SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended Commission File No.
December 31, 1996 33-67422
SABRELINER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 43-1289921
(State of Incorporation) (I.R.S. Employer Identification No.)
Pierre Laclede Center
Suite 1500
7733 Forsyth Blvd.
St. Louis Missouri 63105-1821
(314) 863-6880
(Name, address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
The number of shares of the Company's common stock outstanding on
January 31, 1997 was 870,834.
PART I - FINANCIAL INFORMATION
Condensed Financial Statements
Sabreliner Corporation
Consolidated Balance Sheets
(Dollars in Thousands)
Unaudited Audited
December 31, June 30,
1996 1996
Assets
Current assets:
Cash $ 1,151 $ 12,254
Accounts receivable (net
allowances of $1,032 and $962, 31,020 29,352
respectively)
Inventories 30,448 24,669
Contracts in process (net of
customer advances and progress
payments of $10,430 and 14,742 11,917
$10,940, respectively
Prepaid and other current 11,609 7,134
assets
Total current assets 88,970 85,326
Property and equipment, net 48,888 48,311
Goodwill (net of amortization of
$405 and $239, respectively) 4,818 4,984
Deferred financing costs and 7,687 5,997
other assets
Total assets $150,363 $144,618
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable $ 18,186 $ 20,152
Accrued compensation 7,200 6,389
Other accrued liabilities 7,020 4,706
Royalties payable 122 2,300
Accrued interest expense 1,957 1,959
Other current liabilities 2,871 1,154
Total current liabilities 37,356 36,660
Long-term debt and capital 93,638 93,999
leases
Revolving credit facility 9,550 -
Other long-term liabilities 3,818 3,823
Stockholders' equity:
Common stock and paid-in 2,066 2,066
capital
Less: Treasury stock, at cost (1,007) (1,007)
Retained earnings 4,942 9,077
Total stockholders' equity 6,001 10,136
Total liabilities and $150,363 $144,618
stockholders' equity
Sabreliner Corporation
Consolidated Statements of Operations
(Unaudited)
(Dollars in Thousands, Share and per Share Data as Stated)
Three Months Ended Six Months Ended
December December December December
31, 1996 31, 1995 31, 1996 31, 1995
Net revenue $51,729 $48,785 $102,698 $97,729
Cost of revenue 45,557 41,745 87,404 81,787
Gross margin 6,172 7,040 15,294 15,942
Selling, general
and administrative
expense 9,360 5,526 16,106 10,791
Operating income (3,188) 1,514 (812) 5,151
(loss)
Interest expense, 3,280 2,930 6,284 5,896
net
Other income (6) 750 (3) 835
(expense)
Earnings (loss) (6,474) (666) (7,099) 90
before income
taxes
Income tax 2,754 254 2,964 (34)
(expense) benefit
Net Income (loss) $(3,720) $ (412) $(4,135) $ 56
Earnings per share
data
Net earnings $(4.27) $(0.47) $(4.75) $0.06
(loss) per
common share
Dividends paid per
common share $ 0.00 $ 0.00 $0.00 $0.00
Average common and 870,834 873,171 870,834 873,086
common equivalent
shares
Sabreliner Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
Six Months Ended
December December
31, 1886 31, 1995
Cash flows from operating activities:
Net income (loss) $ (4,135) $ 56
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 3,607 8,332
Changes in assets and (15,746) (3,751)
liabilities
Net cash provided by (used in) (16,274) 4,637
operating activities
Cash flows from investing activities:
Capitalized expenditures (3,802) (1,135)
Acquisition, net of cash acquired - (1,533)
Net cash used in investing activities (3,802) (2,668)
Cash flows from financing activities:
Principal payments on long-term debt (577) (347)
and capital leases
Proceeds from revolving credit 9,550 -
facility
Purchase of treasury stock - (63)
Net cash provided by (used in) 8,973 (410)
financing activities
Net increase (decrease) in cash and (11,103) 1,559
cash equivalents
Cash and cash equivalents, beginning 12,254 9,879
of period
Cash and cash equivalents, end of $ 1,151 $11,438
period
Basis of Presentation:
The information set forth in these interim financial
statements as of and for the three and six months ended
December 31, 1996 and December 31, 1995 is unaudited. In
the opinion of management, the unaudited financial
statements reflect all adjustments necessary to present
fairly the financial results of Sabreliner Corporation and
its subsidiaries Midcoast Aviation, Inc., SabreTech, Inc.
and Turbotech Repairs, Inc. for the periods indicated.
Results of operations for the interim period ended December
31, 1996 are not necessarily indicative of the results of
operations for the full fiscal year.
Inventories:
Components of inventories as of December 31, 1996 and June
30, 1996 were:
December June
Aircraft parts $26,812 $22,105
Raw materials 1,449 1,419
Pre-owned aircraft 2,187 1,145
Total $30,448 $24,669
Property and Equipment:
Components of property and equipment as of December 31, 1996
and June 30, 1996 were:
December June
Service contract assets (UNFO)* $98,199 $ 99,118
Other 44,447 41,931
142,646 141,049
Less accumulated depreciation (98,612) (96,235)
44,034 44,814
Construction in progress 4,854 3,497
Total $48,888 $ 48,311
* Represents training system, aircraft and engines
dedicated to the Undergraduate Naval Flight Officers
(UNFO) logistics support contract.
Contingencies:
On May 11, 1996, ValuJet Flight 592 from Miami, carrying 110
passengers and crew crashed into the Florida Everglades.
