<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- -------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- -------- OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10561
BANNER AEROSPACE, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 95-2039311
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 WEST SERVICE ROAD, PO BOX 20260
WASHINGTON, DC 20041
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 478-5790
--------------
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 ninety (90) days.
YES X NO
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Title of Class January 31, 1998
-------------- ----------------
Common Stock, $1.00 Par 21,248,726
Value
<PAGE> 2
BANNER AEROSPACE, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Summarized Financial Information:
Consolidated Balance Sheets as of December 31,
1997 and March 31, 1997 ...................................... 3-4
Consolidated Income Statements for the Nine
Months Ended December 31, 1997 and 1996 ...................... 5
Consolidated Income Statements for the Three
Months Ended December 31, 1997 and 1996 ...................... 6
Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 1997 and 1996 ................. 7
Notes to Summarized Financial Information .................... 8-17
Management's Discussion and Analysis of the
Financial Condition and Results of Operations ................ 18-24
Part II. Other Information ............................................ 25-27
</TABLE>
Page 2 of 27
<PAGE> 3
Part I
A. Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND MARCH 31, 1997
ASSETS
(In thousands)
<TABLE>
<CAPTION>
(unaudited)
December 31,
CURRENT ASSETS: 1997 March 31, 1997
- --------------- ---------------- ----------------
<S> <C> <C>
Receivables, less allowances of $5,279 at December 31,
1997 and $4,420 at March 31, 1997 $ 90,564 $ 64,382
Inventories 299,838 253,781
Future tax benefits 12,007 11,307
Other current assets 14,277 11,375
--------- ---------
416,686 340,845
--------- ---------
PROPERTY, PLANT AND EQUIPMENT (AT COST):
- ----------------------------------------
Land 453 453
Buildings and improvements 7,916 9,519
Machinery and equipment 20,252 19,408
--------- ---------
28,621 29,380
Accumulated depreciation (11,977) (14,046)
--------- ---------
16,644 15,334
--------- ---------
OTHER ASSETS:
- -------------
Cost in excess of net tangible assets of purchased 32,326 33,003
businesses, net
Other 4,273 4,719
--------- ---------
36,599 37,722
--------- ---------
TOTAL ASSETS $ 469,929 $ 393,901
========= =========
</TABLE>
The accompanying notes to summarized financial information are an integral
part of these consolidated balance sheets.
Page 3 of 27
<PAGE> 4
Part I
A. Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND MARCH 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
(unaudited)
December 31,
1997 March 31, 1997
CURRENT LIABILITIES: ------------- --------------
- --------------------
<S> <C> <C>
Current maturities of long-term debt $ 256 $ 301
Accounts payable 46,708 38,864
Other 24,658 31,022
------- --------
71,622 70,187
------- --------
LONG-TERM LIABILITIES:
- ----------------------
Long-term debt, less current maturities 198,410 165,148
Other 7,333 8,371
-------- --------
205,743 173,519
-------- --------
TOTAL LIABILITIES 277,365 243,706
-------- --------
STOCKHOLDERS' EQUITY:
- ---------------------
Preferred stock, $.01 par value, 10,000 shares authorized,
3,810 shares issued and outstanding at December 31,
1997 and no shares authorized, 38 ---
issued and outstanding at March 31, 1997
Common stock, $1.00 par value, 50,000 shares authorized,
23,455 shares issued and
outstanding at December 31, 1997
and 30,000 shares authorized,
23,420 shares issued and
outstanding at March 31, 1997 23,455 23,420
Paid-in capital 148,176 113,236
Retained earnings 20,895 13,539
-------- --------
TOTAL STOCKHOLDERS' EQUITY 192,564 150,195
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $469,929 $393,901
======== ========
</TABLE>
The accompanying notes to summarized financial information are an integral
part of these consolidated balance sheets.
Page 4 of 27
<PAGE> 5
Part I
A. Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE NINE (9) MONTHS ENDED DECEMBER 31, 1997 AND 1996
The consolidated income statements for the nine (9) months ended December
31, 1997 and 1996 are not necessarily indicative of the results to be
expected for the full year and are subject to audit at year end.
<TABLE>
<CAPTION>
(unaudited)
(In thousands, except per share data) For the Nine Months
Ended December 31,
------------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Net sales $359,458 $275,369
Cost of goods sold 256,085 198,262
-------- --------
GROSS PROFIT 103,373 77,107
Selling, general and administrative expenses 77,601 60,194
-------- --------
OPERATING INCOME 25,772 16,913
Interest expense, net 12,178 9,249
-------- --------
INCOME BEFORE TAXES 13,594 7,664
Provision for taxes 5,300 3,070
-------- --------
NET INCOME $ 8,294 $ 4,594
======== ========
Preferred stock dividends 1,377 ---
-------- --------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ 6,917 $ 4,594
======== ========
Basic earnings per common share $ 0.30 $ 0.20
======== ========
Diluted earnings per common share $ 0.29 $ 0.19
======== ========
Weighted average number of common shares - basic 23,434 23,406
======== ========
Weighted average number of common shares - diluted 23,830 23,646
======== ========
</TABLE>
The accompanying notes to summarized financial information are an integral
part of these consolidated income statements.
Page 5 of 27
<PAGE> 6
Part I
A. Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE (3) MONTHS ENDED DECEMBER 31, 1997 AND 1996
The consolidated income statements for the three (3) months ended December
31, 1997 and 1996 are not necessarily indicative of the results to be
expected for the full year and are subject to audit at year end.
<TABLE>
<CAPTION>
(unaudited)
(In thousands, except per share data) For the Three Months
Ended December 31,
-----------------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
Net sales $119,614 $ 96,986
Cost of goods sold 83,745 70,674
-------- --------
GROSS PROFIT 35,869 26,312
Selling, general and administrative expenses 28,155 20,239
-------- --------
OPERATING INCOME 7,714 6,073
Interest expense, net 4,401 3,380
-------- --------
INCOME BEFORE TAXES 3,313 2,693
Provision for taxes 1,290 1,080
-------- --------
NET INCOME $ 2,023 $ 1,613
======== ========
Preferred stock dividends 689 ---
-------- --------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ 1,334 $ 1,613
======== ========
Basic earnings per common share $ 0.06 $ 0.07
======== ========
Diluted earnings per common share $ 0.06 $ 0.07
======== ========
Weighted average number of common shares - basic 23,434 23,406
======== ========
Weighted average number of common shares - diluted 23,909 23,723
======== ========
</TABLE>
The accompanying notes to summarized financial information are an integral
part of these consolidated income statements.
Page 6 of 27
<PAGE> 7
Part I
A. Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE (9) MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
(unaudited) (unaudited)
(In thousands) 1997 1996
---------- ------------
CASH FLOWS USED FOR OPERATING ACTIVITIES:
- -----------------------------------------
<S> <C> <C>
Net income $ 8,294 $ 4,594
Adjustments to reconcile net income to net cash
used for
operating activities--
Depreciation and amortization 4,280 3,394
Change in receivables (26,182) 1,702
Change in inventories (46,057) (24,619)
Change in payables and accrued liabilities 1,480 (7,012)
Change in other accounts (5,143) (3,100)
-------- --------
Net cash used for operating activities (63,328) (25,041)
-------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
- -----------------------------------------
Acquisition of property, plant and equipment (3,964) (2,945)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
- --------------------------------------------
Repayment of subordinated loan (28,000) ---
Borrowings on term loans --- 30,000
Repayments of term loans (3,850) (3,500)
Net borrowings (repayments) of revolver 65,300 (6,700)
(Repayments) Borrowings on other debt (233) 8,099
Issuance of preferred stock 33,877 ---
Exercise of stock options 198 87
-------- --------
Net cash provided by financing
activities 67,292 27,986
-------- --------
NET CHANGE IN CASH --- ---
CASH, BEGINNING OF PERIOD --- ---
-------- --------
CASH, END OF PERIOD $ --- $ ---
======== ========
</TABLE>
The accompanying notes to summarized financial information are an integral
part of these consolidated statements of cash flows.
Page 7 of 27
<PAGE> 8
Part I
A. Notes to Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
(In thousands of dollars except per share data)
The condensed financial information included herein has been prepared by
the Banner Aerospace, Inc. ("the Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted. Although the Company believes that the following disclosures are
adequate to make the information presented not misleading, it is suggested that
this condensed financial information be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Form 10-K for the fiscal year ended March 31, 1997.
