<PAGE> 1
DRAFT 02/09/99 5:50 PM
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, 1998
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)
<TABLE>
<S> <C>
DELAWARE 95-2039311
- ---------------------------------------------------------- ------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
45025 AVIATION DRIVE, SUITE 300
DULLES, VA 20166-7556
- -------------------------------------------------- --------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
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 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.
<TABLE>
<CAPTION>
Outstanding at
Title of Class January 31, 1999
-------------- ----------------
<S> <C>
Common Stock, $1.00 Par Value 21,540,795
</TABLE>
<PAGE> 2
BANNER AEROSPACE, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C> <C>
Part I. Financial Information:
Item 1: Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and March 31, 1998........................ 3-4
Consolidated Statements of Income and Comprehensive Income for the Nine Months Ended
December 31, 1998 and 1997.................................................................... 5
Consolidated Statements of Income and Comprehensive Income for the Three Months Ended
December 31, 1998 and 1997.................................................................... 6
Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 1998 and 1997.... 7
Notes to Summarized Financial Information .................................................... 8-11
Item 2: Management's Discussion and Analysis of Results of Operations and Financial Condition...... 12-18
Part II. Other Information:
Item 1: Legal Proceedings.......................................................................... 19
Item 5: Other Information.......................................................................... 19
Item 6: Exhibits and Reports on Form 8-K .......................................................... 19
</TABLE>
Page 2 of 20
<PAGE> 3
PART I
ITEM 1 -- FINANCIAL STATEMENTS
A. Summarized Financial Information
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1998
ASSETS
<TABLE>
<CAPTION>
(In thousands) (unaudited)
December 31, March 31,
CURRENT ASSETS: 1998 1998
- -------------- ------------------ -------------------
<S> <C> <C>
Cash $ 1,633 $ ---
Marketable securities 214,596 ---
Receivables, less allowances of $470 at December 31, 1998 and
$2,881 at March 31, 1998 18,334 48,046
Inventories 80,853 122,236
Other current assets 26,374 29,741
------------------ -------------------
341,790 200,023
------------------ -------------------
PROPERTY, PLANT AND EQUIPMENT (AT COST):
- ---------------------------------------
Land 15 15
Buildings and improvements 2,020 2,430
Machinery and equipment 6,561 8,056
------------------ -------------------
8,596 10,501
Accumulated depreciation (5,164) (6,008)
------------------ -------------------
3,432 4,493
------------------ -------------------
OTHER ASSETS:
- ------------
Investments 39,110 206,626
Cost in excess of net tangible assets of purchased
businesses, net 9,331 12,292
Other 1,483 1,776
------------------ -------------------
49,924 220,694
------------------ -------------------
TOTAL ASSETS $ 395,146 $ 425,210
================== ===================
</TABLE>
The accompanying notes to summarized financial information are an integral part
of these consolidated balance sheets.
Page 3 of 20
<PAGE> 4
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands) (unaudited)
December 31, March 31,
CURRENT LIABILITIES: 1998 1998
- ------------------- ------------------- -------------------
<S> <C> <C>
Accounts payable $ 7,288 $ 27,431
Accrued salaries 1,500 2,568
Income taxes 8,234 8,446
Other current liabilities 38,511 36,180
------------------- -------------------
55,533 74,625
------------------- -------------------
LONG-TERM LIABILITIES:
- ---------------------
Long-term debt 50,600 48,900
Deferred federal and state income taxes 38,784 41,194
Other long-term liabilities 2,830 2,381
------------------- -------------------
92,214 92,475
------------------- -------------------
TOTAL LIABILITIES 147,747 167,100
------------------- -------------------
STOCKHOLDERS' EQUITY:
- --------------------
Preferred stock, $0.01 par value per share, 10,000 shares
authorized, 4,100 shares issued, 3,493 shares outstanding
at December 31, 1998 and 3,810 shares issued and
outstanding at March 31, 1998 41 38
Common stock, $1.00 par value per share, 50,000 shares
authorized, 23,732 shares issued, 21,485 shares
outstanding at December 31, 1998 and 23,642 shares issued,
21,395 shares outstanding at March 31, 1998 23,732 23,642
Less: treasury stock at cost, 2,247 common shares and 607
preferred shares held at December 31, 1998 and 2,247 common
shares held at March 31, 1998 (28,042) (23,331)
Paid-in capital 152,906 150,460
Retained earnings 79,143 93,046
Cumulative other comprehensive income 19,619 14,255
------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 247,399 258,110
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 395,146 $ 425,210
=================== ===================
</TABLE>
The accompanying notes to summarized financial information are an integral part
of these consolidated balance sheets.
Page 4 of 20
<PAGE> 5
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE NINE (9) MONTHS ENDED DECEMBER 31, 1998 AND 1997
The consolidated income statements for the nine (9) months ended December 31,
1998 and 1997 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)
For the Nine Months Ended
(In thousands, except per share data) December 31,
----------------------------------------
1998 1997
---------------- -----------------
<S> <C> <C>
Net sales $ 152,404 $ 359,458
Cost of goods sold 120,346 256,085
---------------- -----------------
GROSS PROFIT 32,058 103,373
Selling, general and administrative expenses 26,366 77,601
---------------- -----------------
OPERATING INCOME 5,692 25,772
Non-recurring loss 19,320 ---
Investment income 1,197 ---
Interest expense, net 5,255 12,178
---------------- -----------------
INCOME / (LOSS) BEFORE TAXES (17,686) 13,594
Provision / (benefit) for taxes (5,750) 5,300
---------------- -----------------
NET INCOME / (LOSS) $ (11,936) $ 8,294
================ =================
Preferred stock dividends 1,966 1,377
---------------- -----------------
NET INCOME / (LOSS) AVAILABLE FOR COMMON SHAREHOLDERS $ (13,902) $ 6,917
================ =================
Basic earnings / (loss) per common share $ (0.65) $ 0.30
================ =================
Diluted earnings / (loss) per common share $ (0.65) $ 0.29
================ =================
Weighted average number of common shares - basic 21,458 23,424
================ =================
Weighted average number of common shares - diluted 21,458 23,830
================ =================
Net income / (loss) $ (11,936) $ 8,294
Other comprehensive income:
Unrealized holding gain on available-for-sale securities, net
of tax provision of $3,429 5,364 ---
---------------- -----------------
Comprehensive income / (loss) $ (6,572) $ 8,294
================ =================
</TABLE>
The accompanying notes to summarized financial information are an integral part
of these consolidated income statements.
Page 5 of 20
<PAGE> 6
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE (3) MONTHS ENDED DECEMBER 31, 1998 AND 1997
The consolidated income statements for the three (3) months ended December 31,
1998 and 1997 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)
For the Three Months Ended
(In thousands, except per share data) December 31,
----------------------------------------
1998 1997
---------------- -----------------
<S> <C> <C>
Net sales $ 46,839 $ 119,614
Cost of goods sold 37,209 83,745
---------------- -----------------
GROSS PROFIT 9,630 35,869
Selling, general and administrative expenses 7,353 28,155
---------------- -----------------
OPERATING INCOME 2,277 7,714
Non-recurring loss 19,320 ---
Investment loss (1,372) ---
Interest expense, net 1,994 4,401
---------------- -----------------
INCOME / (LOSS) BEFORE TAXES (20,409) 3,313
Provision / (benefit) for taxes (6,410) 1,290
---------------- -----------------
NET INCOME / (LOSS) $ (13,999) $ 2,023
================ =================
Preferred stock dividends 603 689
---------------- -----------------
NET INCOME / (LOSS) AVAILABLE FOR COMMON SHAREHOLDERS $ (14,602) $ 1,334
================ =================
Basic earnings / (loss) per common share $ (0.68) $ 0.06
================ =================
Diluted earnings / (loss) per common share $ (0.68) $ 0.06
================ =================
Weighted average number of common shares - basic 21,484 23,424
================ =================
Weighted average number of common shares - diluted 21,484 23,909
================ =================
Net income / (loss) $ (13,999) $ 2,023
Other comprehensive income:
Unrealized holding gain on available-for-sale securities, net
of tax provision of $19,436 30,400 ---
---------------- -----------------
Comprehensive income $ 16,401 $ 2,023
================ =================
</TABLE>
The accompanying notes to summarized financial information are an integral part
of these consolidated income statements.
Page 6 of 20
<PAGE> 7
BANNER AEROSPACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE (9) MONTHS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
(unaudited)
For the Nine Months Ended
(In thousands) December 31,
-----------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- --------------------------------------
Net income / (loss) $ (11,936) $ 8,294
Adjustments to reconcile net income to net cash (used for)
operating activities--
Depreciation and amortization 1,766 4,280
Loss on disposition of subsidiary 13,500 ---
Loss on sale of investment securities 63 ---
Change in receivables 18,442 (26,182)
Change in inventories (20,641) (46,057)
Change in payables and accrued liabilities (26,115) 1,480
Change in other assets and liabilities 10,017 (5,143)
----------------- -----------------
Net cash (used for) operating activities (14,904) (63,328)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from disposition of subsidiary 60,397 ---
Acquisition of investment securities (42,481) ---
Proceeds from sale of investment securities 2,576 ---
Acquisition of property, plant and equipment (1,517) (3,964)
----------------- -----------------
Net cash provided by (used for) investing activities 18,975 (3,964)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Net borrowings of revolver 1,700 65,300
Repayment of subordinated loan --- (28,000)
Repayment of term loan --- (3,850)
Repayments on other debt --- (233)
Issuance of preferred stock --- 33,877
Repurchase of preferred stock (4,711) ---
Proceeds from exercise of stock options 573 198
----------------- -----------------
Net cash provided by (used for) financing activities (2,438) 67,292
----------------- -----------------
NET CHANGE IN CASH 1,633 ---
CASH, BEGINNING OF PERIOD --- ---
----------------- -----------------
CASH, END OF PERIOD $ 1,633 $ ---
================= =================
</TABLE>
The accompanying notes to summarized financial information are an integral part
of these consolidated statements of cash flows.
