- -- -- (11,093) --
-------- -------- -------- -------- --------
-- -- -- (12,998) (848)
-------- -------- -------- -------- --------
Net income (loss)......................... $ 7,453 $ 1,555 $ 475 $(11,696) $ (3,140)
======== ======== ======== ======== ========
Earnings (Loss) per common share:
Continuing operations................ $ 0.32 $ 0.09 $ 0.03 $ 0.07 $ (0.13)
Discontinued operations.............. -- -- -- (0.72) (0.04)
-------- -------- -------- -------- --------
Net income (loss) per share............... $ 0.32 $ 0.09 $ 0.03 $ (0.65) $ (0.17)
======== ======== ======== ======== ========
Weighted average number of common
shares.................................. 23,408 18,283 18,002 18,002 18,000
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital........................... $270,658 $209,022 $184,087 $214,806 $250,742
Total assets.............................. 393,901 318,209 241,315 272,357 305,809
Long-term debt, less current maturities... 165,148 111,900 102,800 134,017 157,927
Stockholders' equity...................... 150,195 142,603 107,504 107,029 118,714
</TABLE>
- ---------------
(1) Discontinued operations include the results of Discontinued Subsidiaries.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
In January 1997, the Company, through a subsidiary, consummated the
acquisition of 100.0% of the outstanding stock of PB Herndon from the
shareholders of PB Herndon, effective October 1996. PB Herndon, located near St.
Louis, Missouri, is a wholesale distributor of a diverse selection of high
quality aerospace fasteners and related components (refer to Note 2 in the notes
to the consolidated financial statements).
In March 1996, the stockholders of the Company approved the acquisition of
Harco from Fairchild. Harco is an authorized stocking distributor of precision
fasteners to the aerospace industry and is located in El Segundo, California.
Harco's operating results were included in the consolidated results of the
Company as of
10
<PAGE> 11
March 1, 1996. Harco is the second largest subsidiary in the hardware group
(refer to Note 2 in the notes to consolidated financial statements).
In January 1995, the Company sold the operations of the Discontinued
Subsidiaries to focus its resources on enhancing the Company's position as a
marketer of aircraft rotables and hardware.
The fiscal 1995 results included non-cash restructuring charges of $11.7
million which resulted from the devaluation of certain Stage 2 inventories in
the rotable group and the scrapping of certain inventories in the hardware group
that would be uneconomical to move to the Company's new Distribution Center
(refer to Note 4 in the notes to consolidated financial statements).
In November 1993, one of the Company's warehouses located in Carrollton,
Texas was damaged by a wind and rain storm. In January 1995, the Company
received from its insurance companies an aggregate settlement which included
$4.2 million relating to the business interruption income recorded by the
Company during fiscal 1995 and 1994. In fiscal 1995 the Company also recorded a
non-recurring unusual item of $5.8 million representing insurance proceeds in
excess of cost of damaged property.
ANALYSIS OF RESULTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------------------- ------------------------
(IN THOUSANDS) AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- ---------------------------------------------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales........................................... $389,111 100.0% $ 287,880 100.0%
Cost of goods sold.................................. 279,041 71.7 209,609 72.8
-------- ----- -------- -----
Gross profit........................................ 110,070 28.3 78,271 27.2
Selling, general and administrative................. 84,557 21.7 64,704 22.5
-------- ----- -------- -----
Operating income.................................... $ 25,513 6.6% $ 13,567 4.7%
======== ===== ======== =====
</TABLE>
Net sales increased $101.2 million or 35.2% for the fiscal year ended March
31, 1997 compared to fiscal 1996. The increase in sales was attributable to an
increase in hardware sales of approximately $62.1 million or 45.2%. This
increase in hardware sales was primarily due to (i) the incremental sales
recorded as a result of the acquisition of PB Herndon, and (ii) the inclusion of
twelve months of sales recorded by Harco in fiscal 1997 compared to only one
month of sales in fiscal 1996. Excluding the sales recorded by Harco and PB
Herndon, hardware sales would have increased $12.1 million or 9.0% in fiscal
1997 compared to fiscal 1996, which was attributable to an increase in sales to
OEM customers. Sales in the rotables and engine groups also contributed to the
increase of net sales by $24.0 million or 24.4% and $15.1 million or 29.0%,
respectively. The increase in the rotables sales was primarily due to higher
sales to commercial airlines and fixed based operations in fiscal 1997 compared
to fiscal 1996 and a change in product mix to higher margined power by the hour
contracts in fiscal 1997. The increased engine sales were mainly due to a $9.4
million sale/leaseback transaction of 11 engines made with two financial
institutions in fiscal 1997.
Gross profit as a percentage of sales increased to 28.3% for the fiscal
year ended March 31, 1997 from 27.2% for the fiscal year ended March 31, 1996.
Excluding the gross profit from Harco and PB Herndon, gross profit for the
fiscal year ended March 31, 1997 would have increased slightly to 27.3% compared
to 27.1% in the prior fiscal year. The increase in the gross profit percentage
was primarily due to higher margins realized on sales of hardware and rotables
in fiscal 1997 compared to fiscal 1996. The prior fiscal year's gross profit
percentage was negatively affected by the continued increase in the supply of
Stage 2 rotables in the marketplace, which in turn had a negative impact on
pricing. The supply and demand of Stage 2 rotables has somewhat stabilized in
fiscal 1997, thus, overall pricing for Stage 2 inventory has improved slightly.
Excluding Harco and PB Herndon, the inventory turnover ratio increased for the
fiscal year ended March 31, 1997 to 1.25 times per year as compared to 1.19
times per year for the fiscal year ended March 31, 1996. The increase in
inventory turnover ratio was primarily due to a significant increase in sales.
11
<PAGE> 12
Selling, general and administrative ("SG&A") expense for the fiscal year
ended March 31, 1997 increased $19.9 million or 30.7% compared to the fiscal
1996. Excluding the SG&A expenses from Harco and PB Herndon, SG&A expenses for
the fiscal year ended March 31, 1997 would have increased by $11.4 million or
17.7% compared to fiscal 1996. The increase in SG&A expenses was primarily due
to an overall increase in employment costs and commission expense as a result of
increased sales and incremental costs associated with the relocation to the
Distribution Center.
ANALYSIS OF RESULTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------------------- ------------------------
(IN THOUSANDS) AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- ---------------------------------------------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales........................................... $287,880 100.0% $ 222,384 100.0%
Cost of goods sold.................................. 209,609 72.8 153,261 68.9
-------- ----- -------- -----
Gross profit........................................ 78,271 27.2 69,123 31.1
Selling, general and administrative................. 64,704 22.5 52,389 23.6
Restructuring charge................................ -- -- 11,650 5.2
-------- ----- -------- -----
Operating income.................................... 13,567 4.7 5,084 2.3
Unusual item........................................ -- -- (5,750) (2.6)
-------- ----- -------- -----
Income from operations before interest and taxes on
income............................................ $ 13,567 4.7% $ 10,834 4.9%
======== ===== ======== =====
</TABLE>
Net sales increased $65.5 million or 29.5% for the fiscal year ended March
31, 1996 compared to the fiscal year ended March 31, 1995. The increase in sales
was attributable to increases in hardware sales of $38.0 million or 38.3% and
engines and engine parts sales of $20.6 million or 64.2% in fiscal 1996,
compared to fiscal 1995. Excluding the sales from Harco, the hardware sales
would have increased approximately $35.2 million or 35.5% which was primarily
due to an increase in sales to OEM customers. The increase in engines and engine
parts sales was primarily due to increases in sales to commercial airlines and
other distributors. In addition, sales of engine parts were unfavorably affected
in fiscal 1995 as the engine parts were under a voluntary quarantine throughout
the majority of fiscal 1995. Overall, the improvement in sales in fiscal 1996
compared to fiscal 1995 is attributable to the general turnaround in the
aerospace industry, the return to profitability of the world's airlines as a
group and the increased delivery rate of aircraft by the OEMs.
Gross profit as a percentage of sales decreased to 27.2% for the fiscal
year ended March 31, 1996 from 31.1% for the fiscal year ended March 31, 1995.
The decrease in the gross profit percentage in fiscal 1996 was attributable to
lower margins realized on sales of turbine engines and engine parts compared to
fiscal 1995. The decrease was also affected by the continued increase in the
supply of Stage 2 rotables in the marketplace, which in turn had a negative
impact on pricing. In fiscal 1995, the Company recorded business interruption
income of $1.7 million as a reduction in cost of goods sold with no
corresponding sales activity, which also contributed to the decrease in the
gross profit percentage in fiscal 1996 compared to fiscal 1995. Excluding the
results of Harco, the inventory turnover ratio increased for the fiscal year
ended March 31, 1996 to 1.19 times per year as compared to 0.88 times per year
for the fiscal year ended March 31, 1995. The increase in inventory turnover
ratio was primarily due to a significant increase in sales and an increase in
cost of goods sold as a percentage of sales in fiscal 1996 compared to fiscal
1995.
Selling, general and administrative ("SG&A") expense for the fiscal year
ended March 31, 1996 increased $12.3 million or 23.5% compared to the fiscal
year ended March 31, 1995. Excluding the SG&A expenses from Harco, SG&A expenses
for the fiscal year ended March 31, 1996 would have increased by $11.7 million
or 22.4% compared to fiscal 1995. The increase in SG&A expenses was primarily
due to an overall increase in the employment costs due to increased sales and
incremental costs associated with the relocation to the Distribution Center.
12
<PAGE> 13
INTEREST EXPENSE
Interest expense for fiscal 1997, 1996 and 1995 amounted to $13.1 million,
$11.0 million and $9.8 million, respectively. The increase in interest expense
in fiscal 1997 compared to fiscal 1996 was primarily due to the increase in the
average debt balance outstanding, offset by a slight decrease in the effective
interest rate. The increase in interest expense in fiscal 1996 compared to
fiscal 1995 was primarily due to the increase in the effective interest rate
offset by a lower average outstanding debt balance. The effective interest rate
for fiscal 1997, 1996 and 1995 was 9.1%, 9.3% and 8.4%, respectively. The
average debt balance outstanding for fiscal 1997, 1996 and 1995 amounted to
$141.2 million, $108.1 million and $126.8 million, respectively. The higher
interest expense in fiscal 1996 compared to fiscal 1995 was also attributable to
the write-off of the deferred loan costs relating to the prior existing credit
agreement in the amount of $0.6 million.
INCOME TAXES
The tax provisions on income from operations for the fiscal years ended
March 31, 1997, 1996 and 1995 were $5.0 million, $1.0 million and $0.6 million,
respectively. The effective tax rates for fiscal years 1997, 1996 and 1995 were
40.0%, 40.1% and 53.7%, respectively. The effective tax rate for fiscal 1995 was
substantially higher than the statutory rates as a result of the nominal pre-tax
earnings.
NET INCOME
The Company recorded net income for the fiscal years ended March 31, 1997,
1996 and 1995 of $7.5 million or $0.32 per common share, $1.6 million or $0.09
per common share and $0.5 million or $0.03 per common share, respectively.
Inflation has had minimal effect on the Company's current operations and
the Company believes that this trend will continue in the immediate future.
LIQUIDITY
Total capitalization as of March 31, 1997 and 1996 amounted to $315.6
million and $254.5 million, respectively. The changes in the components of
capitalization included an increase in debt of $53.5 million and an increase in
equity of $7.6 million. The increase in debt was primarily the result of
increased borrowings under its credit agreement and new borrowings under a
subordinated loan agreement with Fairchild (refer to Note 5 and Note 8 in the
notes to consolidated financial statements). The increase in equity was
primarily due to the net income for the fiscal year ended March 31, 1997.
Net cash used by operating activities for the fiscal year ended March 31,
1997 amounted to $32.7 million and net cash provided by operating activities for
the fiscal year ended March 31, 1996 amounted to $2.7 million. The primary use
of cash for operating activities in fiscal 1997 was an increase in inventory of
$37.5 million which was mainly to support the Company's sales growth. The
primary source of cash from operating activities in fiscal 1996 was an increase
in payables and accrued liabilities of $33.3 million which was offset by an
increase in receivables and inventories. These increases were primarily the
result of the increased sales level.
Net cash used for investing activities for the fiscal year ended March 31,
1997 amounted to $20.4 million which was primarily used for business
acquisitions, net of cash acquired (refer to Note 2 in the notes to consolidated
financial statements). Net cash used for investing activities for the fiscal
year ended March 31, 1996 amounted to $8.5 million which was used for capital
expenditures primarily related to the Distribution Center.
Net cash provided by financing activities for the fiscal year ended March
31, 1997 amounted to $53.1 million which was due to increased bank borrowings
under the Company's credit agreement and borrowings under a subordinated loan
agreement with Fairchild (refer to Note 8 in the notes to consolidated financial
statements). Net cash provided by financing activities for the fiscal year ended
March 31, 1996 amounted to $3.9 million which was due to increased bank
borrowings under the Company's credit agreement.
13
<PAGE> 14
In August 1995, the Company entered into a credit agreement which provides
funds for working capital, capital expenditures and potential acquisitions
subject to certain conditions (refer to Note 5 in the notes to consolidated
financial statements). The Company is currently investigating additional
financing options to support potential acquisitions and additional working
capital requirements due to the significant sales increase in the current year,
as well as anticipated sales growth in the future which is attributable to the
current growth in the aerospace industry. For at least the next three years,
cash flows from operations along with funds available under the credit agreement
and any additional financing should be adequate to finance the Company's
operations. These sources should enable the Company to finance any further
increases in working capital, capital expenditures and potential acquisitions.
The Company is in the process of upgrading its management information systems,
which will result in additional investments in hardware and software. The
Company had no other material capital commitments or planned expenditures as of
March 31, 1997.
SAFE HARBOR STATEMENT
This document contains statements which, to the extent they are not
historical fact, constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 (the "Safe Harbor Acts"). All forward-looking statements
involve risks and uncertainties. When used in this document, the words "expect,"
"believe," "anticipate," "plan" and similar expressions are intended to identify
forward-looking statements. The forward-looking statements in this document are
intended to be subject to the safe harbor protection provided by the Safe Harbor
Acts.
The Company cautions that such statements are qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements. Results actually achieved thus may differ materially
from expected results included in these statements. The Company undertakes no
obligation to republish revised forward-looking statements to reflect the
occurrence of unanticipated events or circumstances after the date hereof.
14
<PAGE> 15
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
- ------------------------------------------------------------------------ -------- --------
<S> <C> <C>
ASSETS
Current Assets:
Receivables, less allowances of $4,420 in 1997 and $3,257 in
1996.............................................................. $ 64,382 $ 57,006
Inventories........................................................ 253,781 204,595
Future tax benefits................................................ 11,307 8,011
Other.............................................................. 11,375 2,654
-------- --------
340,845 272,266
-------- --------
Property, Plant and Equipment, at cost:
Land............................................................... 453 453
Buildings and improvements......................................... 9,519 8,601
Machinery and equipment............................................ 19,408 14,975
-------- --------
29,380 24,029
Accumulated depreciation........................................... (14,046) (10,921)
-------- --------
15,334 13,108
-------- --------
Other Assets:
Cost in excess of net tangible assets of purchased businesses,
net............................................................... 33,003 28,239
Other.............................................................. 4,719 4,596
-------- --------
37,722 32,835
-------- --------
Total assets.................................................. $393,901 $318,209
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt............................... $ 301 $ --
Accounts payable................................................... 38,864 42,233
Accrued salaries................................................... 5,968 5,562
Accrued overhaul costs............................................. 6,845 2,382
Other.............................................................. 18,209 13,067
-------- --------
70,187 63,244
-------- --------
Long-Term Liabilities:
Long-term debt, less current maturities............................ 165,148 111,900
Other.............................................................. 8,371 462
-------- --------
173,519 112,362
-------- --------
Total liabilities............................................. 243,706 175,606
-------- --------
Commitments and Contingencies (Notes 12 and 13)......................... -- --
Stockholders' Equity:
Common stock, $1.00 par value, 30,000 shares authorized, 23,420
shares issued and outstanding in 1997 and 23,393 shares issued and
outstanding in 1996............................................... 23,420 23,393
Paid-in capital.................................................... 113,236 113,124
Retained earnings.................................................. 13,539 6,086
-------- --------
150,195 142,603
-------- --------
Total liabilities and stockholders' equity.................... $393,901 $318,209
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
15
<PAGE> 16
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE FISCAL YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA) 1997 1996 1995
- -------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net sales..................................................... $389,111 $287,880 $222,384
-------- -------- --------
Cost of goods sold............................................ 279,041 209,609 153,261
Selling, general and administrative........................... 84,557 64,704 52,389
Restructuring charges......................................... -- -- 11,650
-------- -------- --------
Operating income......................................... 25,513 13,567 5,084
Unusual item.................................................. -- -- 5,750
Interest expense, net......................................... (13,090) (10,972) (9,809)
-------- -------- --------
Income from operations before taxes on income............ 12,423 2,595 1,025
Provision for taxes:
Federal.................................................. 3,600 790 410
State.................................................... 1,130 150 110
Foreign.................................................. 240 100 30
-------- -------- --------
4,970 1,040 550
-------- -------- --------
Net income.................................................... $ 7,453 $ 1,555 $ 475
======== ======== ========
Earnings per common share..................................... $ 0.32 $ 0.09 $ 0.03
======== ======== ========
Weighted average number of common shares...................... 23,408 18,283 18,002
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
16
<PAGE> 17
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
(IN THOUSANDS) STOCK CAPITAL EARNINGS TOTAL
- ------------------------------------------------------ ------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1994............................... $18,002 $ 84,971 $ 4,056 $107,029
Net income....................................... -- -- 475 475
------- -------- -------- --------
BALANCE, MARCH 31, 1995............................... $18,002 $ 84,971 $ 4,531 $107,504
Exercise of stock options........................ 4 17 -- 21
Acquisition of Harco............................. 5,387 28,136 -- 33,523
Net income....................................... -- -- 1,555 1,555
------- -------- -------- --------
BALANCE, MARCH 31, 1996............................... $23,393 $113,124 $ 6,086 $142,603
Exercise of stock options........................ 27 112 -- 139
Net income....................................... -- -- 7,453 7,453
------- -------- -------- --------
BALANCE, MARCH 31, 1997............................... $23,420 $113,236 $ 13,539 $150,195
======= ======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
17
<PAGE> 18
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
- -------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income............................................... $ 7,453 $ 1,555 $ 475
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization....................... 4,795 3,435 2,772
Change in receivables............................... (5,599) (16,270) 275
Change in inventories............................... (37,519) (17,513) 18,564
Change in payables and accrued liabilities.......... 3,492 33,294 (3,640)
Change in other accounts............................ (5,314) (1,817) 2,385
Adjustments to reconcile loss from discontinued
operations to net cash provided by (used for) operating
activities:
Depreciation and amortization....................... -- -- 272
Change in net assets held for sale.................. -- -- (402)
-------- -------- --------
Net cash provided by (used for) operating
activities................................... (32,692) 2,684 20,701
-------- -------- --------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Acquisition of property, plant and equipment............. (4,600) (8,505) (1,082)
Net proceeds from divestitures........................... -- -- 9,981
Acquisition of subsidiaries, net of cash acquired........ (15,789) -- --
-------- -------- --------
Net cash provided by (used for) investing
activities................................... (20,389) (8,505) 8,899
-------- -------- --------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from term loans................................. 75,000 55,000 --
Repayments of term loans................................. (12,150) (74,750) (25,750)
Borrowings from subordinated loan........................ 28,000 -- --
Net borrowings (repayments) of revolver.................. (37,908) 23,600 (2,127)
Exercise of stock options................................ 139 21 --
-------- -------- --------
Net cash provided by (used for) financing
activities................................... 53,081 3,871 (27,877)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH............................... -- (1,950) 1,723
CASH, BEGINNING OF PERIOD..................................... -- 1,950 227
-------- -------- --------
CASH, END OF PERIOD........................................... $ -- $ -- $ 1,950
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................ $ 11,326 $ 8,504 $ 11,357
Income taxes paid (net of refunds)....................... 6,854 2,188 96
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
18
<PAGE> 19
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Organization and Operations
Prior to the initial of public offering on August 1, 1990, Banner
Aerospace, Inc. (the "Company") was a wholly-owned subsidiary of The Fairchild
Corporation ("Fairchild"). As a result of the initial public offering,
Fairchild's indirect beneficial ownership of the Company's common stock was
reduced from 100.0% to 47.2%. However, as a result of additional shares of the
Company's common stock issued in connection with the acquisition of Harco, Inc.