1) Significant Accounting and Reporting Policies
Description of the Business
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 situations. The Company
also provides products to original equipment manufacturers and subcontractors
("OEMs") in the aerospace industry under just-in-time and inventory management
programs. The Company, through its subsidiaries, 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, other distributors, fixed-base operations,
corporate aircraft operators and other aerospace and non-aerospace companies.
Page 8 of 27
<PAGE> 9
Year 2000
As the Year 2000 approaches, the Company is preparing all of its computer
systems to be Year 2000 compliant. A review of all of the computer systems
currently used throughout the Company has been performed. A number of the
Company's computer systems are currently Year 2000 compliant. The remaining
computer systems will either be replaced or upgraded. The Company expects all of
its computer systems will be Year 2000 compliant on a timely basis. However,
there can be no assurance that the systems of other companies on which the
Company's systems rely will also be timely converted, or that any such failure
to convert by another company would not have an adverse effect on the Company's
systems. The cost of ensuring that all systems are Year 2000 compliant is being
assessed.
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 and
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.
Page 9 of 27
<PAGE> 10
2) Earnings Per Common Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share" (SFAS 128). This statement
replaces the previously reported primary and fully diluted earnings per common
share with basic earnings per common share and diluted earnings per common
share. Unlike primary earnings per common share, basic earnings per common share
excludes any dilutive effects of stock options. All earnings per common share
have been restated to conform to the requirements of SFAS 128. Following is a
reconciliation of the computations of basic earnings per common share and
diluted earnings per common share for the nine months and the three months ended
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
(In thousands, except per share data)
For the nine months ended December 31, 1997 1996
------- -------
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE:
Net income available to common shareholders $ 6,917 $ 4,594
Weighted average shares outstanding 23,424 23,406
------- -------
Basic earnings per common share $ 0.30 $ 0.20
======= =======
DILUTED EARNINGS PER COMMON SHARE:
Net income available to common shareholders $ 6,917 $ 4,594
Weighted average shares outstanding 23,424 23,406
Incremental shares due to assumed exercise
and repurchase of stock options 406 240
------- -------
23,830 23,646
------- -------
Diluted earnings per common share $ 0.29 $ 0.19
======= =======
</TABLE>
Preferred stock totaling 3,810 shares that is convertible into common stock at a
one-to-one ratio has been excluded from the calculation of diluted earnings per
common share as the effect would be antidilutive. In addition, options to
purchase 45 and 60 shares of common stock were outstanding, but were not
included in the computation of diluted earnings per common share because the
options' exercise price was greater than the average market price of common
shares for the nine months ended December 31, 1997 and 1996, respectively.
Page 10 of 27
<PAGE> 11
<TABLE>
<CAPTION>
(In thousands, except per share data)
For the three months ended December 31, 1997 1996
------- -------
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE:
Net income available to common shareholders $ 1,334 $ 1,613
Weighted average shares outstanding 23,424 23,406
------- -------
Basic earnings per common share $ 0.06 $ 0.07
======= =======
DILUTED EARNINGS PER COMMON SHARE:
Net income available to common shareholders $ 1,334 $ 1,613
Weighted average shares outstanding 23,424 23,406
Incremental shares due to assumed exercise
and repurchase of stock options 485 317
------- -------
23,909 23,723
------- -------
Diluted earnings per common share $ 0.06 $ 0.07
======= =======
</TABLE>
Preferred stock totaling 3,810 shares that is convertible into common stock at a
one-to-one ratio has been excluded from the calculation of diluted earnings per
common share as the effect would be antidilutive. In addition, options to
purchase 5 and 60 shares of common stock were outstanding, but were not included
in the computation of diluted earnings per common share because the options'
exercise price was greater than the average market price of common shares for
the three months ended December 31, 1997 and 1996, respectively.
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 129 "Disclosure of Information about Capital Structure"
(SFAS 129). This statement establishes standards for disclosing information
about an entity's capital structure. The Company's preferred stock pays annual
dividends at 7.5% per annum of the liquidation value of $9.20 per share.
Dividends are payable in additional shares of preferred stock and not in cash
except for fractional interests. The preferred stock is convertible into one
share of common stock at any time; however, all shares not previously converted
will automatically be converted into common stock on the fifth anniversary of
the date of initial issuance of the preferred stock (June 19, 2002). The
preferred stock has no voting rights.
3) 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
Page 11 of 27
<PAGE> 12
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
4) Credit Agreement
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 inventories and eligible 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 to
approve the incurrence of subordinated debt and certain acquisitions. On
November 25, 1997 the Company amended the Second Amended and Restated Credit
Agreement to provide additional financing. 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 $121,500 six-year revolving
credit facility ("Revolver"). The Term Loan, Tranche B Loan and Tranche C Loan
require certain semi-annual payments on February 1 and August 1 of each year.
The Term Loan and Revolver bear interest at prime plus 1/4 % to 1 1/2% or
London Interbank Offered Rate ("LIBOR") plus 1 1/2% to 2 3/4% 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 prime plus 1 1/4%
or LIBOR plus 2 1/2%. As a result of the Company's performance level through
September 30, 1997, borrowings under the Term Loan and Revolver bore interest at
prime plus 3/4% and LIBOR plus 2.0% for the quarter ended December 31, 1997. The
Revolver was subject to a nonuse fee of 40 basis points of the unused
availability for the quarter ended December 31, 1997.
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
Page 12 of 27
<PAGE> 13
additional debt and has restrictions on cash dividends and distributions on the
capital stock of the Company in that the aggregate amount of such cash dividends
and distributions may not exceed $150 in any fiscal year. At December 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
90 day LIBOR caps of 6.6% to 7.0%. If the 90 day LIBOR drops below the LIBOR
floors of 4.9% to 5.3%, the Company will be required to pay interest at floor
rates of 5.9% to 6.1%. 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 90 day LIBOR cap of
7.3%. If the 90 day LIBOR drops below 5.0%, the Company will be required to pay
interest at a floor rate of 5.8%. 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.
5) 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 common
stock 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
Page 13 of 27
<PAGE> 14
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 compensation
and 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. The NED Stock Option Plan 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
compensation and 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.
Stock option activity under the 1990 Stock Option Plan, the NED Stock
Option Plan and non-employee director options granted prior to the approval of
the NED Stock Option Plan for fiscal year 1998 is as follows:
<TABLE>
<CAPTION>
Weighted
average
exercise
Shares price
-------------- ------------
<S> <C> <C>
Outstanding at March 31, 1997 1,055,700 $5.82
Granted 303,000 $7.67
Exercised (32,834) $5.80
Terminated (16,666) $6.80
Expired --- ---
-------------- ------------
Outstanding at December 31, 1997 1,309,200 $6.70
============== ============
</TABLE>
Page 14 of 27
<PAGE> 15
At December 31, 1997, 1,202,200 of the 1,309,200 options outstanding
relate to the 1990 Stock Option Plan and have exercise prices between $4.75 and
$9.38 per share. The remaining 107,000 options relate to the NED Stock Option
Plan and non-employee director options granted prior to the approval of the NED
Stock Option Plan and have exercise prices between $4.63 and $10.63 per share.
Page 15 of 27
<PAGE> 16
6) Acquisitions
On January 16, 1997, the Company, through its subsidiary, Dallas
Aerospace, Inc., acquired 100.0% of the outstanding stock of PB Herndon Company
("PB Herndon") from the shareholders of PB Herndon ("Sellers"). PB Herndon,
located near St. Louis, Missouri, is a distributor of specialty fastener lines
and other aerospace related components. The purchase price of $14.7 million 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 paid $1.3 million to the Sellers to repay loans made from the Sellers to
PB Herndon. To finance the acquisition of PB Herndon, the Company borrowed $16.0
million under a subordinated loan agreement with RHI Holdings, Inc. ("RHI"), a
wholly-owned subsidiary of The Fairchild Corporation ("Fairchild"), which was
repaid in June 1997. 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.
The supplemental pro forma information for the nine months ended December
31, 1996 would have been net sales, $287.3 million; gross profit, $81.0 million;
income from operations before interest and taxes, $18.4 million; net income,
$4.8 million; earnings per common share, $0.21; and 23,406 weighted average
shares outstanding.
7) Related Party Transactions
The Company entered into a Stock Exchange Agreement with Fairchild,
effective May 12, 1997, pursuant to which the Company could acquire Fairchild
Scandinavian Bellyloading Company AB from Fairchild in exchange for 230,000
shares of Common Stock initially. This transaction was approved by a special
committee of the Board of Directors, and was approved by the Company's
stockholders at a meeting on June 18, 1997. Under the terms of the Stock
Exchange Agreement, Fairchild could terminate the agreement if it sold Fairchild
Scandinavian Bellyloading Company AB to a third party by reason of an
unsolicited offer, but Fairchild would be obligated to pay the Company a
reasonable termination fee and the Company's out-of-pocket expenses. On July 1,
1997, Fairchild exercised its option to terminate the Stock Exchange Agreement.