Page 7 of 20
<PAGE> 8
BANNER AEROSPACE, INC. AND SUBSIDIARIES
NOTES TO SUMMARIZED FINANCIAL INFORMATION
DECEMBER 31, 1998 AND 1997
(In thousands, except share data, unless otherwise noted)
The information furnished in this Quarterly Report on Form 10-Q for the
interim periods ended December 31, 1998 and 1997 reflect all adjustments which
are, in the opinion of management, of a normal recurring nature and are
necessary to present a fair statement of the results for the interim periods.
The condensed financial information included herein has been prepared by 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 Annual Report on
Form 10-K for the fiscal year ended March 31, 1998.
1) Earnings Per Common Share
The following is a reconciliation of the computations of basic earnings per
common share and diluted earnings per common share for the nine and three
months ended December 31, 1998 and 1997 in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings per Share" (SFAS 128).
<TABLE>
<CAPTION>
For the Nine Months Ended
December 31,
-------------------------------------
1998 1997
----------------- ------------------
<S> <C> <C>
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Net income (loss) available for common shareholders $ (13,902) $ 6,917
================= ==================
Weighted average common shares outstanding 21,458 23,424
================= ==================
Basic earnings (loss) per common share $ (0.65) $ 0.30
================= ==================
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Net income (loss) available for common shareholders $ (13,902) $ 6,917
================= ==================
Weighted average common shares outstanding 21,458 23,424
Incremental shares due to assumed exercise and repurchase of stock options --- 406
----------------- ------------------
21,458 23,830
================= ==================
Diluted earnings (loss) per common share $ (0.65) $ 0.29
================= ==================
</TABLE>
For the nine months ended December 31, 1998, 3,895,042 weighted average
shares outstanding of preferred stock and stock options to purchase 368,205
shares of common stock were excluded from the diluted earnings per common share
computation due to the net loss for the period. For the nine months ended
December 31, 1997, 3,810,000 weighted average shares outstanding of preferred
stock were excluded from the calculation of diluted earnings per common share,
as the effects would be antidilutive. Likewise, for the nine months ended
December 31, 1997, outstanding stock options to purchase 45,000 shares of
common stock were not included in the computation of diluted earnings per
common share because the exercise price was greater than the average market
price of common shares for the period.
Page 8 of 20
<PAGE> 9
<TABLE>
<CAPTION>
For the Three Months Ended
December 31,
------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Net income (loss) available for common shareholders $ (14,602) $ 1,334
================= =================
Weighted average common shares outstanding 21,484 23,424
================= =================
Basic earnings (loss) per common share $ (0.68) $ 0.06
================= =================
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Net income (loss) available for common shareholders $ (14,602) $ 1,334
================= =================
Weighted average common shares outstanding 21,484 23,424
Incremental shares due to assumed exercise and repurchase of stock options --- 485
----------------- -----------------
21,484 23,909
================= =================
Diluted earnings (loss) per common share $ (0.68) $ 0.06
================= =================
</TABLE>
For the three months ended December 31, 1998, 3,803,610 weighted average
shares outstanding of preferred stock and stock options to purchase 238,398
shares of common stock were excluded from the computation of diluted earnings
per common share due to the net loss for the period. For the three months
ended December 31, 1997, 3,810,000 weighted average shares outstanding of
preferred stock were excluded from the calculation of diluted earnings per
common share, as the effects would be antidilutive. Likewise, for the three
months ended December 31, 1997, outstanding stock options to purchase 5,000
shares of common stock were not included in the computation of diluted earnings
per common share because the exercise price was greater than the average market
price of common shares for the period.
The Company's preferred stock pays annual dividends of additional preferred
stock at 7.5% per annum of the liquidation value of $9.20 per share. Each
share of preferred stock is convertible at any time into one share of common
stock; 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. On November 16, 1998, the Company repurchased 606,822 shares of
its preferred stock from a shareholder. The aggregate purchase price paid by
the Company was approximately $4.7 million, or $7.75 per share.
2) Dispositions
On December 31, 1998 (the "Closing Date"), the Company consummated the sale
of all the issued and outstanding shares of common stock, par value $1.00 per
share (the "Solair Shares"), of Solair, Inc. ("Solair") to Kellstrom
Industries, Inc. ("Kellstrom") in exchange for approximately $57.0 million in
cash and a warrant (the "Kellstrom Warrant") to purchase 300,000 shares of
Kellstrom common stock, par value $0.001 per share (the "Kellstrom Shares").
The purchase price for the Solair Shares is based on the consolidated net worth
of Solair as of the Closing Date, subject to certain adjustments. The
Kellstrom Warrant is exercisable for a term of four years at an exercise price
of $27.50. Based on the number of shares of common stock of Kellstrom issued
and outstanding as of December 31, 1998, the Kellstrom Shares would represent,
upon issuance, approximately 0.025% of the then issued and outstanding shares
of Kellstrom.
In December 1998, the Company recorded a non-recurring pre-tax charge of
approximately $19.3 million on the loss from the sale of Solair. Gross
proceeds from the sale totaled approximately $60.4 million, which includes
approximately $1.3 million for the value assigned to the Kellstrom Warrant.
Approximately $50.0 million of the gross proceeds was used to pay down the
Company's revolver balance. A $5.8 million tax benefit was realized from the
transaction, resulting in an after-tax loss of approximately $13.5 million,
which is included in the net loss available for common shareholders for the
three and nine months ended December 31, 1998.
Page 9 of 20
<PAGE> 10
On January 13, 1998, the Company completed the disposition of substantially
all of the assets and certain liabilities of its hardware companies and PacAero
unit (the "Hardware Group") to two wholly-owned subsidiaries of AlliedSignal
Inc. (the "Buyers") in exchange for unregistered shares of AlliedSignal Inc.
common stock with an aggregate value equal to $369,000 (the "Hardware Group
Disposition"). In fiscal 1999, the final closing date balance sheet was
completed with no change in purchase price. The remaining investment in
AlliedSignal Inc. common stock has been accounted for as a current
available-for-sale security at December 31, 1998 (previously classified as
non-current) and the Company recorded in stockholders' equity unrealized
holding gains of $20.9 million or $44.31 per share, net of tax benefits, from
the appreciation since January 13, 1998 in the market value of the AlliedSignal
Inc. common stock.
On January 2, 1998, the Company disposed of BAI, Inc. ("BAI") through a
stock purchase agreement. The Company did not realize a material gain or loss
on the transaction.
The following unaudited pro forma table illustrates consolidated net sales,
operating income, net income, net income (loss) available for common
shareholders and earnings (loss) per common share of the Company's operations,
on a pro forma basis for the nine and three months ended December 31, 1998, to
give effect to the sale of Solair. Additionally, the pro forma table
illustrates consolidated net sales, operating income, net income, net income
available for common shareholders and earnings per common share of the
Company's operations, on a pro forma basis for the nine and three months ended
December 31, 1997, to give effect to the sale of Solair, the Hardware Group
Disposition and the disposition of BAI. The unaudited pro forma consolidated
financial information is based on the historical financial information of the
Company and is presented for informational purposes only and is not necessarily
indicative of what earnings and results of operations would have been had the
sale of Solair, the Hardware Group Disposition and the disposition of BAI
occurred at the beginning of the periods presented, nor is such information
intended necessarily to be indicative of the future results of operations.
UNAUDITED SUPPLEMENTAL PRO FORMA INFORMATION
<TABLE>
<CAPTION>
For the Nine Months Ended For the Three Months Ended
December 31, December 31,
---------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Net sales $ 105,910 $ 112,118 $ 34,955 $ 34,788
============ ============= ============ ==============
Operating income $ 5,974 $ 7,620 $ 1,759 $ 1,714
============ ============= ============ ==============
Net income $ 4,578 $ 4,648 $ 41 $ 1,046
============ ============= ============ ==============
Net income (loss) available for common
shareholders $ 2,612 $ 3,072 $ (562) $ 357
============ ============= ============ ==============
Earnings (loss) per common share - basic $ 0.12 $ 0.13 $ (0.03) $ 0.02
============ ============= ============ ==============
Earnings (loss) per common share - diluted $ 0.12 $ 0.13 $ (0.03) $ 0.01
============ ============= ============ ==============
</TABLE>
Page 10 of 20
<PAGE> 11
3) Related Party Transactions
On January 12, 1999, the Company announced that it had reached agreement for
a stock-for-stock merger with a subsidiary of The Fairchild Corporation
("Fairchild"), at an exchange ratio determined by dividing $11.00 for each of
the Company's par value $1.00 common stock, by the average closing price of
Fairchild's Class A Common Stock, over a 20-day trading period, ending on the
third trading day before the merger. The ratio is subject to a "collar" such
that no more than 0.7885, and no less than 0.6452, of a share of Fairchild
Class A Common Stock, may be exchanged for a share of the Company's common
stock. The price is also subject to adjustment on a per share, after-tax
basis, to reflect an increase or decrease in the value of certain shares of
AlliedSignal Inc. common stock owned by the Company, within a determined
range. On January 15, 1999, Fairchild filed a combined Registration Statement,
including the Company's shareholder proxy statement. Immediately prior to the
merger, each share of Series A 7.5% convertible preferred stock of the Company
will convert into one share of the Company's common stock.