("Harco") from Fairchild in fiscal 1996 (refer to Note 2), Fairchild became the
majority owner of the Company and currently owns 59.3% of the Company's common
stock.
The Company is a leading international supplier to the aerospace industry.
The Company's products are divided into three product groups: hardware, rotables
and engines. Hardware includes bearings, nuts, bolts, screws, rivets and other
types of fasteners. Rotables include flight data recorders, radar and navigation
systems, instruments, landing gear and hydraulic and electrical components.
Engines include jet engines, engine parts and engine leasing for use on both
narrow and wide body aircraft and smaller engines for corporate and commuter
aircraft. The Company provides a number of services such as immediate shipment
of parts in aircraft on ground ("AOG") situations. The Company also provides
products to original equipment manufacturers and subcontractors ("OEMs") in the
aerospace industry under just-in-time ("JIT") and inventory management programs.
The Company distributes its products in the United States and abroad to most of
the world's commercial airlines and to air cargo carriers, as well as many OEMs,
distributors, fixed-base operations, corporate aircraft operators and other
aerospace and non-aerospace companies.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
all the Company's subsidiaries including the following operating subsidiaries:
<TABLE>
<S> <C>
Adams Industries, Inc. Georgetown Jet Center, Inc.
Aerospace Bearing Support, Inc. Harco, Inc.
Aircraft Bearing Corporation Matrix Aviation, Inc.
BAI, Inc. NASAM Incorporated
Banner Aerospace-Singapore, Inc. PacAero
Banner Distribution, Inc. PB Herndon Company
Burbank Aircraft Supply, Inc. Professional Aviation Associates, Inc.
DAC International, Inc. Solair, Inc.
Dallas Aerospace, Inc.
</TABLE>
All significant intercompany accounts and transactions between the
consolidated subsidiaries have been eliminated.
Inventories
Inventories consist of finished goods and are stated at the lower of cost
or market. The Company's subsidiaries use various cost methods for inventory
including average cost, specific identification and first-in, first-out
("FIFO").
Property, Plant and Equipment
For financial reporting purposes, the policy of the Company is to provide
for depreciation of property, plant and equipment, principally by the
straight-line method, at annual rates sufficient to amortize the cost of
19
<PAGE> 20
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
the assets during their estimated useful lives. For tax purposes, the Company
generally uses accelerated depreciation methods.
Major classes of assets and their depreciable lives are as follows:
<TABLE>
<S> <C>
Buildings and improvements............................................ 10-33 1/3 Years
Machinery and equipment............................................... 3-10 Years
</TABLE>
Maintenance and repair expenditures are charged to expense as incurred, and
expenditures for significant improvements and major renewals are capitalized.
The carrying amounts of assets which are sold or retired and the related
accumulated depreciation are removed from the accounts in the year of disposal,
and any resulting gains or losses are reflected in income. Such gains and losses
were not significant in fiscal 1997, 1996 or 1995.
Long-Lived Assets
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used for long-lived assets and certain identifiable intangibles to be disposed
of. SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, and that certain long-lived assets and identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. The adoption of SFAS No. 121 did not have a
material impact on the Company's consolidated results of operations.
Fair Value of Financial Instruments
Financial instruments are defined as cash, evidence of an ownership
interest in an entity, or a contract that imposes an obligation to deliver cash
or other financial instruments to a second party. The carrying amounts of
current assets and current liabilities in the accompanying financial statements
approximate fair value due to the short maturity of these instruments. Long-term
debt approximates fair value at March 31, 1997, as the majority of debt bears a
variable interest rate.
Revenue Recognition
Sales and related cost of sales are recognized primarily upon shipment of
products and performance of services. Sales and related cost of sales on
long-term contracts are recognized as products are delivered and services are
performed, determined by the percentage of completion method based on the
relationship of costs incurred to date to estimated total costs under the
respective contracts. Lease revenue is recognized as earned.
Amortization
The amounts included in the accompanying consolidated balance sheets as
"Cost in excess of net tangible assets of purchased businesses, net" are
primarily amortized over 40 years. Amortization expense was $912, $575 and $545
in fiscal 1997, 1996 and 1995, respectively. Accumulated amortization at March
31, 1997 and 1996 was $7,637 and $6,725, respectively.
20
<PAGE> 21
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Earnings Per Common Share
Earnings per common share was calculated based on net income divided by the
weighted average shares outstanding. Stock options were excluded from the
calculation of earnings per common share as they were not materially dilutive
(refer to Note 14).
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Reclassifications
Certain amounts in fiscal 1996 and 1995 have been reclassified to conform
to the fiscal 1997 presentation.
Recently Issued Accounting Standards
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") was issued. SFAS No. 128 requires
presentation of basic earnings per share and diluted earnings per share and
supersedes or amends all previous earnings per share presentation requirements.
Basic earnings per share will be based on income available to common
shareholders divided by the weighted average number of common shares
outstanding. Diluted earnings per share is also based on income available to
common shareholders divided by the sum of the weighted average number of common
shares outstanding and all potential common shares which are dilutive. SFAS No.
128 is effective for fiscal years ending after December 15, 1997. Earlier
adoption is not allowed. The Company is currently analyzing the impact on its
future earnings per share presentations.
2. ACQUISITIONS:
On January 16, 1997, the Company, through its subsidiary, Dallas Aerospace,
Inc., consummated the acquisition of PB Herndon Company ("PB Herndon") by
acquiring 100.0% of the outstanding stock of PB Herndon from the shareholders of
PB Herndon ("Sellers"), effective October 1996. PB Herndon, located near St.
Louis, Missouri, is a distributor of specialty fasteners and other aerospace
related components. At closing, the cash purchase price of $14,700 was paid to
the Sellers. The purchase price was based upon PB Herndon's net assets as of
September 30, 1996 plus capital contributions made by the Sellers after August
31, 1996. In addition, the Company loaned $1,300 to PB Herndon to repay loans
made from the Sellers to PB Herndon. To finance the acquisition of PB Herndon,
the Company borrowed $16,000 under a subordinated loan agreement (see Note 8)
from RHI Holdings, Inc. ("RHI"), which is a wholly-owned subsidiary of
Fairchild. This acquisition was accounted for using the purchase method of
accounting. The excess of the purchase price over the net tangible assets
acquired is being amortized over 40 years.
In March 1996, the Company acquired Harco from Fairchild. Harco is an
authorized stocking distributor of precision fasteners to the aerospace industry
and is located in El Segundo, California. The acquisition of Harco was effected
through the issuance of 5,386,477 shares of the Company's common stock in
exchange for 100.0% of the outstanding shares of Harco. The issuance of the
Company's common stock was based on an average price per share of $6.075
resulting in a total value of $32,723. This acquisition was accounted for using
the purchase method of accounting as applied to simultaneous common control
mergers. The excess of the purchase price over the net tangible assets acquired
is being amortized over 40 years. The results of operations
21
<PAGE> 22
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
of Harco have been included in the consolidated results as of March 1, 1996. As
a result of the transaction, Fairchild, which previously owned 47.2% of the
Company's common stock, currently owns 59.3% of the Company's common stock.
The following unaudited supplemental pro forma information has been
prepared from the consolidated financial records of the Company, Harco and PB
Herndon. This unaudited supplemental pro forma information is presented for
informational purposes only and is not necessarily indicative of what combined
earnings and results of operations would have been had the Company acquired
Harco and PB Herndon at the beginning of the periods presented, nor is such
information intended necessarily to be indicative of the future results of
operations that may occur.
UNAUDITED SUPPLEMENTAL PRO FORMA INFORMATION
FOR THE FISCAL YEARS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net sales....................................................... $396,585 $331,296
Gross profit.................................................... 112,500 92,768
Income from operations before interest and taxes................ 26,231 18,497
Net income...................................................... 7,682 4,066
Earnings per common share....................................... $ 0.33 $ 0.17
Weighted average shares outstanding............................. 23,408 23,393
</TABLE>
There were no acquisitions in fiscal 1995.
3. DISCONTINUED OPERATIONS:
In January 1995, the Company sold the operations of AJ Aerospace Services,
Inc., Austin Jet Corporation and Barcel Wire and Cable Corp. ("Discontinued
Subsidiaries") for net proceeds of $9,981. The Discontinued Subsidiaries had
sales of approximately $28,950 in fiscal 1995. The reserve recorded in fiscal
1994 was adequate to cover all losses incurred in fiscal 1995 as a result of the
divestitures of the Discontinued Subsidiaries. Interest expense allocated to the
Discontinued Subsidiaries was based upon the ratio of the Discontinued
Subsidiaries' net assets to the total Company's net assets plus debt. Interest
expense allocated to the Discontinued Subsidiaries was $1,063 in fiscal 1995.
4. RESTRUCTURING CHARGES AND UNUSUAL ITEM:
In fiscal 1995, the Company developed strategic initiatives to reduce the
Company's cost structure and planned to open a distribution center in Salt Lake
City, Utah ("Distribution Center") to house a substantial portion of the
Company's hardware inventory and to enable the Company to reduce the cost of
inventory storage and handling. In anticipation of this move, the Company
performed an analysis of its inventory and determined that it would not be
economical to move all inventories to the Distribution Center. As a result, the
Company recorded non-cash restructuring charges of $11,650 in fiscal 1995.
Certain inventories in the hardware group were scrapped to avoid unnecessary
incremental relocation costs. The restructuring charges also resulted from a
fundamental change in the industry which caused the devaluation of certain Stage
2 rotable inventories. Stage 2 aircraft are older generation aircraft which do
not comply with lower noise levels of Stage 3 aircraft established by the
Federal Aviation Administration ("FAA"). Scrapping and devaluating of the
inventories related to the restructuring charges were completed as of the end of
fiscal 1997.
22
<PAGE> 23
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. RESTRUCTURING CHARGES AND UNUSUAL ITEM -- (CONTINUED)
In November 1993, one of the Company's warehouses located in Carrollton,
Texas was damaged by a wind and rain storm. In January 1995, the Company
received from its insurance companies an aggregate settlement which included
$4,200 relating to the business interruption income recorded by the Company
during fiscal 1995 and 1994. In fiscal 1995, the Company also recorded a
non-recurring unusual item of $5,750 representing insurance proceeds in excess
of cost of damaged property.
5. NOTES PAYABLE AND LONG-TERM DEBT:
At March 31, 1997 and 1996, notes payable and long-term debt consisted of
the following:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST
RATES
-------------
1997 1996 1997 1996
-------- -------- ---- ----
<S> <C> <C> <C> <C>
Senior bank loans:
Term.......................................... $114,350 $ 51,500 9.2% 9.3%
Revolver...................................... 19,900 60,400 9.2 9.3
Subordinated loan.................................. 28,000 -- 8.4 --
Other debt......................................... 2,419 -- 7.0 --
Capital leases..................................... 780 -- 8.4 --
-------- -------- ---- ----
165,449 111,900 9.1% 9.3%
==== ====
Less: Current maturities...................... 301 --
-------- --------
Net long-term debt............................ $165,148 $111,900
======== ========
</TABLE>
On August 2, 1995, the Company entered into a credit agreement ("Credit
Agreement") that provides for working capital and potential acquisitions. On
July 1, 1996, the Company amended the Credit Agreement ("Amended and Restated
Credit Agreement") to provide additional financing, as well as require that
loans made to the Company will not exceed a defined borrowing base which is
based upon a percentage of eligible inventories and accounts receivables. On
December 12, 1996, the Company amended the Amended and Restated Credit Agreement
("Second Amended and Restated Credit Agreement") to provide additional financing
and approve the incurrences of subordinated debt and certain acquisitions. The
facility under the Second Amended and Restated Credit Agreement includes (i) a
$55,000 six-year term loan ("Term Loan"); (ii) a $30,000 seven-year term loan
("Tranche B Loan"); (iii) a $40,000 six-year term loan ("Tranche C Loan"); and
(iv) a $71,500 six-year revolving credit facility ("Revolver"). On March 31,
1997, the Company borrowed $40,000 under the Tranche C Loan. The Term Loan,
Tranche B Loan and Tranche C Loan require certain semi-annual payments which
commence on February 1, 1996, February 1, 1997 and August 1, 1997, respectively.
The Term Loan and Revolver bear interest at prime plus 1 1/4% or London
Interbank Offered Rate ("LIBOR") plus 2 1/2%. The interest rate under the Term
Loan and Revolver may increase by 1/4% or decrease by up to 1.0% based upon
certain performance criteria. The Tranche B Loan bears interest at prime plus
1 3/4% or LIBOR plus 3.0%. The interest rate for the Tranche C Loan is initially
prime plus 1 1/2% or LIBOR plus 2 3/4%. The interest rate under the Tranche C
Loan may decrease by 1/4% if the Company meets certain performance criteria. On
March 31, 1997, the Company's performance level resulted in borrowings under the
Term Loan and Revolver bearing interest at prime plus 3/4% and LIBOR plus 2.0%
for the quarter ending June 30, 1997. The Revolver is subject to a nonuse fee of
55 basis points of the unused availability. The Second Amended and Restated
Credit Agreement contains certain financial and nonfinancial covenants which the
Company is required to meet on a quarterly basis. The financial covenants
include a minimum net worth, and minimum ratios of interest coverage, fixed
charges and debt to earnings before interest, taxes, depreciation and
amortization. The Company also has certain limitations on the incurrence of
additional debt and has
23
<PAGE> 24
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE AND LONG-TERM DEBT -- (CONTINUED)
restrictions on dividends and distributions on the capital stock of the Company
in that the aggregate amount of such dividends and distributions may not exceed
$150 in any fiscal year. At March 31, 1997, the Company was in compliance with
all covenants under the Second Amended and Restated Credit Agreement.
Substantially all of the Company's assets are pledged as collateral under the
Second Amended and Restated Credit Agreement.
In September 1995, the Company entered into several interest rate hedge
agreements ("Hedge Agreements") to manage its exposure to increases in interest
rates on its floating rate debt. The Company entered into the Hedge Agreements
with two of its major lenders to provide interest rate protection on $60,000 of
debt for a period of five years. Effectively, the Hedge Agreements provide for a
LIBOR cap of 7.0% if the 90 day LIBOR exceeds 7.0%. If the 90 day LIBOR drops
below the LIBOR floor of 5.0%, the Company will be required to pay interest at a
floor rate of approximately 6.0%. The above rates exclude any spread above
LIBOR. No cash outlay was required as the cost of the cap was offset by the sale
of the floor.
In November 1996, the Company entered into an additional hedge agreement
("Additional Hedge Agreement") with one of its major lenders to provide interest
rate protection on an additional $20,000 of debt for a period of three years.
Effectively, the Additional Hedge Agreement provides for a cap of 7 1/4% if the
90 day LIBOR exceeds 7 1/4%. If the 90 day LIBOR drops below 5.0%, the Company
will be required to pay interest at a floor rate of approximately 6.0%. No cash
outlay was required to obtain the Additional Hedge Agreement as the cost of the
cap was offset by the sale of the floor.
The Company recognizes interest expense under the provisions of the Hedge
Agreements and Additional Hedge Agreement based on the fixed rate. The Company
is exposed to credit loss in the event of non-performance by the lenders,
however, such non-performance is not anticipated.
At March 31, 1997 and 1996, the Company had unused bank lines of credit
aggregating $51,600 and $10,287, respectively. No cash balances were subject to
withdrawal restrictions. At March 31, 1997 and 1996, the Company had outstanding
letters of credit of $472 and $813, respectively.
The Company obtained an unsecured subordinated loan agreement
("Subordinated Loan") from RHI to provide funds for acquisitions and any
necessary future working capital requirements of the acquired companies (refer
to Note 8).
Other fiscal 1997 debt includes an unsecured demand promissory note
("Promissory Note") from RHI which was repaid in March 1997 (refer to Note 8)
and a mortgage on the Distribution Center building located in Salt Lake City,
Utah. The mortgage, which commenced on August 7, 1996, bears interest at 7.6%
per annum for a period of 20 years. As of March 31, 1997, the balance
outstanding on the mortgage was $2,419. The Company has various capital leases
for property, plant and equipment which are used for its operations (refer to
Note 12).
Principal payments on long-term debt obligations other than the senior bank
loans are anticipated to be as follows: $28,057 for fiscal 1998, $61 for fiscal
1999, $66 for fiscal 2000, $71 for fiscal 2001, $77 for fiscal 2002 and $2,087
thereafter. Scheduled reductions in the availability under the Second Amended
and Restated Credit Agreement are as follows: $8,200 for fiscal 1998, $9,200 for
fiscal 1999, $9,700 for fiscal 2000, $12,700 for fiscal 2001, $28,100 for fiscal
2002 and $126,750 thereafter.
The debt that would otherwise be classified as a current liability will
subsequently be repaid through an increase in the Revolver, which is not due
until 2002. As such, the majority of the current payments are reflected as
long-term debt in the accompanying consolidated balance sheets due to this
refinancing strategy.
24
<PAGE> 25
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of income tax expense (benefit) for the fiscal years ended
March 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................. $ 6,896 $ 3,261 $(5,053)
State............................................... 1,130 150 110
Foreign............................................. 240 100 30
------- ------- -------
8,266 3,511 (4,913)
Deferred................................................. (3,296) (2,471) 5,463
------- ------- -------
Total income tax expense............................ $ 4,970 $ 1,040 $ 550
======= ======= =======
</TABLE>
The following is a reconciliation of the federal income tax at the
statutory rate to federal income tax expense (benefit) from operations for the
fiscal years ended March 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Federal income tax at the statutory rate..................... $4,348 $ 880 $ 350
Goodwill amortization........................................ 318 200 140
Foreign Sales Corporation.................................... (456) (200) (260)
State taxes.................................................. (353) (51) (37)
Other, net................................................... (257) (39) 217
------ ----- -----
Provision for federal income taxes........................... $3,600 $ 790 $ 410
====== ===== =====
</TABLE>
The net deferred tax assets consisted of the following components at March
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Inventories.................................................. $ 5,432 $ 4,062
Capital loss................................................. 2,787 2,486
Accounts receivable.......................................... 2,206 1,095
Compensation................................................. 1,036 1,128
Other deferred tax assets, net............................... 2,888 2,310
------- -------
Total deferred tax assets......................................... 14,349 11,081
Valuation reserve................................................. (2,787) (2,486)
Total deferred tax liabilities.................................... (255) (584)
------- -------
Net deferred tax assets........................................... $11,307 $ 8,011
======= =======
</TABLE>
Domestic income taxes, less available credits, are provided on the
unremitted income of foreign subsidiaries and affiliated companies, to the
extent that such earnings are intended to be repatriated. No domestic income
taxes or foreign withholding taxes are provided on the undistributed earnings of
foreign subsidiaries and affiliates, which are considered permanently invested,
or which would be offset by allowable foreign tax credits. At March 31, 1997,
the amount of domestic taxes payable upon distribution of such earnings was not
significant.
In the opinion of management, an adequate provision has been made for all
income taxes and interest, and any liability that may arise for prior periods
will not have a material effect on the financial condition or results of
operations of the Company.