As of December 31, 1997, an estimate of the termination fee has been recorded in
the accompanying financial statements.
Page 16 of 27
<PAGE> 17
8) Subsequent Events
On January 13, 1998, certain subsidiaries (the "Selling Subsidiaries") of
the Company completed the disposition of substantially all of the assets and
certain liabilities of the Selling Subsidiaries to AS BAR LLC and AS BAR PBH
LLC, two wholly-owned subsidiaries of AlliedSignal Inc., in exchange for
unregistered shares of AlliedSignal Inc. common stock with an aggregate value
equal to $345 million. The value of the AlliedSignal Inc. common stock received
by the Selling Subsidiaries was determined by the average closing price of such
stock on the New York Stock Exchange for a period of twenty days preceding the
closing. The Selling Subsidiaries were Adams Industries, Inc., Aerospace Bearing
Support, Inc., Aircraft Bearing Corporation, Banner Distribution, Inc., Burbank
Aircraft Supply, Inc., Harco, Inc., PB Herndon Aerospace, Inc. (which
collectively comprise the Company's Hardware Group), Banner Aerospace Services,
Inc. (which transferred only those assets related to the Hardware Group
business) and PacAero. The purchase price received by the Selling Subsidiaries
($345 million) was based on the consolidated net worth as reflected on an
Estimated Closing Date Balance Sheet for the assets (and liabilities) conveyed
by the Selling Subsidiaries to the Buyers. Such Estimated Closing Date Balance
Sheet is subject to review by the parties, and the purchase price shall be
adjusted (up or down) based on the net worth as reflected on the final Closing
Date Balance Sheet. Reference should be made to the Company's Form 8-K filed
with the Securities and Exchange Commission on January 28, 1998 for pro forma
information related to this transaction.
On January 14, 1998, the Company bought 2,216,967 shares from J.J. Cramer
& Co. and has accounted for them as treasury stock.
Page 17 of 27
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE (9) MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996 Increase
--------------------- --------------------- --------------------
(In thousands) $ % $ % $ %
------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales 359,458 100.0 275,369 100.0 84,089 30.5
Cost of goods sold 256,085 71.2 198,262 72.0 57,823 29.2
------- ------- ------- ------- ------- ------
Gross profit 103,373 28.8 77,107 28.0 26,266 34.1
Selling, general &
administrative expenses 77,601 21.6 60,194 21.9 17,407 28.9
------- ------- ------- ------- ------- ------
Operating income 25,772 7.2 16,913 6.1 8,859 52.4
Interest expense, net 12,178 3.4 9,249 3.3 2,929 31.7
------- ------- ------- ------- ------- ------
Income before 13,594 3.8 7,664 2.8 5,930 77.4
taxes
Provision for taxes 5,300 1.5 3,070 1.1 2,230 72.6
------- ------- ------- ------- ------- ------
Net income 8,294 2.3 4,594 1.7 3,700 80.5
======= ======= ======= ======= ======= ======
</TABLE>
Operating Results
Net sales for the nine months ended December 31, 1997 increased $84.1
million or 30.5% over the comparable prior period. This increase was due to
increased sales recorded across the Company. The hardware group recorded
increased sales, attributable in part to incremental sales of $17.1 million
recorded by PB Herndon which was acquired in January 1997 (see Note 6 in the
notes to summarized financial information). The sales of the hardware group also
increased due to incremental sales to commercial airlines and OEMs. Sales of the
rotables group increased compared to the prior period, primarily due to
increased sales to other distributors and incremental sales from a new product
line. Sales for the rotables group are expected to increase over the remainder
of fiscal 1998, due in part to a three-year agreement between Solair, Inc.
("Solair") and Delta Air Lines ("Delta") executed in September 1997. The
agreement designates Solair as Delta's sole source supplier of airframe
material, including rotables, repairables and expendables, from the surplus
market. Solair expects that the agreement could generate $150 million in revenue
over the next three years. Solair has recognized sales of $1.3 million to date
related to the Delta contract. In addition, sales of the engine group increased
compared to the prior period, primarily due to
Page 18 of 27
<PAGE> 19
increased sales of turbine parts and engine management services, partially
offset by no aircraft sales which had accounted for $6.0 million in sales the
prior period.
The gross profit percentage for the nine months ended December 31, 1997
increased to 28.8% compared to 28.0% for the prior period. This increase was
primarily attributable to higher gross margins earned in the engine group, due
to a change in product mix coupled with no aircraft sales which earn lower
margins.
Selling, general and administrative ("SG&A") expenses as a percentage of
sales declined to 21.6% for the nine months ended December 31, 1997 from 21.9%
for the comparable prior period. For the nine months ended December 31, 1997,
SG&A expenses increased by $17.4 million or 28.9% over the comparable prior
period, due primarily to incremental SG&A expenses as a result of the
acquisition of PB Herndon and costs associated with the overall increase in
sales.
Interest Expense
Interest expense for the nine months ended December 31, 1997 increased
$2.9 million or 31.7% compared to the prior period, as a result of an increase
from $131 million in the average outstanding debt balance during the prior
period, to $171 million in the current period. The increase in the average
outstanding debt balance was slightly offset by a marginal decrease in the
weighted average interest rate from 9.1% in the prior period to 9.0% in the
current period. Interest expense also includes the amortization of deferred loan
costs and charges for nonuse fees, agency fees and compensating balances.
Provision for Taxes
The provision for taxes for the nine months ended December 31, 1997 and
1996 amounted to $5.3 million and $3.1 million, respectively. The effective tax
rate for the nine months ended December 31, 1997 and 1996 was 39.0% and 40.0%,
respectively.
Page 19 of 27
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE (3) MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996 Increase
--------------------- --------------------- --------------------
(In thousands) $ % $ % $ %
------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales 119,614 100.0 96,986 100.0 22,628 23.3
Cost of goods sold 83,745 70.0 70,674 72.9 13,071 18.5
------- ------- ------- ------- ------- ------
Gross profit 35,869 30.0 26,312 27.1 9,557 36.6
Selling, general &
administrative expenses 28,155 23.5 20,239 20.8 7,916 39.1
------- ------- ------- ------- ------- ------
Operating income 7,714 6.5 6,073 6.3 1,641 27.0
Interest expense, net 4,401 3.7 3,380 3.5 1,021 30.2
------- ------- ------- ------- ------- ------
Income before taxes 3,313 2.8 2,693 2.8 620 23.0
Provision for taxes 1,290 1.1 1,080 1.1 210 19.4
------- ------- ------- ------- ------- ------
Net income 2,023 1.7 1,613 1.7 410 25.4
======= ======= ======= ======= ======= ======
</TABLE>
Operating Results
Net sales for the three months ended December 31, 1997 increased $22.6
million or 23.3% over the comparable prior period. This increase was primarily
due to increased sales recorded by the hardware group, attributable in part to
incremental sales of $6.4 million recorded by PB Herndon. Sales of the hardware
group also increased due to incremental sales to commercial airlines and OEMs.
In addition, sales of the rotables group increased compared to the prior period,
primarily due to increased sales to other distributors and incremental sales
from a new product line, as well as sales under the Delta contract. These
increases were partially offset by fewer sales of the engine group compared to
the prior period, primarily due to the third quarter of fiscal year 1997
containing a large number of engine sales and leasebacks.
The gross profit percentage for the three months ended December 31, 1997
increased to 30.0% compared to 27.1% for the prior period. This increase was
primarily attributable to higher gross margins earned in the engine group, due
to the third quarter of fiscal year 1997 containing a large number of engine
sales and leasebacks, on which only a minimal amount of profit was recognized.
The gain on the sale and leaseback of these engines is being recognized over the
life of the lease.
Page 20 of 27
<PAGE> 21
Selling, general and administrative ("SG&A") expenses as a percentage of
sales increased to 23.5% for the three months ended December 31, 1997 from 20.8%
for the comparable prior period. For the three months ended December 31, 1997,
SG&A expenses increased by $7.9 million or 39.1% over the comparable prior
period, due primarily to incremental SG&A expenses as a result of the
acquisition of PB Herndon and costs associated with the overall increase in
sales.