On July 7, 1998, the Company's Board of Directors announced the Company's
intention to purchase up to 2.5 million shares of Fairchild Class A Common
Stock through open market purchases, to be made from time to time depending on
the market price of Fairchild stock, and where required subject to the
requirement of obtaining the consent of the Company's senior lenders. Shares
of Fairchild stock purchased by the Company may not be sold unless they are
registered on a registration statement (or are sold pursuant to any applicable
exemption under securities laws). The Company has the right to demand that
Fairchild register such shares in order for the Company to sell them. As of
December 31, 1998, the Company held 1,239,750 shares of Fairchild stock at an
average purchase price of $17.83. At December 31, 1998, such shares were
treated as non-current available-for-sale securities and the Company recorded
in stockholders' equity unrealized holding losses since inception, of $1.6
million or $15.75 per share, net of tax benefits, from the decline in the
market value of the Fairchild stock.
On May 11, 1998, Fairchild commenced an offer to exchange (the "Exchange
Offer"), for each properly tendered share of common stock of the Company, a
number of shares of Fairchild's Class A Common Stock, par value $0.10 per
share, equal to the quotient of $12.50 divided by $20.675, up to a maximum of
4,000,000 shares of the Company's common stock. The Exchange Offer expired on
June 9, 1998. Prior to the expiration of the Exchange Offer, 3,659,424 shares
of the Company's common stock were validly tendered for exchange and Fairchild
issued 2,212,469 shares of Fairchild Class A Common Stock to the tendering
shareholders. As a result of the Exchange Offer, Fairchild's beneficial
ownership of the Company's common stock increased to 83.2%. Fairchild's
current beneficial ownership is approximately 85.4%.
4) Credit Agreement
On December 31, 1998, the Company amended the Second Amended and Restated
Credit Agreement dated as of December 12, 1996. The amendment allows the
Company (i) to make certain additional investments in marketable securities,
(ii) to incur additional indebtedness, (iii) and to make subordinated loans to
Fairchild for up to $30,000. Also, the amendment modified the prepayment and
commitment reduction requirements. At December 31, 1998, the Company was in
compliance with all covenants under the Second Amended and Restated Credit
Agreement, as amended. Substantially all of the Company's assets are pledged
as collateral under the amended Second Amended and Restated Credit Agreement.
In February 1999, the Company agreed to enter into a subordinated loan
agreement with Fairchild whereby the Company agreed to loan up to $30,000 to
Fairchild, on an unsecured basis.
5) Contingency
On January 12, 1999, the Company received a letter from AlliedSignal Inc.
making indemnification claims against the Company for $18.9 million in
connection with the Hardware Group Disposition. Although the Company believes
that the amount of the claim is far in excess of any amount that AlliedSignal
Inc. is entitled to recover from the Company, the Company is in the process of
reviewing such claims and is unable to predict the ultimate outcome of such
matter.
Page 11 of 20
<PAGE> 12
PART I
ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
NINE (9) MONTHS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997 Increase/(Decrease)
------------------- -------------------- ---------------------
(In thousands) $ % $ % $ %
------- ----- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales 152,404 100.0 359,458 100.0 (207,054) (57.6)
Cost of goods sold 120,346 79.0 256,085 71.2 (135,739) (53.0)
------- ----- ------- ------ -------- ------
Gross profit 32,058 21.0 103,373 28.8 (71,315) (69.0)
Selling, general & administrative
expenses 26,366 17.3 77,601 21.6 (51,235) (66.0)
------- ----- ------- ------ -------- ------
Operating income 5,692 3.7 25,772 7.2 (20,080) (77.9)
Non-recurring loss 19,320 12.7 --- --- 19,320 100.0
Investment income 1,197 0.8 --- --- 1,197 100.0
Interest expense, net 5,255 3.4 12,178 3.4 (6,923) (56.8)
------- ----- ------- ------ -------- ------
Income (loss) before taxes (17,686) (11.6) 13,594 3.8 (31,280) N/A
Provision (benefit) for taxes (5,750) (3.8) 5,300 1.5 (11,050) N/A
------- ----- ------- ------ -------- ------
Net income (loss) (11,936) (7.8) 8,294 2.3 (20,230) N/A
======= ===== ======= ====== ======== ======
</TABLE>
Operating Results
Net sales for the nine months ended December 31, 1998 decreased $207.1
million, or 57.6%, from the comparable prior period. This decrease was the
result of the Hardware Group Disposition, which accounted for approximately 50%
of sales (see Note 2 in the notes to summarized financial information), the
effect of which is presented below. Sales of the rotables group decreased
compared to the prior period; however, the decrease was offset partially by
incremental sales from the exclusive three-year agreement between Solair and
Delta Air Lines ("Delta"), which commenced in August 1997 ("Delta Contract").
Sales of the engine group also decreased compared to the prior period, due
primarily to lower engine sales, partially offset by an increase in turbine
parts and engine management sales. The lower engine sales are attributable
partly to a temporary shift in the marketplace from customers purchasing
engines to customers leasing engines, due to upcoming regulatory changes.
The gross profit percentage for the nine months ended December 31, 1998
decreased to 21.0% compared to 28.8% for the prior period. This decrease was
attributable primarily to the Hardware Group Disposition, which typically
earned higher margins than the engine and rotables groups. Excluding the
results of the Hardware Group, the gross profit percentage for the nine months
ended December 31, 1997 would have been 22.4%.
Selling, general and administrative ("SG&A") expenses decreased $51.2
million, or 66.0%, for the nine months compared to the prior year. Excluding
the dispositions as described below, SG&A expenses would have been $28.4
million, or 17.3% of sales, compared to $26.4 million, or 17.3% of sales.
The following unaudited pro forma table illustrates consolidated sales and
operating income of the Company's operations, on a pro forma basis, for the
nine months ended December 31, 1997, to give effect to the Hardware Group
Disposition and the disposition of BAI. The unaudited pro forma consolidated
financial information is based on the historical financial information of the
Company for the nine months ended December 31, 1997. The unaudited pro forma
consolidated financial information is presented for informational purposes only
and is not
Page 12 of 20
<PAGE> 13
necessarily indicative of what the results of operations would have been had
the Hardware Group Disposition and the disposition of BAI occurred at the
beginning of the period presented, nor is such information intended necessarily
to be indicative of the future results of operations.
UNAUDITED SUPPLEMENTAL PRO FORMA INFORMATION
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
(In thousands) Amount Percentage
--------------- -----------
<S> <C> <C>
Net sales $ 164,916 100.0%
Cost of goods sold 128,007 77.6
--------------- -----------
Gross profit 36,909 22.4
Selling, general
and administrative
expenses 28,449 17.3
--------------- -----------
Operating income $ 8,460 5.1%
=============== ===========
</TABLE>
Non-recurring Loss
As a result of the sale of Solair on December 31, 1998, the Company
recorded a pre-tax non-recurring charge of $19.3 million (see Note 2 in the
notes to summarized financial information) in December 1998.
Investment Income
Investment income for the nine months ended December 31, 1998 amounted to
$1.2 million. The Company recorded no investment income in the comparable
prior period. For the nine months ended December 31, 1998, the Company
recorded $2.3 million in dividend income mainly as a result of shares of
AlliedSignal Inc. common stock received from the Hardware Group Disposition,
and a $1.0 million loss related to the sale and subsequent marking to market of
calls sold on the investment in AlliedSignal Inc. common stock. Through the
end of December 1998, the Company had sold calls on over 2.75 million shares of
its investment in AlliedSignal Inc. common stock for proceeds aggregating
approximately $34.7 million.
Interest Expense
Interest expense for the nine months ended December 31, 1998 decreased $6.9
million or 56.8% compared to the prior period. This decrease was the result of
a decrease from $171.0 million in the average outstanding debt balance during
the prior period, to $84.0 million in the current period, as well as an overall
decrease in the effective interest rate between the periods. The Company
utilized approximately $194 million of the proceeds received from the Hardware
Group Disposition to reduce its debt. Interest expense also included the
amortization of deferred loan costs and charges for nonuse fees, agency fees
and compensating balances.
Provision / (Benefit) for Taxes
The benefit for taxes for the nine months ended December 31, 1998 amounted
to $5.8 million due primarily to the $5.8 million tax benefit on the $19.3
million non-recurring pre-tax loss from the sale of Solair. The provision for
taxes for the nine months ended December 31, 1997 amounted to $5.3 million.
The effective tax rate for the nine months ended December 31, 1998 and 1997 was
a benefit of 32.5% and a provision of 39.0%, respectively. The decrease in the
effective tax rate for the nine months ended December 31, 1998 was due to the
70% exclusion permitted on dividend income.