25
<PAGE> 26
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PENSIONS:
The Company and its subsidiaries have a defined contribution plan covering
eligible employees. The majority of the benefits and current contributions are
derived from an amount equal to a defined percentage of annual compensation or a
defined percentage of operating profit. Pension expense for fiscal 1997, 1996
and 1995 was $625, $445 and $388, respectively.
During fiscal 1995, the Company adopted a Supplemental Executive Retirement
Plan for the benefit of the executive officers which provides a retirement
benefit based on final average earnings and years of service. The Plan provides
a maximum retirement benefit equal to the difference between sixty percent of
the participant's average base salary for the last five years of employment and
the participant's primary Social Security benefit. The expenses for the Plan
were $140, $165, and $171 for fiscal 1997, 1996 and 1995, respectively.
8. RELATED PARTY TRANSACTIONS:
On December 20, 1996, the Company entered into the Subordinated Loan
agreement with RHI. The purpose of the Subordinated Loan is to provide funds for
acquisitions and any necessary future working capital requirements of the
acquired companies. The Subordinated Loan bears interest at 10.0% per annum for
the period commencing on the date of the initial drawing and continuing for a
period of six months from the initial draw date. Thereafter, the Subordinated
Loan bears interest at 11.2% per annum. The principal and accrued interest are
deferred until the maturity date of November 15, 2003 subject to certain
accelerations under the Subordinated Loan agreement. A commitment fee will be
accrued and payable on the last day of each month based on the balance
outstanding. The commitment fee will be equal to 1.5% per annum for six months
from the initial draw date and 3.0% per annum thereafter. As of March 31, 1997,
the Company borrowed $28,000 under the Subordinated Loan to fund the purchase of
PB Herndon and other working capital requirements. Interest expense for the
fiscal year ended March 31, 1997 was $610.
On October 17, 1996, the Company borrowed $5,000 from RHI, under an
unsecured demand promissory note ("Promissory Note"). Under the terms of the
Promissory Note, the Company could select interest periods up to six months with
an interest rate during each such interest period determined at LIBOR plus the
Applicable LIBOR Margin as defined in the Second Amended and Restated Credit
Agreement, less 80 basis points. The Company had the ability to borrow and repay
the Promissory Note at any time subject to restrictions under the Second Amended
and Restated Credit Agreement. The Promissory Note was repaid in March 1997.
Interest paid to RHI totaled $156.
The Company is a party to several agreements with Fairchild which provide
for various methods of expense sharing related to combined sales and marketing
efforts in foreign countries. For the fiscal year ended March 31, 1997, the
Company had contributed less than $125 under these agreements. In addition,
Fairchild and the Company would share commission income to the extent
commissions exceed expenses. No such commissions have been received to date.
The Company paid to Fairchild and its affiliates $1,246, $456 and $276
during fiscal 1997, 1996 and 1995, respectively, for various expenses such as
rent, tax, legal and communication services. All services are and have been in
the ordinary course of business and were included in selling, general and
administrative expenses.
The Company had sales of products to Fairchild of $122, $48 and $28 and
purchases of products from Fairchild of $9,384, $5,522 and $4,814 in fiscal
1997, 1996 and 1995, respectively, all in the ordinary course of business.
26
<PAGE> 27
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following quarterly financial data has been prepared from the financial
records of the Company without audit, and reflects all adjustments which, in the
opinion of management, were of a normal recurring nature and necessary for a
fair presentation of the results of operations for the interim periods
presented.
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1996 1996 1997
-------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales........................................ $ 94,276 $84,107 $ 96,986 $ 113,742
Gross profit..................................... 25,202 25,593 26,312 32,963
Income from operations before interest and
taxes.......................................... 4,859 5,981 6,073 8,600
Net income....................................... 1,317 1,664 1,613 2,859
Earnings per common share........................ $ 0.06 $ 0.07 $ 0.07 $ 0.12
</TABLE>
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1996
-------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales........................................ $ 60,633 $66,490 $ 72,022 $88,735
Gross profit..................................... 17,621 19,702 19,358 21,590
Income from operations before interest and
taxes.......................................... 3,747 4,349 2,763 2,708
Net income....................................... 712 732 62 49
Earnings per common share........................ $ 0.04 $ 0.04 $ -- $ 0.01
</TABLE>
10. BUSINESS SEGMENTS:
The Company operates in only one reportable business segment.
Export sales by geographic area for the fiscal years ended March 31, 1997,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Europe.................................................. $ 34,922 $29,797 $23,252
Asia (excluding Japan).................................. 25,790 18,557 14,090
Canada.................................................. 20,516 13,803 7,446
Japan................................................... 15,672 13,006 15,887
Australia............................................... 7,044 5,585 4,286
South America........................................... 4,013 3,950 2,463
Other................................................... 6,008 7,490 7,048
-------- ------- -------
$113,965 $92,188 $74,472
======== ======= =======
</TABLE>
Operating margins attributable to foreign sales were not materially
different from operating margins attributable to domestic sales. The Company has
no significant assets located in the geographic areas listed above.
27
<PAGE> 28
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES:
Changes in the allowance for doubtful accounts for the fiscal years ended
March 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Beginning balance......................................... $ 3,257 $ 2,432 $2,352
Charged to expense................................... 2,009 1,990 546
Write offs, net of recoveries........................ (1,046) (1,438) (466)
Other................................................ 200 273 --
------- ------- ------
Ending balance............................................ $ 4,420 $ 3,257 $2,432
======= ======= ======
</TABLE>
In fiscal 1997, the other reserve of $200 represents an accrual transferred
to the allowance for doubtful accounts. In fiscal 1996, the other reserve of
$273 represents the allowance for doubtful accounts balance of Harco on the date
of acquisition.
12. LEASES:
The Company leases certain of its facilities and equipment under capital
and operating leases. The following is an analysis of assets under capital
leases included in property, plant and equipment at March 31, 1997. There were
no capital leases at March 31, 1996.
<TABLE>
<CAPTION>
DESCRIPTION
------------------------------------------------------------
<S> <C>
Machinery and equipment..................................... $ 981
Accumulated depreciation.................................... (193)
-----
$ 788
=====
</TABLE>
The following represents future minimum operating and capital lease
commitments at March 31, 1997:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1998............................................................... $ 3,496 $ 310
1999............................................................... 3,037 308
2000............................................................... 2,295 228
2001............................................................... 1,999 26
2002 and thereafter................................................ 4,083 --
--------- -------
$14,910 872
=======
Amount representing interest.................................. (92)
-------
Present value of capital lease obligation .................... $ 780
=====
</TABLE>
Total rental expenses for the fiscal years ended March 31, 1997, 1996 and
1995 were $4,455, $2,993 and $2,664, respectively.
13. CONTINGENCIES:
The Company is involved in various claims and lawsuits incidental to its
operations. In the opinion of management, the ultimate resolution of these
claims and lawsuits will not have a material adverse effect on the operating
results or financial position of the Company.
28
<PAGE> 29
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. STOCK OPTIONS:
The Company's Non-Qualified and Incentive Stock Option Plan (the "1990
Stock Option Plan"), adopted in August 1990, authorizes the granting of options
at not less than the fair market value of the stock at the time of the granting
of the options. On September 13, 1996, the stockholders approved an amendment to
the 1990 Stock Option Plan to increase the number of shares of its common stock
("Common Stock") authorized to be issued under the 1990 Stock Option Plan and to
extend the period under which options may be exercised. The Company has reserved
for issuance two million shares of Common Stock under the 1990 Stock Option
Plan. The option price is payable in cash or, with the approval of the stock
option committee of the Board of Directors, in shares of Common Stock, valued at
fair market value at the time of exercise. The 1990 Stock Option Plan terminates
in the year 2000; however, all stock options outstanding as of August 2, 2000
shall continue to be exercisable pursuant to their terms. Under the 1990 Stock
Option Plan, all options granted are for a term of seven years. Options granted
on or before August 1, 1993 may be immediately exercisable and options granted
subsequent to August 1, 1993 vest over a period of three to four years.
On September 13, 1996, the stockholders approved the 1996 Non-Employee
Director Stock Option Plan (the "NED Stock Option Plan"). The Company has
reserved for issuance 150,000 shares of Common Stock under the NED Stock Option
Plan which terminates in the year 2006. However, all stock options outstanding
as of May 29, 2006 shall continue to be exercisable pursuant to their terms. The
option price is payable in cash or, with the approval of the stock option
committee of the Board of Directors, in shares of Common Stock, valued at fair
market value at the time of exercise. All options are for a term of five years
and vest immediately upon issuance of the grant. Each newly elected non-employee
director shall be granted an option for 5,000 shares of Common Stock and on the
date of each succeeding annual meeting, each non-employee director elected at
such meeting shall be granted an option for 1,000 shares of Common Stock. On
September 13, 1996, all eight non-employee directors were each granted an option
for 5,000 shares of Common Stock. Stock options granted to non-employee
directors prior to the approval of the NED Stock Option Plan were not granted
under a formal stock option plan.
Stock option activity under the 1990 Stock Option Plan, the NED Stock
Option Plan and non-employee director options granted outside a formal stock
option plan is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year........................... 696,700 $ 5.01 907,300 $ 5.20 668,100 $ 5.23
Granted.......................... 407,250 $ 7.19 275,000 $ 4.88 256,000 $ 5.13
Exercised........................ (26,833) $ 5.16 (4,200) $ 5.13 -- --
Terminated....................... (21,417) $ 6.17 (45,800) $ 5.01 (16,800) $ 5.13
Expired.......................... -- -- (435,600) $ 5.33 -- --
---------- --------- --------
Outstanding at end of year....... 1,055,700 $ 5.82 696,700 $ 5.01 907,300 $ 5.20
========= ========= ========
Exercisable at end of year....... 458,355 $ 5.44 221,819 $ 5.05 421,825 $ 5.28
========= ========= ========
Weighted average fair value of
options granted................ $ 3.15 $ 2.07 $ 2.25
========= ========= ========
</TABLE>
At March 31, 1997, 948,700 of the 1,055,700 options outstanding relate to
the 1990 Stock Option Plan and have exercise prices between $4.75 and $9.38 per
share, with a weighted average exercise price of $5.79 and a weighted average
remaining contractual life of 5.2 years. 351,355 of these options are
exercisable. The remaining 107,000 options relate to the NED Stock Option Plan
and non-employee director options granted
29
<PAGE> 30
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. STOCK OPTIONS -- (CONTINUED)
outside a formal stock option plan and have exercise prices between $4.63 and
$8.13 per share, with a weighted average exercise price of $6.59 and a weighted
average remaining contractual life of 3.2 years. All of these options are
exercisable.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") was issued. SFAS No.
123 is effective for fiscal years beginning after December 15, 1995. SFAS No.
123 encourages companies to adopt the fair value method for compensation
expenses recognition related to employee stock options. Existing accounting
requirements of Accounting Principles Board Opinion No. 25 ("APB No. 25") use
the intrinsic value method in determining compensation expense which represents
the excess of the market price of the stock over the exercise price on the
measurement date. The Company elected to remain under APB No. 25 rules for stock
options, under which no compensation cost has been recognized, and is required
to provide pro forma disclosures of what net income and earnings per share would
have been had the Company adopted the new fair value method for recognition
purposes. The following information is presented as if the Company had adopted
SFAS No. 123 and restated its results for the fiscal years ended March 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Net income:
As reported.................................................... $7,453 $1,555
Pro forma...................................................... $7,119 $1,555
Earnings per common share:
As reported.................................................... $ 0.32 $ 0.09
Pro forma...................................................... $ 0.31 $ 0.09
</TABLE>
For the above information, the fair value of each option grant was
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions used for grants in fiscal 1997 and 1996: expected
volatility of 37.0%, expected lives of 5 years, a risk free interest rate
ranging from 5.8% to 7.2% and a zero expected dividend rate.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to April 1, 1995, the above pro forma amounts may not be
representative of the compensation costs to be expected in future years.
15. SUBSEQUENT EVENTS:
In May 1997, the Company submitted to the Company's shareholders for
approval the acquisition from RHI of a business consisting of two companies: (i)
Fairchild Scandinavian Bellyloading Company AB ("FSBC"), a designer and
manufacturer of patented cargo loading systems which are installed in the cargo
area of commercial aircraft, enabling cargo to be loaded rapidly and
efficiently, and (ii) Scandinavian Bellyloading International, Inc. ("SBIC", and
together with FSBC, the "Bellyloading Companies"), engaged in sales and
marketing of FSBC's cargo loading systems in the United States. If this
acquisition is completed, the Company will initially issue 230,000 shares of its
common stock increasing Fairchild's control position in the Company from 59.3%
to approximately 59.7% of the voting power of the Company. The Company will
maintain a right to rescind its purchase of the Bellyloading Companies if the
Bellyloading Companies fail to meet certain earnings before tax targets. For
accounting purposes, the acquisition will occur once this contingency period
expires and the right to rescind the transaction is not exercised. Until the
expiration of this rescission right, the Company will record its profits or
losses from managing the Bellyloading Companies based on the stock exchange
agreement. If the rescission right is not utilized by the Company, the
percentage of the Company owned by Fairchild may increase based upon the
purchase price as ultimately adjusted, but
30
<PAGE> 31
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENTS: -- (CONTINUED)
not to exceed 1,500,000 shares of common stock. The Company's acquisition of the
Bellyloading Companies would enhance the Company's reputation as a leading
international distributor to the aerospace industry. Consummation of this
acquisition is subject to the satisfaction of certain conditions. RHI has a
right to terminate this transaction if it sells the Bellyloading Companies to a
third party by reason of an unsolicited offer, provided that RHI pays a
reasonable termination fee and the Company's out-of-pocket expenses. As of June
23, 1997, the acquisition had not been consummated.
In June 1997, the Company's shareholders approved the following changes to
the Company's capital structure: (i) the total number of shares of capital stock
which the Company has the authority to issue were increased from 30,000,000 to
60,000,000; (ii) the number of authorized shares of the Company's common stock
were increased from 30,000,000 to 50,000,000; and (iii) a new class of Preferred
Stock, par value $0.01 per share was created , and the Company was given the
authority to issue 10,000,000 shares of such Preferred Stock (collectively, the
"Charter Amendments"). In May 1997, and in conjunction with the Charter
Amendments, the Company issued rights to its existing shareholders pursuant to
which each shareholder had the right to acquire one share of the newly
established 7.5% convertible Preferred Stock for every 4.5 shares owned.
Fairchild signed a commitment to subscribe for its pro rata share of such newly
established Preferred Stock. On June 18, 1997, the Company received
subscriptions for 3,710,955 shares of Preferred Stock or $34,140,786. By virtue
of this transaction, Fairchild's beneficial ownership of the Company increased
from 59.3% to approximately 62.6%. The proceeds received from the rights
offering will be used to reduce outstanding debt.
31
<PAGE> 32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
Banner Aerospace, Inc.:
We have audited the accompanying consolidated balance sheets of Banner
Aerospace, Inc. (a Delaware corporation) and Subsidiaries as of March 31, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Banner Aerospace, Inc. and
Subsidiaries as of March 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
May 16, 1997 (Except with respect to the
matters discussed in Note 15, as to
which the date is June 25, 1997).
32
<PAGE> 33
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
Part III is omitted inasmuch as the Company intends to file with the
Securities and Exchange Commission within 120 days of the close of its fiscal
year ended March 31, 1997, a definitive proxy statement pursuant to Regulation
14A of the Securities Exchange Act of 1934.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<C> <C> <S>
(a) (1) The following consolidated financial statements are included in Part II,
Item 8:
Report of Independent Public Accountants
Balance Sheets -- March 31, 1997 and 1996
Statements of Income and Stockholders' Equity -- For the Years Ended March
31, 1997, 1996 and 1995
Statements of Cash Flows -- For the Years Ended March 31, 1997, 1996 and
1995
Notes to Financial Statements -- For the Years Ended March 31, 1997, 1996
and 1995
Supplementary Financial Information
(2) All schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements including notes thereto
(3) Exhibits
3 (a) Certificate of Incorporation of Banner Aerospace, Inc. is incorporated
herein by reference to Exhibit 3(a) included in the Registration Statement
No. 33-34775 on Form S-1 effective July 26, 1990
(b) Certificate of Merger of Banner Aerospace, Inc. filed March 5, 1990 is
incorporated herein by reference to Exhibit 3(b) included in the
Registration Statement No. 33-34775 on Form S-1 effective July 26, 1990
(c) Certificate of Amendment of Certificate of Incorporation of Banner
Aerospace, Inc. filed June 14, 1990 is incorporated herein by reference to
Exhibit 3(c) included in the Registration Statement No. 33-34775 on Form
S-1 effective July 26, 1990
(d) Certificate of Amendment of Certificate of Incorporation of Banner
Aerospace, Inc. filed June 18, 1990 is incorporated herein by reference to
Exhibit 3(d) included in the Registration Statement No. 33-34775 on Form
S-1 effective July 26, 1990
(e) Certificate of Amendment of Certificate of Incorporation of Banner
Aerospace, Inc. filed June 19, 1990 is incorporated herein by reference to
Exhibit 3(e) included in the Registration Statement No. 33-34775 on Form
S-1 effective July 26, 1990
(f) Amended and Restated Bylaws of Banner Aerospace, Inc. is incorporated herein
by reference to Exhibit 3(f) included in the Registration Statement No.
33-34775 on Form S-1 effective July 26, 1990
(g) Restated Certificate of Amendment of Certificate of Incorporation of Banner
Aerospace, Inc. filed June 18, 1990 is incorporated herein by reference to
Exhibit 3(a) included in the quarterly report on Form 10-Q dated September
4, 1990
4 (a) Specimen of Definitive Common Stock Certificate is incorporated herein by
reference to Exhibit 4(b) included in the Registration Statement No.
33-34775 on Form S-1 effective July 26, 1990
</TABLE>
33
<PAGE> 34
<TABLE>
<C> <C> <S>
(b) Certificates for the Preferred Stock subscribed for in the Rights Offering
by Banner Aerospace, Inc., filed February 24, 1997 is incorporated herein
by reference to the Registration Statement No. 333-22275 on Form S-3
effective May 13, 1997
(c) Amendment No. 1 to Certificates for the Preferred Stock subscribed for in
the Rights Offering by Banner Aerospace, Inc., filed April 29, 1997 is
incorporated herein by reference to the Registration Statement No.
333-22275 on Form S-3 effective May 13, 1997
(d) Amendment No. 2 to Certificates for the Preferred Stock subscribed for in
the Rights Offering by Banner Aerospace, Inc., filed May 12, 1997 is
incorporated herein by reference to the Registration Statement No.
333-22275 on Form S-3 effective May 13, 1997
10(i) (a) License Agreement between The Fairchild Corporation and Banner Aerospace,
Inc. is incorporated herein by reference to Exhibit 10(i)(c) included in
the Annual Report on Form 10-K dated June 28, 1991
(b) Tax Indemnity Agreement between The Fairchild Corporation, Banner Aerospace
Holding Company I, Inc. and Banner Aerospace, Inc. is incorporated herein
by reference to Exhibit 10(i)(d) included in the Annual Report on Form
10-K dated June 28, 1991
(c) Registration Rights Agreement between Banner Aerospace Holding Company II,
Inc. and Banner Aerospace, Inc. is incorporated herein by reference to
Exhibit 10(i)(e) included in the Annual Report on Form 10-K dated June 28,
1991
(d) Transitional Agreement between The Fairchild Corporation and Banner
Aerospace, Inc. is incorporated herein by reference to Exhibit 10(i)(f)
included in the Annual Report on Form 10-K dated June 28, 1991
(e) Assignment and Assumption between The Fairchild Corporation and Banner
Aerospace, Inc. is incorporated herein by reference to Exhibit 10(i)(g)
included in the Annual Report on Form 10-K dated June 28, 1991
(f) Credit Agreement, dated August 2, 1995, among Banner Aerospace, Inc. and
Burbank Aircraft Supply, Inc. (collectively referred to as "Borrowers"),
institutions from time to time a party thereto as Lenders and Issuing
Bank, Citicorp USA, Inc., in its capacity as administrative agent for the
lenders and the Issuing Banks (individually, a "Co-Agent", and
collectively, the "Co-Agents") is incorporated herein by references to
Exhibit 10 (i)(r) included in the Annual Report on Form 10-K dated June
28, 1996
(g) Amendment No. 1 dated March 11, 1996 to the Credit Agreement dated August 2,
1995 among Banner Aerospace, Inc. and Burbank aircraft Supply, Inc.
