SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission File Number 33-67422
SABRELINER CORPORATION
A Delaware Corporation
(IRS Employer Identification No. 43-1289921)
Pierre Laclede Center, Suite 1500
7733 Forsyth Blvd., St. Louis, Missouri 63105-1821
Telephone: (314) 863-6880
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
121/2% Senior Notes due 2003, Series B
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 (2) has been subject to such filing requirements
for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
K or any amendment to this Form 10-K. ( X )
The number of shares of the Company's common stock
outstanding on August 31, 1997 was 870,934.
PART I
Item 1. BUSINESS
Sabreliner Corporation and its subsidiaries (Company) is a
diversified aerospace company, providing services in airframe
maintenance and modification, gas turbine engine overhaul and
repair, aircraft systems upgrades and refurbishments, fleet
logistics support and other aerospace products and services
for corporate, commercial and government aviation markets.
During fiscal year 1997, Sabreliner and its wholly-owned
subsidiaries Midcoast Aviation, Inc., SabreTech, Inc.,
Dimension Aviation, Inc. and Turbotech Repairs, Inc. reported
revenue of $260.9 million, of which 33% was provided by
corporate aviation, 26% by commercial aviation, and 41% by
government aviation business.
During fiscal 1997, revenue increased 27%, due to continued
growth in the government and corporate aviation businesses,
partially offset by reduced revenues in the commercial
aviation business. The sale of the Undergraduate Naval
Flight Officer (UNFO) training system assets in the fourth
quarter added $36.7 million in government aviation revenue.
The award of new contracts and increased deliveries on
existing contracts also improved government revenue by $15.7
million during fiscal 1997. Corporate aviation revenue
increased by $18.6 million in fiscal 1997, due to
capitalizing on strong customer demand for major
modifications and maintenance and expanded engine activity.
Commercial aviation revenues declined by $15.5 million in
fiscal 1997, due to the closing of four commercial aviation
facilities during fiscal 1997 (see Item 3. LEGAL PROCEEDINGS
and Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS). Excluding the revenues
provided by these closed facilities in fiscal 1996 and 1997,
revenue for continuing commercial aviation operations would
have increased by $10.6 million in fiscal 1997, due to the
addition of the Dimension Aviation subsidiary.
Significant highlights during fiscal 1997 include: (1) The
formation of a new commercial aviation subsidiary, Dimension
Aviation, Inc., based in a recently-acquired leased facility
in Goodyear, Arizona formed to support the McDonnell Douglas
subcontracts for the modification of passenger aircraft to
freighter configuration. Current firm orders are in excess of
$120.0 million over the next four years, (2) The sale of the
Company's UNFO training system assets to the Navy for $42.5
million in the fourth quarter ($36.7 million was recognized
as fiscal 1997 revenue), (3) Construction of a new hangar at
the Company's Midcoast-Parks location to capitalize upon the
continued strong demand in corporate aviation. The new
facility is expected to be operational during the next fiscal
year, (4) The Company's backlog of firm orders exceeds $250
million as of June 30, 1997, more than double June 30, 1996.
Corporate Aviation Business
The Company's corporate aviation business provides airframe,
powerplant and ancillary systems repair, overhaul and
modification services and flight line and spare parts support
to the operators of corporate and private aircraft. The
revenues of this business area derive from work on a wide
variety of business aircraft including the Cessna,
Challenger, Falcon, Gulfstream, Hawker, Lear, Sabreliner, and
other business jet and turboprop airframes. The Company
services these aircraft for both domestic and foreign
operators, with international sales in excess of 9% of the
corporate aviation business. Total revenues reported in
fiscal 1997 for corporate aviation were $86.6 million, and
are comprised of the following product lines.
Maintenance and Modification
Maintenance is the inspection and resulting repair of
aircraft, including airframe corrosion inspections;
maintenance and service bulletin compliance; avionic,
instrument, electrical and hydraulic systems repairs and
overhauls; and the troubleshooting and repair of aircraft.
Modification is the periodic enhancement or conversion of
aircraft, including aircraft painting; avionics systems
installation; interior refurbishment; structural life
extensions or enhancements; and other major modifications or
improvements.
The Company maintains four facilities to provide maintenance
and modification services:
Perryville, Missouri Center performing routine maintenance
and modifications on the Sabreliner fleet;
Downtown St. Louis Parks Center dedicated to maintenance
and modification of larger "heavy iron" aircraft, such as
and Challengers, Falcons and Gulfstreams;
Little Rock Center specializing in smaller and mid-size
business aircraft; and
Lambert Field Center which supports base customers and
drop-ins at the Lambert-St. Louis International Airport.
The combined facilities of Midcoast and Sabreliner provided
$47.9 million in aggregate maintenance and modification
revenue during fiscal 1997.
Engine Repair and Overhaul
The engine business area includes the repair, overhaul and
maintenance of powerplants installed on a variety of
corporate, private and military aircraft. The Company
markets its commercial engine services under the Premier
Turbines trademark. Current engine component repair or engine
overhaul capabilities include the following engines:
Manufacturer Engine
Pratt & Whitney PT6, JT12, JFTD12, JT8,
J52, J75, J60, JT15, PW100
General Electric CF700, T700, CJ610, J85
AlliedSignal TFE731, TPE331 APU Series,
T53, LTS101
Teledyne J69
Allison A250, T63, T56
The Company's primary engine facility is located in Neosho,
Missouri. Totally dedicated to engine work, the Neosho
operation maintains advanced capabilities in lathing,
milling, machining, electron beam and conventional welding,
plating, coating, blending, shotpeening, plasma spraying, X-
ray and magnetic diagnostics, and other capabilities. In
June, 1996, the Company acquired Turbotech Repairs, Inc.,
adding component repair capability for the Pratt & Whitney
PT6 and PW100 and AlliedSignal TPE331 and related APU series,
as well as, full overhaul authority for the Allison 250. In
May, 1996, the Company acquired the heavy maintenance tooling
and license for the AlliedSignal TFE731 engine from UNC-
Airwork. The addition of the heavy maintenance license for
the AlliedSignal TFE731 makes Sabreliner's Premier Turbine
division one of only three companies in the United States
capable of performing a factory-authorized core zone
inspection, a sophisticated overhaul on this popular
powerplant.
The Company has achieved significant growth in this area
during the last fiscal year, with total revenues for 1997 at
$21.9 million more than double the previous year. Growth of
the Premier Turbines division can be attributed to the
capture of engine component repairs, the addition of
Turbotech, the expansion of capabilities at Neosho
(specifically, the heavy overhaul capability on the TFE731),
and foreign market expansion. The Company believes additional
growth in the engine business area can be achieved in the
next year as domestic and international market expansion
continues in recently-acquired capabilities.
Other Corporate Aviation Business
In addition to the products and services described above, the
Company provides other aerospace support to the corporate
aviation market, including: fueling, long-term tenant leasing
and flight line services, collectively known as the Fixed
Base Operator (FBO) business; over-the-counter spare parts;
and pre-owned aircraft sales. These services accounted for
$16.8 million in fiscal 1997 revenue.
Government Business
Sabreliner performs work with the U.S. and foreign
governments for both military and civilian agencies. Of the
$108.0 million in revenue reported on these contracts in
fiscal 1997, 55% was derived from the U.S. Navy, 37% from the
U.S. Air Force and 6% from the U.S. Army. Subcontracts and
government agencies, such as the FAA, represent the remaining
2% of this total. Although the U.S. Department of Defense
budget has steadily declined over the last decade, spending
for operations and maintenance - the funding category for
substantially all of the Company's contracts - has remained
and is projected by the government to remain stable. During
the last fiscal year, the Company was awarded several new
government contracts and had options exercised by the
government on existing contracts. The Company believes its
experience and low-cost structure enable it to effectively
compete on a broad spectrum of government contracting
opportunities. A description of the Company's significant
government business follows.
The Undergraduate Naval Flight Officers (UNFO) Training
Program
The Company was awarded the UNFO contract in March, 1990, to
perform training services for Undergraduate Naval Flight
Officers (now known as Undergraduate Flight Officers),
including: airborne training missions on radar-equipped
Sabreliner aircraft; simulator training of air-to-air
intercepts and radar mapping; and all logistics, maintenance
and pilot support services. To meet the requirements of this
contract, the Company purchased and modified 17 Sabreliner
aircraft, designed and installed training stations, modified
airborne tactical radars, and provided on-site maintenance,
logistics and pilot crews. This was achieved by assembling a
team of five major subcontractors and through the initial
capital investment of over $99 million, requiring nearly
eighteen months of engineering design, aircraft and radar
modifications and other management efforts. The Company has
maintained outstanding performance on the UNFO program,
evidenced through several meritorious commendations awarded
by the Navy, including the prestigious Vice Admiral
Goldthwaite Award. The 50-month basic contract ended on
September 30, 1995, and the Navy exercised its 36-month
option, which will end on September 30, 1998.
During fiscal year 1997, the Company negotiated the sale of
the UNFO program training system assets with the U.S. Navy,
which include 17 aircraft, the associated radar systems,
training simulators and spare parts. The sale provided a
$36.7 million payment in June 1997, with $5.8 million
additional payments to be collected upon the completion of
Aircraft Condition Inspections, to be performed over the
remaining life of the logistics contract. The asset sale and
the performance of additional delivery items pursuant to the
sale agreement did not modify the existing on-site logistics
contract. The total revenues reported for the UNFO program,
for both the on-site logistics contract and the asset sale
totaled $52.5 million in fiscal 1997.
The C-20 Joint Logistics Support Contract
The U.S. Air Force C-20 contract was awarded to the Company
in July, 1995, to perform on-site logistics support, depot-
level maintenance and engine maintenance for the government's
fleet of 24 Gulfstream C-20 aircraft, which operate out of
four military bases. The contract consists of one base year,
starting October 1, 1995, and six one-year options. Option
year two, starting October 1, 1997, has been unofficially
exercised. The contract was awarded to Sabreliner based upon
its team approach: Sabreliner as prime contractor, providing
material management and administration; UNC, Inc., providing
on-site maintenance and stockroom support; Sabreliner's
subsidiary, Midcoast Aviation, performing depot level
maintenance at its Downtown St. Louis Parks facility; and
Rolls Royce-Canada, providing engine overhaul and repair
support. Revenues reported for this contract during the last
fiscal year were $33.9 million.
The Navy T-2/A-4 Depot Level Maintenance Program
On August 24, 1995, the Company was awarded the T-2/A-4 Depot
Level Maintenance contract for the inspection and repair of
the Navy's fleet of T-2 aircraft and Foreign Military Sales
(FMS) repairs on A-4 aircraft. The contract's base year
started October 1, 1995, and includes four option years; the
option for the second additional year, starting October 1,
1997, has been exercised. Significant over and above work
requests have been approved by the Navy to enable the Company
to fabricate structural parts for this aircraft. As of June
30, 1997, the Company has inducted 21 T-2 aircraft under this
contact. Revenues reported during fiscal 1997 totaled $6.8
million.
Government Engine Repair and Overhaul
The Company holds various contracts for the overhaul and
repair of government-owned engines and engine components.
The two largest of these engine contracts are the Air Force
J85 MISTR and Army T700-GE-701 GG Rotor Assembly contracts
("GG Rotor"), which during fiscal 1997 provided revenue of
$5.0 million and $4.6 million, respectively. The Company
retained the J85 program during fiscal 1997, capturing the
five-year follow-on contract, that includes two one-year
options. The GG Rotor contract was awarded for the
replacement of first stage turbine blades and other repairs
as necessary of 450 engines used in the Army's Apache
helicopter fleet. Options exist for up to 250 more engines.
Deliveries on this contract began in April, 1997. Total
revenue reported for government engine contracts during
fiscal 1997 was $11.1 million.
Eagle Subcontract
During the third quarter of fiscal 1997, the Company was
awarded two subcontracts to modify four Hawker 800XP
corporate jet aircraft in support of a foreign military
contract held by Lockheed-Martin Tactical Defense Systems.
The combined value of these subcontracts is $14.3 million.
The contract requires the completion of four aircraft from
"green" configuration through avionics upgrades and other
modifications. The final phase of the contract is the
conversion of the aircraft to mission-ready status through
installation of special mission equipment, communications
systems and other support equipment. Performance of the
contract requires the participation of multiple company
subsidiaries: Sabreliner's Perryville facility will
manufacture interior components and avionics racks; the
Midcoast Aviation subsidiary will provide technical support,
using their familiarity with the Hawker airframe; and the
final assembly and installation will be performed at the
Dimension facility in Goodyear, Arizona. The contracts are
scheduled to be complete within eighteen months of award. No
revenue was reported for the Eagle subcontracts in fiscal
1997.
Other Government Business
The Company's broad capabilities and extensive experience in
government contracting enables it to perform a variety of
other government aviation contracts and subcontracts. Other
government business revenues generated in the last year
include subcontracts to provide spare parts and contracts to
repair hydraulic and other system components. Other
government contracts generated revenue of $3.7 million during
fiscal 1997.
Commercial Aviation Business
The Company's acquisition of the three subsidiaries of
DynCorp collectively known as the DynAir Companies, on June
30, 1995, expanded the Company into the commercial aviation
market. The Company renamed the acquired operations
SabreTech and in fiscal 1997 created a second commercial
aviation subsidiary, Dimension Aviation, Inc. The two
subsidiaries serve a commercial aviation market that
includes: third-party aircraft maintenance services for
commercial carriers, primarily airlines and major freight
carriers; modification and completion services for
manufacturers of airline aircraft; airline aircraft storage;
spare parts and backshop support.
As of June 30, 1997, the Company operated two principal
facilities to perform commercial aviation work:
The Phoenix facility at Sky Harbor International
Airport provides heavy aircraft repair and third party
overhaul service for airlines, aircraft lessors, and
aircraft manufacturers. In addition, the Phoenix facility
operates a large backshop, capable of avionics component
repair, sheet metal fabrication, limited interior component
manufacture, hydraulics overhaul and minor machining.
Backshop services are provided to support aircraft in work
at the facility and as a stand-alone business. Revenue
reported for the SabreTech Phoenix facility totaled $45.5
million in fiscal 1997.
During fiscal 1997, the Company formed a new commercial
aviation subsidiary, Dimension Aviation, Inc., located at
the Goodyear Airport in Goodyear, Arizona to perform the
passenger-to-freighter modification subcontract for Boeing's
Douglas Products Division. Current firm orders for this
subcontract are in excess of $120.0 million, with delivery
requirements through the year 2000. Pursuant to its
agreement with Douglas, Dimension has expanded the existing
hangar facilities to enable the full enclosure of up to four
wide-body DC-10 or MD-11 aircraft. Work on the first
aircraft commenced in March, 1997. Revenue reported for the
Dimension Aviation facility at Goodyear totaled $8.1 million
in fiscal 1997.
In the past year, the Company exited its Miami facility
located at Miami International Airport. The Company also
ceased revenue-generating activities at it Orlando facility
located on the Orlando International Airport (see Item 3.
LEGAL PROCEEDINGS and Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS).
Two other smaller operations were consolidated into the
Phoenix operation during fiscal 1997.
The consolidation of the commercial aviation functions into
the Phoenix location and a full year performance of the MD-10
subcontract with Boeing are expected to provide increased
operating profits for commercial aviation in fiscal 1998, as
compared to fiscal 1997.
Business Development and Acquisition Strategy
In the past several years, the Company has employed a variety
of business development and acquisition strategies to enhance
its market position and growth potential. As a result of
these strategies, the Company has entered new business areas
and expanded on existing capabilities causing revenue to grow
at an average annual rate of more than 35% the last three
years. Acquisitions have made an integral contribution to
the Company's growth strategy.
In September, 1992, the Company acquired the Neosho
facility from Teledyne Industries, Inc., providing
substantial technical and operating capabilities in engine
component overhaul and repair.
In November, 1994, the Company acquired Midcoast
Aviation, Inc. from Trans World Airlines, providing high-
quality major modifications and aircraft maintenance to the
corporate aviation market.
In June, 1995, the Company acquired the DynAir
Companies, now known as SabreTech, Inc. from DynCorp
providing entrance into the complementary commercial
aviation market.
In fiscal 1997, the Company started operations in new
engine product lines gained in the acquisition of Turbotech
Repairs, Inc. in June, 1996, and the acquisition of the
heavy maintenance license and tooling for the AlliedSignal
TFE731 engine in May, 1996.
In addition to business expansion gained through acquisition,
the Company has expanded the acquired businesses and the
Company's existing business by building upon the acquired
skills and capabilities. Specifically, the Company has
leveraged the capabilities of acquired companies into long-
term government contracts and major subcontracts. Skills
learned and equipment purchased in support of these contracts
is also utilized in domestic and international markets.
Government Contracts
Air Force C-20 contract - By combining the technical
expertise on Gulfstream aircraft gained in the acquisition
of Midcoast, with the logistic support and government
contract background existent at Sabreliner, the Company was
able to capture the award of the seven-year Air Force C-20
contract, estimated at $200.0 million.
Navy T-2/A-4 contract - The technical skills and
equipment used in the repair of corporate aircraft were used
to capture the structural airframe modification and repair
requirements of this five year Navy contract, estimated at
$30.0 million.
Air Force J85 Engine contract - The Company was able to
capture this contract as a result of its acquisition of the
Neosho, Missouri plant, providing $25.0 million over five
years.
Army GG Rotor contract - The added capabilities, the
equipment gained in the Neosho acquisition, plus additional
internal investments enabled the capture of this contract,
estimated at $25.0 million, including all options.
Major Subcontracts
The MD-10/MD-11 contracts - The Company's major
proposal expertise combined with the technical capabilities
gained in the SabreTech acquisition provided the opportunity
to add a major long-term subcontract with McDonnell Douglas
for the modification of airline aircraft to freighter
configuration. The firm ordered value of the contracts as
of June 30, 1997 exceeded $120.0 million, over approximately
four years.
The Eagle subcontracts - The Company combined the
capabilities, technical background and facilities of three
subsidiaries to enable the performance of this subcontract
with Lockheed-Martin, valued at $14.3 million over eighteen
months.
The Company intends to continue these strategies for business
development; augmenting its capabilities and opportunities
through acquisition, internal investment and increasing its
market share by the aggressive pursuit of complementary
opportunities. The Company's existing cash balances and
unused credit facility can enable it to effect an immediate
acquisition or investment, allowing rapid response to
changing markets and new opportunities. However, there can
be no assurance the Company will be successful in
implementing its business development strategies or whether
or when the Company will make other acquisitions.
Product Liability Exposure
The Company is the OEM for the Sabreliner series of aircraft
and, in accordance with the agreement pursuant to which the
Company purchased the Sabreliner Division of Rockwell
International in 1983, Rockwell bears the responsibility for
all known liabilities relating to such aircraft occurring on
or before June 30, 1983, while the Company is responsible for
all occurrences after such date. In addition to the inherent
risks of the Company's OEM status regarding the Sabreliner
aircraft, the Company is responsible for its performance in
the repair and modification of critical engine and airframe
components and its performance in the support of its other
income-producing functions.
The Company's involvement in the crash of ValuJet Flight 592
has led to civil lawsuits filed by many of the families of
the 110 victims. The Company believes its product liability
insurance coverage will be adequate to fund such legal costs
(see Item 3. LEGAL PROCEEDINGS).
Although the Company has historically maintained adequate
insurance coverage for such risks, and has secured coverage
for the next year, there can be no assurance that such
coverage will continue to be available in amounts or on terms
acceptable to the Company or that such coverage will be
adequate for liabilities actually incurred. The Company has
not experienced any material uninsured loss from product
liability claims and believes that its present insurance
coverage is adequate to protect it against any claims to
which it may be subject.
Competition
Most of the Company's production and service capabilities are
possessed in varying degrees by other companies in the
industry, including both domestic and foreign firms. Many of
these companies are larger and have greater resources than
the Company. Competition is intense among companies
currently involved in the industry. Competitive advantages
are afforded to those with high-quality products and
services, low-cost manufacturing, excellent customer service,
on-time deliveries, and engineering and production expertise.
The Company believes it competes favorably with respect to
these factors.
The corporate aviation industry is the Company's most
competitive arena, with hundreds of small and large shops
vying for market share. The Company's primary competitors
are Atlantic Aviation, Garrett, K.C. Aviation, AVMATS,
Bizjet, Duncan Aviation and other, smaller companies that
perform aircraft maintenance and modification work.
The Company's competition for government contract awards
includes original equipment manufacturers, incumbent
contractors, small businesses, government-owned and operated
depot maintenance facilities, foreign-owned and operated
businesses and designated service facilities appointed by
original equipment manufacturers. Excepting the UNFO asset
sale contract, all major government contracts currently being
performed by the Company were subject to competitive award;
the Company holds no other significant sole-source contracts.
Although the commercial aviation business is subject to a
smaller number of competitors due to the larger facility and
capital intensive tooling requirements, competition for
customer demand is still strong. Key market considerations
used by the Company to differentiate its capabilities from
competitors include: location for line maintenance
customers, on-time delivery, accelerated turn-times, quality,
reliability and support capabilities. The Company's primary
competitors include: Aero Corporation, Dee Howard Company,
Lockheed AeroMod, Mobile Aerospace Engineering, Pemco
Aeroplex, Aeronovali, Timco, and Tramco as well as the
internal maintenance operations of many of the Company's
potential customers.
Suppliers
In the ordinary course of business, the Company procures
materials and purchased services from outside vendors,
subject to internal "make vs. buy" determinations and
competitive bidding, if appropriate. With the exception of
certain proprietary engine assemblies, all of the Company's
supplier needs can be fulfilled by alternate supplier
competitors. The Company does not place undue reliance on
any one supplier; the majority of its revenue is derived from
labor services performed by employees.
Backlog
The total contract price of undelivered firm orders by
business area as of June 30, 1997 and 1996 was as follows:
Backlog as of June 30
1997 1996
(Dollars in Thousands)
Government Business $112,058 $77,404
Corporate Aviation 17,832 5,807
Commercial Aviation 122,655 24,880
$252,545 $108,091
Of the total backlog as of June 30, 1997, over 60% will be
completed and delivered during fiscal year 1998.
Regulatory Compliance
Environmental Regulation
The Company is subject to extensive, stringent and changing
federal, state and local environmental laws and regulations,
including those regulating the use, handling, storage,
discharge and disposal of hazardous substances and the
remediation of any potential environmental contamination.
Accordingly, the Company is involved from time to time in
administrative and judicial investigations and proceedings
regarding environmental issues.
The Company has been subject to government inquiry regarding
alleged environmental wrongdoing that may have occurred at
the Perryville facility. Several requests for documents
concerning this matter have been received since January,
1994, most recently July, 1997. All requests for documents
have been complied with or are in the process of resolution.
In addition, various current and former employees have
received subpoenas or notice letters identifying each as a
witness, subject or target. The Company believes it has
meritorious defenses to allegations of wrongdoing, if any,
that may result from the investigation.
In addition to the environmental regulatory action identified
above, the Company has performed internal investigations and
evaluations of environmental regulatory compliance. There
are three principal sites under evaluation. Total
remediation costs at these sites are expected to be less than
$50,000.
The Company designs and implements a system of programs and
facilities for the management of its production processes and
industrial waste to comply with environmental requirements.
Efforts are under way to provide systematic monitoring of
fuel and waste storage tanks and to upgrade certain
underground storage tanks to comply with the Environmental
Protection Agency's recent directives. The Company
anticipates aggregate capital expenditures made during the
next four years to comply with current EPA guidelines will be
less than $500,000.
The Company's handling of oxygen generators prior to the
ValuJet Flight 592 crash has instigated an investigation by
federal and state environmental regulatory authorities into
the hazardous material handling procedures applicable to the
Company's previous operations at the Miami facility. The
status and any findings of these investigations has not been
announced. The Company continues to cooperate fully
throughout these investigations (see Item 3. LEGAL
PROCEEDINGS ValuJet).
Other Government Regulation
The Federal Aviation Administration (FAA) prescribes
standards and licensing requirements for aircraft components
and licenses component repair stations within the United
States, and comparable agencies regulate such matters in
other countries. The Company holds several FAA component
certificates and performs component repairs at all of its
operating facilities.
In the aftermath of the ValuJet Flight 592 crash, the
Company's SabreTech subsidiary has been subjected to
increased scrutiny by the FAA (see Item 3. LEGAL PROCEEDINGS
ValuJet).
Employees
As of June 30, 1997, the Company had approximately 1,900
employees, of which approximately 1,650 were engaged in
operations, including the repair and maintenance of aircraft,
aircraft components and jet engines. The remaining
approximately 250 employees were dedicated to sales,
marketing and general administration. Approximately 15% of
the Company's employees are represented by unions. In
addition, the Company utilizes contract mechanics to perform
work on aircraft and aircraft components within its
facilities. As of June 30, 1997, the Company contracted for
the services of approximately 600 contract mechanics.
Forward-Looking Information
The Company may have provided certain "forward-looking"
information (as defined in the Private Securities Litigation
Report Act of 1995) which may involve risk or uncertainty,
including, but not limited to: future sales, earnings,
margins, production levels and costs, aircraft deliveries,
research and development, environmental and other
expenditures, and various business trends. Actual results
and trends in the future may differ materially from the
projections, depending on a variety of factors.
Item 2. PROPERTIES
The Company leases or owns an aggregate of approximately 2.0
million square feet of space. The Company believes its
facilities are well maintained, are suitable to support the
Company's business and are adequate for the Company's present
and anticipated needs.
The following table sets forth the Company's principal
facilities and indicates the location and function of each:
Approximate
Location Sq. Footage Primary Function Owned/Leased*
Perryville, 180,000 Airframe Leased through
Missouri maintenance and 2031
modification for
corporate
aviation and
government
markets.
Neosho, 320,000 Engine and Owned
Missouri component
overhaul and
repair for
corporate
aviation and
government
markets.
Cahokia, 210,000 Airframe Various leases
Illinois maintenance and through 2012
modification for
corporate
aviation and
government
markets.
Phoenix, 310,000 Airframe Leased through
Arizona maintenance and 2004
modification for
commercial
aviation markets.
Goodyear, 360,000 Airframe Leased through
Arizona modification for 2021
commercial
aviation markets
* Includes all exercisable options.
Item 3. LEGAL PROCEEDINGS
ValuJet Related
On May 11, 1996, ValuJet Flight 592 from Miami, carrying 110
passengers and crew crashed into the Florida Everglades.
Prior to take-off, an employee of SabreTech's Miami facility
returned to ValuJet various company materials, including
five boxes containing oxygen generators. The ValuJet ramp
agent, after consultation with ValuJet's flight crew, loaded
the boxes into the cargo bay of Flight 592. On August 19,
1997, the National Transportation Safety Board (NTSB)
conducted its public meeting and issued an Abstract of Final
Report on ValuJet Flight 592 and determined the probable
causes of the accident to be (1) the failure of SabreTech to
properly prepare, package, identify and track unexpended
oxygen generators before presenting them to ValuJet for
carriage, (2) the failure of ValuJet to properly oversee its
contract maintenance program to ensure compliance with
maintenance, maintenance training and hazardous materials
requirements and practices and (3) failure of the Federal
Aviation Administration (FAA) to require smoke detection and
fire suspression systems in Class D cargo compartments. The
NTSB also found that other acts and omissions by ValuJet and
FAA contributed to the accident.
The 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.
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. 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.
SabreTech has filed a Complaint for Declaratory Judgment and
Other Relief against ValuJet in the U.S. District Court for
the Southern District of Florida. Among other things, that
suit seeks indemnification for damages incurred by SabreTech
in connection with the accident. ValuJet has filed an
Answer and Conditional Counterclaim in the case seeking
various damages. The Company's legal costs in defending
against the counterclaim are funded by the Company's
insurance policies. Management believes that the Company
will be able to successfully defend against ValuJet's
counterclaim.
Costs associated with this accident, such as media
relations, incremental professional services, legal fees and
other costs related to the various investigations and other
lawsuits, of approximately $5.7 million were incurred in
fiscal year 1997. The ultimate outcome of the legal actions
related to the ValuJet Flight 592 crash and the length of
time necessary to resolve all the 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 results of operations or financial condition of the
Company.
Environmental
The Company has been subject to government inquiry regarding
alleged environmental wrongdoing that may have occurred at
the Perryville facility. Several requests for documents
concerning this matter have been received since January,
1994, most recently July, 1997. All requests for documents
have been complied with or are in the process of resolution.
In addition, various current and former employees have
received subpoenas or notice letters identifying each as a
witness, subject or target. The Company believes it has
meritorious defenses to allegations of wrongdoing, if any,
that may result from the investigation.
Other
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
The outstanding shares of the Company's common stock are not
traded on any established public market.
As of August 31, 1997, there were 35 shareholders of the
Company's common stock.
The Company has paid one dividend in the amount of $9,932,000
in the first quarter of fiscal 1994. The Company expects to
pay annual dividends as its earnings and debt convenant
restrictions allow. For further information, see Note 7 of
the Notes to Financial Statements on pages F11 through F13 of
this report.
Item 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
Fiscal Years Ended June 30
1997 1996 1995 1994 1993
Income Statement Data
Revenue (1) $260,944 $205,633 $120,908 $103,786 $121,174
Cost of revenue 215,476 171,045 91,867 79,626 94,464
Gross margin 45,468 34,588 29,041 24,160 26,710
Selling, general and
administrative expense 33,411 22,956 17,251 14,655 14,469
Operating income 12,057 11,632 11,790 9,505 12,241
Interest expense 13,046 11,789 11,123 11,459 4,942
Litigation settlement(2) - - - 7,613 -
Other income (expense) 978 877 481 33 (111)
Income tax (expense) 366 (350) (350) 3,651 (2,660)
benefit
Net income (loss) before
extraordinary loss and
change in accounting
principle 355 370 798 (5,883) 4,528
Extraordinary loss on
early debt extinguishment - - - - (1,150)
Cumulative effect of
change in accounting
principle,
postretirement benefits - - - - (682)
Net income (loss) $ 355 $ 370 $ 798 $(5,883) $2,696
Fiscal Years Ended June 30
1997 1996 1995 1994 1993
Other Data
EBITDA (3) $ 20,420 $ 24,397 $ 36,243 $ 24,024 $ 34,996
Cash flows from 24,010 10,582 20,038 11,329 32,591
operating activities
Cash flows from (13,789) (7,354) (31,857) (5,568) (8,853)
investing activities
Cash flows from 519 (853) (578) (9,617) (486)
financing activities
Depreciation and 7,385 11,888 23,972 22,099 22,877
amortization(4)
Capital expenditures 11,840 4,346 3,788 5,568 6,815
Ratio of EBITDA to
consolidated interest
expense (5) 1.6x 2.1x 3.3x 2.1x 7.1x
Ratio of earnings to 1.0x 1.1x 1.1x .2x 2.4x
fixed charges
Per Share Data
Earnings Per Share
(EPS)(6):
EPS before extraordinary
loss and change in
accounting principle $0.41 $0.42 $0.91 $(6.66) $5.24
Extraordinary loss - - - - (1.33)
Cumulative change in
accounting principle - - - - (0.79)
Total earnings per $0.41 $0.42 $0.91 $(6.66) $3.12
Book value per share $12.05 $11.64 $11.18 $10.33 $17.59
Cash dividends declared - - - - 11.25
Balance Sheet Data
Cash and cash $22,994 $12,254 $9,879 $22,276 $26,132
equivalents
Total current assets 109,377 85,326 74,279 70,257 76,126
Total assets 156,900 144,618 135,855 126,403 146,332
Total current 49,343 36,660 28,879 25,681 34,666
liabilities
Total long-term debt,
including current 95,613 94,915 93,214 88,630 88,510
portion
Stockholders' equity 10,492 10,136 9,853 9,116 14,823
(1)Revenue for fiscal 1997 includes the sale of the UNFO
training system assets for $36.7 million and the addition
of the Turbotech Repairs, Inc. acquisition, providing
$6.3 million. Fiscal 1996 revenue includes the addition
of the SabreTech, Inc. acquisition made on June 30, 1995
and a full twelve months of Midcoast Aviation revenue.
Revenue for fiscal 1995 includes eight months of Midcoast
Aviation, Inc. acquired in November 1994. Fiscal 1994
revenues were adversely affected by the flooding of the
Company's facilities in Perryville and St. Louis (see
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS).
(2)The litigation settlement shown in fiscal 1994 relates to
the Hannon-Armstrong financing dispute. The amount is
separately identified to provide more ready comparison of
fiscal year results and to adjust the 1994 fiscal year
data to be more indicative of future results of
operations.
(3)EBITDA represents net income before interest, income
taxes, depreciation and amortization. EBITDA and the
ratio of EBITDA to consolidated interest expense are
provided solely as supplemental disclosures as an
indicator of the Company's ability to comply with the
Consolidated EBITDA Coverage Ratio requirements contained
in the Indenture relating to its senior notes. EBITDA
should not be construed as an alternative to operating
income (as determined in accordance with GAAP), or to
cash flows from operating activities (as determined in
accordance with GAAP), or as a measure of liquidity.
(4)Depreciation and amortization shown in fiscal years 1993
through 1996 include the depreciation of the UNFO
training system assets, placed into service in September
1991. These assets were depreciated over the base period
of the contract which ended September 30, 1995.
(5)For purposes of calculating the ratio of EBITDA to
interest expense, interest expense represents all
interest and financing costs paid and accrued for each
respective period, including capitalized interest or
deferred financing fees.
In accordance with the EBITDA coverage ratio calculation
methods prescribed in the Indenture relating to the
Company's Senior Notes, the removal of EBITDA
attributable to assets sold during the measurement period
would result in an adjusted coverage ratio of 2.2 times
consolidated interest expense.
(6)Earnings per share are computed using the average number
of shares of common stock outstanding during the
respective year, plus dilutive common stock equivalents.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal 1997 Compared to Fiscal 1996
Revenue. The diversity of the Company's business activities
enabled growth during fiscal 1997, resulting in an increase
in revenue of $55.3 million or 27% from the prior year.
Government revenues increased by $52.4 million, largely due
to the non-recurring sale of the UNFO training system assets,
which provided $36.7 million. Excluding the one-time revenue
generated by the UNFO training system asset sale, government
revenues increased by 28%, reflecting the capture of new
engine contracts and growth in existing logistics contracts.
Corporate aviation also showed growth during fiscal 1997,
providing additional revenue of $18.6 million from last year,
primarily generated by the increased demand for major
modifications and maintenance experienced at the Company's
Midcoast Aviation subsidiary and the addition of Turbotech
Repairs, Inc., which provided $6.3 million. Offsetting such
growth were declines in the Company's commercial aviation
business revenue of $15.5 million, caused by the adverse
effects of the ValuJet crash on customer demand (see Item 3.
LEGAL PROCEEDINGS), and the removal of four commercial
aviation facilities from operation. Excluding these four
facilities, revenue comparisons for continuing commercial
aviation operations reflect a $10.6 million increase for
fiscal 1997 from the previous year, primarily due to the
performance of the MD-10/MD-11 subcontract.
Gross Margin. Gross margin for fiscal 1997 was $10.9 million
higher than the prior year, representing a growth rate of
31%. Gross margins earned on government contracts increased
by $15.8 million during the year, primarily due to the sale
of the UNFO training system assets, which generated $15.6
million. Without the UNFO training system asset sale, gross
margins in government contracts increased only $0.2 million,
despite a growth in corresponding revenues of 28%. The $7.0
million decline in UNFO logistic revenues during fiscal 1997,
resulting from the conversion from the base contract terms to
the three year option contract which started October 1, 1995,
was replaced with lower-margin cost reimbursable logistic
contracts. During the year, the Company implemented certain
tax planning strategies to reduce taxable income generated by
the UNFO training system asset sale. Such actions reduced
reported gross margin by $2.0 million.
Corporate aviation gross margins increased $5.7 million in
fiscal 1997, due to increased business volume in major
modifications at the Midcoast and Sabreliner facilities and
the additional gross margin of $1.6 million generated by
Turbotech Repairs, Inc., acquired in June, 1996.
Commercial aviation gross margin declined by $8.6 million
from fiscal 1996, largely due to the four commercial
aviation locations removed from operation. The exit of the
Miami facility reduced gross margin in fiscal 1997 by $4.2
million from the previous year. The cessation of revenue
generating activities at the Orlando facility reduced gross
margin by $2.5 million. The sublease of the Orlando
facility, starting in the first quarter of fiscal 1998, will
fully mitigate the continuing operating costs attributable
to Orlando for the next three years. Other commercial
facilities removed from operations reduced fiscal 1997 gross
margin by $1.0 million from prior year levels. Excluding
the effects of these removed operations results in a same-
facility gross margin decline of $0.9 million from the
previous year. This decline is due to labor overruns in
fixed price contracts and start-up expenses relating to the
Dimension facility.
Selling, General & Administrative Expense. Selling, general
and administrative expense increased in fiscal 1997 from the
prior year primarily due to the increased legal and
professional services relating to the ValuJet crash and
increased aviation liability insurance premiums, totaling
$7.8 million (see Item 3. LEGAL PROCEEDINGS). Excluding
ValuJet-related effects, selling, general and administrative
expenses increased by $2.7 million from the previous year.
The expansion in administration staff and the new
responsibilities stemming from the acquisition of Turbotech
Repairs, Inc., incentive compensation and normal inflation
effects account for the remainder.
Interest Expense. The increased interest expense reported
for fiscal 1997 of $1.3 million reflects the Company's use of
its working capital credit facility during the year.
Other Income (Expense). Other income for fiscal 1997
represents the gain realized on an insurance settlement
received by the Company's Midcoast Aviation subsidiary.
Fiscal 1996 Compared to Fiscal 1995
Revenue. The acquisition of SabreTech and Midcoast Aviation
in fiscal 1995 provided increased volume in fiscal 1996,
contributing to a revenue increase of 70% from the prior
year. Revenue increases attributable to these two
acquisitions were $104.0 million during fiscal 1996. Without
these acquisitions, the remaining business revenues would
have declined by $19.3 million due to reductions in
government contract revenues, primarily the UNFO program.
The conversion of the UNFO program from its base contract
period, ended September 30, 1995, to its three-year option
period reduced revenues by $21.5 million. Offsetting the
previously anticipated decline in UNFO revenues were
increases in other areas of the remaining businesses due to
new contract awards.
Gross Margin. During fiscal 1996, the Company was able to
increase gross margins from the preceding year by $5.5
million, or 19%, despite the gross margin decline from the
conversion of the UNFO contract to its option period. The
conversion of the UNFO basic contract to its three-year
option period reduced fiscal 1996 gross margin by $7.1
million from the previous year. The acquisitions of Midcoast
and SabreTech more than compensated for this reduction by
providing $11.8 million in increased gross margin.
Although the dollar value of gross margin increased, gross
margin as a percent of net revenue declined for the year,
compared to fiscal 1995. The overall decline in gross margin
percentage, from 24% in fiscal 1995 to 17% in fiscal 1996
reflects the change in the Company's revenue mix toward the
lower-yield, labor-intensive commercial aviation business.
Selling, General and Administrative Expense. The expansion
in administration staff and the new responsibilities stemming
from the acquisition of SabreTech increased selling, general
and administrative expense during fiscal 1996 by $5.2 million
over the preceding year. In addition, the legal and other
professional costs attributed to the ValuJet crash required
the recognition of $0.7 million in expense during 1996.
Without these items, selling, general and administrative
expense would have declined by $0.2 million from the prior
year.
Interest Expense. The $0.7 million increase in interest
expense experienced in fiscal 1996, versus the prior year, is
attributable to a decline in interest income earned on
available cash balances due to the deployment of cash to
acquire new businesses during fiscal 1995.
Other Income (Expense). Of the total $0.9 million in other
income recognized during fiscal 1996, $0.7 million is
attributable to an insurance claim paid to the Company for
lost property.
Fiscal 1995 Compared to Fiscal 1994
Revenue. Net revenue for fiscal year 1995 increased by $17.1
million over the prior year. The acquisition of Midcoast
Aviation, Inc. on November 2, 1994, added revenue of $25.0
million. Without the revenue generated by Midcoast, revenue
would have declined from fiscal 1994 by $7.7 million. This
revenue reduction can largely be attributed to two factors: a
nonrecurring price adjustment on the UNFO contract
experienced in fiscal 1994 which increased that year's
revenue by $2.5 million, and a reduction in pre-owned
aircraft sales activity in fiscal 1995 versus 1994, resulting
in a drop in revenues of $4.3 million.
Gross Margin. Gross margin for fiscal year 1995 increased by
$4.9 million over the prior year. The Midcoast acquisition
provided $3.4 million of this increase. The resumption of
activities at the Company's Perryville facility, temporarily
shut down during most of fiscal 1994 due to flooding,
increased fiscal 1995 gross margin from the prior year by
approximately $1.1 million. Cost containment initiatives,
particularly in the on-site logistic costs of the UNFO
program, generated an additional $0.5 million in gross
margin.
Selling, General and Administrative Expense. Excluding
nonrecurring legal fees of $1.9 million associated with the
Hannon-Armstrong lawsuit, which were incurred in the first
two quarters of fiscal 1994, selling, general and
administrative expenses for fiscal 1995 were higher than the
previous year by $4.5 million. These increases were largely
due to the expansion in administrative staff and the
responsibilities stemming from the Midcoast acquisition.
Interest Expense. Interest expense declined slightly in 1995
from the prior year, by $0.3 million. This reduction
reflects the increased interest income earned on outstanding
cash balances throughout the year.
Liquidity and Financial Resources
During fiscal 1997, operating activities generated $24.0
million in cash flow. The sale of the UNFO training system
assets provided $36.7 million in cash, before taxes.
Offsetting cash provided by the UNFO asset sale were
increased working capital investments made for the MD-10/MD-
11 subcontract at the Goodyear facility, totaling $5.1
million; the addition of engine component inventories
totaling $6.9 million; working capital investments required
to support the increased business volume experienced in
corporate aviation and ValuJet related expense (see Item 3.
LEGAL PROCEEDINGS). Capital expenditures for fiscal 1997
required $11.8 million in cash. The facility enhancements
made at the Goodyear location to enable performance in the MD-
10/MD-11 subcontract accounted for $5.9 million in capital
expenditures. Engine test cell improvements and equipment,
the initial payments to construct a new hangar at the
Midcoast facility and on-going equipment replacement account
for the remainder. After deducting other investment and
financing activities, the remaining cash balance at June 30,
1997 was $23.0 million.
The Company's cash balance increased during fiscal 1996 by
$2.4 million, resulting in an ending cash balance as of June
30,1996 of $12.4 million. Earnings before depreciation and
amortization added $12.3 million during the year, offset by
increases in working capital of $1.7 million, capital
expenditures of $4.3 million, and acquisitions of $3.0
million. Also reducing cash generated by earnings were debt
repayments and treasury stock purchases, totaling $0.9
million.
In the next year, the Company expects to complete its
investment in facility enhancements at the Dimension and
Midcoast facilities, requiring approximately $9.0 million
during fiscal year 1998. In addition to these investments,
the Company expects to make other smaller investments in
tooling, equipment and capabilities of its existing business
to permit continued expansion within the growing markets of
corporate and commercial aviation and to enable the capture
of new government contracts. The Company also intends to
continue strategic business development through acquisition
and internal growth. The current cash balance and the
unused $35.0 million credit facility provides ample resources
for an immediate acquisition. However, there can be no
assurances the Company will be successful in implementing
such an acquisition, or whether or when the Company will make
any acquisitions.
The Company has recently amended its revolving credit
facility agreement to establish new covenants requirements,
and to extend the revolving credit agreement. The Company
believes the amended revolving credit agreement and
continuing operating cash flows will provide adequate capital
resources to meet future cash requirements.
The Corporation had an overall net deferred tax asset of
approximately $2.7 million at June 30, 1997. Management
believes it is more likely than not the deferred tax asset
will be realized through tax-planning strategies, through
future reversals of existing temporary taxable differences
against existing deductible differences and through
projections of taxable income in future periods.
Forward-Looking Information
The Company may have provided certain "forward-looking"
information (as defined in the Private Securities Litigation
Report Act of 1995) which may involve risk or uncertainty,
including, but not limited to: future sales, earnings,
margins, production levels and costs, aircraft deliveries,
research and development, environmental and other
expenditures, and various business trends. Actual results
and trends in the future may differ materially from the
projections, depending on a variety of factors.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of Sabreliner Corporation and Notes
to Consolidated Financial Statements appear on pages F7
through F19 of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain biographical
information with respect to Directors and Executive Officers
of the Company.
Name Positions Held Age
F. Holmes Lamoreux Chairman of the Board of 55
Directors,
President and Chief Executive
Officer
Jerry L. Leath Executive Vice President and 56
Chief Operating Officer
Rodney E. Olson Senior Vice President-Finance 42
and Corporate Development and
Chief Financial Officer
Gene L. Harbula Senior Vice President-Corporate 50
Marketing
and Communications
Thomas F. Derieg Group Vice President-Commercial 57
Aviation
Bob D. Hanks Group Vice President 57
Susan S. Aselage Director, Vice President- 42
Secretary and Assistant
Treasurer
Gail B. Johnson Vice President-Assistant 59
Secretary and Administrative
Assistant
Arthur H. Fredston Director 68
Mary B. Harmon Director 49
F. Holmes Lamoreux has been Chairman of the Board of
Directors, President and Chief Executive Officer of the
Company since before 1992. He is also a partner in Wolsey &
Co. Mr. Lamoreux is a Director of General Aviation
Manufacturers Association and a Trustee of The Hill School in
Pottstown, Pennsylvania.
Jerry L. Leath has served as Executive Vice President and
Chief Operating Officer since September, 1994. Prior to
rejoining the Company, Mr. Leath served as Vice President,
Administration of Figgie International, Inc. since 1992.
Prior to that he had served as Vice President, Administration
for the Company.
Rodney E. Olson has served as Senior Vice President-Finance
and Corporate Development and Chief Financial Officer since
September, 1994. Mr. Olson joined the Company in June, 1992
as Vice President, Finance/Administration and Chief Financial
Officer. Prior to joining the Company, Mr. Olson was a
Senior Manager with the accounting firm of Ernst & Young.
Gene L. Harbula has served as Senior Vice President-Corporate
Marketing and Communications since June, 1997. Mr. Harbula
had served as Vice President, Government Marketing and
Corporate Communications since September, 1995, and as Vice
President, Corporate Development from before 1992.
Thomas F. Derieg has served as Group Vice President-
Commercial Aviation since 1997. Prior to joining the Company
Mr. Derieg served as Senior Vice President of Operations for
America West Airlines, Inc. from 1994 to 1996. Prior to that
he served as Senior Vice President of Operations for Aloha
AirGroup, Inc.
Bob D. Hanks has served as Group Vice President since June,
1997. Mr. Hanks had served as the Company's Vice President-
Operations since June, 1995. Mr. Hanks had served as Vice
President- Engineering since before 1992.
Susan S. Aselage has been a Director of the Company and its
Vice President-Secretary and Assistant Treasurer since before
1992. She is a Trustee of the Aircraft Builders Council.
Gail B. Johnson has been Vice President-Assistant Secretary
and Administrative Assistant since September, 1995. Ms.
Johnson had been Assistant Secretary and Administrative
Assistant from before 1992.
Arthur H. Fredston has been a Director of the Company since
before 1992. Mr. Fredston has also been a partner in the law
firm Winthrop, Stimson, Putnam & Roberts since before 1992.
Mr. Fredston is also a co-trustee of a trust which holds all
of the common stock beneficially owned by Mr. Lamoreux. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" below.
Mary B. Harmon became a Director of the Company in 1992. Ms.
Harmon is a private investor residing in Florida, and is
Chairman of the Board of Directors and Senior Officer of
Thames Pharmacal Co., Inc.
Directors of the Company hold office until the next annual
meeting of stockholders or until their successors are duly
elected and qualified. All officers of the Company are
elected by and serve at the discretion of the Board of
Directors of the Company.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to
the Chief Executive Officer and the four most highly
compensated executive officers of the Company for the year
ended June 30, 1997.
Summary Compensation Table
Name and Options All Other
Principal Position Year Salary Bonus Granted Compensation(1)
F. Holmes Lamoreux 1997 $400,000 $ - - $15,450
Chairman of the Board of 1996 346,643 - - 14,730
Directors, President and 1995 320,000 - - 12,977
Chief Executive Officer
Jerry L. Leath, Executive 1997 193,180 100,000 - 12,660
Vice President and Chief 1996 184,698 - 5,000 12,551
Operating Officer 1995 139,028 65,000 5,000 73,696(2)
Rodney E. Olson, Senior 1997 143,737 65,000 - 10,400
Vice President- Finance 1996 137,583 - 4,500 10,820
and Corporate Development 1995 125,833 65,000 3,000 9,092
and Chief Financial Officer
Bob D. Hanks, Group Vice 1997 121,583 50,000 - 9,706
President 1996 106,625 - - 11,427
1995 97,825 40,000 - 44,223(3)
Gene L. Harbula, Senior 1997 112,600 95,000 2,500 6,414
Vice President- Corporate 1996 106,349 - - 7,583
Marketing and 1995 103,257 50,000 - 4,465
Communications
(1) Represents 401(k) plan payments (including matching,
profit sharing and discretionary contributions) and term
life insurance premiums. For fiscal year 1997, 401(k)
plan payments were $10,500 for F. Holmes Lamoreux, $10,500
for Jerry L. Leath, $10,062 for Rodney E. Olson, $6,000
for Gene L. Harbula and $8,511 for Bob D. Hanks. Term
life insurance premiums for fiscal year 1996 were $4,950
for F. Holmes Lamoreux, $2,160 for Jerry L. Leath, $338
for Rodney E. Olson, $1,196 for Bob D. Hanks and $414 for
Gene L. Harbula.
(2) Includes moving allowance of $65,590.
(3) Includes moving allowance of $35,780.
Stock Option Plans
The Company currently maintains a stock option plan, pursuant
to which options to purchase shares of common stock are
outstanding or available for future grant. The plans are
administered by the Company's Board of Directors. No member
of the Board of Directors receives awards under the plans.
Set forth in the following tables is summary information
regarding stock options granted in 1997 and stock options
exercised during 1997 and outstanding at June 30, 1997 for
each of the executive officers listed in the Summary
Compensation Table.
Options Granted in 1997
Potential Realizable
Value at Assumed
Annual Rates
of Stock Price
Appreication
Individual Grants for Option Term
Number % ofTotal
of Options
Securities Granted to Exercise
Underlying Employees Price Expriation
Name Options in 1997 ($/Share) Date 5%($) 10%($)
F. Holmes - - $ - - $ - $ -
Lamoreux
Jerry L. - - - - - -
Leath
Rodney E. - - - - - -
Olson
Bob D. - - - - - -
Hanks
Gene L. 2,500 38% 15.00 5/29/2007 23,584 59,765
Harbula
Aggregated Stock Options Exercised in 1997
and Unexercised Option Values at June 30, 1997
Number of
Securities Value of
Shares Underlying Unexercised
Acquired Value Unexercised In-the-Money
on Realized Options at Options at
Name Exercise ($) June 30, 1997 June 30, 1997
(#) (#) ($)
Exercisable(E)/ Exercisable(E)/
Unexercisable(U) Unexercisable(U)
F. Holmes - $ - - $ -
Lamoreux
Jerry L. 100 0 6,150 E 22,821 E
Leath 3,750 U 11,925 U
Rodney E. - - 4,500 E 15,840 E
Olson 3,000 U 9,030 U
Bob D. - - - -
Hanks
Gene L. - - 2,500 U 0 U
Harbula
Compensation of Directors
Directors of the Company are compensated for their services
as directors. Each director of the Company receives $24,000
annually in respect of his or her services as director, and
is reimbursed for ordinary and necessary expenses in
attending Board meetings.
Employment Contracts and Termination of Employment and
Change of Control Arrangements
The Company's executive officers (other than Mr. Lamoreux,
Mr. Derieg and Ms. Aselage) have entered into agreements with
the Company regarding arrangements in an event of a sale or a
merger of the Company (the "Change of Control Arrangements").
In the event of a sale or merger of the Company, each such
person will be entitled to a bonus equal to six months of
such person's salary at such time. Such bonus will be paid
in a lump sum one month after the date of the sale or merger
if the individual remains with the Company through the date
of sale. An additional bonus amounting to six months salary
will be paid to each such person one year from the date of
sale if employment continues and such person does not
voluntarily terminate employment before the one-year
anniversary date. In addition to regular severance
compensation, a separation allowance (the "Separation
Allowance") will be paid if employment is terminated
subsequent to the sale or merger. The Separation Allowance
amounts to six months salary, which will be paid over a six
month period beginning 30 days after the date of the sale or
merger, or upon termination of employment by the buyer of the
Company. However, the Separation Allowance will not be paid
if a buyer of the Company terminates the employment for
cause.
Amounts payable as of June 30, 1997, in scenarios discussed
above with respect to officers listed in the Summary
Compensation Table would be $194,740 for Mr. Leath, $144,664
for Mr. Olson, $150,000 for Mr. Hanks and $150,000 for Mr.
Harbula. The remaining eligible executive officers would be
paid an aggregate of $93,600.
Additional Information
The annual salary and bonus allocations for the executive
officers set forth in the Summary Compensation Table are
determined annually by Mr. Lamoreux in his capacity as the
Chief Executive Officer of the Company. The adjustment of
Mr. Lamoreux's compensation is determined and approved by the
Board of Directors.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table and notes thereto set forth certain
information with respect to the beneficial ownership of the
Company's common stock as of August 31, 1997, by (i) each
person who is known to the Company to beneficially own more
than 5% of the outstanding shares of common stock of the
Company, (ii) each director who owns shares of common stock
(iii) for the Chief Executive Officer and the four most
highly compensated officers and (iv) all directors and
officers as a group. Except as otherwise indicated, each of
the stockholders named below has sole voting and investment
power with respect to the shares of common stock beneficially
owned by him or her.