Prior to take-off, employees of SabreTech's Miami facility
returned to ValuJet various company materials, including
five boxes containing oxygen generators, which, after
consultation with ValuJet's flight crew, were loaded into
the cargo bay of Flight 592 by ValuJet employees. Although
the cause of the crash has not been officially determined by
the National Transportation Safety Board (NTSB), SabreTech's
actions associated with Flight 592 have been included in the
NTSB investigation. The Federal Aviation Administration
(FAA) is also conducting an investigation into the
circumstances surrounding the ValuJet crash and has sought
information from SabreTech and various of its employees and
contract workers in connection therewith. In addition,
SabreTech is one of several subjects of an investigation
being conducted by a federal grand jury in conjunction with
the United States Attorney for the Southern District of
Florida. The Company has cooperated fully throughout these
investigations and is continuing to do so. Public hearings
concerning the crash of Flight 592 were held in November,
1996.
SabreTech, ValuJet and others have been named as defendants
in numerous wrongful death actions that have been filed by
families of victims. Additional wrongful death actions are
expected to be filed, naming SabreTech, ValuJet and others.
The Company's legal costs of defending against these civil
actions and any possible claim settlements are funded by the
Company's insurance policies. Management believes coverage
is adequate to provide for such legal actions.
The Company has recognized the costs associated with this
incident, such as media relations, incremental professional
services, legal fees not covered by insurance, increased
insurance premiums and other costs related to the various
investigations and other lawsuits of approximately $5.6
million; of which $3.8 million were recorded during the
second quarter of fiscal 1997. In January of fiscal 1997,
the Company sold certain assets associated with the Miami
facility and exited its operations there. Remaining assets
were relocated to other operational units within the
Company. Shutdown costs of the facility, including
provision for continuing ValuJet related expenses of $2.5
million were recognized in December. The ultimate outcome
of the legal actions related to the ValuJet Flight 592 crash
and the length of time necessary to resolve all outstanding
issues cannot be determined at this time; the Company does
not know whether the continuing effects of the
investigations and related lawsuits will have a material
adverse effect upon the future results of operations or
financial condition of the Company.
The Company has been subject to government inquiry regarding
an alleged environmental incident that may have occurred at
the Perryville facility prior to the flooding of the
facility in July, 1993. Supplemental requests for documents
concerning this matter were received during fiscal 1996.
The Company has complied with all requests for documents.
No other significant actions or developments have occurred
during fiscal 1997.
In addition to the litigation discussed above, the Company
is subject to other legal proceedings and claims arising in
the ordinary course of its business. Although there can be
no assurance as to the outcome of litigation, it is the
opinion of management (based upon the advice of legal
counsel) that all such actions or proceedings are covered by
insurance or will be resolved without material effect on the
Company's financial position or results of operations.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
For the quarter ended December 31, 1996, the Company
reported an operating loss, before interest and taxes, of
$3.2 million, representing a decline of $4.7 million from
the same period a year ago. This decline can be attributed
to three primary factors: the continuing expenses
associated with the ValuJet crash, totaling $3.8 million for
the quarter, including a provision for continuing ValuJet
related expenses of $2.5 million (see PART II - OTHER
INFORMATION, Item 1. Legal Proceedings); the drop in
customer demand at the Miami facility due to adverse
publicity, resulting in a $1.4 million operating loss for
the facility during the quarter, including the effect of
exiting the facility; and expenses related to the Company's
new facility at Orlando, totaling $0.3 million in the second
quarter. Without the adverse effect of these three factors,
operating profit for the quarter would have been $2.3
million, representing an increase over the same period of
the prior year by 53%.
Operating profits for the six months ended December 31,
1996, after removing the effects of ValuJet-related expenses
of $4.9 million, including a provision for continuing
ValuJet related expenses of $2.5 million, the operating
losses and the effect of exiting the Miami facility of $2.2
million and the startup expenses at Orlando $0.3 million,
would have been $1.4 million higher than the same period a
year ago, representing an increase of 27%.
Quarter and Six Months Ended December 31, 1996 as Compared
to Quarter and Six Months Ended December 31, 1995
Revenues for the quarter and six months ended December 31,
1996 increased from the corresponding periods of the prior
year by 6% and 5%, respectively, reflecting the substitution
of declining government revenues with growth in commercial
aviation and corporate aviation business. Total government
business for the most recent six months was $26.6 million, a
decline of 6% from the same period of the previous year.
This decline was primarily due to the conversion of the
Company's largest contract, the Undergraduate Naval Flight
Officers (UNFO) logistics program, from its base contract
period ended September 30, 1995 to its three-year option
period, reducing revenues for the first six months of fiscal
1997 by $7.0 million, as compared to the previous year.
Offsetting this decline were the awards of new government
contracts, resulting in a net decline in government business
of $1.6 million. The growth in commercial and corporate
aviation business provided an increase in revenue of $3.4
million in the first six months of fiscal 1997, versus the
same period of fiscal 1996. The majority of this growth was
generated through the acquisition of Turbotech Repairs, Inc.
completed in June, 1996, providing $2.8 million in revenues
during the six months ended December 31, 1996.
Despite the increase in revenue, gross margins for the
quarter and six months ended December 31, 1996 were less
than the gross margins of the corresponding periods of the
previous year. The continuing effect of the ValuJet crash
caused a loss in gross margins at the Company's Miami
facility of $1.6 million and $2.0 million for the latest
quarter and six months, respectively. Excluding the losses
at Miami, gross margins for the quarter and six months ended
December 31, 1996 would have been $0.8 million and $1.4
million higher than the quarter and six months of the prior
year, representing increases of 11% and 13%, respectively.