Page 13 of 20
<PAGE> 14
THREE (3) MONTHS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997 Increase/(Decrease)
------------------- -------------------- -------------------
(In thousands) $ % $ % $ %
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales 46,839 100.0 119,614 100.0 (72,775) (60.8)
Cost of goods sold 37,209 79.4 83,745 70.0 (46,536) (55.6)
------- ------ ------- ------ ------- ------
Gross profit 9,630 20.6 35,869 30.0 (26,239) (73.2)
Selling, general & administrative
expenses 7,353 15.7 28,155 23.5 (20,802) (73.9)
------- ------ ------- ------ ------- ------
Operating income 2,277 4.9 7,714 6.5 (5,437) (70.5)
Non-recurring loss 19,320 41.2 --- --- 19,320 100.0
Investment (loss) (1,372) (2.9) --- --- (1,372) (100.0)
Interest expense, net 1,994 4.3 4,401 3.7 (2,407) (54.7)
------- ------ ------- ------ ------- ------
Income (loss) before taxes (20,409) (43.5) 3,313 2.8 (23,722) N/A
Provision (benefit) for taxes (6,410) (13.7) 1,290 1.1 (7,700) N/A
------- ------ ------- ------ ------- ------
Net income (loss) (13,999) (29.8) 2,023 1.7 (16,022) N/A
======= ====== ======= ====== ======= ======
</TABLE>
Operating Results
Net sales for the three months ended December 31, 1998 decreased $72.8
million, or 60.8%, from the comparable prior period. This decrease was the
result of the Hardware Group Disposition, which accounted for approximately 50%
of sales (see Note 2 in the notes to summarized financial information), the
effect of which is presented below. Sales of the rotables group decreased as a
result of a decrease in sales from the Delta Contract compared to the prior
period. Sales of the engine group, however, increased compared to the prior
period primarily due to several engine sales and engine sale-leaseback
transactions, coupled with an overall increase in turbine parts sales.
The gross profit percentage for the three months ended December 31, 1998
decreased to 20.6% compared to 30.0% for the prior period. This decrease was
attributable primarily to the Hardware Group Disposition, which typically
earned higher margins than the engine and rotables groups. Excluding the
results of the Hardware Group, the gross profit percentage for the three months
ended December 31, 1997 would have been 24.1%. The decrease in the current
period is due primarily to the deferred profit accounting from engine
sale-leaseback transactions whereby the gross profit is deferred over the life
of the lease.
SG&A expenses decreased $20.8 million or 73.9% for the three months compared
to the prior year. Excluding the dispositions as described below, SG&A
expenses would have been $10.3 million, or 18.7% of sales, compared to $7.4
million, or 15.7% of sales. The decrease in SG&A expenses represents reduced
employment costs in the rotables group compared to the prior year.
The following unaudited pro forma table illustrates consolidated sales and
operating income of the Company's operations, on a pro forma basis for the
three months ended December 31, 1997, to give effect to the Hardware Group
Disposition and the disposition of BAI. The unaudited pro forma consolidated
financial information is based on the historical financial information of the
Company for the three months ended December 31, 1997. The unaudited pro forma
consolidated financial information is presented for informational purposes only
and is not necessarily indicative of what the results of operations would have
been had the Hardware Group Disposition and the disposition of BAI occurred at
the beginning of the period presented, nor is such information intended
necessarily to be indicative of the future results of operations.
Page 14 of 20
<PAGE> 15
UNAUDITED SUPPLEMENTAL PRO FORMA INFORMATION
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
(In thousands) Amount Percentage
--------------- ------------
<S> <C> <C>
Net sales $ 54,940 100.0%
Cost of goods sold 41,686 75.9
--------------- ------------
Gross profit 13,254 24.1
Selling, general
and administrative
expenses 10,257 18.7
--------------- ------------
Operating income $ 2,997 5.4%
=============== ============
</TABLE>
Non-recurring Loss
As a result of the sale of Solair on December 31, 1998, the Company
recorded a pre-tax non-recurring charge of $19.3 million (see Note 2 in the
notes to summarized financial information) in December 1998.
Investment Loss
Investment loss for the three months ended December 31, 1998 amounted to
$1.4 million. The Company recorded no investment income or loss in the
comparable prior period. For the three months ended December 31, 1998, the
Company recorded $0.8 million in dividend income mainly as a result of shares
of AlliedSignal Inc. common stock received from the Hardware Group Disposition,
and a $2.1 million loss related to the sale and subsequent marking to market of
calls sold on the investment in AlliedSignal Inc. common stock.
Interest Expense
Interest expense for the three months ended December 31, 1998 decreased
$2.4 million or 54.7% compared to the prior period. This decrease was the
result of a decrease from $184.0 million in the average outstanding debt
balance during the prior period, to $105.0 million in the current period, as
well as an overall decrease in the effective interest rate between the periods.
The Company utilized approximately $194 million of the proceeds received from
the Hardware Group Disposition to reduce its debt. Interest expense also
included the amortization of deferred loan costs and charges for nonuse fees,
agency fees and compensating balances.
Provision / (Benefit) for Taxes
The benefit for taxes for the three months ended December 31, 1998 amounted
to $6.4 million due primarily to the $5.8 million tax benefit on the $19.3
million non-recurring pre-tax loss from the sale of Solair. The provision for
taxes for the three months ended December 31, 1997 amounted to $1.3 million.
The effective tax rate for the three months ended December 31, 1998 and 1997
was a benefit of 31.4% and a provision of 39.0%, respectively. The decrease in
the effective tax rate for the three months ended December 31, 1998 was due to
the 70% exclusion permitted on dividend income.
Page 15 of 20
<PAGE> 16
FINANCIAL CONDITION
Liquidity
The following table presents certain liquidity ratios of the Company at
December 31, 1998 and March 31, 1998.
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
------------------- ----------------
<S> <C> <C>
Current ratio 6.15:1 2.68:1
Debt to equity 0.20:1 0.19:1
</TABLE>
The increased ratio of current assets to current liabilities from March 31,
1998 to December 31, 1998 is primarily the result of the reclassification of
the investment in AlliedSignal Inc. common stock from non-current investments
to current marketable securities. Based on the Company's review of its
investment in AlliedSignal Inc. common stock, management believes that a
current classification more appropriately reflects the increased probability
that the AlliedSignal Inc. common stock will be liquidated within the next
twelve months, subject to market conditions.
At December 31, 1998, the Company had total debt outstanding of $50.6
million, all of which was borrowed under its credit agreement. As of December
31, 1998, the Second Amended and Restated Credit Agreement (as amended)
provided for up to $62.9 million of borrowings for working capital, capital
expenditures and potential acquisitions, subject to certain conditions and a
borrowing base. Cash flow from operations, along with funds available under
the Second Amended and Restated Credit Agreement (as amended) and proceeds from
the liquidation of securities should be adequate to finance the Company's
operations in fiscal 1999. The Company had no other material capital
commitments or planned expenditures as of December 31, 1998.
Net cash used for operating activities for the nine months ended December
31, 1998 and 1997, amounted to $14.9 million and $63.3 million, respectively.
The primary use of cash for operating activities for the nine months ended
December 31, 1998 was an increase of $20.6 million in inventories, and a
decrease of $26.1 million in payables and accrued liabilities. The primary
source of cash from operating activities for the nine months ended December 31,
1998 was a decrease in receivables of $18.4 million, and a decrease of $10.0
million in other assets and liabilities. The increase in inventories was the
result of an increase in anticipated sales volume. The decrease in receivables
is due to several large collections since March 31, 1998. The primary source of
cash from operating activities for the nine months ended December 31, 1997 was
an increase in payables and accrued liabilities in the amount of $1.5 million,
along with scheduled depreciation and amortization expense of $4.3 million.
The primary use of cash for operating activities for the nine months ended
December 31, 1997 was an increase of $46.1 million in inventories and an
increase of $26.2 million in receivables.
Net cash provided by and used for investing activities for the nine months
ended December 31, 1998 and 1997 was $19.0 million and $4.0 million,
respectively. The primary sources of cash for investing activities for the
nine months ended December 31, 1998 were the proceeds of $60.4 million from the
sale of Solair, and $2.6 million from the sale of investment securities. The
primary use of cash for investing activities for the nine months ended December
31, 1998 was the acquisition of $42.5 million of investment securities. The
primary use of cash for investing activities for the nine months ended December
31, 1997 was capital expenditures, net of proceeds from the sale of fixed
assets.
Net cash used for and provided by financing activities for the nine months
ended December 31, 1998 and 1997 was $2.4 million and $67.3 million,
respectively. Net cash used for financing activities for the nine months ended
December 31, 1998 was primarily the result of the repurchase of preferred
stock, net of borrowings on the revolver, to fund current working capital
requirements. Net cash provided by financing activities for the nine months
ended December 31, 1997 was comprised of $33.9 million received from the
preferred stock rights offering, and net borrowings of $65.3 million on the
revolver, offset partially by repayment of $28.0 million of the subordinated
loan with RHI Holdings, Inc., a wholly-owned subsidiary of Fairchild.
Page 16 of 20
<PAGE> 17
Factors That May Affect Future Results
Certain information included above relating to expectations of cash flows
and earnings constitute "forward-looking" statements, as that term is defined
by the Securities and Exchange Commission in its rules, regulations and
releases. The Company intends that such forward-looking statements be subject
to the safe harbors created thereby. All forward-looking statements are based
on current expectations and are subject to important risk factors.