Name and Address Number of Percent of
Shares Total
F. Holmes Lamoreux 462,458(1) 53.1%(1)
Sabreliner Corporation
Pierre Laclede Center,
Suite 1500
7733 Forsyth Blvd.
St. Louis, MO 63105-
1821
Mary B. Harmon, as 187,873 21.6%
personal representative
of the estate of
Douglas A. Harmon
1447 Tahiti Dr.
Sanibel, FL 33957
G.S. Beckwith Gilbert 100,000 11.5%
104 Field Point Road
Greenwich, CT 06830
Susan S. Aselage 28,903 3.3%
Jerry L. Leath 8,750 1.0%
Rodney E. Olson 8,875 1.0%
Bob D. Hanks 9,000 1.0%
Gene L. Harbula 5,000 0.6%
Arthur H. Fredston 462,458(1) 53.1%(1)
Winthrop, Stimson,
Putnam & Roberts
One Battery Park Plaza
New York, NY 10004-1490
All directors and 818,484(2) 92.3%
executive officers as a
group
(1) Mr. Lamoreux and Mr. Fredston, a Director of the
Company, are voting trustees pursuant to a voting trust
agreement relating to the 462,458 shares held by a trust,
of which Mr. Lamoreux is the sole beneficiary. The voting
trust agreement may be terminated at any time by Mr.
Lamoreux, and Mr. Fredston may resign at any time as a
voting trustee. Accordingly, Mr. Fredston disclaims
beneficial ownership of the 462,458 shares subject to such
agreement.
(2) Includes 14,150 exercisable options and 2,000 options
exercisable within 60 days of August 31, 1997.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company retained the law firm of Winthrop, Stimson,
Putnam & Roberts during fiscal 1997 and 1996. Arthur H.
Fredston, a director of the Company, is a partner in such
firm.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this
report:
Page
(1) Financial Statements: Number
in this
Report
Report of Independent Auditors F1
Consolidated Balance Sheets - as of June 30, F2-F3
1997 and 1996.
Consolidated Income Statements - Years ended F4
June 30, 1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity F5
- Years ended June 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows - Years F6
ended June 30, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements. F7-F19
(2) Financial Statement Schedules:
No schedules have been filed since either they are not
required, they are not applicable, or the required
information is shown in the Consolidated Financial
Statements or in Notes to Consolidated Financial
Statements.
(3) Exhibits:
Exhibit Description
Number
3(1) Certificate of Incorporation of Sabreliner
Corporation dated June 15, 1983 (Filed
with the Registration Statement on Form S-
4, Registration Number 33-67422, by
Sabreliner Corporation on August 16,
1993)
3(2) Certificate of Amendment of the
Certificate of Incorporation of Sabreliner
Corporation dated July 27, 1984 (Filed
with the Registration Statement on Form S-
4, Registration Number 33-67422, by
Sabreliner Corporation on August 16,
1993)
3(3) Certificate of Amendment of the
Certificate of Incorporation of Sabreliner
Corporation dated September 4, 1986 (Filed
with the Registration Statement on Form S-
4, Registration Number 33-67422, by
Sabreliner Corporation on August 16,
1993)
3(4) By-laws of Sabreliner Corporation (Filed
with the Registration Statement on Form S-
4, Registration Number 33-67422, by
Sabreliner Corporation on August 16,
1993)
4(1) Indenture dated as of June 25, 1993
between Sabreliner Corporation and IBJ
Schroder Bank & Trust Company, as Trustee,
with respect to Sabreliner Corporation's
12 1/2% Senior Notes due 2003, Series A, and
Sabreliner Corporation's 12 1/2% Senior Notes
due 2003, Series B (Filed with the
Registration Statement on Form S-4,
Registration Number 33-67422, by
Sabreliner Corporation on August 16,
1993)
4(2) Purchase Agreement dated as of June 18,
1993 between Sabreliner Corporation and
each Purchaser referred to therein
relating to the Units referred to therein,
in the form executed by each Purchaser
(Filed with the Registration Statement on
Form S-4, Registration Number 33-67422, by
Sabreliner Corporation on August 16,
1993)
4(3) Registration Rights Agreement dated as of
June 25, 1993 among Sabreliner Corporation
and the purchasers of Sabreliner
Corporation's 12 1/2% Senior Notes due 2003,
Series A (Filed with the Registration
Statement on Form S-4, Registration Number
33-67422, by Sabreliner Corporation on
August 16, 1993)
4(4) Warrant Agreement dated as of June 25,
1993 between Sabreliner Corporation and
IBJ Schroder Bank & Trust Company, as
Warrant Agent, with respect to Sabreliner
Corporation's Warrants to purchase 1.1111
shares of its Common Stock (Filed with the
Registration Statement on Form S-4,
Registration Number 33-67422, by
Sabreliner Corporation on August 16,
1993)
4(5) Amended and Restated Financing Agreement
dated as of September 25, 1997 among The
Lenders From time to Time Parties to this
Agreement, Star Bank, N.A., and Sabreliner
Corporation, Midcoast Aviation, Inc.,
Midcoast-Little Rock, Inc., SabreTech,
Inc., Dimension Aviation, Inc. and
Turbotech Repairs, Inc.
9 Voting Trust Agreement dated March 25,
1993, between F. Holmes Lamoreux and
Arthur H. Fredston, as voting trustee,
relating to 462,458 shares of Sabreliner
Corporation's Common Stock held by a trust
of which Mr. Lamoreux is the sole
beneficiary (Filed with the Registration
Statement on Form S-4, Registration Number
33-67422, by Sabreliner Corporation on
August 16, 1993)
10(1) Undergraduate Naval Flight Officers
Contract with the United States Navy
awarded to Sabreliner Corporation on March
6, 1990 (Filed with the Registration
Statement on Form S-4, Registration Number
33-67422, by Sabreliner Corporation on
August 16, 1993)
10(2) C-20 Contractor Logistics Support Contract
with the United States Air Force awarded
to Sabreliner Corporation July 21, 1995
(filed with Form 10-K Registration Number
33-67422, by Sabreliner Corporation on
September 28, 1995)
10(3) Modification Services Agreement Between
McDonnell Douglas Corporation and
Dimension Aviation, Inc. to perform
modifications on certain DC-10 aircraft
awarded to Sabreliner on February 14,
1997.
10(4) Modification Services Agreement Between
McDonnell Douglas Corporation and
Dimension Aviation, Inc. to perform
modifications on certain MDC Tri-Jet
aircraft awarded to Sabreliner on February
14, 1997.
10(5) Sublease Agreement dated June 25, 1990
between Pegasus I, L.P., as sublessor,
and Sabreliner Corporation as sublessee
(Filed with the Registration Statement on
Form S-4, Registration Number 33-67422,
by Sabreliner Corporation on August 16,
1993)
10(6) Lease Agreement dated December 17, 1986,
as amended February
7, 1990, June 25, 1990 and April 17, 1995
between Sabreliner Corporation, as lessee,
and the City of Perryville, Missouri, as
lessor (filed on Form 10-K, Registration
Number 33-67422, by Sabreliner Corporation
on September 27, 1996).
10(7) Lease Agreement dated July 28, 1992,
between Midcoast Aviation, Inc., as
lessee, and the Bi-State Development
Agency of the Missouri-Illinois
Metropolitan District, as lessor, for two
parcels east of hangar 9 at St. Louis
Downtown-Parks Airport (filed with Form
10-K Registration Number 33-67422, by
Sabreliner Corporation on September 28,
1995)
10(8) Lease Agreement dated March 23, 1984, as
amended April 20, 1990, and July 2, 1990,
between Midcoast Aviation, Inc., as
lessee, and the Bi-State Development
Agency of the Missouri-Illinois
Metropolitan District, as lessor, for
8.33 acres of land located at St. Louis
Downtown-Parks Airport (filed with Form
10-K Registration Number 33-67422, by
Sabreliner Corporation on September 28,
1995)
10(9) Lease Agreement dated June 1, 1984,
between Midcoast Aviation, Inc., as
lessee, and the Bi-State Development
Agency of the Missouri-Illinois
Metropolitan District, as lessor, for
hangar 12 located at St. Louis Downtown-
Parks Airport (filed with Form 10-K
Registration Number 33-67422, by
Sabreliner Corporation on September 28,
1995)
10(10) Lease Agreement dated November 7, 1979,
as amended February 9, 1981, April 20,
1990, July 1, 1990, and November 22,
1994, between Midcoast Aviation, Inc., as
lessee, and the Bi-State Development
Agency of the Missouri-Illinois
Metropolitan District, as lessor, for
hangar 7 land and building located at St.
Louis Downtown-Parks Airport (filed with
Form 10-K Registration Number 33-67422,
by Sabreliner Corporation on September
28, 1995)
10(11) Contract for Provision of Line Service
dated August 1, 1988 as amended May 8,
1991, between Midcoast Aviation, Inc., as
operator, and the Bi-State Development
Agency of the Missouri-Illinois
Metropolitan District, as agency, located
at St. Louis Downtown-Parks Airport
(filed with Form 10-K Registration Number
33-67422, by Sabreliner Corporation on
September 28, 1995)
10(12) Terminal Building Lease Agreement, dated
December 4, 1991, between Midcoast
Aviation, Inc., as lessee, and the Bi-
State Development Agency of the Missouri-
Illinois Metropolitan District, as
lessor, located at St. Louis Downtown-
Parks Airport (filed with Form 10-K
Registration Number 33-67422, by
Sabreliner Corporation on September 28,
1995)
10(13) Lease Agreement dated March 1, 1985, as
amended May 16, 1988, June 5, 1989, July
15, 1992, September 28, 1992 and November
30, 1994, between DynAir Tech, Inc., as
lessee, and City of Phoenix, as lessor,
located at Phoenix Sky Harbor
International Airport (filed with Form
10-K Registration Number 33-67422, by
Sabreliner Corporation on September 28,
1995)
10(14) Stock Purchase Agreement Between
Sabreliner Corporation and Trans World
Airlines, Inc. dated as of October 31,
1994 (filed on Form 10-Q, Registration
Number 33-67422, by Sabreliner
Corporation on November 14, 1994)
10(15) Stock Purchase Agreement Among Sabreliner
Corporation, DynCorp and DynCorp Aviation
Services, Ind. dated as of June 30, 1995
(filed on Form 8-K, Registration Number
33-67422, by Sabreliner Corporation on
July 14, 1995)
10(16) 1994 Stock Option Plan of Sabreliner
Corporation (filed with Form 10-K
Registration Number 33-67422, by
Sabreliner Corporation on September 28,
1995)
21 Subsidiaries of Registrant
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during
the quarter ended June 30, 1997.
(c) Exhibits Filed
A listing of exhibits required to be filed is given in the
Sequential Exhibit Index.
(d) Financial Schedules
The information regarding Financial Statement Schedules in
this item is provided in Item 14 (a) 1 and 2.
Report of Independent Auditors
The Board of Directors and Stockholders
Sabreliner Corporation
We have audited the accompanying consolidated balance sheets
of Sabreliner Corporation as of June 30, 1997 and 1996, and
the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three
years in the period ended June 30, 1997. These financial
statements are the responsibility of Sabreliner
Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Sabreliner Corporation at June 30,
1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in
the period ended June 30, 1997 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
September 5, 1997
St. Louis, Missouri
CONSOLIDATED BALANCE SHEETS
June 30
1997 1996
(In Thousands Except
Share
and Per Share Data)
Assets
Current assets:
Cash and cash equivalents $22,994 $12,254
Accounts receivable:
Commercial (net of allowances of
$550 in 1997 and $962 in 1996) 17,504 21,619
Government 12,448 7,733
Inventories 31,542 24,669
Contracts in process (net of customer
advances and progress payments of
$15,143 in 1997 and $10,940
in 1996) 20,192 11,917
Income taxes receivable - 1,927
Deferred tax asset 2,958 3,310
Prepaid expenses 1,739 1,897
Total current assets 109,377 85,326
Property and equipment (net of
accumulated depreciation of $21,286 37,882 48,311
in 1997 and $96,235 in 1996)
Goodwill (net of amortization of $590
in 1997 and $239 in 1996) 4,843 4,984
Deferred financing costs and other 4,798 5,997
assets
Total assets $156,900 $144,618
June 30
1997 1996
(In Thousands Except
share and Per Share Data)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $24,997 $20,152
Accrued compensation 7,068 6,389
Customer deposits 5,588 238
Other accrued liabilities 8,662 4,706
Accrued interest expense 1,946 1,959
Royalties payable 332 2,300
Current portion of long-term debt 750 916
Total current liabilities 49,343 36,660
Long-term debt and capital leases 94,863 93,999
Other long-term liabilities 1,990 2,000
Deferred income taxes 212 1,823
Stockholders' equity (shares and par
value as stated):
Common stock, $.01 par value,
2,000,000 shares authorized; 955,750 10 10
shares issued
Additional paid-in capital 2,056 2,056
Retained earnings 9,432 9,077
11,498 11,143
Less treasury stock, at cost (84,816
shares in 1997; 84,916 shares in
1996) (1,006) (1,007)
Total stockholders' equity 10,492 10,136
Total liabilities and stockholders' $156,900 $144,618
equity
See accompanying notes.
CONSOLIDATED INCOME STATEMENTS
Year ended June 30
1997 1996 1995
(In Thousands Except Share and
Per Share Data)
Net revenue $260,944 $205,633 $120,908
Cost of revenue 215,476 171,045 91,867
Gross margin 45,468 34,588 29,041
Selling, general and
administrative expense 33,411 22,956 17,251
Operating income 12,057 11,632 11,790
Other income (expense):
Interest (13,046) (11,789) (11,123)
Other 978 877 481
(12,068) (10,912) (10,642)
Earnings (loss) before (11) 720 1,148
income taxes
Income tax (expense) benefit 366 (350) (350)
Net income $ 355 $ 370 $ 798
Earnings per share data
Net income $ 0.41 $ 0.42 $ 0.91
Average number of common and
common equivalent shares
Outstanding 873,648 872,491 881,084
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
JUNE 30, 1997
Number of Shares
Common Treasur
Stock y
Stock
Balances at June 30, 955,750 72,916
1994
Treasury stock - 5,000
purchased
Net income - -
Balances at June 30, 955,750 77,916
1995
Treasury stock -
purchased 7,000
Net income - -
Balances at June 30, 955,750 84,916
1996
Treasury stock sold - (100)
Net Income - -
Balances at June 30, 955,750 84,816
1997
Amounts (In Thousands)
Common Paid-In Retained Treasury
Stock Capital Earning Stock
Balances at June 30, $ 10 $2,056 $7,909 $ (859)
1994
Treasury stock - - - (61)
purchased
Net income - - 798 -
Balances at June 30, 10 2,056 8,707 (920)
1995
Treasury stock - - - (87)
purchased
Net income - - 370 -
Balances at June 30, 10 2,056 9,077 (1,007)
1996
Treasury stock sold - - - 1
Net Income - - 355 -
Balances at June 30, $ 10 $2,056 $9,432 $(1,006)
1997
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30
1997 1996 1995
(In Thousands Except Share
and Per Share Data)
Operating Activities
Net income $ 355 $ 370 $ 798
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 6,152 11,078 23,664
Amortization 1,233 810 308
Changes in assets and
liabilities:
Accounts receivable (685) (4,183) 12,089
Inventories (6,888) 1,399 (1,524)
Contracts in process (8,250) (2,041) (2,704)
Prepaid expenses and other 16,482 545 (1,033)
assets
Accounts payabl e 4,875 6,183 (6,110)
Customer deposits 5,350 (1,248) (40)
Deferred contract revenue - (904) (3,806)
and cost
Accrued liabilities 4,484 (1,600) (1,484)
Accrued income taxes 902 173 (120)
Total adjustments 23,665 10,212 19,240
Net cash provided by 24,010 10,582 20,038
operating activities
Investing activities
Capitalized expenditures (11,840) (4,346) (3,788)
Acquisitions, net of cash (1,949) (3,008) (28,069)
acquired
Net cash used in investing (13,789) (7,354) (31,857)
activities
Financing activities
Principal payments on long- (939) (600) (170)
term borrowings
Debt issuance costs - (166) (347)
Sale of treasury stock 1 - -
Purchase of treasury stock - (87) (61)
Other long term borrowings 1,457 - -
Net cash provided (used) by 519 (853) (578)
financing activities
Increase (decrease) in cash 10,740 2,375 (12,397)
Cash and cash equivalents at 12,254 9,879 22,276
beginning of year
Cash and cash equivalents at $22,994 $12,254 $ 9,879
end of year
Supplemental cash flow
information
Interest paid $12,657 $11,775 $11,794
Taxes paid $ 266 $ 63 $ 1,970
Capitalized expenditures and debt proceeds shown in 1995
exclude capital leases of $1.2 million.
See accompanying notes.
Notes to Consolidated Financial Statements
(In Thousands Except Share and Per Share Data)
June 30,1997
1. Nature of Business
Sabreliner is a diversified aerospace company, providing
services in airframe maintenance and modification, gas
turbine engine overhaul and repair, aircraft systems
upgrades and refurbishments, fleet logistics support and
other aerospace products and services for commercial,
corporate and government aviation markets. During fiscal
1997, 41% of the Company's revenue was provided by
government aviation, 33% was provided by corporate aviation
and the remaining 26% was provided by the commercial
aviation business.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the assets,
liabilities and operations of Sabreliner Corporation and its
wholly-owned subsidiaries, Midcoast Aviation, Inc.,
SabreTech, Inc. Dimension Aviation, Inc. and Turbotech
Repairs, Inc. Intercompany items and transactions have been
eliminated in the preparation of these statements, including
unrealized intercompany profits and losses.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Earnings reported
for certain major long-term contracts are predicated upon
estimates of probable outcome by management. Actual results
could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of short-term highly liquid
investments purchased with a maturity of three months or
less.
Inventories
Inventories are valued at the lower of average cost or
market. Inventory costs include the appropriate elements of
material, labor, and manufacturing overhead. Provision is
made for excess aircraft parts based upon historical usage
and known future requirements. Obsolete and unusable
materials are physically removed from inventory stores in
accordance with FAA guidelines and periodic condition
inspections.
In accordance with trade practice, aircraft parts inventory
is included in current assets. In certain specific
instances, some portion of the aircraft parts are carried
for estimated service requirements that exceed one year.
Revenue Recognition
Revenues on contracts are recognized under the percentage of
completion method. Progress is based on contract costs
incurred to date compared to total estimated contract costs
or man-hours incurred to date compared to total estimated
man-hours. Earnings expectations are based upon estimates
of contract values and costs. Contracts in process are
reviewed on a periodic basis with adjustments to revenues
and earnings made in the current accounting period based
upon revisions in contract value and estimated costs at
completion. Provisions for estimated losses on contracts
are recorded when identified.
Contracts in Process
Contracts in process represent accumulated costs and
estimated earnings thereon based upon the percentage of
completion of undelivered customer orders. The contracts in
process balance reflects the actual costs incurred, net of
applicable customer advance payments, and include: direct
engineering, production, tooling, applicable overhead and
other costs (excluding general and administrative costs
which are charged against income as incurred). Contracts in
process do not include any significant amounts of costs,
claims or similar items subject to uncertainty concerning
their realization. Title to or a security interest in
certain items included in contracts in process is vested in
the U.S. Government by reason of progress payment provisions
of related contracts. In accordance with industry
standards, contracts in process related to long-term
contracts are classified as current assets even though a
portion may not be realized within one year.
Long-Lived Assets
Property and equipment are stated at acquisition cost.
Significant additions or improvements which extend asset
lives are capitalized; repair and maintenance costs are
expensed as incurred. Capital leases are recorded at the
lower of fair market value or the present value of future
minimum lease payments. Leasehold improvements are amortized
over the term of the respective lease or the estimated
useful life of the improvement, whichever is shorter.
Equipment is depreciated over the estimated useful life of
each asset, ranging from three to ten years. Buildings are
depreciated over a 30-year life span. All depreciable
property and equipment are depreciated using the straight-
line method.
The Company has recorded goodwill arising out of purchase
cost in excess of fair value of tangible assets acquired in
the purchase of Midcoast Aviation, Inc. and SabreTech, Inc.
Goodwill is amortized on a straight-line basis over 15
years.
The Company records impairment losses on long-lived assets
when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts
of those assets.
Income Taxes
Income tax expense is based upon reported income and
expense, adjusted for permanent differences between income
reported for financial statement purposes and taxable
income. Deferred income taxes are provided using the
liability method for items of revenue and expense recognized
in different periods for financial and income tax reporting.
Earnings Per Share
Earnings per share of common stock are calculated by
dividing net earnings by the weighted average number of
common shares outstanding during each year plus, when their
effect is dilutive, common stock equivalents consisting of
certain shares subject to stock options and warrants.
3. Acquisitions
On June 27, 1996, the company paid $1.0 million to acquire
100% of the outstanding stock and retire outstanding debt
owed investors of Turbotech Repairs, Inc., an engine
component repair and authorized maintenance center for
certain engine manufacturers. During fiscal 1997, the
Company was required to make full payment on certain
revolving term and trade credit facilities initiated by
Turbotech prior to the acquisition of $1.6 million,
resulting in a total purchase price of $2.6 million,
exclusive of mortgage debt kept in place of $1.4 million.
Total assets as of the date of acquisition were $5.1
million. No goodwill was recorded.
On May 23, 1996, the Company acquired the tooling,
inventories and license for the AlliedSignal TFE 731 engine
heavy maintenance product line from UNC-Airwork for $1.2
million. Payments for the tooling and license of $0.5
million were made during fiscal 1996; remaining amounts owed
for inventories of $0.7 million are due in fiscal 1998. No
goodwill was recorded.
On June 30, 1995, the Company acquired the DynAir Companies,
now known as SabreTech, Inc. A base purchase price of $12.8
million was paid during fiscal 1995, subject to an
adjustment in working capital asset values and continuing
purchase costs of $1.5 million, paid in fiscal 1996. In
addition to this base purchase price, the purchase price
includes contingent payments of 10% of SabreTech's annual
revenues in excess of $60 million reported for the Company's
fiscal years 1996 and 1997. Contingent payments, totaling
$2.2 million, were paid during fiscal year 1997. Goodwill
recognized as a result of the acquisition is recorded at
$3.3 million as of June 30, 1997.
On November 2, 1994, the Company acquired Midcoast Aviation,
Inc. for approximately $20 million. Assets as of the date
of acquisition were approximately $25 million, of which $2.0
million represented goodwill.
4. Significant Customers
The Company sells its products and services to the U.S.
Government and to foreign and domestic private individuals,
corporations and governments. The Company performs periodic
credit evaluations of its customers' financial condition and
the results of these evaluations determine the amount of
prepayment, or other security, such as letters of credit,
which may be required.
In the ordinary course of business, the Company's contracts
with its customers are subject to post-sale adjustments and
contractual disputes, claims, and revisions. Although there
can be no assurance that such actions will not effect
reported results, it is the opinion of management that all
outstanding contractual actions will be resolved without
material adverse effect on the Company's financial position
or results of operations.
Foreign revenues amounted to approximately $19,189 in 1997,
$14,279 in 1996, and $5,945 in 1995.
Contract revenues from U.S. Government agencies amounted to
approximately $108,000 in 1997, $55,600 in 1996, and $73,600
in 1995. The largest of these contracts is the
Undergraduate Naval Flight Officer Training contract (UNFO).
Contract revenues for UNFO accounted for approximately
$52,500 in 1997, $22,800 in 1996, and $44,300 in 1995.
During fiscal 1997, McDonnell Douglas accounted for
approximately $17,800 in commercial aviation revenues.
Fiscal 1996 revenue provided by McDonnell Douglas was
$21,300.
5. Inventories
Inventories consist of the following categories:
June 30
1997 1996
Aircraft parts $28,839 $22,105
Assembly parts in process 1,403 1,419
Aircraft held for resale 1,300 1,145
$31,542 $24,669
6. Property and Equipment
The major categories of property and equipment consist of
the following:
June 30
1997 1996
Land and buildings $ 4,145 $4,053
Leasehold improvements 18,024 17,299
Machinery and equipment 17,140 11,539
Tools, dies and jigs 4,639 4,243
Furniture and other equipment 9,039 4,797
Service contract assets - 99,118
52,987 141,049
Less accumulated depreciation (21,286) (96,235)
31,701 44,814
Construction-in-progress 6,181 3,497
$37,882 $48,311
Service contract assets balances reflect the sale of the
UNFO assets during fiscal 1997.
7. Long-Term Debt and Capital Leases
Long-term debt and capital leases consist of the following:
June 30
1997 1996
12.5% Senior Notes Due in 2003 $88,920 $88,740
Revolving credit - -
Mortgage notes 3,829 4,054
Executive insurance policies 1,457 -
Capital leases 1,011 1,189
Other 396 932
95,613 94,915
Less current portion (750) (916)
$94,863 $93,999
Senior Notes
On June 28, 1993, the Company issued $90,000 of 12.5 percent
Senior Notes (Notes) due April 15, 2003, and detachable
Warrants entitling Warrant holders to purchase an aggregate
of 94,444 shares of Common Stock. The net proceeds of
$89,900 were allocated on a fair value basis between long
term debt and Warrants.
The Warrants have an exercise price of $25.00 per share, and
are exercisable on or after June 25, 1998, on or after the
occurrence of a Triggering Event, as defined in the Warrant
Agreement governing the Warrants, or in connection with the
voluntary or involuntary dissolution of the Company.
The Notes, which are publicly registered, are senior,
unsecured obligations of the Company and rank "pari passu"
in right of payment with all other existing and future
unsecured senior indebtedness of the Company, and are senior
in right of payment to all existing and future subordinated
obligations. Interest on the Notes is payable semi-
annually.
The Indenture under which the Notes were issued contains
several covenants, including interest coverage and the
incurrence of additional debt. Should the Company not meet
the annually measured Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) coverage ratio as
identified in the Indenture, the Company will be required to
offer to repurchase ten percent of the outstanding Notes.
The Indenture also restricts the payment of dividends by
limiting the percentage of consolidated net income eligible
for dividends and requiring the EBITDA coverage ratio to be
at least 2.5. In the event of a Change of Control, as
defined in the Indenture, the Company is required to offer
to purchase all outstanding Notes at a purchase price equal
to 101 percent of the principal amount thereof plus accrued
interest to the Change of Control purchase date.
The Notes are not redeemable at the option of the Company
prior to May 1, 1998. On or after that date, the Notes are
redeemable at the option of the Company, in whole or in part
any time, at a premium which declines annually.
Revolving Credit
The Company has a secured revolving credit and letter of
credit facility. The Company has available, on a
discretionary basis, the lesser of $35.0 million or the
amount determined under a borrowing base formula, secured by
inventory, accounts receivable and general intangibles.
Included in this credit agreement are covenants which
require the Company to maintain certain interest coverage,
equity values, and other performance criteria throughout the
term of the financing agreement. The credit agreement
expires February, 2001, and is subject to interest
determined at the prime rate, plus 1.25%.
Mortgage Notes
The Company kept in place a mortgage note as part of its
acquisition of Midcoast Aviation, Inc. The mortgage is
secured by leasehold improvements at the St. Louis Downtown
Parks facility. The interest rate on this note is fixed for
three year periods throughout the note's life, using one-
half percent over the bank's prime rate. The current rate,
until the next adjusting period, starting January 1998 is
8.75%. The monthly payment, fixed for a term coinciding
with interest rate redetermination, is $34. The Note
matures on December 26, 1999.
As part of its acquisition of Turbotech Repairs, Inc., the
Company kept in place two mortgage notes totaling $1.4
million, secured by real property and buildings. The
largest of these notes has a loan balance of $782. The
interest rate on the note is equal to the bank's CD rate
plus two percent. The principal portion of the monthly
payment is a fixed amount and the Note matures on March 1,
2005. The remaining mortgage is owed to the Small Business
Administration. The interest rate on this note is fixed at
7.7% per annum and the note matures on June 1, 2015.
Combined monthly payments made under these mortgages,
estimated under current interest rates are $13.
Capital Leases
The Company has entered into capital leases for the purchase
of mainframe information systems, machinery and equipment
and vehicles. As of June 30, 1997, these assets (included
in property and equipment) totaled $1,274, net of
accumulated depreciation of $67. Annual lease payments
under capital leases for the years ended June 30, 1998
through 2002, are $438, $422, $333, $150 and $65,
respectively.
Aggregate maturities of long-term borrowings and capital
leases are as follows:
1998 $ 750
1999 691
2000 549
2001 405
2002 368
Thereafter 92,850
$95,613
8. Lease Commitments, Rent Expense and Rental Revenues
The Company has lease commitments (both income and expense)
expiring at various dates, principally for real property and
equipment. Income leases are primarily subleases and offset
lease commitments.
Future minimum lease payments and rental revenues under
noncancellable, operating leases are as follows:
Total Total Net
Lease Income Commitmen
Payments Leases ts
Years Ended June 30
1998 $ 4,326 $(1,575) $ 2,751
1999 4,204 (340) 3,864
2000 3,483 (112) 3,371
2001 3,284 (112) 3,172
2002 and thereafter 13,137 (58) 13,079
Total $28,434 $(2,197) $26,237
Rent expense for operating leases totaled $6,543 in 1997,
$6,179 in 1996, and $1,726 in 1995. Rental revenue totaled
$3,542 in 1997, $3,493 in 1996, and $1,362 in 1995.
9. Benefit Plans
Pensions
The Company has three hourly pension plans covering
substantially all non-salaried union employees. Pension
benefits are based on the employee's length of service and
defined benefit rates. Normal service costs are funded
currently using the projected unit credit method.
Net periodic pension expense for 1997, 1996, and 1995 is
comprised of the following:
1997 1996 1995
Service cost $ 198 $ 192 $ 185
Interest cost on projected 421 387 340
benefit obligation
Return on plan assets (1,065) (842) (860)
Amortization of unrecognized net
assets and deferral 509 348 430
Net periodic pension expense $ 63 $ 85 $ 95
The following table sets forth the funded status of these
three plans:
1997 1996
Plan assets at fair value, primarily $7,248 $6,272
stock and bond funds
Actuarial present value of benefit
obligations: 5,029 4,570
Vested 724 766
Nonvested
Projected benefit obligation 5,753 5,336
Plan assets in excess of projected 1,495 936
benefit obligation
Unrecognized net (gain) or loss from
past experience different from that
assumed and effects of changes in (1,203) (702)
assumptions
Prior service cost not yet recognized
in net periodic pension costs 326 374
Unrecognized net asset at June 30, 1987
being recognized over 12 years (70) (129)
Minimum liability adjustment (11) -
Prepaid pension cost $ 537 $ 479
The discount rate used to develop net pension expense was
8.0 percent in 1997, 8.0 percent in 1996 and 8.0 percent in
1995. The expected long-term rate of return on retirement
plan assets for 1997, 1996 and 1995 was 8.7 percent, 8.7
percent and 8.6 percent, respectively.
Postretirement Benefits
A select group of retired employees are provided medical
insurance on a continuing basis. The plan is contributory,
with retiree contributions adjusted periodically, and
contains other cost-sharing features, such as deductibles
and co-insurance. The Company's policy is to fund the cost
of medical benefits as incurred. The accrued postretirement
benefit cost as of June 30, 1997 and 1996, was $1.1 million.
The continuing cost of covered health care benefits is
expected to increase 11 percent each year through 2000, with
decreases expected to gradually reduce to 6 percent by the
year 2006 and remain constant thereafter. The effect of a
one percentage point increase in the assumed health care
trend rate in the projected liability at June 30, 1997 is
$94. The discount rate used to determine the accumulated
postretirement benefit obligations as of June 30, 1997 was
8.25 percent.
Savings Plans
The Company maintains savings plans for salaried personnel
and nonunion hourly employees. Under the provisions of one
of the savings plans the Company makes contributions based
upon employee voluntary contributions and eligible
compensation. The Company's cost was $678 in 1997, $678 in
1996 and $662 in 1995.
Stock Option Plans
The Company has an incentive stock option plan for officers
and key employees. A summary of stock option activity
follows:
Per Share Data
1997 1996 1995
Outstanding at beginning 25,400 10,900 2,400
of year
Granted 6,500 16,000 13,500
Exercised (100) - -
Canceled/expired (1,400) (1,500) (5,000)
Outstanding at end of 30,400 25,400 10,900
year
As of June 30, 1997, 14,025 options are exercisable at
prices ranging from $10.46 to $12.50 per share. The
remaining 16,375 options, which were granted at exercise
prices ranging from $8.77 per share to $15.00 per share
become exercisable as follows: 9,250 in 1998; 5,500 in 1999
and 1,625 in fiscal 2000. The plan is authorized to grant
up to 169,500 additional options.
In fiscal 1997, the Company adopted the disclosure-only
alternative under FAS 123 "Accounting for Stock-Based
Compensation," which establishes financial accounting and
reporting standards for stock-based employee compensation
plans. Recognition of the fair value of employee stock
options at the grant date would not result in a material
change to reported earnings for fiscal 1997.
10. Income Taxes
Components of the provision for income taxes attributable to
continuing operations are as follows:
1997 1996 1995
Current $ (893) $1,098 $(667)
Deferred 1,259 (1,448) 317
Total (expense) benefit $ 366 $ (350) (350)
The reconciliation of income computed at the U.S. federal
statutory tax rates to the effective income tax for 1997,
1996 and 1995 is as follows:
1997 1996 1995
Tax at statutory rate $ 4 $(210) $(390)
State income taxes 1 (29) (21)
Tax exempt insurance 380 - -
proceeds
Foreign sales corporation 93 43 58
Keyman and life insurance 53 (43) (9)
Non-deductible expenses (110) (63) (48)
Goodwill amortization (55) (48) 67
Other - - (7)
$ 366 $(350) $(350)
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Significant components of the Company's deferred tax assets
and liabilities are as follows:
1997 1996
Deferred Tax Assets:
Vacation accrual $ 973 $ 647
AMT credits 894 2,237
Accrued expenses 736 56
Inventory reserves and UNICAP 581 1,777
Retirement benefits - FAS 106 409 409
Deferred contract revenue and cost 345 225
Other 676 197
Total deferred tax assets $4,614 $5,548
Deferred tax liabilities:
Tax over book depreciation and $1,275 $4,061
accelerated contract costs
Securities discounts 194 -
Other 399 -
Total deferred tax liabilities 1,868 4,061
Net deferred tax asset $2,746 $1,487
No valuation allowance is considered necessary for the
remaining $2.7 million net deferred tax asset as management
believes it is more likely than not that the deferred tax
asset will be realized through tax planning strategies,
through future reversals of existing taxable temporary
differences against existing deductible differences, and
through projections of income in future periods.
The Company is subject to the Alternative Minimum Tax (AMT)
system for income tax purposes. The AMT credit carryforward
balance as of June 30, 1996 was $2,237 which carries forward
indefinitely. During fiscal 1997, the regular tax expense
exceeded the AMT expense, resulting in a utilization of AMT
credits of approximately $1,343. The remaining balance of
AMT credit carryforwards is $894.
11. Litigation and Contingencies
ValuJet Related
On May 11, 1996, ValuJet Flight 592 from Miami, carrying 110
passengers and crew crashed into the Florida Everglades.
Prior to take-off, an employee of SabreTech's Miami facility
returned to ValuJet various company materials, including
five boxes containing oxygen generators. The ValuJet ramp
agent, after consultation with ValuJet's flight crew, loaded
the boxes into the cargo bay of Flight 592. On August 19,
1997, the National Transportation Safety Board (NTSB)
conducted its public meeting and issued an Abstract of Final
Report on ValuJet Flight 592 and determined the probable
causes of the accident to be (1) the failure of SabreTech to
properly prepare, package, identify and track unexpended
oxygen generators before presenting them to ValuJet for
carriage, (2) the failure of ValuJet to properly oversee its
contract maintenance program to ensure compliance with
maintenance, maintenance training and hazardous materials
requirements and practices and (3) failure of the Federal
Aviation Administration (FAA) to require smoke detection and
fire suspression systems in Class D cargo compartments. The
NTSB also found that other acts and omissions by ValuJet and
FAA contributed to the accident.
The 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.
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. 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.
SabreTech has filed a Complaint for Declaratory Judgment and
Other Relief against ValuJet in the U.S. District Court for
the Southern District of Florida. Among other things, that
suit seeks indemnification for damages incurred by SabreTech
in connection with the accident. ValuJet has filed an
Answer and Conditional Counterclaim in the case seeking
various damages. The Company's legal costs in defending
against the counterclaim are funded by the Company's
insurance policies. Management believes that the Company
will be able to successfully defend against ValuJet's
counterclaim.
Costs associated with this accident, such as media
relations, incremental professional services, legal fees and
other costs related to the various investigations and other
lawsuits, of approximately $5.7 million were incurred in
fiscal year 1997. The ultimate outcome of the legal actions
related to the ValuJet Flight 592 crash and the length of
time necessary to resolve all the 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 results of operations or financial condition of the
Company.
Environmental
The Company has been subject to government inquiry regarding
alleged environmental wrongdoing that may have occurred at
the Perryville facility. Several requests for documents
concerning this matter have been received since January,
1994, most recently July, 1997. All requests for documents
have been complied with or are in the process of resolution.
In addition, various current and former employees have
received subpoenas or notice letters identifying each as a
witness, subject or target. The Company believes it has
meritorious defenses to allegations of wrongdoing, if any,
that may result from the investigation.
Other
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.
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, as of September 26, 1997.
SABRELINER CORPORATION
By: /s/ F. Holmes Lamoreux
F. Holmes Lamoreux
Chairman of the Board of
Directors, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ F. Holmes Lamoreux Chairman of the September 26, 1997
Board of Directors,
F. Holmes Lamoreux President and Chief
Executive Officer
/s/ Jerry L. Leath Executive Vice September 26, 1997
Jerry L. Leath President and
Chief Operating
Officer
/s/ Rodney E. Olson Senior Vice September 26, 1997
Rodney E. Olson President, Finance
and Corporate
Development and
Chief Financial
Officer
(principal
financial and
accounting officer)
/s/ Susan S. Aselage Vice President, September 26, 1997
Secretary and
Susan S. Aselage Assistant
Treasurer, and
Director
/s/ Arthur H. Fredston Director September 26, 1997
Arthur H. Fredston
/s/ Mary B. Harmon Director September 26, 1997
Mary B. Harmon
SEQUENTIAL EXHIBIT INDEX
The following exhibits are filed herewith:
Exhibit Number Description
4(5) Amended and Restated Financing
Agreement dated as of September 25, 1997
among The Lenders From Time to Time Parties
to this Agreement, Star Bank, N.A., and
Sabreliner Corporation, Midcoast Aviation,
Inc., Midcoast-Little Rock, Inc.,
SabreTech, Inc., Dimension Aviation, Inc.
and Turbotech Repairs, Inc.
10(3) Modification Services Agreement
Between McDonnell Douglas Corporation and
Dimension Aviation, Inc. to perform
modifications on certain DC-10 aircraft
awarded to Sabreliner on February 14, 1997.
10(4) Modification Services Agreement
Between McDonnell Douglas Corporation and
Dimension Aviation, Inc. to perform
modifications on certain MDC Tri-Jet
aircraft awarded to Sabreliner on February
14, 1997.
21 Subsidiaries of Registrant
EXHIBIT 21
Sabreliner Corporation
Form 10-K
For the Fiscal Year Ended June 30, 1997
SUBSIDIARIES OF THE REGISTRANT
Midcoast Aviation, Inc., incorporated under the laws of
Missouri.
SabreTech, Inc., a Delaware corporation.
Turbotech Repairs, Inc., a California corporation.
Dimension Aviation, Inc., a Delaware Corporation
EXHIBIT 4(5)
U.S. $35,000,000
AMENDED AND RESTATED FINANCING AGREEMENT,
dated as of September 25, 1997,
among
THE LENDERS FROM TIME TO TIME PARTIES TO THIS AGREEMENT
as Lenders
and
STAR BANK, NATIONAL ASSOCIATION
as Agent
and
SABRELINER CORPORATION
and its subsidiaries:
MIDCOAST AVIATION, INC., MIDCOAST-LITTLE ROCK, INC.,
SABRETECH, INC., DIMENSION AVIATION, INC. and TURBOTECH REPAIRS,
INC.
as Borrowers
TABLE OF CONTENTS
1. DEFINITIONS 2
1.1 Defined Terms 2
1.2 Environmental Definitions 17
1.3 Other Definitional Provisions; Construction 18
2. LOANS AND OTHER FINANCIAL ACCOMMODATIONS 19
2.1 Total Facility 19
2.2 Revolving Loans 19
2.3 Letters of Credit 20
2.4 No Deficiency 22
2.5 Procedures for Advancing and Funding Revolving Loans 22
2.6 No Limitation on Liens 24
2.7 Discretionary Nature of Facility 24
2.8 General Conditions 25
2.9 One General Obligation; Cross-Collateralized 25
3. INTEREST CHARGES; MINIMUM LOAN CHARGE; FEES 26
3.1 Interest on Loans 26
3.2 Increased Costs 26
3.3 Closing Fee 27
3.4 Unused Commitment 27
3.5 Letter of Credit Fees 27
3.6 Interest Rate Protection 28
3.7 Calculation of Certain Charges 28
3.8 Payments; Charging Loan Account 28
3.9 Maximum Rate 28
3.10 Monthly Loan Activity Accountings 29
4. APPORTIONMENTS OF PAYMENTS; SETTLEMENTS AMONG LENDERS;
PARTICIPATIONS IN LETTERS OF CREDIT. 29
4.1 Apportionment of Payments; Pro Rata Treatment 29
4.2 Settlements 30
4.3 Letter of Credit Participations by Lenders 31
4.4 Allocation of Payments Following Acceleration 32
4.5 No Third Party Beneficiary 33
5. NATURE OF BORROWERS' OBLIGATIONS; GUARANTY 33
5.1 Joint, Several and Primary Obligations 33
5.2. Consolidated Borrowings 33
5.3. Guaranties 34
6. SECURITY 34
7. RECEIVABLES; INVENTORY; COLLECTION OF RECEIVABLES; DISPUTED
RECEIVABLES; PROCEEDS OF INVENTORY 34
7.1 Agreements Regarding Receivables 34
7.2 Agreements Regarding Inventory 34
7.3 Locked Boxes 34
7.4 Special Account and Blocked Account 35
7.5 Crediting of Remittances 36
7.6 Cost of Collection 36
8. EXAMINATION OF LOAN COLLATERAL; REPORTING 37
8.1 Maintenance of Books and Records 37
8.2 Access and Inspection 37
8.3 Reporting Regarding Receivables 37
8.4 Reporting Regarding Inventory 37
8.5 Monthly Financial Statements; Payable Information 38
8.6 Annual Projections 38
8.7 Audited Annual Financial Statements 38
8.8 Management Reports 39
8.9 Comparisons to Financials; Certificates 39
8.10 Tax Returns; Consolidated Information; Additional
Information 39
9. WARRANTIES, REPRESENTATIONS AND COVENANTS 39
9.1 Corporate Status 39
9.2 Due Authorization; Validity 39
9.3 No Violation 40
9.4 Use of Loan Proceeds 40
9.5 Management; Ownership of Assets; Licenses; Patents 40
9.6 Indebtedness 40
9.7 Title to Property; No Liens 40
9.8 Restrictions; Labor Disputes; Labor Contracts 41
9.9 No Violation of Law 41
9.10 Hazardous Substances 41
9.11 Absence of Default 42
9.12 Accuracy of Financials; No Material Changes 42
9.13 Pension Plans 42
9.14 Taxes and Other Charges 42
9.15 No Litigation 43
9.16 No Brokerage Fee 43
9.17 Affiliates 43
9.18 Capitalization; Warrants 43
9.19 Noncompetition Agreements 43
9.20 Deposit and Other Accounts 43
9.21 Solvency 43
9.22 Full Disclosure 43
9.23 Casualties 44
9.24 Leases 44
9.25 Insurance Policies 44
9.26 Consents 44
9.27 Updating Representations and Warranties 44
10. COVENANTS 45
10.1 Payment of Certain Expenses 45
10.2 Notice of Litigation 45
10.3 Notice of ERISA Events 45
10.4 Notice of Labor Disputes 45
10.5 Compliance with Laws 45
10.6 Notice of Violations of Law, Tax Assessments 45
10.7 Notice of Certain Matters Under Applicable
Agreements 46
10.8 Notice of Customer Defaults 46
10.9 Taxes and Charges 46
10.10 Indebtedness; Guaranties 46
10.11 Restrictions 49
10.12 Pension Plans 49
10.13 Solvency 49
10.14 Property Insurance 49
10.15 Liability Insurance 49
10.16 Changes to Senior Notes Documents 50
10.17 Merger 50
10.18 Investments 50
10.19 Distributions; Loans; Fees 51
10.20 Stock Rights 51
10.21 Capital Structure; Fiscal Year 51
10.22 Affiliate Transactions; Management Fees 51
10.23 Operating Account 52
10.24 Compensating Balance 52
10.25 Sale of Assets 52
10.26 Intervention by Governmental Authority 52
10.27 Levy Against Loan Collateral 52
10.28 Judgments 52
10.29 Financial Covenants 53
10.30 No Prepayment of Senior Notes 53
11. TERMINATION 53
11.1 Termination Date 53
11.2 Renewal by Lenders 53
11.3 Voluntary Termination by Borrowers 53
11.4 Acceleration upon Termination 53
11.5 Borrowers Remain Liable 53
12. AGENT 54
12.1 Appointment 54
12.2 Delegation of Duties 54
12.3 Exculpatory Provisions 54
12.4 Reliance by Agent 55
12.5 Notice of Default 55
12.6 Non-Reliance on Agent and Other Lenders 55
12.7 Indemnification 56
12.8 Agent in Its Individual Capacity 56
12.9 Loan Collateral Matters 57
12.10 No Third Party Beneficiary 58
13. EVENTS OF DEFAULT 58
13.1 Events of Default 58
13.2 Cure Periods 61
14. LENDERS' RIGHTS AND REMEDIES 61
14.1 Acceleration 61
14.2 Fees and Expenses 62
14.3 Actions in Respect of the Letters of Credit 62
15. AMENDMENTS; WAIVERS; ASSIGNMENTS; PARTICIPATIONS 63
15.1 Amendments and Waivers 63
15.2 Assignment 65
15.3 Participations 65
15.4 Law Requirements 66
16. GENERAL 66
16.1 Severability 66
16.2 Governing Law 66
16.3 WAIVER OF JURISDICTION 67
16.4 Survival and Continuation of Representations and
Warranties 67
16.5 Additional Rights Regarding Loan Collateral 67
16.6 Application of Payments; Revival of Obligations 67
16.7 Fees and Expenses 68
16.8 Notices 69
16.9 Indemnification 69
16.10 Additional Waivers by Borrowers 70
16.11 Equitable Relief 70
16.12 Entire Agreement; Consents; Counterparts 70
16.13 Headings 71
16.14 Cumulative Remedies 71
16.15 Further Assurances 71
16.16 WAIVER OF JURY TRIAL 71
EXHIBITS
Exhibit 2.5 Form of Request for Advance of Revolving Loan
Exhibit 5.3 Form of Guaranty
Exhibit 7.3 Locked Boxes
Exhibit 7.4 Account Information
Exhibit 8.3 Borrowing Base Certificate
Exhibit 8.9 Officer's Certificate
Exhibit 9.1 Foreign Jurisdiction Qualifications
Exhibit 9.5 Licenses; Trademarks; Patents; Copyrights
Exhibit 9.8 Labor Matters
Exhibit 9.9 Compliance With Laws
Exhibit 9.10 Environmental Matters
Exhibit 9.11 Defaults under Applicable Agreements
Exhibit 9.13 Pension Matters
Exhibit 9.14 Tax Liens
Exhibit 9.15 Litigation
Exhibit 9.17 Affiliates
Exhibit 9.18 Capital Stock; Shareholders
Exhibit 9.20 Bank Accounts
Exhibit 9.23 Casualties
Exhibit 9.24 Leases
Exhibit 9.25 Insurance Policies
Exhibit 10.10 Permitted Indebtedness
Exhibit 10.18 Investments
Exhibit 10.29 Financial Covenants
SCHEDULES
Schedule 1 Lenders' Commitments
Schedule 2 Financial Statements
Schedule 3 Permitted Liens
Schedule 4 Borrower's Facilities
AMENDED AND RESTATED FINANCING AGREEMENT
THIS AMENDED AND RESTATED FINANCING AGREEMENT (this
"Agreement") among Lenders (as defined below), STAR BANK,
NATIONAL ASSOCIATION, a national banking association ("Star
Bank"), as Agent for Lenders (in that capacity, "Agent"), the
Lenders from time to time party to this Agreement, 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"),
is as follows:
Recitals
A. Star Bank, Sabreliner, Midcoast, Little Rock,
SabreTech, Dimension and Turbotech are parties to a Financing
Agreement dated as of February 13, 1995, as amended by a First
Amendment to Financing Agreement dated as of November 10, 1995, a
Second Amendment to Financing Agreement dated as of January 26,
1996, a letter agreement dated as of November 12, 1996, and a
Third Amendment to Financing Agreement dated as of February 14,
1997 (as amended, the "Existing Financing Agreement").
B. Star Bank, Sabreliner, Midcoast, Little Rock,
SabreTech, Dimension and Turbotech desire to amend and restate
the Existing Financing Agreement to make certain changes to the
Existing Financing Agreement, to add Congress Financial
Corporation (Central), an Illinois corporation, as a Lender and
to establish Star Bank as Agent for Lenders, on and subject to
the terms and conditions of this Agreement.
Amendment and Restatement
The Existing Financing Agreement is hereby amended and
restated in its entirety by this Agreement. This Agreement, the
Exhibits and Schedules attached hereto, and the other Loan
Documents govern the present relationship among Agent, Lenders
and Borrowers. This Agreement, however, is in no way intended,
nor shall it be construed, to affect, replace, impair or
extinguish the creation, attachment, perfection or priority of
the security interests in, and other Liens on, the Loan
Collateral granted to, or held by, Star Bank, which security
interests and other Liens Star Bank shall hold as Agent for
Lenders, and which security interests and other Liens Borrowers,
by this Agreement, acknowledge, reaffirm and confirm to Agent.
In addition, all obligations, liabilities and indebtedness
created or existing under, pursuant to, or as a result of, the
Existing Financing Agreement shall continue in existence within
the definition of "Obligations" under this Agreement, which
obligations, liabilities and indebtedness Borrowers, by this
Agreement, acknowledge, reaffirm and confirm. The existing Loan
Documents, except as amended by this Agreement or by a separate
agreement, shall remain in full force and effect and are hereby
ratified and confirmed. References in any of the Loan Documents
to the Existing Financing Agreement shall be deemed to be
references to this Agreement.
1. DEFINITIONS.
1.1 Defined Terms In addition to the other terms defined
in this Agreement, whenever the following capitalized terms
(whether or not underscored) are used, they shall be defined as
follows:
"Additional Borrower" means a Subsidiary, other than
Midcoast, Little Rock, SabreTech, Dimension and Turbotech, which
becomes an Additional Borrower hereunder on terms acceptable to
Required Lenders.
"Additional Guarantor" means a Subsidiary, other than
Midcoast, Little Rock, SabreTech, Dimension and Turbotech, which
executes a Guaranty in the form of Exhibit 5.3.
"Affiliate" means, as to any Person (the "Subject Person"),
any other Person which, directly or indirectly, is in control of,
is controlled by, or is under common control with, the Subject
Person. For purposes of this definition, "control" of a Person
means the power, direct or indirect, (i) to vote 10% or more of
the securities having voting power for the election of directors
of the Person or (ii) otherwise to direct or cause the direction
of the management and policies of the Person, whether by contract
or otherwise. For purposes of this definition, all of each
Borrower's officers, shareholders, directors, parent
corporations, subsidiary corporations, joint venturers and
partners shall be deemed to be Borrowers' Affiliates for purposes
of this Agreement; provided that the shareholders of Sabreliner
which are not, directly or indirectly, in control of, controlled
by or under common control with Sabreliner will not, solely by
reason of their status as shareholders of Sabreliner, be
considered to be Affiliates of Sabreliner from and after the
date, if any, that the shares of Sabreliner are publicly
registered.
"Applicable Agreement" means any agreement, commitment,
arrangement or instrument to which, as of any date, any Borrower
is a party or by which a Borrower or any of its properties is
bound (including any note, indenture, loan agreement, mortgage,
lease, or deed), the performance or non-performance of which
could have a Material Adverse Effect, including the Senior Notes
Indenture and the Senior Notes.
"Attorneys' Fees" means the reasonable fees (determined at
an hourly rate without premium), costs and expenses of all
attorneys (and all paralegals and other staff employed by such
attorneys) retained by Agent or Star Bank (and solely with
respect to the negotiation and documentation of this Agreement
(and not any amendments thereto), the costs and expenses of all
attorneys (and all paralegals and other staff employed by such
attorneys) retained by Congress Financial Corporation (Central),
up to the amount of $10,000 for the initial review of this
Agreement and the documents to be executed in connection
therewith), from time to time in connection with any matter
whatsoever related to, or arising out of, the transactions
contemplated hereunder or the other Loan Documents.