(collectively referred to as "Borrowers"), institutions from time to time
a party thereto as Lenders and Issuing Bank, Citicorp USA, Inc., in its
capacity as administrative agent for the lenders and the Issuing Banks
(individually, a "Co-Agent", and collectively, the "Co-Agents") is
incorporated herein by reference to Exhibit 10 (i)(t) included in the
Annual Report on form 10-K dated June 28, 1996
(h) Amended and Restated Credit Agreement dated as of July 11, 1996 among Banner
Aerospace, Inc. and Burbank Aircraft Supply, Inc. (collectively referred
to as "Borrowers"), institutions from time to time a party hereto as
Lenders and Issuing Banks, whether by execution of this Agreement or an
Assignment and Acceptance, Citicorp USA, Inc., in its capacity as
administrative agent for the Lenders and Issuing Banks hereunder (in such
capacity, the "Administrative Agent"), and NationsBank, N.A. and The
Long-Term Credit Bank of Japan, Ltd., Chicago Branch, in their capacity as
co-agents for the Lenders and Issuing Banks hereunder (in such capacity,
individually, a "Co-Agent", and, collectively, the "Co-Agents") is
incorporated herein by reference to exhibit 10 (i) included in the form
10-Q dated August 13, 1996
</TABLE>
34
<PAGE> 35
<TABLE>
<C> <C> <S>
(i) Second Amended and Restated Credit Agreement dated as of December 12, 1996
among Banner Aerospace, Inc. and Burbank Aircraft Supply, Inc.
(collectively referred to as "Borrowers"), institutions from time to time
a party hereto as Lenders and Issuing Banks, whether by execution of this
Agreement or an Assignment and Acceptance, Citicorp USA, Inc., a Delaware
corporation, in its capacity as administrative agent for the Lenders and
the Issuing Banks hereunder (in such capacity, the "Administrative
Agent"), and NationsBank, N.A. and The Long-Term Credit Bank of Japan,
Ltd., Chicago Branch, in their capacity as co-agents for the Lenders and
Issuing Banks hereunder (in such capacity, individually, a "Co-Agent", and
collectively, the "Co- Agents") is incorporated herein by reference to
exhibit 10.1 included in the Form 10-Q dated February 14, 1997
*(j) Amendment No. 1 dated March 31, 1997 to the Second Amendment and Restated
Credit Agreement dated December 12, 1996 among Banner Aerospace, Inc. and
Burbank Aircraft Supply, Inc. (collectively referred to as "Borrowers"),
institutions from time to time a party hereto as Lenders and Issuing
Banks, whether by execution of this Agreement or an Assignment and
Acceptance, Citicorp USA, Inc., a Delaware corporation, in its capacity as
administrative agent for the Lenders and the Issuing Banks hereunder (in
such capacity, the "Administrative Agent"), and NationsBank, N.A. and The
Long-Term Credit Bank of Japan, Ltd., Chicago Branch, in their capacity as
co-agents for the Lenders and Issuing Banks hereunder (in such capacity,
individually, a "Co-Agent", and collectively, the "Co-Agents")
(k) Stock Exchange Agreement, dated February 22, 1996, between The Fairchild
Corporation ("Fairchild") and Banner Aerospace, Inc. to acquire Harco,
Inc. from Fairchild is incorporated herein by reference to the Definitive
Proxy Statement dated and filed on February 23, 1996 with respect to the
special Meeting of Shareholders of Registrant held on March 12, 1996
(l) Stock Purchase Agreement, dated January 15, 1997, between Dallas Aerospace,
Inc., and PB Herndon Company to acquire PB Herndon Company is incorporated
herein by reference to Exhibit 2.1 included in the Form 8-K dated and
filed on January 24, 1997
(m) Promissory note agreement between Banner Aerospace, Inc. and RHI Holdings,
Inc. dated October 17, 1996 is incorporated herein by reference to exhibit
10.2 included in the Form 10-Q dated February 14, 1997
(n) Subordinated loan agreement between Banner Aerospace, Inc. and RHI Holdings,
Inc. dated December 20, 1996 is incorporated herein by reference to
Exhibit 10.3 included in the Form 10-Q dated February 14, 1997
(o) Stock Issuance and Expense Sharing Agreement between Banner Aerospace, Inc.
and RHI Holdings, Inc. and Aero International, Inc. dated October 31, 1996
is incorporated herein by reference to Exhibit 10.4 included in the Form
10-Q dated February 14, 1997
(p) Tri-Fast Partnership Agreement between Banner Aerospace, Inc., RHI Holdings,
Inc. and Edwards & Lock Management Corporation dated November 19, 1996 is
incorporated herein by reference to Exhibit 10.5 included in the Form 10-Q
dated February 14, 1997
(q) Stock Exchange Agreement, dated May 12, 1997, between RHI Holdings, Inc. and
Banner Aerospace, Inc. to acquire Fairchild Scandinavian Bellyloading
Company AB and Scandinavian Bellyloading International, Inc. from RHI is
incorporated herein by reference to the Definitive Proxy Statement dated
and filed on May 13, 1997 with respect to the special meeting of
shareholders of registrant held on June 18, 1997
*(r) Lease between Banner Aerospace, Inc., as tenant, and RHI Holdings, Inc., as
landlord, dated April 1, 1996
10(ii) (a) The Spare Parts Purchase Agreement between Banner Aerospace, Inc. and Pan
American World Airways, Inc. dated August 21, 1992 is incorporated herein
by reference to Exhibit 10(ii)(a) included in the Annual Report on Form
10-K dated June 28, 1993
10(iii) (a) Non-Qualified and Incentive Stock Option Plan of Banner Aerospace, Inc. is
incorporated herein by reference to Exhibit 10(iii)(a) included in the
Annual Report on Form 10-K dated June 28, 1991
</TABLE>
35
<PAGE> 36
<TABLE>
<C> <C> <S>
(b) Profit Sharing/401(k) Plan of Banner Aerospace, Inc. is incorporated herein
by reference to Exhibit 10(iii)(b) included in the Registration Statement
No. 33-34775 on Form S-1 effective July 26, 1990
(c) Employment Agreement between Banner Aerospace, Inc. and Warren D. Persavich
is incorporated herein by reference to Exhibit 10(iii)(d) included in the
Annual Report on Form 10-K dated June 28, 1991
(d) Employment Agreement between Banner Aerospace, Inc. and Eugene W. Juris is
incorporated herein by reference to Exhibit 10(iii)(e) included in the
Annual Report on Form 10-K dated June 28, 1991
(e) Employment Agreement between Banner Aerospace, Inc. and Jeffrey J. Steiner
is incorporated herein by reference to Exhibit 10(iii)(g) included in the
Annual Report on Form 10-K dated June 28, 1993
(f) Employment Agreement between Banner Aerospace, Inc. and John C. Wertz is
incorporated herein by reference to Exhibit 10(iii)(i) included in the
Annual Report on Form 10-K dated June 28, 1994
(g) Amended Employment Agreement between Banner Aerospace, Inc. and Warren D.
Persavich is incorporated herein by reference to Exhibit 10(iii)(j)
included in the Annual Report on Form 10-K dated June 28, 1994
(h) Amended Employment Agreement between Banner Aerospace, Inc. and Eugene W.
Juris is incorporated herein by reference to Exhibit 10(iii)(k) included
in the Annual Report on Form 10-K dated June 28, 1994
(i) 1996 Stock Option Plan Amendments dated May 29, 1996 to the 1990
Non-Qualified and Incentive Stock Option Plan is incorporated herein by
reference to the Registration statement No. 333-20255 on Form S-8 dated
January 23, 1997
(j) 1996 Banner Aerospace, Inc. Non-Employee Directors' Stock Option Plan dated
May 29, 1996, is incorporated herein by reference to the Registration
statement No. 333-20255 on Form S-8 dated January 23, 1997
*21 List of Subsidiaries of Banner Aerospace, Inc.
*23 (a) Consent of Arthur Andersen LLP with regard to the Form S-8s file numbers
33-43100 and 33-43101 of Banner Aerospace, Inc. dated September 30, 1991
and with regard to the Form S-8 file number 33-60318 of Banner Aerospace,
Inc. dated March 31, 1993 and with regard to the Form S-8 file number 333-
20255 of Banner Aerospace, Inc., dated January 23, 1997
*27 Financial Data Schedule
(b) Registrant has filed Form 8-K dated January 16, 1997 regarding the
acquisition of PB Herndon Company including Audited Financial Statements
of PB Herndon Company as of June 30, 1996, Unaudited Interim Financial
Statements of PB Herndon Company as of September 30, 1996 and Unaudited
Pro Forma Condensed Consolidated Financial Information of Banner
Aerospace, Inc. and PB Herndon Company as of September 30, 1996
</TABLE>
- ---------------
* Filed herewith
36
<PAGE> 37
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
BANNER AEROSPACE, INC.
By: /s/ WARREN D. PERSAVICH
------------------------------------
WARREN D. PERSAVICH
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: June 30, 1997 (PRINCIPAL FINANCIAL OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
By: /s/ JEFFREY J. STEINER Chairman and Chief Date: June 30, 1997
- ---------------------------------------- Executive Officer
JEFFREY J. STEINER (Principal Executive Officer)
By: /s/ JOHN C. WERTZ Senior Vice President and Date: June 30, 1997
- ---------------------------------------- Chief Operating Officer
JOHN C. WERTZ
By: /s/ WARREN D. PERSAVICH Senior Vice President and Date: June 30, 1997
- ---------------------------------------- Chief Financial Officer
WARREN D. PERSAVICH (Principal Financial Officer)
By: /s/ EUGENE W. JURIS Vice President -- Finance Date: June 30, 1997
- ---------------------------------------- and Secretary
EUGENE W. JURIS (Principal Accounting Officer)
By: /s/ MICHAEL T. ALCOX Director Date: June 30, 1997
- ----------------------------------------
MICHAEL T. ALCOX
By: /s/ FREDERICK W. BRADLEY, JR. Director Date: June 30, 1997
- ----------------------------------------
FREDERICK W. BRADLEY, JR.
By: /s/ STEVEN L. GERARD Director Date: June 30, 1997
- ----------------------------------------
STEVEN L. GERARD
By: /s/ PROF. CHARLES M. HAAR Director Date: June 30, 1997
- ----------------------------------------
PROF. CHARLES M. HAAR
By: /s/ PHILIPPE HERCOT Director Date: June 30, 1997
- ----------------------------------------
PHILIPPE HERCOT
By: /s/ SAMUEL J. KRASNEY Director Date: June 30, 1997
- ----------------------------------------
SAMUEL J. KRASNEY
By: /s/ DR. ERIC I. STEINER Director Date: June 30, 1997
- ----------------------------------------
DR. ERIC I. STEINER
By: /s/ LEONARD TOBOROFF Director Date: June 30, 1997
- ----------------------------------------
LEONARD TOBOROFF
</TABLE>
37
<PAGE> 1
AMENDMENT NO. 1
Dated as of March 31, 1997
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 12, 1996
This Amendment No. 1 ("Amendment") dated as of March 31, 1997
is entered into among BANNER AEROSPACE, INC., a Delaware corporation
("Banner"), BURBANK AIRCRAFT SUPPLY, INC., a Delaware corporation ("Burbank"),
and the "Lenders" (as defined in the Credit Agreement identified below) of
Banner and Burbank signatory hereto. Capitalized terms used herein without
definition are used herein as defined in the Credit Agreement.
PRELIMINARY STATEMENT:
WHEREAS, Banner and Burbank, as Borrowers, certain financial
institutions as Lenders, and Citicorp USA, Inc., as Administrative Agent, are
parties to that certain Second Amended and Restated Credit Agreement dated as
of December 12, 1996 (the "Credit Agreement");
WHEREAS, the terms of the Credit Agreement contemplated the
issuance of the Preferred Stock on or before March 31, 1997 and repayment of
the Fairchild Subordinated Debt from the proceeds of the Preferred Stock as
conditions precedent to the making of the Tranche C Term Loans and Banner has
advised the Administrative Agent of an unanticipated delay in the issuance of
Preferred Stock;
WHEREAS, the Borrowers are desirous of making a Borrowing of
Tranche C Term Loans on March 31, 1997;
WHEREAS, the Borrowers have requested the amendment of certain
provisions of the Credit Agreement necessitated by the aforesaid delay in
issuance of the Preferred Stock; and
WHEREAS, subject to the terms and conditions stated herein,
Borrowers and the Lenders signatory hereto, constituting at least the Requisite
Lenders and all Tranche C Term Lenders, have agreed to amend the Credit
Agreement as set forth below.
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. Amendments to the Credit Agreement. Effective as
of March 31, 1997, subject to the satisfaction of the conditions precedent set
forth in Section 3 hereof, the Credit Agreement is hereby amended as follows:
1.1 Section 1.01 is amended to delete the definition of
"Preferred Stock Issue Date" and delete the definitions of
<PAGE> 2
"Fairchild Subordinated Debt", "Funded Debt", "Preferred Stock", and "Revolving
Credit Availability" in their entirety and substitute the following therefor:
"Fairchild Subordinated Debt" means unsecured subordinated
Indebtedness of Banner issued to RHI in a principal amount not to
exceed $30,000,000 plus deferred interest and fees pursuant to a
certain Subordinated Loan Agreement to be entered into between Banner
and RHI in form and substance satisfactory to the Administrative Agent
and including, without limitation, terms and conditions set forth in
EXHIBIT D attached hereto and made a part hereof, the proceeds of
which are used to consummate the Permitted Acquisitions and provide
working capital for the Persons making such acquisitions or acquired
in such acquisitions, the Borrowers and Subsidiaries of the Borrowers.
"Funded Debt" means, for any period, the Indebtedness of the Borrowers
and their Subsidiaries for borrowed money (determined in accordance
with GAAP), including, without limitation, Indebtedness under Capital
Leases, during such period; provided, however, that "Funded Debt"
shall be deemed to include the Fairchild Subordinated Debt only from
and after September 30, 1997.
"Preferred Stock" means Convertible Preferred Stock issued by Banner
subject to terms and conditions substantially similar to, or more
advantageous to Banner than, those set forth on SCHEDULE 1.01.11 and
such other terms and conditions as are determined acceptable by the
Administrative Agent in its reasonable discretion.
"Revolving Credit Availability" means the amount by which the lesser of
(a) the Revolving Credit Commitments at such time and
(b) the Borrowing Base at such time minus the outstanding
principal balance of the Term Loans at such time minus the
outstanding principal balance of the Tranche B Term Loans at
such time minus the outstanding principal balance of the
Tranche C Term Loans at such time plus (i) $10,000,000, if the
Preferred Stock has not been issued and the date of
determination of "Revolving Credit Availability" occurs during
the period commencing on the Effective Date and ending on
March 30, 1997, or (ii) $15,000,000, during the period
commencing on March 31, 1997 and ending on December 11, 1998
exceeds the sum of (1) the Revolving Credit Obligations at such time
plus (2) the outstanding balance of Protective Advances at such time,
plus (3) the outstanding balance of
2
<PAGE> 3
the Swing Loans at such time.
1.2 Section 2.01(b) is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
(b) Notice of Borrowing. The Borrowers shall deliver to the
Administrative Agent a Notice of Borrowing with respect to the Tranche
C Term Loans, signed by Banner, no later than (i) 11:00 a.m. (New York
time) on the proposed Funding Date therefor, in the case of a
Borrowing of Base Rate Loans, and (ii) 12:00 noon (New York time) at
least three (3) Business Days in advance of the proposed Funding Date
therefor, in the case of a Borrowing of Eurodollar Rate Loans. Such
Notice of Borrowing shall specify (i) the aggregate amount of the
Tranche C Term Loans being requested, (ii) the proposed Funding Date
therefor, which shall be a Business Day, and (iii) instructions for
the disbursement of the proceeds of the Tranche C Term Loans. Any
Notice of Borrowing given pursuant to this Section 2.01(b) shall be
irrevocable.
1.3 Section 4.01(b)(i) is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
(i) Net Cash Proceeds of Sale. Within three (3) Business Days after
receipt by either Borrower or any Subsidiary of a Borrower of any Net
Cash Proceeds of Sale, the Borrowers shall make or cause to be made a
mandatory prepayment of the Obligations in an amount equal to one
hundred percent (100%) of such Net Cash Proceeds of Sale which, when
combined with all other Net Cash Proceeds of Sale received in the same
Fiscal Year, exceeds $150,000 in the aggregate; provided, however,
that notwithstanding the foregoing, (A) one-third of the Net Cash
Proceeds of Sale from the sale of Real Property of Adams Industries,
Inc. located in Suffield, Connecticut shall be required to be remitted
as a mandatory prepayment of the Obligations, (B) that portion of the
Net Cash Proceeds of Sale from the sale of Real Property of Matrix
Aviation, Inc. located in Wichita, Kansas which exceeds $150,000
shall be required to be remitted as a mandatory prepayment of the
Obligations, and (C) no portion of the Net Cash Proceeds of Sale from
the sale of Banner's Investment in Capital Stock, and warrants for
Capital Stock, of Interactive Flight Technologies, Inc. shall be
required to be remitted as a mandatory prepayment of the Obligations.
1.4 Section 6.03 is amended to delete the provisions of
clause (b) thereof in their entirety and substitute the following therefor:
(b) Fairchild Subordinated Debt. Banner shall have received
$28,000,000 in proceeds of Fairchild Subordinated
3
<PAGE> 4
Debt.
and to delete the provisions of clause (c)(ii) thereof in their entirety.
1.5 Article IX is amended to add the following provision as
Section 9.18:
9.18 Proceeds of Preferred Stock. Promptly after its receipt
of the net cash proceeds of the Preferred Stock, Banner shall use such net cash
proceeds to repay, in full, the Fairchild Subordinated Debt and cause the
Subordinated Loan Agreement, note issued thereunder, and all other agreements
and instruments evidencing the Fairchild Subordinated Debt, or under which the
same was issued, to be terminated and cancelled.
1.6 Section 10.02(h) is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
(h) the sale of Capital Stock, and warrants for Capital Stock, of
Interactive Flight Technologies, Inc. held by Banner;
SECTION 2. Waiver. Concurrently with this Amendment becoming
effective, the parties hereto waive the requirements of Section 15.01(b)(ii)
with respect to the assignment by Citicorp USA, Inc. of a $15,000,000 interest
in its Tranche C Term Loan Commitment to KZH Holding Corporation.
SECTION 3. Conditions Precedent to Effectiveness of this
Amendment. This Amendment shall become effective as of March 31, 1997, if, and
only if (a) the Administrative Agent shall have received on or before March 28,
1997, a facsimile or original executed copy of this Amendment executed by the
Borrowers, Lenders representing at least the Requisite Lenders, and all Tranche
C Term Lenders, and (b) the Administrative Agent shall have received on March
31, 1997, a certificate signed by the Vice President-Finance of Banner
certifying that Banner has received proceeds of Fairchild Subordinated Debt in
the amount of $6,000,000, in addition to the $22,000,000 in principal of
Fairchild Subordinated Debt outstanding on March 17, 1997.
SECTION 4. Representations and Warranties. Borrowers hereby
represent and warrant as follows:
4.1 This Amendment and the Credit Agreement as previously
executed and delivered and as amended hereby constitute legal, valid and
binding obligations of the Borrowers and are enforceable against the Borrowers
in accordance with their terms.