Selling, general and administrative expenses for the quarter
and six months ended December 31, 1996 were significantly
increased by the legal fees, professional service costs and
increased insurance premiums incurred in relation to the
ValuJet crash (see PART II - OTHER INFORMATION, Item 1.
Legal Proceedings). Without these additional costs,
totaling $3.8 million for the quarter and $4.9 million for
the last six months, including a $2.5 million provision for
ValuJet related expenses, selling, general and
administrative expenses would have increased from the
corresponding periods of the prior year by $0.1 million and
$0.5 million, respectively.
Interest expense has increased $0.3 million during the
quarter and six months ended December 31, 1996, reflecting
the Company's access of its working capital credit facility.
Outlook
A comparison of backlog by business area as of December 31,
1996 and June 30, 1996 follows:
Outstanding Backlog
December June
(Dollars in Thousands)
Government Business $72,941 $77,404
Corporate Aviation 13,392 5,807
Commercial Aviation 20,879 24,880
$107,212 $108,091
Included in the government business backlog for December 31,
1996, is the recently-awarded GGT701 rotor contract with the
U.S. Army. The basic contract is for the conversion of 450
engine assemblies, valued at approximately $15 million over
the next 12 months. The contract provides for optional
orders of up to 350 additional assemblies, valued at $12
million. Corporate aviation backlog at December 31, 1996 has
more than doubled since June due to the increased major
modifications in work at Midcoast Aviation, Inc.
Not included in backlog are two major subcontracts in
negotiation with estimated revenue of $70.0 million over a
42 month period. These subcontracts are with McDonnell
Douglas for the conversion of passenger aircraft to
freighter configuration, and are expected to be awarded in
February. Option orders for additional aircraft could
potentially exceed $200 million in estimated revenue.
The December 31, 1996 backlog does not reflect the possible
sale of the UNFO training system assets to the U.S. Navy,
initially funded by Congress and signed into law by the
President of the United States for $45 million. Since its
initial authorization, the UNFO asset sale funding was
subjected to a reduction, as were all congressionally-
approved programs, to help pay other U.S. obligations.
Authorized funding for this transaction is now $43 million.
During the second quarter the Company began detailed, sole-
source discussions with the U.S. Navy and anticipates these
discussions will result in an agreement with the Navy
acquiring the UNFO training assets this fiscal year.
Although the Company believes this transaction will occur
during this fiscal year, there can be no assurance that this
transaction will occur within this timeframe or that it will
ever occur.
On January 18, 1997, the Company surrendered its repair
station certificate for the Orlando facility of SabreTech,
shutting down the revenue-generating activity at this
location. The Company is exploring alternatives for the
future of this facility, with a final determination expected
by fiscal year end. The Company has reduced the workforce
accordingly but will incur limited facility carrying costs
while reviewing its options.
The Company believes the exiting of the Miami facility
combined with the award of new contracts, will improve
results of operations in the next quarter. The fourth
quarter is expected to improve reflecting full period
performance on new contracts. Results of operations for the
next two quarters could also be affected by the possible
sale of the UNFO assets. Although the Company believes this
transaction is likely to be consummated within the next six
months, there can be no assurance this transaction will ever
occur.
Liquidity and Capital Resources
During the six months ended December 31, 1996, cash used for
operating and investing activities totaled $20.1 million,
reducing on-hand cash balances by $11.1 million and
requiring the access of the Company's revolving credit
facility. The growth in inventories in support of new
engine product lines and the acquisition of two pre-owned
aircraft required $5.8 million. Accounts receivable
increased by over $5.0 million. Ongoing capital expenditure
projects used $3.8 million in investment. Losses from
operations required an additional $4.1 million. Other
working capital investments used approximately $1.4 million
during the period.
The largest capital commitments expected for the remainder
of the fiscal year are facility improvements necessary for
the McDonnell Douglas subcontracts to be performed at
Goodyear, Arizona. The capital expenditures necessary to
enhance this facility of approximately $11.0 million will be
funded with the Company's existing revolving credit facility
and cash generated through operations. The Company believes
the remaining balance of its credit facility, combined with
the cash flows generated by operations and other activities,
will be adequate to meet all other future cash requirements.
Due to the losses sustained in the second quarter, the
Company was unable to meet all of the covenant requirements
called for in the revolving credit agreement. The Company
has received a waiver for the December 31, 1996 measurement
date. In addition, the revolving credit agreement was
amended to accommodate new subsidiaries and new
restrictions.
Future cash balances may be increased by the possible sale
of the Company's UNFO training system assets to the U.S.
government as discussed above. If the proposed sale occurs,
the Company's cash balances will be increased after taxes by
approximately $35 million. Although the Company believes
this transaction will occur during this fiscal year, there
can be no assurance that this transaction will occur within
this timeframe or that it will ever occur.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On May 11, 1996, ValuJet Flight 592 from Miami, carrying 110
passengers and crew crashed into the Florida Everglades.