Accordingly, actual results may differ materially from those expressed in the
forward-looking statements, and the making of such statements should not be
regarded as a representation by the Company or any other person that the
results expressed therein will be achieved.
Year 2000
As the end of the century nears, there is a widespread concern that many
existing computer programs that use only the last two digits to refer to a year
will not properly recognize a year that begins with the digits "20" instead of
"19." If not corrected, many computer applications could fail, create
erroneous results, or cause unanticipated systems failures, among other
problems. The Company is taking the appropriate measures to ensure that its
information processing systems, embedded technology and other infrastructure
will be ready for the Year 2000.
The Company retained both technical review and modification consultants to
help it assess its Year 2000 readiness. Working with these consultants and
other advisors, the Company formulated a plan to address Year 2000 issues.
Under this plan, the Company's systems are being modified or replaced, or will
be modified or replaced, as necessary, to render them, as far as possible, Year
2000 ready. The Company expects to complete its preparations for Year 2000 by
early 1999. The Company could be subject to liability to customers and other
third parties if its systems are not Year 2000 compliant, resulting in possible
legal actions for breach of contract, breach of warranty, misrepresentation,
unlawful trade practices and other harm.
In addition, the Company is continually attempting to assess the level of
Year 2000 preparedness of its key suppliers, distributors, customers and
service providers. To this end, the Company has sent, and will continue to
send, letters, questionnaires and surveys to its significant business partners
inquiring about their Year 2000 efforts. If a significant business partner of
the Company fails to be Year 2000 compliant, the Company could suffer a
material loss of business or incur material expenses.
The Company is also developing and evaluating contingency plans to deal
with events affecting the Company or one of its business partners arising from
significant Year 2000 problems. These contingency plans include identifying
alternative suppliers, distribution networks and service providers.
Although the Company's Year 2000 assessment, implementation and contingency
planning is not yet complete, the Company does not believe that Year 2000
issues will materially affect its business, results of operations or financial
condition. However, the Company's Year 2000 efforts may not be successful in
every respect. To date, the Company has incurred approximately $0.6 million in
costs that are directly attributable to addressing Year 2000 issues.
Management currently estimates that the Company will incur a nominal amount in
additional costs during the next twelve months, relating to the Year 2000
problem.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures
about Segments of an Enterprise and Related Information." 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 reportable operating segments in annual and
interim financial reports. Generally, financial information is required to be
reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. The Company
currently operates in only one reportable segment and will adopt SFAS 131 in
fiscal 1999. SFAS 131 need not be applied to interim financial statements in
the initial year of application.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 ("SFAS 132") "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS 132 revises and improves the
Page 17 of 20
<PAGE> 18
effectiveness of current note disclosure requirements for employers' pensions
and other retiree benefits by requiring additional information to facilitate
financial analysis and eliminating certain disclosures which are no longer
useful. SFAS 132 does not address recognition or measurement issues. The
Company will adopt SFAS 132 in fiscal 1999.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133") "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes a new model for accounting for derivatives
and hedging activities and supersedes and amends a number of existing
accounting standards. It requires that all derivatives be recognized as assets
and liabilities on the balance sheet and measured at fair value. The
corresponding derivative gains or losses are reported based on the hedge
relationship, if any, that exists. Changes in the fair value of hedges that
are not designated as hedges or that do not meet the hedge accounting criteria
in SFAS 133 are required to be reported in earnings. Most of the general
qualifying criteria for hedge accounting under SFAS 133 were derived from, and
are similar to, the existing qualifying criteria in SFAS 80 "Accounting for
Futures Contracts." SFAS 133 describes three primary types of hedge
relationships: fair value hedge, cash flow hedge, and foreign currency hedge.
SFAS 133 is required to be adopted by the Company in fiscal 2000, although,
earlier application is permitted.
Page 18 of 20
<PAGE> 19
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
The information required to be disclosed under this Item is set forth
in Note 5 of the Notes to Summarized Financial Information in Part I
of this Quarterly Report on Form 10-Q.
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 Acquitaine, 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
written statements concerning the transactions and appeared in person
before the magistrate and others. Mr. Steiner, who has been put under
examination (mis en examen), by the magistrate, with respect to this
matter, has not been charged.
Mr. Steiner appeared 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. Mr. Steiner has paid a fine of two
million French Francs in connection therewith.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
* 10 (i) Amendment No. 6 and Consent Dated as of December 31,
1998 to Second Amended and Restated Credit Agreement
Dated as of December 12, 1996.
10 (ii) Stock Purchase Agreement dated as of December 5,
1998, among Kellstrom Industries, Inc., Solair, Inc.
and Banner Aerospace, Inc. (incorporated by reference
to the Registrant's Current Report on Form 8-K, filed
on January 15, 1999).
10 (iii) Agreement and Plan of Merger by and between The
Fairchild Corporation, MTA, Inc. and Banner
Aerospace, Inc., dated as of January 11, 1999
(incorporated by reference to the Fairchild
Registration Statement on Form S-4, filed on January
15, 1999).
* 27 Financial Data Schedule (For SEC Use Only)
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter
ended December 31, 1998 for which this report is filed.
- ------------------
* Filed herewith
Page 19 of 20
<PAGE> 20
SIGNATURE
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.
<TABLE>
<S> <C> <C>
BANNER AEROSPACE, INC.
By /S/ EUGENE W. JURIS
------------------------------------------
Eugene W. Juris
Vice President and
Chief Financial Officer
Dated: February 12, 1999
</TABLE>
Page 20 of 20
<PAGE> 1
EXHIBIT 10(i)
AMENDMENT NO. 6 AND CONSENT
Dated as of December 31, 1998
to
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 12, 1996
This Amendment No. 6 and Consent ("Amendment") dated as of December
31, 1998 is entered into among Banner Aerospace, Inc., a Delaware corporation
("Banner"), Banner Aerospace-Singapore, Inc., a Delaware corporation, Banner
Aerospace Services, Inc., an Ohio corporation ("Services"), D A C International,
Inc., a Texas corporation, Dallas Aerospace, Inc., a Texas corporation,
Georgetown Jet Center, Inc., a Delaware corporation, Matrix Aviation, Inc., a
Kansas corporation, Nasam Incorporated, a California corporation, PB Herndon
Aerospace, Inc., a Missouri corporation ("Herndon"), Professional Aircraft
Accessories, Inc., a Florida corporation, and Professional Aviation Associates,
Inc., a Georgia corporation, and BAR DE, Inc., a Delaware corporation ("AS
Subsidiary"), as Borrowers, NationsBank, N.A., as a Lender, Citicorp USA, Inc.,
as a Lender, and Citibank, N.A., as Issuing Bank. Capitalized terms used herein
without definition are used herein as defined in the Credit Agreement.
PRELIMINARY STATEMENT:
WHEREAS, Banner and certain of its U.S. Subsidiaries, as Borrowers,
NationsBank, N.A., as Lender, Citicorp USA, Inc., as a Lender and Administrative
Agent, and Citibank, N.A., as Issuing Bank, 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 has requested that certain terms of the Credit
Agreement be amended (a) to enable the Borrowers to (i) make certain additional
Investments in marketable securities to be acquired from Fairchild and/or its
Subsidiaries, (ii) incur certain additional Indebtedness and grant Liens in
certain Collateral to secure the same on a first priority basis, (iii) enter
into sales of certain Collateral with modified mandatory prepayment and
commitment reduction requirements, and (iv) make certain additional Investments
in Fairchild through the loan of up to $30,000,000, the repayment of which would
be subordinated to Fairchild's obligations under that certain Third Amended and
Restated Credit Agreement dated as of December 19, 1997 to which Fairchild, RHI
and RHI's Wholly-Owned Subsidiary, Fairchild Holding Corp. are parties as
borrowers and (b) to amend the definition of EBITDA based upon the sale by
Banner of all of the Capital Stock of Solair, Inc.;
1
<PAGE> 2
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. Amendments to the Credit Agreement. Effective as of
December 31, 1998, 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 (i) delete the definitions of "AS
Stock", "Borrowing Base", "Borrowing Base Certificate", "Borrowers", "EBITDA",
"Fixed Charge Coverage Ratio", "Interest Coverage Ratio", and "Leverage Ratio"
in their entirety and substitute the following therefor:
"AS Stock" means Capital Stock of AlliedSignal Inc., a Delaware
corporation, which is common stock, owned by a Borrower, and subject to a
Lien in favor of the Administrative Agent for the benefit of the Holders,
junior to no other Liens or escrow agreement prior to the initial advance
under the Margin Loan and execution and delivery of the Margin Loan
Intercreditor Agreement and, after the initial advance under the Margin
Loan, junior only to Liens permitted under Section 10.03(h).