4
<PAGE> 5
4.2 No Event of Default or Potential Event of Default exists
or would result from any of the transactions contemplated by this Amendment.
4.3 Upon the effectiveness of this Amendment, the Borrowers
hereby reaffirm all covenants, representations and warranties made by them,
respectively, in the Credit Agreement to the extent the same are not amended
hereby and agree that all such covenants, representations and warranties shall
be deemed to have been remade as of the date this Amendment becomes effective
(unless a representation and warranty is stated to be given on and as of a
specific date, in which case such representation and warranty shall be true,
correct and complete as of such date).
SECTION 5. Reference to and Effect on the Credit Agreement.
5.1 Upon the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import shall mean and be a reference to the Credit Agreement, as
amended hereby, and each reference to the Credit Agreement in any other
document, instrument or agreement executed and/or delivered in connection with
the Credit Agreement shall mean and be a reference to the Credit Agreement as
amended hereby.
5.2 Except as specifically amended above, the Credit
Agreement, the Notes and all other Loan Documents shall remain in full force
and effect and are hereby ratified and confirmed.
5.3 The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of any
Lender or Issuing Bank or the Administrative Agent under the Credit Agreement,
the Notes or any of the other Loan Documents, nor constitute a waiver of any
provision contained therein, except as specifically set forth herein.
SECTION 6. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. Delivery of an executed counterpart of this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 7. Governing Law. This Amendment shall be governed
by and construed in accordance with the laws of the State of New York.
5
<PAGE> 6
SECTION 8. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
as of the date first above written.
BANNER AEROSPACE, INC. BURBANK AIRCRAFT SUPPLY, INC.
By By
--------------------------- ---------------------------
Eugene W. Juris Eugene W. Juris
Vice President - Finance Vice President
CITICORP USA, INC. PNC BANK, NATIONAL ASSOCIATION
By By
--------------------------- ---------------------------
Timothy L. Freeman David J. Williams
Attorney-in-Fact Vice President
THE LONG-TERM CREDIT BANK OF CAISSE NATIONALE DE CREDIT
JAPAN, LTD., CHICAGO BRANCH AGRICOLE
By By
--------------------------- ---------------------------
Brady S. Sadek David Bouhl
Vice President & Deputy First Vice President
General Manager
NATIONSBANK, N.A. SANWA BUSINESS CREDIT
CORPORATION
By By
--------------------------- ---------------------------
Michael R. Heredia John P. Thacker
Vice President Vice President
6
<PAGE> 7
THE FIRST NATIONAL BANK OF THE SUMITOMO BANK, LIMITED
CHICAGO
By By
--------------------------- ---------------------------
Lynn R. Dillon Nancy Z. Reimann
Managing Director Vice President
By
---------------------------
James L. Hogan
Vice President & Manager
BANK POLSKA KASA OPIEKI, S.A. PILGRIM AMERICA PRIME RATE
TRUST
By By
--------------------------- ---------------------------
Hussein H. El-Tawil Thomas C. Hunt
Vice President Portfolio Analyst
DEUTSCHE FINANCIAL SERVICES, MERRILL LYNCH SENIOR FLOATING
INC. RATE FUND, INC.
By By
--------------------------- ---------------------------
Mark E. Tauber Gilles Marchand
Vice President Authorized Signatory
MERRILL LYNCH PRIME RATE PROTECTIVE LIFE INSURANCE
PORTFOLIO COMPANY
By Protective Asset
Management, L.L.C.
By By
--------------------------- ---------------------------
Gilles Marchand Mark R. Okada
Authorized Signatory Executive Vice President
7
<PAGE> 8
THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
By ING Capital Advisors, Inc.
By
---------------------------
Kathleen Lenarcic
Vice President & Portfolio
Manager
8
<PAGE> 1
LEASE
BETWEEN
RHI HOLDINGS, INC.,
A DELAWARE CORPORATION
AS LANDLORD
- AND -
BANNER AEROSPACE SERVICES, INC.
AS TENANT
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1: DEMISED PREMISES, COMMON AREAS AND USE OF DEMISED PREMISES
1.1 Agreement to Lease.
1.2 Use of Demised Premises.
1.3 Use of Common Areas.
1.4 Uses Reserved Exclusively to Landlord.
1.5 Relocation of Demised Premises.
ARTICLE 2: TERM OF LEASE AND DELIVERY OF DEMISED PREMISES
2.1 Base Term.
2.2 Early Termination Option
ARTICLE 3: RENT
3.1 Minimum Rent.
3.2 Intentionally Omitted
3.3 Intentionally Omitted
3.4 Payment of Rent.
ARTICLE 4: ANNUAL COST OF LIVING ADJUSTMENT TO MINIMUM RENT
4.1 Annual CPI Adjustment.
4.2 Example of CPI Adjustment.
4.3 Alternative Index.
ARTICLE 5: ADJUSTMENTS TO RENT FOR INCREASED OPERATING EXPENSES
/ NOT APPLICABLE
ARTICLE 6: SECURITY DEPOSIT / NOT APPLICABLE
ARTICLE 7: ASSIGNMENT AND SUBLETTING
7.1 General.
7.2 Submission of Information.
7.3 Payments to Landlord.
7.4 Change in Control as a Prohibited Transfer.
7.5 Terms of Consent To Assignments or Subleases.
ARTICLE 8: INITIAL IMPROVEMENTS
ARTICLE 9: ALTERATIONS
9.1 No Alterations, Improvements or Fixtures Without Consent.
9.2 Removal.
ARTICLE 10: TENANT'S CARE OF THE DEMISED PREMISES, BUILDING RULES AND
REGULATIONS, AND LANDLORD ACCESS
10.1 Maintenance and Surrender of Demised Premises.
10.2 Tenant Equipment.
10.3 Removal of Fixtures and Alterations Upon End of Lease.
10.4 Use of Demised Premises Affecting Insurance Rating.
10.5 Compliance With Building Rules and Regulations.
10.6 Miscellaneous Covenants and Agreements.
10.7 Landlord Entry for Repairs and Inspection.
<PAGE> 3
ARTICLE 11: TENANT'S INSURANCE
11.1 Coverage.
11.2 Policy Requirements.
11.3 Landlord's Right to Maintain Coverage.
11.4 Insurance Coverage Does Not Limit Tenant's Liability.
11.5 Compliance With Insurance Requirements.
11.6 Waiver of Subrogation.
ARTICLE 12: UTILITIES, SERVICES AND SERVICE DISCLAIMER
12.1 General Provisions Applicable To Landlord Services; Definition
of Business Hours.
12.2 Electrical Current, Heating and Air Conditioning.
12.3 Other Landlord Services.
12.4 Utility Charges in Excess of Basic Service; Meters.
12.5 Services Disclaimer.
ARTICLE 13: CASUALTY AND CONDEMNATION
13.1 Fire and Other Casualty Damage to Demised Premises.
13.2 Condemnation.
ARTICLE 14: TENANT EVENTS OF DEFAULT AND LANDLORD REMEDIES
14.1 Events of Default Defined.
14.2 Events of Default Not Affected by Security Deposit or
Acceptance of Rent.
14.3 Remedies Upon Event of Default.
14.4 Liability of Tenant.
14.5 Liquidated Damages.
14.6 Attorney's Fees.
14.7 No Jury Trial; Arbitration
14.8 Right to Enjoin, Etc.
14.9 Intentionally Omitted
14.10 Remedies Cumulative.
14.11 No Waiver of Tenant Defaults.
14.12 Right of Landlord to Cure Tenant Events of Default.
14.13 Late Payments.
14.14 Definition of Default Rate.
ARTICLE 15: SUBORDINATION, ATTORNMENT AND RELATED PROVISIONS
15.1 Subordination.
15.2 Estoppel Certificates.
15.3 Modification of Lease for Financing Requirements.
ARTICLE 16: LIMITATION OF LANDLORD'S LIABILITY; TENANT INDEMNITY
OBLIGATIONS
16.1 No Personal Obligations; Liability Limited to Building.
16.2 Force Majeure.
16.3 No Liability for Damage to Personal Property and Person.
16.4 Tenant's Indemnity Obligations.
ARTICLE 17: PARKING
17.1 Allotted Parking and Designated Parking Areas.
<PAGE> 4
17.2 Revocation or Reductions of Parking License.
17.3 No Liability for Damage to Vehicles.
17.4 Parking License Not Assignable.
ARTICLE 18: RENEWAL AND EXTENSION OPTIONS / NOT APPLICABLE
ARTICLE 19: HOLDING OVER
ARTICLE 20: MISCELLANEOUS
20.1 Brokers.
20.2 Notices.
20.3 Covenants of Landlord.
20.4 Successors and Assigns.
20.5 Time of the Essence.
20.6 No Recordation.
20.7 Captions.
20.8 Landlord Approvals.
20.9 Landlord's Fees.
20.10 Entire Agreement.
20.11 Applicable Laws.
20.12 No Option.
20.13 Partial Invalidity
20.14 Pronouns.
ARTICLE 21: ENVIRONMENTAL COMPLIANCE
ARTICLE 22: INDEX OF DEFINED TERMS
* * *
EXHIBITS
Exhibit A: Demised Premises
Exhibit C: Rules and Regulations
<PAGE> 5
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") dated as April 1, 1996, by and between
RHI HOLDINGS, INC., a Delaware corporation ("Landlord"), and Banner Aerospace
Services, Inc., a Delaware corporation ("Tenant").
In consideration of the mutual agreement hereinafter set forth, the
parties do hereby agree as follows:
AN INDEX OF DEFINED TERMS IS SET FORTH IN ARTICLE 22 BELOW.
ARTICLE 1
DEMISED PREMISES, COMMON AREAS AND USE OF DEMISED PREMISES
1.1 AGREEMENT TO LEASE.
Landlord does hereby lease to Tenant and Tenant does hereby lease from Landlord,
for the term and upon the conditions hereinafter provided, approximately 9,745
square feet of rentable space on the third floor and approximately 605 square
feet of storage space in the basement (collectively, the "Demised Premises") of
the building located at 300 West Service Road, Washington Dulles International
Airport, Chantilly, VA 22021 (the "Building"), as shown on the plan attached
hereto as Exhibit A. [The parties acknowledge and agree that the Demised
Premises space on the third floor consists of approximately 9,780 rentable sq.
ft.; however, rent shall be based on 9,745 rentable sq. ft.]
The real property on which the Building is located, together with the
surrounding real property and parking area, Plot C-7-4, are collectively
referred to herein as the "Real Property."
The Building and the Real Property are sometimes collectively referred to herein
as the "Project."
1.2 USE OF DEMISED PREMISES.
Tenant will use and occupy the Demised Premises solely for general office
purposes and uses incident thereto in accordance with the certificate of
occupancy and applicable zoning regulations, and for no other purpose. Tenant
will not use or occupy the Demised Premises for any unlawful, disorderly, or
extra hazardous purpose, and will not manufacture any commodity or prepare or
dispense any food or beverage therein, except for Tenant's personal use in the
Demised Premises. Tenant will comply
-1-
<PAGE> 6
with all present and future laws, regulations and governmental requirements of
any governmental or public authority having jurisdiction over the Demised
Premises.
1.3 USE OF COMMON AREAS.
As used in this Lease, the term "Common Areas" means, without limitation, the
hallways, entryways, stairs, elevators, driveways, walkways, terraces, docks,
loading areas, restrooms, trash facilities, and all other areas and facilities
in the Project that are provided and designated from time to time by Landlord
for the general nonexclusive use and convenience of Tenant with Landlord and
other tenants of the Building and their respective employees, invitees,
licensees, or other visitors. Landlord grants Tenant, its employees, invitees,
licensees, and other visitors a nonexclusive license for the term to use the
Common Areas in common with others entitled to use the Common Areas, subject to
the terms and conditions of this Lease. Without advance written notice to
Tenant, and without any liability to Tenant in any respect, provided Landlord
will take no action permitted under this SECTION 1.3 in such a manner as to
materially impair or adversely affect Tenant's substantial benefit and enjoyment
of the Demised Premises, Landlord will have the right to:
(a) Close off any of the Common Areas to whatever extent required in
the opinion of Landlord and its counsel to prevent a dedication of any of the
Common Areas or the accrual of any rights by any person or the public to the
Common Areas;
(b) Temporarily close any of the Common Areas for maintenance,
alteration, or improvement purposes; and
(c) Change the size, use, shape, or nature of any Common Areas,
including erecting additional buildings on the Common Areas, expanding the
existing Building or other buildings to cover a portion of the Common Areas,
converting Common Areas to a portion of the Building or other buildings, or
converting any portion of the building (excluding the Demised Premises) or other
buildings to Common Areas. Upon erection of any additional buildings or change
in Common Areas, the portion of the Project upon which buildings or structures
have been erected will no longer be deemed to be a part of the Common Areas.
1.4 USES RESERVED EXCLUSIVELY TO LANDLORD.
As between Landlord and Tenant, Landlord retains unto itself the sole and
exclusive use of the roof, the exterior walls and the Common Areas of the
Building.
1.5 RELOCATION OF DEMISED PREMISES.
-2-
<PAGE> 7
Landlord reserves the right to relocate the Demised Premises to substantially
comparable space within the Building. Landlord will give Tenant a written notice
of its intention to relocate the Demised Premises, and Tenant will complete such
relocation within 30 days after receipt of such written notice. If Tenant
relocates to comparable space within the Building pursuant to this SECTION 1.5,
then, effective on the date of such relocation, this Lease will be amended by
deleting the description of the original Demised Premises and substituting for
it a description of such comparable space. Landlord agrees to reimburse Tenant
for its actual reasonable moving costs to such other space within the Building,
the reasonable costs of reprinting stationery, the costs of rewiring the new
premises for telephone and computers comparably to the original Demised
Premises, and the cost of upfitting the new premises with the same improvements
as the Demised Premises. In the event Landlord relocates Tenant pursuant to this
Section 1.5 in order to accommodate a new Tenant in the Demised Premises, any
base rent payable by such new tenant for such space in excess of the base rent
under this Lease, shall be shared by Landlord and Tenant 50/50 for the remaining
term of this Lease or for as long as the new tenant continues to pay such
increased rent (whichever period is shorter).
ARTICLE 2
TERM OF LEASE AND DELIVERY OF DEMISED PREMISES
2.1 BASE TERM.
This Lease shall be for a term of Ten Years (or until such term shall sooner
terminate as hereinafter provided), beginning on April 1, 1996 (the "Lease
Commencement Date") and ending at midnight on March 31, 2006 (the "Termination
Date").
2.2 EARLY TERMINATION OPTION.
Provided Tenant is not then in default under the terms of this Lease, at any
time after the fifth anniversary of this Lease, Tenant may give a one year
written notice to cancel the remaining Term without penalty and vacate the
Premises at the end of the notice period.
ARTICLE 3
RENT
3.1 MINIMUM RENT.
Tenant covenants and agrees to pay to Landlord, "Minimum Rent" of $14,107.92 per
-3-
<PAGE> 8
month, payable in advance on the first day of each calendar month during the
term of this Lease, subject to adjustment as provided in ARTICLES 4 AND 5 below.
(Such rent is based on $17 per sq. ft. times an assumed rentable office space of
9,745 sq. ft for Third Floor Space; and $6 per sq. ft. times 605 sq. ft. of
rentable storage space in the basement.)
3.2 INTENTIONALLY OMITTED
3.3 INTENTIONALLY OMITTED
3.4 PAYMENT OF RENT.
Tenant will pay all Minimum Rent and any other amounts due under this Lease
("Rent") without demand, deduction, set-off or counterclaim, by check to
Landlord at:
RHI Holdings, Inc.
c/o Charles E. Smith Management, Inc.
2345 Crystal Drive
Arlington, VA 22202
- -- or to such other party or to such other address as Landlord may designate
from time to time by written notice to Tenant. If Landlord shall at any time or
times accept any Rent after it has become due and payable, such acceptance shall
not excuse delay upon subsequent occasions, or constitute a waiver of any or all
of Landlord's rights hereunder.
ARTICLE 4
ANNUAL ADJUSTMENT TO MINIMUM RENT
On the anniversary of the Commencement Date and every twelve months thereafter
("Adjustment Dates"), Minimum Rent (then in effect) shall be increased by 3%.
ARTICLE 5
ADJUSTMENTS TO RENT FOR INCREASED OPERATING EXPENSES
Not Applicable
ARTICLE 6
SECURITY DEPOSIT
Not Applicable
-4-
<PAGE> 9
ARTICLE 7
ASSIGNMENT AND SUBLETTING
7.1 GENERAL.
Tenant, for itself, its heirs, distributees, executors, administrators, legal
representatives, successors, and assigns, covenants that it will not assign,
transfer by operation of law or otherwise, mortgage, or encumber this Lease, nor
sublease, nor permit the Demised Premises or any part of the Demised Premises to
be used or occupied by others, without the prior written consent of Landlord in
each instance, which consent shall not be unreasonably withheld. Any assignment
or sublease in violation of this ARTICLE 7 will be void. If this Lease is
assigned, or if the Demised Premises or any part of the Demised Premises are
subleased or occupied by anyone other than Tenant, Landlord may, after default
by Tenant, collect Rent from the assignee, subtenant, or occupant, and apply the
net amount collected to Rent. No assignment, sublease, occupancy, or collection
will be deemed (a) a waiver of the provisions of this SECTION 7.1; (b) the
acceptance of the assignee, subtenant, or occupant as Tenant; or (c) a release
from the further performance by Tenant of its covenants and obligations
contained in this Lease. The consent by Landlord to an assignment or sublease
will not be construed to relieve Tenant from obtaining Landlord's prior written
consent in writing to any further assignment or sublease. No permitted subtenant
may assign or encumber its sublease or further sublease all or any portion of
its subleased space, or otherwise permit the subleased space or any part of its
subleased space to be used or occupied by others, without Landlord's prior
written consent in each instance.
7.2 SUBMISSION OF INFORMATION.
If Tenant requests Landlord's consent to a specific assignment or subletting,
Tenant will submit in writing to Landlord (a) the name and address of the
proposed assignee or subtenant; (b) the business terms of the proposed
assignment or sublease; (c) reasonably satisfactory information as to the nature
and character of the business of the proposed assignee or subtenant, and as to
the nature of its proposed use of the space; (d) banking, financial, or other
credit information reasonably sufficient to enable Landlord to determine the
financial responsibility and character of the proposed assignee or subtenant;
and (e) the proposed form of assignment or sublease for Landlord's approval.
7.3 PAYMENTS TO LANDLORD.
-5-
<PAGE> 10
If Landlord consents to a proposed assignment or sublease, then Landlord will
have the right to require Tenant to pay to Landlord a sum equal to 50% of: (a)
any Rent or other consideration paid to Tenant by any proposed transferee that
(after deducting the costs to Tenant, if any, in effecting the assignment or
sublease, including reasonable alterations costs, commissions and legal fees) is
in excess of the Rent allocable to the transferred space then being paid by
Tenant to Landlord pursuant to this Lease; (b) any other profit or gain (after
deducting any necessary expenses incurred) realized by Tenant from any such
sublease or assignment; and (c) Landlord's reasonable attorneys' fees and costs
incurred in connection with negotiation, review, and processing of the transfer.
All such sums will be payable to Landlord at the time the next payment of
Minimum Rent is due.
7.4 CHANGE IN CONTROL AS A PROHIBITED TRANSFER.
The transfer of a majority of the issued and outstanding capital stock of any
corporate Tenant or subtenant of this Lease, or a majority of the total interest
in any partnership Tenant or subtenant, however accomplished, and whether in a
single transaction or in a series of related or unrelated transactions, will be
deemed an assignment of this Lease or of such sublease requiring Landlord's
consent in each instance.