Prior to take-off, employees of SabreTech's Miami facility
returned to ValuJet various company materials, including
five boxes containing oxygen generators, which, after
consultation with ValuJet's flight crew, were loaded into
the cargo bay of Flight 592 by ValuJet employees. Although
the cause of the crash has not been officially determined by
the National Transportation Safety Board (NTSB), SabreTech's
actions associated with Flight 592 have been included in the
NTSB investigation. The Federal Aviation Administration
(FAA) is also conducting an investigation into the
circumstances surrounding the ValuJet crash and has sought
information from SabreTech and various of its employees and
contract workers in connection therewith. In addition,
SabreTech is one of several subjects of an investigation
being conducted by a federal grand jury in conjunction with
the United States Attorney for the Southern District of
Florida. The Company has cooperated fully throughout these
investigations and is continuing to do so. Public hearings
concerning the crash of Flight 592 were held in November,
1996.
SabreTech, ValuJet and others have been named as defendants
in numerous wrongful death actions that have been filed by
families of victims. Additional wrongful death actions are
expected to be filed, naming SabreTech, ValuJet and others.
The Company's legal costs of defending against these civil
actions and any possible claim settlements are funded by the
Company's insurance policies. Management believes coverage
is adequate to provide for such legal actions.
The Company has recognized the costs associated with this
incident, such as media relations, incremental professional
services, legal fees not covered by insurance, increased
insurance premiums and other costs related to the various
investigations and other lawsuits of approximately $5.6
million; of which $3.8 million were recorded during the
second quarter of fiscal 1997. In January of fiscal 1997
the Company sold certain assets associated with the Miami
facility and exited its operations there. Remaining assets
were relocated to other operational units within the
Company. Shutdown costs of the facility, including
provision for continuing ValuJet related expenses of $2.5
million were recognized in December. Although the ultimate
outcome of the legal actions related to the ValuJet Flight
592 crash and the length of time necessary to resolve all
outstanding issues cannot be determined at this time, the
Company believes the continuing effects of the
investigations and related lawsuits will not have a material
adverse effect upon the future results of operations or
financial conditions of the Company.
The Company has been subject to government inquiry regarding
an alleged environmental incident that may have occurred at
the Perryville facility prior to the flooding of the
facility in July, 1993. Supplemental requests for documents
concerning this matter were received during fiscal 1996.
The Company has complied with all requests for documents.
No other significant actions or developments have occurred
during fiscal 1997.
In addition to the litigation discussed above, the Company
is subject to other legal proceedings and claims arising in
the ordinary course of its business. Although there can be
no assurance as to the outcome of litigation, it is the
opinion of management (based upon the advice of legal
counsel) that all such actions or proceedings are covered by
insurance or will be resolved without material effect on the
Company's financial position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed
Third Amendment to Financing Agreement between Star Bank,
National Association and Sabreliner Corporation, Midcoast
Aviation, Inc., Midcoast-Little Rock, Inc., SabreTech,
Inc., Dimension Aviation, Inc. and Turbotech Repairs,
Inc., dated as of February 14, 1997.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during
the quarter December 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
SABRELINER CORPORATION
/s/ F. Holmes Lamoreux
Date: February 14, 1997
F. Holmes Lamoreux
Chairman of the Board and
Chief Executive Officer
/s/ Rodney E. Olson
Date: February 14, 1997 Rodney E. Olson
Senior Vice President, Finance
and Corporate
Development and Chief Financial
Officer
EXHIBIT INDEX
Exhibit No. Description
1 Third Amendment to Financing Agreement
between Star Bank, National Association and
Sabreliner Corporation, Midcoast Aviation,
Inc., Midcoast-Little Rock, Inc., SabreTech,
Inc., Dimension Aviation, Inc. and Turbotech
Repairs, Inc., dated as of February 14, 1997.
27 Financial Data Schedule
EXHIBIT 1
THIRD AMENDMENT TO FINANCING AGREEMENT
THIS THIRD AMENDMENT TO FINANCING AGREEMENT (this
"Amendment") is made and entered as of February 14, 1997, by
and between STAR BANK, NATIONAL ASSOCIATION, a national
banking association ("Bank") and SABRELINER CORPORATION, a
Delaware corporation ("Sabreliner"), MIDCOAST AVIATION,
INC., a Missouri corporation ("Midcoast"), MIDCOAST-LITTLE
ROCK, INC., a Missouri corporation ("Little Rock"),
SABRETECH, INC., a Delaware corporation ("SabreTech"),
DIMENSION AVIATION, INC., a Delaware corporation
("Dimension") and TURBOTECH REPAIRS, INC., a California
corporation ("Turbotech") (collectively, "Borrowers").
Recitals
A. Borrowers (other than Dimension and
Turbotech) are parties to a Financing Agreement dated as of
February 13, 1995, as amended by the First Amendment to
Financing Agreement dated as of November 10, 1995, a Second
Amendment dated January 26, 1996, and a letter agreement
dated November 12, 1996 (as amended, the "Financing
Agreement"). Capitalized terms used, but not defined, in
this Amendment which are defined in the Financing Agreement
will have the meanings given to them in the Financing
Agreement.
B. There presently exist defaults by Borrowers
(other than Dimension and Turbotech) under the Financial
Covenants as of the end of and for the period ending
December 31, 1996. Borrowers (other than Dimension and
Turbotech) have requested that Bank waive such defaults
under the Financial Covenants as of the end of and for the
period ending December 31, 1996, and Bank is willing to
waive such defaults on the condition that Borrowers amend
the Financing Agreement in certain respects as set forth
below in this Amendment.
C. In addition to the amendments to the
Financing Agreement contemplated by paragraph B above,
Borrowers have requested that Bank amend the Financing
Agreement to (i) make certain changes to the Financial
Covenants and (ii) make certain other changes to the
Financing Agreement which are set forth in this Amendment.