Interest Expense
Interest expense for the three months ended December 31, 1997 increased
$1.0 million or 30.2% compared to the prior period, as a result of an increase
from $146 million in the average outstanding debt balance during the prior
period, to $184 million in the current period, partially offset by a decrease in
the weighted average interest rate to 8.8% in the current period compared to
9.0% in the prior period. Interest expense also includes the amortization of
deferred loan costs and charges for nonuse fees, agency fees and compensating
balances.
Provision for Taxes
The provision for taxes for the three months ended December 31, 1997 and
1996 amounted to $1.3 million and $1.1 million, respectively. The effective tax
rate for the three months ended December 31, 1997 and 1996 was 38.9% and 40.1%,
respectively.
Liquidity
The following table presents certain liquidity ratios of the Company at
December 31, 1997 and March 31, 1997.
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1997
----------------- --------------
<S> <C> <C>
Current ratio 5.82:1 4.86:1
Debt to equity 1.03:1 1.10:1
</TABLE>
Page 21 of 27
<PAGE> 22
At December 31, 1997, the Company had total debt outstanding of $198.7
million, the majority of which was under the Second Amended and Restated Credit
Agreement. As of December 31, 1997, the Second Amended and Restated Credit
Agreement provided for up to $227.7 million of borrowings for working capital,
capital expenditures and potential acquisitions, subject to certain conditions
and a borrowing base. Cash flows from operations and funds available under the
Second Amended and Restated Credit Agreement, should be adequate to finance the
Company's operations in fiscal 1998 (refer to Note 4 in the notes to summarized
financial information). The Company had no other material capital commitments or
planned expenditures as of December 31, 1997.
Net cash used for operating activities for the nine months ended December
31, 1997 and 1996 amounted to $63.3 million and $25.0 million, respectively. The
primary use of cash for operating activities for the nine months ended December
31, 1997 was an increase in receivables and inventories in the amount of $26.2
million and $46.1 million, respectively. The primary source of cash from
operating activities for the nine months ended December 31, 1997 was net income
and an increase in the amount of $1.5 million in payables and accrued
liabilities, along with scheduled depreciation and amortization expense of $4.3
million. The increase in receivables is due to increased sales through December
31, 1997. The increases in inventories and payables and accrued liabilities are
the result of an increase in anticipated sales volume. The primary use of cash
from operating activities for the nine months ended December 31, 1996 was an
increase in the amount of $24.6 million in inventories and a decrease in the
amount of $7.0 million in payables and accrued liabilities.
Net cash used for investing activities for the nine months ended December
31, 1997 and 1996 amounted to $4.0 million and $2.9 million, respectively. These
amounts represent capital expenditures, net of proceeds from the sale of fixed
assets.
Net cash provided by financing activities for the nine months ended
December 31, 1997 and 1996 amounted to $67.3 million and $28.0 million,
respectively. Net cash provided by financing activities for the nine months
ended December 31, 1997 were the result of proceeds received in the amount of
$33.9 million from the preferred stock rights offering, and net borrowings in
the amount of $65.3 million on the Revolver, partially offset by repayment of
the subordinated loan with RHI in the amount of $28.0 million. Net cash provided
by financing activities for the nine months ended December 31, 1996 was
primarily the
Page 22 of 27
<PAGE> 23
result of borrowings from the Tranche C Loan (refer to Note 4 in the notes to
summarized financial information).
On December 8, 1997, Banner announced the disposition of its Hardware
Group and PacAero unit to AlliedSignal for approximately $345 million of
AlliedSignal common stock, based on the seller's September 30, 1997 balance
sheet. The transaction was closed on January 13, 1998. Based on the January 13,
1998 closing balance sheet, it is expected the Company will receive
approximately 9.9 million shares of AlliedSignal common stock.
As a result of this transaction, and based upon February 10, 1998's
closing price of AlliedSignal stock of 42 7/8, the Company's debt will be
reduced by approximately $200 million, the remaining outstanding debt will be
approximately $30 million and the Company will retain approximately 5.2 million
shares of AlliedSignal common stock.
The sales and operating income for the Company's remaining rotables and
engines businesses for the nine and three months ended December 31, 1997
compared to the same period last year are shown in the following table:
<TABLE>
<CAPTION>
Three Months Nine Months
<In thousands)
December 31, 1997 1996 1997 1996
----------- ---------- ----------- -----------
<C> <C> <C> <C>
Sales $ 57,200 $ 50,746 $ 174,135 $ 137,658
Operating Income 4,956 3,307 13,528 9,364
</TABLE>
Corporate expenses, including goodwill amortization, will be reduced
significantly and are expected to be approximately $4.5 million in the next
twelve months. The increase in the Company's shareholders' equity is expected
to be approximately $51 million resulting from a projected gain of
approximately $90 million to be recorded at the closing of disposition of the
Selling Subsidiaries, and an estimated tax provision of approximately $39
million. The operating income of the Selling Subsidiaries was $20.6 million and
$5.8 million for the nine months and three months ended December 31, 1997,
respectively. Whereas the Company
Page 23 of 27
<PAGE> 24
will no longer benefit from the operations of the Selling Subsidiaries, it
expects to benefit from lower interest expense and dividends paid on the
AlliedSignal stock.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued two pronouncements, Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS 130) and
Statement of Financial Accounting Standards No. 131 "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131). SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. SFAS 131 supersedes Statement of Financial
Accounting Standards No. 14 "Financial Reporting for Segments of a Business
Enterprise" and requires that a public company report certain information about
its operating segments in annual and interim financial reports. The Company will
adopt SFAS 130 and SFAS 131 in fiscal 1999.
Page 24 of 27
<PAGE> 25
MANAGEMENT REPRESENTATION
The information furnished in this Form 10-Q for the interim period ended
December 31, 1997 reflects all adjustments which are, in the opinion of
management, all of a normal recurring nature and are necessary to present a fair
statement of the results for the interim period.
Part II
OTHER INFORMATION
Item 5. Other Information
Articles have appeared in the French press reporting an inquiry by a
French magistrate into certain allegedly improper business
transactions involving Elf Acquintaine, a French petroleum company,
its former chairman and various third parties, including Maurice
Bidermann. In connection with this inquiry, the magistrate has made
inquiry into allegedly improper transactions between Mr. Steiner and
that petroleum company. In response to the magistrate's request that
Mr. Steiner appear in France as a witness, Mr. Steiner submitted
statements concerning the transactions and has offered to appear in
person if certain arrangements were made. According to the French
press, the magistrate also requested permission to commence an inquiry
into transactions involving another French petroleum company, but her
request was not granted. If the magistrate were to renew her request,
and if it were granted, inquiry into transactions between such company
and Mr. Steiner, could ensue.
Mr. Steiner has recently been cited by a French prosecutor to appear
on May 18, 1998, before the Tribunal de Grande Instance de Paris, to
answer a charge of knowingly benefiting in 1990, from a misuse by Mr.
Bidermann of corporate assets of Societe Generale Mobiliere et
Immobiliere, a French corporation in which Mr. Bidermann is believed
to have been the sole shareholder.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Asset Purchase Agreement dated as of December 8, 1997, among
Banner Aerospace, Inc. and seven of its subsidiaries (Adams
Industries, Inc., Aerospace Bearing Support, Inc., Aircraft Bearing
Corporation, Banner Distribution, Inc., Burbank Aircraft Supply, Inc.,
Harco, Inc. and PacAero), AlliedSignal Inc. and AS BAR LLC
(incorporated by reference to the Company's Form 8-K dated January 28,
1998).
2.2 Asset Purchase Agreement dated as of December 8, 1997, among
Banner Aerospace, Inc. and two of its subsidiaries (PB Herndon
Aerospace, Inc. and Banner Aerospace Services, Inc.), AlliedSignal
Inc. and AS BAR PBH LLC (incorporated by reference to the Company's
Form 8-K dated January 28, 1998).
*10 Amendment No. 2 dated November 25, 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").
Page 25 of 27
<PAGE> 26
*27 Financial Data Schedule (For SEC Use Only)
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the quarter;
however refer to the Company's Form 8-K filed January 28, 1998.
- ------------------
* Filed herewith
Page 26 of 27
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company 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
Chief Financial Officer
By /s/ EUGENE W. JURIS
----------------------------------
Eugene W. Juris
Vice President
Finance & Secretary
Dated: February 16, 1998
Page 27 of 27
<PAGE> 1
Exhibit 10
AMENDMENT NO. 2
Dated as of November 25, 1997
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 12, 1996
This Amendment No. 2 ("Amendment") dated as of November 25,
1997 is entered into among the "Borrowers" (as defined below) and the "Lenders"
(as defined in the Credit Agreement identified below). Capitalized terms used
herein without definition are used herein as defined in the Credit Agreement.