"Borrowing Base" means, as of any date of determination:
(i) prior to the initial advance under the Margin Loan, an amount
(designated as such on the Borrowing Base Certificate dated as of such
date of determination) equal to the sum of (a) eighty percent (80%) of the
face amount of Eligible Receivables, plus (b) sixty-five percent (65%) of
(1) the Total Book Value of Eligible Inventory minus (2) the Texas Tax
Reserve, plus (c) with respect to AS Stock which is neither subject to a
demand registration rights agreement satisfactory to the Administrative
Agent and the Requisite Lenders nor registered stock, thirty-five percent
(35%) of the lesser of (1) the market value of such AS Stock (determined
based on the average closing price for the five (5) days immediately
preceding the date of determination) or (2) the strike price for such AS
Stock under Hedge Agreement(s) applicable thereto, plus (d) with respect
to AS Stock which is either subject to a demand registration rights
agreement satisfactory to the Administrative Agent and the Requisite
Lenders or registered stock, fifty percent (50%) of the lesser of (1) the
market value of such AS Stock (determined based on the average closing
price for the five (5) days immediately preceding the date of
determination) or (2) the strike price for such AS Stock under Hedge
Agreement(s) applicable thereto and
(ii) from and after the initial advance under the Margin Loan, an amount
(designated as such on the Borrowing Base Certificate dated as of such
date of determination) equal to the sum of (a) eighty percent (80%) of the
face amount of
2
<PAGE> 3
Eligible Receivables, plus (b) sixty-five percent (65%) of (1) the Total
Book Value of Eligible Inventory minus (2) the Texas Tax Reserve.
"Borrowing Base Certificate" means a certificate, in substantially the
form of EXHIBIT B attached hereto and made a part hereof, setting forth
for determination of the Borrowing Base, inter alia, the value of Eligible
Receivables, the Total Book Value of Eligible Inventory, the respective
advance percentages with respect thereto, and the resultant Borrowing
Base, in each instance, as of the date of such certificate.
"Borrowers" means, collectively, Banner Aerospace, Inc., a Delaware
corporation; Banner Aerospace Services, Inc., an Ohio corporation; Banner
Aerospace-Singapore, 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; Matrix Aviation,
Inc., a Kansas corporation; Nasam, Incorporated, a California corporation;
PB Herndon Aerospace, Inc., a Missouri corporation; Professional Aircraft
Accessories, Inc., a Florida corporation; Professional Aviation
Associates, Inc., a Georgia corporation; and BAR DE, Inc., a Delaware
corporation; and "Borrower" means each of the foregoing, individually.
"EBITDA" means, for any period, the amount calculated, without
duplication, for such period as (i) Net Income, plus (ii) depreciation and
amortization expense, plus (iii) Total Interest Expense, plus (iv)
federal, state, and local income taxes deducted from Net Income in
accordance with GAAP, plus (v) non-cash reserves during such period
related to the scrapping of Inventory, minus (vi) the amount of all
premiums received due to the sale of equity calls under Hedge Agreements
to the extent the same are included in pre-tax Net Income, plus/minus
(vii) non-cash charges to income resulting from changes in the value of
equity calls and/or puts under Hedge Agreements in accordance with GAAP,
minus (viii) the amount of all gains attributable to sales of Capital
Stock of AlliedSignal Inc., and minus (ix) if such period occurs in the
Fiscal Year ending March 31, 1999, all operating losses incurred with
respect to Solair, Inc. during such period and the pre-tax loss on the
sale of the Capital Stock of Solair, Inc. which losses are recorded in the
Financial Statements delivered to the Administrative Agent as required by
Section 8.01(b) and Section 8.01(c).
"Fixed Charge Coverage Ratio" means:
(i) for any period ending on or prior to December 31, 1998 and any period
ending after December 31, 1999, the ratio of (a) the amount calculated as
(1) EBITDA minus (2) all income
3
<PAGE> 4
taxes paid in cash during such period minus (3) the aggregate amount of
Capital Expenditures made in cash during such period plus (4) the
aggregate amount of Permitted Lease Payments made in cash during such
period to (b) the sum of (1) Cash Interest Expense plus (2) the aggregate
amount of scheduled payments of principal of Funded Debt during such
period plus (3) the amount of dividends declared and paid by Banner which
are permitted under Section 10.06(c) plus (4) the aggregate amount of
Permitted Lease Payments made in cash during such period and
(ii) for any period ending after December 31, 1998 and before January 1,
2000, the ratio of (a) the amount calculated as (1) EBITDA minus (2) all
income taxes paid in cash during such period minus (3) the aggregate
amount of Capital Expenditures made in cash during such period plus (4)
the aggregate amount of Permitted Lease Payments made in cash during such
period to (b) the sum of (1) calendar year to date Cash Interest Expense
annualized for the then current calendar year plus (2) the aggregate
amount of scheduled payments of principal of Funded Debt during such
period plus (3) the amount of dividends declared and paid by Banner which
are permitted under Section 10.06(c) plus (4) the aggregate amount of
Permitted Lease Payments made in cash during such period.
"Interest Coverage Ratio" means:
(i) for any period ending on or prior to December 31, 1998 and any period
ending after December 31, 1999, the ratio of (a) Banner's consolidated
EBITDA to (b) Cash Interest Expense and
(ii) for any period ending after December 31, 1998 and before January 1,
2000, the ratio of (a) Banner's consolidated EBITDA to (b) calendar year
to date Cash Interest Expense annualized for the then current calendar
year.
"Leverage Ratio" means:
(i) for any period ending on or prior to December 31, 1998, the ratio of
average daily Funded Debt to EBITDA for such period and
(ii) for any period ending after December 31, 1998, the ratio of average
Funded Debt for the quarter then ending to EBITDA for such period.
and (ii) add the following definitions thereto:
"Banner Preferred" means Series A Convertible Paid-in-Kind Preferred Stock
of Banner, par value $.01 per share, and having a liquidation value of
$9.20 per share.
4
<PAGE> 5
"Banner Stock" means all of the Capital Stock of Banner which comprises
part of the "Collateral" (as defined in the Fairchild Credit Agreement),
including, without limitation, common Capital Stock of Banner and Banner
Preferred.
"Banner Stock Availability" means an amount equal to forty percent (40%)
of the Market Value of the Banner Stock minus forty percent (40%) of the
cumulative amount of cash loaned, advanced, dividended, distributed,
invested, or otherwise transferred by Banner to Fairchild from and after
December 26, 1998.
"Fairchild Credit Agreement" means that certain Third Amended and Restated
Credit Agreement dated as of December 19, 1997 to which Fairchild, FHI and
Fairchild Holding Corp. are parties as borrowers.
"Margin Loan" means Indebtedness incurred by AS Subsidiary from Salomon
Brothers Holding Company Inc on terms satisfactory and subject to
agreements in form and substance satisfactory to the Administrative Agent,
the principal amount of which shall not exceed $110,000,000 in the
aggregate at any time outstanding, and which shall be secured solely by AS
Stock and the proceeds thereof.
"Margin Loan Intercreditor Agreement" means an Intercreditor and Custodial
Agreement in substantially the form attached hereto as Exhibit 10.03-H
among the Lenders, the Administrative Agent, Citibank, NationsBank, and
Salomon Brothers Holding Company Inc.
"Market Value" means(i) with respect to the AS Stock and Banner Stock
which is common stock, the value determined based on the average closing
price for the five (5) consecutive trading days immediately preceding the
date of determination and (ii) with respect to the Banner Preferred, the
greater of (a) the liquidation value of the Banner Preferred and (b)
provided that the Banner Preferred is readily convertible into common
Capital Stock of Banner, the value of the common Capital Stock of Banner
into which the Banner Preferred would convert determined based on the
average closing price for the five (5) consecutive trading days
immediately preceding the date of determination.
"Permitted Transaction" means any of the following, (i) the sale,
liquidation or other transfer of the AS Stock to any Person other than a
Borrower or a Subsidiary of a Borrower; (ii) the sale of the Capital Stock
of Solair, Inc. to Kellstrom Industries, Inc. under the terms of that
certain Stock Purchase Agreement dated as of December 5, 1998 among
Banner, Solair, Inc. and Kellstrom Industries, Inc.; or (iii) the
incurrence of Indebtedness as permitted under Section 10.01(p); and
"Permitted Transactions" means,
5
<PAGE> 6
collectively, all of the transactions described in clauses (i) - (iii)
above.
1.2 Section 4.01(b) is amended to delete the provisions thereof in
their entirety and substitute the following therefor:
(b) Mandatory Prepayments/Reductions.
(i) Net Cash Proceeds of Sale. Upon receipt by any Borrower or any
Subsidiary of a Borrower of any Net Cash Proceeds of Sale, including,
without limitation receipt of cash proceeds in connection with forward
sales contracts of Capital Stock, 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, (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, and (D) any mandatory prepayment from Net Cash Proceeds of
Sale arising from consummation of a Permitted Transaction shall be subject
to the provisions of clause (viii) below.
(ii) Intentionally omitted.
(iii) Net Cash Proceeds of Issuance of Equity Securities or
Indebtedness. Upon receipt by a Borrower or any Subsidiary of a Borrower
of any Net Cash Proceeds of Issuance of Equity Securities or Indebtedness,
the Borrowers shall make or cause to be made a mandatory prepayment in an
amount equal to (A) seventy-five percent (75%) of such Net Cash Proceeds
of Issuance of Equity Securities or Indebtedness arising from consummation
of any issuance other than with respect to a Permitted Transaction and (B)
subject to the provisions of clause (viii) below, one hundred percent
(100%) of such Net Cash Proceeds of Issuance of Equity Securities or
Indebtedness arising from consummation of the issuance of Indebtedness
constituting a Permitted Transaction.