Statement of Amendment
In consideration of the mutual covenants and
agreements set forth in this Amendment, and for other good
and valuable consideration, Bank and Borrowers hereby agree
as follows:
1. Amendments to Financing Agreement. The Financing
Agreement is amended as provided in this Section 1.
1.1 The cover page of the Financing Agreement is
hereby amended by adding on the line immediately
following the reference to "SABRETECH, INC." the
following: "DIMENSION AVIATION, INC. and TURBOTECH
REPAIRS, INC."
1.2 The definition of Additional Borrower in
Section 1.1 of the Financing Agreement is hereby
amended in its entirety by substituting in its stead
the following:
"Additional Borrower" means a
Subsidiary, other than Midcoast or Little
Rock, which becomes an Additional Borrower
hereunder on terms acceptable to Bank,
including SabreTech, Dimension and Turbotech.
1.3 The definition of Additional Guarantor in
Section 1.1 of the Financing Agreement is hereby
amended in its entirety by substituting in its stead
the following:
"Additional Guarantor" means a
Subsidiary, other than Midcoast or Little
Rock, which executed a Guaranty in the form
of Exhibit 4.3 including SabreTech, Dimension
and Turbotech.
1.4 The definition of Availability Deficiency in
Section 1.1 of the Financing Agreement is hereby
amended by deleting the reference to "$35,000,000" and
substituting in its stead "the Maximum Availability."
1.5 The definition of Borrower in Section 1.1 of
the Financing Agreement is hereby amended in its
entirety by substituting in its stead the following:
"Borrower" means each of Sabreliner,
Midcoast, Little Rock, SabreTech, Dimension,
Turbotech and each Additional Borrower (other
than SabreTech, Dimension and Turbotech) and
"Borrowers" means, collectively, Sabreliner,
Midcoast, Little Rock, SabreTech, Dimension,
Turbotech and each Additional Borrower (other
than SabreTech, Dimension and Turbotech). To
the extent a term or provision of this
Agreement and the other Loan Documents is
applicable to a "Borrower", it is applicable
to each and every Borrower unless the context
expressly indicates otherwise.
1.6 The definitions of "Collateral", "General
Intangibles", "Inventory" and "Receivables" in Section
1.1 of the Financing Agreement are hereby amended in
their entirety by substituting in their stead the
following:
"Collateral", "General Intangibles",
"Inventory" and "Receivables" have the
meanings ascribed thereto in (i) the Security
Agreement (as defined in Section 5), (ii) the
SabreTech Security Agreement (as defined in
this Section 1.1), (iii) the Dimension
Security Agreement (as defined in this
Section 1.1) and (iv) the Turbotech Security
Agreement (as defined in this Section 1.1).
1.7 The definition of Loan Collateral in Section
1.1 of the Financing Agreement is hereby amended in its
entirety by substituting in its stead the following:
"Loan Collateral" means (i) the
Collateral (as defined in the Security
Agreement defined in Section 5), (ii) the
Collateral (as defined in the SabreTech
Security Agreement, the Dimension Security
Agreement and the Turbotech Security
Agreement each as defined in this Section
1.1) and (iii) any other security or
collateral provided from time to time by, or
on behalf of, each Borrower for the
Obligations.
1.8 The definition of Loan Documents in Section
1.1 of the Financing Agreement is hereby amended in its
entirety by substituting in its stead the following:
"Loan Documents" means this Agreement,
the Security Agreement, the Letter of Credit
Documents, each Blocked Account Agreement (as
defined in Section 7.4), the SabreTech
Security Agreement, the Dimension Security
Agreement, the Turbotech Security Agreement
and all other agreements, instruments and
documents, including mortgages, deeds of
trust, subordination agreements,
intercreditor agreements, pledges, powers of
attorney, consents, collateral assignments,
locked box agreements, letters agreements,
contracts, notices, leases, financing
statements and letters of credit and
applications therefor and all other writings,
all of which must be in form and substance
reasonably satisfactory to Bank, which have
been, are as of the date of this Agreement,
or will in the future be signed by, or on
behalf of, a Borrower and delivered to Bank.
1.9 Clause (i) of the definition of Revolving
Loan Availability in Section 1.1 of the Financing
Agreement is amended in its entirety by substituting in
its stead the following:
(i) an amount equal to the lesser of (a) the
then Borrowing Base or (b) the then Maximum
Availability;
1.10 Section 1.1 of the Financing Agreement is
hereby amended to add the following definitions:
"Dimension" means Dimension Aviation,
Inc., a Delaware corporation.
"Dimension Guaranty" means the Guaranty
dated as of February 14, 1997 given by
Dimension to Bank.
"Dimension Security Agreement" means the
Security Agreement dated as of February 14,
1997 between Dimension and Bank.
"Maximum Availability" means (i)
$35,000,000, until such time, if any, that
Borrowers sell, and receive the proceeds of
sale of, the assets which are the subject of
the UNFO Contract, and (ii) $17,500,000, from
and after the time, if any, that Borrowers
sell, and receive the proceeds of sale of,
the assets which are the subject of the UNFO
Contract.
"Turbotech" means Turbotech Repairs,
Inc., a California corporation.
"Turbotech Guaranty" means the Guaranty
dated as of February 14, 1997 given by
Turbotech to Bank.
"Turbotech Security Agreement" means the
Security Agreement dated as of February 14,
1997 between Turbotech and Bank.