PRELIMINARY STATEMENT:
WHEREAS, Banner Aerospace, Inc., a Delaware corporation
("Banner") and Burbank Aircraft Supply, Inc., a Delaware corporation
("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, as
heretofore amended (the "Credit Agreement");
WHEREAS, Banner and Burbank have requested a certain increase
in the Revolving Credit Commitments under the Credit Agreement and the
amendment of certain provisions of the Credit Agreement pertaining to the
advance rate against Inventory, the determination of Revolving Credit
Availability, Capital Expenditure limitations, the definition of Permitted
Engine Leases and the covenant limiting Investments;
WHEREAS, the Subsidiaries of Banner and Burbank which have
heretofore been Guarantors will become borrowers and joint and several obligors
with Banner and Burbank under the Credit Agreement; and
WHEREAS, subject to the terms and conditions stated herein,
the Borrowers and the 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 November 25, 1997, subject to the satisfaction of the conditions precedent
set forth in Section 2 hereof, the Credit Agreement is hereby amended as
follows:
1.1 Section 1.01 is amended to delete the definitions of
"Borrower", "Borrowers", "Borrowing Base", "Commercial Letter of Credit",
"Concentration Account", "Concentration Account Agreement", "Effective Date",
"Guarantors", "Net Cash Proceeds of Equity Securities or Indebtedness",
"Permitted Engine Leases", "Projections", "Revolving Credit Availability",
"Revolving Credit Commitment", "Revolving Credit Commitments", and "Standby
Letter of Credit" in their entirety and substitute the following therefor:
"Borrowers" means, collectively, Banner Aerospace, Inc., a Delaware
corporation; Burbank Aircraft Supply, Inc., a Delaware corporation;
Adams Industries, Inc., a Connecticut corporation; Aerospace Bearing
Support, Inc., a California corporation; Aircraft Bearing Corporation,
a California corporation; Banner Aerospace Services, Inc., an Ohio
corporation; Banner Aerospace-Singapore, Inc., a Delaware corporation;
Banner Distribution, Inc., a Delaware corporation; D A C
International, Inc., a Texas corporation; Dallas Aerospace, Inc., a
Texas corporation; Georgetown Jet Center, Inc., a Delaware
corporation; Harco, Inc., a Delaware corporation; Matrix Aviation,
Inc., a Kansas corporation; Nasam, Incorporated, a California
corporation; PacAero, a California corporation; PB Herndon Aerospace,
Inc., a Missouri corporation; Professional Aircraft Accessories, Inc.,
a Florida corporation; Professional Aviation
<PAGE> 2
Associates, Inc., a Georgia corporation; Solair, Inc., a Florida
corporation; and Burbank Aircraft International, Inc., a Delaware
corporation; and "Borrower" means each of the foregoing, individually.
"Borrowing Base" means, as of any date of determination, an amount
(designated as such on the Borrowing Base Certificate dated as of such
date of determination) equal to the sum of (i) eighty percent (80%) of
the face amount of Eligible Receivables, plus (ii) sixty-five percent
(65%) of (a) the Total Book Value of Inventory (other than the Airbus
Inventory if the same is subject to a Lien granted to or in favor of,
or retention of title by, any Person other than the Administrative
Agent) minus (b) the Texas Tax Reserve.
"Commercial Letter of Credit" means any documentary letter of credit
issued by an Issuing Bank pursuant to Section 3.01 for the account of
any Borrower, or for the account of any Subsidiary of any Borrower if
the Borrowers are jointly and severally liable for reimbursement of
amounts drawn under such letter of credit issued for the account of
such Subsidiary, which is drawable upon presentation of documents
evidencing the sale or shipment of goods purchased by a Borrower or
such Subsidiary in the ordinary course of its business.
"Concentration Account" means, collectively, the depository account of
the Borrowers maintained at Citibank in New York, New York, or such
other financial institution designated for such purpose by the
Administrative Agent into which collections of Receivables, other
proceeds of Collateral and other amounts are transferred pursuant to
the terms of the Collection Account Agreements or otherwise as
described in Section 4.04.
"Concentration Account Agreement" means a written agreement,
substantially in the form attached hereto as EXHIBIT C-2 with such
modifications as the Administrative Agent, from time to time, deems
acceptable, among the Borrowers, the Administrative Agent, and
Citibank.
"Effective Date" means November 25, 1997.
"Guarantors" means Subsidiaries of a Borrower executing and delivering
a guaranty of payment and performance of all or any portion of the
Obligations; and "Guarantor" means any of the Guarantors,
individually.
"Net Cash Proceeds of Issuance of Equity Securities or Indebtedness"
means (i) net cash proceeds (including cash, equivalents readily
convertible into cash, and such proceeds of any notes received as
consideration or any other non-cash consideration) received by any
Borrower or any Subsidiary of any Borrower at any time after the
Closing Date on account of the issuance of (a) equity Securities of
any Borrower or any Subsidiary of any Borrower (other than (1) Capital
Stock of a Subsidiary issued to a Borrower or to a Subsidiary of a
Borrower, (2) Capital Stock issued pursuant to Permitted Equity
Securities Options or similar employee options established after the
Closing Date and (3) the Preferred Stock) or (b) Indebtedness (other
than Indebtedness permitted under Section 10.01) of any Borrower or
any Subsidiary of any Borrower, in each case net of all transaction
costs and underwriters' discounts with respect thereto; and (ii)
proceeds received by either Banner or Burbank at any time after the
Closing Date as a contribution to its capital on account of the
issuance of equity Securities of such Borrower.
"Permitted Engine Leases" means leases of (i) rotables by any of the
Borrowers; (ii) tools, test cells and like equipment by Dallas
Aerospace, Inc. which are required for joint venture activities of
Dallas Aerospace, Inc. with M&M Aircraft Services for the overhauling
of CFM56 engines; and (iii) Engines by Dallas Aerospace, Inc., in each
instance with respect to the property described in clauses (i),
(ii),and (iii), either (a) sold to financial institutions reasonably
acceptable to the Administrative Agent by Dallas Aerospace, Inc. or
another Borrower, as applicable, as permitted under Section 10.11, or
(b) leased from financial institutions reasonably acceptable to the
Administrative Agent under Operating Leases having Dallas Aerospace,
Inc. or another Borrower, as applicable, as lessee, and such financial
institutions, as lessors.
2
<PAGE> 3
"Projections" means the financial projections and assumptions prepared
by the Borrowers dated October 9, 1997 and attached hereto as EXHIBIT
H.
"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
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 the Swing Loans at such time.
"Revolving Credit Commitment" means, with respect to any Lender, the
obligation of such Lender to make Revolving Loans and to participate
in Letters of Credit pursuant to the terms and conditions of this
Agreement, in an aggregate amount at any time outstanding which shall
not exceed the principal amount set forth opposite such Lender's name
under the heading "Revolving Credit Commitment" on SCHEDULE 1.01.12
attached hereto and made a part hereof or on the signature page of the
Assignment and Acceptance by which it became a Lender, as modified
from time to time pursuant to the terms of this Agreement or to give
effect to any applicable Assignment and Acceptance, and "Revolving
Credit Commitments" means the aggregate principal amount of the
Revolving Credit Commitments of all the Lenders, the maximum amount of
which shall be $121,500,000, as reduced from time to time pursuant to
Section 4.01.
"Standby Letter of Credit" means any letter of credit issued by an
Issuing Bank pursuant to Section 3.01 for the account of any Borrower,
or for the account of any Subsidiary of any Borrower if the Borrowers
are jointly and severally liable for reimbursement of amounts drawn
under such letter of credit issued for the account of such Subsidiary,
which is not a Commercial Letter of Credit.
1.2 References in the Credit Agreement to (i) "either
Borrower" shall be deemed to be references to "any Borrower", (ii) "either of
them" with reference to the Borrowers shall be deemed to be references to "any
of them", and (iii) "neither Borrower" shall be deemed to be references to "no
Borrower".
1.3 Requirements in the Credit Agreement for (i) notices to
be given to the Borrowers shall be deemed to be complied with if notice is
given to Banner and (ii) approvals of the Borrowers shall be deemed to be
complied with if approval is given by Banner on behalf of the Borrowers.