"Availability Deficiency" means the occurrence, as at any
time, of a condition in which (i) the sum of (a) the then
aggregate outstanding principal amount of the Revolving Loans
plus (b) the then aggregate Letter of Credit Exposure exceeds
(ii) $35,000,000.
"Borrower" means each of Sabreliner, Midcoast, Little Rock,
SabreTech, Dimension, Turbotech and each Additional Borrower, and
"Borrowers" means, collectively, Sabreliner, Midcoast, Little
Rock, SabreTech, Dimension, Turbotech and each Additional
Borrower. To the extent a term or provision of this Agreement or
the other Loan Documents is applicable to a "Borrower", it is
applicable to each and every Borrower unless the context
expressly indicates otherwise.
"Borrower's Facility" means each facility listed in Schedule
4.
"Borrowing Base" means, as of any date of determination, an
amount equal to:
(i) an amount up to 85% of the amount of net Eligible
Receivables (i.e., less maximum discounts, credits and allowances
which may be taken by or granted to account debtors in connection
therewith) then outstanding;
plus (ii) the lesser of (a) $20,000,000 or (b) an
amount equal to the sum of (1) an amount up to 55% of the then
Eligible Inventory (determined exclusive of Pre-Owned Aircraft
and Work in Process), (2) an amount up to 30% of the then
Eligible Inventory of Sabreliner which is Work in Process
consisting of work on aircraft engines, (3) an amount up to 20%
of the then Eligible Inventory of Sabreliner which is Work in
Process other than work on aircraft engines, and (4) an amount up
to 80% of those items of the then Eligible Inventory which are
Pre-Owned Aircraft; and
less (iii) the then Reserve Amount.
"Borrowing Base Deficiency" means any failure of the
Revolving Loan Availability to be greater than or equal to zero
Dollars.
"Borrowing Date" means any Business Day (i) specified in a
notice pursuant to Sections 2.5.1 or 2.5.2 as a date on which
Borrowers request Lenders to make Loans under this Agreement and
(ii) on which Agent makes advances of Revolving Loans to
Borrowers.
"Business Day" means any day which is not a Saturday, Sunday
or a legal holiday on which a Lender is authorized or required to
be closed. Periods of days referred to in this Agreement will be
counted in calendar days unless Business Days are expressly
prescribed.
"Closing Date" means September 25, 1997, or such later date
as is mutually agreeable to Borrowers, Lenders and Agent.
"Code" means the Uniform Commercial Code, as enacted in the
State of Ohio, Section 1301.01 et seq. of the Ohio Revised Code,
as amended from time to time.
"Collateral", "General Intangibles", "Inventory", and
"Receivables" have the meanings ascribed thereto in the Security
Agreement (as defined in this Section 1.1).
"Commitment" means, when used with reference to a particular
Lender, its obligation to make Revolving Loans to Borrowers and
to participate in Letters of Credit, all in the aggregate amount
set forth opposite that Lender's name on Schedule 1.
"Commitments" means, collectively, the aggregate amount of all
Commitments of Lenders.
"Controlled Disbursement Accounts" means the operating
accounts of Borrowers at Agent identified in Exhibit 2.6, which
will be structured and utilized as controlled disbursement
accounts in accordance with Agent's controlled disbursement
account policies and procedures.
"Controlled Group" means all members of a controlled group
of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with a
Borrower, are treated as a single employer under Section 414(b)
or 414(c) of the Internal Revenue Code or Section 4001(a)(14) of
ERISA (as defined in Section 9.13).
"Deficiency" means (collectively and individually) an
Availability Deficiency, a Borrowing Base Deficiency, and a
Letter of Credit Deficiency.
"Dollars" and "$" means dollars in lawful currency of the
United States of America unless otherwise indicated.
"Eligible Inventory" means each Borrower's Inventory which
meets the criteria in clause (i) below of this definition and is
not ineligible pursuant to clause (ii) below. Eligible Inventory
will be valued, for purposes of determining the Borrowing Base,
at the lower of cost or market value, determined on the basis of
average cost.
(i) Except as otherwise provided in clause (ii) below,
Inventory is eligible if it is (a) (1) finished goods owned and
held by a Borrower at a Borrower's Facility for sale in the
ordinary course of a Borrower's business as presently conducted
by it ("Finished Goods"), (2) used aircraft (comprised of an
airframe, applicable configured engines, and associated
equipment) owned and held by a Borrower for sale in the ordinary
course of a Borrower's business as presently conducted by it
("Pre-Owned Aircraft"), (3) work in process owned and held by a
Borrower at a Borrower's Facility that is being converted or
fabricated into Finished Goods or whereby a Borrower is
performing services to complete purchase orders or where a
Borrower has received signed work authorizations, both in the
ordinary course of a Borrower's business as presently conducted
by it ("Work in Process"), or (4) raw materials owned and held by
a Borrower at a Borrower's Facility that will be converted or
fabricated into, or are components of, Finished Goods or are held
separately for sale in the ordinary course of a Borrower's
business as presently conducted by each of them ("Raw
Materials"); and (b) subject to a valid and prior, fully
perfected security interest of Agent, for the benefit of Lenders,
free of all Liens of any Person (except to the extent, if any, of
the Permitted Liens).
(ii) Without limiting Agent's discretion as to other
Inventory, the following Inventory will not, in any event,
constitute Eligible Inventory:
(a) Finished Goods which are (1) not in good
condition, (2) not of merchantable quality, (3) not readily
saleable in the ordinary course of a Borrower's business, (4)
considered slow-moving by Agent, in its discretion exercised in
good faith, or (5) subject to defects which would affect their
market value (including all Finished Goods for which reserves for
obsolescence have been provided for in a Borrower's financial
statements or for which obsolescence reserves are anticipated);
(b) Pre-Owned Aircraft which are (1) not in
airworthy condition in accordance with all applicable rules,
regulations, orders and laws of each applicable Governmental
Authority, unless such Pre-Owned Aircraft are not in airworthy
condition in accordance with all applicable rules, regulations,
orders and laws of each applicable Governmental Authority solely
because of short-term modifications or repairs, including
painting, interior work, avionics or engine work, then being
performed by a Borrower, (2) not of United States registry, (3)
not of merchantable quality, (4) not readily saleable in the
ordinary course of a Borrower's business, (5) considered slow-
moving by Agent, in its discretion exercised in good faith, or
(6) subject to defects which would affect their market value
(including all Pre-Owned Aircraft for which reserves for
obsolescence have been provided for in a Borrower's financial
statements or for which obsolescence reserves are anticipated);
(c) Work in Process which is (1) not in good
condition or not usable in a Borrower's business or, to the
extent that the Work in Process consists of services performed by
a Borrower, such services are not performed in a good and
workmanlike manner, (2) considered slow-moving by Agent, in its
discretion exercised in good faith, or (3) subject to defects
which would affect its market value (including, without
limitation, such Work in Process for which reserves for
obsolescence have been provided for in a Borrower's financial
statements or for which obsolescence reserves are anticipated);
(d) Raw Materials which are (1) not in good
condition or not usable in a Borrower's business, (2) considered
slow-moving by Agent, in its discretion exercised in good faith,
or (3) subject to defects which would affect their market value
(including, without limitation, such Raw Materials for which
reserves for obsolescence have been provided for in a Borrower's
financial statements or for which obsolescence reserves are
anticipated);
(e) supplies and packaging materials;
(f) Inventory which Agent, in its discretion
exercised in good faith, determines to be ineligible because of
type, category or quantity;
(g) Inventory that is located outside of the
United States;
(h) Inventory which has been consigned to a
Borrower or has been sold to a Borrower in any sale on approval
or sale and return transaction;
(i) Inventory that is located on any premises not
owned by a Borrower or is in the possession of any Person other
than a Borrower except (subject to any additional requirements
imposed by Agent, in its discretion exercised in good faith, to
protect a Borrower's title thereto or Agent's Lien thereon): (1)
Eligible Inventory in the possession of a warehouseman or other
bailee (including an inventory processor) if Agent has received a
bailee waiver letter acceptable to Agent from such warehouseman
or bailee and such warehousemen or bailee has not issued a
negotiable document of title as to any of the Eligible Inventory
and (2) Eligible Inventory located on premises leased by a
Borrower if Agent has received a landlord's waiver acceptable to
Agent with respect to such premises;
(j) Inventory that is subject to any trademark,
trade name, patent or licensing arrangement, any contractual
arrangement, or any law, rule or regulation that could, in any
instance in Agent's judgment, limit or impair the ability of
Agent to promptly exercise any of its rights with respect
thereto;
(k) Inventory with respect to which insurance
proceeds, if any, are not payable to Agent as mortgagee or loss
payee in accordance with the Loan Documents;
(l) Inventory that is in transit to or from any
Borrower's Facility; or
(m) Inventory as to which Agent, in its
discretion exercised in good faith, deems to be ineligible based
on any other credit or collateral considerations as Agent deems
appropriate from time to time.
"Eligible Progress Bill Receivables" means, up to $4,000,000
of otherwise Eligible Receivables: (A) which arise out of a
progress billing pursuant to the MD-10/11 Contracts and (B) which
are to be paid within 30 days from the date of the invoice
applicable thereto.
"Eligible Receivables" means such of the Receivables owing
to each Borrower that meet the criteria in clause (i) below of
this definition and are not ineligible pursuant to clause (ii)
below.
(i) Except as provided in clause (ii) below,
Receivables meeting all of the following criteria are Eligible
Receivables:
(a) Receivables which consist of ordinary trade
accounts receivable owned solely by a Borrower, payable in cash
in Dollars and which arise out of an outright, bona fide, lawful
and final sale of Finished Goods or Pre-Owned Aircraft or the
provision of services in the ordinary course of a Borrower's
business as presently conducted by it to a Person who is not an
Affiliate of any Borrower (or who otherwise is controlled by a
Borrower or by an Affiliate of any Borrower);
(b) Receivables which are due and payable
absolutely and unconditionally within (1) a Borrower's standard
terms which, in any event, are not longer than 30 days from the
date of the invoice applicable thereto, or (2) such extended
terms that Agent, in its discretion exercised in good faith,
approves after prior notice from a Borrower;
(c) Receivables with respect to which (1) the
services covered thereby have been rendered or (2) the Finished
Goods or Pre-Owned Aircraft covered thereby have been delivered
to the account debtor or its designee; and
(d) Receivables with respect to which not more
than 90 days have elapsed since the date of the original invoice
applicable thereto.
(ii) Without limiting Agent's discretion as to other
Receivables, the following Receivables will not, in any event,
constitute Eligible Receivables:
(a) Receivables with respect to which the account
debtor or any Affiliate of the account debtor has filed or had
filed against it a petition in bankruptcy or for reorganization,
made an assignment for the benefit of creditors, or failed,
suspended business operations, become insolvent or in respect of
which a receiver, custodian, or a trustee was appointed for a
significant portion of its assets or affairs;
(b) Receivables with respect to which the account
debtor is also a supplier to, or creditor of, a Borrower, unless
the aggregate amount owed to a Borrower by such account debtor
exceeds the aggregate amount owed to such account debtor by a
Borrower, in which case a Receivable, if otherwise eligible, will
be an Eligible Receivable only to the extent of such excess;
(c) Receivables with respect to which the account
debtor (1) is a Person not domiciled in or organized under the
laws of the United States of America or Canada or a political
subdivision of either of them, is not qualified to do business in
one or more States of the United States of America or Canada, and
the Finished Goods or Pre-Owned Aircraft in respect of the
Receivable are delivered by a Borrower to a location outside of
the United States of America or Canada or (2) has its principal
place of business or chief executive office outside of the United
States of America or Canada unless, in either case, the
Receivable is supported by an irrevocable, clean letter of credit
or acceptance issued (A) by a financial institution satisfactory
to Agent and (B) on terms acceptable to Agent, and, if so
requested by Agent, delivered to Agent in pledge for negotiation
and presentment;
(d) Receivables with respect to which 25% or more
of the Receivables from the same account debtor either alone or
together with its Affiliates are ineligible for any reason;
(e) Except Receivables owing from the United
States of America, Receivables owing from any single account
debtor to the extent, as of any date, that the total amount of
such account debtor's indebtedness to any Borrower (whether
evidenced by such Receivables or otherwise) exceeds an amount
which is greater than 15% of the face amount (less maximum
discounts, credits and allowances which may be taken by, or
granted to, a Borrower's account debtor in connection therewith)
of the then outstanding Eligible Receivables of the applicable
Borrower;
(f) Receivables with respect to which the account
debtor is a Governmental Authority, unless with respect to such
Receivables the Assignment of Claims Act of 1940, as amended (31
U.S.C. 3727 and 41 U.S.C. 15) or comparable state statute or
regulation ("Assignment of Claims Law") has been complied with to
Agent's reasonable satisfaction;
(g) Receivables which (1) consist (or to the
extent consisting) of deposits, (2) consist of vendor warranty
claims, (3) consist (or to the extent consisting) of finance
charges, service charges, or interest on delinquent accounts, (4)
are proceeds of consigned Inventory, (5) are employee, officer or
director Receivables, or (6) are debit memoranda;
(h) Receivables with respect to which the terms
or conditions prohibit or restrict assignment or collection
rights;
(i) Receivables (1) which are subject to set-off,
credit, allowance or adjustment by the account debtor (except
discounts allowed for prompt payment), or (2) with respect to
which the account debtor has returned any of the Inventory from
the sale from which the Receivables arose, provided that in
either or both of such events (1) or (2), the net amount owed by
such account debtor to a Borrower in respect of such Receivable,
as determined by Agent in its discretion exercised in good faith,
may be an Eligible Receivable;
(j) Receivables which are evidenced by a
promissory note, chattel paper or other instrument;
(k) Receivables which are generated by a sale on
approval, a bill and hold sale, a sale on consignment, or other
type of conditional sale;
(l) Receivables which are not subject to the
first priority security interest of Agent and Lenders or are
subject to any Lien of any Person (except to the extent, if any,
of the Permitted Liens);
(m) Receivables with respect to which the account
debtor is located in New Jersey (1) to the extent that the
Receivables owing from such account debtor exceed 5% of the face
amount of the then outstanding Eligible Receivables and (2) if
all Receivables owing from all account debtors located in New
Jersey exceed 25% of the face amount of the then outstanding
Eligible Receivables, unless the applicable Borrower has properly
qualified to do business in New Jersey or has filed a Notice of
Business Activities Report with the New Jersey Division of
Taxation for the then current year;
(n) Receivables with respect to which the account
debtor is located in Minnesota (1) to the extent that the
Receivables owing from such account debtor exceed 5% of the face
amount of the then outstanding Eligible Receivables and (2) if
all Receivables owing from all account debtors located in
Minnesota exceed 25% of the face amount of the then outstanding
Eligible Receivables, unless the applicable Borrower has properly
qualified to do business in Minnesota or has filed a Notice of
Business Activities Report with the Minnesota Division of
Taxation for the then current year;
(o) Receivables with respect to which the account
debtor is located in West Virginia (1) to the extent that the
Receivables owing from such account debtor exceed 5% of the face
amount of the then outstanding Eligible Receivables and (2) if
all Receivables owing from all account debtors located in West
Virginia exceed 25% of the face amount of the then outstanding
Eligible Receivables, unless the applicable Borrower has filed,
or is exempt from filing, a Business Activity Report with the Tax
Commissioner of the State of West Virginia for the then current
year;
(p) Receivables which are subject to progress
billing, to the extent of any excess over the progress payments
then due and payable, (1) except for Eligible Progress Bill
Receivables or (2) unless a Borrower has obtained Agent's prior
consent with respect to the particular Receivable or Receivables;
(q) Receivables with respect to which the account
debtor has sold or is selling substantially all of its assets and
has not established adequate reserves or made provisions for the
payment of all amounts owed to such account debtor's trade
creditors, as determined by Agent in its discretion exercised in
good faith;
(r) Receivables with respect to which Agent has
received a check for payment of such Receivable which has been
returned uncollected;
(s) Receivables with respect to which Agent, in
its discretion exercised in good faith, believes that the
collection of such Receivable is in doubt or impaired or that
such Receivable may not be paid by reason of the account debtor's
financial inability to pay; or
(t) Receivables with respect to which Agent, in
its discretion exercised in good faith, has notified a Borrower
that such Receivables are or Receivable is ineligible based on
such other credit and collateral considerations as Agent deems
appropriate from time to time.
"Event of Default" shall have the meaning ascribed thereto
in Section 13.1, whether any requirement for the giving of
notice, the lapse of time, the satisfaction of any other
condition, or all of them, have been satisfied.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%)
equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if such day is not a
Business Day, the Federal Funds Rate for such day will be such
rate on such transactions on the immediately preceding Business
Day as so published on the next succeeding Business Day, and (ii)
if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average
rate quoted to Agent on such day on such transactions as is
determined by Agent.
"Financials" means those financial statements of Borrowers
attached as Schedule 2.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of, or pertaining to, government or any
agency or instrumentality thereof.
"Guaranty" means a guaranty in the form of Exhibit 5.3,
executed and delivered to Agent, for the benefit of Lenders, by a
Borrower or an Additional Guarantor, and "Guaranties" means,
collectively, every Guaranty.
"Indebtedness" means all of each Borrower's obligations,
indebtedness and liabilities to any Person, including all debts,
claims and indebtedness, contingent, fixed or otherwise,
heretofore, now and from time to time hereafter owing, due or
payable, however evidenced, created, incurred, acquired or owing
and however arising, whether under written or oral agreement,
operation of law or otherwise. Indebtedness includes, without
limiting the foregoing, (i) the Obligations, (ii) obligations or
liabilities of any Person secured by a Lien on property owned by
Borrower, even though a Borrower has not assumed or become liable
for the payment therefor, and (iii) obligations or liabilities
created or arising under any lease of real or personal property,
any conditional sales contract or other title retention agreement
with respect to property used or acquired by a Borrower, even
though the rights and remedies of the lessor, seller, or lender
thereunder are limited to repossession of such property.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended or superseded from time to time. Any reference
to a specific provision of the Internal Revenue Code will be
construed to include any comparable provision of the Internal
Revenue Code as amended or superseded after the date of this
Agreement.
"Issuing Lender" means Star Bank, in its capacity as Lender
which is the issuer of a Letter of Credit.
"Lenders" means, collectively, the financial institutions
indicated as such on the signature pages of this Agreement and
any financial institutions which, pursuant to the terms of this
Agreement, become a party to this Agreement from time to time
after the date of this Agreement. "Lender" means, individually,
any of Lenders.
"Letter of Credit" means a standby letter of credit issued
by Issuing Lender pursuant to Section 2.3.
"Letter of Credit Availability" means, at any time, an
amount equal to the lesser of (i) an amount equal to (a)
$10,000,000 less (b) the then Letter of Credit Exposure or (ii)
the then Revolving Loan Availability.
"Letter of Credit Collateral Account" has the meaning
specified in Section 14.3.
"Letter of Credit Deficiency" means any failure of the
Letter of Credit Availability to be greater than or equal to zero
Dollars.
"Letter of Credit Documents" means, with respect to each and
every Letter of Credit, (i) a standby letter of credit
application and reimbursement agreement on Issuing Lender's then
customary form (the "Letter of Credit Application") and (ii) any
other agreements, certificates, documents and information as
Issuing Lender may request relating to a Letter of Credit.
"Letter of Credit Exposure" means, as of any date, the sum
of (i) the Letter of Credit Face Amount of all outstanding
Letters of Credit and (ii) all unreimbursed drawings under any
Letters of Credit (whether or not outstanding).
"Letter of Credit Face Amount" of any Letter of Credit
means, at any time, the face amount of the Letter of Credit,
after giving effect to all drawings paid thereunder and other
reductions of the face amount and to all reinstatements of the
face amount effected, pursuant to the terms of the Letter of
Credit, prior to such time.
"Letter of Credit Obligations" shall mean, at any time, the
sum of (i) the aggregate Letter of Credit Face Amount for all
Letters of Credit, plus (ii) the aggregate amount of each
Borrower's unpaid obligations in respect of all Letters of Credit
(whether or not outstanding) under this Agreement and the Letter
of Credit Documents, including any indebtedness, liability or
obligation of any sort whatsoever, however arising, whether
present or future, related or unrelated, fixed or contingent, or
paid, incurred, or arising in connection with any Letters of
Credit (including any drafts or acceptances thereunder, all
amounts charged or chargeable to a Borrower or by Issuing Lender
(or by any correspondent bank which opens, issues or is involved
with such Letter of Credit), including any and all of Issuing
Lender's charges, expenses, fees and commissions, and all duties
and taxes and costs of insurance which may pertain either
directly or indirectly to such Letters of Credit).
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, charge, security
interest, encumbrance, lien (statutory or other), or any
preference, priority or other security agreement of any kind or
nature whatsoever (including any conditional sale or other title
retention agreement, any lease deemed under the UCC to be
intended for security, and the authorized filing by or against a
Person of any financing statement as debtor under the UCC or
comparable law of any jurisdiction).
"Loan" means any advance or extension of credit made by
Lenders to, or for the benefit of, a Borrower pursuant to Section
2 (exclusive of the Letter of Credit Exposure), and the total of
all such advances and extensions of credit (exclusive of the
Letter of Credit Exposure) outstanding at any time may be
referred to as "Loans".
"Loan Collateral" means (i) the Collateral (as defined in
the Security Agreement) and (ii) any other security or collateral
provided from time to time by, or on behalf of, a Borrower for
the Obligations.
"Loan Documents" means this Agreement, the Security
Agreement, the Letter of Credit Documents, each Blocked Account
Agreement (as defined in Section 7.4) 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, letter 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 Agent, 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 Agent.
"Material Adverse Effect" means a material adverse effect,
as determined by Agent in good faith, on (i) Borrowers' (a)
business, property, assets, operations or condition, financial or
otherwise or (b) ability to perform any of their payment or other
Obligations under this Agreement or any of the other Loan
Documents, in each case considered as a whole, or (ii) the value
of the Loan Collateral or the rights or interests of Agent or a
Lender therein.
"McDonnell Douglas LOC" means the Irrevocable Standby Letter
of Credit issued by Star Bank, No. S49567, for the benefit of
McDonnell Douglas Corporation, with an expiration date of March
9, 2000.
"MD-10/11 Contracts" means (i) the Modification Services
Agreement between McDonnell Douglas Corporation and Dimension,
No. MSA-FRI-SF-97-001 and (ii) the Modification Services
Agreement between McDonnell Douglas Corporation and Dimension,
No. MSA-FRI-SF-97-003.
"Obligations" means the Loans, the Letter of Credit
Obligations, and all other loans, advances, debts, liabilities,
obligations, covenants and duties owing by a Borrower to any of
Agent or Lenders under or in connection with this Agreement and
the other Loan Documents of any kind, present or future,
howsoever created, arising, acquired, or evidenced, whether
direct or indirect (including acquired by assignment), related or
unrelated, absolute or contingent, due or to become due, now
existing or hereafter arising, and including all interest,
charges, expenses, fees and any other sums chargeable to
Borrowers in connection with any of the foregoing, and all
Attorneys' Fees.
"Original Closing Date" means February 13, 1995.
"Pension Plan" means a "pension plan", as such term is
defined in section 3(2) of ERISA, as to which a Borrower or any
corporation, trade or business that is, along with the Borrower,
a member of a Controlled Group may have any liability, including
any liability by reason of having been a substantial employer
within the meaning of section 4063 of ERISA at any time during
any preceding six year period, or by reason of being deemed to be
a contributing sponsor under section 4069 of ERISA.
"Percentage Share" means, when used with reference to a
particular Lender, a fraction (expressed as a percentage), the
numerator of which is the amount of the applicable Lender's
Commitment and the denominator of which is the sum of all of
Lenders' Commitments. On and after the termination of this
Agreement pursuant to Section 11, "Percentage Share" means, when
used with reference to a particular Lender, a fraction (expressed
as a percentage), the numerator of which is (i) the sum of (a)
the aggregate principal amount of each Lender's then outstanding
Revolving Loans plus (b) that Lender's participation in the then
aggregate Letter of Credit Exposure, and the denominator of which
is (ii) the sum of (a) the aggregate principal amount of
Revolving Loans of all Lenders then outstanding plus (b) the
aggregate Letter of Credit Exposure then outstanding.
"Permitted Acquisition" means and refers to a negotiated
transaction to acquire (by purchase or other acquisition of all
of the capital stock, securities of or all or substantially all
of the assets of) a Person ("Target Company") (i) engaged in a
line or lines of business which are complementary to the lines of
business of Borrowers and (ii) for which the acquisition price
(including assumed debt and debt of the Target Company which
remains in place) does not exceed five and one-half (5.5) times
the pro forma trailing twelve month EBITDA (as defined in Exhibit
10.29) of the Target Company, provided that, simultaneously with
the acquisition, the Target Company becomes an Additional
Guarantor and offers to Lenders to become an Additional Borrower
on terms not less favorable to Lenders than the terms set forth
in this Agreement (it being understood that Lenders shall not be
obligated to accept the Target Company as an Additional
Borrower). However, notwithstanding the immediately preceding
sentence to the contrary, none of the following will be a
Permitted Acquisition: (a) a hostile acquisition; (b) an
acquisition as a result of which any Borrower, without Required
Lenders' prior consent, will be directly or indirectly incurring,
assuming or becoming otherwise obligated for any Indebtedness
which is secured by the Target Company's accounts, inventory,
general intangibles, chattel paper, instruments, leases,
securities, real property, or any material item or items of
equipment; (c) an acquisition of a Target Company which has
indebtedness secured by a Lien on any of the Target Company's
working capital assets unless, within 180 days after the closing
of the acquisition, the Target Company's working capital assets
become and thereafter remain unencumbered other than by a Lien in
favor of Agent; or (d) an acquisition which is not a Permitted
Investment (as defined in the Senior Notes Indenture).
"Permitted Liens" means the liens and interests in favor of
Agent, for the benefit of Lenders, granted or provided under the
Loan Documents and, to the extent reflected on a Borrower's books
and records and not impairing the operations of a Borrower or any
performance under, or contemplated by, the Loan Documents: (i)
Liens arising by operation of law for taxes not yet due and
payable; (ii) Liens of mechanics, materialmen, shippers and
warehousemen for services or materials for which payment is not
yet due; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (iv)
Liens, if any, specifically permitted by Required Lenders from
time to time in writing, including Liens on Borrowers' cash to
secure the Indebtedness described in Exhibit 10.10, to the extent
that such Indebtedness is permitted hereunder, which Liens are
hereby permitted; (v) Liens on equipment securing Indebtedness
under capitalized leases or purchase money Indebtedness if the
total amount of obligations secured by the purchase money
security interests or the subject of capitalized leases during
any period does not, together with any other capital expenditures
made by Borrowers for the applicable period, exceed the maximum
amount permitted during such period for capital expenditures
pursuant to Section 5 of Exhibit 10.29, provided that (a) any
Liens relating to such purchase money Indebtedness or capitalized
lease Indebtedness shall not extend to or cover any property of
any Borrower other than the property so acquired, and (b) the
principal amount of such capitalized lease or purchase money
Indebtedness shall not, at the time of the incurrence thereof,
exceed the value of the property so acquired; (vi) Liens for
taxes, assessments and other similar charges to the extent
payment thereof shall not at the time be required to be made in
accordance with the provisions of Section 10.9; (vii) those Liens
described on Schedule 3; and (viii) Liens arising from the claims
or demands of materialmen, mechanics, carriers, warehousemen,
landlords, bailees and other like Persons ("Third Party Claims")
if each of the following conditions is met: (a) the validity or
amount of the Third Party Claim is being contested in good faith
and by appropriate and lawful proceedings promptly initiated and
diligently conducted, (b) Borrowers have given prior notice to
Agent of the Third Party Claim, (c) Borrowers have established
appropriate reserves (in Agent's reasonable discretion exercised
in good faith) for the Third Party Claim, (d) levy and execution
on the Third Party Claim have been and continue to be stayed, (e)
the Third Party Claim does not prevent Agent, for the benefit of
Lenders, from having a perfected first priority security interest
in, or a first priority mortgage lien on, the Loan Collateral or
with respect to future advances made under this Agreement, (f) no
Borrower's title to, and its right to use, any of the Loan
Collateral are, in Agent's reasonable judgment, materially
affected thereby, and (g) the amount of all Third Party Claims do
not exceed, as of any date, $1,000,000 in the aggregate; and,
provided, further, that Borrowers must promptly pay each such
Third Party Claim when the dispute is finally settled.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, limited liability company, corporation, institution,
entity, party or Governmental Authority.
"Prime Rate" means the rate of interest per annum announced
by Star Bank from time to time as its prime lending rate (for
reference purposes only) with any change thereto being effective
as of the opening of business on the date of change (or if not a
Business Day, the beginning of the day). The Prime Rate is
determined solely by Star Bank pursuant to market factors and its
own operating needs and is not necessarily Star Bank's best or
most favorable rate for commercial or other loans.
"Reportable Event" means an event described in Section 4043
of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30 day notice
to the Pension Benefit Guaranty Corporation under such
regulations).
"Required Lenders" means at any time Lenders whose
Commitments (or, if after the Commitments have been terminated,
outstanding Loans and Letter of Credit Exposure) constitute
greater than two-thirds of the then aggregate amount of
Commitments (or, if after the Commitments have been terminated,
the total outstanding principal amount of the Loans and Letter of
Credit Exposure).
"Reserve Amount" means, as of any date of determination, the
amounts that Agent, in its discretion exercised in good faith
(including in the manner described in this definition), may from
time to time establish in determining the Borrowing Base based on
such credit and collateral considerations as Agent deems
appropriate from time to time, based on market conditions, or to
reflect contingencies or risks which may affect any or all of the
Loan Collateral, the business, operations, financial condition or
business prospects of a Borrower or the security of the Loans.
For purposes of this definition and determining the Borrowing
Base and without limiting Agent's other discretion, Agent will be
deemed to have acted in good faith if reserves are established in
respect of any one or more of the following: (a) the occurrence
of an Event of Default; (b) the payment of Obligations then due
and payable and unpaid; (c) for price adjustments, damages,
unearned discounts, returned Inventory, credit memoranda (issued
or unissued), credits, contras and other similar offsets to a
Borrower's accounts receivable except to the extent any of the
foregoing have been dealt with by Agent by designating a specific
Receivable or Receivables as being ineligible pursuant to the
terms of this Agreement as opposed to the establishment of a
reserve general in nature; (d) for any claims, interests, or
rights (including Liens) of any Person which (1) (A) as of the
date Agent learns or is notified of the existence of the
applicable Priming Interest, has priority over the Liens of Agent
or Lenders on any or all of the Loan Collateral or (B) will have
priority over the Liens of Agent or Lenders on any or all of the
Loan Collateral after any required notice or filing, the passage
of time, the satisfaction of any other condition, or otherwise
and (2) pertain to, arise from, or secure indebtedness,
obligations, or liabilities in excess, as of any date, of
$500,000 in the aggregate; (e) for aged credits maintained by any
Borrower in respect of its accounts receivable; or (f) for any
amounts expended by Agent to protect or preserve any Loan
Collateral or the rights Agent or Lenders under the Loan
Documents which have not been reimbursed by Borrowers.
"Revolving Loans" has the meaning ascribed thereto in
Section 2.2.
"Revolving Loan Availability" means, as at any time, an
amount, in Dollars, equal to:
(i) an amount equal to the lesser of (a) the then
Borrowing Base or (b) $35,000,000;
less (ii) the sum of (a) then aggregate outstanding
principal amount of all Revolving Loans and all due but unpaid
interest on the Loans, and all fees, commissions, expenses and
other charges posted to each Borrower's loan account with Agent
plus (b) the then Letter of Credit Exposure.
"Security Agreement" means the Amended and Restated Security
Agreement dated as of the date of this Agreement between
Sabreliner, Midcoast, Little Rock, SabreTech, Dimension,
Turbotech and Agent, for the benefit of Lenders, which amends and
restates in their entirety, and consolidates, (i) the Security
Agreement dated as of February 13, 1995 between Sabreliner,
Midcoast, Little Rock and Star Bank, (ii) the Security Agreement
dated as of January 26, 1996 between SabreTech and Star Bank,
(iii) the Security Agreement dated as of February 14, 1997
between Dimension and Star Bank, and (iv) the Security Agreement
dated as of February 14, 1997 between Turbotech and Star Bank.
"Senior Notes Indenture" means the Indenture dated as of
June 25, 1993, entered into between Sabreliner and IBJ Schroder
Bank & Trust Company, a New York banking corporation, as trustee
(the "Trustee"), as supplemented as of November 2, 1994.
"Senior Notes" means the $90,000,000 aggregate principal
amount of Sabreliner's 12 1/2% Senior Notes Due 2003, Series A and
12 1/2% Senior Notes Due 2003, Series B.
"Senior Notes Default" means the occurrence of any of the
following (or any combination of the following): (i) a default or
breach of any of the Senior Notes, (ii) any event or circumstance
that would become a default or breach of any of the Senior Notes
on a Holder's (as defined in the Senior Notes Indenture) election
or would become a default or breach after notice, the lapse of
time, or on the satisfaction of any other condition, or all of
the foregoing, or (iii) a Default, as defined in the Senior Notes
Indenture.
"Settlement Date" means, as applicable, a Weekly Settlement
Date or a Daily Settlement Date, both as defined in Section 4.2,
whichever is, as of any date, in effect under this Agreement.
"Solvent" means, with respect to any Person, that (i) the
Person is not insolvent as defined or construed under any and all
applicable laws. In computing the amount of contingent
liabilities at any time, it is intended that they be computed at
the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"Subsidiary" means any Person as to which any Borrower owns,
directly or indirectly, at least 50% of the outstanding shares of
capital stock or other interests having ordinary voting power for
the election of directors, officers, managers, trustees or other
controlling Persons or an equivalent controlling interest in
Agent's judgment.
"Unreimbursed Drawings" has the meaning ascribed thereto in
Section 4.3.
"Unused Commitment" means, as to any Lender at any time, an
amount equal to the excess, if any, of (i) the amount of Lender's
Commitment at that time over (ii) the sum of (a) the aggregate
principal amount at that time of all Revolving Loans made by that
Lender plus (b) the Lender's participation at that time of the
then aggregate Letter of Credit Exposure.
1.2 Environmental Definitions.
"Environmental Activity" means any actual, proposed or
threatened storage, holding, Use, Release, emission, discharge,
generation, processing, abatement, removal, disposition,
handling, transportation or disposal of any Hazardous Substance
from, under, in or on any of Borrower's property or any Use of
any of Borrower's property which is regulated by or for which
standards of conduct or liability are imposed by any
Environmental Requirements.
"Environmental Law" means the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
9601 et seq., the Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. 6901 et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. 1802 et seq., the Toxic Substances
Control Act, 15 U.S.C. 2601 et seq., the Federal Water Pollution
Control Act, 33 U.S.C. 1251 et seq., the Clean Water Act, 33
U.S.C. 1321 et seq., the Clean Air Act, 42 U.S.C. 7401 et seq.,
regulations promulgated thereunder, and any other federal, state,
county, municipal, local or other statute, law, ordinance or
regulation, or any common law (including common law that may
impose strict liability), which may relate to or deal with human
health, the environment, natural resources, or Hazardous
Substances, all as may be from time to time amended or modified.
"Environmental Liability" means any liability, obligation,
indebtedness, or duty of, any claim or demand against, any
requirement imposed on, or any amount owed by or payable from, a
Borrower, which is based on, results from, is in connection with
or arises out of any Environmental Activity, whether the
foregoing described liability now exists or arises in the future,
is contingent or absolute, primary or secondary, liquidated or
unliquidated, due or to become due, and however created,
incurred, acquired, owing or arising.
"Environmental Requirements" means all present and future
laws, including Environmental Laws, authorizations, approvals,
judgments, injunctions, decrees, concessions, grants, orders,
franchises, agreements and other restrictions and requirements
(whether or not arising under statutes or regulations) relating
to any Hazardous Substances or Environmental Activity.
"Hazardous Substances" means, at any time, (i) any
"hazardous substance" as defined in 101(14) of CERCLA (42 U.S.C.
9601(14)) or regulations promulgated thereunder; (ii) any "solid
waste" as defined in RCRA or regulations promulgated thereunder
or any "hazardous waste" or "infectious waste," as such terms are
defined in any Environmental Law at such time; (iii) asbestos,
urea-formaldehyde, polychlorinated biphenyls ("PCBs"), nuclear
fuel or material, chemical waste, radioactive material,
explosives, known carcinogens, petroleum products and by-products
and other dangerous, toxic or hazardous pollutants, contaminants,
chemicals, materials or substances listed or identified in, or
regulated by, any Environmental Law; and (iv) any additional
substances or materials which at such time are classified or
considered to be hazardous or toxic under any Environmental Law.
"Release" includes spilling, leaking, pumping, emitting,
discharging, injecting, contaminating, leaching, disposing,
releasing or dumping into the environment.
"Use" includes, but is not limited to, use, ownership,
development, construction, maintenance, management, operation or
occupancy.
1.3 Other Definitional Provisions; Construction. Unless
otherwise specified:
(i) All terms defined in this Agreement, whether or
not defined in this Section 1, have the defined meanings provided
in this Agreement when used in this Agreement, in any other of
the Loan Documents, or any other certificate, instrument or other
document made or delivered pursuant to this Agreement or any
other Loan Document, unless otherwise defined therein.
(ii) References in this Agreement to a Borrower's
knowledge shall be deemed to be references to the knowledge of F.
Holmes Lamoreux, Susan S. Aselage, Rodney E. Olson, or Jerry L.
Leath, all of whom are officers of Borrowers, or their respective
successors as such officers.
(iii) As used in this Agreement, in any other of
the Loan Documents, or in any other certificate, instrument or
document made or delivered pursuant hereto or thereto, accounting
terms relating to Borrowers not defined in this Agreement have
the respective meanings given to them in accordance with
generally accepted accounting principles in the United States of
America as in effect at the time any determination is made or
financial statement or information is required or furnished under
this Agreement ("GAAP").
(iv) References to the Uniform Commercial Code, or UCC,
mean as enacted in the particular jurisdiction(s) encompassed by
the reference.
(v) The definition of any document or instrument
includes all schedules, attachments and exhibits thereto and all
renewals, extensions, supplements, restatements and amendments
thereof.
(vi) "Hereunder," "herein," "hereto," "this Agreement"
and words of similar import refer to this entire document;
"including" is used by way of illustration and not by way of
limitation, unless the context clearly indicates the contrary;
the singular includes the plural and conversely; and any action
required to be taken by Borrowers is to be taken reasonably
promptly, unless the context clearly indicates the contrary.
(vii) All of the uncapitalized terms contained in
the Loan Documents which are defined under the Code will, unless
defined in the Loan Documents or the context indicates otherwise,
have the meanings provided for in the Code.
(viii) All Exhibits and Schedules attached to this
Agreement are incorporated into, made and form an integral part
of, this Agreement for all purposes.
(ix) The definition of any term which is made by
reference to a definition in the Senior Notes Indenture shall be
without regard to any modification, waiver or amendment of the
Senior Notes Indenture as to which Required Lenders have not
given prior consent.
(x) The term "good faith" means honesty in fact in the
conduct or transaction concerned, without regard to whether
reasonable commercial standards have been observed.
2. LOANS AND OTHER FINANCIAL ACCOMMODATIONS.
2.1 Total Facility. Subject to the terms and conditions of
this Agreement, Lenders, in the discretion of Agent exercised in
good faith, may make up to $35,000,000 in total credit (the
"Credit Facility") available to Borrowers, which Credit Facility
shall be comprised of (i) revolving loans and (ii) a letter of
credit facility as a subfacility of the revolving loan facility,
all as more particularly described below. The obligations of
Lenders to Borrowers in respect of the Credit Facility shall be
several and not joint, and the portion of the Credit Facility to
be made available by each Lender, subject to the terms and
conditions of this Agreement, shall be limited to the Commitment
of such Lender.
2.2 Revolving Loans.
2.2.1 Amount of Revolving Loans. During the period
from the Closing Date until the termination of this Agreement
pursuant to Section 11, and subject to the other terms and
conditions of this Agreement, each Lender, severally and not
jointly, will make revolving loans ("Revolving Loans") to
Borrowers, which Revolving Loans may be lent and relent from time
to time, in an amount, as of any date, not exceeding the Lender's
Percentage Share of the Revolving Loan Availability then in
effect. Whether a Lender will exceed its Percentage Share of the
Revolving Loan Availability with respect to a particular advance
of Revolving Loans requested by Borrowers will be determined
after giving effect to all Revolving Loans requested as if each
Lender had funded its respective Revolving Loan in accordance
with the terms of this Agreement. Subject to the terms of
Section 15.1.1(i), Agent, in its discretion, may elect, on behalf
of Lenders, to exceed the limits of the Borrowing Base (and
thereby increase the Revolving Loan Availability) on one or more
occasions (an "Overadvance"), but if it does so, neither Agent
nor any of Lenders will be deemed thereby to have changed the
limits of the Revolving Loan Availability or to be obligated to
make Overadvances on any other occasion.
2.2.2 Evidence of Revolving Loans. The Revolving
Loans will be evidenced by this Agreement and notations made by
Agent on its books and records, including computer records. In
addition, each Lender is authorized, at its option, to note the
date and amount of each advance or repayment of principal of the
Lender's Revolving Loans in its books and records, including
computer records. Agent's books and records and each Lender's
books and records will constitute presumptive evidence, absent
manifest error, of the accuracy of the information contained in
those books and records, including correct recordations of the
Revolving Loans. Failure by Agent or any Lender to make any
notation or record of the date and amount of each advance or
repayment of principal of the Revolving Loans or any error in any
notation or recordation made will not affect the obligations of
Borrowers to each Lender with respect to the Revolving Loans.
2.3 Letters of Credit.
2.3.1 Standby Letter of Credit Subfacility. During
the period from the Closing Date until the termination of this
Agreement pursuant to Section 11, and subject to the other terms
and conditions of this Agreement, Borrowers may request Issuing
Lender to issue a Letter of Credit by delivering to Issuing
Lender: (i) a Letter of Credit Application completed to the
satisfaction of Issuing Lender, together with the proposed form
of the Letter of Credit (which, in all respects, must comply with
the applicable requirements of Section 2.3.2), (ii) a Borrowing
Base Certificate (as defined in Section 8.3) which calculates the
Letter of Credit Availability by giving effect to the proposed
Letter of Credit, and (iii) such Letter of Credit Documents that
Issuing Lender then requires. Issuing Lender, in addition to the
other terms of this Agreement, will have no obligation to issue
any such proposed Letter of Credit if, after giving effect to
such proposed Letter of Credit, the Letter of Credit Availability
will be less than zero.
2.3.2 Terms of Letter of Credit. Each Letter of
Credit issued under this Agreement will, among other things, (i)
be in such form requested by a Borrower as is acceptable to
Issuing Lender in its discretion exercised in good faith and (ii)
except for the McDonnell Douglas LOC, have an expiry date
occurring not later than one year after the date of issuance of
the Letter of Credit; however, in no event will any expiry date
be later than the earlier of (a) February 13, 2001 or (b) such
earlier termination date of this Agreement which has resulted
from the delivery to Agent by Borrowers of a Termination Notice
as provided in Section 11.3. Each Letter of Credit Application
and each Letter of Credit will be subject to the Uniform Customs
and Practices for Documentary Credits, 1993 Revision, ICC
Publication No. 500 and, to the extent not inconsistent
therewith, the laws of the State of Ohio.
2.3.3 Advice of Issuance or Non-Issuance. Upon
receipt of a request from a Borrower to open any Letter of Credit
and of all attendant Letter of Credit Documents satisfactorily
completed, Issuing Lender, within three Business Days, may either
(i) issue the requested Letter of Credit to the beneficiary
thereof and transmit a copy to the applicable Borrower, or (ii)
elect, in its discretion exercised in good faith, not to issue
the proposed Letter of Credit. If Issuing Lender elects not to
issue such Letter of Credit, Issuing Lender will communicate in
writing with the applicable Borrower the reason(s) why Issuing
Lender has declined such request. Promptly after the issuance of
a Letter of Credit, Agent will notify each Lender of the issuance
of the Letter of Credit.
2.3.4 Payment of Drafts; Issuing Lender
Obligations.
(i) Subject to the terms of Section 14.3, each
Borrower hereby irrevocably instructs Agent to reimburse Issuing
Lender for any drawing, expenditure or other payment made, or
cost or expense incurred, by Issuing Lender in respect of any
Letter of Credit by making an advance of the Revolving Loans
pursuant to Section 3.8.2. If the advance of a Revolving Loan to
reimburse Issuing Lender for any drawing, expenditure or other
payment made, or cost or expense incurred, by Issuing Lender in
respect of any Letter of Credit results (or to the extent that it
results) in any Deficiency, then Borrower will immediately
eliminate any Deficiency in accordance with the terms of Section
2.4.
(ii) In determining whether to pay under any
Letter of Credit, Issuing Lender will be responsible only to
confirm that any documents required to have been delivered under
a Letter of Credit appear to comply on their face with the
requirements of the Letter of Credit, and any action taken or
omitted by Issuing Lender under or in connection with any Letter
of Credit will not (a) subject Issuing Lender to any liability to
any other Lender or any Borrower or (b) relieve any Lender of its
obligations under this Agreement to Issuing Lender; however,
nothing in this Section 2.3.4(ii) will relieve Issuing Lender of
any liability it may have to Borrowers to the extent, but only to
the extent, of any direct, as opposed to consequential, damages
suffered by Borrowers from Issuing Lender's gross negligence or
willful misconduct.
2.3.5 Letter of Credit Obligations. All Letter of
Credit Obligations will constitute part of the Obligations and be
secured by the Loan Collateral.
2.3.6 Increased Costs. If (i) any law, treaty,
rule, regulation, guideline or determination of a central bank or
a Governmental Authority or interpretation or application thereof
by a central bank or Governmental Authority or (ii) compliance by
Issuing Lender or any other Lender with any request or directive
(whether having the force of law) from, or compliance by Issuing
Lender or any other Lender with any official pronouncement or
statement of, or as a result of any audit, investigation, or
enforcement action (whether or not against Issuing Lender or any
other Lender) by, a central bank or other Government Authority
shall either (a) impose, modify, deem or make applicable any
reserve, special deposits, assessment or similar requirement
against letters of credit issued by Issuing Lender or (b) impose
on Issuing Lender or any other Lender any other condition
regarding this Agreement or any Letter of Credit, and, in the
applicable Lender's judgment exercised in good faith, the result
of any event referred to in clause (a) or (b) above is the
increase of the cost to Issuing Lender or any other Lender of
issuing or maintaining any Letter of Credit, then, on demand by
Issuing Lender, Borrowers will immediately pay to Issuing Lender
and, as applicable, each other affected Lender, from time to time
as specified by Issuing Lender and, as applicable, each other
affected Lender, additional amounts sufficient to compensate
Issuing Lender and, as applicable, each other affected Lender for
such increased cost, together with interest on each such amount
from the date demanded until payment in full thereof at a rate
per annum equal to the then applicable interest rate on the
Revolving Loans. A certificate as to such increased cost
incurred by Issuing Lender and, as applicable, each other
affected Lender, submitted by Issuing Lender and, as applicable,
each other affected Lender to Borrowers, shall be conclusive,
absent manifest error, as to the amount thereof.
2.3.7 Unconditional Obligations. All Letter of
Credit Obligations and Obligations in respect of any and all
Letters of Credit issued by Issuing Lender shall be unconditional
and irrevocable and will be paid strictly in accordance with the
terms of this Agreement and the Letter of Credit Documents under
all circumstances set forth in the Letter of Credit Documents,
including any or all of the following circumstances: (i) the
existence of any claim, set-off, defense or other right which any
Borrower may have at any time against any beneficiary, or any
transferee, of any Letter of Credit (or any Persons for whom any
such beneficiary or any such transferee may be acting), Issuing
Lender, any other Lender or any other Person, whether in
connection with this Agreement or the other Loan Documents, the
transactions contemplated in this Agreement, or any unrelated
transaction; (ii) any statement or any other document presented
under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect; (iii) payment by
Issuing Lender under any Letter of Credit against presentation of
a draft or certificate which does not comply with the terms of
such Letter of Credit; (iv) the invalidity or unenforceability of
the Letter of Credit; or (v) any other circumstances or happening
whatsoever, whether or not similar to any of the foregoing;
however, nothing in this Section 2.3.7 will relieve Issuing
Lender of any liability it may have to a Borrower to the extent
resulting from Issuing Lender's gross negligence or willful
misconduct.
2.4 No Deficiency. Notwithstanding anything in this
Agreement to the contrary, but subject to each Lender's
obligations to Issuing Lender pursuant to Section 4.3 and to
Agent pursuant to Section 4.2, a Lender may refuse to make any
requested Revolving Loan and Issuing Lender may refuse to issue
any requested Letter of Credit if, after giving effect to the
requested Revolving Loan or Letter of Credit, a Deficiency would
occur, unless the Deficiency results from an Overadvance elected
to be made by Agent pursuant to Section 2.2.1. If, as of any
date, a Deficiency occurs or exists, Borrowers will immediately,
without demand or notice, reduce the sum of the then outstanding
balance of the Revolving Loans and the Letter of Credit Exposure
so that such Deficiency shall no longer exist, unless the
Deficiency results from an Overadvance elected to be made by
Agent pursuant to Section 2.2.1; however, if such Deficiency was
caused solely by the good faith exercise of Agent's discretion
hereunder, Borrowers will be entitled to a grace period of 5
Business Days (or for such longer time, subject to Section
15.1.1(i), as Agent may elect in its discretion), after the
occurrence of such Deficiency to reduce the then outstanding
balance of the Revolving Loans and the Letter of Credit Exposure
so that such Deficiency will no longer exist.
2.5 Procedures for Advancing and Funding Revolving Loans.
2.5.1 Revolving Loan Requests. Borrowers hereby
authorize Agent, without any further written or oral request of
Borrowers, to make Revolving Loans to Borrowers in amounts
necessary for the payment of checks and other items drawn on the
Controlled Disbursement Accounts as such checks and other items
are presented to Agent for payment if Agent elects to make
advances of the Revolving Loans in accordance with this
Agreement. In addition to Revolving Loans made pursuant to
Agent's controlled disbursement account system, a Borrower may
request a Revolving Loan by giving written notice to Agent in the
form of Exhibit 2.5 by not later than 12:00 noon, Cincinnati,
Ohio time, on the Borrowing Date that the advance is requested.
Each request submitted by a Borrower in the form of Exhibit 2.5
for an advance of a Revolving Loan (other than via Agent's
controlled disbursement account system) will: (i) specify the
amount of the requested advance, (ii) not be revocable by
Borrowers, and (iii) be from an authorized officer or employee of
a Borrower who is listed on the most current signature
authorization letter received by Agent from the Borrower;
however, Agent will, in all cases, be authorized to act on the
request of any person that Agent, in good faith, believes to be
an authorized officer or employee of a Borrower. If Agent
receives a request from a Borrower in the form of Exhibit 2.5 for
a Revolving Loan after 12:00 noon, Cincinnati, Ohio time, on a
Business Day, then the notice will be treated as having been
received at the opening of business on the next Business Day
which will then become the applicable Borrowing Date.
2.5.2 Funding of Revolving Loans.
(i) Controlled Disbursement Borrowings. If Agent
has, as of any Business Day, not elected a Daily Settlement Date
(as defined and provided for in Section 4.2.2), then Agent will,
subject to the terms of this Agreement, make disbursements of
proceeds of Revolving Loans to Borrowers via the Controlled
Disbursement Accounts as the checks and other items are presented
to Agent on a Business Day for payment pursuant to Agent's
controlled disbursement account system, except to the extent
Agent has received a notice from a Lender pursuant to Section
2.5.3.
(ii) Other Revolving Borrowings. If (a) Agent
has, as of the applicable Borrowing Date, not elected a Daily
Settlement Date (as defined and provided for in Section 4.2.2)
and (b) Agent receives a request from a Borrower for a Revolving
Loan in the form of Exhibit 2.5 (i.e., a Revolving Loan other
than via the Controlled Disbursement Accounts), then Agent will,
subject to the terms of this Agreement, advance the requested
Revolving Loan on the applicable Borrowing Date according to the
disbursement instructions given by the Borrower to Agent (so long
as the instructions are acceptable to Agent in its discretion
exercised in a reasonable manner), except to the extent Agent has
received a notice from a Lender pursuant to Section 2.5.3.
(iii) Disbursements if Daily Settlement
Elected. If Agent has, as of the applicable Borrowing Date,
elected a Daily Settlement Date (as defined and provided for in
Section 4.2.2), then the Revolving Loan requested, whether via
the Controlled Disbursement Accounts or otherwise, will, subject
to the terms of this Agreement, be made available to Borrowers by
Agent on the applicable Borrowing Date to the extent of the
aggregate amounts of the requested Revolving Loan made available
to Agent by Lenders and in like funds as, and if, received by
Agent as of 2:30 p.m., Cincinnati, Ohio time, on that Borrowing
Date. Any amounts of that Revolving Loan requested by Borrower
which are made available to Agent by Lenders after 2:30 p.m.,
Cincinnati, Ohio time, on the applicable Borrowing Date will be
made available to Borrowers on the immediately following Business
Day in like funds received by Agent from Lenders.