1.11 Section 2.1 of the Financing Agreement is
hereby amended in its entirety by substituting in its
stead the following:
2.1 Total Facility. Subject to the
terms and conditions of this Agreement, Bank,
in its discretion exercised in good faith,
may make total credit in the amount of up to
the Maximum Availability then in effect (the
"Credit Facility") available to Borrowers in
the form of the following loans advanced or
to be made under the following facilities:
(i) revolving loans, and (ii) a letter of
credit facility as a subfacility of the
revolving loan facility, all as more
particularly described below.
1.12 Section 2.3 of the Financing Agreement is
hereby deleted in its entirety.
1.13 Section 3.4 of the Financing Agreement is
hereby amended by deleting the reference to
"$35,000,000" and substituting in its stead "the
Maximum Availability then in effect."
1.14 Section 4.1 of the Financing Agreement is
hereby amended in its entirety by substituting in its
stead the following:
4.1 Joint, Several and Primary
Obligations. The Obligations of Borrowers
under this Agreement and the other Loan
Documents are joint, several and primary. No
Borrower will be or be deemed to be an
accommodation party with respect to any of
the Loan Documents. For purposes of
advancing funds, issuing Letters of Credit,
rendering statements, receiving requests
from, or otherwise communicating with
Borrowers or in Bank's administration of this
loan transaction, Midcoast, Little Rock,
SabreTech, Dimension and Turbotech each
hereby authorize Bank to treat Sabreliner as
the sole agent for all of them under the Loan
Documents and to deal with it exclusively,
and any act done or omitted or any document,
certificate, or instrument executed or
delivered by Sabreliner for Midcoast, Little
Rock, SabreTech, Dimension, Turbotech or any
one or more of them, will be binding on each
of them.
1.15 Section 4.2(i) of the Financing Agreement is
hereby amended in its entirety by substituting in its
stead the following:
(i) Sabreliner is the sole shareholder
of Midcoast, SabreTech, Dimension and
Turbotech, Midcoast is the sole shareholder
of Little Rock, and Midcoast, Little Rock,
SabreTech, Dimension and Turbotech are
substantially dependent upon Sabreliner for
their respective working capital, strategic
management, financial needs and technology;
1.16 Section 4.3 of the Financing Agreement is
hereby amended by deleting the reference to "Security
Agreement" and substituting in its stead "Security
Agreement, the SabreTech Security Agreement, the
Dimension Security Agreement and Turbotech Security
Agreement, as applicable".
1.17 Section 5 of the Financing Agreement is
hereby amended in its entirety by substituting in its
stead the following:
5. SECURITY. The Obligations shall be
secured (for application in such order as may
be determined by Bank in its discretion
exercised in good faith) by a first priority
security interest in all of the Collateral
pursuant to the (i) Security Agreement and
accompanying financing statements (ii)
SabreTech Security Agreement and accompanying
financing statements, and (iii) Dimension
Security Agreement and accompanying financing
statements (iv) Turbotech Security Agreement
and accompanying financing statements.
1.18 Section 7.2 of the Financing Agreement is
hereby amended by deleting the reference to "Security
Agreement" and substituting in its stead "Security
Agreement, the SabreTech Security Agreement, the
Dimension Security Agreement and the Turbotech Security
Agreement, as applicable".
1.19 Section 8.3 of the Financing Agreement is
hereby amended in its entirety by substituting in its
stead the following:
8.3 Reporting Regarding Receivables.
Not less frequently than weekly, and more
frequently if Bank shall require or a
Borrower shall so elect, Borrowers shall
deliver to Bank a borrowing base certificate
in the form of Exhibit 8.3 attached (a
"Borrowing Base Certificate") and acceptable
supporting documentation thereto, which shall
be received by Bank no later than five (5)
Business Days after the end of each week. By
no later than the 25th day after the end of
each calendar month, or sooner if available,
each Borrower shall deliver to Bank monthly
agings, broken down by due date, of
Receivables, in each case reconciled to the
Borrowing Base Certificate for the end of
such month and each Borrower's general
ledger, and setting forth any changes in the
reserves made for bad accounts or any
extensions of the maturity of, any
refinancing of, or any other material changes
in the terns of any Receivables, together
with such further information with respect
thereto as Bank may require.
1.20 Section 9.5 of the Financing Agreement is
hereby amended by deleting the reference to "the
Closing Date" and substituting in its stead "February
14, 1997".
1.21 Section 9.17 of the Financing Agreement is
hereby amended in its entirety by substituting in its
stead the following:
9.17 Affiliates. All persons who are
Borrower's Affiliates are identified in
Exhibit 9.17 attached. Other than Midcoast,
Little Rock, Sabreliner International
Corporation, SabreTech, Dimension and
Turbotech, Sabreliner has no Subsidiaries.
Other than Little Rock, Midcoast has no
Subsidiaries. None of Little Rock,
Sabreliner International Corporation,
SabreTech, Dimension or Turbotech has any
Subsidiaries.
1.22 Section 9.24 of the Financing Agreement is
hereby amended by deleting the reference to "the
Closing Date" and substituting in its stead "February
14, 1997".