1.4 Section 2.02(b) is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
(b) Notice of Borrowing. When the Borrowers desire to borrow under
this Section 2.02, they shall deliver to the Administrative Agent a
Notice of Borrowing, signed by each of them, (i) on the Effective
Date, in the case of a Borrowing of Revolving Loans on the Effective
Date, (ii) no later than 11:00 a.m. (New York time) on the proposed
Funding Date therefor, in the case of a Borrowing of Base Rate Loans
after the Effective Date, and (iii) no later than 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 proposed
Funding Date (which shall be a Business Day), (ii) the amount of the
proposed Borrowing, (iii) the Revolving Credit Availability as of the
date of such Notice of Borrowing, (iv) whether the proposed Borrowing
will be of Base Rate Loans or Eurodollar Rate Loans, (v) in the case
of Eurodollar Rate Loans, the requested Eurodollar Interest Period and
(vi) the Borrowers' instructions for the disbursement of the proceeds
of the proposed Borrowing. In lieu of delivering such a Notice of
Borrowing (except with respect to a Borrowing of Revolving Loans on
the Effective Date), the
3
<PAGE> 4
Borrowers may give the Administrative Agent telephonic notice of any
proposed Borrowing by the time required under this Section 2.02(b), if
the Borrowers confirm such notice by delivery of the required Notice
of Borrowing to the Administrative Agent by facsimile transmission
promptly, but in no event later than 5:00 p.m. (New York time) on the
same day, the original of which facsimile copy shall be delivered to
the Administrative Agent within three (3) days after the date of such
transmission. Any Notice of Borrowing (or telephonic notice in lieu
thereof) given pursuant to this Section 2.02(b) shall be irrevocable.
1.5 Article III is amended to delete the provisions of
Section 3.02 thereof in their entirety and substitute the following therefor:
3.02. Transitional Provisions. SCHEDULE 3.02 contains a schedule of
letters of credit issued prior to November 25, 1997 by an Issuing Bank
for the account of Banner, Burbank, or a Subsidiary of Banner or
Burbank, which continue outstanding as of November 25, 1997. Such
letters of credit shall constitute Letters of Credit issued pursuant
to Article III and be subject to the provisions of this Agreement and
the Borrowers shall be jointly and severally liable for Reimbursement
Obligations associated therewith. The undrawn face amount of such
Letters of Credit have been included in the calculation of Letter of
Credit Obligations and all liabilities of the Borrowers with respect
to such Letters of Credit constitute Obligations.
and to add the following as Section 3.06:
3.06 Authority of Banner to Bind Borrowers. Each of the Borrowers
hereby irrevocably expressly authorizes Banner to execute and deliver
to the Administrative Agent or Issuing Bank on behalf of all of the
Borrowers applications for Letters of Credit to be issued under this
Credit Agreement, Reimbursement Agreements relating thereto, and all
other agreements, documents, instruments and Loan Documents required
to be executed and delivered in connection with such Letters of Credit
and, thereby, to fully bind each of the Borrowers with respect to the
Obligations evidenced thereby, jointly and severally.
1.6 Section 7.01(h) is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
(h) Financial Position. Copies of Banner's audited financial
statements for the Fiscal Year ended March 31, 1997 have been
delivered to the Administrative Agent and the Lenders on or before the
Effective Date. All Financial Statements included in such materials
were prepared in all material respects in conformity with GAAP, except
as otherwise noted therein, and fairly present in all material
respects the respective consolidated financial positions, and the
consolidated results of operations and cash flows for each of the
periods covered thereby of the Borrowers and their Subsidiaries as at
the respective dates thereof. No Borrower and no Subsidiary of any
Borrower has any Accommodation Obligation, contingent liability or
liability for any taxes, long-term leases or commitments not reflected
in the audited Financial Statements delivered to the Administrative
Agent on or prior to the Effective Date as aforesaid, which will have
or are reasonably likely to result in a Material Adverse Effect. The
Projections delivered to the Administrative Agent and Lenders were, as
of the Effective Date, reasonable based on reasonable assumptions and
other information available to the Borrowers as of the Effective Date.
1.7 Section 7.01(cc) is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
(cc) FAA Registration. Solair, Inc., Dallas Aerospace, Inc., D A C
International, Inc., and Georgetown Jet Center, Inc. are the only
Borrowers as of the Effective Date that own any Aircraft, Airframes or
jet Engines and Engines rated 750 or more take-off horsepower and are
the only Borrowers as of the Effective Date whose Inventory and
Equipment are subject to Federal Aviation Administration registration
requirements. As of the Effective Date, no Subsidiary of any Borrower
which is not a Borrower (i) owns any Aircraft,
4
<PAGE> 5
Airframes or jet Engines and Engines rated 750 or more take-off
horsepower or (ii) owns Inventory or Equipment subject to Federal
Aviation Administration registration requirements.
1.8 Section 8.03 and Section 8.04 are each amended to delete
the reference therein to "the treasurer of Burbank" and to substitute therefor
a reference to "the treasurer of any other Borrower".
1.9 Section 10.02 is amended to (i) delete the provisions of
clause (b) thereof in their entirety and substitute the following therefor:
(b) the transfer of Property (i) from a Subsidiary of a Borrower to
such Borrower or (ii) from a Subsidiary of a Borrower to another
Subsidiary of such Borrower; provided that the Subsidiary transferee
is a Guarantor or a Borrower;
and (ii) delete the provisions of clause (g) thereof in their entirety.
1.10 Section 10.03 is amended to delete the provisions of
clauses (i) and (j) in their entirety and substitute the following therefor:
(i) Liens granted to the lessors under the Permitted Engine Leases
against the rights of Dallas Aerospace, Inc. or another Borrower, as
applicable, under subleases of Engines and other property which are
the subject of the respective lessors' Permitted Engine Leases, to
Persons other than a Borrower or Subsidiary of a Borrower;
(j) Liens granted by Borrowers or Guarantors against accounts which
they are permitted to establish and maintain under Sections 4.04 and
10.16 without being subject to Collection Account Agreements to secure
Contractual Obligations with respect to credit card purchases;
provided that the amount on deposit in such accounts of any Borrower
or any Guarantor shall be no more than $75,000 in the aggregate at any
given time and such Borrower or Guarantor shall have identified such
account(s) and Contractual Obligations to the Administrative Agent in
writing promptly upon entering into the same; and
1.11 Section 10.04 is amended to delete the provisions of
clauses (d), (g), and (h) in their entirety and substitute the following
therefor:
(d) Investments by a Borrower in its Subsidiaries which, if in the
form of Intercompany Debt, would be permitted under Section 10.01(i);
(g) Investments (i) by Dallas Aerospace, Inc. in a joint venture with
M&M Aircraft Services, Inc. for the purpose of extending the engine
overhauling capabilities of Dallas Aerospace, Inc. to CFM56 engines;
provided that either (A) such Investments are in the form of Permitted
Engine Leases and the amount of such Investments does not exceed
$10,000,000 in the aggregate or (B) such Investments are in the form
of Accommodation Obligations in support of lease financing provided to
such joint venture, the aggregate amount of which Accommodation
Obligations shall not exceed $4,000,000; and (ii) by Burbank in a
joint venture with Xian Aircraft Corp. for the purpose of selling
hardware in the Peoples Republic of China; provided that the aggregate
amount of such Investments by Burbank shall not exceed $1,000,000;
(h) Investments of amounts not to exceed the amounts described on
SCHEDULE 1.01.5 in the respective Permitted Acquisitions and newly
formed Subsidiaries to effect the respective Permitted Acquisitions;
and
1.12 Section 10.05 is amended to add the following as clause
(g) thereof
(g) the guarantee by Banner of obligations in connection with lease
financing provided to the joint venture permitted under Section
10.04(g) in which Dallas Aerospace, Inc. shall have made Investments
permitted by Section 10.04(g); provided that such guaranteed
obligations do not exceed $4,000,000 at any time outstanding;
5
<PAGE> 6
and to change the designation "(g)" as to the final clause of Section 10.05 to
"(h)".
1.13 Section 10.10 is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
10.10. Restriction on Fundamental Changes. No Borrower shall, nor
shall any Borrower permit any of its Subsidiaries to, (a) enter into
any merger or consolidation, or liquidate, wind-up or dissolve (or
suffer any liquidation or dissolution), or convey, lease, sell,
transfer or otherwise dispose of, in one transaction or series of
transactions, all or substantially all of such Person's business or
Property, whether now or hereafter acquired, except for (i) the merger
of a Subsidiary of a Borrower with and into a Borrower, (ii) the
merger of a Borrower (other than Banner) with and into another
Borrower, and (iii) the merger of a Guarantor with and into another
Guarantor or (b) acquire by purchase or otherwise, all or
substantially all of the business, property or assets of, or Capital
Stock or other evidence of beneficial ownership of, any Person, except
for acquisitions which are Permitted Acquisitions or joint ventures in
which Investments are permitted under Section 10.04.