2.5.3 Funding by Agent on Behalf of Lenders.
(i) Revolving Loans--Weekly Settlement. For
every advance of a Revolving Loan made by Agent on a Business Day
for which Agent had not elected a Daily Settlement Date (as
defined and provided for in Section 4.2.2), Agent may assume that
each Lender will make its Percentage Share of the applicable
Revolving Loan available to Agent as of 2:30 p.m., Cincinnati,
Ohio time, on the next subsequent Settlement Date unless Agent
has been notified by a Lender that the Lender does not intend to
make available to Agent the Lender's Percentage Share of the
applicable Revolving Loan to be funded under Section 2.5.2(ii) or
the Revolving Loan necessary for the payment of checks and other
items presented to Agent via the Controlled Disbursement Accounts
("Non-Funding Notice"). For a Non-Funding Notice to be effective
as against Agent for (a) the Borrowing Date of any Revolving Loan
to be funded under Section 2.5.2(ii) or (b) any Business Day on
which any Revolving Loan will be made to a Borrower via its
Controlled Disbursement Account (the applicable Borrowing Date
being, the "Applicable Funding Date"), Lender must deliver a Non-
Funding Notice to Agent: (1) at or before 8:00 a.m., Cincinnati,
Ohio time, on the Business Day that is at least one Business Day
before the Applicable Funding Date of any Revolving Loan to be
funded under Section 2.5.2(ii) or (2) at or before 2:30 p.m.,
Cincinnati, Ohio time, on the Business Day that is at least two
Business Days before the Applicable Funding Date of any Revolving
Loan to be made to a Borrower via its Controlled Disbursement
Account. Any Non-Funding Notice received after 8:00 a.m. or, as
applicable, 2:30 p.m., Cincinnati, Ohio time, will be treated as
having been received at the opening of business on the next
Business Day. Notwithstanding anything to the contrary in this
Section 2.5.3, Agent may assume that each Lender will, under all
circumstances, make its Percentage Share of all Revolving Loans
made pursuant to Sections 2.3.4 or 3.8.2 available to Agent as of
2:30 p.m., Cincinnati, Ohio time, on the next subsequent
Settlement Date.
(ii) No Modification of Lender's Obligations.
Nothing in this Section 2.5.3 may be deemed to relieve any Lender
of its obligation, if any, under this Agreement to make a
Revolving Loan to a Borrower on the applicable Borrowing Date.
2.5.4 Pro Rata Lending; Commitment Default by a
Lender. All Revolving Loans (including any Overadvances elected
to be made by Agent pursuant to Section 2.2.1) and all
participations in Letters of Credit will be made simultaneously
by Lenders pro rata on the basis of their respective Commitments,
and any reduction of the Commitments of Lenders effected pursuant
to the terms of this Agreement will be allocated by Agent pro
rata according to the relevant Percentage Shares of Lenders. No
Lender will be responsible for, or be subject to any liability
because of, any default by any other Lender in its obligation to
make Revolving Loans under this Agreement nor will any Commitment
of any Lender be increased or decreased as a result of any
failure by any other Lender to fulfill its Commitment under this
Agreement. Each Lender will be obligated to make the Revolving
Loans provided to be made by it under this Agreement, regardless
of the failure of any other Lender to fulfill its Commitment
under this Agreement.
2.5.5 Funding Sources. Nothing in this Agreement
may be treated as obligating any Lender to obtain its funds in
any particular place or manner to make any Revolving Loan under
this Agreement, and nothing in this Agreement may be deemed to be
a representation by any Lender that it has obtained or will
obtain funds in any particular place or manner.
2.6 No Limitation on Liens. The limits on outstanding
advances against the Borrowing Base are not intended and shall
not be deemed to limit in any way Agent's or Lenders' security
interest in, or other Liens on, the Receivables, Inventory,
General Intangibles, or any other Loan Collateral.
2.7 Discretionary Nature of Facility. NOTHING CONTAINED IN
THIS AGREEMENT SHALL, AT ANY TIME, REQUIRE LENDERS TO MAKE LOANS
OR OTHER EXTENSIONS OF CREDIT (INCLUDING LETTERS OF CREDIT) TO
ANY BORROWER, AND THE MAKING AND AMOUNT OF ANY LOANS OR OTHER
EXTENSIONS OF CREDIT (INCLUDING LETTERS OF CREDIT) HEREUNDER
SHALL AT ALL TIMES BE IN AGENT'S DISCRETION TO BE EXERCISED IN
GOOD FAITH. ALL OUTSTANDING LOANS AND OTHER EXTENSIONS OF CREDIT
(INCLUDING LETTERS OF CREDIT) SHALL AT ALL TIMES BE SUBJECT TO
THE TERMS OF SECTION 11 AND SECTION 14, INCLUDING THE TERMS
THEREOF RELATING TO REPAYMENT. Without limiting the generality
of the foregoing, and subject to Section 15, Borrowers
acknowledge that (i) Agent, from time to time in its discretion
exercised in good faith, may increase or decrease the percentage
advance rates and dollar limits on outstanding advances against
the Borrowing Base and (ii) the covenants set forth in this
Agreement are not (and are not intended to be) an exclusive
listing of all the elements of a Borrower's condition which are
material to Agent or Lenders, from time to time, in determining
whether credit should be advanced hereunder. Accordingly,
compliance by Borrowers with all of the covenants set forth in
this Agreement shall not be deemed to affect, in any manner,
Agent's discretion pursuant to Section 2 with respect to the
making and amount of any Loans or other extensions of credit
hereunder.
2.8 General Conditions. In addition to any other
provisions contained in this Agreement, the making of any
Revolving Loan by a Lender or the issuance of any Letter of
Credit by Issuing Lender will be subject to the continued
existence or fulfillment to the satisfaction of Agent of each of
the following conditions throughout the term of this Agreement:
(i) No Event of Default has occurred and is
continuing;
(ii) No law or regulation prohibits, and no order,
judgment or decree of any arbitrator or Governmental Authority
enjoins or restrains any Lender, from making the requested
advance; and
(iii) Borrowers' representations and warranties
contained in this Agreement are complete and correct as of the
date of this Agreement and continue to be true and correct in all
material respects throughout the term of this Agreement with the
same effect as though such representations and warranties had
been made again on and as of each day of the term of this
Agreement subject to such changes as are not prohibited hereby or
do not constitute Events of Default under this Agreement.
2.9 One General Obligation; Cross-Collateralized. All
advances of credit by Lenders to, or for the benefit of, any
Borrower under this Agreement and under any other Loan Document
constitute one loan, and all of the Obligations constitute one
obligation. The Loans, the Letters of Credit and all other
advances or extensions of credit to, or for the benefit of, any
Borrower under this Agreement or the other Loan Documents are
made on the security of all of the Loan Collateral.
3. INTEREST CHARGES; MINIMUM LOAN CHARGE; FEES.
3.1 Interest on Loans. Borrowers promise to pay interest
on the Loans as follows:
(i) All Revolving Loans will bear interest on the
daily unpaid principal amount thereof from the date made until
paid in full at a rate per annum equal to the Prime Rate, as in
effect from day to day as interest accrues, plus 1.25% (the
"Revolving Loan Margin").
(ii) The principal balance of all other outstanding
Obligations (except that portion of the Obligations, if any,
arising under any agreement other than this Agreement if such
other agreement provides for the payment of interest at a rate
specified therein) will bear interest on the daily unpaid
principal amount thereof from the date made until paid in full at
a rate per annum equal to the Prime Rate, as in effect from day
to day as interest accrues, plus 1.25% (the "Other Margin").
(iii) Any adjustment in the rate of interest
resulting from a change in the Prime Rate will become effective
on the date of such change in the Prime Rate made by Agent.
(iv) The Revolving Loan Margin and the Other Margin
each is subject to reduction by 0.250% per annum if (a) Borrowers
have met each of the financial tests set forth on Exhibit 3.1 as
of the end of their fiscal years ending June 30, 1998 and (b) no
Event of Default is existing as of the end of that fiscal year,
or exists as of the effective date of reduction as provided
below. Each of the Revolving Loan Margin and the Other Margin is
subject to one additional reduction (whether or not the reduction
applicable to Borrowers' fiscal year ending June 30, 1998
occurred) by 0.250% per annum if (x) Borrowers have met each of
the financial tests set forth on Exhibit 3.1 as of the end of
their fiscal years ending June 30, 1999 and (y) no Event of
Default is existing as of the end of that fiscal year, or exists
as of the effective date of reduction as provided below. The
total reduction to each of the Revolving Loan Margin and the
Other Margin, assuming Borrowers meet all of the conditions of
this clause (iv) of Section 3.1 for both of their fiscal years
ending June 30, 1998 and June 30, 1999, is 0.500% per annum. The
foregoing rate reductions, if applicable, will become effective
on and after the first day of the first calendar month following
delivery of Borrowers' annual financial statements required to be
delivered to Agent pursuant to Section 8.7 for, as applicable,
the fiscal year ending June 30, 1998 and June 30, 1999. Each of
the financial statements required to be delivered to Agent (1)
must be in compliance with Section 8.7 and (2) must have been
reviewed by Agent to its satisfaction for all purposes of this
Agreement.
(v) The per annum rate of interest applicable at all
times after the occurrence and during the continuance of an Event
of Default shall be the applicable rate of interest set forth
above in clauses (i) and (ii) of this Section 3.1 plus an
additional 2.000% per annum.
3.2 Increased Costs. If (i) there occurs any change in law
or any rules, regulations, guidelines or orders (or any
interpretations thereof) of a Governmental Authority or any new
laws, regulations or guidelines are promulgated, enacted, issued,
or made or any request, requirement or directive (whether having
the force of law) from any central bank or other Governmental
Authority is imposed or made effective (including a requirement
which affects the manner in which a Lender allocates capital
resources to any of its credit facilities, including its
Commitment hereunder) and (ii) as a result of such change,
enactment, or issuance a Lender, in its discretion exercised in
good faith, determines that (a) the rate of return on such
Lender's capital as a consequence of its credit facilities
hereunder is reduced to a level below that which such Lender
could have achieved but for such circumstances (taking into
consideration such Lender's policies with respect to capital
adequacy and capital maintenance) by an amount deemed by such
Lender to be material or (b) such Lender is subjected to any tax
of any kind whatsoever with respect to this Agreement or any loan
or other credit advanced under this Agreement or the basis of
taxation of payments to such Lender of principal, fees, interest
or other amounts payable under this Agreement is changed (except
a tax on the overall net income or capital of such Lender,
including "doing business," franchise and other similar taxes),
then, and in each such case, such Lender may charge Borrowers an
additional fee which will compensate such Lender for such
reduction in the rate of return caused by such requirements or
for such tax ("Additional Fee") so long as additional fees (with
respect to capital adequacy, capital maintenance and such taxes)
are being charged by such Lender to its other similarly situated
borrowers to the extent such Lender is legally empowered to do
so. In the event any Additional Fee is charged to Borrowers by a
Lender under this Section 3.2, Borrowers may prepay the
Obligations in full without payment of the termination fee under
Section 11.3 so long as such prepayment in full is tendered to
Agent within 120 days following the date a Lender either first
imposed the Additional Fee or subsequently increased such
Additional Fee for a reason other than a change in the balance of
the Loans or the interest rates under Section 3.1.
3.3 Closing Fee. On the Closing Date, Borrowers will pay
to Agent a closing fee in the total amount of $175,000.
3.4 Unused Commitment Fee. Commencing on the first
Business Day of the first calendar month immediately following
the Closing Date and continuing on the first Business Day of each
and every calendar month thereafter until the Obligations are
fully paid and satisfied, Borrowers will pay to Agent, for the
account of each Lender, a fee ("Unused Commitment Fee") in an
amount equal to (i) the average daily Unused Commitment of each
Lender, as determined by Agent, during the preceding calendar
month (or portion thereof during which any portion of any
Revolving Loans, including the Letter of Credit Exposure, were
outstanding) for which the Unused Commitment Fee is being
determined multiplied by (ii) the result obtained (expressed as a
percentage) by multiplying 0.375% by a fraction, the numerator of
which is the sum of days in such calendar month during which this
Agreement is outstanding and the denominator of which is 360.
3.5 Letter of Credit Fees. Borrowers will to pay to Agent,
for the account of Lenders, with respect to each Letter of
Credit, a fee ("LOC Fee") of 1.50% per annum on the amount
available to be drawn under each Letter of Credit. Borrower will
pay to Agent, for the account of Issuing Lender, Issuing Lender's
then current issuance, opening, closing, transfer, amendment,
draw, renewal, negotiation and other letter of credit
administration fees and charges with respect to each Letter of
Credit. The LOC Fee is due and payable in advance on the issuance
of each Letter of Credit.
3.6 Interest Rate Protection. Subject to Section 10.10,
Borrowers may, at Borrowers' cost, obtain and maintain interest
rate protection to protect against future increases in the Prime
Rate ("Interest Rate Agreements").
3.7 Calculation of Certain Charges. Accrued interest
charges and the fees and charges set forth in Sections 3.4 and
3.5 shall be computed on the basis of a year of 360 days and
applied to actual days elapsed. Except the fees and expenses set
forth in Sections 3.3 and 3.5 (which will be paid in accordance
with such Sections), all such charges and other fees hereunder
shall be paid in arrears, and Borrowers will pay all such charges
and other fees monthly to Agent, for the benefit of Lenders, on
the first Business Day of each month hereafter, beginning on
October 1, 1997.
3.8 Payments; Charging Loan Account.
3.8.1 Payments. Borrowers promise to pay and to
perform, observe and comply with when due all of the Obligations.
All payments to be made by Borrowers on account of the
Obligations will be made by Borrowers without setoff, deduction,
offset, recoupment or counterclaim in Dollars and in immediately
available funds and must be made before 2:00 p.m., Cincinnati,
Ohio time, on the due date thereof to Agent at Agent's
Cincinnati, Ohio main branch located at 425 Walnut Street,
Cincinnati, Ohio 45202. Funds received by Agent after that time
will be deemed to have been paid on the next succeeding Business
Day. If any payment under this Agreement becomes due and payable
on a day other than a Business Day, the maturity of the payment
will be extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon will be
payable at the then applicable rate during that extension.
3.8.2 Charging of Loan Account; Advances of
Revolving Loans. Borrowers hereby irrevocably authorize Agent,
at Agent's option, to charge any account of Borrowers at Agent or
charge or increase the Revolving Loans for the payment or
repayment of any Obligations. On the next subsequent Settlement
Date, Lenders will make their respective Percentage Shares of the
Revolving Loans made by Agent under authority granted by this
Section 3.8.2 available to Agent in accordance with the
procedures and subject to the conditions specified in Section
4.2.
3.9 Maximum Rate. It is the intent of each Borrower,
Agent, Lenders, and all persons and entities primarily or
secondarily liable under this Agreement and the other Loan
Documents to conform strictly to those applicable laws (including
binding judicial or administrative interpretations or
determinations of those laws) ("Applicable Laws") regarding the
contracting for, and charging and receiving of, interest for the
use, forbearance and detention of money. Agent and Lenders will
have no right to claim, charge or receive, and no Borrower will
have any obligation to pay, any Interest (as defined below) in
excess of the maximum amount permitted by the Applicable Laws
(the "Maximum Amount") or in excess of the maximum rate permitted
by the Applicable Laws (the "Maximum Rate") on principal which is
outstanding and unpaid from time to time. Any Interest
contracted for, charged or received in excess of the Maximum Rate
or the Maximum Amount ("Excess Interest") will be deemed a result
of a bona fide error and a mistake. Each Borrower, and all
persons and entities primarily or secondarily liable under this
Agreement and of the other Loan Documents, recognize that with
fluctuations in the Prime Rate and the Maximum Rate, such a bona
fide error and a mistake could inadvertently occur. The
determination of whether the rate or amount of interest charged
under this Agreement or under the other Loan Documents is
usurious under the Applicable Laws will be made by amortizing,
prorating, allocating and spreading in equal parts during the
term of this Agreement, all interest or other sums deemed to be
interest ("Interest") at any time contracted for, charged or
received from a Borrower (or on its behalf) in connection with
this Agreement or any other Loan Document. Notwithstanding
anything to the contrary in this Agreement or any other Loan
Document, if Excess Interest is charged or received, each
Borrower stipulates that any Excess Interest will be, first,
applied to reduce then unpaid principal balance of the
Obligations; second, applied to any other unpaid Obligations
other than Interest which is Excess Interest; and, third,
returned to Borrower if all of the Obligations (determined
exclusive of Excess Interest) have been satisfied. By signing
this Agreement, each Borrower agrees that (a) the credit or
return of any Excess Interest to it will constitute acceptance by
it of the payment or credit of the Excess Interest, and (b) it
will not seek or pursue any other remedy, legal or equitable,
against Agent or any Lender based, in whole or in part, on the
charging or receiving of any interest in excess of the Maximum
Amount or the Maximum Rate. In no event will Agent or any Lender
be subject to any of the penalties provided by the Applicable
Laws for contracting for, charging or receiving any Excess
Interest. Any Excess Interest which is unpaid will be deemed
canceled.
3.10 Monthly Loan Activity Accountings. Agent will provide
Borrowers monthly with a statement of advances, charges and
payments made pursuant to this Agreement, and such account
rendered by Agent shall be conclusive evidence of the amount of
the Obligations owing and unpaid by Borrowers and shall be deemed
to be an account stated and binding as against Borrowers unless
such statement contains manifest errors.
4. APPORTIONMENTS OF PAYMENTS; SETTLEMENTS AMONG LENDERS;
PARTICIPATIONS IN LETTERS OF CREDIT.
4.1 Apportionment of Payments; Pro Rata Treatment.
4.1.1 Apportionment of Payments. Subject to
Sections 4.2 and 4.4: (i) aggregate principal and interest
payments received by Agent in finally collected funds on account
of the Loans will be apportioned by Agent pro rata among all
Lenders (apportioned according to the daily, average unpaid
principal balance held by each Lender of the applicable Loan with
respect to which the payment was received); however, for purposes
of this Section 4.1, the aggregate principal amount of any
Overadvances will be deemed paid first; (ii) unless otherwise
agreed to by Agent and Lenders, aggregate payments received by
Agent in finally collected funds of all fees and other amounts to
be paid by Borrowers under the terms of this Agreement to Agent
for the account of Lenders will be apportioned by Agent pro rata
among all Lenders according to their respective Percentage
Shares; and (iii) aggregate principal and interest payments
received by Agent in finally collected funds on account of
Unreimbursed Drawings will be apportioned by Agent pro rata among
all Lenders which have paid their respective Percentage Share of
any Unreimbursed Drawings to Issuing Lender (apportioned
according to the daily, average unpaid principal balance of the
Unreimbursed Drawings held by each Lender with respect to which
the payment was received). Notwithstanding anything to the
contrary in this Section 4.1.1, the foregoing provisions in this
Section 4.1.1, except as provided in clause (i) with respect to
Overadvances, do not constitute an ordering of priority of
payments.
4.1.2 Pro Rata Treatment. If any Lender (a
"benefited Lender") at any time receives any payment of all or
part of its Loans owing to it or its Letter of Credit Exposure,
any interest on those amounts, or any collateral in respect of
any or all of the foregoing (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Sections 12.1(i)(d) or 12.1(i)(e), or
otherwise), in a greater proportion than any payment to or
collateral received by any other Lender, if any, in respect of
the other Lender's Loans owing to it or its Letter of Credit
Exposure, as the case may be, or any interest on those amounts,
the benefited Lender will (i) purchase for cash from the other
Lenders a participating interest in that portion of each other
Lender's Loans owing to each of them and each of their Letter of
Credit Exposure, as the case may be, or (ii) provide the other
Lenders with the benefits of any collateral, or the proceeds of
any collateral obtained by the benefited Lender, as is necessary
to cause the benefited Lender to share the excess payment or
benefits of the applicable collateral or proceeds ratably with
each of the other Lenders; however, if all or any portion of that
excess payment or benefits is thereafter recovered from the
benefited Lender, the purchase by the benefited Lender from the
other Lenders will be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without
interest unless the benefited Lender is obligated to pay interest
to the applicable Person in which case the other Lenders will pay
their pro rata share of the interest payment.
4.2 Settlements.
4.2.1 Weekly Settlement. If Agent has elected
weekly settlement procedures, Agent will advise each Lender by
telephone (confirmed by telecopier), telex or telecopy by 12:00
noon, Cincinnati, Ohio time, on Thursday (or, upon notice to
Lenders, some other day of the week elected by Agent) of each
week (the "Weekly Settlement Date") of the amount of each
Lender's pro rata share of (i) all Revolving Loans made by Agent,
for the benefit of Lenders, since the immediately preceding
Weekly Settlement Date; (ii) all payments of principal with
respect to Revolving Loans received by Agent in finally collected
funds since the immediately preceding Weekly Settlement Date;
(iii) the amount of any payments of interest on the Revolving
Loans and any payment of fees and other amounts to be paid by
Borrowers under the terms of this Agreement to Agent for the
account of Lenders which have been received by Agent in finally
collected funds since the immediately preceding Weekly Settlement
Date; and (iv) the Letter of Credit Exposure of all Letters of
Credit issued and, as applicable, canceled since the immediately
preceding Weekly Settlement Date. On each Weekly Settlement
Date, the party from whom payment is due will make the amount due
available to the other party, in immediately available funds, by
wire transfer to the other party's account, not later than 2:30
p.m., Cincinnati, Ohio time, so long as the party to whom payment
is being made has made all payments required to be made by it
under this Agreement to the other party.
4.2.2 Daily Settlement. Notwithstanding the weekly
settlement procedures in Section 4.2.1, Agent may, at its option
at any time, including whenever Agent is asked to make an advance
of a Revolving Loan (whether via the Controlled Disbursement
Account or otherwise), elect to have a daily settlement with
respect to any requested advance of a Revolving Loan. If Agent
elects to have a daily settlement, (i) it must promptly (but in
no event later than 12:00 noon, Cincinnati, Ohio time, on the
proposed Borrowing Date) advise each Lender by telephone
(confirmed by telecopier), telex or telecopy of the requested
Borrowing Date (the applicable date being, the "Daily Settlement
Date"), the amount of the requested advance, and the amount of
each Lender's Percentage Share and (ii) each Lender will pay to
Agent the amount of the Lender's Percentage Share of the
requested Revolving Loan, in immediately available funds, before
2:30 p.m., Cincinnati, Ohio time, on the proposed Borrowing Date.
Whenever Agent has elected a Daily Settlement Date, and as long
as Agent's election remains in effect, Agent will pay to each
Lender its pro rata share of all payments, if any, described in
Section 4.2.1, which were received by Agent in finally collected
funds on or before 2:30 p.m., Cincinnati, Ohio time, on the next
Business Day following receipt by Agent, so long as a Lender has
made all payments required to be made by it under this Agreement.
4.2.3 Interest on Unpaid Settlements. If any
payment required under Sections 4.2.1 or 4.2.2 is not, in fact,
made by the party from whom payment is due ("Paying Party") when
due, the party to whom payment is due ("Receiving Party") will be
entitled to recover the applicable amount on Receiving Party's
demand (which must be promptly made), together with interest on
the applicable amount at the Federal Funds Rate, for each day
from the applicable Settlement Date on which the applicable
amount was due until that amount is paid. A certificate of
Receiving Party submitted to Paying Party with respect to any
amounts owing under this Section 4.2.3 will be binding and
conclusive in the absence of manifest error.
4.3 Letter of Credit Participations by Lenders.
4.3.1 Participation. Issuing Lender irrevocably
agrees to grant and hereby grants to each Lender, and, to induce
Issuing Lender to issue Letters of Credit under this Agreement,
each Lender irrevocably agrees to accept and purchase and hereby
accepts and purchases from Issuing Lender, on the terms and
conditions stated in this Section 4.3.1, for each Lender's own
account and risk, an undivided interest equal to each Lender's
Percentage Share (determined on the date of issuance of each
Letter of Credit) in the Letter of Credit Exposure. Each Lender
unconditionally and irrevocably agrees with Issuing Lender that,
if a draft is paid under any Letter of Credit for which Issuing
Lender is not reimbursed in full by Borrowers in accordance with
Section 2.3.4, each Lender will pay to Issuing Lender an amount
equal to each Lender's Percentage Share of the amount of that
draft or any part of that draft which is not so reimbursed under
all applicable Letters of Credit (each drawing so unreimbursed by
Borrowers being called an "Unreimbursed Drawing"). The
obligations of Lenders to make payments to Issuing Lender with
respect to Letters of Credit is not subject to any qualification
or exception whatsoever and shall be made in accordance with the
terms and conditions of this Agreement under all circumstances,
including any of the circumstances described in Section 2.3.7.
4.3.2 Payment of Unreimbursed Drawing. Each Lender
will pay to Issuing Lender the amount of the Lender's Percentage
Share of all Unreimbursed Drawings under any Letters of Credit
for which there are any Unreimbursed Drawings, in immediately
available funds, by the end of the Business Day which immediately
follows the Business Day on which Lender received notice from
Issuing Lender by telephone, telex or telecopy of the
Unreimbursed Drawing or Drawings. If any amount required to be
paid by any Lender to Issuing Lender pursuant to this Section
4.3.2 in respect of any Unreimbursed Drawings is not paid by a
Lender when due in accordance with the immediately preceding
sentence, the applicable Lender will pay to Issuing Lender on
Issuing Lender's demand an amount equal to the applicable
Percentage Share of the Unreimbursed Drawing together with
interest on the applicable amount at the Federal Funds Rate for
each day from the original due date until that applicable amount
is paid to Issuing Lender. A certificate of Issuing Lender
submitted to any Lender with respect to any amounts owing under
this Section 4.3.2 will be binding and conclusive in the absence
of manifest error.
4.3.3 Recovery of Unreimbursed Drawings. Whenever,
at any time after Issuing Lender has made payment under any
Letter of Credit and has received from a Lender its Percentage
Share of any Unreimbursed Drawings in accordance with Section
4.3.2, Issuing Lender receives any payment related to any
Unreimbursed Drawing (whether directly from Borrowers or
otherwise, including proceeds of Loan Collateral applied to the
applicable Unreimbursed Drawings by Agent pursuant to Section
4.1), or any payment of interest from Borrowers on account of any
Unreimbursed Drawings, Issuing Lender will distribute to each
Lender its pro rata share of the applicable amount received by
Issuing Lender on the Business Day immediately following the
Business Day on which Issuing Lender received the applicable
amount in finally collected funds; however, if any amount
received by Issuing Lender is required to be returned by Issuing
Lender, each Lender will return to Issuing Lender the portion of
the amount previously distributed to it by Issuing Lender, but
without interest unless Issuing Lender is obligated to pay
interest to the applicable Person in which case the other Lenders
will pay their pro rata share of the interest payment.
4.4 Allocation of Payments Following Acceleration.
Aggregate cash proceeds received by Agent in finally collected
funds from the sale or other disposition, collection,
liquidation, or realization of any or all of the Loan Collateral,
following the occurrence of any Event of Default and acceleration
of the Obligations, will be allocated, subject to the provisions
of this Agreement, to the Obligations in the following order:
first, to interest due with respect to all Loans;
second, to principal of the Revolving Loans and to pay
drawings under, or provide cash collateral in respect of, Letters
of Credit to the extent contemplated in Section 14.3;
third, to any fees, expense reimbursements or
indemnities then due to Agent or Issuing Lender from Borrowers or
from any Lender under this Agreement;
fourth, to any fees, expense reimbursements or
indemnities then due to Lenders from Borrowers; and
fifth, to the payment of any other Obligations due to
Agent or Lenders from Borrowers.
Agent will distribute to each Lender at its address set forth on
the applicable signature page of this Agreement, or at any other
address as a Lender may request in writing, the amount of funds
as the Lender may be entitled to receive in accordance with the
terms of this Agreement and the settlement procedures set forth
in Section 4.2.
4.5 No Third Party Beneficiary. The provisions of this
Section 4 are solely for the benefit of Agent and Lenders, and
none of Borrowers nor any Additional Borrower will have any
rights as a third party beneficiary of any of the provisions of
this Section 4.
5. NATURE OF BORROWERS' OBLIGATIONS; GUARANTY.
5.1 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 Agent's
administration of this loan transaction, Midcoast, Little Rock,
SabreTech, Dimension and Turbotech each hereby authorize Agent 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.
5.2. Consolidated Borrowings. To induce Agent and Lenders
to enter into this Agreement and to make advances of the Loans,
and issue the Letters of Credit in the manner set forth in this
Agreement, each Borrower hereby represents, warrants, covenants
and states to Agent and Lenders that:
(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;
(ii) Borrowers desire to utilize their borrowing
potential on a consolidated basis, to the extent(s) possible as
if they were merged into a single corporate entity and,
consistent with realizing such potential, to make available to
Agent and Lenders security commensurate with the amount and
nature of their aggregate borrowings;
(iii) each of Sabreliner and its Subsidiaries has
determined that it will benefit specifically and materially from
the advances of credit contemplated by this Agreement and that
under a joint and several loan facility it is able to obtain
financing on terms more favorable than otherwise available to it
separately; and
(iv) Sabreliner and its Subsidiaries have requested and
bargained for the structure and terms of and security for the
advances contemplated by this Agreement.
5.3. Guaranties. It is both a condition precedent to the
obligations of Agent and Lenders under this Agreement and a
desire of Borrowers that Borrowers execute and deliver to Agent,
for the benefit of Lenders, this Agreement, the Security
Agreement, and to the extent required thereunder, the other Loan
Documents, and also execute and deliver to Agent, for the benefit
of Lenders, an irrevocable and unconditional cross-guaranty of
the full and prompt payment of the Obligations and performance of
the Loan Documents by each of them in accordance with the terms
of a Guaranty in the form of Exhibit 5.3.
6. SECURITY. The Obligations shall be secured (for application
in such order as may be determined by Agent in its discretion
exercised in good faith) by a first priority security interest in
all of the (i) Collateral pursuant to the Security Agreement and
accompanying financing statements, and (b) other Loan Collateral
given from time to time as security for the Obligations.
7. RECEIVABLES; INVENTORY; COLLECTION OF RECEIVABLES; DISPUTED
RECEIVABLES; PROCEEDS OF INVENTORY.
7.1 Agreements Regarding Receivables. No Borrower may
backdate, postdate or redate any of its invoices or make any
sales on extended dating or credit terms beyond that (i)
customary in Borrower's industry and (ii) approved by Agent.
Borrowers shall notify Agent promptly on a Borrower's learning
thereof if any Eligible Receivable becomes ineligible for any
reason, other than the aging of such Receivable, and of the
reasons for such ineligibility. Each Borrower will also notify
Agent promptly of all material disputes and claims with respect
to its Receivables, and Borrowers will settle or adjust such
material disputes and claims at no expense to Agent; however, no
Borrower may, without Agent's consent grant (i) any discount,
credit or allowance in respect of its Receivables outside the
ordinary course of business or (ii) any materially adverse
extension, compromise or settlement to any customer or account
debtor. Nothing permitted by this Section 7.1 or Section 7.2,
however, may be construed to alter in any way the criteria for
Eligible Receivables or Eligible Inventory provided in Section
1.1.
7.2 Agreements Regarding Inventory. Each Borrower shall
notify Agent promptly of all material returns and recoveries of
Inventory. Without Agent's prior consent and compliance with the
applicable terms of the Security Agreement, no Borrower will (i)
accept any returns of Inventory outside the ordinary course of
business, (ii) enter into any agreement, practice, arrangement,
or transaction under which title to, or ownership of, any
Inventory which is being sold by a Borrower is, or purports to
be, transferred to, or held by, a Person other than the
applicable Borrower before such Inventory is delivered to such
Person by the Borrower, (iii) make a sale of Inventory to any
customer on a bill-and-hold, guaranteed sale, sale or return,
sale on approval, consignment or any other repurchase or return
basis, or (iv) store any Inventory with, or place any Inventory
in the possession or control of, any bailee, processor,
warehouseman, consignee or any other Person not a party to a
bailee or warehouseman's or similar agreement with Agent under
any arrangement, practice or agreement (oral or written).
7.3 Locked Boxes. Borrowers have rented and shall continue
to rent the post office boxes identified in Exhibit 7.3, or such
other post office boxes as Agent may notify Borrowers from time
to time (individually, a "Locked Box," and, collectively, the
"Locked Boxes"). Borrowers shall notify all of their customers
and account debtors to forward all remittances of every kind due
Borrowers ("Remittances") to the Locked Boxes (such notices to be
in such form and substance as Agent may require from time to
time), and immediately upon receipt thereof, Borrowers shall
deposit all other proceeds of Receivables or other Loan
Collateral into the Locked Box (or into a Special Account, as
defined in Section 7.4). Agent shall have sole access to the
Locked Boxes at all times, and Borrowers shall take all action
necessary to grant Agent such sole access. At no time shall any
Borrower remove any item from any Locked Box without Agent's
prior written consent, and no Borrower shall notify any customer
or account debtor to pay any Remittance to any other place or
address without Agent's prior written consent. If any Borrower
should neglect or refuse to notify any customer or account debtor
to pay any Remittance to the Locked Boxes, Agent shall be
entitled to make such notification. Each Borrower hereby grants
to Agent an irrevocable power of attorney, coupled with an
interest, to take in each Borrower's name all action necessary
(a) to grant Agent sole access to the Locked Boxes, (b) to
contact account debtors to pay any Remittance to the Locked Boxes
in the event that any such account debtor is not paying any such
Remittance to the Locked Boxes, (c) to contact account debtors
for any reason upon the occurrence of an Event of Default, and
(d) to endorse each Remittance delivered to the Locked Boxes for
deposit to a Special Account.
7.4 Special Account and Blocked Account. Upon collection
of Remittances and other proceeds of Receivables and other Loan
Collateral from the Locked Boxes, Agent shall deposit the same in
the special accounts of the respective Borrowers at Agent as
identified in Exhibit 7.4 (each a "Special Account"). In order
to provide for collection and forwarding to Agent of Remittances
and other proceeds of Receivables and other Loan Collateral that
continue to be sent on and after the date of this Agreement to
the Borrowers' respective blocked account banks as identified in
Exhibit 7.4 (each such bank being called a "Blocked Account
Bank"), each Borrower and Agent are (or will be prior to any
funding hereunder) parties to a Blocked Account Agreement in form
and substance satisfactory to Agent (a "Blocked Account
Agreement") with the applicable Blocked Account Bank pursuant to
which the blocked accounts identified in Exhibit 7.4 are
established and maintained by the applicable Blocked Account Bank
(each a "Blocked Account"). Upon collection of Remittances from
a Blocked Account, Agent shall deposit the same in the transfer
account of the applicable Borrower at Agent as identified in
Exhibit 7.4 (a "Transfer Account"). Any Remittance or other
proceeds of Receivables or other Loan Collateral received by any
Borrower shall be deemed held by Borrowers in trust and as
fiduciary for Agent, and Borrowers immediately shall deliver the
same, in its original form, to Agent into the Locked Boxes.
Pending such deposit, each Borrower agrees that it will not
commingle any such Remittance or other proceeds of Receivables or
other Loan Collateral with any of a Borrower's other funds or
property, but will hold it separate and apart therefrom in trust
for Agent until deposit is made into the Locked Boxes, or
applicable Special Account or Transfer Account. All deposits to
a Special Account, the Locked Boxes, a Blocked Account or a
Transfer Account shall be Agent's property and shall be subject
only to the signing authority designated from time to time by
Agent, and no Borrower shall have any interest therein or control
over such deposits or funds. Agent shall have sole access to
each Special Account and Transfer Account, and no Borrower shall
have any access thereto nor to any Blocked Account. Agent and
Lenders shall have, and each Borrower hereby grants to Agent and
Lenders, a security interest in all funds held in each Special
Account, Blocked Account and Transfer Account as security for the
Obligations. Each Special Account, Blocked Account and Transfer
Account shall not be subject to any deduction, set-off, banker's
lien or any other right in favor or any person or entity other
than Agent. Deposits to each Special Account, Blocked Account
and Transfer Account shall be applied first to the principal and
interest of the Revolving Loans, and second to the other
Obligations in such order and method of application as may be
elected by Agent in its discretion exercised in good faith. Any
funds in a Special Account, Blocked Account or Transfer Account
remaining after the applications set forth in the preceding
sentence may, at Agent's option, be paid over by Agent to
Borrowers or retained in a Special Account, Blocked Account
and/or Transfer Account as continuing security for the
Obligations. Each Borrower hereby indemnifies and holds Agent
and Lenders harmless from and against any loss or damage with
respect to any Remittance deposited in a Special Account, Blocked
Account, Transfer Account, or any or all of them, which is
dishonored or returned for any reason. If any Remittance
deposited in a Special Account, Blocked Account, Transfer Account
(or any or all of them) is dishonored or returned unpaid for any
reason, Agent, in its discretion, may charge the amount of such
dishonored or returned Remittance directly against Borrowers and
any account maintained by any Borrower with Agent and such amount
shall be deemed part of the Obligations hereunder. Agent shall
not be liable for any loss or damage resulting from any error,
omission, failure or negligence on the part of Agent under this
Agreement, but shall be liable for any such loss or damage
resulting from Agent's gross negligence or willful misconduct.
Until a payment is received by Agent for Agent's account in
Cincinnati, Ohio in finally collected funds, all risks associated
with such payment, including risks associated with the failure of
a Blocked Account Bank at which a Blocked Account is located,
will be borne solely by Borrowers.
7.5 Crediting of Remittances. For the purpose of
calculating interest, all Remittances and other proceeds of
Receivables and other Loan Collateral shall be credited to
Borrowers (conditional upon final collection) two Business Days
after Agent's Structured Capital Division receives notice of
deposit of the same into a Special Account or Transfer Account;
provided, however, in the event that Agent's Structured Capital
Division receives notice of such deposit later than 12:00 noon on
any Business Day, such Remittance deposited shall be credited to
Borrowers (conditional upon final collection) two Business Days
after such deposit; and provided, further, that the time for
crediting Remittances by the United States of America shall be
one Business Day shorter than provided above in this sentence.
For the purpose of determining the aggregate loan availability
and the Unused Commitment Fee under Section 3.4, all such
Remittances shall be credited on the Business Day on which
Agent's Structured Capital Division receives notice of such
deposit into a Special Account or Transfer Account. From time to
time, Agent may adopt such regulations and procedures as it may
deem reasonable and appropriate with respect to the operation of
a Special Account, the Locked Boxes, a Blocked Account, a
Transfer Account and the services to be provided by Agent under
this Agreement so long as the adoption of such regulations and
procedures will not change the material terms of this Agreement.
7.6 Cost of Collection. All reasonable costs of collection
of any Borrower's Receivables, including attorneys' fees, out-of-
pocket expenses, administrative and recordkeeping costs, and all
service charges and costs related to the establishment and
maintenance of the Locked Boxes, a Special Account, a Blocked
Account and a Transfer Account, shall be the sole responsibility
of Borrowers, whether the same are incurred by Agent or a
Borrower, and Agent, at its discretion, may charge the same
against Borrowers and any account maintained by any Borrower with
Agent and the same shall be deemed part of the Obligations
hereunder.
8. EXAMINATION OF LOAN COLLATERAL; REPORTING.
8.1 Maintenance of Books and Records. Each Borrower shall
keep and maintain complete books of account, records and files
with respect to its business in accordance with GAAP consistently
applied and shall accurately and completely record all
transactions therein. Each Borrower will maintain a perpetual
inventory system in respect of its Inventory.
8.2 Access and Inspection. Agent and Lenders may at all
times during normal business hours have (i) access to, and the
right to examine and inspect, all of each Borrower's real and
personal property and (ii) access to, and the right to inspect,
audit and make extracts from, all of each Borrower's records,
files and books of account, and Borrowers shall execute and
deliver at the request of Agent such instruments as may be
necessary for Agent or Lenders to obtain such information
concerning the business of each Borrower as Agent or Lenders may
reasonably require from any Person; however, unless an Event of
Default has occurred or exists, Agent and Lenders will give a
Borrower reasonable notice before it makes the inspections and
examinations at any Borrower's Facility. Each Borrower shall
furnish Agent or Lenders at reasonable intervals with such
statements and reports regarding each Borrower's financial
condition and the results of its operations, in addition to those
hereinafter required, and such other information as Agent or
Lenders may reasonably request from time to time.
8.3 Reporting Regarding Receivables. Not less frequently
than monthly, and more frequently if Agent shall require or a
Borrower shall so elect, Borrowers shall deliver to Agent a
borrowing base certificate in the form of Exhibit 8.3 (a
"Borrowing Base Certificate") and acceptable supporting
documentation thereto. Not less frequently than weekly, and more
frequently if Agent shall require or a Borrower shall so elect,
Borrowers will deliver to Agent a report listing all of each
Borrower's Receivables which arise out of a contract with a
Governmental Authority or are otherwise subject to an Assignment
of Claims Law. By no later than the 25th day after the end of
each calendar month, or sooner if available, each Borrower shall
deliver to Agent monthly agings, broken down by due date or
invoice date, as applicable, 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 terms of any Receivables, together with such
further information with respect thereto as Agent may require.
8.4 Reporting Regarding Inventory. Each Borrower will
undertake a physical count of its Inventory at least once each
fiscal year in accordance with procedures approved by Borrowers'
independent certified public accountants and Agent. By no later
than the 25th day after the end of each calendar month, each
Borrower shall submit to Agent an inventory report reconciled to
(i) the Borrowing Base Certificate for the end of such month,
(ii) each Borrower's inventory records, and (iii) each Borrower's
general ledger, broken down into such detail and with such
categories as Agent shall reasonably require (including, but not
limited to, a report indicating the type, location, and dollar
value of each Borrower's Raw Materials, Work-in-Process, Pre-
Owned Aircraft and Finished Goods Inventory, and all other
information deemed necessary by Agent to determine levels of that
which is and is not Eligible Inventory). Values shown on reports
of Inventory shall be at the lower of cost or market value
determined on the basis of average cost. Not less frequently
than monthly, and more frequently if Agent shall require or a
Borrower shall so elect, each Borrower shall deliver to Agent a
Borrowing Base Certificate, and acceptable supporting
documentation thereto, reporting the value of each Borrower's
Inventory as of the end of the immediately preceding calendar
month period for which any Borrower has provided an inventory
report in accordance with this Section 8.4.
8.5 Monthly Financial Statements; Payable Information.
Promptly when available and in any event not later than 30 days
after the end of each month occurring after the Closing Date,
Borrowers shall furnish to Agent monthly consolidating financial
statements, (a) showing each Borrower's financial condition and
the results of each Borrower's operations for the periods covered
by such statements in such detail as Agent may from time to time
require, (b) prepared in accordance with GAAP consistently
applied (except the omission of footnotes and as otherwise
disclosed to Agent to the extent such exceptions are acceptable
to Agent), and (c) containing all disclosures required to fully
and accurately present the financial position and results of
operations of each Borrower (subject to normal year-end
adjustments and the omission of footnotes) and to make such
statements not misleading under the circumstances. By no later
than the 30th day after the end of each calendar month, or sooner
if available, each Borrower shall deliver to Agent monthly agings
of accounts payable listed by invoice date, in each case
reconciled to each Borrower's general ledger.
8.6 Annual Projections. At least 30 days prior to the end
of each of Borrower's fiscal years, each Borrower shall furnish
to Agent detailed projections for the next 12 months setting
forth projected income and cash flow for each month, the monthly
operating budget, the monthly balance sheet, and the monthly
borrowing availability of each Borrower, in each case accompanied
by a certificate of such Borrower's chief financial officer,
countersigned by such Borrower's chief executive officer, stating
(i) the assumptions on which the projections were prepared, (ii)
that the assumptions, except as otherwise noted, were prepared on
a consistent basis with the operation of the Borrower's business
during the immediately preceding fiscal year and with factors
known to exist as of the date of the certificate or reasonably
anticipated to exist during the periods covered by the
projections, and (iii) that the officers signing the certificate
have no reason to believe that the projections are incorrect or
misleading in any material respect.
8.7 Audited Annual Financial Statements. Promptly when
available and in any event not later than 90 days after the end
of each of Borrower's fiscal years, Borrowers shall submit to
Agent consolidated financial statements prepared in a
consolidating manner, showing Borrowers' financial condition, the
results of operations, a balance sheet and related statements of
income, shareholders' equity, and changes in cash flows and
financial position for the year then ended. Such annual
consolidated financial statements, prepared in a consolidating
manner, shall be audited in accordance with generally accepted
auditing standards by an independent certified public accountant
reasonably acceptable to Agent and shall be prepared and
presented in accordance with GAAP consistently applied.
8.8 Management Reports. Each Borrower shall furnish to
Agent promptly upon receipt copies of all management letters and
any other material reports provided by Borrowers' independent
accountants. Each Borrower hereby authorizes Agent to
communicate directly with Borrowers' independent accountants to
discuss each Borrower's financial statements.
8.9 Comparisons to Financials; Certificates. With each
monthly or annual financial statement submitted by Borrowers to
Agent under Sections 8.5 and 8.7, each Borrower will accompany
each of such financial statements with: (i) a comparison prepared
by each Borrower of the projected financial position and results
of operations of a Borrower provided for in Section 8.6 with the
actual financial position and results of operations of Borrowers
for the applicable period and an explanation of any material
variations between them; and (ii) a comparison prepared by each
Borrower between actual calculated results for the applicable
period and the covenanted results for each of the Financial
Covenants (as defined in Section 10.29). Each Borrower shall
also furnish Agent together with all materials required pursuant
to Section 8.5, Section 8.6, and Section 8.7, a certificate
signed by the chief financial officer of a Borrower in the form
of Exhibit 8.9.
8.10 Tax Returns; Consolidated Information; Additional
Information. Promptly when available and in any event not later
than 10 Business Days after the filing of its tax returns with
each applicable Governmental Authority, Borrowers shall deliver
to Agent a copy of all tax returns and schedules filed by
Borrowers in respect of each fiscal year ending on and after June
30, 1996. Each Borrower shall furnish all other information as
Agent may reasonably request from time to time.
9. WARRANTIES, REPRESENTATIONS AND COVENANTS. In order to
induce Agent and Lenders to enter into this Agreement and to
induce Lenders to make Loans hereunder, each Borrower warrants,
represents and covenants that, as of the date hereof, any date
upon which a Loan is made hereunder, and until the Obligations
are fully paid, performed and satisfied, the representations,
warranties and covenants set forth below are and shall remain
true.
9.1 Corporate Status. Each Borrower (i) is duly organized
and is and shall remain validly existing and in good standing
under the laws of the State of its respective incorporation as
shown on Exhibit 9.1, and is and shall remain qualified to do
business as a foreign corporation under the laws of the States
listed on Exhibit 9.1 and of each other jurisdiction in which the
failure to be so qualified and in good standing would have a
Material Adverse Effect, and (ii) has and shall maintain all
requisite power and authority, corporate or otherwise, to conduct
its business, to own its property, to execute, deliver and
perform all of its obligations under this Agreement and each of
the other Loan Documents, and to grant the Liens on the Loan
Collateral.
9.2 Due Authorization; Validity. The signing and delivery
of the Loan Documents, the performance by each Borrower of its
Obligations under the Loan Documents and the grant of the Liens
on or security interests in the Loan Collateral to Agent have
been duly authorized by all requisite corporate or other action
of each Borrower. This Agreement and each of the other Loan
Documents to which they are a party have been duly executed and
delivered by each Borrower, and each will constitute, upon the
due execution and delivery thereof, the legal, valid, and binding
obligations of each Borrower enforceable in accordance with their
respective 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).
9.3 No Violation. The execution, delivery and performance
by each Borrower of this Agreement and the other Loan Documents
to which they are a party, and the grant of the Liens on or
security interests in the Loan Collateral to Agent, does not and
will not (i) constitute a violation of any applicable law, (ii)
constitute a breach of any provision contained in any Borrower's
Articles or Certificate of Incorporation or By-Laws or contained
in any order of any court or other Governmental Authority or in
any Applicable Agreement, or (iii) result in the creation or
imposition of any Lien on any of any Borrower's properties (other
than in favor of Agent hereunder).
9.4 Use of Loan Proceeds. Each Borrower's uses of the
proceeds of the Loans made by Agent to any Borrower pursuant to
this Agreement are, and will continue to be, legal and proper
corporate uses (duly authorized by each Borrower's Board of
Directors). Such uses do not and shall not violate any
applicable laws or statutes as in effect as of the date hereof or
hereafter. The Loans are not and shall not be secured, directly
or indirectly, by any stock for the purpose of purchasing or
carrying any margin stock or for any purpose which would violate
either Regulation U, 12 C.F.R. Part 221, or Regulation X, 12
C.F.R. Part 224, promulgated by the Board of Governors of the
Federal Reserve System.
9.5 Management; Ownership of Assets; Licenses; Patents.
Each Borrower employs and shall continue to employ active, full-
time, professional management adequate to handle its affairs, and
each Borrower has, and will continue to have, adequate employees,
assets, governmental approvals, licenses, patents, copyrights,
trademarks and trade names to continue to conduct its business as
heretofore and hereafter conducted by it, and all such licenses,
patents, copyrights, trademarks and trade names existing as of
the Closing Date are described in Exhibit 9.5.
9.6 Indebtedness. Except for (i) Indebtedness disclosed in
the Financials, (ii) the Obligations, (iii) Indebtedness (a)
which is unsecured, (b) which is not for borrowed money, (c)
which has been incurred in the ordinary course of business, (d)
which is not otherwise prohibited under any provision of this
Agreement, and (e) the nonpayment of or other default under which
would not have a Material Adverse Effect, and (iv) other
Indebtedness permitted to be incurred or paid by a Borrower
pursuant to Section 10.10, no Borrower has any Indebtedness.
Except as otherwise set forth or reflected in the Financials, no
Borrower has guaranteed the obligations of any Person (except by
endorsement of negotiable instruments payable at sight for
deposit or collection or similar banking transactions in the
usual course of a Borrower's business).
9.7 Title to Property; No Liens. Each Borrower has (i)
good and indefeasible title to, and ownership of, all of its
personal property, including the Collateral and (ii) a validly
existing leasehold estate in all real property used in its
business, except the real property located at 3551 Doniphan
Drive, Neosha, Missouri 64850, in which Sabreliner owns good and
marketable fee simple title, in each case free and clear of all
Liens except to the extent of Permitted Liens.
9.8 Restrictions; Labor Disputes; Labor Contracts. Except
as described in Exhibit 9.8, no Borrower is a party or subject to
any charge, corporate restriction, judgment, decree or order, for
which any Borrower's compliance or non-compliance could have a
Material Adverse Effect. Except as described on Exhibit 9.8, no
Borrower is (i) a party to any written employment contract or
labor contract or (ii) the subject of any labor dispute.
9.9 No Violation of Law. Except as described on Exhibit
9.9, no Borrower is in violation of any applicable statute,
regulation or ordinance of any Governmental Authority (including,
but not by way of limitation, any such statute, regulation or
ordinance relating to ecology, human health or the environment),
which violation could reasonably be expected to have a Material
Adverse Effect. All Inventory manufactured and produced by each
Borrower has been manufactured and produced in compliance with
all applicable requirements of Sections 6, 7 and 12 of the Fair
Labor Standards Act, as amended, and all regulations and orders
of the United States Department of Labor.
9.10 Hazardous Substances. Except as described on Exhibit
9.10, (i) no investigations, inquiries, orders, hearings, actions
or other proceedings by or before any court or governmental
agency are pending or, to the knowledge of any Borrower,
threatened in connection with any Environmental Activity; (ii) to
the best knowledge of any Borrower, no asbestos has been
integrated into any Borrower's property, or any component thereof
in such manner or quantity as may reasonably be expected to or in
fact does pose a threat to human health or the value of any
Borrower's property; (iii) the Use of any Borrower's property
will not result in any Environmental Activity in material
violation of any applicable Environmental Requirements; (iv) to
the best knowledge of any Borrower, no occurrence or condition on
any real property adjoining any of any Borrower's property exists
which could cause any of a Borrower's property or any part
thereof to be subject to any restrictions on ownership,
occupancy, transferability or operation under any Environmental
Requirements; (vi) to the best knowledge of any Borrower, none of
any Borrower's property has been used for the disposal of
Hazardous Substances or has been the site of any Release in a
reportable quantity (as defined under applicable Environmental
Law) of Hazardous Substances; (vii) to the best knowledge of any
Borrower, none of any Borrower's business operations have
contaminated lands, waters or other property of others with
Hazardous Substances; (viii) to the best knowledge of any
Borrower, no underground or above ground storage tank (regardless
of contents) has been in the past, or is now, located on, at or
beneath any of a Borrower's property; and (ix) to the best
knowledge of any Borrower, none of any Borrower's property has
been used for the production, treatment, storage, generation,
disposal or Release of any Hazardous Substance other than in
material accordance with applicable Environmental Law, except to
the extent that any material non-compliance with applicable
Environmental Law arising from the past production, treatment,
storage, generation, disposal or Release of any Hazardous
Substance has been cured in accordance with applicable
Environmental Law.
9.11 Absence of Default. Except as described on Exhibit
9.11, no Borrower is in default under any Applicable Agreement
and has not received any notice of breach, termination or
acceleration or demand for adequate assurances under any
Applicable Agreement, which default, breach, termination,
acceleration or demand has, or can reasonably be expected to
have, a Material Adverse Effect.
9.12 Accuracy of Financials; No Material Changes. The
Financials have been prepared in accordance with GAAP
consistently applied and fairly present in all material respects
each Borrower's assets, liabilities and financial condition and
results of operations and those of such other Persons described
therein as of the date thereof (subject in each case to normal
year-end adjustments and the lack of footnotes in the case of
interim or proforma Financials). There are no omissions from the
Financials or other facts or circumstances not reflected in the
Financials which are or may be material, and there has been no
material and adverse change in any Borrower's assets, liabilities
or financial condition since the date of the most recent
Financials nor has there been any material damage to or loss of
any of any Borrower's assets or properties since such date. Each
Borrower's outstanding advances to any Person do not constitute
any equity or long term investment in any Person which is not
reflected in the Financials.