6
<PAGE> 7
(iv) No Waiver or Consent. Nothing in this Section 4.01(b) shall be
construed to constitute the Lenders' consent to any transaction referenced
in clauses (i) and (iii) above which is not expressly permitted by Article
X.
(v) Notice. The Borrowers shall give the Administrative Agent prior
written notice or telephonic notice promptly confirmed in writing (each of
which the Administrative Agent shall promptly transmit to each Lender),
when a Designated Prepayment will be made (which date of prepayment shall
be no later than the date on which such Designated Prepayment becomes due
and payable pursuant to this Section 4.01(b)). Each such notice delivered
with respect to a Designated Prepayment described in Section 4.01(b)(i)
shall be accompanied by an Officer's Certificate executed by the chief
financial officer, vice-president of finance, treasurer or controller of
Banner setting forth in reasonable detail a calculation of the amount of
such Designated Prepayment.
(vi) Application of Designated Prepayments. Designated
Prepayments shall be allocated and applied to the Obligations as
follows:
(A) the amount of each Designated Prepayment shall be applied to the
outstanding Revolving Loans and shall permanently reduce the Revolving
Credit Commitment of each Revolving Lender proportionately in accordance
with its Revolving Loan Pro Rata Share;
(B) following the payment in full of the Revolving Loans, the
remaining balance of each Designated Prepayment shall be applied to the
Letter of Credit Obligations (or, to the extent such Letter of Credit
Obligations are contingent, deposited in the Cash Collateral Account to
provide Cash Collateral in respect of such Letter of Credit Obligations);
and
(C) following the application to the Letter of Credit Obligations
described in clause (B) above, the remaining balance of each Designated
Prepayment shall be applied to all other Obligations then outstanding in
the order provided in Section 4.02(b)(i).
To the extent that the amount of the Designated Prepayments exceeds the
outstanding Obligations prepaid or repaid thereby, the amount of such
excess shall be disbursed in accordance with the Borrowers' written
instructions to the Administrative Agent.
(vii) Permanent Reduction. Upon the prepayment of Revolving Loans
pursuant to this Section 4.01(b), the Revolving Credit Commitments,
automatically and permanently,
7
<PAGE> 8
shall be reduced by the amount of such prepayment except that the
Revolving Credit Commitments shall only be reduced in connection with any
Borrower's or any Borrower's Subsidiary's receipt of Net Cash Proceeds of
Sale and/or Net Cash Proceeds of Issuance of Equity Securities or
Indebtedness received upon the consummation of one or more Permitted
Transactions (net of the amount required to be applied to reduce the
outstanding principal balance of the Margin Loan in accordance with the
terms thereof) by the amount of such Net Cash Proceeds which (1) exceed
$25,000,000 in the aggregate but (2) are less than $96,500,000 in the
aggregate.
(viii) Mandatory Prepayment Exceptions Pertaining to Proceeds of
Permitted Transactions. Notwithstanding the foregoing, provided that no
Event of Default or Potential Event of Default shall then have occurred
and be continuing unwaived and that the subject Net Cash Proceeds (net of
the amount required to be applied to reduce the outstanding principal
balance of the Margin Loan in accordance with the terms thereof) are used
to repay then outstanding Revolving Loans (subject to the right to
re-borrow under Section 2.02), neither (A) the initial $25,000,000 in the
aggregate of Net Cash Proceeds of Sale and/or Net Cash Proceeds of
Issuance of Equity Securities or Indebtedness received upon the
consummation of one or more Permitted Transactions (net of the amount
required to be applied to reduce the outstanding principal balance of the
Margin Loan in accordance with the terms thereof) nor (B) the amount of
Net Cash Proceeds of Sale and/or Net Cash Proceeds of Issuance of Equity
Securities or Indebtedness in excess of $96,500,000 in the aggregate
received upon the consummation of one or more Permitted Transactions (net
of the amount required to be applied to reduce the outstanding principal
balance of the Margin Loan in accordance with the terms thereof) shall
constitute a Designated Prepayment or be required to be remitted to the
Administrative Agent as a mandatory prepayment as aforesaid.
1.3 Section 7.02 is amended to delete the provisions of clauses (b)
and (c) thereof in their entirety and substitute the following therefor:
(b) Indebtedness. AS Subsidiary has no Indebtedness owing to any Person
other than the Obligations owing to the Holders and Indebtedness permitted
by Section 10.01(p) and has entered into no Contractual Obligations, other
than the Loan Documents, Hedge Agreements and Contractual Obligations
pertaining to the Indebtedness permitted by Section 10.01(p), with any
other Person.
(c) Liens Against the AS Stock. AS Subsidiary holds all right, title and
interest in and to the AS Stock free and clear of all Liens except (i)
Liens granted under the Loan
8
<PAGE> 9
Documents to secure the Obligations and (ii) such Liens as may be granted
as permitted by Section 10.03(h); and the Administrative Agent, for the
benefit of the Holders, has a valid and perfected (A) first priority Lien
against the AS Stock prior to execution and delivery of the Margin Loan
Intercreditor Agreement and (B) Lien junior only to the Lien permitted by
Section 10.03(h) from and after execution and delivery of the Margin Loan
Intercreditor Agreement.
1.4 Section 9.19 is amended to delete the provisions thereof in
their entirety and substitute the following therefor:
9.19. Nature of Business of AS Subsidiary. AS Subsidiary shall engage
solely in (a) the business of holding AS Stock, (b) such other activities
as are incidental thereto and to its being a party to this Agreement,
including, without limitation, entering into Contractual Obligations with
respect to Hedge Agreements permitted under the terms of this Agreement,
and (c) activities attendant to incurring Indebtedness with respect to the
Margin Loan and the grant of Liens in connection therewith as permitted by
Section 10.03(h).
1.5 Section 10.01 is amended to (i) delete clause (n) thereof in its
entirety and substitute the following therefor:
(n) other unsecured Indebtedness incurred after the Effective Date not to
exceed $250,000 in the aggregate at any time outstanding;
(ii) delete the "." at the end of clause (o) thereof and substitute "; and"
therefor, and (iii) add the following as clause (p) thereof:
(p) Indebtedness incurred in connection with the Margin Loan;
1.6 Section 10.02(k) is amended to delete the provisions thereof in
their entirety and substitute the following therefor:
(k) the transfer or sale of AS Stock pursuant to Hedge Agreements or for
an amount at least equal to the fair market value thereof as of the time
of such transfer or sale; provided that the Borrowers comply with the
mandatory prepayment provisions set forth in Section 4.01(b) and the
conditions to the release of Collateral described in Section 13.09(c) and
thereafter have no Hedge Agreement outstanding with respect to uncovered
calls.
1.7 Section 10.03(h) is amended to delete the phrase "Intentionally
omitted." therefrom in its entirety and to substitute the following therefor:
9
<PAGE> 10
(h) Liens granted to Salomon Brothers Holding Company Inc in the AS Stock
and proceeds thereof to secure the Indebtedness of AS Subsidiary permitted
under Section 10.01(p); provided that the Margin Loan Intercreditor is
executed and delivered by the Lenders, Citibank and Salomon Brothers
Holding Company Inc concurrently with the grant of such Liens becoming
effective;
1.8 Section 10.04 is amended to (i) delete the word "and" at the end
of clause (h) thereof and (ii) delete the provisions of clause (i) thereof in
their entirety and substitute the following therefor:
(i) an Investment in the form of subordinated unsecured loans to Fairchild
in an aggregate principal amount not to exceed $30,000,000, which loans
shall (A) be evidenced by a promissory note in the form set forth on
Exhibit 10.01-I attached hereto and made a part hereof, the terms of which
promissory note the Lenders acknowledge to be in compliance with Section
10.09, and (B) be made only so long as the sum of (I) the amount equal to
the Market Value of the AS Stock minus the outstanding balance of the
Margin Loan and accrued and unpaid interest thereon, plus (II) Cash
Collateral equals a minimum of the amount equal to the Banner Stock
Availability;
(j) Investments, in addition to those permitted under clauses (a) through
(i) above, other than in the ordinary course of business, in an aggregate
amount not to exceed, at any time outstanding, $25,000,000 and identified
on Schedule 10.04-J attached hereto and made a part hereof.
1.9 Section 10.08 is amended to add the following sentence at the
end thereof:
Notwithstanding the foregoing, in no event shall any activity engaged in
by the Borrowers which is expressly permitted by the terms of this
Agreement or any consent executed and delivered by the Lenders under the
terms hereof which might otherwise fail to comply with the foregoing
constitute a default under this Agreement.
1.10 Section 10.12 is amended to delete the terms thereof in their
entirety and substitute the following therefor:
10.12. Margin Regulations; Securities Laws. Except to the extent permitted
by Section 10.04(j), no Borrower shall, nor shall any Borrower permit any
of its Subsidiaries to, use all or any portion of the proceeds of any
credit extended under this Agreement to purchase or carry Margin Stock or
to violate the Securities Exchange Act or the Securities Act as in effect
on the date or dates of such use of proceeds.
10
<PAGE> 11
1.11 Section 10.23(c) is amended to delete the provisions thereof in
their entirety and substitute the following therefor:
(c) Liens. AS Subsidiary shall not grant or suffer to exist any Lien
against any of its Property other than pursuant to the Loan Documents and
as permitted by Section 10.03(h).