1.14 Section 10.16 is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
10.16 Bank Accounts. No Borrower shall, nor shall any Borrower
permit any of its Subsidiaries to, establish or maintain any deposit
account into which collections of Receivables and proceeds of other
Collateral are deposited other than (a) the deposit accounts
identified on SCHEDULE 10.16 attached hereto which are subject to
Collection Account Agreements, (b) deposit accounts existing as of the
Effective Date or established after the Effecitve Date in which
amounts on deposit do not exceed $2,000,000 in the aggregate at any
time and which are not subject to Collection Account Agreements, and
(c) deposit accounts established after the Effective Date with respect
to which Banner gives the Administrative Agent prior written notice of
such establishment and delivers to the Administrative Agent an
executed Collection Account Agreement concurrently with such deposit
account being established.
1.15 Section 11.05 is amended to delete only the tabular
provision as to "Period" and "Maximum Amount" set forth therein in its entirety
and substitute the following therefor:
<TABLE>
<CAPTION>
Period Maximum Amount
------ --------------
<S> <C>
4/1/95 - 3/31/96 $10,000,000
4/1/96 - 3/31/97 $ 5,500,000
4/1/97 - 3/31/98 $ 5,000,000
and each fiscal
year thereafter
</TABLE>
1.16 Section 13.09(d) is amended to delete the provisions
thereof in their entirety and substitute the following therefor:
(d) Subordination of Liens. Each Lender and Issuing Bank hereby
authorizes and directs the Administrative Agent to subordinate the
Liens granted to the Administrative Agent for the benefit of the
Holders against (i) the interest of Dallas Aerospace, Inc. in Engines
complete as equipped and of Dallas Aerospace, Inc. or another
Borrower, as applicable, in other property which are the subject of
Permitted Engine Leases to the Liens permitted under Section 10.03(f)
and the rights of Dallas Aerospace, Inc. under leases or subleases of
Engines and of Dallas Aerospace, Inc. or another Borrower, as
applicable, under leases or subleases of other property which are the
subject of Permitted Engine Leases to the Liens permitted under
Section 10.03(i) and (ii) Airbus Inventory to the purchase money Liens
with respect
6
<PAGE> 7
thereto permitted under Section 10.03(d), in each case, on terms and
conditions satisfactory to the Administrative Agent.
1.17 Article XV is amended to (i) delete the provisions of
Section 15.07(c)(i) thereof in its entirety and substitute the following
therefor:
(i) release of (A) any Borrower or any Guarantor or (B) all or a
substantial part of the Collateral, other than as provided in Section
13.09(c);
and (ii) add the following provision as Section 15.23:
15.23. Obligations of Borrowers Joint and Several. Each of
the Borrowers agrees that it shall be jointly and severally liable for all of
the Obligations. Each of the Borrowers is accepting joint and several liability
hereunder in consideration of the financial accommodations to be provided by
the Lenders and Issuing Banks under this Agreement, for the mutual benefit,
directly and indirectly, of each of the Borrowers and in consideration of the
undertakings of each of the Borrowers to accept joint and several liability for
the obligations of each of them. Each of the Borrowers jointly and severally
hereby irrevocably and unconditionally accepts, not merely as a surety but also
as a co-debtor, joint and several liability with the other Borrowers with
respect to the payment and performance of all of the Obligations, it being the
intention of the parties hereto that all the Obligations shall be the joint and
several obligations of each of the Borrowers without preferences or distinction
among them. If and to the extent that any of the Borrowers shall fail to make
any payment with respect to any of the Obligations as and when due or to
perform any of the Obligations in accordance with the terms thereof, then in
each such event, the other Borrowers will make such payment with respect to, or
perform, such Obligation. The obligations of each Borrower under the provisions
of this Section 15.23 constitute full recourse obligations of such Borrower,
enforceable against it to the full extent of its properties and assets,
irrespective of the validity, regularity or enforceability of this Agreement or
any other circumstances whatsoever. Except as otherwise expressly provided
herein, each Borrower hereby waives notice of acceptance of its joint and
several liability, notice of any Loan made, or Letter of Credit issued, under
this Agreement, notice of occurrence of any Event of Default, or of any demand
for any payment under this Agreement, notice of any action at any time taken or
omitted by any Lender or Issuing Bank under or in respect of any of the
Obligations, any requirement of diligence and, generally, all demands, notices
and other formalities of every kind in connection with this Agreement. Each
Borrower hereby assents to, and waives notice of, any extension or postponement
of the time for the payment of any of the Obligations, the acceptance of any
partial payment thereon, any waiver, consent or other action or acquiescence by
any Lender or Issuing Bank at any time or times in respect of any default by
any Borrower in the performance or satisfaction of any term, covenant,
condition or provision of this Agreement, any and all other indulgences
whatsoever by any Lender in respect of any of the Obligations, and the taking,
addition, substitution or release, in whole or in part, at any time or times,
of any security for any of the Obligations or the addition, substitution or
release, in whole or in part, of any Borrower. Without limiting the generality
of the foregoing, each Borrower assents to any other action or delay in acting
or failure to act on the part of any Lender, including, without limitation, any
failure strictly or diligently to assert any right or to pursue any remedy or
to comply fully with applicable laws, or regulations thereunder, which might,
but for the provisions of this Section 15.23, afford grounds for terminating,
discharging or relieving such Borrower, in whole or in part, from any of its
obligations under this Section 15.23, it being the intention of each Borrower
that, so long as any of the Obligations remain unsatisfied, the obligations of
such Borrower under this Section 15.23 shall not be discharged except by
performance and then only to the extent of such performance. The Obligations
of each Borrower under this Section 15.23 shall not be diminished or rendered
unenforceable by any winding up, reorganization, arrangement, liquidation,
reconstruction or similar proceeding with respect to any Borrower or any
Lender. The joint and several liability of the Borrowers hereunder shall
continue in full force and effect notwithstanding any absorption, merger,
amalgamation or any other change whatsoever in the name, membership,
constitution or place of formation of any Borrower or any Lender or Issuing
Bank. The provisions of this Section 15.23 are made for the benefit of the
Holders and their respective successors and assigns, and may be enforced by any
such Person from time to time against any of the Borrowers as often as occasion
therefor may arise and without requirement on the part of any Holder first to
marshal any of its claims or to exercise any of its rights against any of the
other
7
<PAGE> 8
Borrowers or to exhaust any remedies available to it against any of the other
Borrowers or to resort to any other source or means of obtaining payment of any
of the Obligations or to elect any other remedy. The provisions of this
Section 15.23 shall remain in effect until all the Obligations shall have been
paid in full or otherwise fully satisfied. If at any time, any payment, or any
part thereof, made in respect of any of the Obligations, is rescinded or must
otherwise be restored or returned by any Holder upon the insolvency, bankruptcy
or reorganization of any of the Borrowers, or otherwise, the provisions of this
Section 15.23 will forthwith be reinstated in effect, as though such payment
had not been made. Notwithstanding any provision to the contrary contained
herein or in any other of the Loan Documents, to the extent the joint
obligations of a Borrower shall be adjudicated to be invalid or unenforceable
for any reason (including, without limitation, because of any applicable state
or federal law relating to fraudulent conveyances or transfers) then the
obligations of each Borrower hereunder shall be limited to the maximum amount
that is permissible under applicable law (whether federal or state and
including, without limitation, the federal Bankruptcy Code). The Borrowers
hereby agree, as among themselves, that if any Borrower shall become an Excess
Funding Borrower (as defined below), each other Borrower shall, on demand of
such Excess Funding Borrower (but subject to the next sentence hereof and to
clause (B) below), pay to such Excess Funding Borrower an amount equal to such
Borrower's Pro Rata Share (as defined below and determined, for this purpose,
without reference to the properties, assets, liabilities and debts of such
Excess Funding Borrower) of such Excess Payment (as defined below). The
payment obligation of any Borrower to any Excess Funding Borrower under this
Section 15.23 shall be subordinate and subject in right of payment to the prior
payment in full of the Obligations of such Borrower under the other provisions
of this Agreement, and such Excess Funding Borrower shall not exercise any
right or remedy with respect to such excess until payment and satisfaction in
full of all of such Obligations. For purposes hereof, (i) "Excess Funding
Borrower" shall mean, in respect of any Obligations arising under the other
provisions of this Agreement (hereafter, the "Joint Obligations"), a Borrower
that has paid an amount in excess of its Pro Rata Share of the Joint
Obligations; (ii) "Excess Payment" shall mean, in respect of any Joint
Obligations, the amount paid by an Excess Funding Borrower in excess of its Pro
Rata Share of such Joint Obligations; and (iii) "Pro Rata Share", for the
purposes of this Section 15.23, shall mean, for any Borrower, the ratio
(expressed as a percentage) of (A) the amount by which the aggregate present
fair saleable value of all of its assets and properties exceeds the amount of
all debts and liabilities of such Borrower (including contingent, subordinated,
unmatured, and unliquidated liabilities, but excluding the obligations of such
Borrower hereunder) to (B) the amount by which the aggregate present fair
saleable value of all assets and other properties of such Borrower and all of
the other Borrowers exceeds the amount of all of the debts and liabilities
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of such Borrower and the other Borrowers
hereunder) of such Borrower and all of the other Borrowers, all as of the
Effective Date.