7.5 TERMS OF CONSENT TO ASSIGNMENTS OR SUBLEASES.
In the event Landlord consents to any assignment or sublease, a dully executed
copy of the sublease or assignment shall be delivered to Landlord within ten
(10) days after execution thereof. Any such sublease shall provide that the
subtenant shall comply with all applicable terms and conditions of this Lease to
be performed by the Tenant hereunder. Any such assignment of this Lease shall
contain an assumption by the assignee of all of the terms and obligations of
this Lease to be performed by the Tenant. Tenant covenants that, notwithstanding
any such assignment or transfer, and notwithstanding the acceptance of Rent by
Landlord from an assignee or transferee or any other party, the Tenant shall
remain fully liable for the payment of Rent due and to become due under this
Lease and for the performance of all of the covenants, agreements, terms,
provisions and conditions of this Lease on the part of Tenant to be performed or
observed.
ARTICLE 8
INITIAL IMPROVEMENTS
Tenant accepts the Demised Premises "As Is." The parties acknowledge and agree
that Landlord granted to Tenant the right to alter and remodel the Demised
Premises, at Tenant's expense, for Tenant's intended use in conjunction with the
commencement of the Lease ("Initial Improvements"). Such Initial Improvement
have been completed,
-6-
<PAGE> 11
and approved by Landlord and Tenant. Such Initial Improvements shall not be
subject to the removal conditions set forth in Section 9.2 hereof;
ARTICLE 9
ALTERATIONS
9.1 NO ALTERATIONS, IMPROVEMENTS OR FIXTURES WITHOUT CONSENT.
After completion of the Initial Improvements, Tenant will not make or allow to
be made any further alterations, additions, or improvements to the Demised
Premises, or attach any fixtures or equipment to the Demised Premises, without
first obtaining Landlord's written consent. All alterations, additions, and
improvements consented to by Landlord must be performed by contractors approved
by Landlord and must conform to all governmental and insurance rules and
regulations established from time to time. As a condition precedent to
Landlords's written consent, Tenant agrees to obtain and deliver to Landlord
written and unconditional waivers of mechanics' and materialmen' liens upon the
Project for all work, labor and services to be performed, and materials to be
furnished, by them in connection with such work, signed by all contractors,
subcontractors, materialmen and laborers to become involved in such work. If,
notwithstanding the foregoing, any mechanics' or materialmen's lien is filed
against the Demised Premises, the Building or the Project, for work claimed to
have been done for, or materials claimed to have been furnished to Tenant, such
lien shall be discharged by Tenant within ten (10) days thereafter, at Tenant's
sole cost and expense, by the payment thereof or by filing any bond required by
law. If Tenant shall fail to discharge any such mechanic's or materialmen's
lien, Landlord may, at its option, discharge the same and collect same as
Additional Rent together with interest on the amount thereof from the date of
payment by Landlord until the date of repayment by Tenant at the Default Rate
(as defined in SECTION 14.14); it being hereby expressly covenanted and agreed
that such discharge by Landlord shall not be deemed to waive, or release the
default of Tenant in not discharging the same.
9.2 REMOVAL.
Unless Landlord, at its sole discretion, elects otherwise (either at the time of
granting consent or any time thereafter), all alterations, additions, fixtures,
and improvements that are made in or upon the Demised Premises pursuant to this
ARTICLE 9 (other than the Initial improvements) shall be removed by Tenant at
its sole cost prior to the end of the term of this Lease, and Tenant will
restore the Demised Premises to the condition in which they were before such
alterations, additions, fixtures, improvements, and additions were made,
reasonable wear and tear excepted.
-7-
<PAGE> 12
ARTICLE 10
TENANT'S CARE OF THE DEMISED PREMISES, BUILDING RULES AND
REGULATIONS, AND LANDLORD ACCESS
10.1 MAINTENANCE AND SURRENDER OF DEMISED PREMISES.
Tenant, at its sole cost and expense, shall keep the Demised Premises (including
all improvements, fixtures and all other property contained in the Demised
Premises) in a neat, safe, and clean condition, and in good order and repair,
and will surrender the Demised Premises at the end of the term in as good order
and condition as they were at the commencement of the term, except for
reasonable wear and tear. Tenant shall not commit or suffer to be committed any
waste upon the Demised Premises or any nuisance or other act or thing which may
disturb the quiet enjoyment or interfere with, inhibit or preclude any permitted
use of any other tenant in the Building or any person outside the Building.
10.2 TENANT EQUIPMENT.
Maintenance and repair of equipment such as kitchen fixtures, separate air
conditioning equipment, or any other type of special equipment, whether
installed by Tenant or by Landlord on behalf of Tenant, shall be the sole
responsibility of Tenant, and Landlord shall have no obligation in connection
therewith.
10.3 REMOVAL OF FIXTURES AND ALTERATIONS UPON END OF LEASE.
On or prior to the end of the term, Tenant shall remove from the Demised
Premises all (i) trade fixtures, (ii) furniture, (iii) equipment and machinery,
and (iv) alterations, additions or improvements required to be removed by Tenant
in accordance with ARTICLE 9 (collectively, "Tenant Fixtures, Equipment and
Alterations").
Tenant will fully repair any damage occasioned by the removal of any Tenant
Fixtures and Alterations. All Tenant Fixtures, Equipment and Alterations on the
Demised Premises after the end of the term will be deemed conclusively to have
been abandoned and may be appropriated, sold, stored, destroyed, or otherwise
disposed of by Landlord without written notice to Tenant or any other person and
without obligation to account for them. Tenant will pay Landlord for all
expenses incurred in connection with the removal of such property, including but
not limited to the cost of repairing any damage to the Building or the Demised
Premises caused by the removal of such property. Tenant's obligation to observe
and perform this covenant will survive the expiration or other termination of
this Lease.
-8-
<PAGE> 13
Nothing herein shall be deemed to require Tenant to remove the Initial
Improvements (as defined in Article 8).
10.4 USE OF DEMISED PREMISES AFFECTING INSURANCE RATING.
Tenant will not conduct or permit to be conducted any activity or place any
equipment in or about the Demised Premises, which will, in any way, increase the
rate of insurance premiums on the Building or the Real Property. If any increase
in the rate of insurance is stated by any insurance company or by the applicable
Insurance Rating Bureau to be due to any activity or equipment in or about the
Demised Premises, such statement shall be conclusive evidence that the increase
in such rate is due to Tenant's activity or equipment and, as a result thereof,
Tenant shall be liable for such increase and shall reimburse Landlord therefor,
within 10 (10) days of receipt of written notice.
10.5 COMPLIANCE WITH BUILDING RULES AND REGULATIONS.
Tenant, its agents and employees shall abide by and observe the rules and
regulations attached hereto and made a part hereof as EXHIBIT C and such other
rules and regulations as may be promulgated from time to time by Landlord for
the operation and maintenance of the Building, the Real Property and the
Project, provided that the same are not inconsistent with the provisions of this
Lease and Tenant is given notice thereof. Nothing contained in this Lease shall
be construed to impose upon Landlord any duty or obligation to enforce such
rules and regulations, or the terms, conditions or covenants contained in any
other lease, as against any other tenant, and Landlord shall not be liable to
Tenant for violation of the same by any other tenant, its employees, agents, or
invitees.
10.6 MISCELLANEOUS COVENANTS AND AGREEMENTS.
Tenant further agrees that:
No sign, advertisement or notice shall be inscribed, painted or affixed on any
part of the outside or inside of the Demised Premises or Building, except on the
directories and doors of offices, and then only in such size, color and style as
the Landlord shall reasonably approve.
Landlord shall have the right to prescribe the weight, and method of
installation and position of safes or other heavy items forming part of the
Tenant Fixtures, Equipment and Alterations. Tenant shall not install any Tenant
Fixtures, Equipment and Alterations that will place a load upon any floor
exceeding the load per square foot area which such floor was designed to carry.
-9-
<PAGE> 14
All damage done to the Building by taking in or removing any Tenant Fixtures,
Equipment and Alterations, or due to its being in the Demised Premises, shall be
repaired at the expense of Tenant.
No freight, furniture or other bulky matter of any description shall be received
into the Building or carried in the elevators, except as approved by Landlord.
All moving of Tenant Fixtures, Equipment and Alterations shall be under the
direct control and supervision of the Landlord, who shall, however, not be
responsible for any damage to or charges for moving same.
10.7 LANDLORD ENTRY FOR REPAIRS AND INSPECTION.
Tenant shall permit Landlord, or its representative(s), to enter the Demised
Premises at all reasonable times to examine and inspect same, and to make such
alterations and/or repairs as in the judgement of Landlord may be deemed
necessary, or to exhibit the same to prospective tenants, purchasers or
mortgagees. If, in an emergency, it shall become necessary to make promptly any
repairs or replacements required to be made by Tenant, then Landlord may, at its
option, proceed forthwith to have such repairs or replacements made and to pay
the cost thereof for Tenant's account. Tenant shall reimburse Landlord for the
cost of such repairs or replacements on demand. There shall be no abatement of
Rent and no liability by reason of any injury to or interference with Tenant's
business arising from the making of any examinations, exhibitions, inspections,
repairs, alterations or improvements in or to any portion of the Demised
Premises or the Project.
ARTICLE 11
TENANT'S INSURANCE
11.1 COVERAGE.
During the term of this Lease, Tenant shall obtain, pay the premiums for, and
maintain in full force and effect the following types of insurance:
(a) Comprehensive Liability. A general comprehensive liability
insurance policy including contractual and independent contractors extension or
policies, naming Landlord and any mortgagee or ground lessor of the Building as
additional insured parties, protecting Landlord in the amount of One Million and
No/100 Dollars ($1,000,000.00) combined single limit per occurrence for bodily
injuries to and/or death of any person, and for property damage, which amounts
may be increased from time to time by Landlord in its reasonable determination.
-10-
<PAGE> 15
(b) All-Risk Property. All-risk property insurance written at
replacement cost value, covering all of Tenant's personal property in the
Demised Premises (including, without limitation, inventory, trade fixtures,
floor coverings, furniture and other property removable by Tenant under the
provisions of this Lease) and all leasehold improvements installed in the
Demised Premises. With respect to all damaged leasehold improvements any and all
proceeds of such insurance, so long as this Lease shall remain in effect, shall
be used only to repair or replace the items so insured.
(c) Worker's Compensation. If and to the extent required by law,
worker's compensation or similar insurance in form and amounts required by law
including Employer's Liability insurance in the amount of $100,000 for any one
occurrence.
11.2 POLICY REQUIREMENTS.
All insurance policies required to be procured by Tenant under this Lease: (I)
shall be issued by responsible insurance companies licensed to do business in
the jurisdiction in which the Building is located and shall be in such form and
content as approved by Landlord; (II) shall be written as primary policy
coverage and not contributing with or in excess of any coverage which Landlord
may carry; (III) shall provide that the policy shall not be canceled unless
Landlord shall have received thirty (30) day's prior written notice of
cancellation; and (IV) shall waive insurer's rights of subrogation against
Landlord, its agents and employees, including any mortgagee or any other
interested party designated by Landlord.
With respect to each and every one of the insurance policies required to be
procured by Tenant under this Lease, on or before the Lease Commencement Date
(or as soon thereafter as possible), and at least thirty (30) days before the
expiration of the expiring certificates of insurance previously furnished,
Tenant shall deliver to Landlord certificates of insurance for each such policy
or renewal thereof, or such other evidence that may be satisfactory to Landlord
and the holder of any first deed of trust on the Building.
11.3 LANDLORD'S RIGHT TO MAINTAIN COVERAGE.
In the event Tenant shall fail to provide such insurance, or shall fail to pay
the premiums when due, Landlord shall have the right to cause such insurance to
be issued and to pay the premiums therefor, or any premiums in default, and to
collect same from Tenant together with interest on the amount of such premiums
from the date of payment by Landlord until the date of repayment by Tenant at
the Default Rate (as defined in SECTION 14.14).
-11-
<PAGE> 16
11.4 INSURANCE COVERAGE DOES NOT LIMIT TENANT'S LIABILITY.
Neither the issuance of any insurance policy required under this Lease nor the
minimum limits specified herein shall be deemed to limit or restrict in any way
Tenant's liability arising under or out of this Lease.
11.5 COMPLIANCE WITH INSURANCE REQUIREMENTS.
Tenant shall comply with all requirements of Landlord's and Tenant's insurance
carriers and shall not do or permit to be done any act or thing upon the Demised
Premises that will invalidate or be in conflict with fire insurance policies
covering the Building or any part thereof, fixtures and property in the Building
or the Demised Premises or any other insurance policies or coverage referred to
in this ARTICLE 11, and shall comply with all rules, orders, regulations or
requirements of the Board of Fire Underwriters having jurisdiction, or any other
similar body in the case of such fire insurance policies, and the applicable
insurance rating bureau or similar body in the case of all other such insurance
policies.
11.6 WAIVER OF SUBROGATION.
Neither Landlord nor Tenant shall be liable to the other for any loss or damage
to property or injury to or death of persons occurring on the Demised Premises
or the Building, or in any manner growing out of or connected with the Tenant's
use and occupation of the Demised Premises or the condition thereof, whether or
not caused by the negligence or other fault of Landlord or Tenant or of their
respective agents, employees, subtenants, licensees, or assignees (collectively,
"Non-Subrogated Loss").
This release shall apply only to the extent that such Non-Subrogated Loss is
covered by insurance required to be carried by Tenant under this Article 11 and
insurance required to be carried by Landlord under Section 13.1, regardless of
whether such insurance is payable to or protects Landlord or Tenant or both.
Nothing in this Section 11.6 shall be construed to import any greater liability
or indemnification obligation upon either Landlord or Tenant than would have
existed in the absence of this Section 13.1.
Each party required to obtain insurance under Article 11 and Section 13.1 shall
obtain policies with a clause to the effect that this release shall not affect
the right of the insured to recover under such policies.
ARTICLE 12
-12-
<PAGE> 17
UTILITIES, SERVICES AND SERVICE DISCLAIMER
12.1 GENERAL PROVISIONS APPLICABLE TO LANDLORD SERVICES; DEFINITION OF
BUSINESS HOURS.
Landlord agrees to furnish only such services as may specifically be required of
Landlord by this ARTICLE 12 of the Lease, and no other.
Services specified in this ARTICLE 12 shall be provided during Business Hours
only. As used herein "Business Hours" means Monday through Friday, from 7:00
a.m. through 6:00 p.m., exclusive of Federal holidays.
12.2 ELECTRICAL CURRENT, HEATING AND AIR CONDITIONING.
(a) Landlord's Obligation. Landlord shall furnish reasonably adequate
electric current sufficient for (1) standard lighting and the operation of
low-wattage office machines (such as desktop micro-computers, desktop
calculators, and typewriters) during Business Hours; (2) standard heat and air
conditioning reasonably required for the comfortable occupation of the Demised
Premises during Business Hours; and (3) access and elevator service twenty four
hours a day. Landlord shall not be obligated to furnish more power to the
Demised Premises than allocated thereto under the Building design.
(b) Tenant's Obligation. Tenant shall arrange to purchase and pay for
all of Tenant's electric current requirements that exceed the standard basic
requirements set forth in SECTION 12.2(a) above.
(c) After Hours Heating and Air Conditioning. Provided that Tenant
gives Landlord appropriate advance notice, Landlord shall provide overtime
heating or air conditioning beyond Business Hours. Tenant shall pay Landlord for
such overtime use on the basis of Landlord's actual cost per hour.
Notwithstanding the foregoing, Tenant shall be entitled to use overtime heating
or air conditioning on Saturdays, Sundays and holidays without charge, up to a
maximum of 20 days per calendar year (or pro-rated portion thereof for less than
a full year). [The pro-rated portion for the 1996 calendar year is 15 days.]
12.3 OTHER LANDLORD SERVICES.
Landlord shall furnish reasonably adequate water, lavatory supplies for
restrooms in Common Areas, and normal and usual cleaning and trash removal
service.
-13-
<PAGE> 18
12.4 UTILITY CHARGES IN EXCESS OF BASIC SERVICE; METERS.
Tenant shall pay all charges for electricity, water, and other utilities used by
Tenant on the Demised Premises in excess of the basic service utilities to be
provided by Landlord under this ARTICLE 12. Landlord may install a separate
water or electric meters to measure the amount of water or electricity consumed
upon the Demised Premises. The cost of any such meters and of installation,
maintenance and repair thereof shall be paid for by Tenant. Tenant shall pay
Landlord promptly upon demand therefor by Landlord for all water and electricity
consumed as shown by said meters, in excess of the basic service utilities to be
provided by Landlord under this ARTICLE 12.
12.5 SERVICES DISCLAIMER.
Landlord shall not be liable for damages for failure, interruption or slow-down
of: (i) heat, (ii) hot or cold water, (iii) air conditioning, (iii) sewer
service, (iv) electric current, (v) gas, or (vi) any other service -- caused by
reason of: (1) breakdown or interruption of plant, equipment, or apparatus, (2)
shut-down of any services for necessary repairs or alterations, (3)
unavailability of fuel, water or any other substance or utility, (4) war or
civil disturbance, (5) strike or lockout, (6) fire, flood or casualty, (7)
governmental regulations, or (8) any other conditions beyond Landlord's control.
Any security measures that Landlord may elect to undertake in and about the
Project are understood to be for the protection and preservation of the Building
and Real Property only and shall not be relied upon by the Tenant for the
protection in either its person or property or that of its guests, invitees or
employees, and no liability shall be imposed on the Landlord, its agents or
employees in connection therewith.
ARTICLE 13
CASUALTY AND CONDEMNATION
13.1 FIRE AND OTHER CASUALTY DAMAGE TO DEMISED PREMISES.
If the Demised Premises shall be partially damaged by fire or other cause
covered by extended coverage insurance, other than by the fault or neglect of
Tenant, Landlord shall as soon as practicable after such damage occurs (taking
into account the time necessary to effectuate a satisfactory settlement with any
insurance company) repair such damage, and the rent shall be reduced in
proportion to the floor area of the Demised Premises which is usable by Tenant
until such repairs are completed; provided, however, that (i) in no event shall
Landlord have any repair obligations in excess of insurance proceeds actually
received by Landlord, plus any deductible payable by Landlord under applicable
insurance policies, and (ii) Tenant's rental
-14-
<PAGE> 19
obligation shall abate only to the extent of the proceeds actually received by
Landlord under its rental reimbursement insurance policy. If the Demised
Premises are substantially damaged by fire or other cause to such extent that
(in Landlord's reasonable estimation) the damage cannot be fully repaired within
one hundred twenty (120) days from the date of such damage, Landlord shall have
the option of electing not to repair the damage and terminating this Lease by
giving written notice to Tenant of such decision and the term of this Lease
shall terminate ten (10) days after such notice is given. No compensation or
reduction of rent will be allowed or paid by Landlord by reason of
inconvenience, annoyance, or injury to business arising from the necessity of
repairing the Demised Premises or any portion of the Building.
In connection with this Section 13.1, Landlord covenants and agrees that it
shall maintain commercially reasonable property insurance on the Building in a
commercially reasonable amount.
13.2 CONDEMNATION.
If the whole or a substantial part of the Demised Premises shall be taken or
condemned by any governmental authority for any public or quasi-public use or
purpose, then the term of this Lease shall cease and terminate as of the date
when title vests in such governmental authority, and Tenant shall have no claim
against Landlord (or otherwise) for any portion of the amount that may be
awarded as damages as a result of such taking or condemnation or for the value
of any unexpired term of the Lease; provided, however, that Tenant may assert
any claim that it may have against the condemning authority for compensation for
any fixtures owned by Tenant and for any relocation expenses compensable by
statute. The Rent, however, shall be abated on the date when such title vests in
such governmental authority. If less than a substantial part of the Demised
Premises is taken or condemned by any governmental authority for any public or
quasi-public use or purpose, the Rent shall be adjusted on a square footage
basis on the date when title vests in such governmental authority and the Lease
shall otherwise continue in full force and effect. For purposes hereof, a
substantial part of the Demised Premises shall be considered to have been taken
if more than fifty percent (50%) of the Demised Premises are unusable by Tenant.