9.13 Pension Plans. Except as described on Exhibit 9.13,
neither any Borrower nor any Controlled Group member has ever
sponsored, maintained, or contributed (or become obligated to
sponsor, maintain, or contribute) to a Pension Plan subject to
Title IV of ERISA. To any Borrower's knowledge, no "prohibited
transaction," as defined by the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") for which no exemption
exists under Sections 407 or 408 of ERISA or Sections 4975(c)(2)
or 4975(d) of the Internal Revenue Code, has occurred or is
continuing as to any Pension Plan of any Borrower or any
Controlled Group member, which poses a threat of the imposition
of taxes or penalties against such Pension Plans (or trusts
related thereto), the imposition or payment of which could have a
Material Adverse Effect. Each Pension Plan that is intended to
meet the requirements of qualified pension benefit plans under
Section 401(a) of the Internal Revenue Code has received a
favorable determination letter to that effect under the Internal
Revenue Code or application for such determination letter has
been made with respect thereto, and neither any Borrower nor, to
any Borrower's knowledge (after making due inquiries), any
Controlled Group member has violated such requirements with
respect to any Pension Plan.
9.14 Taxes and Other Charges. Each Borrower has filed all
federal, state and local tax returns and other reports which it
is required by law to file. Each Borrower has paid all taxes,
assessments and other similar charges that are due and payable
except for any such taxes, assessments or charges which are being
contested in good faith in accordance with the terms of Section
10.9. Each Borrower has withheld all employee and similar taxes
which it is required by law to withhold and has maintained
adequate reserves for the payment of all taxes and similar
charges. Except as set forth in Exhibit 9.14, no tax Liens have
been filed with respect to any Borrower and, to the knowledge of
each Borrower (after due inquiry), no claims are being asserted
with respect to any such taxes, assessments or charges (and
Borrower is not aware of any reasonable basis for any such
claims).
9.15 No Litigation. Except as set forth in Exhibit 9.15,
there is not any litigation, action or proceeding pending or, to
any Borrower's knowledge (after due inquiry), threatened, against
any Borrower, which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect.
9.16 No Brokerage Fee. No brokerage, finder's or similar
fee or commission is due to any Person by reason of any Borrower
entering into this Agreement or by reason of any of the
transactions contemplated hereby, and each Borrower shall
indemnify and hold Agent and Lenders harmless from all such fees
and commissions.
9.17 Affiliates. All Persons who are Borrower's Affiliates
are identified in Exhibit 9.17. Other than Midcoast, Little-Rock,
Sabreliner International Corporation, Sabreliner Realty, Inc.,
Midcoast Realty, Inc., 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.
9.18 Capitalization; Warrants. Exhibit 9.18 sets forth,
with respect to each Borrower, the number of shares of capital
stock which are authorized and the number of such shares which
are outstanding. Each outstanding share of capital stock is a
common share and is duly authorized, validly issued, fully paid
and nonassessable. Set forth in Exhibit 9.18 is a complete and
accurate list of all Persons who are record and beneficial owners
of the capital stock of Borrowers. All warrants, subscriptions,
options, instruments and agreements under which any shares of
capital stock of any Borrower are or may be redeemed, retired,
encumbered, bought, sold or issued are described in Exhibit 9.18.
9.19 Noncompetition Agreements. No Borrower is subject to
any contract or agreement containing a covenant not to compete in
any line of business with any Person.
9.20 Deposit and Other Accounts. All of the accounts
maintained by any Borrower with any bank, brokerage house or
other financial institution are set forth in Exhibit 9.20, and
none of such other accounts (other than accounts designated as
"Payroll Accounts" or "Disbursement Accounts") is subject to
withdrawal other than by transfers of amounts therein to the
Locked Boxes, a Transfer Account, a Special Account, or a Blocked
Account.
9.21 Solvency. Each Borrower and each of its Affiliates
(other than a Borrower's officers and directors and, in the case
of Sabreliner, its officers, directors, or shareholders), as the
case may be, will be Solvent after (i) receipt and application of
the Loans in accordance with the terms of this Agreement, (ii)
the execution and delivery of this Agreement and the other Loan
Documents to which any of them is a party, and (iii) the filing
of any financing statements or other perfecting notices or
actions in connection with this Agreement.
9.22 Full Disclosure. The representations and warranties
made by Borrowers or their Affiliates in this Agreement, any
other Loan Document, or in any other document furnished from time
to time in connection herewith or therewith do not contain and
will not contain, at the time the representations and warranties
are made or such document furnished, any untrue statement of a
material fact and do not omit and will not omit to state any
material fact necessary to make the statements herein or therein
not misleading. There is no fact known to any Borrower or any of
its Affiliates which is not set forth in the Loan Documents which
could reasonably be expected to have a Material Adverse Effect.
9.23 Casualties. Except as set forth on Exhibit 9.23,
neither the business nor the properties of any Borrower are
affected by any fire, explosion, accident, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other
casualty loss (whether or not covered by insurance) which has any
Material Adverse Effect.
9.24 Leases. Except as listed on Exhibit 9.24, no Borrower
is a party to any lease, assignment, sublease, or other agreement
relating to any real property or leasehold interest in real
property or any material equipment or other material personal
property. Exhibit 9.24 correctly sets forth each lease,
assignment, sublease and other agreement, existing as of the
Closing Date to which any Borrower is a party relating to (i) any
real property or leasehold interest in real property or (ii) any
material equipment or other material personal property.
9.25 Insurance Policies. Exhibit 9.25 correctly sets forth
all of the insurance policies maintained by each Borrower,
including the carriers thereof, and the types of coverage and
insured amounts covered thereby.
9.26 Consents. No authorization or approval or other action
by, and no notice to or filing with, any Governmental Authority,
regulatory body, or any other Person is required for the due
execution, delivery and performance by any Borrower of any Loan
Document to which it is or will be a party, other than notices
under the Assignment of Claims Law.
9.27 Updating Representations and Warranties. To the extent
necessary to cause the representations and warranties set forth
in Section 9 to remain true, complete and accurate as of the date
hereof and as of each day on which a Loan is made hereunder, each
Borrower shall update in writing any Exhibits provided for in
Section 9 promptly upon learning of any circumstance which has
the effect of making any such representation or warranty
contained in Section 9 untrue or misleading. The requirement of
each Borrower to update any Exhibit provided for herein is not,
and may not be construed to be, a cure of any Event of Default
occurring prior to any such update or existing at the time of any
such update without the written waiver of such Event of Default
by Required Lenders; provided, however, that no Event of Default
shall arise or be deemed to have arisen with respect to any event
occurring after the date hereof which is the subject of any
update of any Exhibit, other than events which constitute a
breach or other violation of a covenant set forth in Section 10
or an Event of Default set forth in Section 13.1 (other than
Section 13.1(i)(e)(i)), so long as Borrowers shall have provided
such an update to Agent and Lenders on or prior to the earlier of
(i) 10 days after the occurrence of any such event and (ii) the
advance by Lenders of Revolving Loans, net of repayments of
Revolving Loans, in an aggregate amount in excess of $2,000,000
or the request by any Borrower for the issuance by Issuing Lender
of a Letter of Credit.
10. COVENANTS. Until the Obligations are fully paid, performed
and satisfied and this Agreement is terminated, each Borrower
will observe, perform, and comply with each of the covenants set
forth below in this Section 10.
10.1 Payment of Certain Expenses. Each Borrower will pay to
Agent immediately any and all fees, costs and expenses which
Agent pays to a bank or other similar institution arising out of
or in connection with (i) the forwarding to any Borrower or any
other Person on any Borrower's behalf, by Agent of proceeds of
Loans made by Lenders to any Borrower pursuant to this Agreement,
and (ii) the depositing for collection by Agent of any check or
item of payment received or delivered to Agent on account of the
Obligations. Each Borrower will reimburse Agent, immediately,
for any claims asserted by any bank at which a Blocked Account is
established for the deposit of proceeds of the Loan Collateral in
connection with such Blocked Account or any returned or
uncollected checks received by such bank as proceeds of the Loan
Collateral.
10.2 Notice of Litigation. Each Borrower will notify Agent
in writing, promptly on a Borrower's learning thereof, of any
litigation, suit or administrative proceeding (i) if any
Borrower, as of any date, has pending any claims, suits,
proceedings or litigation which seeks more than $1,000,000 in the
aggregate or (ii) that seeks (a) more than $250,000 in monetary
damages, fines or civil awards or (b) any relief other than a
monetary award (e.g., criminal sanctions or an injunction),
whether any Borrower considers any of such matters to be covered
by insurance or to have no Material Adverse Effect; provided,
however that a Borrower will not be required to give Agent such
notice with respect to corrosion claims which are covered by
insurance and which the Borrower does not reasonably expect will
have a Material Adverse Effect.
10.3 Notice of ERISA Events. Each Borrower will notify
Agent in writing (i) within 30 days of the adoption by any
Borrower or any Controlled Group member of any Pension Plan
subject to Title IV of ERISA; (ii) within 30 days of the
occurrence of any Reportable Event, and (iii) 90 days prior to
any termination, partial termination or merger of a Pension Plan
subject to Title IV of ERISA or a transfer of assets from a
Pension Plan subject to Title IV of ERISA.
10.4 Notice of Labor Disputes. Each Borrower will notify
Agent in writing (i), promptly on a Borrower's learning thereof,
of (a) any labor dispute to which any Borrower may become a party
and which may have a Material Adverse Effect or (b) any strikes,
walkouts, or lockouts relating to any of its plants or other
facilities, and (iii) the entering into of any labor contract
relating to any of its plants or other facilities.
10.5 Compliance with Laws. Each Borrower will comply with
the requirements of all applicable laws, statutes, regulations,
rules or ordinances of any Governmental Authority, the
noncompliance with which would have a Material Adverse Effect.
10.6 Notice of Violations of Law, Tax Assessments. Each
Borrower will notify Agent in writing, promptly on a Borrower's
learning thereof, of any violation of any law, statute,
regulation, rule or ordinance of any Governmental Authority, and
of the imposition of any federal, state or local tax withholding
or assessment, applicable to any Borrower, the violation or
imposition of which would have a Material Adverse Effect. Each
Borrower will (i) provide Agent with copies of all material
communications between a Borrower and any governmental agencies
or other authorities which relate to Environmental Activities,
Environmental Requirements, or Hazardous Substances affecting
Borrowers; and (ii) notify Agent immediately after obtaining
knowledge of a Release or alleged Release in a reportable
quantity (as defined under applicable Environmental Law) of any
Hazardous Substance on, in, under or affecting any Borrower's
property or any surrounding area, and any material noncompliance
with any Environmental Requirement.
10.7 Notice of Certain Matters Under Applicable Agreements.
Each Borrower will notify Agent in writing (i) within three
Business Days after the earlier of when a Borrower learns or is
notified of the occurrence, of (a) any material breach by any
Borrower of, a notice of termination or acceleration or demand
for adequate assurances under, any Applicable Agreement (other
than the Senior Notes Indenture or any of the Senior Notes) or
(b) any Senior Notes Default, and (ii) of any modification,
waiver or amendment of any terms or provisions under, or
applicable to, any of the Senior Notes or the Senior Notes
Indenture within three Business Days after the applicable
modification, waiver or amendment of any of the Senior Notes or
the Senior Notes Indenture, subject to Section 10.16, and will
promptly provide copies thereof to Agent.
10.8 Notice of Customer Defaults. Each Borrower will notify
Agent in writing, promptly upon the later of the occurrence
thereof and Borrower's obtaining knowledge thereof, of any
default by any obligor under any note or other evidence of debt
payable to any Borrower in an aggregate amount in excess of
$25,000 or of anything which could reasonably be expected to have
a material adverse effect on the credit of a customer of a
Borrower.
10.9 Taxes and Charges. Each Borrower will (i) file all
federal, state and local tax returns and other reports which it
is required by law to file, (ii) pay all taxes, assessments and
other similar charges that are due and payable, (iii) withhold
all employee and similar taxes which it is required by law to
withhold, and (iv) maintain adequate reserves for the payment of
all taxes and similar charges; provided, however, that no such
taxes, assessments or charges need be paid during such period as
they are being contested in good faith by a Borrower, in
appropriate proceedings promptly commenced and diligently
prosecuted, if adequate reserves in accordance with GAAP have
been set aside on a Borrower's books, and the continuance of such
contest does not (a) result in any part of the Loan Collateral or
any other property of Borrower being made the subject of (1) any
proceeding in foreclosure, (2) any levy or execution (which shall
not have been stayed or dismissed), or (3) any seizure or other
loss and (b) prevent Agent from having a perfected first priority
security interest in the Loan Collateral or with respect to
future advances made hereunder; and provided, further, that a
Borrower will promptly pay such tax, assessment or charge when
the dispute is finally settled.
10.10 Indebtedness; Guaranties. (i) Other than the
Obligations and as set forth in Exhibit 10.10, no Borrower will
incur any Indebtedness other than:
(a) Indebtedness reflected in the Financials so
long as such Indebtedness shall not be secured by any of the Loan
Collateral, which Indebtedness includes the Senior Notes and any
guarantees thereof;
(b) Indebtedness (1) which is unsecured, (2)
which is not for borrowed money, or the issuance of any letter of
credit, acceptance transaction, or similar credit instrument or
facility (exclusive of Interest Rate Agreements), (3) which is
incurred in the ordinary course of business, (4) which is not
otherwise prohibited under any provision of this Agreement, and
(5) for which the incurrence of which would not have a Material
Adverse Effect;
(c) Indebtedness in respect of taxes, assessments
or governmental charges to the extent that payment thereof shall
not at the time be required to be made in accordance with the
provisions of Section 10.9;
(d) Indebtedness under capitalized leases or
purchase money financing if the total amount of such Indebtedness
during any period does not exceed the maximum amount permitted
during such period for capital expenditures pursuant to Section 5
of Exhibit 10.29; or
(e) Indebtedness in respect of judgments or
awards which (1) have been vacated, discharged or stayed within
10 days of the entry thereof or have been in force for less than
the applicable appeal period so long as execution is not levied
thereunder (or in respect of which (A) a Borrower shall at the
time in good faith be prosecuting an appeal or proceedings for
review and (B) a stay of execution shall have been obtained
pending such appeal or review), and (2) (A) are not, in the
aggregate, in an amount in excess of $750,000 (and individually
in excess of $150,000) over any available insurance coverage, as
determined by Agent in its discretion exercised in good faith, in
effect to satisfy such judgments or award for which the insurer
has admitted in writing its liability for the full amount thereof
and (B) do not have a Material Adverse Effect;
(f) Refinancing Indebtedness, as defined in the
Senior Notes Indenture, which is unsecured;
(g) Indebtedness which is unsecured and in
respect of performance, completion, guarantee, surety and similar
bonds provided by Borrowers in the ordinary course of business;
(h) Indebtedness consisting of obligations in
respect of purchase price adjustments, guarantees or indemnities
in connection with the acquisition or disposition of assets;
(i) Interest Rate Agreements covering
Indebtedness (which Indebtedness (I) bears interest at
fluctuating interest rates and (II) is otherwise permitted to be
incurred under this Section 10.10), in each case, only if the
notional principal amount of such Interest Rate Agreement does
not exceed the principal amount of the Indebtedness to which such
Interest Rate Agreement relates;
(j) Indebtedness represented by foreign currency
exchange agreements; provided that (I) such agreements are
related to contracts with customers entered into in the ordinary
course of business; (II) such agreements cover an amount of
foreign currency not in excess of the amount receivable under
such customer contracts; and (III) such agreements are entered
into in good faith for the purpose of protecting a Borrower
against changes in foreign exchange rates and not for
speculation;
(k) Indebtedness of a Borrower to and held by
another Borrower that is unsecured and subordinated in right of
payment to the Obligations; provided, however, that the terms of
such subordination shall prohibit any payment in respect of such
Indebtedness (I) upon distribution of any assets of a Borrower or
in a bankruptcy or similar proceeding relating to a Borrower and
(II) during the continuance of an Event of Default or an event
which, with the giving of notice or the passage of time would be
an Event of Default;
(l) Any Sale Leaseback Transaction, as defined in
the Senior Notes Indenture, which is permitted under the terms of
the Senior Notes Indenture, without regard to any modification,
waiver or amendment of the Senior Notes Indenture as to which
Required Lenders do not give prior consent;
(m) To the extent permitted by the Senior Notes
Indenture (without regard to any modification, waiver or
amendment of the Senior Notes Indenture as to which Required
Lenders do not give prior consent), Indebtedness of any
Subsidiary issued and outstanding on or prior to the date on
which such Subsidiary was acquired by a Borrower (other than
Indebtedness issued as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate,
the transaction or series of related transactions pursuant to
which such Subsidiary became a Subsidiary or was acquired by a
Borrower or otherwise in contemplation thereof), provided that
such Indebtedness, and the security therefor, does not prevent
the acquisition of the Subsidiary from being a Permitted
Acquisition; and
(n) in addition to any other Indebtedness, up to
$5,000,000 aggregate principal amount of Indebtedness at any one
time outstanding, so long as such Indebtedness is not secured by
any of the Loan Collateral;
provided, that no Indebtedness otherwise permitted under this
Section 10.10 to be incurred shall be permitted to be incurred
if, after giving effect to the incurrence thereof, any Event of
Default shall have occurred and be continuing.
(ii) No Borrower will guaranty or enter into any
agreements of guaranty or indemnity of the obligations of any
Person other than another Borrower (except by endorsement of
negotiable instruments payable at sight for deposit or collection
or similar banking transactions in the usual course of a
Borrower's business), except to the extent that guaranty or
indemnity, and the Indebtedness relative to the guaranty or
indemnity, are both (a) permitted under the provisions of Section
10.10(i) and (b) permitted under the Senior Notes Indenture
(without regard to any modification, waiver or amendment of the
Senior Notes Indenture as to which Required Lenders do not give
prior consent).
10.11 Restrictions. No Borrower will become a party or
subject to any charge, corporate restriction, judgment, decree or
order or enter into any contract, agreement or arrangement,
which, in any case, could have a Material Adverse Effect.
10.12 Pension Plans. No Borrower will permit any
Reportable Event or "prohibited transaction" (as defined by
ERISA) for which no exemption exists under Sections 407 or 408 of
ERISA or Sections 4975(c)(2) or 4975(d) of the Internal Revenue
Code to occur or to continue as to any Pension Plan of any
Borrower or any Controlled Group member, which poses a threat of
(i) termination of such Pension Plans (or trusts related
thereto), which termination could have a Material Adverse Effect
or (ii) the imposition of taxes or penalties against such Pension
Plans (or trusts related thereto), the imposition or payment of
which could have a Material Adverse Effect. With respect to each
Pension Plan that is intended to meet the requirements of
qualified pension benefit plans under Section 401(a) of the
Internal Revenue Code, each Borrower and the applicable
Controlled Group members shall continue to maintain the qualified
status of such Pension Plans, and all contributions to Pension
Plans which each Borrower or any member of the Controlled Group
is obligated to make shall be timely made when due, unless the
failure to do so would not have a Material Adverse Effect. No
Borrower will, and each Borrower will not permit any Controlled
Group member to, incur any liability to the Pension Benefit
Guaranty Corporation, other than the liability for premium
payments under Section 4007 of ERISA, in connection with any
Pension Plan, the incurrence of which could have a Materially
Adverse Effect.
10.13 Solvency. Each Borrower will continue to be, and
will cause its Affiliates (other than a Borrower's officers and
directors and, in the case of Sabreliner, its officers,
directors, or shareholders) to continue to be, Solvent.
10.14 Property Insurance. Each Borrower will insure all
of its real and personal property, including the Loan Collateral,
against loss or damage by fire, theft, burglary, pilferage, loss
in transit and such other hazards as Agent shall specify in
amounts and under policies by insurers reasonably acceptable to
Required Lenders. The policies or a certificate thereof signed
by the insurer evidencing that such insurance coverage is in
effect for periods of not less than one year shall be delivered
to Agent within 5 Business Days after the issuance of the
policies to Borrower and after each renewal thereof. All
premiums thereon shall be paid when due so as to keep such
insurance in full force and effect at all times. Each such
policy shall name Agent and Lenders (and no other party) as loss
payee with respect to Inventory under a clause acceptable to
Agent and shall provide that such policy may not be amended or
canceled without 30 days' prior written notice to Agent and
Lenders. If a Borrower fails to do so, Agent may (but shall not
be required to) procure such insurance and charge the cost to
Borrowers' account as part of the Obligations payable on demand
and secured by the Loan Collateral.
10.15 Liability Insurance. Each Borrower will, at all
times, maintain in full force and effect such liability insurance
with respect to its activities and business interruption, product
liability and other insurance as may be reasonably required by
Required Lenders, such insurance to be provided by insurer(s)
reasonably acceptable to Required Lenders. If requested by
Agent, such insurance shall name Agent and Lenders (and no other
party) as an additional insured containing a severability of
interest/cross-liability endorsement acceptable to Agent.
10.16 Changes to Senior Notes Documents. Without the
prior consent of Required Lenders, no Borrower may directly or
indirectly permit the modification, waiver or amendment of (i)
any of the terms of payment (including, but not limited to,
interest or premium provisions) of or applicable to, or the
provisions governing the priority of or security for the payment
and performance of the obligations under or applicable to, or
acceleration provisions of or applicable to, the Senior Notes
Indenture or any of the Senior Notes or (ii) any other material
term of or applicable to the Senior Notes Indenture or any of the
Senior Notes. For purposes of this Section 10.16, "material"
means any modification, waiver, or amendment of the Senior Notes
Indenture or any of the Senior Notes which, in Agent's and
Lenders' judgment exercised in good faith, could (a) adversely
affect Agent's or Lenders' rights or remedies under the Loan
Documents, the value of the Loan Collateral, or Agent's and
Lenders' security interest in or other Lien on the Loan
Collateral (including the priority of Agent's or Lenders'
interests) or (b) create or result in an Event of Default.
10.17 Merger. No Borrower, without the prior consent of
Required Lenders, may merge or consolidate or be merged or
consolidated with or into any other corporation (other than with
or into another Borrower or in a Permitted Acquisition), or
otherwise reorganize, liquidate or wind-up or dissolve itself.
No Borrower will (i) purchase or otherwise acquire (a) all or
substantially all of the assets of any Person or (b) any
partnership, joint venture or limited liability company interest
in or with any Person or (ii) purchase the securities of, create,
form or invest in any Subsidiary without the prior written
consent of Required Lenders, except that, so long as an Event of
Default does not then exist and is not created thereby, a
Borrower may make Permitted Acquisitions. Borrowers will sign
all amendments to the Loan Documents which are required by Agent
in connection with any Permitted Acquisition.
10.18 Investments. Other than as disclosed in Exhibit
10.18, no Borrower will invest in or purchase any stock or
securities of any Person except (i) any evidence of indebtedness
issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of
America is pledged in support thereof); (ii) certificates of
deposit or acceptances of any financial institution that is a
member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500,000,000;
(iii) commercial paper issued by a corporation that is not an
Affiliate of a Borrower and is organized under the laws of any
state of the United States or the District of Columbia and rated
at least A by Standard & Poor's or at least P-1 by Moody's; (iv)
as permitted by Section 10.17; and (v) investments in or
purchases of any stock or securities of any Person, which Person
is not, and does not thereby become, a Subsidiary, in an
aggregate amount not to exceed $7,500,000 at any one time
outstanding.
10.19 Distributions; Loans; Fees.
10.19.1 Sabreliner Restrictions. Sabreliner will not
directly or indirectly (i) declare or pay cash or stock
distributions or dividends upon any of its stock (including any
preferred stock) now or hereafter issued by Sabreliner, (ii) make
any distributions of Sabreliner's assets, (iii) incur, permit, or
make any loans, advances or extensions of credit to any Person,
including any of Sabreliner's Affiliates, officers or employees,
or (iv) pay any consulting, management or directors' fees to or
for the account of any shareholder, director, or officer of
Sabreliner except: (a) that Sabreliner may take the actions
described in the foregoing clauses 10.19.1(i) through (iv) with
the prior consent of Required Lenders; (b) that Sabreliner may
take the actions described in the foregoing clause 10.19.1(i) to
the extent permitted or not prohibited by Section 4.03 of the
Senior Notes Indenture (without regard to any modification,
waiver or amendment of the Senior Notes Indenture as to which
Required Lenders do not give prior consent); (c) that Sabreliner
may make cash loans, cash advances, or cash extensions of credit
to any Subsidiary of Sabreliner ("Subsidiary Loans") if each of
the following conditions is met: (1) an Event of Default has not
occurred or is continuing and (2) all Subsidiary Loans to all
Subsidiaries of Sabreliner which are not a Borrower or an
Additional Borrower do not exceed, as of any date, $2,500,000 in
the aggregate; and (d) as permitted by Section 10.22.
10.19.2 Other Borrowers Restrictions. None of
Midcoast, Little Rock, SabreTech, Dimension, Turbotech or any
Additional Borrower ("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 shareholder, director, or officer of any Other Borrower
except that (a) any Other Borrower may take the actions described
in the foregoing clauses 10.19.2(i) through (iii) with the prior
consent of Required Lenders; or (b) any Other Borrower may make
any loans or advances to Sabreliner; or (c) as permitted by
Section 10.22.
10.20 Stock Rights. No Borrower will (i) change the
rights or obligations associated with, or the terms of, any class
of stock now issued by a Borrower or (ii) issue any new class of
stock of a Borrower without the prior written consent of Required
Lenders.
10.21 Capital Structure; Fiscal Year. No Borrower will
make any change (i) in its capital structure or (ii) in any of
its business objectives, purposes and operations which might in
any way have a Material Adverse Effect. No Borrower will change
its fiscal year without the prior consent of Required Lenders,
which consent will not be unreasonably withheld.
10.22 Affiliate Transactions; Management Fees. No
Borrower will enter into, or be a party to, any transaction with
any of a Borrower's Affiliates except (i) those transactions
meeting the following conditions: transactions (a) in the
ordinary course of business pursuant to the reasonable
requirements of a Borrower's business and (b) on fair and
reasonable terms which are fully disclosed to Agent and are no
less favorable to a Borrower than a Borrower could obtain in a
comparable arm's length transaction with a Person who is not any
Borrower's Affiliate and (ii) as permitted by Section 10.19. No
Borrower will pay any consulting, management or directors' fees
to or for the account of any shareholder, director, or officer of
any Borrower, other than in the ordinary course of business as
presently conducted.
10.23 Operating Account. At all times until the
Obligations are fully paid and satisfied, each Borrower will
maintain its primary operating account with Agent.
10.24 Compensating Balance. Except at such times that
Sabreliner is using Agent's investment management services for
investing Sabreliner's excess cash, Borrowers shall maintain a
compensating balance in an account with Agent in an aggregate
amount not less than $1,000,000; provided that Borrowers may use
the cash in such account to the extent necessary to cure any
Deficiency.
10.25 Sale of Assets. No Borrower will sell, lease or
otherwise dispose of or transfer, whether by sale, merger,
consolidation, liquidation, dissolution, or otherwise, any of its
assets, including the Loan Collateral except (i) the transfers of
any properties or assets of any Other Borrower (as defined in
Section 10.19) to Sabreliner (exclusive of Loan Collateral); (ii)
the sale of inventory in the ordinary course of business;
however, a sale in the ordinary course of business will not
include a transfer in total or partial satisfaction of
Indebtedness; (iii) the sale of equipment as permitted by clauses
(ii) or (iii) in the definition of Permitted Asset Sale in the
Senior Notes Indenture (without regard to any modification,
waiver or amendment of the Senior Notes Indenture as to which
Required Lenders do not give prior consent); and (iv) the sale of
the fixed base operations facility at Lambert Field to the City
of St. Louis. All of the proceeds from any disposition of any
equipment will be delivered to Agent to be applied by Agent to
the repayment of the Obligations in any order thereof Agent may
elect and, upon satisfaction of the Obligations, may be applied
in accordance with the Senior Notes Indenture.
10.26 Intervention by Governmental Authority. No
Borrower will permit to occur any seizure by, or the vesting of
or intervention by or under the jurisdiction of, any Governmental
Authority by which any Borrower's management is displaced or its
authority in the conduct of its business is materially curtailed.
10.27 Levy Against Loan Collateral. No Borrower will
permit (i) any attachment or distraint of any of the Loan
Collateral to occur or (ii) any of the Loan Collateral to become
subject, at any time, to any mandatory court order or other legal
process.
10.28 Judgments. No Borrower will permit any judgment
or award to be rendered against it (i) (a) in excess of $100,000
(or any number of judgments in excess of $250,000 in the
aggregate) over any available insurance coverage, as determined
by Agent in its discretion exercised in good faith, in effect to
satisfy such judgments or award for which the insurer has
admitted in writing its liability for the full amount thereof and
(b) which has a Material Adverse Effect, and (ii) which have not
been vacated, discharged or stayed within 30 days of the entry
thereof.
10.29 Financial Covenants. Borrowers will observe,
perform and comply with all of the financial covenants contained
in Exhibit 10.29 (the "Financial Covenants").
10.30 No Prepayment of Senior Notes. Sabreliner will
not directly or indirectly prepay, in whole or in part, any
principal of, or premium or interest on, any of the Senior Notes,
except as may be required under the Senior Notes Indenture.
11. TERMINATION.
11.1 Termination Date. Unless this Agreement is terminated
earlier under Sections 11.3 or 11.4 or renewed as provided in
Section 11.2, this Agreement shall terminate on February 13,
2001.
11.2 Renewal by Lenders. Unless Borrowers have delivered a
Termination Notice to Agent, this Agreement may be extended by
Lenders beyond February 13, 2001 for successive one year periods
by written notice given by Agent and Lenders to Borrowers of
Lenders' intent to so extend this Agreement at least 30 days
prior to February 13, 2001, or 30 days prior to February 13th of
the calendar year in which this Agreement is to terminate. If
Borrowers have not received the notice from Agent and Lenders as
set forth in the immediately preceding sentence, this Agreement
shall terminate on February 13th of the applicable calendar year.
11.3 Voluntary Termination by Borrowers. Borrowers may
terminate this Agreement (i) by giving Agent and Lenders written
notice ("Termination Notice") of the date on which this Agreement
is to terminate ("Voluntary Termination Date"), and (ii) by
paying on any such Voluntary Termination Date (a) all Obligations
and (b) as compensation to Lenders for loss of bargain with
respect to the credit advanced hereunder, and not as a penalty, a
termination fee in amounts as set forth below:
Voluntary Termination Date Termination Fee
On or before February 13, 2000 $250,000
After February 13, 2000 $0
11.4 Acceleration upon Termination. Upon the effective date
of termination under Section 11.1 or Section 14.1, (i) all Loans
and all other Obligations will automatically and immediately
become due and payable, and (ii) the obligations of Agent and
Lenders to Borrowers under this Agreement will automatically
terminate immediately, without notice or demand, which each
Borrower hereby expressly waives.
11.5 Borrowers Remain Liable. Notwithstanding any
termination of this Agreement, until all of the Obligations have
been fully performed, paid and satisfied, each Borrower shall
remain liable for the full and prompt performance and payment of
the Obligations and the indemnification set forth in Sections
16.7 and 16.9, and Agent and Lenders shall retain all of their
rights and privileges under the Loan Documents, including the
retention of its Liens on and interest in and to all of the Loan
Collateral.
12. AGENT
12.1 Appointment. Each Lender hereby irrevocably designates
and appoints Star Bank as agent of each Lender under this
Agreement and the other Loan Documents. Each Lender irrevocably
authorizes Star Bank, as agent for each Lender, to take any and
all actions on its behalf under the provisions of this Agreement
and the other Loan Documents and to exercise any and all powers
and perform any and all duties as are expressly delegated to
Agent by the terms of this Agreement and the other Loan Documents
together with any and all other powers as are reasonably
incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, Agent will not have any
duties or responsibilities except those expressly set forth in
this Agreement or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties,
obligations or liabilities may be read into this Agreement or any
other Loan Document or otherwise exist against Agent. Each
Lender affirms the authority of Agent, on behalf Lenders, to have
entered into each of the Loan Documents executed on or after the
Original Closing Date and before the Closing Date and hereby
authorizes and directs Agent to enter into the Loan Documents
entered into on the Closing Date and thereafter.
12.2 Delegation of Duties. Agent may execute any of its
duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and will be entitled to
advice of counsel concerning all matters pertaining to those
duties. Agent will not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by it in
good faith.
12.3 Exculpatory Provisions. Neither Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or
Affiliates may be (i) liable for any action lawfully taken or
omitted to be taken by it or such Person under or in connection
with this Agreement or any other Loan Document (except for its or
such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any Lender (a) for any recitals,
statements, representations or warranties made by any Borrower or
any officer of any Borrower contained in this Agreement or any
other Loan Document or in any certificate, report, statement or
other document referred to, or provided for in, or received by
Agent under or in connection with, this Agreement or any other
Loan Document, (b) for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, (c) the value of the Loan Collateral,
the perfection or priority of any interest of Agent or Lenders in
the Loan Collateral purported to be created or perfected by the
Loan Documents, or with respect to rights and interests
pertaining to the Loan Documents, (d) for any failure of any
Borrower to perform its obligations under this Agreement or any
other Loan Document, (e) for any loss or depreciation of, lack of
insurance on, or failure to realize on, any Loan Collateral or
for the failure or delay in collecting or receiving payment of
any sums from any Borrower, or for any mistake, omission, or
error of judgment in passing upon or accepting any Loan
Collateral, or in the making of any examination, or for granting
extensions or indulgences to any Borrower permitted to be made
hereunder, or (f) with respect to the income or withholding tax
status with respect to any interest on, or fees in respect of,
the Loans or the Letters of Credit. Agent will not be under any
obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in,
or conditions of, this Agreement or any other Loan Document, or
to inspect the properties, books or records of any Borrower.
12.4 Reliance by Agent. Agent will be entitled to rely, and
will be fully protected in relying, on any agreement,
instrument,, writing, resolution, notice, consent, certificate,
affidavit, letter, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it
to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and on advice and statements of
legal counsel (including counsel to Borrowers), independent
accountants and other experts selected by Agent. Agent may deem
and treat each Lender as the owner of its Loans and
participations in the Letter of Credit Exposure for all purposes
unless an assignment thereof has been made in accordance with the
terms of this Agreement. Agent will be fully justified as
between itself and Lenders in failing or refusing to take any
action under this Agreement or any other Loan Document unless
Agent has first received such advice or concurrence of Required
Lenders as Agent deems appropriate or Agent has been first
indemnified to its satisfaction by Lenders against any and all
liability and expense which may be incurred by it by reason of
taking or continuing to take any such action. Agent will in all
cases be fully protected in acting, or in refraining from acting,
under this Agreement and the other Loan Documents in accordance
with a request of Required Lenders, and such request and any
action taken or failure to act pursuant to that request will be
binding on all Lenders and all future holders of the Obligations.
12.5 Notice of Default. Agent will not be deemed to have
knowledge or notice of the occurrence of any Event of Default
unless (i) Agent has received notice from a Lender or a Borrower
referring to this Agreement, describing the Event of Default and
stating that the notice is a "notice of default", or (ii) Agent
has actual knowledge of the occurrence of any Event of Default.
If Agent receives such a notice or otherwise obtains such actual
knowledge, Agent will give notice thereof to Lenders. Subject to
the terms of this Agreement, Agent will take such action
reasonably promptly with respect to such Event of Default as is
reasonably directed by Required Lenders; however, unless and
until Agent has received such directions, Agent may (but shall
not be obligated to) take such action, or refrain from taking
such action, with respect to such Event of Default as it believes
advisable in the best interests of Lenders. Notwithstanding
anything to the contrary in this Section 12, at no time will
Agent be required under any circumstance to take any action that,
in its sole and absolute judgment, (i) is contrary to the terms
of the Loan Documents or applicable law, or (ii) would expose
Agent to liability.
12.6 Non-Reliance on Agent and Other Lenders. Each Lender
expressly acknowledges that neither Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to any
Lender and that no act by Agent in the future taken, including
any review of the affairs of Borrowers, will be deemed to
constitute any representation of warranty by Agent to any Lender.
Each Lender represents to Agent that the Lender has,
independently and without reliance on Agent or any other Lender,
and based on such documents and information as the Lender has
deemed appropriate, made its own appraisal of and investigation
into the business, operations, property, financial and other
condition and creditworthiness of Borrowers and made its own
decision to make its Loans under this Agreement and enter into
this Agreement. Each Lender also represents that it will,
independently and without reliance on Agent or any other Lender,
and based on such documents and information as each Lender deems
appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make
such investigation as it deems necessary to inform itself as to
the business, prospects, operations, property, financial and
other condition and creditworthiness of Borrowers.
Notwithstanding the foregoing in this Section 12.6, Agent will
(i) promptly provide each Lender with copies of (a) each audit
report of an auditor of Agent, (b) any reconciliations of a
Borrower's Receivables, Inventory, or payables requested by a
Lender that are in Agent's possession and (c) each report,
certificate, notice or other document delivered to Agent by
Borrower pursuant to Section 8 or Section 10 and requested by a
Lender, and (ii) make available, on a Lender's request, the
applicable working papers of Agent's auditors (to the extent
available) for inspection at Agent's office at 425 Walnut Street,
Cincinnati, Ohio. Except for notices, reports and other
documents expressly required to be furnished to Lenders by Agent
under this Agreement, Agent will not have any duty or
responsibility to provide any Lender with any credit or other
information concerning the business, operations, property,
condition (financial or otherwise), prospects or creditworthiness
of Borrowers which may come into the possession of Agent or any
of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates.
12.7 Indemnification. Lenders will indemnify Agent in its
capacity as such (to the extent not reimbursed by Borrowers and
without limiting the obligation of Borrowers to do so), ratably
according to their respective Percentage Shares in effect on the
date on which indemnification is sought under this Section 12.7
(or, if indemnification is sought after the date on which this
Agreement has terminated and the Loans have been paid in full,
ratably in accordance with their Percentage Shares immediately
before that date), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever
which may at any time (including at any time following the
payment of the Obligations) be imposed on, incurred by or
asserted against Agent in any way relating to or arising out of
this Agreement, any of the other Loan Documents or any documents
contemplated by or referred to in this Agreement or in any of the
other Loan Documents or the transactions contemplated by this
Agreement or by any of the other Loan Documents or any action
taken or omitted by Agent under or in connection with any of the
foregoing; provided that a Lender will not be liable for the
payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements if resulting solely from Agent's gross negligence
or willful misconduct and the Lender had no part in such action
or omission by Agent and did not receive any benefit from such
action or omission by Agent. The agreements in this Section 12.7
will survive the payment of the Obligations.
12.8 Agent in Its Individual Capacity. Agent and its
Affiliates may make loans to, accept deposits from and generally
engage in any kind of business with Borrowers as though Agent
were not the agent under this Agreement and under the other Loan
Documents. With respect to its Loans made or renewed by it and
with respect to any Letter of Credit issued or participated in by
it, Agent will have the same rights and powers under this
Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not Agent, and the terms
"Lender" and "Lenders" will include Agent in its individual
capacity.
12.9 Loan Collateral Matters.
12.9.1 Perfection/Enforcement Actions. Except as may
be limited by this Agreement, Agent is hereby authorized on
behalf of all of Lenders, without the necessity of any notice to
or further consent from any Lender, from time to time, to take
any action with respect to any Loan Collateral which may be
necessary or desirable to perfect and maintain perfected the
security interest in and Liens on the Loan Collateral granted
pursuant to the Loan Documents. Payment and performance of the
Obligations under this Agreement and the Security Agreement may
be enforced only by the action of Agent, and no Lender will have
any right individually to seek to enforce or to enforce payment
or performance of the Obligations or any of those agreements, it
being understood and agreed that such rights and remedies may be
exercised only by Agent, for the benefit of Agent and Lenders,
upon the terms of those agreements and this Agreement.
12.9.2 Release of Loan Collateral. Lenders hereby
authorize Agent, at its option and in its discretion, to release
any Lien granted to or held by Agent on any Loan Collateral (i)
on termination of this Agreement and payment and satisfaction of
all of the Obligations at any time arising under or in respect of
this Agreement or the other Loan Documents or the transactions
contemplated hereby or thereby, or (ii) if approved, authorized
or ratified in writing by Required Lenders, unless such release
is authorized under this Agreement or any of the Loan Documents
with the consent only of Agent. On request by Agent at any time,
Lenders will confirm in writing Agent's authority to release
particular types or items of Loan Collateral pursuant to this
Section 12.9. In the event of any sale or transfer of Loan
Collateral, or any foreclosure with respect to any of the Loan
Collateral, Agent is authorized to deduct all of the expenses
incurred by Agent from the proceeds of any such sale, transfer or
foreclosure.
12.9.3 Automatic Release of Loan Collateral. Lenders
hereby agree that the Liens granted to Agent, for the benefit of
the Agent and Lenders, in any property sold or disposed of in
accordance with the provisions of Section 10.25(iii) will, if no
Event of Default then exists, be automatically released.
12.9.4 Execution of Release Documents. To the extent,
pursuant to the provisions of Sections 12.9.2 and 12.9.3, Agent's
execution of a release is required to release the Liens granted
to Agent on any sale and transfer of Loan Collateral which is
expressly permitted pursuant to the terms of this Agreement, or
consented to in writing by Required Lenders or by all of Lenders,
as applicable, and on at least five (5) Business Days prior
written request by Borrower, Agent will (and is hereby
irrevocably authorized by Lenders to) execute such documents as
may be necessary to evidence the release of the Liens granted to
Agent in the Loan Documents on the Loan Collateral that was sold
or transferred; provided that (i) Agent will not be required to
execute any such document on terms which, in Agent's opinion,
would expose Agent to liability or create any obligation or
entail any consequence other than the release of such Liens
without recourse or warranty and (ii) such release will not in
any manner discharge, affect or impair the Obligations or any
Liens on (or obligations or Borrowers in respect of) all
interests retained by Borrowers, including the proceeds of the
sale, all of which will continue to constitute part of the Loan
Collateral.
12.9.5 Agency for Perfection by Possession. Each
Lender hereby appoints each other Lender as agent for the purpose
of perfecting Lender's security interests in property which, in
accordance with the UCC or other applicable law, can be perfected
only by possession. Should any Lender (other than Agent but
inclusive of any Lender's Participant) obtain possession of any
collateral or security for the Obligations, Lender will notify
Agent and, promptly on Agent's request, Lender will deliver the
security or collateral to Agent in accordance with Agent's
instructions.
12.9.6 Expenditures by Agent. Agent, without the
prior consent of Lenders, will have the right (but not the
obligation) to make expenditures, whether before or after the
occurrence of an Event of Default, that Agent deems appropriate
or necessary to protect or preserve the Loan Collateral, to
collect any of the Obligations, to sell, liquidate, dispose of,
or otherwise realize on, any of the Loan Collateral, to preserve,
interpret, enforce, or defend any rights or remedies of Agent,
Lenders, or any of them, conferred by the Loan Documents, or to
pay any amounts chargeable to, or payable by, Borrowers pursuant
to the Loan Documents (the foregoing expenditures being, "Agent
Advances"). Each Lender will reimburse Agent on its demand, to
the extent of the Lender's Percentage Share, for all Agent
Advances (including legal fees and disbursements) which have not
been reimbursed by Borrowers within 10 days after Agent's demand
on Borrowers therefor. If any payment required under this
Section 12.9.6 is not, in fact, made by a Lender when due, Agent
will be entitled to recover the applicable amount on Agent's
demand together with interest on the applicable amount at the
Federal Funds Rate, for each day from the date due until the date
the applicable amount is paid.
12.10 No Third Party Beneficiary. The provisions of
this Section 12 are solely for the benefit of Agent and Lenders,
and none of Borrowers will have any rights as a third party
beneficiary of any of the provisions of this Section 12 (except
to the extent of its rights under Section 12.9). In performing
its functions and duties as Agent under this Agreement and the
other Loan Documents, Agent acts solely as the agent of Lenders
and does not assume and will not be deemed to have assumed any
agency obligation toward, or relationship of agency or trust with
or for, any Borrower or any Affiliate of any Borrower.
13. EVENTS OF DEFAULT
13.1 Events of Default. (i) Each of the following events,
whether or not caused by or within the control of any Borrower,
will constitute an "Event of Default" under this Agreement:
(a) Any Borrower does not pay, when due, any of
the Obligations owing to Agent or any Lender, including any
amounts required to be paid to Agent under Section 2.4;
(b) Any Borrower does not observe, perform, or
comply with Section 2.4 or any of the Financial Covenants;
(c) Any Borrower does not observe, perform, or
comply with any term or provision of this Agreement or of any of
the other Loan Documents (exclusive of those defaults covered by
clauses (a), (b) and (d) through (v) of this Section 13.1(i));
(d) A Borrower fails to make any payment due to
any Affiliate of Agent, materially breaches any agreement between
the Borrower and any Affiliate of Agent, or makes any material
misrepresentation to any Affiliate of Agent;
(e) Any representation, warranty or statement
made by or on behalf of any Borrower, (1) in this Agreement, in
connection with this Agreement, in connection with any
transaction relating to this Agreement or in any of the other
Loan Documents was false in any material respect, in the good
faith judgment of Agent, when made or furnished or when treated
as being made or furnished or (2) to induce any Lender to make
any Loan was false in any material respect, in the good faith
judgment of Agent, when made or furnished or when treated as
being made or furnished;
(f) Any Borrower: (1) is not Solvent, (2) becomes
generally unable to pay its respective debts as they become due,
(3) makes a general assignment for the benefit of creditors, or
(4) calls a meeting of creditors for the composition of debts; or
the Board of Directors of a Borrower (or any committee thereof)
adopts a resolution authorizing or has otherwise authorized the
actions described in subitems (3) or (4) of this clause (f);
(g) There is filed by or against any Borrower,
(1) any case, petition, proceeding or other action under any
existing or future bankruptcy, insolvency, reorganization,
liquidation or arrangement or readjustment of debt law or any
similar existing or future law of any applicable jurisdiction, or
(2) a custodian, receiver, trustee, sequestrator, or agent is
appointed or authorized to take charge of any of its properties;
(h) Required Lenders, in their judgment exercised
in good faith, determine 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;
(i) Any Borrower or Additional Guarantor defaults
under its Guaranty or proper demand is made on any such Borrower
or Additional Guarantor thereunder;
(j) There occurs a casualty loss in excess of
$1,500,000 with respect to any of the Loan Collateral which is
not covered by insurance;
(k) Required Lenders, in their judgment exercised
in good faith, determine that there has occurred any material and
adverse change in the aggregate value of, or Agent's or Lenders'
rights or interests in, the Loan Collateral with the result that
Agent's or Lenders' security for the Obligations is materially
diminished;
(l) (1) Except as provided in clauses (q) and (r)
below of this Section 13.1(i), any default occurs under the terms
applicable to any Indebtedness of any Borrower in an aggregate
amount exceeding $1,000,000 which represents any borrowing or
financing or arising under any other Applicable Agreement from,
by or with any Person or (2) there occurs a material breach by
any Borrower under any Applicable Agreement (other than the ones
described in subitem (1) of this clause (l) or clauses (q) and
(r) of this Section 13.1(i)), the result of which breach is the
suspension of the other parties' performance thereunder, the
delivery of a notice of acceleration, or the termination of such
Applicable Agreement;
(m) A contribution failure occurs with respect to
any Pension Plan sufficient to give rise to a lien under Section
302(f) of ERISA;
(n) A Borrower is enjoined, restrained or in any
way prevented by order of any Governmental Authority from
conducting any material part of its business affairs and such
order is not completely stayed, to the sole satisfaction of
Agent, or dissolved within one Business Day from the effective
date of such order;
(o) Any Borrower shall voluntarily dissolve or
cease to exist, or any final and nonappealable order or judgment
shall be entered against a Borrower decreeing its involuntary
dissolution;
(p) There occurs a change in the ownership of (1)
Midcoast, SabreTech, Dimension or Turbotech such that Midcoast,
SabreTech, Dimension or Turbotech, as applicable, shall cease to
be the wholly-owned Subsidiary of Sabreliner; (2) Little Rock
such that Little Rock shall cease to be the wholly-owned
Subsidiary of Midcoast or Sabreliner (other than a merger of
Midcoast and Little Rock); (3) an Additional Borrower such that
the Additional Borrower shall cease to be the wholly-owned
Subsidiary of a Borrower; or (4) Sabreliner such that F. Holmes
Lamoreux shall cease to own directly or indirectly at least 39%,
on a fully diluted basis, of the beneficial interest in the
issued and outstanding voting securities of Sabreliner, in each
case free and clear of all Liens;
(q) A Senior Notes Default shall have occurred
and be continuing, and, as a result of such Senior Notes Default,
the unpaid principal (or any part thereof) of any of the Senior
Notes shall have been declared to be due and payable;
(r) A Senior Notes Default consisting of the
failure to make a payment when due under the Senior Notes shall
have occurred and be continuing;
(s) Except as otherwise contemplated hereunder or
in the Senior Notes Indenture, any fact, event, condition or
circumstance (or any set of facts, events, conditions or
circumstances) exists, has occurred or is applicable which allows
the Holder (as defined in the Senior Notes) of any of the Senior
Notes or, as applicable, the Trustee under the Senior Notes
Indenture, to require that Sabreliner purchase or repurchase any
of the Senior Notes prior to the scheduled maturity date of April
15, 2003;
(t) In addition to Required Lender's rights under
clauses (h) and (k) of this Section 13.1(i) and under the other
clauses of this Section 13.1, Required Lenders, in their judgment
exercised in good faith, determine that any Environmental
Liability has been incurred, exists, or is applicable (1) which
has a Material Adverse Effect or (2) by which any Borrower's
title to, or its right to use or have access to, its property,
including the Loan Collateral, are, in Agent's judgment exercised
in good faith, materially affected thereby;
(u) There is enacted any legislation (federal,
state or local) which allows any Person to obtain a Lien on the
Loan Collateral which is superior to the Liens and interests of
Agent or Lenders on and in such property, and, in Agent's
discretion exercised in good faith, there are not sufficient
measures in place to protect Agent or Lenders against the
imposition of such a superior Lien; or
(v) The audit report required pursuant to Section
8.7 is not an unqualified audit report, unless the reason for
qualification is not material to Borrowers' financial condition,
taken as a whole, in Required Lenders' judgment exercised in good
faith.
(ii) Each Event of Default will be deemed continuing
until it is waived in writing by Required Lenders or cured.
13.2 Cure Periods. (i) Subject to Section 13.2(ii), any
Borrower's failure to comply with the terms of any of Sections
8.3 through, and including, 8.10 will be considered an Event of
Default for purposes of Section 14.1 only if Borrowers fail to
cure the default within ten (10) days after the earlier of (a)
the date on which any Borrower has knowledge of the existence of
such event or condition or (b) the date on which Agent notifies
Borrowers of the existence of such event or condition.
(ii) Section 13.2(i) will not be applicable with regard
to (a) any default which by its nature is not susceptible of
cure, (b) a default if, within the 12 calendar months immediately
preceding the occurrence of such default, any Borrower has
previously breached the same provision of this Agreement, or (c)
any default, as a result of which Agent believes, in good faith,
that there exists an immediate risk, threat, or danger to the
value of the Loan Collateral, Agent's or Lenders' interests in
the Loan Collateral, or the collectibility of the Obligations.
(iii) Notwithstanding any period of cure as
provided in Section 13.2(i), all of Agent's and Lenders' rights
under the Loan Documents during the continuance of an Event of
Default (subject to Section 13.2(i)), including the interest rate
described in Section 3.1 applicable during the continuance of an
Event of Default, will, at the option of Required Lenders, be
applicable until any such event is cured to the written
satisfaction of Required Lenders.
14. LENDERS' RIGHTS AND REMEDIES.
14.1 Acceleration. Upon the occurrence of any Event of
Default, in addition to all other rights and remedies provided in
the Loan Documents or available at law or in equity, Agent,
without further notice or demand but subject to Section 13.2, (i)
may, and will if directed by Required Lenders, declare the Loans
and all other Obligations to be immediately due and payable
(except that with respect to any Event of Default under Section
13.1(i)(f) or Section 13.1(i)(g), such acceleration of the Loans
shall be automatic), (ii), to the extent that the maximum amount
of the Credit Facility has not yet been used or fully drawn on by
Borrowers, may, and will if directed by Required Lenders,
terminate Commitments, (iii) may, and will if requested by
Required Lenders, terminate this Agreement, and (iv) will have
all rights to realize upon, and exercise its rights with respect
to, the Loan Collateral pursuant to this Agreement and the other
Loan Documents, and as otherwise provided by applicable law.
Agent's and Lenders' rights and remedies under this Agreement
shall be cumulative and not exclusive of any other right or
remedy which Agent or Lenders have.
14.2 Fees and Expenses. Borrowers shall pay to Agent,
immediately and as part of the Obligations, all reasonable costs
and expenses, including court costs, Attorneys' Fees and costs of
sale, incurred by Agent or any Lender in exercising any of its or
their rights or remedies under the Loan Documents.