1.18 All Exhibits and Schedules are deleted in their entirety
and the Exhibits and Schedules attached hereto and made a part hereof shall be
substituted therefor.
SECTION 2. Conditions Precedent to Effectiveness of this
Amendment. This Amendment shall become effective as of November 25, 1997, if,
and only if the Administrative Agent shall have received (a) on or before
November 21, 1997, a facsimile or original executed copy of this Amendment
executed by the Borrowers and the Lenders, (b) on November 25, 1997, for the
accounts of (i) the respective Lenders, a fee in the amount of one-eighth of
one percent (0.125%) of their respective Commitments immediately prior to this
Amendment becoming effective and (ii) the respective Lenders whose Revolving
Credit Commitments are increased upon this Amendment becoming effective, a fee
in the amount of one-quarter of one percent (0.25%) of the amount by which
their respective Revolving Credit Commitments increase, (c) on November 25,
1997, the fees described in and payable for the account of the Administrative
Agent under that certain letter agreement among Banner, Burbank, and the
Administrative Agent dated October 31, 1997, and (d) on or before November 25,
1997, all of the agreements, documents and instruments relating to the loan and
other credit transactions contemplated by the Credit Agreement and this
Amendment described in the List of Closing Documents attached hereto as EXHIBIT
A, each duly executed where appropriate and in form and substance satisfactory
to the Administrative Agent; without limiting the foregoing, the Borrowers
hereby direct their counsel, Hogan & Hartson L.L.P., to prepare and deliver to
the Administrative Agent, the Co-Agents, the Lenders, the Issuing Banks and
Sidley & Austin the opinion referred to in such List of Closing Documents.
8
<PAGE> 9
SECTION 3. Representations and Warranties. Borrowers hereby
represent and warrant as follows:
3.1 The Credit Agreement, as amended by this Amendment,
constitutes the legal, valid and binding obligations of each of the Borrowers
and is enforceable against each of the Borrowers in accordance with its terms.
3.2 No Event of Default or Potential Event of Default exists
or would result from any of the transactions contemplated by this Amendment.
3.3 Upon the effectiveness of this Amendment, Banner and
Burbank 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 each Borrower hereby agrees that all covenants,
representations and warranties in the Credit Agreement, as amended by this
Amendment, shall be deemed to have been remade, or made, as applicable, by such
Borrower as of the date this Amendment becomes effective.
SECTION 4. Reference to and Effect on the Credit Agreement.
4.1 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.
4.2 Except as specifically amended above or otherwise
terminated in writing concurrently with this Amendment becoming effective, the
Credit Agreement, the Notes and all other Loan Documents shall remain in full
force and effect and are hereby ratified and confirmed.
4.3 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 5. Administrative Agent Direction. The
Administrative Agent is hereby authorized and directed by the Lenders and
Issuing Banks, upon this Amendment becoming effective, to execute, on behalf of
the Lenders and Issuing Bank, and deliver to those Borrowers which have
heretofore been Guarantors in consideration of their having executed and
delivered this Amendment and, by the terms hereof, become Borrowers jointly and
severally liable for the Obligations, a release of the obligations of such
Borrowers under the Guaranties heretofore executed and delivered by them.
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.
9
<PAGE> 10
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.
10
<PAGE> 11
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.
Borrowers:
- ----------
BANNER AEROSPACE, INC. BURBANK AIRCRAFT SUPPLY, INC.
By By
--------------------------- --------------------------
Eugene W. Juris Eugene W. Juris
Vice President - Finance Vice President
ADAMS INDUSTRIES, INC. AEROSPACE BEARING SUPPORT,
INC.
By By
--------------------------- --------------------------
Eugene W. Juris Eugene W. Juris
Vice President - Finance Vice President
AIRCRAFT BEARING CORPORATION BANNER AEROSPACE-SINGAPORE,
INC.
By By
--------------------------- --------------------------
Eugene W. Juris Eugene W. Juris
Vice President - Finance Vice President
BANNER AEROSPACE SERVICES, BANNER DISTRIBUTION, INC.
INC.
By By
--------------------------- --------------------------
Eugene W. Juris Eugene W. Juris
Vice President - Finance Vice President
BURBANK AIRCRAFT D A C INTERNATIONAL, INC.
INTERNATIONAL, INC.
By By
--------------------------- --------------------------
Eugene W. Juris Eugene W. Juris
Vice President - Finance Vice President
11
<PAGE> 12
DALLAS AEROSPACE, INC. GEORGETOWN JET CENTER, INC.
By By
--------------------------- --------------------------
Eugene W. Juris Eugene W. Juris
Vice President - Finance Vice President
HARCO, INC. MATRIX AVIATION, INC.
By By
--------------------------- --------------------------
Eugene W. Juris Eugene W. Juris
Vice President - Finance Vice President
NASAM INCORPORATED PACAERO
By By
--------------------------- --------------------------
Eugene W. Juris Eugene W. Juris
Vice President - Finance Vice President
PB HERNDON AEROSPACE, INC. PROFESSIONAL AIRCRAFT
ACCESSORIES, INC.
By By
--------------------------- --------------------------
Eugene W. Juris Eugene W. Juris
Vice President - Finance Vice President
PROFESSIONAL AVIATION SOLAIR, INC.
ASSOCIATES, INC.
By By
--------------------------- --------------------------
Eugene W. Juris Eugene W. Juris
Vice President - Finance Vice President
12
<PAGE> 13
Lenders:
- --------
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 CREDIT AGRICOLE INDOSUEZ
JAPAN, LTD.
By By
--------------------------- --------------------------
Brady S. Sadek David Bouhl
Senior Vice President First Vice President
NATIONSBANK, N.A. SANWA BUSINESS CREDIT
CORPORATION
By By
--------------------------- --------------------------
Michael R. Heredia John P. Thacker
Senior Vice President Vice President
THE FIRST NATIONAL BANK OF THE SUMITOMO BANK, LIMITED
CHICAGO
By By
--------------------------- --------------------------
Amy L. Robbins Nancy Z. Reimann
Vice President Vice President
By
---------------------------
James L. Hogan
Vice President & Manager
13
<PAGE> 14
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 ML CBO IV (CAYMAN) LTD.
PORTFOLIO By Protective Asset
Management Company, as
Collateral Manager
By By
--------------------------- --------------------------
Gilles Marchand Mark R. Okada
Authorized Signatory Executive Vice President
THE ING CAPITAL SENIOR SECURED KZH-SOLEIL CORPORATION
HIGH INCOME FUND, L.P.
By ING Capital Advisors, Inc.
By By
--------------------------- --------------------------
Kathleen Lenarcic Name:
Vice President & Portfolio Title:
Manager
Issuing Bank:
- ------------
CITIBANK, N.A.
By
---------------------------
Name:
Attorney-in-Fact
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 95,843
<ALLOWANCES> 5,279
<INVENTORY> 299,838
<CURRENT-ASSETS> 416,686
<PP&E> 28,621
<DEPRECIATION> 11,977
<TOTAL-ASSETS> 469,929
<CURRENT-LIABILITIES> 71,622
<BONDS> 198,410
0
38
<COMMON> 23,455
<OTHER-SE> 169,071
<TOTAL-LIABILITY-AND-EQUITY> 469,929
<SALES> 359,458
<TOTAL-REVENUES> 359,458
<CGS> 256,085
<TOTAL-COSTS> 256,085
<OTHER-EXPENSES> 77,601
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,178
<INCOME-PRETAX> 13,594
<INCOME-TAX> 5,300
<INCOME-CONTINUING> 8,294
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,294
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.29
</TABLE>