1.23 Section 10.19.2 of the Financing Agreement is
hereby amended in its entirety by substituting in its
stead the following:
10.19.2 Other Borrowers Restrictions.
None of Midcoast, Little Rock, SabreTech,
Dimension, Turbotech or any Additional
Borrower (other than SabreTech, Dimension or
Turbotech) ("Other Borrowers") will directly
or indirectly (i) transfer or make any
distributions of any of its properties or
assets except to Sabreliner (exclusive of any
Loan Collateral), (ii) incur, permit, or make
any loans, advances or extensions of credit
to any Person, including any of any Other
Borrower's Affiliates, officers or employees,
or (iii) pay any consulting, management or
directors' fees to or for the account of any
shareholders, director, or officer of any
Other Borrower except (a) that any Other
Borrower may take the actions described in
the foregoing clauses 10.19.2(i) through
(iii) with the prior consent of Bank; or (b)
any Other Borrower may make any loans or
advances to Sabreliner; or (c) as permitted
by Section 10.22 below.
1.24 Section 10 of the Financing Agreement is
hereby amended by adding the following immediately
after Section 10.30:
10.31 The Modification Services
Agreements, MSA-FRI-SF-97-001 and MSA-FRI-SF-
97-003 between Dimension and McDonnell
Douglas Corporation will be (i) executed and
delivered by all parties in final form by
March 15, 1997 and (ii) substantially in the
form delivered to Bank on or before February
14, 1997.
1.25 Section 12(i)(h) of the Financing Agreement
is hereby amended in its entirety by substituting in
its stead the following:
(h) Bank, in the exercise of its
judgment exercised in good faith, determines
that there has occurred any material and
adverse change in the business operations or
condition, financial or otherwise, of any
Borrower adversely affecting Borrowers'
ability to perform any of their payment or
other material Obligations under this
Agreement or any of the other Loan Documents,
including any request being made for any
Borrower to surrender an FAA Repair Station
Certificate to the FAA or any other
Governmental Authority.
2. Amendment of Schedules and Exhibits. Borrowers
represent that there are no changes required to be made to
the Schedules and Exhibits to the Financing Agreement by
virtue of the addition of Dimension and Turbotech as a
Borrowers.
3. New Borrower Agreements and Representations. Each
of Dimension and Turbotech (a) agrees (i) to be a "Borrower"
(as defined in the Financing Agreement), (ii) to be bound by
all of the terms, provisions, and conditions of the
Financing Agreement and the other Loan Documents (as this
term is amended in this Amendment), (iii) to be obligated
for all of the Obligations (as defined in the Financing
Agreement), (iv) to execute and deliver to Bank
contemporaneously with this Amendment: (1) a Security
Agreement in a form acceptable to Bank (for Dimension the
"Dimension Security Agreement" and for Turbotech, the
"Turbotech Security Agreement"), (2) a Guaranty in a form
acceptable to Bank, (3) UCC financing statements in a form
acceptable to Bank, (4) a legal opinion of each of
Turbotech's and Dimension's counsel in a form acceptable to
Bank, and (5) any other documents, instruments and
agreements requested by Bank and (b) represents and warrants
to Bank that (i) each of the promises, agreements,
obligations and waivers of a "Borrower" or the "Borrowers"
(each as defined in the Financing Agreement) under the
Financing Agreement shall be a promise, agreement,
obligation and waiver of Dimension and Turbotech and (ii)
each of the representations, warranties, and covenants of a
"Borrower" or the "Borrowers" (each as defined in the
Financing Agreement) under the Financing Agreement,
including, without limitation, the representations,
warranties, and covenants in Section 9 of the Financing
Agreement, are and shall remain true until the Obligations
are fully paid, performed and satisfied.
4. Effective Date. This Amendment shall be effective
on the date that it is signed by Bank; provided, however,
that none of the (a) Receivables (as defined in the
Dimension Security Agreement and Turbotech Security
Agreement) shall be Eligible Receivables (as defined in the
Financing Agreement) an (b) Inventory (as defined in the
Dimension Security Agreement and Turbotech Security
Agreement) shall be Eligible Inventory (as defined in the
Financing Agreement) until Bank (i) has reviewed the
Receivables and Inventory (as defined in the Dimension
Security Agreement and Turbotech Security Agreement) and is
satisfied about the same and (ii) thereafter notifies
Sabreliner to what extent the Receivables and Inventory
(each as defined in the Dimension Security Agreement and
Turbotech Security Agreement) shall be Eligible Receivables
and Eligible Inventory (each defined in the Financing
Agreement), respectively, for purposes of the Borrowing Base
calculation under the Financing Agreement, and (2) no Loans
or other advances to or for the benefit of Turbotech will be
made until Bank (a) is satisfied that there are no Liens on
any property of Turbotech and that Bank has a first priority
security interest in, and Lien on, all of the Collateral (as
defined in the Turbotech Security Agreement) and (b) has its
counsel review, to such counsel's satisfaction, the
documents executed in connection with Sabreliner's
acquisition of the capital stock of Turbotech.
5. Representations. To induce Bank to accept this
Amendment, Borrowers hereby represent and warrant to Bank as
follows:
a. Each of the Borrowers has full power and
authority to enter into, and to perform its obligations
under, this Agreement, and the execution and delivery of,
and the performance of each of Borrowers' obligations under
and arising out of, this Amendment have been duly authorized
by all necessary corporate action.
b. This Amendment constitutes the legal, valid
and binding obligations of each of Borrowers enforceable in
accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally or by
equitable principles of general applicability (regardless of
whether considered in a proceeding at law or in equity).
c. Borrowers' representations and warranties
contained in the Financing Agreement are complete and
correct as of the date of this Amendment with the same
effect as though these representations and warranties had
been made again on and as of the date of this Amendment,
subject to those changes as are not prohibited by, or do not
constitute Events of Default under, the Financing Agreement.