14.3 Actions in Respect of the Letters of Credit. If any
Event of Default shall have occurred and be continuing, Agent
may, and will if requested by Required Lenders, whether in
addition to taking any of the actions described in Section 14.1
or otherwise, if any Letters of Credit shall have been issued,
make demand upon Borrowers to, and forthwith upon such demand
Borrowers will, pay to Issuing Lender in same day funds at
Issuing Lender's office designated in such demand, for deposit in
a special interest bearing cash collateral account (the "Letter
of Credit Collateral Account") to be maintained at such office of
Issuing Lender, an amount equal to the Letter of Credit Exposure
from time to time in existence. The Letter of Credit Collateral
Account shall be in the name of Borrowers (as a cash collateral
account), but under the sole dominion and control of Issuing
Lender (with sole right of withdrawal) and subject to the terms
of this Agreement and the other Loan Documents. On each drawing
under a Letter of Credit, Issuing Lender shall seek reimbursement
from any amounts then on deposit in the Letter of Credit
Collateral Account; however, if (i) no amounts are then on
deposit in the Letter of Credit Collateral Account, (ii) the
amount then on deposit in the Letter of Credit Collateral Account
is insufficient to pay the amount of such drawing, or (iii)
Issuing Lender is legally prevented or restrained from
immediately applying amounts on deposit in the Letter of Credit
Collateral Account, then the amount of each unreimbursed drawing
under such Letter of Credit and payment required to be made under
this Section 14.3 shall automatically be converted into a
Revolving Loan made on the date of such drawing for all purposes
of this Agreement. To the extent that Issuing Lender applies
amounts on deposit in the Letter of Credit Collateral Account as
provided in this Section 14.3, and, thereafter, such application
(or any portion thereof) is rescinded or any amount so applied
must otherwise be returned by Issuing Lender upon the insolvency,
bankruptcy or reorganization of a Borrower or otherwise, then the
amount so rescinded or returned shall automatically be converted
into a Revolving Loan made on the date of such drawing for all
purposes of this Agreement.
15. AMENDMENTS; WAIVERS; ASSIGNMENTS; PARTICIPATIONS.
15.1 Amendments and Waivers.
15.1.1 Amendments Permitted by Consent of Required
Lenders. Neither this Agreement, any other Loan Document, nor
any terms of this Agreement or any other Loan Document may be
amended, supplemented or modified except in writing and in
accordance with the provisions of this Section 15.1. Required
Lenders may, or, with the written consent of Required Lenders,
Agent may, from time to time, (i) enter with Borrowers into
written amendments, supplements or modifications to this
Agreement and the other Loan Documents for the purpose of adding
any provisions to this Agreement or the other Loan Documents or
changing in any manner of rights or obligations of Lenders or
Borrowers under this Agreement or under any of the other Loan
Documents or (ii) waive at Borrowers' request, on the terms and
conditions as Required Lenders or Agent, as the case may be, may
specify in the applicable instrument, any of the requirements of
this Agreement or the other Loan Documents or any Event of
Default and its consequences. However, no proposed waiver and no
amendment, supplement or modification of this Agreement or any of
the other Loan Documents may be agreed to if the waiver,
amendment, supplement or modification would:
(i) (a) reduce the amount of, or extend the time
for payment of, (1) any payment of principal or interest due
under this Agreement or any Letter of Credit Document or (2) any
Unused Commitment Fee or any LOC Fee, (b) reduce the stated rate
of any interest or any Unused Commitment Fee or LOC Fee payable
under this Agreement, (c) extend the expiration date of this
Agreement, or (d) increase the Commitment of any Lender over the
amount of the applicable Commitment then in effect exclusive of
any increase which may result from a Permitted Overadvance (as
defined below) (it being understood that a waiver of an Event of
Default will not constitute a change in the terms of any
Commitment of any Lender), in each case without the consent of
each Lender affected thereby. Notwithstanding anything to the
contrary in this Section 15.1, Agent will have the right, in its
discretion and without the consent of any Lender, to make
Overadvances (as defined in Section 2.2.1) from time to time on
behalf of all Lenders so long as each Overadvance is not for a
period longer than 45 days and all Overadvances outstanding as of
any date do not exceed an amount equal to ten percent (10%) of
the sum of (a) the then Eligible Inventory plus (b) the then
Eligible Receivables (Overadvances meeting those conditions
being, "Permitted Overadvances");
(ii) (a) increase the advance rate with respect to
Eligible Receivables above 85%, (b) increase the advance rate
with respect to Eligible Inventory, exclusive of Pre-Owned
Aircraft and Work in Process, above 55%, (c) increase the advance
rate with respect to Eligible Inventory of Sabreliner which is
Work in Process consisting of work on aircraft engines above 30%,
(d) increase the advance rate with respect to Eligible Inventory
of Sabreliner which is Work in Process other than work on
aircraft engines above 20%, (e) increase the advance rate with
respect to those items of Eligible Inventory which are Pre-Owned
Aircraft above 80%, or (f) increase the maximum dollar amount
under the express terms of this Agreement attributable to
Eligible Receivables or Eligible Inventory (exclusive of any
increase which, in any instance, may result from a Permitted
Overadvance), in each case without the consent of each Lender
affected thereby;
(iii) amend, modify or waive any provision of
this Section 15.1 or reduce the percentage specified in the
definition of Required Lenders, or consent to the assignment or
transfer by a Borrower of any of its rights and obligations under
this Agreement and the other Loan Documents, in each case without
the written consent of all Lenders;
(iv) release from the Liens created by the Loan
Documents all or substantially all of the Loan Collateral (except
as expressly permitted in the respective Loan Documents) without
the consent of all Lenders;
(v) without limiting clause (i) above of this
Section 15.1.1, amend, modify or waive any provision of Section
2.3 without the written consent of Issuing Lender; or
(vi) amend, modify or waive any provision of
Section 12 or of any other provision relating to the rights or
obligations of the then Agent without, in each case, the written
consent of the then Agent and Lenders.
15.1.2 Consent Matters.
(i) If (a) Agent requests a Lender's written
consent to any proposed waiver (including any waiver of any Event
of Default), amendment, supplement or modification of this
Agreement or any of the other Loan Documents pursuant to Section
15.1.1 or for any other matter relating to the Obligations or any
of the Loan Documents and (b) the Lender does not notify Agent of
the Lender's refusal to grant the consent requested by Agent
within 10 days after receipt of Agent's request for the Lender's
consent, then the Lender's consent will be treated as having been
granted, and Agent and the other Lenders will thereafter be
permitted to take the actions described in the request for
consent as though the Lender had affirmatively consented to the
requested actions.
(ii) If (a) Agent requests a Lender's written
consent to any proposed waiver (including any waiver of any Event
of Default), amendment, supplement or modification of this
Agreement or any of the other Loan Documents pursuant to Section
15.1.1 or for any other matter relating to the Obligations or any
of the Loan Documents and (b) the Lender refuses to give its
consent, Agent, at its option, may, at any time within 45 days
after the Lender notifies Agent of the Lender's refusal to grant
the requested consent, acquire on notice to the applicable Lender
(a "Buy-Out Notice") all, but not less than all, of that Lender's
Percentage Share of the Loans and its Letter of Credit Exposure
by paying to that Lender an amount equal to the unpaid principal
balance of the Loans and any Unreimbursed Drawings held by that
Lender plus all accrued interest and fees then due to the Lender
as set forth in this Agreement. From and after the date on which
Agent delivers a Buy-Out Notice to a Lender, Agent and the other
Lenders may amend, modify and supplement the Loan Documents or
waive any of the provisions of the Loan Documents (including any
Event of Default), or all of the foregoing, as though the non-
consenting Lender had, in fact, affirmatively consented to the
requested actions.
15.1.3 Binding Effect. Any waiver and any
amendment, supplement or modification pursuant to this Section
15.1 will apply to each Lender and shall be binding on Borrowers,
Lenders, Agent and all future holders of the Obligations. No
waiver by Agent or any Lender will be effective unless it is in
writing and then only to the extent specifically stated.
15.1.4 No Waiver. Failure by Agent or any Lender to
exercise any right, remedy or option under this Agreement or in
any Loan Document or delay by Agent or any Lender in exercising
the same shall not operate as a waiver by Agent or any Lender of
its right to exercise any such right, remedy or option.
15.2 Assignment.
15.2.1 Borrower Assignments. No Borrower may
assign, transfer or otherwise dispose of any of its rights or
obligations hereunder, by operation of law or otherwise, and any
such assignment, transfer or other disposition without Lenders'
written consent shall be void.
15.2.2 Lender Assignments. The rights and
obligations of a Lender under this Agreement may not be assigned
by any Lender without the prior consent of Borrowers, Agent, and
Required Lenders. If any Lender assigns, sells or otherwise
transfers all or any portion of its rights or obligations under
this Agreement except as permitted by this Section 15.2, that
Lender's assignee, purchaser or transferee will not acquire any
rights or obligations under this Agreement or any of the other
Loan Documents and the assigning, selling or transferring Lender
will remain obligated as a "Lender" in all respects.
15.2.3. Benefit; Binding Effect. All of the rights,
privileges, remedies and options given to Lenders under the Loan
Documents shall inure to the benefit of each Lender's successors
and assigns, and all the terms, conditions, covenants, provisions
and warranties herein shall inure to the benefit of and bind the
permitted successors and assigns of Borrowers and Lenders,
respectively.
15.3 Participations.
15.3.1 Permitted Participations. Notwithstanding
anything to the contrary in Section 15.2, each Lender may grant
participations in the Lender's Commitment to other financial
institutions (each, a "Participant"); however, regardless of any
participation,
(i) The Lender granting the participation will remain
solely liable under this Agreement and the other Loan Documents
for the observance, performance and compliance with all of the
terms and conditions of this Agreement and the Loan Documents,
and no Participant will acquire any rights or interests against
Agent or any Lender (other than the Lender granting the
Participant's participation) arising out of, under, or in
connection with this Agreement or the other Loan Documents or the
transactions contemplated by this Agreement or the other Loan
Documents, including any rights to approve any amendment to or
waiver of this Agreement or any other Loan Document;
(ii) Each Participant authorizes Agent and Lenders to
deal exclusively with the Lender granting the participation; and
(iii) Each Lender granting a participation will
remain the owner of the Obligations held by it.
15.3.2 Set Off Right. Borrowers agree that if
amounts outstanding under this Agreement are due and unpaid or
have been declared or have become due and payable, each
Participant, to the extent permitted by applicable law, will be
deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest
were owing directly to it as a Lender under this Agreement;
provided that any Participant exercising that right will be
obligated to share with Lenders, as if such participant were a
"Lender" under this Agreement, the amount of any such setoff; and
provided, further, that if all or any portion of such excess
payment or other recovery is thereafter recovered from the
Participant by or on behalf of a Borrower, the Participant's
obligation to share such excess payment will be rescinded and
such payment shall be returned to Participant to the extent of
such recovery. No Participant may exercise any such right of
setoff except with the consent of Required Lenders.
15.3.3 Disclosure of Information. Borrowers
authorize each Lender granting a participation to disclose to any
Participant any and all financial information in the Lender's
possession concerning Borrowers which has been delivered to the
Lender by Borrowers or Agent pursuant to the Loan Documents or in
connection with the Lender's credit evaluation of Borrowers or
which has been obtained independently by the Lender in its credit
evaluation or audit of Borrowers. Each Participant must agree to
keep confidential the information received by it from a Lender
regarding Borrowers (i) in the same manner that it keeps
confidential the business and financial information of its other
commercial customers and (ii) as required by law.
15.4 Law Requirements. Nothing in the Loan Documents will
prohibit any Lender from pledging or assigning its interests in
the Loans to any Federal Reserve Bank in accordance with
applicable law.
16. GENERAL.
16.1 Severability. If any term of this Agreement is found
invalid under Ohio law or laws of mandatory application by a
court of competent jurisdiction, the invalid term will be
considered excluded from this Agreement and will not invalidate
the remaining terms of this Agreement.
16.2 Governing Law. THIS AGREEMENT HAS BEEN DELIVERED AND
ACCEPTED AT AND SHALL BE DEEMED TO HAVE BEEN MADE AT CINCINNATI,
OHIO. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER
AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF OHIO (WITHOUT
REFERENCE TO OHIO CONFLICTS OF LAW PRINCIPLES).
16.3 WAIVER OF JURISDICTION. AS A SPECIFICALLY BARGAINED
INDUCEMENT FOR AGENT AND LENDERS TO ENTER INTO THIS AGREEMENT AND
FOR LENDERS TO EXTEND CREDIT TO BORROWERS, EACH BORROWER AGREES
THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT
OF THIS AGREEMENT, ITS VALIDITY OR PERFORMANCE, AT THE SOLE
OPTION OF REQUIRED LENDERS, THEIR SUCCESSORS AND ASSIGNS, AND
WITHOUT LIMITATION ON THE ABILITY OF AGENT OR LENDERS OR THEIR
SUCCESSORS AND ASSIGNS, TO EXERCISE ALL RIGHTS AS TO THE LOAN
COLLATERAL OR INITIATE AND PROSECUTE IN ANY APPLICABLE
JURISDICTION ACTIONS RELATED TO REPAYMENT OF THE OBLIGATIONS,
SHALL BE INITIATED AND PROSECUTED AS TO ALL PARTIES AND THEIR
SUCCESSORS AND ASSIGNS AT CINCINNATI, OHIO. AGENT, LENDERS AND
BORROWERS EACH CONSENTS TO AND SUBMITS TO THE EXERCISE OF
JURISDICTION OVER ITS PERSON BY ANY COURT SITUATED AT CINCINNATI,
OHIO HAVING JURISDICTION OVER THE SUBJECT MATTER, AND CONSENTS
THAT ALL SERVICE OF PROCESS BE MADE BY CERTIFIED MAIL DIRECTED TO
AGENT, LENDERS AND BORROWERS AT THEIR RESPECTIVE ADDRESSES SET
FORTH IN SECTION 16.8 OR AS OTHERWISE PROVIDED UNDER THE LAWS OF
THE STATE OF OHIO. EACH BORROWER WAIVES ANY OBJECTION BASED ON
FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER, AND CONSENTS TO THE GRANTING OF SUCH LEGAL
OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
16.4 Survival and Continuation of Representations and
Warranties. All of each Borrower's representations and
warranties contained in this Agreement shall (i) survive the
execution, delivery and acceptance hereof by the parties hereto
and the closing of the transactions described herein or related
hereto and (ii) remain true until the Obligations are fully
performed, paid and satisfied, subject to such changes as may not
be prohibited hereby, do not constitute Events of Default
hereunder, and have been consented to by Required Lenders in
writing.
16.5 Additional Rights Regarding Loan Collateral. Agent
may, in its discretion exercised in good faith, (i) enforce and,
to the extent set forth in this Agreement, waive or release any
Loan Collateral or portion thereof, (ii) apply such security and
direct the order or manner of sale thereof as Required Lenders
may, from time to time, determine, and (iii) settle, compromise,
collect or otherwise liquidate any such security in any manner,
in each case following the occurrence of any Event of Default
without affecting or impairing its right to take any other
further action with respect to any security or any part thereof.
16.6 Application of Payments; Revival of Obligations. Agent
shall have the continuing right to apply or reverse and reapply
any payments to any portion of the Obligations. To the extent
any Borrower makes a payment or payments to Agent or a Lender, or
Agent or any Lender receives any payment or proceeds of the Loan
Collateral or any other security for any Borrower's benefit,
which payment(s) or proceeds or any part thereof are subsequently
voided, invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy act, state or federal law,
common law or equitable cause, then, to the extent of such
payment or proceeds received, the Obligations or part thereof
intended to be satisfied shall be revived and shall continue in
full force and effect, as if such payment or proceeds had not
been received by Agent or a Lender.
16.7 Fees and Expenses. (i) Each Borrower shall reimburse
Agent for all reasonable costs, fees, expenses and obligations
incurred by Agent or any Lender or for which Agent or any Lender
becomes obligated ("Expenses") in connection with, arising out
of, or related to:
(a) the entering into, negotiation, preparation,
closing and enforcement of this Agreement or any of the other
Loan Documents and any of Agent's or any Lender's rights
hereunder and thereunder;
(b) any loans or advances made by a Lender
hereunder;
(c) any transaction contemplated by this
Agreement;
(d) any inspection, audit, appraisal, or
verification of the Loan Collateral or any Borrower or any
proposed Permitted Acquisition (Agent currently charges $450 per
diem based on an 8 hour day plus out-of-pocket expenses per
auditor or field examiner for the services of its auditors and
field examiners and a potentially greater amount if the auditor
is not a Star Bank employee); provided, however, that Borrowers
shall not be obligated to reimburse any Lender (other than Star
Bank) for any Expenses arising out of any inspection, audit,
appraisal, or verification of the Loan Collateral or any Borrower
or any proposed Permitted Acquisition; however, such Lender shall
be permitted to participate, at its cost and expense, with Agent
or Star Bank in any such inspection, audit, appraisal, or
verification of the Loan Collateral or any Borrower or any
proposed Permitted Acquisition;
(e) any liability under Section 3505 of the
Internal Revenue Code and all other local, state and federal
statutes of similar import; and
(f) with respect to any or all of (1) enforcing
any Obligation or in foreclosing against any of the Loan
Collateral or exercising or enforcing any other right or remedy
available by reason of any Event of Default, (2) any refinancing
or restructuring of the credit arrangements provided under this
Agreement in the nature of a "work-out" or in any insolvency or
bankruptcy proceeding, (3) commencing, defending or intervening
in any litigation or in filing a petition, complaint, answer,
motion or other pleadings in any legal proceeding relating to any
Borrower and related to or arising out of the transactions
contemplated hereby or by any of the Loan Documents, (4) taking
any other action in or with respect to any suit or proceeding
(whether in bankruptcy or otherwise), (5) protecting, preserving,
collecting, leasing, selling, taking possession of, or
liquidating any of the Loan Collateral, or (6) attempting to
enforce or enforcing any lien on or security interest in any of
the Loan Collateral or any other rights under the Loan Documents.
(ii) The Expenses (a) will include Attorneys' Fees and
reasonable fees of other professionals, all lien search and title
search fees, all filing and recording fees and all reasonable
travel expenses and (b) are part of the Obligations, payable upon
Agent's demand, and will be secured by the Loan Collateral.
(iii) The Obligations described under this Section
16.7 shall survive any termination of this Agreement.
16.8 Notices. Any notice required, permitted or
contemplated hereunder shall be in writing and addressed to the
party to be notified at the address set forth below or at such
other address as each party may designate for itself from time to
time by notice hereunder, and shall be deemed validly given (i)
three days following deposit in the U.S. certified mails (return
receipt requested), with proper postage prepaid, or (ii) the next
Business Day after such notice was delivered to a regularly
scheduled overnight delivery carrier with delivery fees either
prepaid or an arrangement satisfactory with such carrier, made
for the payment thereof, or (iii) upon receipt of notice given by
telecopy, mailgram, telegram, telex or personal delivery:
To Agent: Star Bank, National Association
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Steven C. Kieffner
Telecopy No.: (513) 632-2040
To a Lender: At its address set forth on the
applicable signature page of
this Agreement
To Borrowers: Sabreliner Corporation
Pierre Laclede Center, Suite 1500
7733 Forsyth Boulevard
St. Louis, Missouri 63105-1821
Attention: F. Holmes Lamoreux
Telecopy No.: (314) 863-6774
16.9 Indemnification. In consideration of the execution and
delivery of this Agreement by Agent and Lenders and the making of
any Loan hereunder, each Borrower hereby indemnifies, exonerates
and holds Agent, Lenders and each of their officers, directors,
employees, Affiliates, and agents (collectively the "Indemnified
Parties" and, individually, as "Indemnified Party") free and
harmless from and against any and all actions, causes of action,
suits, demands, investigations, obligations, judgments, losses,
costs, liabilities, damages, and expenses (irrespective of
whether such Indemnified Party is a party to the action for which
indemnification hereunder is sought), including reasonable
attorneys' fees and disbursements (the "Indemnified
Liabilities"), which are incurred by, accrued, asserted, made or
brought against, charged to, or recoverable from the Indemnified
Parties or any of them as a result of, or arising out of, or
relating to, or as a direct or indirect result of:
(i) any transaction financed or to be financed in
whole or in part or directly or indirectly with the proceeds of
any Loan;
(ii) any Remittance deposited into any Blocked Account
or Transfer Account which is dishonored or returned for any
reason;
(iii) the entering into and performance of this
Agreement and the other Loan Documents by any of the Indemnified
Parties;
(iv) any breach by any Borrower of any term, provision,
representation, warranty or covenant of this Agreement or the
other Loan Documents; and
(v) any Environmental Law (but only if and to the
extent that the Indemnified Liabilities resulting from such
Environmental Law are related to a Borrower or to the business,
operations or assets of a Borrower), regardless of whether or not
caused by, or within the control of, any Borrower;
except to the extent that such Indemnified Liabilities are based
on an Indemnified Party's gross negligence or willful misconduct.
If and to the extent that the foregoing undertaking may be
unenforceable for any reason, each Borrower hereby agrees to make
the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under
applicable law, except to the extent that such Indemnified
Liabilities have arisen by reason of the Indemnified Party's
gross negligence or willful misconduct. The Obligations
described under this Section 16.9 shall survive any termination
of this Agreement.
16.10 Additional Waivers by Borrowers. Each Borrower
waives presentment and protest of any instrument and notice
thereof, and, except as expressly provided in the Loan Documents,
demand, notice of default, notice of intent to accelerate, and
notice of acceleration of maturity, and all other notices to
which any Borrower might otherwise be entitled.
16.11 Equitable Relief. Each Borrower recognizes that,
in the event any Borrower fails to perform, observe or discharge
any of its obligations or liabilities under this Agreement, any
remedy of law may prove to be inadequate relief to Agent and
Lenders; therefore, each Borrower agrees that Lenders, if
Required Lenders so request, shall be entitled to temporary and
permanent injunctive relief in any such case without the
necessity of proving actual damages.
16.12 Entire Agreement; Consents; Counterparts. Subject
to Section 2.8, this Agreement and the other Loan Documents set
forth the entire agreement of the parties with respect to its
subject matter and supersede all previous understandings, written
or oral, in respect thereof. Any request from time to time by
any Borrower for Agent's or any Lender's consent under any
provision in the Loan Documents must be in writing, and any
consent to be provided by Agent or any Lender under the Loan
Documents from time to time must be in writing in order to be
binding; however, neither Agent nor Lender will have any
obligation to provide any consent requested by any Borrower, and
Agent and Lenders may, for any reason in their discretion
exercised in good faith, elect to withhold the requested consent.
Two or more duplicate originals of this Agreement may be signed
by the parties, each of which shall be an original but all of
which together shall constitute one and the same instrument. Any
documents delivered by, or on behalf of, any Borrower by fax
transmission (i) may be relied on by Agent and Lenders as if the
document were a manually signed original and (ii) will be binding
on each Borrower for all purposes of the Loan Documents.
16.13 Headings. Section headings in this Agreement are
included for convenience of reference only and shall not relate
to the interpretation or construction of this Agreement.
16.14 Cumulative Remedies. The remedies provided in
this Agreement and the other Loan Documents are cumulative and
not exclusive of any remedies provided by law. Exercise of one
or more remedy(ies) by Agent or any Lender does not require that
all or any other remedy(ies) be exercised and does not preclude
later exercise of the same remedy.
16.15 Further Assurances. Each Borrower agrees to
execute and deliver or cause to be executed and delivered any and
all further documents and instruments and to take any and all
further actions as may be determined by Agent or Required Lenders
to be necessary or appropriate to the transactions contemplated
herein or in the other Loan Documents.
16.16 WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED
INDUCEMENT FOR AGENT AND LENDERS TO ENTER INTO THIS AGREEMENT AND
FOR LENDERS TO EXTEND CREDIT TO BORROWERS, BORROWERS, AGENT AND
LENDERS EACH WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION,
CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
AGREEMENT OR THE CONDUCT OF THE RELATIONSHIP BETWEEN AGENT AND
BORROWERS AND BETWEEN LENDERS AND BORROWERS.
IN WITNESS WHEREOF, this Agreement has been duly executed by
Borrowers, Agent and Lenders as of September 25, 1997.
BORROWERS:
ATTEST: SABRELINER CORPORATION
By:
Assistant Secretary Name:
Title:
ATTEST: MIDCOAST AVIATION, INC.
By:
Assistant Secretary Name:
Title:
ATTEST: MIDCOAST-LITTLE ROCK, INC.
By:
Assistant Secretary Name:
Title:
ATTEST: SABRETECH, INC.
By:
Assistant Secretary Name:
Title:
ATTEST: DIMENSION AVIATION, INC.
By:
Assistant Secretary Name:
Title:
ATTEST: TURBOTECH REPAIRS, INC.
By:
Assistant Secretary Name:
Title:
AGENT:
STAR BANK, NATIONAL
ASSOCIATION, as Agent
By:
Name:
Title:
LENDERS:
STAR BANK, NATIONAL
ASSOCIATION
By:
Name:
Title:
Address: Structured Capital
Division
425 Walnut Street,
Location 9220
Cincinnati, Ohio
45202
Attn: Steven C.
Kieffner
Telecopy No.: (513) 632-
2040
CONGRESS FINANCIAL
CORPORATION (CENTRAL)
By:
Name:
Title:
Address: 150 South Wacker
Drive
Suite 2200
Chicago, Illinois
60606-4401
Attn: William H.
Bloom
Telecopy No.: (312) 332-0424
0173701.06
EXHIBIT 10(3)
MODIFICATION SERVICES AGREEMENT
BETWEEN
MCDONNELL DOUGLAS CORPORATION AND
DIMENSION AVIATION, INC.
MSA-FRI-SF-97-001
MODIFICATION SERVICES
AGREEMENT TABLE OF
CONTENTS
Page
# Table of Contents
2-3
Recitals
4
1. Definitions 4-
11
2. Scope of Services 11-
15
3. Additional Services 15-
17
4. Price and Payment 17-
19
5. Delivery of Services 19-
22
6. Taxes, Customs, Duties 22-
23
7. Excusable Delays 23-
25
8. Warranty 25-
31
9. Indemnification and Limitation of Liability
31
10. Technical Data 32-
33
11. Notices 33
12. Assignment 34
13. Changes 34-
35
14. Documentation 35
15. Applicable Law 35
16. Parts and Material 35-
38
Page #
17. MDC and/or Federal Express Supplied Parts 38-
39
18. Regulatory Requirements 39-
42
19. Insurance 42-
44
20. Inspection, Demonstration, Acceptance and Delivery 44-
47
21. Default and Remedies 47-
51
22. Product Support 51
23. Outside Services 51-
52
24. Records 52-
54
25. Onsite Representation 54-
55
26. Certification 55
27. Title 55-
56
28. Quality and Standards 56-
57
29. Public Disclosure 57
30. Miscellaneous 58-
60
31. Affirmative Action 60-
61
32. Termination for Convenience 61-
63
33. Parent Company Guarantee 63
34. Documents Incorporated Into This Agreement 63-
64
35. Exhibits Incorporated Into This Agreement 64-
65
Documents and Exhibits
MODIFICATION SERVICES AGREEMENT
THIS MODIFICATION SERVICES AGREEMENT (this "Agreement")
is entered into as of this ___________ day of ___________ 1997,
by and between McDonnell Douglas Corporation, a
Maryland
corporation having an office in the city of Long
Beach, California ("MDC"), and Dimension Aviation, Inc., a
Delaware corporation, having its principal place of business in
the city of Goodyear, Arizona ("Subcontractor").
RECITALS
WHEREAS, MDC has executed an agreement with Federal
Express Corporation ("Federal Express") for the
accomplishment of modifications to be performed on certain DC-
10 aircraft owned or to be acquired by Federal Express; and
WHEREAS, MDC intends to entrust Subcontractor with
the
accomplishment of a portion of such modifications on specific
DC10 aircraft owned by Federal Express; and
WHEREAS, the parties hereto desire to enter into this
Agreement for the accomplishment by Subcontractor of such
modifications on specific DC-10 aircraft owned by Federal
Express in accordance with the terms and conditions set forth
herein.
NOW THEREFORE, in consideration of the mutual covenants
contained herein and for other good and valuable
consideration,
Subcontractor and MDC agree as follows:
1) DEFINITIONS
Unless otherwise indicated, paragraph and Article
numbers referred to herein will mean paragraphs and
Articles of this Agreement. As used within this Agreement
and ASR Forms (as defined below) which may be issued
hereunder, the following terms will have the meanings set
forth below (terms defined in the singular will have the
same meaning when used in the plural and vice versa),
unless some other meaning is apparent from the
context in which the words and terms are used:
TERMS MEANING
Additional Any additional maintenance, modification
Services or other services other than those
described in or required by the
Specification which may be requested by
MDC at any time and which, when agreed to
by MDC and Subcontractor, shall become
part of the Services.
Additional A document in the form of Exhibit
S
Services which, when signed by MDC
and
Request Form Subcontractor, shall amend this
Agreement
(ASR) or to include Subcontractor's performance
of
Additional the Additional Services set forth
therein
Work Form or in respect of the Aircraft
specified
"ASR" therein.
ACF Advanced Common Flightdeck.
Agreement This Modification Services
Agreement
between Subcontractor and MDC,
Document No. MSA-FRI-SF-97-001,
including all Exhibits attached
hereto and all other documents
incorporated herein as amended
or supplemented from time to time
pursuant to the terms thereof.
Aircraft Each of the MDC DC-10 series aircraft on
which Subcontractor will perform the
Services provided for in this Agreement.
A list of such aircraft is set forth in
the Schedule.
Aircraft A receipt in the form of Exhibit Q
Delivery executed by Subcontractor and delivered
Receipt to MDC concurrently with the delivery of
an Aircraft to Subcontractor for
modification and performance of the
Services.
Aircraft A document used to record the following
Maintenance with respect to an Aircraft: (i) the
Log periodic and corrective maintenance
accomplished on such Aircraft, (ii)
information items detected during the
performance of the Services, (iii)
deferred discrepancies and pilot reports,
(iv) mechanical discrepancies discovered
during the performance of Services on
such Aircraft and not otherwise
documented on a SNRM or ASR and (v) the
airworthiness release of such Aircraft
for service.
Aircraft The sequential aircraft positions to
Position which specific Aircraft may be assigned
in accordance with Article 2 and the
Schedule.
Aircraft The period from Delivery of an Aircraft
Visit to Subcontractor to Redelivery of such
Aircraft to MDC.
Business Day Any day other than a Saturday, Sunday or
other day on which commercial banking
institutions in New York, New York,
Memphis, Tennessee or Long Beach,
California are authorized or required by
law to close. Unless the term "Business
Day" is used, the word "day" shall refer
to calendar days.
Certificate A certificate of acceptance substantially
of Acceptance in the form of Exhibit R hereto which
shall be issued by MDC to Subcontractor
upon completion of the Services and
Redelivery of each Aircraft.
Conversion A conversion facility in Goodyear, AZ, or
Facility such other facility or Sub-
Subcontractor's facility as Subcontractor
may select, subject to the written
consent of MDC which consent shall not be
unreasonably withheld.
Delivery Date The date of delivery by MDC of the
or Delivery applicable Aircraft to the Conversion
Facility for commencement of the Services
(not storage) and acceptance thereof by
Subcontractor pursuant to an Aircraft
Delivery Receipt in accordance with
Exhibit U.
Engineering A document reviewed and approved by
Authorization Federal Express' engineering division
(EA) providing immediate and specific
instructions and authorization for: (1)
one-time major or minor repair; (2) one
time major or minor modification; (3)
one-time material substitution; or (4)
immediate deviations from technical
manuals.
Engineering A document established by Federal Express
Orders (EO) or MDC that: (1) provides the
rationale, instruction, and authorization
necessary to effect modifications,
special inspections and repairs to an
Aircraft; and/or (2) authorizes the
accomplishment of service evaluations,
airworthiness directives or
manufacturers' service bulletins; and/or
(3) controls and documents the
modification, inspection and repair
processes.
Expendable Required shop supplies (e.g., wiping
and rags, sanding discs, masking tapes,
Consumable masking paper, greases, sealants,
Materials expendable tools and standard hardware
including, but not limited to, fasteners
and aerospace standard parts) valued at
$5.00/unit cost or lessconsumed or used
during the Services or Additional
Services but which shall be supplied at
no additional charge to MDC. Expendable
and Consumable Materials identified as
part of an MDC or Federal Express
furnished kit shall be provided by MDC or
Federal Express. If the materials are
not identified as part of a MDC or
Federal Express Kit, then Subcontractor
shall provide the Expendable and
consumable Materials.
FAA The Federal Aviation Administration of
the United States or any successor
thereto.
FARs Federal Aviation Regulations.
Federal Federal Express' authorized and approved
Express drawings.
Drawings
Federal Federal Express' on-site project manager
Express or designee.
Representativ
e
Federal Parts supplied by Federal Express,
Express including, but not limited to, the kits
Supplied furnished by Federal Express which are
Parts listed in Exhibit P.
Federal Federal Express Technical Data and other
Express services supplied by Federal Express in
Supplied connection with the Services which may be
Services referred to or required by Engineering
Report Nos. 96-044, 95-056, 95-053. Fleet
A document issued by Federal Express that
Campaign is used to determine the configuration
Directives status or condition of an aircraft or
(FCD) aircraft fleet.
General Federal Express' AOD General Maintenance
Maintenance Manual document dated August 15, 1996, as
Manual (GMM) may be revised from time to time and in
its then current issue, which sets forth
the maintenance procedures for Federal
Express aircraft in accordance with
applicable FARs.
Interface Any technical problem in the operation of
Problem an Aircraft or any system thereof due to
incompatibility, malfunction or failure
of any accessory, equipment or part. Kits
A collection of Parts necessary to
perform the Services.
MD-10 DC-10-10 and DC-10-30 series aircraft
which have been modified in accordance
with Federal Express Engineering Reports
attached as Exhibits B, C, E, F, G, H, I
and J, which constitutes a part of the
Services.
Maintenance Those tasks, included as part of the
Services Services, which are performed to
restore, preserve or improve each
Aircraft's physical condition to a
specified level, including but not
limited to operational checks,
inspections, disassembly, cleaning,
repair, rework, measurement, replacement
of parts, reassembly, testing,
lubricating, adjusting, etc., as more
fully described in the Specifications.
Master Job A document which lists the Services to be
Control Sheet performed on a particular Aircraft.
(MJCS) The MJCS may contain several pages and
notes. Each page contains line items
(tasks) indicating the work to be
accomplished (Ref.: GMM 11-0-2910). MDC's
Design Detailed designs and detailed
specifications originated and prepared by
or under the direction of MDC.
MDC Parts Parts made to MDC's Design or available
exclusively from MDC.
MDC MDC's on-site project manager or
Representativ designee.
e
MDC Supplied Parts supplied by MDC, including, but not
Parts limited to, the parts listed in Exhibit
P, "MDC/Federal Express Supplied Parts
Listing," dated September 11, 1996.
Modification The date upon which Subcontractor
Completion completes performance of the Services on
Date the applicable Aircraft and notifies MDC
that such Aircraft is ready for
acceptance testing by MDC at the
Conversion Facility.
Non-routine Services performed to correct defects or
Services discrepancies identified prior to or
during Subcontractor's performance of the
Services other than those described in
the Specifications.
On Dock The schedule included in Exhibit P
Schedule (MDC identifies MDC Supplied Parts and Federal
and Federal Express Supplied Parts which will be
Express delivered to the Conversion Facility.
Supplied All such parts shall be delivered to the
Parts) Conversion Facility in accordance with
Article 17B.
Parts All components, parts, supplies and
materials other than Expendable and
Consumable Materials required for the
performance of the Services.
Passenger to Modification to DC-10-10 and DC-10-30
Freighter (P Aircraft in accordance with Engineering
to F) Report 95-051, attached as Exhibit B,
Services or P which constitutes a part of the Services.
to F
Payment The schedule of payment for performance
Schedule of the Services as set forth in Exhibit
W, "PRICING."
Recoverable The classification of any Part which can
Parts be restored to a Serviceable condition
either through repair or overhaul in
accordance with the Specifications, the
manufacturer's current specifications, or
MDC Maintenance Specifications.
Redelivery The date upon which MDC accepts
Date or redelivery of each Aircraft in accordance
Redelivery with Article 5.
Refurbish & Modification to DC-10-10 and DC-10-30
Restoration Aircraft in accordance with Engineering
Report 95-056, attached as Exhibit F,
which constitutes a part of the Services.
Rotable Part A part that can be economically restored
to a Serviceable condition and, in the
normal course of operations, can be
repeatedly rehabilitated to a fully
Serviceable condition over a period
approximating the life of the flight
equipment to which it is related.
Schedule The schedule with respect to Aircraft, as
described in Exhibit U, "Supplier
Requirements Schedule," setting forth the
duration of each Aircraft Visit during
which the Services are to be performed on
such Aircraft.
Scheduled The scheduled date for Redelivery of each
Redelivery Aircraft as set forth in the "Supplier
Date Requirements Schedule," Exhibit U.
Serviceable An item that meets all specified
standards for airworthiness following
repair or overhaul and has no known
defects which would render it unfit for
its intended use.
Services The work to be performed by Subcontractor
with respect to each Aircraft as
described in this Agreement, including
but not limited to the Specifications
and each MJCS.
Special or Special or Non-Routine Maintenance Form
Non-Routine (SNRM), Federal Express M-1805B, is a
Maintenance form used to authorize, schedule, and
Form (SNRM) record work performed on aircraft
components, auxiliary power units (APU),
and engines.
Specification Collectively, the specifications attached
s hereto as Exhibits B, C and F through K.
Standardizati Modification to DC-10-10 and DC-10-30
on Services Aircraft in accordance with Engineering
Report 95-053, attached as Exhibit C,
which constitutes a part of the Services.
Statement of A statement by MDC to be placed in the
Return to Federal Express Aircraft Maintenance Log
Service Book and to be issued in accordance with
FAA regulations following the performance
of the Services.
Subcontractor Parts supplied by Subcontractor pursuant
Supplied to an ASR or an amendment to this
Parts Agreement.
Sub- Suppliers and contractors (other than
Subcontractor Subcontractor, Federal Express and MDC)
s who perform any part of the Services at
the request and direction of
Subcontractor or provide Parts to
Subcontractor for the performance of the
Services.
Sub- Any Services in connection with which
Subcontract Subcontractor, subject to Article 24,
Services shall employ a Sub-Subcontractor or Sub-
Subcontractors.
Taxes or Tax Any and all taxes (including without
limitation sales, use and value added
taxes), duties, imposts, assessments,
permits, fees and other charges of any
kind and related interest and penalties,
if any, imposed or levied upon or
arising as a consequence of this
Agreement or the Services to be provided
hereunder or pursuant hereto.
Technical The period of time between the
Acceptance Modification Completion Date and the
Period Redelivery Date.
Technical Information of any kind that is related
Data to the performance of the Services under
this Agreement that can be used, or
adapted for use, in the design,
engineering, development, production,
processing, manufacture, use, operation,
overhaul, repair, maintenance,
modification or reconstruction of
articles or materials. The Technical
Data may be in tangible or intangible
form, such as a model, prototype,
blueprint, drawing, photograph, plan,
instruction, computer software and
documentation, or operating manual
(written or on recorded media).
Term The term shall commence on the date set
forth in the first paragraph hereof and
terminate on the later to occur of: (i)
December 31, 2006; or (ii) the completion
of the Services on all of the Aircraft.
Used Serviceable Parts that have not been used
Serviceable since their last overhaul and which have
Zero Time been restored to a condition meeting
Since established overhaul tolerances and
Overhaul limits.
Parts
(USZTSO)
2) SCOPE OF SERVICES
A. Subcontractor shall perform the Services on each Aircraft as
set forth in the Specifications and in accordance with the
Schedule. MDC shall provide all Parts except Subcontractor
Supplied Parts. MDC shall provide to Subcontractor, upon
Subcontractor's request, access to any data and records
applicable to each Aircraft, if available to MDC. To the extent
practicable, all Services shall be performed with the applicable Aircraft
fully enclosed in the hangar at the Conversion Facility. So long as
Subcontractor is performing to MDC's satisfaction with regard to price,
schedule, and quality, MDC agrees to consider Subcontractor for other work
on these aircraft (including ACF); provided, however, that MDC shall not in
any way be obligated and does not hereby agree to award any work to
Subcontractor other than the work on the Aircraft specifically described
herein.
B. MDC agrees to deliver to Subcontractor twelve (12) firm
Aircraft (the "Firm Aircraft"). MDC shall have the option to
deliver one (1) or more Advanced Common Flightdeck Aircraft for
Flight Test, provided that both parties can reach agreement on
price, schedule and other terms of contract. In addition, MDC is
hereby granted options to deliver up to thirty (30) additional
Aircraft (the "Option Aircraft"). MDC may substitute other MDC
trijet wide body aircraft in the place of any of the thirty (30)
option aircraft. MDC may elect not to exercise any of the option
aircraft without any penalties or termination costs. Provided
that at least five (5) of the thirty (30) Options remain, MDC may
exercise the Option Aircraft only in blocks consisting of not less
than five (5) Aircraft within each block. Subcontractor agrees to
make available an Aircraft Position at the Conversion Facility for
the performance of Services on the Aircraft within the time period
set forth on the Schedule for the Firm Aircraft and, upon MDC's
exercise of the applicable options, for each block of Option
Aircraft. MDC shall exercise its option for each block of Option
Aircraft by notice in writing to Subcontractor no later than ten
(10) months prior to the Delivery Date of the first Aircraft
within the applicable block of Option Aircraft. Each such notice
shall be deemed to amend this Agreement accordingly.
1) The Aircraft shall be further identified as specified in
Exhibit U.
2) The twelve (12) Firm Aircraft shall have the P to F
Modification, Exhibit B, Initial Heavy Maintenance Check, Exhibit
H (subject to Exhibit K), and Rigid Cargo Barrier, Exhibit I,
performed on them. If a block of Option Aircraft is exercised, MDC
shall notify Subcontractor if the P to F Modification and/or
Initial Heavy Maintenance Check and/or Rigid Cargo Barrier is to
be performed on each such Option Aircraft at the time MDC
exercises the option for such block of Option Aircraft.
3) The items listed in the Standardization Specification,
Exhibit C; and Refurbish & Restoration Package, Exhibit F;
constitute a catalog of work which will be selected for each
Aircraft or Option Aircraft by MDC through issuance of an MJCS.
The labor price chargeable to MDC by Subcontractor for
accomplishment of these Services shall be as specified in Exhibit
W (or Article 3 if performed under an ASR) as applicable. The MJCS
shall be delivered to Subcontractor thirty (30) days prior to the
Delivery of each Aircraft or Option Aircraft and shall specify the
specific Services described in Exhibits C and F which are to be
performed on each Aircraft or Option Aircraft.
C. MDC shall have the right to modify specific Aircraft
designations and Schedules as follows:
1) MDC shall have the right to substitute a different Aircraft
for a previously designated Aircraft for Delivery on a scheduled
Delivery Date by delivering written notice to Subcontractor:
a) on any date before the 60th day prior to such scheduled
Delivery Date; or
b) on any date between the 59th day and the 25th day prior to
such scheduled Delivery Date, if Subcontractor determines that
such designation of a different Aircraft for delivery on such
Delivery Date would not cause a material delay in the performance
of the Services, or if there is a material delay and MDC accepts
the cost consequences of such delay, if any;
provided, however, that in either instance, MDC
shall reimburse Subcontractor for any reasonable
incremental engineering costs and reasonable
incremental labor costs and reasonable incremental parts
costs incurred by Subcontractor in connection with
its performance of the Services solely as a result of
the substitution of the Aircraft. MDC shall provide
such reimbursement within sixty (60) days after its
receipt of Subcontractor's invoice setting forth in
detail the nature and amount of such costs.
2) MDC shall have the right to request, in writing, that
Subcontractor perform the Services on Aircraft earlier than the
dates listed in the Schedule, up to a maximum of four (4)
additional Aircraft per year, commencing January 1, 1999. If
Subcontractor determines that such request would cause a material
delay in the performance of the Services, then within five (5)
Business Days following MDC's request, MDC shall be notified in
writing of the Delivery and Redelivery Dates for the Aircraft
which have been affected. Such new Delivery and Redelivery Dates
will be negotiated by MDC and Subcontractor; provided, however,
that the number of days in the Aircraft Visit based on the
original Delivery and Redelivery Dates shall not be increased by
virtue of such new Delivery and Redelivery Dates.
3) MDC may request in writing to Subcontractor not less than
five (5) months prior to the scheduled Delivery Date of an
Aircraft a delay in Delivery of any Aircraft by up to one hundred
eighty (180) days. The Redelivery Date of such Aircraft shall be
delayed by a number of days equal to the number of days by which
the Delivery of the Aircraft was delayed by MDC. Additionally, if
any such delay impacts the Scheduled Redelivery Date of other
Aircraft, and if Subcontractor can demonstrate such impact to
MDC's and Federal Express' reasonable satisfaction, then the
Schedule shall be adjusted as mutually agreed by Subcontractor and
MDC.
D. Except as otherwise provided in this Agreement,
Subcontractor shall provide Expendable and Consumable Materials, labor,
facilities, materials, equipment, fixtures, production control,
technical planning and administration, inspection,
tooling (except DC-10 unique tooling and MDC unique tooling which
will be provided by MDC as described in Exhibit X) and all other
services necessary to perform the Services in accordance with the
Specifications, the GMM, all current Aircraft manufacturer's
manuals, FAA regulations, FARs and the provisions of this
Agreement. Expendable or Consumable Material valued at more that
$5.00/unit cost shall be, at MDC's option, provided or reimbursed
by MDC.
E. Intentionally omitted.
F. Except as required to be performed by Subcontractor as part
of the Services, with respect to maintenance of the Aircraft,
during the time that the Services are being performed,
Subcontractor shall have responsibility only for minimum routine
maintenance customarily performed on airplanes.
G. Subcontractor warrants that it is, and that MDC has relied
on and is entitled to rely upon Subcontractor as, an expert fully
competent in all phases of work involved in producing,
supporting, and performing the Services provided hereunder. The
Specifications define the requirements which each Aircraft must
meet upon completion of the Services and Redelivery of each
Aircraft to MDC and unless explicitly so stated the
Specifications do not include or specify the manner or design as
to which the Services are to be performed by Subcontractor.
H. Subcontractor agrees that MDC shall have the right
to store up to Fifty (50) Aircraft at the Conversion
Facility prior to Delivery. Unless otherwise agreed,
Subcontractor has no obligation to perform any work on
stored Aircraft. In the event that MDC and
Subcontractor fail to reach agreement with respect to an
aircraft storage agreement or such agreement is
terminated, MDC has the right to have an independent
third party perform storage services on stored
Aircraft. Unless otherwise agreed, as between MDC and
Subcontractor, MDC shall assume the risk of loss,
damage or destruction of an Aircraft prior to Delivery
and agrees to release, defend, indemnify and hold
harmless Subcontractor, its employees, directors,
officers, agents and subcontractors from and against
all liabilities, claims, damages, losses, costs and
expenses from all injuries to or death of any and all
persons and for loss of or damage to any property,
including loss of use thereof, arising directly or
indirectly out of or in connection with the storage of
the Aircraft prior to Delivery.
3) ADDITIONAL SERVICES
A. Subcontractor shall, during the term of this Agreement,
perform such Additional Services as may be requested by MDC's
Representative in writing and agreed to in writing by
Subcontractor. Such written request shall be made on an ASR Form.
The request shall set forth in detail the particular Additional
Services requested to be performed on the Aircraft. Unless
otherwise agreed by the parties, Subcontractor shall, as soon as
practicable, but in any event not later than three (3) Business
Days following MDC's request for Additional Services, advise MDC
of its ability to perform the Additional Services in accordance
with MDC's request and a date by which Subcontractor can provide
the following to MDC (the "Final Response") (which date shall not
exceed five (5) days from the date of the ASR Form):
1) Any anticipated changes in the scheduled Redelivery Date due
to such Additional Services; and
2) Any additional charges resulting from Subcontractor's
performance of the Additional Services including, but not limited
to, all Parts costs, equipment costs, labor costs and other costs
including but not limited to costs arising from design,
production, inspection, planning, liaison engineering, stress
engineering, administration, scheduling impacts, if any,
associated with the Additional Services being requested.
Within ten (10) Business Days following MDC's receipt of the
Final Response, MDC's Representative shall notify
Subcontractor in writing of its acceptance or rejection of the
Final Response. Once agreed to and executed by both parties,
the executed ASR shall amend this Agreement in accordance with
its terms.
B. The charge for Additional Services will be determined on a
fixed price basis pursuant to the Final Response unless MDC
elects to have such Additional Services performed on a time and material
basis. The labor rate for Additional Services performed on a time and
material basis shall be at the labor rate established in "Pricing," Exhibit
"W." The labor rate for 1998 and for subsequent years shall be escalated in
accordance with the touch labor element, Touch Labor Escalation Index, set
forth in Exhibit V. If Subcontractor agrees to perform Additional Services,
but is unable to provide an estimate for the Additional Services, MDC may
elect to authorize a block of man-hours to initiate the performance of such
Additional Services ("Block Manhour Approval"). Subcontractor shall not
exceed the Block Manhour Approval without the prior written approval of
MDC's Representative. In the event Subcontractor has exhausted the Block
Man-hour Approval, and MDC has not provided written approval for additional
man-hours, Subcontractor is not obligated to complete any such Additional
Services.
C. Any special items or conditions which would be applicable to
the performance of such Additional Services, (including, for
example, location, warranty terms, etc.) shall be noted in the
ASR.
D. No request for Additional Services shall be valid and the
performance of such Additional Services is not authorized under
this Agreement unless the applicable ASR Form has been executed
by MDC's Representative and Subcontractor.
E. Additional Services provided pursuant to this Article shall
become part of the Services with respect to the affected
Aircraft. Subcontractor will not be obligated to provide such
Additional Services until MDC has accepted in writing the Final
Response or notified Subcontractor in writing to proceed on the
basis of time and materials. Upon execution of the ASR by both
parties, this Agreement shall be deemed amended.
F. In the event MDC elects not to have Subcontractor accomplish
a portion of the Additional Services indicated on an executed
fixed price ASR, Subcontractor shall reasonably determine a
prorated price reduction on that ASR for that specific Aircraft
based on the scope of the Additional Services that Subcontractor
is not required to perform. Subcontractor shall issue a credit
for the appropriate amount applicable to that specific Aircraft.
If MDC elects not to have Subcontractor accomplish any of the
Additional Services indicated on an executed fixed price ASR,
Subcontractor shall issue a credit for the full value of such ASR
applicable to the specific Aircraft affected.
G. Notwithstanding any other provisions in this Article 3, if
during the performance of each of the Services in Exhibits H and
K, including all attachments, (i.e. each specific work card),
Subcontractor determines that non-routine tasks are required,
(e.g. corrosion repair, etc.), and Subcontractor determines that
such non-routine tasks can be performed in less than fifty (50)
hours, then the labor for such non-routine tasks shall be
accomplished by Subcontractor as part of the Services at no
additional charge to MDC. Any Parts required to complete such non-
routine tasks shall be provided by MDC. If such non-routine tasks
will require greater than fifty (50) hours to complete, then such
non-routine tasks shall be accomplished as an Additional Service
in accordance with the procedures set forth in this Article 3, and
the total hours charged to MDC shall be the total mutually agreed
number of hours less fifty (50) hours. Subcontractor specifically
acknowledges and agrees that the fifty hour non-routine labor
contribution is meant to apply to each individual work card (i.e.
if four work cards each require fortyfive (45) hours of non-
routine tasks, the non-routine tasks on each work card shall be
provided without charge).
H. Any changes that occur to the GMM after the date of
execution of this Agreement, which impact the Services in such a
way to affect schedule and/or materially affect the price, shall
be treated as an amendment to the Agreement. However,
notwithstanding the foregoing, Subcontractor will comply with
changes to FARs, law or any other regulation which do not affect
the content of an MJCS for a period of time up to and including
the Redelivery of twelfth (12) Aircraft, at no additional charge
to MDC. After Redelivery of twelfth (12) Aircraft, Subcontractor
and MDC agree to mutually re-evaluate the status of future
regulatory changes.
4) PRICE AND PAYMENT
A. Prices for the Services are set forth in Exhibit W.
B. Payment for the Services with respect to each Aircraft shall
be in accordance with xhibit W. All prices are subject to
escalation in accordance with Exhibit "V," "Price Adjustments for
Fluctuations in the Economy," except prices for Additional
Services pursuant to an ASR. Prices for Additional Services shall
not be subject to escalation unless expressly set forth in an
applicable executed ASR Form.
C. Payment for Subcontractor charges for Additional Services
are payable within thirty (30) days from the date of an invoice
which complies with the requirements of Paragraph 4.E. in all
respects, as long as such invoice is sent by Federal Express
Service (overnight ) to the address set forth in Article 11 or via
facsimile.
D. All payments made by MDC to Subcontractor under this
Agreement shall be in U.S. Dollars made to the following address:
Dimension Aviation, Inc.