1.12 Article XI is amended to delete the provisions of Section
11.01, Section 11.03, and Section 11.06 thereof in their entirety and substitute
the following therefor:
11.01. Interest Coverage Ratio. Banner shall maintain an Interest Coverage
Ratio as determined as of the last day of each fiscal quarter of Banner
set forth below for the four-fiscal-quarter period then ending of at least
the ratio set forth below opposite such determination date:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
--------------------- -----
<S> <C>
9/30/95 1.70 to 1.00
12/31/95 1.70 to 1.00
3/31/96 1.70 to 1.00
6/30/96 1.70 to 1.00
9/30/96 1.70 to 1.00
12/31/96 1.70 to 1.00
3/31/97 2.00 to 1.00
6/30/97 2.00 to 1.00
9/30/97 2.20 to 1.00
12/31/97 2.20 to 1.00
3/31/98 2.40 to 1.00
6/30/98 2.40 to 1.00
9/30/98 2.40 to 1.00
12/31/98 2.40 to 1.00
3/31/99 2.50 to 1.00
and each quarter
thereafter
</TABLE>
11.03. Leverage Ratio. Banner shall maintain a Leverage Ratio as
determined as of the last day of each fiscal quarter of Banner set forth below
for the four-fiscal-quarter period then ending of not more than the ratio set
forth below opposite such determination date:
11
<PAGE> 12
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
--------------------- -----
<S> <C> <C>
9/30/95 5.95 to 1.00
12/31/95 5.95 to 1.00
3/31/96 5.95 to 1.00
6/30/96 5.95 to 1.00
9/30/96 5.75 to 1.00
12/31/96 5.50 to 1.00
3/31/97 5.00 to 1.00
6/30/97 5.00 to 1.00
9/30/97 5.00 to 1.00
12/31/97 5.00 to 1.00
3/31/98 3.00 to 1.00
6/30/98 3.00 to 1.00
9/30/98 3.00 to 1.00
12/31/98 3.00 to 1.00
3/31/99 5.00 to 1.00
and each quarter
thereafter
</TABLE>
11.06. Minimum Cash and Marketable Securities. The sum of (I) the amount
equal to the Market Value of the AS Stock minus the outstanding balance of
the Margin Loan and accrued and unpaid interest thereon, plus (II) Cash
Collateral shall at all times equal a minimum of the amount equal to the
Banner Stock Availability.
1.13 Section 12.01 is amended to add the following provision as
clause (p) thereof:
(p) Maintenance of Banner Stock Availability. The amount of the Banner
Stock Availability shall fail, at any time while both (i) any subordinated
unsecured loans to Fairchild permitted pursuant to Section 10.04(i) are
outstanding and (ii) 100% of the Capital Stock of Banner is not owned by
Fairchild and/or RHI, to equal or exceed the sum of (I) the amount equal
to the Market Value of the AS Stock minus the outstanding balance of the
Margin Loan and accrued and unpaid interest thereon, plus (II) Cash
Collateral.
1.14 Section 13.09(d) is amended to add the following provision at
the end thereof:
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 the AS Stock
to the Liens permitted under Section
12
<PAGE> 13
10.03(h) as provided in the Margin Loan Intercreditor Agreement.
1.15 Exhibit B is deleted in its entirety and Exhibit B attached to
this Amendment is substituted therefor.
SECTION 2. Consent. The Lenders hereby consent to (i) the release of
the Lien in favor of the Administrative Agent for the benefit of the Holders
against 44,964 shares of AS Stock (the "Bonus Stock") and direct the
Administrative Agent to deliver share certificates representing the Bonus Stock
to AS Subsidiary upon its written request therefor stating that the Bonus Stock
will be transferred to officers and employees of Banner in payment of deferred
bonuses payable to them under the Banner Aerospace, Inc. Deferred Bonuse Plan
dated January 21, 1998 and (ii) the transfer by AS Subsidiary to Banner of the
Bonus Stock upon its receipt thereof as aforesaid and the subsequent transfer of
the Bonus Stock to such officers and employees in payment of such bonus
obligations.
SECTION 3. Condition Precedent to Effectiveness of this Amendment.
This Amendment shall be effective upon the Administrative Agent's receipt of a
facsimile or original executed copy of this Amendment from the Lenders, the
Issuing Bank, and each of the Borrowers; provided that (a) Banner shall then
have delivered to the Lenders financial projections including income statements
and balance sheets for the Borrowers for each of the Fiscal Years ending March
31, 1999 through March 31, 2002, giving effect to the transactions contemplated
by this Amendment, which financial projections shall have been determined by the
Administrative Agent to be satisfactory in form and substance and (b) the
Borrowers pledge and deliver to the Administrative Agent all Capital Stock and
other evidence of Investments acquired in connection with the transactions
contemplated by this Amendment upon their receipt thereof, including, without
limitation, share certificates and stock powers related thereto acquired after
the date of this Amendment as permitted by Section 10.04(j) and the promissory
note evidencing the obligations of Fairchild described in Section 10.04(i).
SECTION 4. Representations and Warranties. Borrowers hereby
represent and warrant as follows:
4.1 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.
4.2 No Event of Default or Potential Event of Default exists or
would result from any of the transactions contemplated by this Amendment.
13
<PAGE> 14
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 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 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 or otherwise terminated in
writing concurrently with this Amendment becoming effective, the Credit
Agreement, the Revolving 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.
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.
14
<PAGE> 15
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.
<TABLE>
<CAPTION>
Borrowers:
- ----------
<S> <C>
BANNER AEROSPACE, INC. BANNER AEROSPACE SERVICES, INC.
By By
--------------------------- --------------------------
Bradley T. Lough Bradley T. Lough
Treasurer Treasurer
BANNER AEROSPACE-SINGAPORE, INC. D A C INTERNATIONAL, INC.
By By
--------------------------- --------------------------
Bradley T. Lough Bradley T. Lough
Treasurer Treasurer
DALLAS AEROSPACE, INC. GEORGETOWN JET CENTER, INC.
By By
--------------------------- --------------------------
Bradley T. Lough Bradley T. Lough
Treasurer Treasurer
NASAM INCORPORATED MATRIX AVIATION, INC.
By By
--------------------------- --------------------------
Bradley T. Lough Bradley T. Lough
Treasurer Treasurer
PB HERNDON AEROSPACE, INC. PROFESSIONAL AIRCRAFT
ACCESSORIES, INC.
By By
--------------------------- --------------------------
Bradley T. Lough Bradley T. Lough
Treasurer Treasurer
</TABLE>
15
<PAGE> 16
PROFESSIONAL AVIATION BAR DE, INC.
ASSOCIATES, INC.
By By
--------------------------- --------------------------
Bradley T. Lough Bradley T. Lough
Treasurer Treasurer
Lenders:
- --------
NATIONSBANK, N.A. CITICORP USA, INC.
By By
--------------------------- --------------------------
Michael R. Heredia Suzanne Crymes
Senior Vice President Attorney-in-Fact
Issuing Bank:
- -------------
CITIBANK, N.A.
By
--------------------------
Suzanne Crymes
Attorney-in-Fact
Receipt acknowledged this ____ day of January, 1999.
CITICORP USA, INC.,
as Administrative Agent
By
--------------------------
Suzanne Crymes
Attorney-in-Fact
16
<PAGE> 17
EXHIBIT B
to
Second Amended and Restated Credit Agreement
dated as of December 12, 1996
as amended by Amendment No. 6 and Consent
dated as of December 31, 1998
Form of Borrowing Base Certificate
----------------------------------
Attached
17
<PAGE> 18
EXHIBIT 10.03-H
to
Second Amended and Restated Credit Agreement
dated as of December 12, 1996
as amended by Amendment No. 6 and Consent
dated as of December 31, 1998
Form of Intercreditor and Custodial Agreement
---------------------------------------------
Attached
18
<PAGE> 19
EXHIBIT 10.01-I
to
Second Amended and Restated Credit Agreement
dated as of December 12, 1996
as amended by Amendment No. 6 and Consent
dated as of December 31, 1998
Form of Fairchild Subordinated Note
-----------------------------------
Attached
19
<PAGE> 20
SCHEDULE 10.04-J
to
Second Amended and Restated Credit Agreement
dated as of December 12, 1996
as amended by Amendment No. 6 and Consent
dated as of December 31, 1998
Schedule of $20,000,000 Investments
-----------------------------------
[to be completed to identify all Investments made or to be made under Section
10.04(j) (formerly 10.04(h))]
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 1,633
<SECURITIES> 214,596
<RECEIVABLES> 18,804
<ALLOWANCES> 470
<INVENTORY> 80,853
<CURRENT-ASSETS> 341,790
<PP&E> 8,596
<DEPRECIATION> 5,164
<TOTAL-ASSETS> 395,146
<CURRENT-LIABILITIES> 55,533
<BONDS> 50,600
0
41
<COMMON> 23,732
<OTHER-SE> 223,626
<TOTAL-LIABILITY-AND-EQUITY> 395,146
<SALES> 152,404
<TOTAL-REVENUES> 152,404
<CGS> 120,346
<TOTAL-COSTS> 120,346
<OTHER-EXPENSES> 26,366
<LOSS-PROVISION> 19,320
<INTEREST-EXPENSE> 5,255
<INCOME-PRETAX> (17,686)
<INCOME-TAX> (5,750)
<INCOME-CONTINUING> (11,936)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,936)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