6. Additional Acknowledgments. (1) Borrowers
acknowledge and agree that (i) the deletion of Section 2.3
of the Financing Agreement evidences as intent by Bank to
eliminate the availability to Borrowers of the Special
Advances, and that any references remaining in the Financing
Agreement to "Special Advance(s)", "Special Advance
Availability Period" or the like do not indicate a contrary
intent, (ii) the fact that Bank may, from time to time,
issue one or more Letters of Credit that have an expiration
date that occurs after the date the Financing Agreement is
to terminate pursuant to Section 11.1 of the Financing
Agreement does not evidence an intent by Bank to extend the
Financing Agreement past such termination date, (iii) in the
event the Financing Agreement is terminated prior to the
expiration of any Letter of Credit, Bank will require
Borrowers provide to Bank cash collateral acceptable to Bank
or replace the Letter of Credit, (iv) until all of the
Obligations, including any reimbursement and other
obligations owed by Borrowers by virtue of an issuance of a
Letter of Credit, are paid, performed and satisfied, Bank
will continue to have a security interest in, and Lien on,
all of the Loan Collateral and (v) upon the receipt by
Borrowers of the proceeds of the sale of the assets which
are the subject of the UNFO Contract, the Maximum
Availability under the Financing Agreement will be reduced
from $35,000,000 to $17,500,000. (2) Each of Sabreliner,
Midcoast, Little Rock and SabreTech reaffirms its respective
Guaranty, and acknowledges and agrees that it is not
released from its obligations under its respective Guaranty
by reason of this Amendment, that the obligations of each of
Sabreliner, Midcoast, Little Rock and SabreTech under its
respective Guaranty extend to the Financing Agreement and
the other Loan Documents as amended by the Amendment, and
the Guaranteed Obligations (as defined in each such
Guaranty) extend to any Loans or other financial
accommodations made to Dimension, Turbotech and any
Additional Borrower (other than Dimension and Turbotech).
This reaffirmation shall not be construed, by implication or
otherwise, as imposing any requirement that Bank notify or
seek the consent of Sabreliner, Midcoast, Little Rock, or
SabreTech relative to any past or future extension of
credit, or modification, extension or other action with
respect thereto, in order for any such extension of credit
or modification, extension or other action with respect
thereto to be subject to its respective Guaranty, it being
expressly acknowledged and reaffirmed that each of
Sabreliner, Midcoast, Little Rock, and SabreTech has under
its respective Guaranty consented to modifications,
extensions and other actions with respect thereto without
any notice thereof.
7. Costs and Expenses. As a condition of this
Amendment, Borrowers will promptly on demand pay or
reimburse Bank for the costs and expenses incurred by Bank
in connection with this Amendment, including, without
limitation, attorneys' fees.
8. Amendment Fee. Borrowers will promptly pay to
Bank upon the execution of this Amendment by Bank an
amendment fee of $25,000, which shall be fully earned and
nonrefundable when paid.
9. Release. Borrowers hereby release Bank from any
and all liabilities, damages and claims therefore arising
from or in any way related to the Credit Facility, other
than such liabilities, damages and claims which arise after
the execution of this Amendment by Borrowers. The foregoing
release does not release or discharge, or operate to waive
performance by, Bank of its express agreements and
obligations stated in the Loan Documents on and after the
date of this Amendment.
10. Continuing Effect of Financing Agreement. Except
as expressly amended hereby, all of the provisions of the
Financing Agreement are hereby ratified, confirmed and
remain in full force and effect.
11. One Agreement: References. The Financing
Agreement, as modified by this Amendment, will be construed
as one agreement. All references in any of the Loan
Documents to the Financing Agreement will be deemed to be a
reference to the Financing Agreement as amended by this
Amendment.
12. Entire Agreement. This Amendment sets forth the
entire agreement of the parties with respect to the subject
matter of this Amendment and supersedes all previous
understandings, written or oral, in respect of this
Amendment.
IN WITNESS WHEREOF, Borrowers have executed this
Amendment to be effective as of the date set forth in the
opening paragraph of this Amendment.
SABRELINER CORPORATION
By: /s/ Rodney E. Olson
Name: Rodney E. Olson
Title: Sr. Vice President and CFO
MIDCOAST AVIATION, INC.
By: /s/ Rodney E. Olson
Name: Rodney E. Olson
Title: Vice President and Treasurer
MIDCOAST-LITTLE ROCK, INC.
By: /s/ Rodney E. Olson
Name: Rodney E. Olson
Title: Vice President and Treasurer
SABRETECH, INC.
By: /s/ Rodney E. Olson
Name: Rodney E. Olson
Title: Vice President
DIMENSION AVIATION, INC.
By: /s/ Rodney E. Olson
Name: Rodney E. Olson
Title: Chief Financial Officer
TURBOTECH REPAIRS, INC.
By: /s/ Rodney E. Olson
Name: Rodney E. Olson
Title: Vice President and Treasurer
Accepted at Cincinnati, Ohio,
as of February 14, 1997.
STAR BANK, NATIONAL ASSOCIATION
By: /s/ Michael D. Ehlert
Title: Vice President
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,151
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<RECEIVABLES> 32,052
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<PP&E> 147,500
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<BONDS> 93,638
0
0
<COMMON> 10
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<CGS> 45,557
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<INCOME-PRETAX> (6,474)
<INCOME-TAX> (2,754)
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