Goodyear Municipal Airport
1658 South Litchfield Road Hanger 52
Goodyear, Arizona 85338
E. Invoices for Services, including the Additional Services,
for each Aircraft shall be itemized by each separately priced
Service or Additional Service, as the case may be, and shall be
submitted to the applicable address set forth in Article 11
"NOTICES" hereof. Invoices shall also contain the following: 1)
An identification of the ASRs authorizing the Additional
Services performed by Subcontractor;
2) A separate identification of the Services performed on the
Aircraft, including Subcontractor's (or Sub-Subcontractor's) job
number, the registration number and factory serial number of the
Aircraft on which the Services were performed, the Delivery Date
and Redelivery Date of the Aircraft;
3) For time and material Additional Services, an identification
of all Parts used in performing the Services including
nomenclature, part number, quantity, Aircraft and generating
item. Such identification shall be set forth on the ASRs, copies of which will
be attached to the invoice;
4) For time and material Additional Services, a separate,
itemized account recorded on the ASR of all charges associated
with performance of such Additional Services, identifying the
direct labor man-hours, materials and fees separately for all
such
Services and Additional Services; and
5) For time and material Additional Services, an itemized
account of all charges associated with Subcontractor's use of
Subcontractors and suppliers, including direct labor, materials
and
transportation, with an attached invoice from each
Subcontractor
and supplier identifying the nature of the Additional Services
performed and the date(s) and location(s) at which the Additional
Services were performed and the price to Subcontractor of any
Parts
or equipment purchased by Subcontractor from any supplier or
Sub-
Subcontractor.
F. Subcontractor shall keep full and accurate records of all
man-hours, material cost, subcontractor's charges and any related
charges incurred and billed in connection with the time and
material Additional Services performed for each Aircraft under
this Agreement, which record shall be open to audit by MDC,
Federal Express or any authorized representative of either of them
until one (1) year after Redelivery of such Aircraft.
Subcontractor will require its Sub-Subcontractors to maintain
similar records which shall also be open to audit by MDC, Federal
Express or any authorized representative of either of them until
one (1) year after Redelivery of each applicable Aircraft;
provided, however, that the foregoing shall not apply to parts
manufactured by Sub-Subcontractors.
5) DELIVERY OF SERVICES
A. Delivery and Redelivery of the Aircraft.
1) MDC shall cause each Aircraft to be delivered to the
Conversion Facility. Subcontractor agrees that delivery by MDC
of
Aircraft to a storage site located at the Conversion Facility
shall not constitute Delivery to the Conversion Facility under
this Agreement. Subcontractor agrees that Delivery of Aircraft
directly into the Conversion Facility (without delivery to the
storage site) shall constitute Delivery of Aircraft by MDC.
Subcontractor agrees that Delivery of Aircraft from the storage
site to the Conversion Facility shall constitute Delivery of
Aircraft by MDC. At the time of Delivery each Aircraft shall be
configured in its then current configuration. Subcontractor
shall
complete the Services and Redeliver each Aircraft to MDC at the
Conversion Facility in accordance with the Schedule.
2) In the event any discrepancies are identified prior to or
during the flight to the Conversion Facility which are not
required to be corrected as a part of the performance of the
Services, the parties acknowledge and agree that, as between MDC
and Subcontractor, the cost of correcting such discrepancies
shall
be borne by and be the responsibility of MDC. In the event
that
MDC engages Subcontractor to correct such deficiencies, such
engagement shall be pursuant to an ASR.
3) If a relocation of the Conversion Facility is requested by
Subcontractor, Subcontractor shall be responsible for any and all
commercially reasonable costs and expenses incurred by MDC and/or
Federal Express as a result of (i) the relocation of the
Conversion Facility or (ii) the performance of the Services at
more than one Conversion Facility.
4) Such costs and expenses shall specifically include, but not
be limited to:
a) relocation of any Aircraft, Federal Express or MDC Supplied
Parts, or any other part, item or material from the Conversion
Facility to another facility approved by MDC; and
b) any incremental costs incurred by MDC as a result of the
Services being performed at more than one Conversion Facility
(i.e. expenses related to additional employees required on
site,
etc.).
Nothing contained in this Section 5.A.3) shall be
construed (i) as the consent of MDC to the
performance of any of the Services at any facility other
than the Conversion Facility and said relocation shall
only be permitted with the prior written consent of MDC,
which shall not be unreasonably withheld or (ii)
as requiring Subcontractor to reimburse MDC for any costs
other than those solely related to the Services provided
hereunder.
5) Upon Delivery of each Aircraft, MDC and Subcontractor shall
make a ground inspection of such Aircraft. Following such
inspection, Subcontractor shall complete, execute and deliver to MDC an
Aircraft Delivery Receipt.
6) Prior to the performance of the Services, Subcontractor
shall remove all fixtures, instruments and other equipment from
the applicable Aircraft determined by Subcontractor to be
susceptible to damage or theft during the performance of the
Services. Subcontractor shall promptly provide to MDC a list of
such items and Subcontractor agrees, at no additional charge to
MDC and at Subcontractor's risk of loss, to provide adequate
security and storage space for such items until completion of the
Services on such Aircraft or, if requested by MDC, to return such
items to MDC or its designee at MDC's expense. Prior to
Redelivery, Subcontractor shall re-install all such items in its
possession on the applicable Aircraft as required by the
Specifications.
7) As between MDC and Subcontractor, MDC shall be responsible
for the costs and expense of providing a vendor to de-fuel the
Aircraft at Delivery and re-fuel the Aircraft at Redelivery and to
de-fuel and re-fuel the Aircraft at any other time during an
Aircraft Visit. As between MDC and Subcontractor, the cost of any
fuel required shall be paid by MDC. Subcontractor shall provide
all personnel and support necessary for all re-fueling and de-
fueling required of the Aircraft.
B. Redelivery of the Aircraft.
1) Upon completion of the Services on an Aircraft and the
testing described in Article 20, Subcontractor shall Redeliver the
Aircraft to MDC at the Conversion Facility in accordance with the
provisions of this Agreement. At the time of Redelivery,
Subcontractor shall assist MDC in verifying that all applicable
attachments and supporting documentation for such Aircraft are
complete. Upon Redelivery, MDC shall execute and deliver to
Subcontractor a Certificate of Acceptance for the redelivered
Aircraft. Subcontractor's Redelivery of an Aircraft to MDC and
MDC's signature constituting the airworthiness release shall
constitute a certification by MDC that:
a) The Aircraft's Maintenance Log will have received all
appropriate entries required by applicable law, the GMM and
this
Agreement, including the airworthiness release signature and a
maintenance release each signed by MDC's duly authorized
representative;
b) All requested Services shall have been completed and
appropriately documented and shall have been performed in
conformance with all applicable FARs and the GMM; and
c) All Services shall have been performed in accordance with
the provisions of the Specifications and all provisions
of this
Agreement and the Services performed shall not have
adversely
affected the operation of systems or components not
encompassed
within the Services.
C. Flight Maintenance Services
1) As part of the Services, Subcontractor shall provide, at no
additional cost to MDC, the following services:
a) required preflight preparation consisting of, but not
limited to, a general cleaning of the interior of the
Aircraft,
servicing of the lavatory and the cleaning of the exterior
windows and those areas required for inspection of the
Aircraft
following execution by MDC of a Certificate of Acceptance;
and
b) at Delivery and Redelivery, the ground handling, including
towing and repositioning of an Aircraft and the provision of
sufficient ground support equipment at Delivery and
Redelivery
c) at Redelivery, completion of the Federal
Express Service Check.
6) TAXES, CUSTOMS, AND DUTIES
A. Subcontractor's price for Services and Additional Services
shall be inclusive of any and all Taxes (currently imposed or
subsequently
enacted) pertaining to goods and services provided
by Subcontractor that are imposed by any taxing jurisdiction in
connection with this Agreement, including but not limited to Taxes
occasioned by the sale, lease, delivery, transfer, storage, use,
consumption, manufacture, production, importation, or exportation
of any goods or services for the purpose of any Services and
Additional Services provided that MDC furnishes Subcontractor a
valid state tax exemption certification.
B. Notwithstanding the preceding, Subcontractor shall not be
required to pay to MDC any United States (federal, state or
local) Taxes measured by MDC's net income, capital or both; or
payroll or employment taxes imposed on MDC with respect to MDC's
employees.
C. In addition, Subcontractor's price for Services
and Additional Services shall be inclusive of
any customs, duties, and related brokerage,
freight, and other charges or fees (including
related interest and penalties) which are imposed
in connection with any goods or services
provided by Subcontractor to MDC pursuant to this
Agreement. MDC will apply and/or arrange for any
licenses or documentation necessary to support
or permit the importation of aircraft,
materials, or components delivered hereunder
to Subcontractor's modification center or work
site. Subcontractor will furnish such data and
information and render such assistance as may
reasonably be requested in connection therewith.
D. It shall be Subcontractor's responsibility
to
promptly pay to or reimburse MDC, upon MDC's
demand, any Taxes, customs, or duties that are
imposed on MDC by any taxing jurisdiction or
customs authority that Subcontractor has agreed to
pay Subcontractor shall promptly notify MDC, in
writing, if a claim is made by any jurisdiction for
any Taxes, customs, or duties for which
Subcontractor has assumed responsibility for
payment pursuant to this Article 6. In the event
that such Taxes, customs or duties are levied,
assessed, or imposed on MDC, MDC shall promptly
give Subcontractor notice of such Taxes, customs,
or duties, whereupon
Subcontractor shall promptly pay and discharge the
same, or if permitted by law and requested by MDC,
shall contest such liability before payment. MDC also
shall have the right to participate in any contest
conducted by Subcontractor with respect to a Tax,
custom, or duty for which Subcontractor has assumed
responsibility for payment pursuant to this Article 6,
including without limitation the right to attend
conferences with taxing or customs authorities and the
right to review submissions to the taxing or customs
authorities or any court to the extent such contest
does not involve, or can be separated from, the contest of
any other Taxes or issues unrelated to the Services and
Additional Services described in this Agreement.
Subcontractor agrees to comply with any reasonable
written request by MDC regarding payments under
protest, claims, litigation or proceedings with respect to
any such Taxes, customs, or duties. Any payment made
by MDC of such Taxes, customs, or duties will be made
upon protest if so directed by Subcontractor. If payment
is made, MDC will, at Subcontractor's expense, take such
action as Subcontractor may reasonably direct to recover
such payment.
7) EXCUSABLE DELAYS
A. Neither party shall be responsible to the other party for
any excusable delay ("Excusable Delay") in the performance of its
respective duties under this Agreement. An Excusable Delay shall
be deemed to have occurred if a party's delay in performance is
due to causes such as an act of God, partial or complete
destruction of the Aircraft, court actions and orders, acts of
public enemies, acts of any kind of the government of the United
States, or any state or other subdivision thereof, war, natural
disaster, insurrection or riots, civil commotion, fire, floods,
plagues, epidemics, strikes, lock-outs, organized labor action
resulting in a slowdown or interruption of work, inability after
due and timely diligence to seasonably procure material,
accessories, equipment or parts or qualified labor or without
limitation by enumeration of the foregoing any other causes beyond
such party's reasonable control and not occasioned by the
intentional acts or omissions or negligence of the relevant party.
None of the foregoing shall be considered an Excusable Delay if
the cause of any such delay can be cured by the applicable party
in any commercially reasonable legal way including, but not
limited to, the payment of commercially reasonable amounts of
money. Both parties shall use their best efforts to inform the
other by written notice in the event of the occurrence of an
Excusable Delay and the probable extent of such delay and shall
from time to time thereafter notify the other party of any
material development relating to such delay or the cause thereof.
The relevant party shall take all reasonable steps to mitigate the
effects of any such delay.
B. Notwithstanding any rights Subcontractor may have to take
other action, Subcontractor shall not be held responsible for, nor
be deemed to be in default on account of, delays in the
performance of this Agreement due to failure of MDC to deliver to
the Conversion Facility any Federal Express Supplied Parts or MDC
Supplied Parts or to respond in a prompt manner under the terms of
Article 3. hereof or to take any other action required hereunder.
C. Upon the occurrence of an Excusable Delay, this Agreement
shall remain in full force and effect during the period of such
Excusable Delay so long as the same does not extend beyond ninety
(90) days, and the scheduled Redelivery Date of each Aircraft
affected by such Excusable Delay shall be extended and modified
accordingly. If any Excusable Delay lasts for more than ninety
(90) days;
1) this Agreement may be canceled by either party by written
notice as to one or more affected Aircraft in which case neither
party shall have any liability whatsoever other than in
respect of
work already performed and substantiated with respect to this
Agreement as to the terminated Aircraft; and
2) if the Agreement is not terminated, then both
parties shall use diligent efforts to ensure
that the time requirements of the Schedule are
amended to reflect a mutually acceptable
completion
schedule.
D. Notwithstanding the foregoing or any
other
provision of this Agreement, MDC shall have
no obligation to Deliver any affected Aircraft
to Subcontractor in the event MDC or its customer
Federal Express reasonably determines that an
Excusable Delay could arise during the Aircraft
Visit of any such Aircraft and that such
Excusable Delay would prevent such Aircraft from
being Redelivered in accordance with the Schedule.
Any delay in performance of this Agreement
caused by MDC's failure to Deliver an Aircraft
pursuant to this Paragraph D will be
considered an Excusable Delay.
E. If MDC terminates this Agreement pursuant
to
Paragraph C above due to an Excusable Delay meeting
the requirements of Paragraph A above that
constitute an act of God, partial or complete
destruction of the Aircraft, acts of public
enemies, war, natural disaster, insurrection of
riots, civil commotion, fire, floods, plagues or
epidemics, beyond Subcontractor's reasonable
control and not occasioned by its
intentional acts, omissions or negligence, then in
that case, the maximum MDC shall be liable for other
than in respect of work already performed and
substantiated with respect to this Agreement is
$1,600,000.
8) WARRANTY
A. Subcontractor's Warranties
1) With respect to the performance of the
Services,
Subcontractor warrants to MDC that such Services and all
Subcontractor Supplied Parts used in connection with the
Services
shall, at the time of the Redelivery of each Aircraft
to MDC, be
free from:
a) Defects in material and workmanship;
b) Defects in design, except to the extent the design was
furnished by MDC or Federal Express;
c) Defects caused by installation of any Part in a manner not
in accordance with the instructions of the manufacturer of such
Part; and
d) Defects arising from failure to conform to the description
of the Services set forth in the Specifications or any
ASR Form
executed by MDC and Subcontractor after the date of this
Agreement.
2) Additionally, Subcontractor warrants to MDC (a) that
Subcontractor has good title to all Subcontractor Supplied
Parts, and
other items otherwise supplied by Subcontractor under this
Agreement
to MDC and (b) that such Subcontractor Supplied Parts and other
items
otherwise supplied by Subcontractor under this Agreement
to MDC are
merchantable and fit for their intended purpose.
3) The warranty set forth herein will survive technical
acceptance of the Services only upon the conditions and
subject
to the limitations set forth in this Article 8.
4) Subcontractor also warrants that at the time of Redelivery
by Subcontractor to MDC all documents provided to MDC pursuant to
this Agreement shall be free from errors and omissions,
excluding
any data provided in any form whose source is data and/or
manuals
and/or documents of any form obtained from the previous owner of
the Aircraft. Subcontractor's liability under this Paragraph
A.4)
is limited to replacement during the first sixty (60) months
after
redelivery of the last Aircraft to Federal Express by MDC under
this Agreement with a similar Subcontractor document or page
thereof free from the error in question. If such an error
poses a
severe material operational limitation or restriction to
Federal
Express, Subcontractor shall use its commercially reasonable
efforts to provide to Federal Express within twenty four (24)
hours following receipt of notification to Subcontractor by MDC
and/or Federal Express that the condition exists, a temporary
page
correction, or replacement data and if this is not possible, a
corrective action plan indicating when such data will be
provided.
B. Condition of Warranties
1) Except as expressly set forth herein, Subcontractor's
warranties set forth shall be effective for the following
periods:
a) as to Subcontractor Supplied Parts and Sub-Subcontractor
Parts, the warranty period shall commence upon the
redelivery to
Federal Express by MDC of the Aircraft upon which the
Subcontractor or Sub-Subcontractor Part is installed,
and shall
continue for forty two (42) months thereafter. With
respect to
Subcontractor or Sub-Subcontractor Parts repaired or
overhauled by
Subcontractor or any Sub-Subcontractor any remaining
warranty
period shall apply to a repaired part, and for an
overhauled part
either the remaining warranty period or twelve (12) months,
whichever is longer, shall apply (with respect to
Subcontractor
Supplied Parts with shelf-life limitations, the warranty
period
shall be the period of the manufacturer's warranty, such
period to
commence upon Redelivery of the Aircraft); and
b) as to Services performed on an Aircraft, the warranty period
shall commence upon redelivery to Federal Express by MDC
of such
Aircraft and continue for forty two (42) months
thereafter.
C. Limitations to Warranties.
Notwithstanding any other provisions hereof,
Subcontractor shall have no obligation under this
Article 8 if MDC or Federal Express:
1) following Redelivery, has not operated and maintained the
warranted item in accordance with the FARs, manufacturers'
recommendations, and Federal Express' Engineering Maintenance
Program Specification (Federal Express Engineering Report
84013);
or
2) following Redelivery, has not used the warranted item under
normal operating conditions or has subjected such item to
misuse,
abuse, improper installation or application, improper
maintenance
or repair, alteration, accident or negligence in use, storage,
transportation or handling by anyone other than Subcontractor
or
its Sub-Subcontractors; or
3) has not notified Subcontractor in writing within ninety (90)
days of its or its agent's discovery of the defect in the
warranted item, provided, however, that a failure by MDC or Federal Express
to provide such notice shall not entitle Subcontractor to reject any
warranty claims unless such failure has an adverse material impact on
Subcontractor's ability to honor such warranty claim.
D. Wear and Tear
1) Normal wear and tear and the need for regular overhaul shall
not constitute a defect or failure under this warranty.
E. Warranty Repairs
1) Subcontractor shall replace or repair, at Subcontractor's
expense, any warranted Subcontractor Supplied Part and shall
correct any portion or all of the Services which in the
reasonable determination of MDC are defective. Subcontractor
shall also be obligated to repair or replace any other item which
has suffered damage directly caused as a result of a defective
Subcontractor Supplied Part or Service which damage occurs within
sixty (60) days following the redelivery date of each Aircraft to
Federal Express by MDC.
2) Notwithstanding any other provisions contained herein, MDC
reserves all of its rights and remedies under this Agreement and
in no event shall the acceptance of warranty services set forth in
this Article 8 be deemed to constitute a waiver of the right to
future warranty claims against the same Subcontractor Supplied
Parts or Services provided the defect and repair required are
still, in the reasonable judgment of MDC, within the scope of the
warranty and the limitations set forth in Article 8.
F. MDC Warranty Repairs
1) If Subcontractor cannot perform within a reasonable time the
replacement or repair referred to in this Article 8 or if it is,
in the opinion of Subcontractor, not feasible for Subcontractor or
its Sub-Subcontractors to perform the replacement or repair, MDC
and/or Federal Express will be authorized, upon Subcontractor's
prior written consent, to perform the replacement or repair or
have the replacement or repair performed at Subcontractor's
expense ("MDC Warranty Repairs").
2) Notwithstanding the foregoing, if for valid operational
reasons (in the reasonable business judgment of MDC and/or Federal
Express) there is insufficient time to obtain Subcontractor's
prior written consent, MDC and/or Federal Express may perform such
replacement or repair without Subcontractor's prior written
consent. In all such events, it shall be MDC's and/or Federal
Express' responsibility to certify the business operational
requirements which rendered it impracticable to obtain
Subcontractor's prior written consent and to demonstrate to
Subcontractor's reasonable satisfaction that any warranty claim
based upon such repair is a valid warranty claim.
3) In the event that MDC and/or Federal Express performs such
replacement or repair hereunder, Subcontractor shall have the
option of staffing such replacement or repair with such technical
representatives as it deems necessary to monitor the repairs. Upon
receipt of MDC's and/or Federal Express' claim for reimbursement
with respect to MDC Warranty Repairs, Subcontractor shall
reimburse MDC and/or Federal Express for an amount equal to the
lesser of:
a) MDC and Federal Express direct cost for all Parts and
materials incorporated in such repair or replacement plus all
reasonable direct labor cost and all reasonable transportation
cost incurred by MDC and Federal Express in the performance of
Warranty Repairs. Subcontractor will establish reasonable
standard labor hours therefor and will reimburse MDC and/or
Federal Express for such standard hours at MDC's and/or Federal
Express' direct labor rate (average hourly labor rate,
exclusive
of fringe benefits, applicable to employees performing
warranty
repairs) plus a burden of not to exceed fifty percent,
provided
such amounts shall in no event exceed two hundred percent of
Subcontractor's direct labor rate. If MDC's and/or Federal
Express' actual labor hours substantially exceed the standard
labor hours established by Subcontractor, the parties will
negotiate to establish new standard labor hours, taking into
consideration the actual labor hours incurred by MDC and/or
Federal Express and other operators of DC-10 aircraft in
making
similar corrections; or
b) the amount which Subcontractor would have charged MDC and/or
Federal Express for such repair or replacement had
Subcontractor
performed such repair or replacement and if such repair or
replacement were not under warranty, which amount shall be
provided to MDC and/or Federal Express with reasonable
documentation to verify such amount to MDC's and/or Federal
Express' reasonable satisfaction.
Subcontractor shall reimburse MDC and/or Federal
Express within sixty (60) days for any amounts due and
owing to MDC and/or Federal Express pursuant to this
Article 8.
G. Assignment of Warranties
1) Subcontractor agrees to assign and does hereby assign to MDC
any and all assignable warranties, service life policies and
patent indemnities of manufacturers, suppliers and Sub
Subcontractors other than Subcontractor which arise in
connection
with the Services or Additional Services, and, upon MDC's
request,
Subcontractor shall provide to MDC reasonable assistance in
enforcing MDC's rights under such warranties, service life
policies and patent indemnities. Upon MDC's request,
Subcontractor shall give notice to any such manufacturers,
suppliers and Sub-Subcontractors of the assignment of such
warranties, service life policies and patent indemnities.
2) For those Subcontractor Supplied Parts that are acquired by
Subcontractor from Sub-Subcontractors installed on the
Aircraft
during the performance of the Services, (the
"Sub-Subcontractor
Warranty Parts"), in the event of a default by the supplier of
such Sub-Subcontractor Warranty Parts in the performance of any
material obligation under any applicable warranty from such
supplier, or in the event of a disclaimer of responsibility by
such supplier for any defect constituting a breach of such
warranty and upon timely notice thereof to Subcontractor, the
warranties and all other terms and conditions of this
Article 8
shall become applicable as if such Sub-Subcontractor Warranty
Parts had been manufactured by Subcontractor except that the
warranty period shall be the warranty period as set forth
herein
or the supplier's warranty period, whichever is shorter,
and all
transportation costs associated with such Sub-Subcontractor
Warranty Parts shall be borne by MDC. Subcontractor shall use
commercially reasonable efforts to obtain from its Sub
Subcontractors warranties at least as favorable as those
provided
by Subcontractor to MDC herein.
H. Warranty Procedures
1) All warranty claims shall be submitted in writing to
Subcontractor's Warranty Administrator at Goodyear, Arizona,
and
shall include the identity of the part or document involved,
including Subcontractor's part number or identification number,
nomenclature and the quantity claimed to be defective; the
identity of the Aircraft from which each part was removed or
which
document applies; the date the claimed defect became apparent
to
MDC or its agents; the total flight hours accrued on the part
at
the time the claimed defect became apparent to MDC; and a
description of the claimed defect and circumstances.
2) MDC shall pay all costs of transportation of any defective
part or document returned to and from Subcontractor's facility in
Goodyear, Arizona. In the event such returned part or document
is
defective, Subcontractor shall reimburse MDC for the actual
transportation costs for such defective parts or documents to
and
from Subcontractor's facility.
3) Subcontractor shall approve or disapprove in writing MDC's
warranty claim within forty five (45) days following receipt of
such claim. In the event that Subcontractor does not respond to
such claim within such forty-five (45) day period, the claim
shall
be deemed accepted.
9) INDEMNIFICATION AND LIMITATION OF LIABILITY
A. Subcontractor shall indemnify, defend, and hold
harmless MDC, its officers, directors and
employees from any and all liabilities,
damages, losses, expenses, claims, suits or
judgments, including reasonable attorneys' fees and
expenses, for the death of or bodily injury to any
person and for the loss of,
damage to, or destruction of any property to the
extent arising out of the performance by
Subcontractor of its obligations hereunder or the
breach of the Warranty or any other provision of
this Agreement by Subcontractor, its agents,
employees or Sub-Subcontractors or any person for
whose acts or omissions Subcontractor, its agents,
employees or Sub-Subcontractors
are
responsible; provided, Subcontractor shall not
be
liable under the provisions of this Paragraph 9.A.
for any liabilities, damages, loss, expenses, claims,
suits or judgments arising solely from the
negligence or willful misconduct of MDC's
employees. The intent of this Article 9.A. is
that, if there is any liability attributable to
the joint negligence and/or willful misconduct of
Subcontractor and MDC, Subcontractor will, in the
first instance, assume responsibility for payment of
such liability. Notwithstanding anything in this
clause or Agreement to the contrary, however,
Subcontractor shall have the right to assert a
claim against and recover from MDC to the extent
of MDC's proportionate fault for any contributory
negligence or willful misconduct of MDC; provided,
however, that MDC will not be bound by the terms
of any underlying settlement or judgment with
respect to such liability unless MDC has
consented in writing to be bound thereby.
B. MDC shall indemnify, defend, and hold
harmless
Subcontractor, its officers, directors and
employees from any and all liabilities,
damages, losses, expenses, claims, suits or
judgments, including reasonable attorneys' fees and
expenses, for the death of or bodily injury to any
person and for the loss of, damage to, or destruction
of any property to the extent arising solely from
the negligence or willful misconduct of MDC's
employees in the performance of MDC's obligations
hereunder.
10) TECHNICAL DATA
A. Technical Data may be provided to Subcontractor during the
term of this Agreement. All information contained in the
Technical Data is owned by MDC, Federal Express or a third party and is
proprietary and confidential to such party; and, except as expressly
provided herein, is furnished solely for use in the performance of
Subcontractor's obligations under this Agreement and not for disclosure to
any other party or for any other use. Subcontractor agrees to use its best
efforts to protect and maintain the proprietary and confidential status of
the Technical Data. In the event it is necessary to disclose Technical Data
to third parties, Subcontractor agrees that it will impose upon third
parties to whom such disclosures are made obligations no less stringent
than those set forth in this Agreement. Subcontractor agrees to furnish
evidence of said third party Agreement to MDC. Except as may otherwise be
provided herein, any information in the Technical Data which can be shown to
be in any of the following categories shall lose its confidential status
upon such a showing:
1) that which is in the public domain at the time of
disclosure;
2) that which later becomes a part of the public domain by
publication or otherwise, except by breach of this Agreement or
any third party under an obligation of confidence;
3) that which Subcontractor can establish by competent proof
was in its possession at the time of disclosure and was not
acquired directly or indirectly from the disclosing party or from a
third party under an obligation of confidence:
4) that which Subcontractor lawfully receives from third
parties on a nonconfidential basis; and
5) that which is independently developed by Subcontractor
without the use of the Technical Data furnished by the
disclosing party under this Agreement.
Subcontractor agrees not to use any of the
MDC Technical Data for so long as such information
remains in a confidential status except for the
performance of Services under this Agreement.
Technical Data shall be identified with an
appropriate legend, marking or stamp or other
positive written identification; provided,
however, that failure of the disclosing party
to mark, stamp or identify any Technical Data
shall have no effect on the confidential status
of such Technical Data if the recipient knew, or
should reasonably have known, that the
disclosing party considers such Technical Data to
be confidential.
B. Injunctive Relief
1) The parties agree that in the event Subcontractor violates
or threatens to violate the provisions of this Article 10 as it
pertains to the Technical Data, MDC may be entitled to obtain
from a court of competent jurisdiction preliminary and permanent
injunctive relief as well as an equitable accounting of all
profits or benefits arising from such violation which rights and
remedies shall be cumulative and in addition to any other rights
or remedies at law or in equity to which MDC may be entitled.
11) NOTICES
All notices, approvals, requests, consents, invoices and
other communications given pursuant to this Agreement
shall be in writing and shall be deemed to have been
duly given when received if hand-delivered, sent by
telex, sent by courier or Federal Express service or
sent by certified or registered mail, addressed as
follows:
If for MDC:
McDonnell Douglas Corporation
3855 Lakewood Blvd., MC: D035-0035
Long Beach, CA 90846
Attn: Sam Fasheh
Supplier Management - Product Support
Phone: (562) 982-9309 or (562) 593-9454
Fax: (562) 593-5709 or (562) 593-4785
If to Subcontractor:
Dimension Aviation, Inc.
Goodyear Municipal Airport
Hangar 521658 South Litchfield Road
Phoenix, AZ 85338
Attn: Thomas F. Derieg
Phone: TBD Fax: TBD
12) ASSIGNMENT
This Agreement shall inure to the benefit of and be
binding upon each of the parties and their respective
successors and assigns, but neither the rights nor the
duties of either party under this Agreement may be
voluntarily assigned, in whole or part, without the
prior written consent of the other party, which is
not to be unreasonably withheld. Either party shall be
entitled to assign all or part of this Agreement to a
wholly-owned subsidiary; and MDC may, without
Subcontractor's consent, assign all or part of its
rights and obligations under this Agreement, without
recourse against MDC, to an entity into which is placed
all or part of
MDC's commercial aircraft business. Upon such
assignment, Subcontractor will look exclusively to
such assignee for performance under this Agreement;
provided that under no circumstances shall the foregoing
be considered as releasing any party from any of its
obligations under this
Agreement.
13) CHANGES
A. The terms and conditions of this Agreement may be amended
from time to time by means of:
1) An ASR, pursuant to the provisions of Article 3.
2) by other written amendments duly signed by both parties;
The ASR, and such other written amendments shall not be
binding on either party until signed by the Federal
Express Representative, MDC Representative and
Subcontractor, and upon being so signed shall
constitute amendments to this Agreement in accordance with
the provisions of this Article 13.
B. MDC's Engineering and Technical personnel may, from time to
time, render assistance or give technical advice to, or effect an
exchange of information with, Subcontractor's personnel in a
liaison effort concerning the Services. Such assistance, advice,
or exchange of information shall not be considered a request for
Additional Services nor shall such exchange allow Subcontractor to
deviate in any manner from the provisions of this Agreement.
Additional Services shall only be authorized if they are directed
in writing by those persons authorized to give such an order as
specified in Article 3. Subcontractor's compliance with any
order, direction, interpretation or determination, either written
or oral, from someone other than a person designated as being
authorized to issue change orders shall be at Subcontractor's risk
and MDC shall not be liable or otherwise responsible for any
resulting cost increase, delay in performance or nonconformance by
Subcontractor with the provisions of this Agreement.
14) DOCUMENTATION
A. Right of Review
At all times during the term of this Agreement, on a non-
interference basis, MDC and Federal Express reserve
the right to review all available modification
and maintenance documentation including, but not
limited to, drawings, maintenance work cards,
engineering orders and manual revisions to ensure
compliance with the Specifications. At no
additional charge and at the request of MDC or
Federal Express, Subcontractor shall provide copies
of such documentation to the FAA if required by
the FAA for addition of the Aircraft onto Federal
Express' operations specifications. Subcontractor
shall promptly provide any additions or
clarifications to any applicable
Subcontractor documentation to the extent required by
this Agreement or the FAA related to the performance
of the Services.
15) APPLICABLE LAW
This Agreement shall be construed and the performance
hereof shall be determined according to the laws of the
State of New York, United States of America,
excluding its laws regarding conflict or choice of law.
16) PARTS AND MATERIALS
A. Parts
1) In the event that a Subcontractor Supplied Part is not
available in accordance with Subcontractor's modification plan,
Subcontractor shall use its commercially reasonable efforts to
establish a "work-around" plan which will enable such
Subcontractor Supplied Part to be installed at a later date
prior
to the Scheduled Redelivery Date of the affected Aircraft,
provided, however, that nothing contained in this Article 16
shall
reduce, limit or negate Subcontractor's obligation to
Redeliver
each Aircraft in accordance with the Schedule.
2) Subcontractor and its Sub-subcontractors shall supply all
available technical documentation, teardown data (including
maintenance release tags and repair findings), and testing
reports related to the Services or Additional Services. (Ref:
GMM 9-1-100 Item 3 E 1 through 6)
3) All Recoverable Parts or Rotable Parts removed from the
Aircraft by Subcontractor shall have a Federal Express Rotable or
Recoverable Parts Tag or FAA (8130-3) equivalent completed and
attached.
4) Unless otherwise approved in advance by MDC's Representative
in writing, all Subcontractor Supplied Parts provided by
Subcontractor for performance of the Services (excluding Parts
which are removed from the Aircraft and which will be returned to
the Aircraft) shall be new, unused Parts that conform to
current
manufacturers' standards ("New Parts").
5) MDC's representative or its designee may, in its sole discretion,
agree to accept USZTSO in lieu of new Subcontractor Supplied Parts ,
provided that the price for such Subcontractor Supplied Parts shall be
reduced appropriately. Any USZTSO Parts installed by Subcontractor shall be
certified by a FAA approved repair station on Federal Express's approved
vendor list.
6) All Parts to be used in the performance of the Services
shall comply with applicable United States airworthiness
regulations, FARs, all requirements of the FAA, the
Specifications, and the GMM.
7) Subcontractor shall assist MDC in the accumulation,
inventory, storage, and record accountability including, but not
limited to, current Aircraft issues, for all Parts from
receipt to
installation on an Aircraft. Subcontractor shall be responsible
for the replacement or repair of any Parts (including, but not
limited to, Federal Express Supplied Parts and MDC Supplied
Parts)
lost or damaged while in Subcontractor's control.
a) For all Parts that are removed prior to or during
performance of the Services and are to be reinstalled on
the Aircraft, or permanently removed, or are unused Federal Express Supplied
Part or MDC
Supplied Parts, Subcontractor shall tag such Part in accordance with the MDC FAA
approved Repair Station Manual. MDC shall determine the appropriate
disposition of
such Parts at or prior to the Redelivery of each Aircraft. The tag shall
indicate (i)
the status of the Part when removed (i.e. okay to install, rework, or reject)
which shall be determined by either operation of the Part during acceptance
and ferry
flights to the Conversion Facility or by an On Aircraft Test Procedure (OATP)
after
arrival at the Conversion Facility and (ii) if available, the time and cycles
since
new or last overhaul.
b) In addition to the tag referenced above, Parts that are
removed prior to or during performance of the Services
and are to
be reinstalled on the Aircraft or permanently removed, or
are
unused Federal Express Supplied Parts, shall have the
applicable
Federal Express tag attached.
c) Subcontractor shall assist MDC in maintaining a material
management system adequately staffed with qualified
personnel to
handle receipt, inventory, warehousing, quality control,
inspection, storage, transportation, packaging, issue, and
disposition of Parts. MDC and Federal Express shall have
the
right to request the assistance of Subcontractor in the
auditing
of the record keeping and storage management operations
established by MDC pertaining to Services or Additional
Services
on any Aircraft.
d) MDC and Subcontractor shall dispose of permanently removed
or unused Federal Express Supplied Parts as soon as
practicable in
accordance with the MDC Representative's instructions,
but in no
event more that five (5) days after the receipt of such
instructions.
e) All Federal Express Supplied Parts and removed equipment
shall be stored, transported, and shipped in Federal
Express
supplied shipping containers. If Federal Express does not
provide shipping containers, packaging appropriate to
prevent
damage to such Parts and in accordance with aircraft
industry
standards shall be at the expense of MDC.
8) All Rotable Parts and Recoverable Parts (in addition to
those included in the Federal Express Supplied Parts) required
for
the support of the Aircraft during the Services will be
furnished
by MDC and maintained by Subcontractor, except as otherwise
mutually agreed to between MDC and Subcontractor. Such Rotable
Parts and Recoverable Parts will be furnished to the Conversion
Facility prior to the Subcontractor required date by MDC. A
listing of Rotable Parts and Recoverable Parts, if such
components
are determined to be necessary, will be mutually agreed to by
the
Parties.
B. Supply of Parts, and Materials
1) MDC shall provide all Parts except the Subcontractor
Supplied Parts. Subcontractor shall provide all Subcontractor
Supplied Parts (if any) and Expendable and Consumable Materials
and all tooling (except as provided in Exhibit X), equipment,
facilities and fixtures which are necessary for the performance of
the Services and Additional Services. Subcontractor shall be
responsible for the timely procurement of the Subcontractor
Supplied Parts , to ensure compliance with the terms and
conditions of this Agreement.
2) Subject to agreement by Federal Express, Subcontractor
shall, if necessary, have access to the Federal Express Maxi
Merlin parts and component control system or equivalent system.
MDC and Federal Express will furnish the equipment and training
required to make the Maxi-Merlin or equivalent system entries.
Subcontractor will perform all data entry into the Maxi-Merlin or
equivalent system for all Parts on the Aircraft which require
Maxi-
Merlin or equivalent system entry.
17) MDC AND/OR FEDERAL EXPRESS SUPPLIED PARTS
A. Subcontractor will assist MDC in the handling and storage
of MDC Supplied Parts and Federal Express Supplied Parts to
protect them from damage or deterioration. Deterioration does not
include items deteriorated due to the lapse of shelf-life or other
inherent deterioration. MDC Supplied Parts and Federal Express
Supplied Parts shall be isolated from Subcontractor's parts, and
Subcontractor shall ensure limited access to, and security for,
MDC Supplied Parts and Federal Express Supplied Parts.
B. MDC shall furnish the Parts (excluding the Subcontractor
Supplied Parts) to Subcontractor, at the Conversion Facility, no
later than fifteen (15) days prior to the Delivery date of each
Aircraft. MDC shall also provide Technical Data in the form of
specifications for Federal Express Supplied Parts ("Parts
Technical Data"), consisting of, but not limited to a written
detailed description of the dimensions, weight and all
information necessary for the installation and operation thereof.
Such dimensions and weight shall not thereafter be revised unless
authorized by an amendment to this Agreement. MDC shall also
provide Technical Data in the form of engineering information for
the implementation of the MDC Specifications and Federal Express
Engineering Orders ("Engineering Technical Data"), consisting of,
but not limited to all instructions necessary for installation and
operation thereof. Specific data requirements unique to
Subcontractor's internal process which normally would not be
required in MDC operations shall be the responsibility of
Subcontractor unless MDC data exists which can be used to satisfy
Subcontractor's internal requirements or MDC has not imposed on
its suppliers either MDC's Commercial Product Support Agreement 12-
100 or a tailored version thereof. Notwithstanding any other
provision of this Agreement, MDC is not obligated to deliver any
Engineering Technical Data more than forty-five (45) days prior
to the Delivery Date of the applicable Aircraft.
C. MDC agrees, represents and warrants that each item of
Federal Express Supplied Parts or MDC Supplied Parts to be
furnished by MDC shall be new, or if not new, shall have an FAA Serviceable
Tag or equivalent.
D. In the event that a Federal Express Supplied Part or MDC
Supplied Part or Engineering Technical Data or Parts Technical
Data is not available due to a late delivery, Subcontractor shall
use its commercially reasonable efforts to establish a "work
around" plan which will enable such Part to be installed at a
later date prior to the scheduled Redelivery Date of the affected
Aircraft. Subcontractor will minimize any resulting costs and
effects on schedule in developing a "work-around" plan. All
reasonable costs incurred by Subcontractor in establishing a "work-
around" plan shall be paid by MDC and the Redelivery date for the
affected Aircraft shall, if necessary, be adjusted accordingly.
An ASR form reflecting cost and schedule affects shall be signed
by both parties in accordance with Article 3 herein.
18) REGULATORY REQUIREMENTS
A. Subcontractor shall during the term of this Agreement, or in
respect of any Aircraft, during the period ending upon
Redelivery:
1) at all times assist MDC to ensure that Subcontractor's
facility meets the technical and operational requirements of
an
MDC FAA certified repair station authorized to perform the
Services and Additional Services under an FAR Part 145
Certificate which shall include the appropriate ratings for
performance of the Services and Additional Services;
2) at all times perform the Services and Additional Services in
accordance with the requirements of the Specifications, any
applicable ASR forms and MJCSs, this Agreement, all applicable
law and FARs, the FAA, and any other US governmental body
having
jurisdiction over the Services or Additional Services;
3) promptly correct, in a manner reasonably satisfactory to MDC
and satisfactory to the FAA, any discrepancies in the Services
that are not in compliance with the applicable regulations,
duly report all such discrepancies to MDC and if requested
assist MDC in reporting such discrepancies to the FAA;
4) assist MDC to promptly provide a copy of the
items
reportable in accordance with FARs to MDC;
5) assist MDC to provide all appropriate records required to
comply with the FARs;
6) assist MDC in the preparation of an FAA Form 337 in
accordance with the FARs for the Services in order for MDC to
maintain or secure, as applicable, the FAA Certificate of
Airworthiness;
7) assist MDC in the classification of major and minor repairs
in accordance with the FAA regulations and the GMM.
8) assist MDC in maintaining the appropriate data and records
to prepare the maintenance records, alteration and repair
reports
required by FAA Form 337 and all applicable FARs;
9) provide component serviceable tags for all repaired,
overhauled or exchanged components provided by Subcontractor in accordance
with all applicable FARs and the GMM;
10) be responsible for accomplishing all sign-offs for routine
work task card inspection items in accordance with the GMM;
11) provide service engineering and quality control to ensure
that the Specifications and requirements of this Agreement are
completely and accurately adhered to;
12) promptly report to MDC's representative any discrepancies
between FAA requirements and Subcontractor operations as noted or
reported to Subcontractor by the FAA;
13) be responsible for completing and reporting malfunction or
defect Reports for all items required under the FARs to its FAA
assigned airworthiness inspector per the FARs and provide one
(1) copy to MDC's Representative;
14) provide to MDC records of all Services, Additional
Services, discrepancies, defects, component and piece part
removals, along with the related teardown findings as required
by the GMM;
15) maintain the necessary Technical Data and records to assist
MDC and Federal Express in the preparation of alteration and
repair reports required by the FARs;
16) not accomplish any Services or work other than the Services
specifically described in the Specifications of this Agreement
without prior written authorization from MDC's Representative
in
the form of an ASR Form;
17) be responsible for accomplishing all buy-backs/sign-offs for
Federal Express' Required Inspection Items ("RIIs") as identified
in the GMM; and
18) complete Federal Express' Special Non Routine Maintenance
Form (SNRM), Aircraft Maintenance Log (AML) and Component
Serviceable/Repair Tags for all service transactions
accomplished,
discrepancies, defects, Part removals, along with the related
teardown findings and repair billing information. Subcontractor
shall complete these documents in accordance with the related
teardown findings and repair billing information. Subcontractor
shall complete these documents in accordance with the GMM.
B. FAA Fines/Civil Penalties
1) In the event that MDC and/or Federal Express has a fine or
civil penalty assessed against it by the FAA for a FAR
violation,
and it is mutually determined through a joint investigation by
MDC, Federal Express and Subcontractor that:
a) Subcontractor had been contracted to perform the Services or
Additional Services under this Agreement and either failed to perform such]
Services or Additional Services or improperly performed such Services or
Additional
Services; and any act or failure to act by the fined or penalized party did
not
excuse performance hereunder; and
b) the proper performance thereof would have avoided the
assessment of such fines or penalties;
then Subcontractor shall credit or pay the fined or penalized
party a dollar amount equal to such fine or penalty, as
reimbursement for the fine or penalty assessed against such party
by the FAA, provided that:
(i) MDC gives Subcontractor prompt notice (within three (3)
Business
Days after MDC receives a letter of investigation from the
FAA or
three (3) Business Days after MDC's receipt of a fine or
notice of
a pending fine, whichever occurs first) of any fine or pending
fine and promptly furnishes to Subcontractor copies of all
papers
served upon or received by such party relating to such fine;
provided, however, that a failure by such party to comply with
this Paragraph 18.B.1)(i) shall not relieve Subcontractor
of its
obligations under this Section 18.B except to the extent
Subcontractor's rights have been adversely affected by such
failure of such party; and, such party cooperates fully with
Subcontractor in the defense, including giving to
Subcontractor
all data, documents and information within such party's
possession
or knowledge that is material to the defense, all of which
shall
be at the expense of Subcontractor.
19) INSURANCE
A. Coverage
1) Prior to the commencement of the Services, Subcontractor
shall provide MDC evidence of satisfactory insurance coverage.
Said
insurance coverage shall:
a) be maintained at Subcontractor's expense at all times
during the
term of this Agreement and for a period of five (5) years
thereafter;
b) name MDC and their respective employees, officers,
directors, representatives and agents as additional insureds
under Subcontractor's third party liability insurance,
excluding
gross negligence and willful misconduct of MDC;
c) name Federal Express and their respective employees,
officers, directors, representatives and agents as additional insureds
under Subcontractor's third party liability insurance excluding
operational liability, gross negligence and willful misconduct of
Federal Express;
d) contain a severability of interest clause;
e) provide that the insurance is primary and without
contribution from other insurance which may be available
to the
additional insureds; and,
f) include the following insurance in the amounts noted:
(i) Aviation Comprehensive Liability Insurance with a
combined single
limit of liability of not less than Three Hundred
Million U.S.
Dollars ($300,000,000.00) for Bodily Injury and
Property Damage
under Products Liability, Completed Operations
Coverage and
Premises Operation Liability;
(ii) Hangar Keeper's Liability Insurance providing property
damage coverage with limits of liability of Three
Hundred Million
U.S. Dollars ($300,000,000.00) per occurrence; and
(iii) Worker's Compensation as required by applicable
law and
Employer's Liability Insurance of not less than One
Million U.S.
Dollars ($1,000,000.00) per occurrence unless a
greater amount is
required by law.
B. All insurance coverage set forth in Paragraph A above shall:
1) contain a waiver of subrogation by Subcontractor's insurers
of any rights they may have against MDC, Federal Express and
their respective employees, officers, directors, representatives,
agents and subcontractors; and
2) contain a clause which states, except for war risks, that
any cancellation, restriction or reduction in coverage shall only
be effective upon thirty (30) days' written notice to MDC and
Federal Express of such cancellation, restriction or reduction in
coverage.
C. Subcontractor shall assume the risk of loss or
damage to an Aircraft or equipment resulting from
the negligence or intentional acts or
omissions of
Subcontractor or Sub-Subcontractors for the
period beginning with Delivery and ending with the
Redelivery of such Aircraft or equipment at the
Conversion
Facility, provided that risk of loss or damage
to Aircraft shall pass to MDC for the period that
such Aircraft is operated by MDC prior to the
Redelivery of the Aircraft. As between MDC and
Subcontractor, the risk of loss or damage to an
Aircraft or equipment in all other cases remains
with MDC.
D. Letter of Credit
In addition to the insurance coverage
outlined above, the Subcontractor shall provide
MDC with an irrevocable letter of credit from
a financial institution acceptable to MDC. Such
letter of credit shall be in the form attached
hereto as Exhibit Z and shall be in the following
amounts:
1. 3/10/97 to 3/09/98 $3,000,000
2. 3/10/98 to 3/09/99 $3,000,000
3. 3/10/99 to 3/09/2000 $3,000,000
MDC's realization of the Letter of Credit
proceeds is limited to the occurrence of MDC's
exercise of its rights of termination for default as
defined in Article 21-B.1 (a) of the Agreement.
The redemption and resulting proceeds of the
letter of credit shall be offset against any
amounts due MDC in accordance with Article
21.
20) INSPECTION, DEMONSTRATION, ACCEPTANCE AND DELIVERY
A. Inspection and Demonstration
1) The performance of the Services by Subcontractor and all
materials and Parts procured by Subcontractor for this purpose as
well as log books, records and all other documentation may be
inspected by MDC's and/or Federal Express' Representatives during
normal business hours at the Conversion Facility. All
inspections
by MDC's and/or Federal Express' Representatives shall be made in
such a way that the performance of the Services is not hindered
or
delayed.
2) Subcontractor will perform all functional tests and
inspections required in order to comply with this Agreement, the
Specifications and the FARs. Such tests will be performed, as
appropriate, inside or outside the hangar, and Subcontractor
shall
provide the schedule of the performance of any tests or
inspections to MDC's Representative. The results of these tests
will be provided in writing upon request to MDC and Federal
Express, and at no additional charge to MDC or Federal Express.
MDC and Federal Express shall have the right, but not the
obligation, to observe on a non-interference basis the
performance
of such inspections and tests. MDC's or Federal Express'
inspection of an Aircraft prior to Redelivery shall not
constitute
an acceptance of Services not performed in accordance with this
Agreement nor shall it release Subcontractor from its obligation
to render the Services or Additional Services free from defects.
It is further agreed that observance of or participation in such
inspections and tests by MDC shall not be deemed to constitute
an
acceptance by MDC hereunder.
3) MDC's representatives, at any time prior to tender for
technical acceptance of the Aircraft involved (as described in
this Article), may request correction of Parts, or Services
which
they believe (a) are not in accordance with the Specifications or
Subcontractor's standard engineering and quality manuals or (b)
have material or workmanship which, if the Aircraft were
Redelivered and were within the applicable warranty period,
would
entitle MDC and/or Federal Express to warranty correction under
Article 8. MDC shall promptly notify Subcontractor after it
discovers any such nonconformance. Subcontractor shall correct
or
replace all such Parts, Services or workmanship which are brought
to its attention and mutually determined to be nonconforming.
4) Subcontractor shall perform all such procedures (including,
without limitation, correction of discrepancies resulting
from the
Services or Additional Services) upon completion of the Services
or Additional Services with respect to an Aircraft as required by
the applicable manufacturer's manuals, as well as applicable FARs
(tests required to be performed by Subcontractor are referred to
as the "Subcontractor Tests"). If mutually agreeable, flight
tests
required by this Article 20 may be performed on the same flight
as
MDC's Acceptance Tests, unless required otherwise by the FAA or
MDC.
B. Technical Acceptance
1) The Aircraft shall be tendered to MDC for Technical
Acceptance ("Technical Acceptance") after all Services and all
required tests have been completed in accordance with the
Specifications and the Schedule.
2) For Aircraft upon which the Services has been performed, an
acceptance procedure, including ground functional and flight
test(s), shall be performed on each Aircraft by MDC and/or
Federal
Express and shall be conducted in accordance with MDC's standard
PFPM and such other procedures as mutually agreed. Subcontractor
shall not be required to provide special instrumentation for this
Technical Acceptance procedure. MDC and/or Federal Express shall
have complete control of all test flights and shall bear all
costs
and expenses incident to Technical Acceptance of an Aircraft.
3) MDC agrees to complete all inspections and testing
authorized or permitted under this Article during the Technical
Acceptance Period. MDC shall technically accept the Aircraft if
it meets the requirements of the Specifications and this
Agreement. Notwithstanding the provisions of this Paragraph, if
at the time an Aircraft is tendered by Subcontractor to MDC for
Technical Acceptance such Aircraft does not fully comply with the
Specifications or any other requirement of this Agreement, MDC
may, at its option, (i) accept such Aircraft after receiving
Subcontractor's written agreement (prior to acceptance of such
Aircraft by MDC) as to the manner and time such Aircraft will be
corrected by Subcontractor (or agreement on such other disposition
of deficiencies as MDC and Subcontractor agree), or (ii) refuse to
accept the Aircraft until such time as the Aircraft has been
corrected by Subcontractor. If MDC fails to conduct and to
complete its Technical Acceptance within the Technical Acceptance
Period which shall not exceed fifteen (15) days, the Aircraft
shall be deemed to have been technically accepted by MDC on the
scheduled Redelivery Date after tender as if MDC had expressly
indicated its Technical Acceptance as noted above. If during the
Technical Acceptance Period MDC determines and notifies
Subcontractor that there is a noncompliance with the
Specifications or this Agreement, the Technical Acceptance Period
shall be suspended until (i) Subcontractor corrects the
noncompliance or (ii) the condition is resolved to the
satisfaction of MDC and Subcontractor. Unless otherwise agreed,
within two Business Days after Technical Acceptance pursuant to
Paragraph B.2. or B.3. above, MDC shall accept Redelivery of the
Aircraft by endorsement of a Certificate of Technical Acceptance
for such Aircraft. MDC will designate, in writing, its
representative for the purpose of executing the Certificate of
Technical Acceptance.
C. Subcontractor Correction of Discrepancies.
1) Upon completion of the Subcontractor Tests and the
Acceptance Tests, Subcontractor shall, at no cost to MDC, promptly
correct any defects or discrepancies in the Services or Additional
Services performed by Subcontractor identified by Subcontractor or
MDC during the Subcontractor Tests or Acceptance Tests.
Additional Subcontractor Tests and Acceptance Tests shall be
performed at Subcontractor's expense (except for the cost of MDC's
flight crew) solely to inspect its correction of the defects or
discrepancies related to such Services or Additional Services
previously identified. In the event any additional defects or
discrepancies in the Services or Additional Services performed by
Subcontractor are noted during any required additional
Subcontractor Tests or Acceptance Tests (or if the original
defects or discrepancies are not satisfactorily corrected),
Subcontractor shall correct such defects or discrepancies at its
expense, and, as necessary, further Subcontractor Tests and
Acceptance Tests shall be performed at the expense of
Subcontractor until all defects or discrepancies related to such
Services or Additional Services have been corrected to meet the
requirements of this Agreement and the Specifications.
2) If other systems or components of the Aircraft are adversely
affected by Subcontractor's performance of the Services or
Additional Services and discrepancies pertaining to such systems
or components are identified by the Acceptance Tests,
Subcontractor shall restore such affected systems or components to
a serviceable condition in accordance with the applicable
Maintenance Manual. For discrepancies discovered during
Redelivery flight testing, MDC is responsible for providing
replacement items or equipment on systems unchanged by the
Services (e.g. items simply removed and reinstalled as part of the
Services). Subcontractor shall be responsible for the labor
only to correct these discrepancies except that labor for
engines
shall be the responsibility of Federal Express unless the
cause
can be attributed to the Services performed by Subcontractor.