ARTICLE 14
TENANT EVENTS OF DEFAULT AND LANDLORD REMEDIES
14.1 EVENTS OF DEFAULT DEFINED.
Each of the following events shall be a default ("Event of Default") of Tenant
under this Lease:
-15-
<PAGE> 20
(a) Minimum Rent Event of Default: Failure of Tenant to make any
payment of Minimum Rent when due.
(b) Additional Rent Event of Default: Failure of Tenant to make any
payment of any other sums due by Tenant under this Lease when due.
(c) Covenant Events of Default: Failure of Tenant to perform or comply
with any provisions of this Lease to be performed or complied with by Tenant,
other than provisions for the payment of Minimum Rent or other sums due under
this Lease, where such failure shall continue for a period of ten (10) days
after written notice thereof by Landlord to Tenant.
(d) Lease Attachment: The taking of this Lease or the Demised Premises,
or any part thereof, upon execution or by other process of law directed against
Tenant, or upon or subject to any attachment at the insistence of any creditor
of or claimant against Tenant, which execution or attachment shall not be
discharged or disposed of within thirty (30) days after the levy thereof.
(e) Bankruptcy Events: The involvement of Tenant, or any guarantor of
Tenant's obligations hereunder, in financial difficulties as evidenced by:
(I)its admitting in writing its inability to pay debts generally as they become
due; (II) its filing a petition in bankruptcy or for reorganization or for the
adoption of an arrangement under the Bankruptcy Act (as now existing or in the
future amended), or an answer or other pleading admitting the material
allegations of such a petition or seeking, consenting to or acquiescing in the
relief provided for under such Act; (III) its making an assignment of all or a
substantial part of its property for the benefit of its creditors; (IV) its
seeking or consenting to or acquiescing in the appointment of a receiver or
trustee for all or a substantial part of its property or of the Demised
Premises; (V) its being adjudicated a bankrupt or insolvent; or (VI) the entry
of a court order without its consent, which order shall not be vacated, set
aside or stayed within sixty (60) days from the date of entry, appointing a
receiver or trustee for all or a substantial part of its property or approving a
petition filed against it for the effecting of an arrangement in bankruptcy or
for a reorganization pursuant to the Bankruptcy Act or for any other judicial
modification or alteration of the rights of creditors.
14.2 EVENTS OF DEFAULT NOT AFFECTED BY SECURITY DEPOSIT OR ACCEPTANCE OF
RENT.
The provisions of this ARTICLE 14 shall apply notwithstanding the payment by
Tenant of a Security Deposit and/or the continued willingness and ability of
Tenant to pay Rent and otherwise perform hereunder. The receipt by Landlord of
payments of Rent, as
-16-
<PAGE> 21
such, accruing subsequent to the time of an Event of Default shall not be deemed
a waiver by Landlord of its rights and remedies under this ARTICLE 14.
14.3 REMEDIES UPON EVENT OF DEFAULT.
Upon the occurrence of an Event of Default, Landlord shall have the right, at
its election, then or at any time thereafter either:
(a) Termination of Lease: To give Tenant written notice of Landlord's
intent to terminate this Lease on the date of the notice or on any later date
specified in the notice, and on such date Tenant's right to possession of the
Demised Premises shall cease and this Lease shall thereupon be terminated; or
(b) Reentry and Possession: Without demand or notice, to reenter and
take possession of all or any part of the Demised Premises, and expel Tenant and
those claiming through Tenant, and remove the property of Tenant and any other
person, either by summary proceedings or by action at law or in equity, without
being deemed guilty of trespass and without prejudice to any remedies for
nonpayment or late payment of Rent or breach of covenant. If Landlord elects to
reenter under this subsection, Landlord may terminate this Lease, or, from time
to time, without terminating this Lease, may relet all or any part of the
Demised Premises as agent for Tenant for such term or terms and at such rental
and upon such other terms and conditions as Landlord may deem advisable, with
the right to make alterations and repairs to the Demised Premises. No such
reentry or taking of possession of the Demised Premises by Landlord shall be
construed as an election on Landlord's part to terminate this Lease unless a
written notice of such intention is given to Tenant under SECTION 14.3(A), or
unless the termination be decreed by a court of competent jurisdiction at the
request of Landlord.
(c) Waiver of Notice, Redemption, Repossession and Restoration of
Lease: Tenant, on its own behalf and on behalf of all persons claiming through
Tenant, including all creditors, does hereby waive any and all rights and
privileges, so far as its permitted by law, which Tenant and all such persons
might otherwise have under any present or future law (I) to the service of any
notice of intention to reenter which may otherwise be required to be given, (II)
to redeem the Demised Premises, (III) to reenter or repossess the Demised
Premises, or (IV) to restore the operation of this Lease, with respect to any
dispossession of Tenant by judgment or warrant of any court, whether such
dispossession, reentry, expiration or termination be by operation of law or
pursuant to the provisions of this Lease.
14.4 LIABILITY OF TENANT.
-17-
<PAGE> 22
If Landlord terminates this Lease pursuant to SECTION 14.3, Tenant shall remain
liable (in addition to accrued liabilities) for:
(A) (i) Minimum Rent and any other sums provided for in this Lease until
the date this Lease would have expired had such termination not
occurred; (ii) any and all reasonable expenses (including attorney's
fees, disbursements and brokerage fees) incurred by Landlord in
reentering and repossessing the Demised Premises, in curing any Event
of Default, in painting, altering, repairing or dividing the Demised
Premises, in protecting and preserving the Demised Premises by use of
watchmen and caretakers, and in reletting the Demised Premises; and
(iii) any and all reasonable expenses which Landlord may incur during
the occupancy of any new tenant;
LESS:
(B) The net proceeds of any reletting prior to the date this Lease would
have expired if it had not been terminated.
Tenant agrees to pay to Landlord the difference between ITEMS (A) AND (B) above
for each month during the term, at the end of each such month. Any suit brought
by Landlord to enforce collection of such difference for any one month shall not
prejudice Landlord's right to enforce the collection of any difference for any
subsequent month. Tenant's liability shall survive the institution of summary
proceedings and the issuance of any writ of restitution thereunder.
14.5 LIQUIDATED DAMAGES.
If Landlord terminates this Lease pursuant to this ARTICLE 14, Landlord shall
have the right, at any time, at its option, to require Tenant to pay to
Landlord, on demand, as liquidated and agreed final damages in lieu of Tenant's
liability under SECTION 14.4 the rent and all other charges which would have
been payable from the date of such demand to the date when this Lease would have
expired if it had not been terminated, minus the fair rental value of the
Demised Premises for the same period. If the Demised Premises shall have been
relet for all or part of the remaining balance of the term by Landlord after an
Event of Default but before determination of such liquidated damages, the amount
of rent received upon such reletting shall be deemed the fair rental value of
the Demised Premises for purposes of the foregoing determination of liquidated
damages. Upon payment of such liquidated and agreed final damages, Tenant shall
be released from all further liability under this Lease with respect to the
period after the date of demand.
-18-
<PAGE> 23
14.6 ATTORNEY'S FEES.
In the event Tenant defaults in the performance of any of the terms, covenants,
agreements or conditions contained in this Lease and Landlord places the
enforcement of this Lease, or any part thereof, or the collection of any Rent
due, or to become due hereunder, or recovery of the possession of the Demised
Premises in the hands of an attorney, or files suit upon the same, Tenant agrees
to pay Landlord reasonable attorneys' fees.
14.7 NO JURY TRIAL; ARBITRATION.
Tenant waives all right to trial by jury in any proceeding which may be
instituted by Landlord against Tenant arising under or by virtue of this Lease.
Any dispute between Landlord and Tenant relating to this Lease, other than
summary ejectment (or similar proceedings) for non-payment of Rent, shall be
resolved by means of binding arbitration in accordance with the commercial
arbitration rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator(s) may be entered in any court of competent
jurisdiction. Depositions may be taken and other discovery obtained during such
arbitration proceedings to the same extent as authorized in civil judicial
proceedings in the Commonwealth of Virginia. The arbitrator(s) shall be limited
to awarding compensatory damages and shall have no authority to award punitive,
exemplary or similar type damages. The arbitrators may grant injunctions or
other relief in such disputes or matters. The arbitrators shall apply the laws
of the Commonwealth of Virginia (including applicable statutory and common law).
The prevailing party in the arbitration proceeding shall be entitled to recover
its expenses, including the costs of the arbitration proceeding and reasonable
attorneys' fees.
If the purpose of arbitration is to determine the fair market value or fair
rental value of the Demised Premises or any other property or interest: (a) each
of the arbitrators shall be a member of the American Institute of Real Estate
Appraisers or the Society of Real Estate Appraisers (or any successor
organization of comparable function), and shall have at least five years
experience in the appraisal of similar properties in the Northern Virginia area,
and (b) each of the three arbitrators will submit his valuation and the value
shall be deemed to be the average of the two closest valuations by the
arbitrators.
Notwithstanding the foregoing, either party may obtain a court directed
temporary restraining order, injunction or similar relief prior to seeking
arbitration and during the
-19-
<PAGE> 24
course of arbitration, as necessary, in order to prevent irreparable harm, waste
or injury.
14.8 RIGHT TO ENJOIN, ETC.
In the event of any breach or threatened breach by Tenant or any person(s)
claiming through Tenant of any of the provisions contained in this Lease,
Landlord shall be entitled to enjoin such breach or threatened breach and shall
have the right to invoke any right or remedy allowed at law or otherwise as if
reentry, summary proceedings or other prescribed remedies were not provided for
in this Lease.
14.9 LIEN FOR RENT.
Intentionally Omitted
14.10 REMEDIES CUMULATIVE.
All rights and remedies of Landlord under this Lease shall be cumulative and
shall not be exclusive of any other rights and remedies Landlord may have in law
or equity.
14.11 NO WAIVER OF TENANT DEFAULTS.
In the event Landlord institutes proceedings under the terms of this Lease, and
a compromise or settlement thereof shall be made, the same shall not constitute
a waiver of any covenant contained in the Lease nor of any of Landlord's rights
hereunder. No waiver by Landlord of any breach of any covenant, condition or
agreement in the Lease shall operate as a waiver of such covenant, condition or
agreement, or of any subsequent breach thereof. No payment by Tenant or receipt
by Landlord of a lesser amount than the monthly installments of Rent stipulated
in this Lease shall be deemed to be other than on account of the earliest
stipulated Rent, nor shall any endorsement or statement on any check or letter
accompanying a check for payment of Rent be deemed an accord and satisfaction
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such Rent or to pursue any other remedy provided
in this Lease. No reentry by Landlord, an no acceptance by Landlord of keys from
Tenant, shall be considered an acceptance of a surrender of the Lease.
14.12 RIGHT OF LANDLORD TO CURE TENANT EVENTS OF DEFAULT.
If Tenant defaults in the making of any payment or in the doing of any act
herein required to be made or done by Tenant, taking into account applicable
cure periods, then after ten (10) days notice from Landlord, Landlord may, but
shall not be required
-20-
<PAGE> 25
to, make such payments or do such act, and collect the amount thereof from
Tenant together with interest on such amount from the date of payment by
Landlord until the date of repayment by Tenant at the Default Rate (as defined
in SECTION 14.14); but the making of such payment or the doing of such act by
Landlord shall not operate to cure such Event of Default or to estop Landlord
from the pursuit of any remedy to which Landlord would otherwise be entitled.
14.13 LATE PAYMENTS AND INTEREST.
If Tenant fails to pay any installment of Rent on or before the first day of the
calendar month when such installment is due and payable, such unpaid installment
shall bear interest at the Default Rate (as defined in SECTION 14.14), thirty
(30) days from the date such installment became due and payable to the date of
payment thereof by Tenant. Such interest shall constitute additional sums dues
under this Lease and payable with the next monthly installment of Rent. In
addition, Tenant shall pay to Landlord, as a "late charge" five percent (5%) of
any payment herein required to be made by Tenant which is more than ten (10)
days late to cover the costs of collecting accounts past due.
14.14 DEFINITION OF DEFAULT RATE.
As used herein, "Default Rate" means the lower of: (i) the average prime lending
rate as reported by the Wall Street Journal, plus 2%, or (ii) the maximum rate
permitted by law.
ARTICLE 15
SUBORDINATION, ATTORNMENT AND RELATED PROVISIONS
15.1 SUBORDINATION.
(a) Subordination Generally; Tenant's Certificate: This Lease is
subject and subordinate to all ground or underlying leases and to all mortgages
and/or deeds of trust which may now or hereafter affect such leases or the Real
Property of which the Demised Premises are a part, and to all renewals,
modifications, consolidations, replacements and extensions thereof. This clause
shall be self-operative and no further instrument of subordination shall be
required by any mortgagee or trustee. In confirmation of such subordination,
Tenant shall execute promptly any certificate that the Landlord or the party
secured by any deed of trust, or any successor in interest may request. Tenant
hereby constitutes and appoints Landlord as Tenant's attorney-in-fact to execute
any such certificate or certificates on behalf of Tenant.
(b) Provisions Applicable to Mortgage or Deed of Trust Subordination:
Notwithstanding the foregoing, the party secured by any such deed of trust shall
have
-21-
<PAGE> 26
the rights to recognize this Lease and, in the event of any foreclosure
sale under such deed of trust, this Lease shall continue in full force and
effect at the option of the party secured by such deed of trust or the purchaser
under any such foreclosure sale. Tenant covenants and agrees that it will, at
the written request of the party secured by any such deed of trust, execute,
acknowledge and deliver any instrument that has for its purpose and effect the
subordination of said deed of trust to the lien of this Lease. The party secured
by such deed of trust and any successor in interest shall not be bound by any
payment in Rent in advance for more than thirty (30) days or by any amendment or
modification of this Lease made subsequent to the date of recordation of such
deed of trust without the consent of the party secured by such deed of trust or
such successor in interest.
(c) Provisions Applicable to Ground or Underlying Lease Subordination:
At the option of any landlord under any ground or underlying lease to which the
Lease is now or may hereafter become subject or subordinate, Tenant agrees that
neither the cancellation nor termination of such ground or underlying lease
shall by operation of law or otherwise, result in cancellation or termination of
this Lease or the obligations of the Tenant hereunder, and Tenant covenants and
agrees to attorn to such landlord or to any successor to Landlord's interest in
such ground or underlying lease, and in that event, this Lease shall continue as
a direct lease between the Tenant herein and such landlord or its successor.
Such landlord or successor under such ground or underlying lease shall not be
bound by any prepayment on the part of Tenant of any Rent for more than one
month in advance, so that Rent shall be payable under this Lease in accordance
with its terms, from the date of the termination of the ground or underlying
lease, as if such prepayment had not been made. Such landlord or successor under
such ground or underlying lessee shall not be bound by this Lease or any
amendment or modification of this Lease unless, prior to the termination of such
ground or underlying lease, a copy of this Lease or amendment or modification
thereof, as the case may be, shall have been delivered to such landlord or
successor.
15.2 ESTOPPEL CERTIFICATES.
Tenant agrees, at any time and from time to time, upon not less than five (5)
days prior written notice by Landlord, to execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease has been
unmodified since its execution and is in full force and effect (or if there have
been modifications, that the Lease is in full force and effect, as modified, and
stating the modifications), (ii) stating the dates, if any, to which the Rent
and sums hereunder have been paid by Tenant, (iii) stating whether or not to the
knowledge of Tenant, there are then existing any Landlord or Tenant defaults
under the Lease (and, if so, specifying the same), and (iv) stating the address
to which notices to Tenant should be sent. Any such statement delivered
-22-
<PAGE> 27
pursuant hereto shall provide that such statement may be relied upon by Landlord
or any prospective purchaser or mortgagee of the Project or any part therein.
Tenant's failure to execute and deliver such statement within the time specified
shall be deemed the equivalent of the delivery of a statement to the effect that
Landlord is in full compliance with the terms of this Lease. Furthermore, in the
event Tenant fails or refuses to execute and deliver such statement, Landlord
may, as the attorney and agent of the Tenant, execute such statement and in such
event the Tenant hereby confirms and ratifies any such statement so executed.
15.3 MODIFICATION OF LEASE FOR FINANCING REQUIREMENTS.
In the event that any person or entity now or hereafter providing financing to
Landlord for the Project requires, as a condition of such financing, that this
Lease be modified, Landlord shall submit such required modifications to Tenant,
and Tenant shall enter into and execute a written amendment hereto incorporating
such required modifications within fifteen (15) days after the same has been
submitted to Tenant by Landlord, provided, that, such modifications (a) are
reasonable, (b) do not adversely affect Tenant's use of the Demised Premises as
herein permitted, (c) do not materially affect any of the provisions of this
Lease as determined in Tenant's reasonable discretion, and (D) do not increase
the rentals and other sums required to be paid by Tenant hereunder.
ARTICLE 16
LIMITATION OF LANDLORD'S LIABILITY; TENANT INDEMNITY OBLIGATIONS
16.1 NO PERSONAL OBLIGATIONS; LIABILITY LIMITED TO BUILDING.
The obligations of Landlord under this Lease do not constitute personal
obligations of the directors, officers, or shareholders of Landlord, and Tenant
shall look solely to the real estate that is the subject of this Lease and to no
other assets of the Landlord for satisfaction of any liability in respect of
this Lease and will not seek recourse against the directors, officers or
shareholders of Landlord or any of their personal assets for such satisfaction.
16.2 FORCE MAJEURE.
Landlord shall not be required to perform any of its obligations under this
Lease, nor be liable for loss or damage for failure to do so, nor shall Tenant
be released from any of its obligations under this Lease, where such failure
arises from or through acts of God, strikes, lockouts, labor difficulties,
explosions, sabotage, accidents, riots, civil commotions, acts of any foreign
country, fire and casualty, legal requirements, energy
-23-
<PAGE> 28
shortage, or causes beyond the reasonable control of Landlord, unless such loss
or damage results from willful misconduct or gross negligence by Landlord.
16.3 NO LIABILITY FOR DAMAGE TO PERSONAL PROPERTY AND PERSON.
All property of Tenant, its agents or invitees, or of any other person, in or on
the Demised Premises or the Project, shall be and remain at the sole risk of
Tenant or such agent, invitee or person. Landlord shall not be liable for any
damage to or theft or loss of such property, whether or not caused by the act or
omission of any person, or by the bursting, leaking or overflowing of water,
sewer, steam or sprinkler pipes, heating or plumbing fixtures, air conditioning
or heating failure, gas, noxious odors or noise, or any other act or thing.
Landlord shall not under any circumstances be liable for the interruption or
loss of Tenant's business that may result from any of the acts or causes
described above. Landlord shall not be liable for any personal injury to Tenant,
its agents or invitees, or to any other persons, arising from the use, occupancy
or condition of the Demised Premises, the Building or the Real Property other
than liability for personal injuries resulting directly from the gross
negligence or willful misconduct of Landlord, and then only to the extent that
Tenant is not compensated therefor by insurance.
16.4 TENANT'S INDEMNITY OBLIGATIONS.
Tenant shall indemnify Landlord and its agents and employees and save it
harmless from and against any and all claims, actions, damages, liabilities and
expense (including reasonable attorneys fees) in connection with loss of life,
personal injury or damage to property arising from, resulting from, or related
to (in whole or in part): (i) any occurrence in, upon or at the Demised
Premises, or (ii) the occupancy or use by Tenant (including Tenant's agents,
contractors, employees, servants, permitted subtenants, invitees or licensees)
of the Demised Premises, the Common Areas or any part of the Project, or (iii)
any act or omission of Tenant, its agents, contractors, employees, servants,
permitted subtenants, invitees or licensees, or (iv) any Event of Default,
breach, violation or nonperformance of this Lease by Tenant (collectively, (i)
through (iv), hereinafter referred to as "Tenant Indemnity Obligations").
In the event that Landlord or its agents and employees shall, without fault on
its part, be made a party to any litigation commenced by or against Tenant or
relating to any Tenant Indemnity Obligations, then Tenant shall protect and hold
Landlord harmless and shall pay all costs, expenses and reasonable attorney's
fees incurred or paid in connection with such litigation. Tenant shall pay,
satisfy and discharge any and all judgments, orders and decrees which may be
entered or recovered against Landlord in connection with the foregoing.
-24-
<PAGE> 29
ARTICLE 17
PARKING
17.1 ALLOTTED PARKING AND DESIGNATED PARKING AREAS.
So long as Tenant is not in default under this Lease, Landlord hereby grants to
Tenant a non-exclusive license (the "Parking License") to park three (3) cars
for every 1,000 square feet of office space = thirty (30) cars ("Allotted
Parking"), for use solely by Tenant and Tenant's employees, guests and invitees
in the spaces which will hereafter be designated by Landlord (the "Designated
Parking Areas"). The use by Tenant, its employees, guests or invitees of more
than the Allotted Parking after thirty (30) days notice by Landlord ("Over-Use")
shall be deemed an Event of Default under this Lease and Landlord may exercise
such remedies as are provided pursuant to ARTICLE 14 of the Lease. Landlord
shall not be responsible to Tenant for enforcing the Parking License or
violation of the provisions of this ARTICLE 17 by co-tenants of the Building, by
third parties, or guests or visitors to the Building.
Tenant's Designated Parking Areas include: Two (2) cars in underground parking
garage (in spots to be determined by Landlord) and twenty-eight (28) cars in
outside parking area (in spots to be determined by Landlord).
17.2 REVOCATION OR REDUCTIONS OF PARKING LICENSE.
Landlord shall have the right to: (i) revoke the Parking License in the event of
an Over-Use; or (ii) in the event of any occurrence not caused by Landlord which
reduces the number of parking spaces in the Designated Parking Area, reduce the
Allocated Parking (with no adjustment to Rent) to the extent of Tenant's
proportionate share of the number of parking spaces by which the Designated
Parking Area is so reduced.
17.3 NO LIABILITY FOR DAMAGE TO VEHICLES.
Landlord shall not be liable for damage to any vehicle using the parking
facilities pursuant to this Lease, including theft, collision, fire, or any
other damage to such vehicle; Landlord shall not be responsible for articles
left in such vehicles; Landlord shall not be liable for loss of use of any such
vehicles which may be damaged while using the parking facilities. In addition,
Landlord shall not be liable for any injury to any person using the parking
facilities regardless of the cause of such injury; all persons using the parking
facilities shall do so at their own risk. Tenant shall indemnify and hold
Landlord and its agents harmless from all loss, damage, liability, cost or
expense incurred, suffered, or claimed by any person or entity by reason of
injury, loss or
-25-
<PAGE> 30
damage to any person, property, or business resulting from the Tenant's
negligence or negligent or unlawful use of the parking facilities.
17.4 PARKING LICENSE NOT ASSIGNABLE.
The Parking License may not be assigned by the Tenant without the prior written
consent of Landlord.
ARTICLE 18
RENEWAL AND EXTENSION OPTIONS
Not Applicable
ARTICLE 19
HOLDING OVER
Tenant will have no right to remain in possession of all or any part of the
Demised Premises after the expiration of the term of this Lease. If Tenant
remains in possession of all or any part of the Demised Premises after the
expiration of the term, with the express or implied consent of Landlord: (a)
such tenancy will be deemed to be a periodic tenancy from month-to-month only;
(b) such tenancy will not constitute a renewal or extension of this Lease for
any further term; and (c) such tenancy may be terminated by Landlord upon the
earlier of 30 days' prior written notice or the earliest date permitted by law.
In such event, Minimum Rent will be increased to an amount equal to 200% of the
Minimum Rent payable during the last month of the term, and any other sums due
under this Lease will be payable in the amount and at the times specified in
this Lease. Such month-to-month tenancy will be subject to every other term,
condition, and covenant contained in this Lease. In addition, Tenant shall pay
to Landlord all costs and damages incurred by Landlord as a result of Tenant's
holding over, which shall be deemed additional sums due under this Lease.
ARTICLE 20
MISCELLANEOUS
20.1 BROKERS.
Tenant represents and warrants that it has not dealt with any broker in
connection with this Lease and that insofar as Tenant knows, no other broker
participated in or negotiated this Lease or is entitled to any commission in
connection therewith and Tenant agrees to defend, indemnify and hold Landlord
harmless from any claims by
-26-
<PAGE> 31
any broker alleging to have acted on behalf of Tenant. The execution and
delivery of this Lease by Landlord shall be conclusive evidence that Landlord
has relied upon the foregoing representation and warranty in making this Lease.
20.2 NOTICES.
All notices or other communications hereunder shall be in writing and shall be
deemed duly given if delivered in person or sent by certified or registered
mail, return receipt requested, first class, postage prepaid, as follows:
(a) If to Landlord:
RHI Holdings, Inc.
Washington Dulles International Airport
300 West Service Road, P.O. Box 10803, Chantilly, VA 22021
or to such other address as Landlord may designate from time to time by
notice to Tenant given pursuant to the provisions of this Section.
(ii) If to Tenant:
At the Demised Premises, or to such other address as Tenant may
designate from time to time by notice to Landlord given pursuant to the
provisions of this Section.
20.3 COVENANTS OF LANDLORD.
Landlord covenants that it has the right to make this Lease, and that if Tenant
shall pay the rental and perform all of Tenant's obligations under this Lease,
Tenant shall, during the term hereof, freely, peaceably and quietly occupy and
enjoy the full possession of the Demised Premises without molestation or
hindrance by Landlord or any party claiming through or under Landlord.
20.4 SUCCESSORS AND ASSIGNS.
The terms, covenants and conditions hereof shall be binding upon and inure to
the successors in interest and assigns of the parties hereto. Landlord may
freely and fully assign its interest hereunder. The term "Landlord" as used
throughout this Lease shall mean solely the owner of Landlord's interest in the
Building, whomever that may be at the relevant time, so that in the event of any
sale or transfer of Landlord's interest in the Building any prior Landlord shall
be freed and relieved of all covenants and obligations
-27-
<PAGE> 32
of Lessor hereunder.
20.5 TIME OF THE ESSENCE.
Time is of the essence with respect to Tenant's monetary obligations in this
Lease.
20.6 NO RECORDATION.
Tenant's recordation of this Lease or any memorandum or short form Lease will be
void and a default hereunder.
20.7 CAPTIONS.
The captions of the various articles and sections of this Lease are for
convenience only and do not define, limit, describe, or construe the contents of
such articles or sections.
20.8 LANDLORD APPROVALS.
Whenever in this Lease action or approval on the part of the Landlord is
required or optional, it is understood that such action or approval may require
that such action be taken or approval given on terms acceptable to Landlord's
mortgagee and ground lessor.
20.9 LANDLORD'S FEES.
Whenever Tenant requests Landlord to take any action or give any consent
required or permitted under this Lease, Tenant will reimburse Landlord for all
of Landlord's reasonable costs incurred in reviewing the proposed action or
consent, including without limitation reasonable attorneys', engineers' or
architects' fees, within 10 days after Landlord's delivery to Tenant of a
statement of such costs. Tenant will be obligated to make such reimbursement
without regard to whether Landlord consents to any such proposed action.
20.10 ENTIRE AGREEMENT.
This Lease, together with the Exhibits and any Addenda attached hereto, contain
and embody the entire agreement of the parties hereto, and no representations,
inducements, or agreements, oral or otherwise, between the parties not contained
in this Lease and Exhibits and Addenda, shall be of any force or effect. This
Lease may not be modified, changed or terminated in whole or in part in any
manner other than by an agreement in writing duly signed by both parties hereto.
-28-
<PAGE> 33
20.11 APPLICABLE LAWS.
It is the agreement of the parties that this Lease is to be construed in
accordance with the laws of the Commonwealth of Virginia.
20.12 NO OPTION.
The submission of this Lease for examination by Tenant does not constitute a
reservation of or option for the Demised Premises, and this Lease shall become
effective as a Lease only upon execution and delivery thereof by Landlord and
Tenant.
20.13 PARTIAL INVALIDITY.
If any provision of this Lease or the application thereof to any person or
circumstance shall to any extent be held void, unenforceable or invalid, then
the remainder of this Lease or the application of such provision to persons or
circumstances other than those as to which it is held void, unenforceable or
invalid shall not be effected thereby, and each provision of this Lease shall be
valid and enforced to the fullest extent permitted by law.
20.14 PRONOUNS.
Feminine or neuter pronouns shall be substituted for those of the masculine
form, and the plural shall be substituted for the singular number, in any place
or places in which the context may require such substitution or substitutions.
ARTICLE 21
ENVIRONMENTAL COMPLIANCE
Tenant shall not store, treat, dispose, handle or otherwise use any hazardous or
toxic substances, wastes, or materials, or other pollutants or contaminants upon
the Demised Premises without the prior written consent of Landlord; provided,
however that Tenant shall be allowed to store and use such amounts of cleaning
fluids and lubricants as are reasonably necessary to conduct its business
activities upon the Demised Premises subject to the condition that all such
cleaning fluids and lubricants shall be stored, used, disposed of and/or removed
from the Demised Premises in compliance with manufacturer's directions and all
applicable governmental laws and regulations. Tenant shall at all times remain
fully responsible and liable for compliance with all federal, state and local
statues, ordinances, regulations and other requirements relating to human health
or the environment which are applicable to the Demised Premises and Tenant's
-29-
<PAGE> 34
use thereof, including, but not limited to, those respecting the storage,
treatment, disposal, handling, and release of hazardous or toxic substances,
wastes, or materials, or other pollutants or contaminants. Tenant agrees to
indemnify and to hold Landlord harmless from any and all claims, causes of
action, damages, penalties, and costs (including attorneys's fees, consultant
fees, and related expenses) which may be asserted against or incurred by
Landlord resulting from or related to: (i) Tenant's breach, violation or default
of the terms, conditions and covenants of this ARTICLE 21; (ii) the spill,
disposal or other release or threatened release of any hazardous or toxic
substance, waste or material, or any other pollutant or contaminant, on the
Demised Premises or the Project caused by Tenant, its employees, agents or
contractors; or (iii) any violation or alleged violation of any environmental
statute, ordinance, regulation or other requirement caused by Tenant, its
employees, agents or contractors. Tenant's obligation to indemnify and hold
Landlord harmless pursuant to this ARTICLE 21 shall survive the expiration or
termination of this Lease.
ARTICLE 22
INDEX OF DEFINED TERMS
The following terms have the meaning ascribed to them in the Sections noted
below:
<TABLE>
<CAPTION>
Term Section Where Defined
---- ---------------------
<S> <C>
Adjustment Dates............................................................................Section 4.1
Allotted Parking...........................................................................Section 17.1
Building....................................................................................Section 1.1
Business Hours.............................................................................Section 12.1
Common Area.................................................................................Section 1.3
CPI.........................................................................................Section 4.1
Current CPI.................................................................................Section 4.1
Default Rate..............................................................................Section 14.14
Demised Premises............................................................................Section 1.1
Designated Parking Area....................................................................Section 17.1
Event(s) of Default........................................................................Section 14.1
Landlord.........................................................................Preamble; Section 20.4
Lease..........................................................................................Preamble
Lease Commencement Date.....................................................................Section 2.1
Market Rent................................................................................Section 18.3
Minimum Rent................................................................................Section 3.1
Over-Use...................................................................................Section 17.1
Parking License............................................................................Section 17.1
Prior Year CPI..............................................................................Section 4.1
Project.....................................................................................Section 1.1
</TABLE>
-30-
<PAGE> 35
<TABLE>
<S> <C>
Real Property...............................................................................Section 1.1
Renewal Term...............................................................................Section 18.1
Security Deposit............................................................................Section 6.1
Tenant Indemnity Obligations...............................................................Section 16.4
Tenant.........................................................................................Preamble
Tenant Fixtures, Equipment and Alterations.................................................Section 10.3
Tenant's Work.................................................................................Article 8
Termination Date............................................................................Section 2.1
</TABLE>
* * *
-31-
<PAGE> 36
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
under seal as of the day and year first hereinbefore written.
LANDLORD:
RHI HOLDINGS, INC.
Attest:
------------------------------
By:
-----------------------------
Title:
--------------------------
Attest: TENANT:
BANNER AEROSPACE SERVICES, INC.
-------------------------------
By:
------------------------------
Title:
--------------------------
-32-
<PAGE> 37
Exhibit A
Demised Premises
<PAGE> 38
Exhibit "C"
RULES AND REGULATIONS
1. Tenant and its agents and employees shall not loiter in or upon or in
any way obstruct the grounds, sidewalks, driveways or parking areas,
or the common halls, passages, exits, entrances, corridors, stairways
of elevators, in or about the Building in which the Demised Premises
are located, or use for any purpose other than for ingress to and
egress from the Demised Premises. These areas are not for the use of
the general public, and Landlord reserves the right to control and
prevent access to them by al persons whose presence in the judgement
of the Landlord will be prejudicial to the safety, character,
reputation and interests of the Building and its Tenants. However,
nothing in these Rules and Regulations shall be construed to prevent
access by persons with whom Tenant usually deals in the ordinary
course of its business, unless those persons violate the Rules and
Regulations of the Building or are engaged in illegal activities.
2. Landlord reserves the right to control ingress and egress to and from
the Building and/or to close and keep locked all entrances and exits
doors of the Building on Saturdays, Sundays and federal holidays, on
other days between the hours of 6:00 p.m. and 7:00 a.m., and during
such other times as Landlord deems advisable for the adequate security
of the Building; provided that Landlord shall not unreasonably block
access. Internal access in and use of the Building and the Demised
Premises at such times shall be subject to such rules and regulations
for use of cardkeys issued to Tenant. Tenant and its agents and
employees, and any other persons entering or leaving the Building at
such times may be required to sign the Building register, and the
security officer of agent of Landlord in charge shall have the right
to refuse admittance to any person not possessing satisfactory
identification and authorization. Landlord assumes no responsibility
with respect to and shall not be liable for any damages resulting from
any security measures, cardkey use or the admission or non-admission
of any person, authorized or unauthorized, into the Building.
3. Tenant and its agents and employees shall not make, or permit to be
made, any noise that is annoying, unpleasant or distasteful, whether
by the use of any musical instrument, radio, television set, other
audio device or otherwise, or cause or permit any unusual or
objectionable odors to be product upon or emanate form the Demised
Premises, or in any other way disturb or interfere with other Tenants
or their agents, employees or invitees.
Exhibit C
Building Rules and Regulations
Page 1
<PAGE> 39
4. No animals, birds, bicycles or other vehicles shall be brought into or
kept within the Demised Premises or any other part of the Building.
Exhibit C
Building Rules and Regulations
Page 2
<PAGE> 40
5. No flammable, combustible, weapons, or explosive fluid chemical or
substance shall be brought into or kept within the Demised Premises or
any other part of the Building, and Tenant and its agents and employees
shall obey and comply with all fire regulations and procedures
applicable to the Demised Premises and the Building.
6. Without prior written consent of the Landlord, Tenant and its agents
and employees shall not permit to be done any cooking upon the Demised
Premises, or any other part of the Building, other than microwave
cooking in the galley space of the Demised Premises.
7. Tenant and its agents and employees shall not throw cigar or cigarette
butts or other substances or litter of any kind in or about the
Building except in receptacles placed in it for that purpose.
8. Tenant shall not use the Demised Premises for manufacturing or storing
goods, wares or merchandise within the Demised Premises, or permit any
auction to be conducted within or upon the Demised Premises or the
Project (consisting of the Building and all Real Property and Common
Areas adjacent to the Building).
9. Furniture, equipment, safes, freight and bulky items shall be moved
into and out of the Building only with prior coordination with the
Landlord.
10. Tenants, their agents, employees and invitees shall abide by all of the
vehicle registration and parking regulations described herein. Landlord
may exercise its right to have vehicles towed at the owner's or
operator's expense for violations of this regulation.
Vehicle owners or users shall register any vehicle parked in
the Building parking areas. Information provided must be
updated in the event of any change. Unregistered vehicles are
subject to being towed. Daily parking permits are available
for temporary use vehicles.
All parking in the north (front) lot is reserved for either
visitors or designated employees. All other Tenant employees,
agents and invitees are prohibited form parking in this lot,
even for a short period of time.
The majority of spaces in the north (front) lot closest to the
Building are reserved for either designated employees or
handicapped persons. Reserved spaces are marked and
restrictions apply 24 hours a day, 7 days per week.
Exhibit C
Building Rules and Regulations
Page 3
<PAGE> 41
Standing, stopping or parking is prohibited at the south
(rear) entrance to the Building. This area is designated as a
fire lane, handicapped entrance and pedestrian crosswalk; this
entrance also provides the only access to the basement
parking.
Loading and unloading shall be done in the designated areas
along the metal fence.
Parking in the roadway or outside of marked lanes is
prohibited.
Except in the case of a safety hazard, violations of these
regulations will result in a violation notice being affixed to
the windshield and the incident will be recorded. A second
violation will result in the vehicle being towed at the
owner's or operator's expense.
Vehicles creating a safety hazard will be towed immediately.
11. Tenants, their agents, employees, and invitees shall not smoke in the
common hallways, elevators, elevator lobbies, main lobby, and dining
room. Smoking in Tenant spaces is at the discretion of the tenants,
subject to applicable law.
Exhibit C
Building Rules and Regulations
Page 4
<PAGE> 1
Exhibit 21
LISTING OF SUBSIDIARIES:
Adams Industries, Inc.
Aero International, Inc.
Aerospace Bearing Support, Inc.
Aircraft Bearing Corporation
BAI, Inc.
Banner Aero (Australia) Pty, Ltd.
Banner Aerospace Foreign Sales Corporation
Banner Aerospace Services, Inc.
Banner Aerospace-Singapore, Inc.
Banner Distribution, Inc.
Burbank Aircraft International, GmbH
Burbank Aircraft International, Inc.
Burbank Aircraft Supply, Inc.
DAC International, Inc.
Dallas Aerospace, Inc.
Discontinued Aircraft, Inc.
Discontinued Services, Inc.
GCCUS, Inc.
Georgetown Jet Center, Inc.
Harco Aerospace Fasteners, Ltd.
Harco, Inc.
Harco Northern Ireland, Ltd.
Matrix Aviation, Inc.
NASAM, Inc.
PacAero
PB Herndon Company
Professional Aviation Associates, Inc.
Solair, Inc.
Solair (U.K.) Limited
<PAGE> 1
Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated May 16, 1997, included in this Form 10-K, into the Company's
previously filed Form S-8 Registration Statement File Nos. 33-43100, 33-43101,
33-60318 and 333-20255.
ARTHUR ANDERSEN LLP
Washington, DC
June 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 68,802
<ALLOWANCES> 4,420
<INVENTORY> 253,781
<CURRENT-ASSETS> 340,845
<PP&E> 29,380
<DEPRECIATION> 14,046
<TOTAL-ASSETS> 393,901
<CURRENT-LIABILITIES> 70,187
<BONDS> 165,148
0
0
<COMMON> 23,420
<OTHER-SE> 126,775
<TOTAL-LIABILITY-AND-EQUITY> 393,901
<SALES> 389,111
<TOTAL-REVENUES> 389,111
<CGS> 279,041
<TOTAL-COSTS> 279,041
<OTHER-EXPENSES> 84,557
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,090
<INCOME-PRETAX> 12,423
<INCOME-TAX> 4,970
<INCOME-CONTINUING> 7,453
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,453
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