Subcontractor shall be responsible for labor and material
associated with the correction of all other discrepancies
discovered at Redelivery flight testing.
21) DEFAULT AND REMEDIES
A. Events of Default
1) The occurrence of one or more of the following events of
default (the "Events of Default") shall entitle the
nondefaulting
party to exercise those rights and remedies described in this
Article:
a) If either party shall be in default in a material respect in
the performance of any of its material obligations
referred to in
this Agreement, (including, but not limited to any delay
in the
Delivery or Redelivery of any Aircraft which is not due to
an
Excusable Delay), which default shall continue uncured for a
period of thirty (30) days following written notice from
the other
party, unless a default is not capable of being cured
within such
thirty (30) day period, in which case such default shall not
constitute an Event of Default if the defaulting party
provides to
the other adequate assurance of its ability to cure such
default
and diligently undertakes its best efforts to cure such
default
and actually cures such default within sixty (60) days
following
the aforementioned initial written notice of default.
Notwithstanding the foregoing, Subcontractor agrees that
with
respect to defaults not due to an Excusable Delay, the cure
periods with respect to any twelve-month period shall be
thirty
(30) days for the first default, fifteen (15) days for
the second
default, and zero (0) days for any subsequent defaults in
such
twelve-month period.
b) If either party shall file a voluntary petition in
bankruptcy, or shall be adjudicated bankrupt or
insolvent or shall
file any petition or answer seeking any reorganization,
composition, readjustment, liquidation or similar relief
for
itself under any present or future statutes, law or
regulation of
the United States, or shall seek consent to or acquiesce
in the
appointment of any trustee, or shall make any general
assignment
for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become due;
or
c) If a petition shall be filed against either party seeking
any reorganization, composition, readjustment, liquidation or
similar relief under any present or future statute, law or
regulation of the United States and shall remain undismissed or
unstayed for an aggregate of sixty (60) days (whether or not
consecutive), or if any trustee, receiver or liquidator of
either party is appointed, which appointment shall remain
unvacated or unstayed for an aggregate of sixty (60) days
(whether or not consecutive);
d) If either party fails to make payments in the amounts and
under the terms defined in this Agreement and such failure
is not
cured within five (5) business days following written
notice from
the other party; or
e) Subcontractor experiences a material change in management
adversely affecting its ability to perform.
2) Any notice of default shall specifically state that it is a
notice of default and shall describe the default asserted and set
forth the provision(s) of the Agreement asserted to be in
default.
3) Notwithstanding the foregoing, no default shall be deemed to
have occurred under Paragraph 1. above if the party from which
payment or performance is required: (a) reasonably disputes that
a payment or performance is required or the amount of the payment
required, (b) pays or performs that portion not in dispute, (c)
within the cure period provided, responds to the other party in
writing, detailing the reasons for its position, and (d)
diligently pursues a resolution of the dispute thereafter. This
provision shall not be applicable to default in the Redelivery of
Aircraft.
B. General Remedies
1) Upon the occurrence of an Event of Default by Subcontractor,
MDC shall be entitled to:
a) terminate this Agreement in its entirety;
b) cancel all or a portion of its commitments for Services or
Additional Services;
c) reschedule Subcontractor's performance of any or all of the
Services;
d) recover all amounts required to have the Services completed
by another person (including MDC itself), less (1) the
cost of all
materials purchased by Subcontractor hereunder and either
delivered to MDC or used in the performance of the
Services by
such other person and (2) the labor costs of Subcontractor
incurred in connection with the performance of the
Services prior
to the occurrence of the Event of Default but not
previously paid
for by MDC and provided that MDC shall use commercially
reasonable
efforts to mitigate the damages for which Subcontractor
is liable
under this Paragraph 21.B.1)d); and/or
e) pursue all other remedies available at law or in equity in
addition to those set forth in this Agreement, all of which
remedies shall be cumulative and not exclusive.
2) In addition to the foregoing, and notwithstanding any other
provision of this Agreement, in the event MDC or Federal Express
terminates this Agreement for default, Subcontractor shall
immediately make available to MDC any Aircraft or equipment of
MDC
in Subcontractor's possession so that MDC may take possession of
such Aircraft, tooling, MDC/Federal Express owned parts and
equipment.
3) Upon the occurrence of an Event of Default by MDC,
Subcontractor shall be entitled to:
a) terminate this Agreement in its entirety;
b) cancel all or a portion of its commitments for Services or
Additional Services;
c) reschedule any or all of the Services or Additional
Services;
d) retain any and all sums theretofore paid by MDC; and/or
e) pursue all other remedies available at law or in equity in
addition to those set forth in this Agreement, all of which
remedies shall be cumulative and not exclusive.
4) In the event MDC terminates this Agreement pursuant to
Paragraph 21.B.1)a) above, Subcontractor hereby agrees, in the
alternative, and in lieu of any other remedies for Default
provided for under this Agreement and at law or equity to:
a) sell to MDC any requested complete or incomplete Parts,
equipment and/or Kits required by MDC to have the Services
performed on the Incomplete Aircraft by an alternative
vendor
(including MDC itself). The purchase price ("Purchase
Price") for
any such Kits, complete Parts and/or equipment shall be
the price
of such Kits, Parts and/or equipment to be charged to MDC
under
this Agreement. The purchase price for incomplete Parts
shall be
Subcontractor's direct recurring production cost, excluding
profit, of such incomplete Parts. In the event that MDC
does so
elect to purchase any Kits as described in this Paragraph
21.B.4)a), then` Subcontractor agrees, upon the request of
MDC, to
complete the production of any such Kits manufactured by
Subcontractor, and to deliver the completed Kits to MDC as
soon as
commercially reasonably possible. MDC shall have no
obligation to
pay Subcontractor for any such Kits, Parts or equipment
purchased,
until such time as Subcontractor has delivered the
applicable
Kits, Parts or equipment to MDC. In the event of the
purchase of
Kits, Parts or equipment by MDC under this Paragraph
21.B.4)a),
the Subcontractor warranties provided
in this Agreement shall apply and be in effect. MDC
shall notify Subcontractor as to the exercise of
its option provided in this Paragraph 21.B.4)a), by
no later than thirty (30) days following MDC's
notice of termination to Subcontractor.
b) Subcontractor shall also provide, at no charge to MDC,
reasonable technical or other assistance required by MDC
to have
the Services performed on the Incomplete Aircraft by an
alternative vendor (including MDC itself) and rent to MDC
all
tooling required to have the Services performed on the
Incomplete
Aircraft by an alternative vendor (including MDC itself)
which
tooling shall be made available to MDC as soon as
available after
the request of MDC, but in any event by no later than
sixty (60)
days after such request.
22) PRODUCT SUPPORT
Subcontractor agrees to maintain capability consistent with
or better than the capability on the date of this
Agreement to respond to MDC's technical inquiries,
to conduct
investigations concerning repetitive maintenance
problems and issue findings and recommended action.
This service shall be provided for as long as five (5)
of the Aircraft remain in commercial air
transport service.
Any
investigations which Subcontractor reasonably, normally
and customarily deems to be extensive and require more
than routine effort by Subcontractor's personnel shall
be the subject of separate contractual negotiations.
23) OUTSIDE SERVICES
A. Use of Sub-Subcontractors
Subcontractor may have any of the Services
or Additional Services performed by Sub-
Subcontractors subject to
the prior written approval of MDC.
Additionally, Subcontractor's use of Sub-
Subcontractors shall be subject in all respects to
any required FAA approval including, but not limited
to, the approval of such Sub-Subcontractor by the
FAA principal inspector assigned to MDC, if
required.
B. Subcontractor Relationship
Nothing in this Agreement or otherwise shall create
any contractual relationship between MDC and any
SubSubcontractor and no subcontract entered into
relating to any part of Subcontractor's obligations
hereunder shall relieve subcontractor of its
obligations to MDC hereunder, it being agreed that
Subcontractor shall be primarily liable to MDC for
the performance of its obligations hereunder
regardless of
whether
Subcontractor elects to have any portion of
such obligations performed by a Sub-Subcontractor.
C. Payment to Sub-Subcontractors
Subcontractor's obligation to pay its
Sub-
Subcontractors is an independent obligation from
MDC's obligation to pay Subcontractor, and MDC shall
have no obligation to pay or to see to the
payment of any moneys to any Sub-Subcontractor.
Further, MDC's withholding of payments in
accordance with this
Agreement shall not be grounds for Subcontractor
to withhold payments properly due its Sub-
Subcontractors.
D. Sub-Subcontract Service Requirements
It is a condition of this Agreement that all
SubSubcontract Services shall be performed in
compliance with the requirements of this
Agreement,
the
Specifications, any applicable ASR Forms, FARs and
the FAA and any other regulatory agency or
governmental
body having jurisdiction over such Sub-
Subcontract Services.
24) RECORDS
A. Previous Maintenance Records
Prior to the Delivery of each of the Aircraft by MDC
to Subcontractor, whether such Aircraft has been on a
United Airlines, American Airlines or a Federal
Express storage maintenance schedule, MDC shall
ensure that the relevant and available maintenance
records for such Aircraft are made available to
Subcontractor.
B. Recordkeeping
1) Subcontractor shall maintain the following records on the
Services and shall provide to MDC at the time of Redelivery of an
Aircraft all original records or copies of records, as
appropriate, on forms supplied by MDC acceptable to the FAA
and in
accordance with the GMM and FAR 43 and 145:
a) component teardown finding reports as required by the FAA;
b) serviceable tags for components;
c) discrepancy reports;
d) documents describing tests and inspections, including test
result data, performed by Subcontractor, if any;
e) photographs of unusual conditions or catastrophic failures;
f) work task cards related to the performed aircraft
maintenance and/or modifications;
g) reports such as aircraft weighing reports, engine trimming
and run up reports, ground and flight test reports and other
special reports;
h) Aircraft Delivery and Acceptance Receipts;
i) summary list of alterations;
j) all engineering orders performed and all Engineering Order
Work Instruction Cards;
k) loose equipment inventory list;
l) Special or non-routine document and Aircraft Maintenance Log
pages;
m) FAA Form 337;
n) Engineering Authorizations and Fleet Campaign Directives
(FCDs) accomplished by Subcontractor; and
o) Complete Master Job Control sheets which account for all
routine and non-routine paperwork including Work Task Cards,
special or non-routine form document, special or non-routine
index form FEC-M-1810, Aircraft Maintenance Log pages and
components serviceable/repairable tags provided or generated
during each Aircraft visit.
2) Subcontractor shall assist MDC in maintaining all records
required by the FAA and the GMM.
3) Subcontractor shall deliver the original or copy, as
applicable, installation sign-offs of all Services and all
records which substantiate the Services to MDC not later than
Redelivery of an Aircraft to MDC by Subcontractor. All other
records shall be delivered to MDC within thirty (30) days
following such Redelivery.
4) If requested in writing to Subcontractor all data including,
but not limited to, Technical Data which is not otherwise
specified in this Agreement, and which is required by the FAA to transition
Aircraft into revenue service, will be provided by Subcontractor to MDC as soon
as practicable with a goal of five (5) days after receipt of the request.
C. Aircraft Modification Records
MDC and Subcontractor shall use and comply with the
Aircraft modification documents as required by
the Specifications. All entries in the
Aircraft modification and maintenance records
shall be in accordance with the GMM.
25) ONSITE REPRESENTATION
A. On-Site Personnel
1) MDC and Federal Express shall have the right to place at the
Conversion Facility up to sixty (60) representatives, or more
than
sixty (60), if mutually agreed by both parties (who may be
employees or agents of MDC and Federal Express), for the purpose
of monitoring the progress of the Services and Additional
Services
on the Aircraft ("On-Site Personnel"), including but not limited
to representatives from the following areas in such numbers as
are
reasonably required by MDC and Federal Express:
a) Quality Control;
b) Engineering and Modification Planning;
c) Material;
d) Fleet Development.
2) In addition to the On-Site Personnel, MDC and Federal
Express shall have the right to place at the Conversion Facility
representatives of suppliers and vendors reasonably required by
MDC or Federal Express and approved by Subcontractor.
B. Subcontractor's Accommodations
1) Subcontractor shall furnish, at no cost to MDC, Federal
Express or their respective Personnel, standard office
accommodations at the Conversion Facility as required by MDC, and such
accommodations shall include:
a) suitable standard office space and furnishings, including at
least thirty (30) private air-conditioned offices or
cubicles,
all in reasonable proximity to the Aircraft;
b) a minimum of sixty (60) telephones with outside line access;
computer and modem terminal connections in each office;
c) conveniently located copy and facsimile machines;
d) secretarial support during normal business hours;
e) file cabinets not to exceed [TBD] four drawer cabinets; and
f) other office accommodations mutually acceptable to MDC and
Subcontractor.
2) MDC shall bear the expense of all long distance telephone
calls, under this Agreement, including telex and facsimile,
placed by MDC's personnel, representatives or MDC's Customers.
3) Subcontractor shall have no responsibility to pay any
salaries, lodging, travel or food expenses or any other personal
or business expenses relating to such personnel except as
expressly stated in this Article.
26) CERTIFICATION
The Services, and each Aircraft upon which the Services have
been performed, shall at the time of Redelivery meet the FAA
requirements for airworthiness certification and be so certified
under all the conditions set forth in the Specifications.
27) TITLE
A. At all times during the accomplishment of the Services,
title to each of the Aircraft, shall remain with its registered
owner.
B. Federal Express or Federal Express' lessor shall at all
times have full legal title and beneficial ownership in and to
the Aircraft. Subcontractor shall have no independent possessory
right in the Aircraft except as created hereby. Subcontractor
shall: (a) be responsible for any mechanic's or similar liens
created pursuant to the Services or Additional Services being
performed hereunder and any liens associated with the flights
contemplated herein other than in respect of any such liens
arising from any act or failure to act by MDC; and (b) remove any liens
arising during and related to Subcontractor's possession of the Aircraft
pursuant to the terms of this Agreement. At all times while any Aircraft is
in the possession and control of Subcontractor under this Agreement,
Subcontractor shall use reasonable efforts to identify such Aircraft,
including but not limited to material components or parts that are not
attached to
or installed on such Aircraft, as owned by Federal Express. To
the extent commercially reasonable, any material components or
parts removed from an Aircraft will not be commingled with any
components or parts not owned by Federal Express.
C. Subcontractor acknowledges and agrees that the Aircraft are
owned by Federal Express Corporation. In the event of any
dispute between MDC and Subcontractor hereunder, Subcontractor
agrees that the Aircraft will be released on schedule, without
the assertion of any possessory rights by Subcontractor,
regardless of such dispute. Subcontractor agrees to waive and
hereby waives, to the maximum extent permitted by law, any and
all liens, charges and claims against the Aircraft.
Subcontractor hereby grants to MDC an irrevocable power of
attorney for the purpose of releasing any such liens, charges and claims, which
power of attorney is coupled with an interest.
28) QUALITY AND STANDARDS
A. Quality Assurance
1) Subcontractor shall assist MDC and shall follow MDC's
instructions consistent with FAA repair station requirements in
maintaining and executing quality assurance procedures to assure
that Subcontractor's workmanship and materials are consistent and
in accordance with standard aircraft manufacturing and repair
practices as set forth in all applicable FARs and the GMM.
Additionally, any Sub-Subcontractor of Subcontractor must be
approved by MDC's Quality Audit Department prior to the
commencement of Services and at all times during the period on
which Services hereunder are being performed.
2) MDC shall have the right to inspect and audit any work
performed for the purpose of monitoring compliance with FAA
regulations and quality assurance standards deemed applicable by
MDC. Subcontractor shall in no way be relieved of its
responsibilities for assisting MDC in ensuring aircraft
airworthiness and compliance with appropriate quality assurance
standards.
3) All inspections and audits by MDC's Representative shall be
performed in such a manner as to not delay or hinder the
performance by Subcontractor or its Sub-Subcontractors of its
obligations under this Agreement.
29) PUBLIC DISCLOSURE
A. Each party covenants and agrees that it shall not disclose
the terms of this Agreement or any agreement amending this
Agreement to third parties except as required by law or any third
party in connection with any transaction for the financing of one
or more of the Aircraft. In the event such disclosure is required
by law or required for any third party in connection with any
transaction for the financing of one or more of the Aircraft, each
party further agrees to attach to each page of this Agreement and
supplemental agreements, if any, the following legend:
"This document contains trade secrets and commercial, financial
and proprietary information which are privileged and
confidential and which shall not be disclosed to any person,
governmental agency, company, corporation or other party except
as such disclosure
is required by law."
B. Each party agrees to notify the other party in writing of
any such disclosure they intend to make at least five (5) Business
Days in advance of the date the notifying party is required to
make the disclosure. Further, both parties agree to follow any
other or additional commercially reasonable procedure, if any,
necessary to protect this Agreement or any agreement amending this
Agreement from disclosure to third parties.
C. Subcontractor and MDC shall in each instance obtain the
prior written approval of the other concerning the exact text
and
timing of any and all news releases, articles, brochures,
advertisements, prepared speeches and other informational
releases concerning this Agreement or the Services provided
hereunder, except to the extent required by law.
30) MISCELLANEOUS
A. Independent Contractor
Subcontractor is an independent contractor
and personnel used or supplied by Subcontractor
in
performance of this Agreement shall be and
remain employees or agents of Subcontractor, and
under no circumstances are such personnel to be
considered employees or agents of MDC. Subcontractor
shall have the sole responsibility for supervision
and control of its personnel. Each party assumes
full responsibility for any and all liability on
account of bodily injury to or death of any of its
own employees occurring in the course of their
employment. Each party, with respect to its
own employees, accepts full and exclusive
liability in the payment of Worker's
Compensation or employer's liability insurance
premiums and for the payment of all taxes,
contributions, or other payments for unemployment
compensation or old age benefits, pensions
or annuities imposed by any
government or agency having jurisdiction.
B. Article Headings and Captions
All Article headings and captions used in
this Agreement are for convenient reference and
shall not affect the interpretation of this
Agreement.
C. Compliance with Laws
Both parties agree that in the performance of
this Agreement they will comply with all
applicable
statutes, rules, regulations and orders of the
United States, or of any state, other political
subdivision or agency thereof, including, but not
limited to, laws and regulations pertaining to
safety and other conditions of employment.
D. Exhibits
All Exhibits described in this Agreement shall
be deemed to be incorporated herein and made a
part of this Agreement, except that if there
is any inconsistency between this Agreement and the
provisions of any Exhibit, the provisions of this
Agreement shall control.
E. Entire Agreement
This Agreement supersedes all prior
understandings, representations, negotiations and
correspondence between the parties and
constitutes the entire agreement between the
parties with respect to the transaction
contemplated herein and, except as
otherwise provided, shall not in any manner
be
supplemented, amended or modified by any course
of dealing, course of performance or usage of trade
or by any other means except by a written instrument
executed on behalf of the parties by their duly
authorized officers or officials, as applicable.
F. Legality of Provisions
If any provision of this Agreement shall be held to
be invalid, illegal or unenforceable, the
validity, legality and enforceability of the
remaining provisions shall not in any way be affected
or impaired thereby.
G. No Waiver
The failure of either Party to enforce at any time
any of the provisions of this Agreement, or to
exercise any option herein provided, or to require
at any time performance by the other Party of any
of the provisions
hereof, shall in no way be construed to be a present
or future waiver of such provision, nor in any way
affect the validity of this Agreement or any part
hereof, or the right of the other Party at any
time to enforce each and every provision hereof.
Without limiting any of the foregoing, the waiver
(whether one or more times) by either Party of
any provision, condition or requirement of this
Agreement shall not constitute a waiver of any
future obligation to comply with such provision,
condition or requirement.
H. Further Assurances
Each party agrees that it will take such
actions, provide such documents, do such things and
provide such further assurances as may reasonably be
requested by the other party during the term of
this Agreement. Each party agrees to provide to the
other, from time to time, such generally available
financial information as the other party may
reasonably request to determine their respective
ability to perform obligations under this Agreement
including, but not limited to, an annual financial
statement during each year of the term.
I. Survival
In addition to any other provisions in this
Agreement which by their terms shall survive this
Agreement, the obligations and duties set forth in
Articles 4, 6, 8, 9, 10, 14, 19, 27 and 30 shall
survive the expiration or earlier termination of this
Agreement.
J. Amendment
Except as otherwise provided, this Agreement shall
not be amended or modified except by written
agreement signed on behalf of MDC's and
Subcontractor's respective authorized officers.
K. Conflict
In the event of any conflict or inconsistency
between any provisions of Articles 1-33 of this
Agreement and the Specification or any other
Exhibit or document attached hereto or
incorporated herein, the provisions of this Agreement
shall control.
31) AFFIRMATIVE ACTION
A. Subcontractor's Responsibilities
1) To the extent applicable, Subcontractor agrees to comply
with the affirmative action requirements applicable to contracts
with U.S. government contractors as set forth in Title 41 of the
Code of Federal Regulations. The provisions of said regulations
are incorporated by reference into this Agreement.
2) Prior to performance of the Services, Subcontractor shall
provide evidence satisfactory to MDC that Subcontractor has in
place an Anti-Drug and Alcohol Program for its employees and the
employees of subcontractors who perform safety-sensitive or
security related services in compliance with 14 C.F. R. 121.429,
121.455, 121.457, 121.458, 121.459 and Appendix I and Appendix J
to 14 C.F.R. Part 121 If at any time during the term of this
Agreement MDC or the FAA discovers, and the FAA determines that
Subcontractor, its employees or Sub-Subcontractors are not in
full
compliance with 14 C.F.R. 121.429, 121.455, 121.457, 121.458,
121.459 and Appendix I and Appendix J to 14 C.F.R. Part 121, and
as a result of such determination the FAA Administrator issues an
order suspending or revoking MDC's or Subcontractor's or its Sub-
Subcontractor's repair station certificate, then MDC shall have
the right, in addition to any and all other remedies at law or in
equity, to immediately terminate the Agreement for default
(without regard to any cure periods set forth with regard to
default in this Agreement) and secure a replacement contractor.
Subcontractor acknowledges that MDC has entered into this
Agreement in reliance on Subcontractor's representation that
it is in compliance with the requirements of the Federal Aviation
Administration's drug and alcohol testing requirements for the
aviation industry.
3) Subject to the provisions of Article 9 of this Agreement,
Subcontractor agrees to indemnify, and defend and hold harmless
MDC, its officers, directors and employees from and against any
and all claims, liabilities, losses and expenses (including
reasonable attorneys' fees) arising in connection with
Subcontractor's failure to comply with the provisions of this
Article.
32. TERMINATION FOR CONVENIENCE
A. MDC may terminate in whole or in part performance
of work on any of the firm Aircraft or any Aircraft
for which an option has been exercised under this
Agreement if MDC determines that a
termination is in its
interest. MDC shall terminate by delivering
to
Subcontractor a "Notice of Termination", specifying
the extent of termination and the effective date.
B. Upon receipt of the Notice, Subcontractor
is
obligated to perform the following actions:
1) Stop Work as specified in the Notice.
2) Place no further Sub-Subcontracts
or orders except as provided in the Notice
of
Termination and as authorized by MDC.
3) Terminate all existing Sub-
Subcontracts to the extent they relate to the
work terminated.
4) As directed by MDC, transfer title
and
deliver to MDC the fabricated or not
fabricated parts, work in process, completed
work, supplies or other material produced or
acquired for the work terminated.
5) Return, as soon as practicable,
the tools, equipment, MDC/Federal Express
furnished material and all other property
owned by
MDC/Federal Express used by Subcontractor in
the performance of the contract.
C. Upon issuing a Notice of Termination, MDC will
be
obligated to reimburse Subcontractor as follows:
1) Time and material repayment for all
work
performed as authorized by MDC but not
yet
invoiced to MDC, at an agreed-to rate of
$41.00 per hour including any other work
authorized under ASRs, plus
2) If the Notice of Termination was
issued
with respect to any of the initial twelve
(12) firm Aircraft, the lesser of $3,200,000
or the actual
costs of plant shutdown and reactivation
over the following six (6) months, to
include: employee severance and related fringe
benefits; plant maintenance and utilities;
facility rent and depreciation
of leasehold improvements;
replacement employee acquisition and
relocation; and other non-recurring plant
shutdown and
reactivation costs. No payment shall be
made pursuant to this subparagraph (C)
(2) for
terminations of related to exercised options.
D. Payment of termination settlements are
as
follows:
1) Time and material reimbursement for
work
performed and authorized by MDC, but not
yet invoiced is payable to Subcontractor thirty
(30) days after receipt of an approved invoice by
MDC.
2) The remaining Termination
for
Convenience costs are reimbursed as follows:
a. An initial installment
of
$1,000,000 is to be paid ten (10) days
after the receipt of Notice of Termination.
b. The second installment
of
$1,000,000 is to be paid thirty (30)
days after MDC's receipt of MDC/Federal
Express furnished tools and materials not
required for work in process.
c. The final payment
representing remainder of the value
defined in 32.C(2) above, shall be paid
within 240 days of the receipt of the
Notice of Termination,
provided that all MDC/Federal
Express
furnished material, tooling, and
aircraft with work in process are returned
within 180 days from the date of
the Notice of Termination or per MDC's
direction, whichever is sooner.
d. In the event that the
actual
costs of plant shutdown and
reactivation described in Paragraph 32.C.2
above are less than $3,200,000, the
amount of any overpayment shall
be refunded by Subcontractor to MDC
within five (5) Business Days, with
interest from the date of such
overpayment.
33. PARENT COMPANY GUARANTEE
Subcontractor agrees to deliver to MDC within ten
(10) business days following execution of this
Agreement the Parent Company guarantee in the form
attached hereto as Exhibit Y, executed by a duly
authorized representative of its parent company,
Sabreliner Corporation.
34. DOCUMENTS INCORPORATED INTO MODIFICATION SERVICES
AGREEMENT The following documents are hereby
incorporated into and made a part of this Agreement.
Copies of actual documents are enclosed with this
Agreement.
A. Quality Assurance, MD-10 Program, Statement of
Work,
October 10, 1996
B. Seller DATA Requirements List (SDRL)
Administrative & General Provisions
DATA ITEM NO. TITLE
P-313 SUPPLIER MASTER SCHEDULE and
MONTHLY STATUS REPORT P-313A
PROBLEM REPORTS
P-336 KEY PERSONNEL
DATA ITEM NO. TITLE
Q-327 QUALITY ASSURANCE PLAN -
HARDWARE
Q-328 LOWER-TIER SUPPLIER DATA
REQUIREMENTS
M-306A PRODUCTION/MANUFACTURING/
ASSEMBLY MANAGEMENT PLAN M-
311 PACKING DATA
C. Section 1.8, Manufacturing Requirements
D. Section 1.9, DAC Document C652-74916-TDSI
35. EXHIBITS
The following Exhibits are hereby incorporated into and made
a part of this Agreement.
NO. EXHIBIT TITLE
-- A RECONFIGURE FOR DELIVERY COMMERCIAL AIRCRAFT
STATEMENT OF WORK
(95- B PASSENGER TO FREIGHTER (P-F) CONVERSION
051)
(95- C STANDARDIZATION
053)
-- D RESERVED
-- E RESERVED
(95- F REFURBISH & RESTORATION (SUPERMOD) PKG
056)
(96- G MAIN DECK CARGO LOADING SYSTEM
024)
NO. EXHIBIT TITLE
(96- H INITIAL HEAVY MAINTENANCE CHECK
044)
(96- I RIGID CARGO BARRIER AND FORWARD COURIER AREA
051)
(96- J LOWER DECK CARGO LOADING SYSTEM
052)
-- K ATTACHMENT B-1 THRU B-5
-- L RESERVED
-- M RESERVED
-- N RESERVED
-- O RESERVED
-- P MDC (FEDERAL EXPRESS) SUPPLIED PARTS LISTING
-- Q AIRCRAFT DELIVERY RECEIPT
-- R CERTIFICATE OF ACCEPTANCE AND REDELIVERY
-- S ADDITIONAL SERVICES REQUEST -- AUTHORIZATION
FORM
-- T SUPPLIER CHANGE PROPOSAL (SCP), DAC 26-710
(REV. 7-88)
-- U SUPPLIER REQUIREMENTS SCHEDULE
-- V PRICE ADJUSTMENTS FOR FLUCTUATIONS IN THE
ECONOMY
-- W PRICING
-- X MDC FURNISHED TOOLING
-- Y PARENT COMPANY GUARANTEE
-- Z LETTER OF CREDIT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed, as of the date first above, by their officers or agents
there unto duly authorized.
DIMENSION AVIATION, INC.
BY: /S/ THOMAS F. DERIEG
2/14/97
ITS: THOMAS F. DERIEG
TITLE: V.P. AND GENERAL
MANAGER
MCDONNELL DOUGLAS CORPORATION
BY: /S/ TIMOTHY T. KUBOSHIGE 2/14/9
ITS: TIMOTHY T. KUBOSHIGE
TITLE: DIRECTOR, SUPPLIER
MANAGEMENT - PRODUCT SUPPORT
EXHIBIT 10(4)
MODIFICATION SERVICES AGREEMENT
BETWEEN
MCDONNELL DOUGLAS CORPORATION AND
DIMENSION AVIATION, INC.
MSA-FRI-SF-97-00
MODIFICATION SERVICES
AGREEMENT TABLE OF
CONTENTS
Page
# Table of Contents
2-3
Recitals
4
1. Definitions 4-
11
2. Scope of Services 12-
14
3. Additional Services 14-
16
4. Price and Payment 16-
18
5. Delivery of Services 18-
21
6. Taxes, Customs, Duties 21-
22
7. Excusable Delays 23-
24
8. Warranty 24-
29
9. Indemnification and Limitation of Liability
30
10. Technical Data 30-
32
11. Notices 32
12. Assignment 33
13. Changes 33
14. Documentation 34
15. Applicable Law 34
16. Parts and Material 34-
37
Page #
17. MDC and/or Customer(s) Supplied Parts 37-
38
18. Regulatory Requirements 38-
41
19. Insurance 41-
42
20. Inspection, Demonstration, Acceptance and Delivery 43-
46
21. Default and Remedies 46-
50
22. Product Support 50
23. Outside Services 50-
51
24. Records 51-
53
25. Onsite Representation 53-
54
26. Certification 54
27. Title 55
28. Quality and Standards 55-
56
29. Public Disclosure 56-
57
30. Miscellaneous 57-
59
31. Affirmative Action 59-
60
32. Termination for Convenience 60-
61
33. Parent Company Guarantee 62
34. Documents Incorporated Into Modification Services Agreement 62-
63 35.
Exhibits 63-64
MODIFICATION SERVICES AGREEMENT
THIS MODIFICATION SERVICES AGREEMENT (this "Agreement")
is entered into as of this ___________ day of ___________ 1997,
by and between McDonnell Douglas Corporation, a
Maryland
corporation having an office in the city of Long
Beach,
California ("MDC") and Dimension Aviation, Inc., a
Delaware corporation, having its principal place of business in
the city of Goodyear, Arizona ("Subcontractor").
RECITALS
WHEREAS, MDC has executed agreements with various
customer(s) ("Customer(s)") for the accomplishment of
modifications to be performed on certain MDC Tri-Jet (DC-10s,
MD-11s) aircraft owned or to be acquired by Customer(s); and
WHEREAS, MDC intends to entrust Subcontractor for
the
accomplishment of such modifications on certain Tri-Jet
aircraft owned by Customer(s); and
WHEREAS, the parties hereto desire to enter into this
Agreement for the accomplishment by Subcontractor of such
modifications on specific Tri-Jet aircraft owned by
Customer(s) in accordance with the terms and conditions set
forth herein;
NOW THEREFORE, in consideration of the mutual covenants
contained herein, Subcontractor and MDC agree as follows:
AGREEMENT
1) DEFINITIONS
Unless otherwise indicated, paragraph and Article
numbers referred to herein will mean paragraphs and
Articles of this Agreement. As used within this Agreement
and ASR Forms (as defined below) which may be issued
hereunder, the following terms will have the meanings set
forth below (terms defined in the singular will have the
same meaning when used in the plural and vice versa),
unless some other meaning is apparent from the
context in which the words and terms are used:
TERMS MEANING
Additional Any additional maintenance, modification
Services or other services other than those
described in or required by the Statement
of Work ("SOW") and the applicable SOW
which may be requested by MDC at any time
and which, when agreed to by MDC and
Subcontractor, shall become part of the
Services.
Additional A document in the form of Exhibit "S"
Services which, when signed by MDC and
Request Form Subcontractor, shall amend this Agreement
(ASR) or to include Subcontractor's performance of
Additional the Additional Services set forth therein
Work Form or in respect of the Aircraft specified
"ASR" therein.
Agreement This Modification Services Agreement
between Subcontractor and MDC, Document
No. MSA-FRI-SF-97-003, including all
Exhibits attached hereto and all other
documents incorporated herein as amended
or supplemented from time to time
pursuant to the terms hereof.
Aircraft Each of the MDC Tri-Jet (DC-10, MD-11)
series aircraft on which Subcontractor
will perform the Services provided for in
this Agreement. A list of such aircraft
is set forth in the Schedule.
Aircraft A receipt in the form of Exhibit "Q"
Delivery executed by Subcontractor and delivered
Receipt to MDC concurrently with the delivery of
an Aircraft to Subcontractor for
modification and performance of the
Services.
Aircraft A document used to record the following
Maintenance with respect to an Aircraft: (i) the
Log periodic and corrective maintenance
accomplished on such Aircraft, (ii)
information items detected during the
performance of the Services, (iii)
deferred discrepancies and pilot reports,
(iv) mechanical discrepancies discovered
during the performance of Services on
such Aircraft and not otherwise
documented on a SNRM or ASR and (v) the
airworthiness release of such Aircraft
for service.
Aircraft The sequential aircraft positions to
Position which specific Aircraft may be assigned
in accordance with Article 2 and the
Schedule.
TERMS MEANING
Aircraft The total number of days from Delivery of
Visit an Aircraft to Subcontractor to
Redelivery of such Aircraft to MDC.
Business Day Any day other than a Saturday, Sunday or
other day on which commercial banking
institutions in New York, New York,
Memphis, Tennessee or Long Beach,
California are authorized or required by
law to close. Unless the term "Business
Day" is used, the word "day" shall refer
to calendar days.
Certificate A certificate of acceptance substantially
of Acceptance in the form of Exhibit "R" hereto
which shall be issued by MDC to
Subcontractor upon completion of the
Services and Redelivery of each Aircraft.
Conversion A conversion facility in Goodyear, AZ, or
Facility such other facility or Sub-
Subcontractor's subcontractor facility as
Subcontractor may select, subject to the
written consent of MDC which consent
shall not be unreasonably withheld.
Customer(s) An aircraft owner and/or operator that is
a Customer(s) of MDC (e.g., Federal
Express, Korean Air, EVA, etc.).
Customer(s) Customer's authorized and approved
Drawings drawings.
Customer(s) Customer's on-site project manager or
Representativ designee.
e
Customer(s) Collectively the Customer(s) SOWs
Statement of attached hereto.
Work
Customer(s) Parts supplied by Customer(s), including,
Supplied but not limited to, the kits furnished by
Parts Customer(s) listed in Exhibit "P"
or the Customer(s) SOW.
Customer(s) Customer(s) Technical Data supplied by
Supplied Data Customer(s) in connection with the
Services.
TERMS MEANING
Delivery Date The date of delivery by MDC of the
or Delivery applicable Aircraft to the Conversion
Facility for commencement of the Services
(not storage) and acceptance thereof by
Subcontractor pursuant to an Aircraft
Delivery Receipt in accordance with
Exhibit "U."
Engineering A document reviewed and approved by
Authorization Federal Express' engineering division
(EA) (Federal providing immediate and specific
Express Only) instructions and authorization for: (1)
one-time major or minor repair; (2) one
time major or minor modification; (3) one
time material substitution; or (4)
immediate deviations from technical
manuals.
Engineering A document established by Federal Express
Orders (EO) or MDC that: (1) provides the
rationale, instruction, and authorization
necessary to effect modifications,
special inspections and repairs to an
Aircraft; and/or (2) authorizes the
accomplishment of service evaluations,
airworthiness directives or
manufacturers' services bulletins; and/or
(3) controls and documents the
modification, inspection and repair
processes.
Expendable Required shop supplies: (e.g. wiping
and rags, sanding discs, masking tapes,
Consumable masking paper, greases, sealants, and
Materials expendable tools and standard hardware
including, but not limited to, fasteners
and aerospace standard parts) valued at
$5.00/unit cost or less consumed or used
during the Services or Additional
Services but which shall be supplied at
no additional charge to MDC. Expendable
and Consumable Materials identified as
part of a MDC or Customer furnished kit
shall be provided by MDC or Customer. If
the materials are not identified as part
of a MDC or Customer furnished kit, then
Subcontractor shall provide Expendable
and Consumable Materials.
FAA The Federal Aviation Administration of
the United States or any successor
thereto.
FARs Federal Aviation Regulations.
TERMS MEANING
Fleet A document issued by Federal Express that
Campaign is used to determine the configuration
Directives status or condition of an aircraft or
(FCD) aircraft fleet.
(Federal
Express Only)
General General Maintenance Manual document as
Maintenance may be revised from time to time and in
Manual (GMM) its then current issue, which sets forth
the maintenance procedures for aircraft
in accordance with applicable FARs.
Interface Any technical problem in the operation of
Problem an Aircraft or any system thereof due to
incompatibility, malfunction or failure
of any accessory, equipment, or part.
Kits A collection of Parts necessary to
perform the Services.
Maintenance Those tasks, included as part of the
Services Services, which are performed to
restore, preserve or improve each
Aircraft's physical condition to a
specified level, including but not
limited to operational checks,
inspections, disassembly, cleaning,
repair, rework, measurement, replacement
of parts, reassembly, testing,
lubricating, adjusting, etc., as more
fully described in the Specifications.
Master Job A document which lists the Services to be
Control Sheet performed on a particular Aircraft.
(MJCS) The MJCS may contain several pages and
notes. Each page contains line items
(tasks) indicating the work to be
accomplished.
MDC's Design Detailed designs and detailed
specifications originated and prepared by
or under the direction of MDC.
MDC Parts Parts made to MDC's Design or available
exclusively from MDC.
MDC MDC's on-site project manager or
Representativ designee.
e
MDC Supplied Parts supplied by MDC as listed in
Parts Exhibit "P."
TERMS MEANING
Modification The date upon which Subcontractor
Completion completes performance of the Services on
Date the applicable Aircraft and notifies MDC
that such Aircraft is ready for
acceptance testing by MDC at the
Conversion Facility.
Non-routine Services performed to correct defects or
Services discrepancies identified prior to or
during Subcontractor's performance of the
Services other than those described in
the Specifications.
On Dock The schedule included in Exhibit "P" that
Schedule (MDC identifies MDC Supplied Parts and
and Customer Customer(s) Supplied Parts which will be
Supplied delivered to the Conversion Facility.
Parts) All such parts shall be delivered to the
Conversion Facility in accordance with
Article 17B.
Parts All components, parts, supplies and
materials other than Expendable and
Consumable Materials required for the
performance of the Services.
Passenger to Modification of Tri-Jet (DC-10 and MD-11)
Freighter Aircraft in accordance with Exhibits "A"
Services or P and "B" and such other exhibits as may be
to F added from time to time by amendment.
Payment The schedule of payment for performance
Schedule(s) of the Services as set forth in Exhibit
"W," "Pricing."
Recoverable The classification of any Part which can
Parts be restored to a Serviceable condition
either through repair or overhaul in
accordance with the Specifications or the
manufacturer's current specifications, or
MDC Maintenance Specifications.
Redelivery The date upon which MDC accepts
Date or redelivery of each Aircraft in accordance
Redelivery with Article 5.
Rotable Part A part that can be economically restored
to a Serviceable condition and, in the
normal course of operations, can be
repeatedly rehabilitated to a fully
Serviceable condition over a period
approximating the life of the flight
equipment to which it is related.
TERMS MEANING
Schedule The schedule with respect to Aircraft, as
described in Exhibit "U," "Supplier
Requirements Schedule," setting forth the
duration of each Aircraft Visit during
which the Services are to be performed on
such Aircraft.
Scheduled The scheduled date for Redelivery of each
Redelivery Aircraft as set forth in the Supplier
Date Requirements Schedule, Exhibit "U."
Serviceable An item that meets all specified
standards for airworthiness following
repair or overhaul and has no known
defects which would render it unfit for
its intended use.
Services The work to be performed by Subcontractor
with respect to each Aircraft as
described in this Agreement, including
but not limited to the Specifications and
each MJCS.
Special or Special or Non-Routine Maintenance Form
Non-Routine (SNRM), Federal Express M-1805B, is a
Maintenance form used to authorize, schedule, and
Form (SNRM) record work performed on aircraft
(Federal components, auxiliary power units (APU),
Express Only) and engines.
Standardizati Modification of Tri-Jet Aircraft in
on Services accordance with SOW Exhibits "A" and "B"
and such other exhibits as may be added
from time to time by amendment.
Statement of A statement by MDC to be placed in the
Return to Customer(s) Aircraft Maintenance Log Book
Service and to be issued in accordance with FAA
regulations following the performance of
the Services.
Subcontractor Parts supplied by Subcontractor pursuant
Supplied to an ASR or an amendment to this
Parts Agreement.
Sub- Suppliers and contractors (other than
Subcontractor Subcontractor, Customer(s) or MDC) who
s perform any part of the Services at the
request and direction of Subcontractor or
provide Parts to Subcontractor for the
performance of the Services.
TERMS MEANING
Sub- Any Services in connection with which
Subcontract Subcontractor, subject to Article 24
Services shall employ a Sub-Subcontractor or Sub-
Subcontractors.
Taxes or Tax Any and all taxes (including without
limitation sales, use and value added
taxes), duties, imposts, assessments,
permits, fees and other charges of any
kind and related interest and penalties,
if any, imposed or levied upon or
arising as a consequence of this
Agreement or the Services to be provided
hereunder or pursuant hereto.
Technical The period of time between the
Acceptance Modification Completion Date and the
Period Redelivery Date.
Technical Information of any kind that is related
Data to the performance of the Services under
this Agreement that can be used, or
adapted for use, in the design,
engineering, development, production,
processing, manufacture, use, operation,
overhaul, repair, maintenance,
modification or reconstruction of
articles or materials. The Technical
Data may be in tangible or intangible
form, such as a model, prototype,
blueprint, drawing, photograph, plan,
instruction, computer software and
documentation, or operating manual
(written or on recorded media).
Term The term shall commence on the date set
forth in the first paragraph hereof and
terminate on the later to occur of:
(i) December 31, 2006; or (ii) the
completion of the Services on all of the
firm Aircraft.
Used Serviceable Parts that have not been used
Serviceable since their last overhaul and which have
Zero Time been restored to a condition meeting
Since established overhaul tolerances and
Overhaul limits.
Parts
(USZTSO)
2) SCOPE OF SERVICES
A. Subcontractor shall perform the Services on each Aircraft as
set forth in the SOW, Customer(s) SOWs and in accordance with the
Supplier Requirements Schedule. MDC shall provide all Parts
except Subcontractor Supplied Parts. MDC shall provide to
Subcontractor, upon Subcontractor's request, access to any data
and records applicable to each Aircraft, if available to MDC. To
the extent practicable, all Services shall be performed with the
applicable Aircraft fully enclosed in the hangar at the Conversion
Facility.
B. MDC agrees to deliver to Subcontractor four (4) firm
Aircraft (the "Firm Aircraft"). MDC is also hereby granted the
option to deliver up to eleven (11) additional Aircraft (the
"Option Aircraft"). MDC may elect not to exercise any of the
option aircraft without any penalties or termination costs. MDC
may exercise the Option Aircraft in quantities of not less than
one (1) Aircraft. If MDC's Customer exercises the options listed
in Exhibit W, MDC shall exercise the option with Subcontractor
consistent with all terms and conditions in this Agreement. If
MDC's customer does not exercise an identified option, then MDC
shall not be obligated to exercise such option with
Subcontractor. MDC and Subcontractor acknowledge that for each
option listed in Exhibit "W" (The "customer Options") exercised by
an MDC Customer, MDC shall exercise one (1) of its options with
Subcontractor. To the extent that any of the Customer Options are
not exercised, MDC shall have no further obligation to
Subcontractor for such option. MDC agrees that it shall grant to
Subcontractor a right of first refusal to provide similar
modification services for up to that number of aircraft as is
equal to the number of Customer Options that are not exercised.
For example, if two (2) Customer Options are not exercised, MDC
shall grant to Subcontractor a right of first refusal to provide
similar modification services for other aircraft until such time
as Subcontractor is chosen to modify two (2) such additional
aircraft. The right of first refusal shall be granted
immediately upon notification to MDC by its Customer that such
Customer will not be exercising a Customer Option or upon
expiration of that Customer Option, whichever comes first. Such
right of first refusal shall require that Subcontractor respond
within fifteen (15) Business Days following receipt of MDC's
request for a proposal. MDC shall not be obligated in any way to
place such additional aircraft with Subcontractor if MDC and
Subcontractor cannot reach agreement on price, schedule and other
terms and conditions. The parties agree that the terms of this
Agreement shall not apply to any such right of first refusal
unless otherwise agreed in writing by MDC and Subcontractor.
C. MDC shall have the right to modify specific Aircraft
designations and Schedules as follows:
1) MDC shall have the right to substitute a different Aircraft
for a previously designated Aircraft for Delivery on a scheduled
Delivery Date by delivering written notice to Subcontractor: a)
on any date before the 60th day prior to such scheduled
Delivery Date or;
b) on any date between the 59th day and the 25th day prior to
such scheduled Delivery Date, if Subcontractor determines that
such designation of a different Aircraft for delivery on such
Delivery Date would not cause a material delay in the performance
of the Services, or if there is a material delay and MDC accepts
the cost consequences of such delay, if any
provided, however, that in either instance, MDC shall
reimburse Subcontractor for any reasonable incremental
engineering costs and reasonable incremental labor costs
and reasonable incremental parts costs incurred by
Subcontractor in connection with its performance of the
Services solely as a result of the substitution of the
Aircraft. MDC shall provide such reimbursement within
sixty (60) days after its receipt of Subcontractor's
invoice setting forth in detail the nature and amount of
such costs.
2) MDC shall have the right to request, in writing, that
Subcontractor perform the Services on Aircraft earlier than the
dates listed in the Suppliers Requirements Schedule. If
Subcontractor determines that such request would cause a material
delay in the performance of the Services, then within five (5)
Business Days following MDC's request, MDC shall be notified in
writing of the Delivery and Redelivery Dates for the Aircraft
which have been affected. Such new Delivery and Redelivery Dates
will be negotiated by MDC and Subcontractor; provided, however,
that the number of days in the Aircraft Visit based on the
original Delivery and Redelivery Dates shall not be increased by
virtue of such new Delivery and Redelivery Dates.
D. Except as otherwise provided in this Agreement,
Subcontractor shall provide Expendable and Consumable Materials, labor,
facilities, materials, equipment, fixtures, production control,
technical planning and administration, inspection,
tooling (except MD-11 unique tooling or MDC unique tooling which will
be provided by MDC as described in Exhibit X), training,
data, and all other services necessary to perform the Services in
accordance with the SOW, Customer(s) SOWs, the GMM, all current
Aircraft manufacturer's manuals, FAA regulations, FARs and the
provisions of this Agreement. Expendable or Consumable Material
valued at more than $5.00/unit cost shall be, at MDC's Option,
provided or reimbursed by MDC.
E. Intentionally omitted.
F. Except as required to be performed by
Subcontractor as part of the Services, with respect to
maintenance of the Aircraft, during the time that the Services
are being performed, Subcontractor shall have responsibility
only for minimum routine maintenance customarily performed on
airplanes.
G. Subcontractor warrants that it is, and that MDC
has relied on and is entitled to rely
upon Subcontractor as, an expert fully competent
in all phases of work involved in producing,
supporting, and performing the Services
provided hereunder.
The
Specifications define the requirements which
each Aircraft must meet upon completion of the
Services and Redelivery of each Aircraft to
MDC and unless explicitly so stated the
Specifications do not include or specify the
manner or design as to which the Services are to
be performed by Subcontractor.
3) ADDITIONAL SERVICES
A. Subcontractor shall, during the term of this
Agreement,
perform Additional Services requested by MDC's Representative in
writing and agreed to in writing by Subcontractor. Such written
request shall be made on an ASR Form. The request shall set forth
in detail the particular Additional Services requested to be
performed on the Aircraft. Unless otherwise agreed by the
parties, Subcontractor shall, as soon as practicable, but in any
event not later than three (3) Business Days following MDC's
request for Additional Services, advise MDC of its ability to
perform the Additional Services in accordance with MDC's request
and a date by which Subcontractor can provide the following to MDC
(the "Final Response") (which date shall not exceed five (5) days
from the date of the ASR Form):
1) Any anticipated changes in the scheduled Redelivery Date due
to such Additional Services; and
2) Any additional charges resulting from Subcontractor's
performance of the Additional Services including, but not limited
to, all, Parts costs, equipment costs, labor costs and
other costs
including but not limited to costs arising from design,
production, inspection, planning, liaison engineering, stress
engineering, administration, scheduling impacts, if any,
associated with the Additional Services being requested .
Within ten (10) Business Days following MDC's receipt
of the Final Response, MDC's Representative shall notify
Subcontractor in writing of its acceptance or rejection of the
Final Response. Once agreed to and executed by both parties,
the executed ASR shall amend this Agreement in accordance with
its terms.
B. The charge for Additional Services will be determined on a
fixed price basis pursuant to the Final Response unless MDC
elects to have such Additional Services performed on a time and material
basis. The labor rate for Additional Services performed on a time and
material basis shall be at the labor rate established in the PRICING,
Exhibit "W." The labor rate for 1998 and for subsequent years shall be
escalated in accordance with the Touch Labor Element, Touch Labor Escalation
Index, set forth in Exhibit "V." If Subcontractor agrees to perform
Additional Services, but is unable to provide an estimate for the Additional
Services, MDC may elect to authorize a block of man-hours to initiate the
performance of such Additional Services ("Block Man-
hour Approval"). Subcontractor shall not exceed the Block Manhour
Approval without the prior written approval of MDC'
Representative. In the event Subcontractor has exhausted the
Block Man-hour Approval, and MDC has not provided written approval
for additional man-hours, Subcontractor is not obligated to
complete any such Additional Services.
C. Any special items or conditions which would be applicable to
the performance of such Additional Services, (including for
example, location, warranty terms, etc.) shall be noted in the
ASR.
D. No request for Additional Services shall be valid and the
performance of such Additional Services are not authorized under
this Agreement unless the applicable ASR Form has been executed
by MDC's Representative and Subcontractor.
E. Additional Services provided pursuant to this Article shall
become part of the Services with respect to the affected Aircraft.
Subcontractor will not be obligated to provide such Additional
Services until MDC has accepted in writing the Final Response or
notified Subcontractor in writing to proceed on the basis of time
and material. Upon execution of the ASR by both parties, this
Agreement shall be deemed amended.
F. In the event MDC elects to not have Subcontractor accomplish
a portion of the Additional Services indicated on an executed
fixed price ASR, Subcontractor shall reasonably determine a
prorated price reduction on that ASR for that specific Aircraft
based on the scope of the Additional Services that Subcontractor
is not required to perform. Subcontractor shall issue a credit
for the appropriate amount applicable to that specific Aircraft.
If MDC elects to not have Subcontractor accomplish all of the
Additional Services indicated on an executed fixed price ASR,
Subcontractor shall issue a credit for the full value of such ASR
applicable to the specific Aircraft affected.
G. Any changes that occur to the GMM or applicable
Customer(s) Manual after the date of the execution of
this Agreement, which impact the Services in such a
way to affect schedule and/or materially affect the
price, shall be treated as an amendment to the
Agreement. However, notwithstanding the foregoing,
Subcontractor will comply with changes to FARs, law
or any other regulation and which do not affect
the content of an MJCS for a period of time up
to and including the Redelivery of fourth (4th)
Aircraft, at no additional charge to MDC. After
Redelivery of fourth (4th) Aircraft,
Subcontractor and MDC agree to mutually reevaluate
the status of future regulatory changes.
4) PRICE AND PAYMENT
A. Prices for the Services are set forth in Exhibit W.
B. Payment for the Services with respect to each Aircraft shall
be in accordance with Exhibit "W." All prices are subject to
escalation in accordance with Exhibit "V," "Price Adjustments for
Fluctuations in the Economy," except Prices for Additional
Services pursuant to an ASR. Prices for Additional Services shall
not be subject to escalation unless expressly set forth in an
applicable executed ASR Form.
C. Payment for Subcontractor charges for Additional Services
are payable within thirty (30) days from the date of an invoice
which complies with the requirements of Paragraph 4.E. in all
respects, as long as such invoice is sent by Federal Express
Service (overnight or 2nd day) to the address set forth in Article
11 or via facsimile.
D. All payments made by MDC to Subcontractor under this
Agreement shall be in U.S. Dollars made to the following address:
Dimension Aviation, Inc.
Goodyear Municipal Airport
1658 South Litchfield Road, Hangar 52
Goodyear, Arizona 85338
E. Invoices for Services, including the Additional Services,
for each Aircraft shall be itemized by each separately priced
Service or Additional Service, as the case may be, and shall be
submitted to the applicable address set forth in Article 11,
"NOTICES" hereof. Invoices shall also contain the following: 1)
An identification of the ASRs authorizing the Services
performed by Subcontractor;
2) A separate identification of the Services performed on the
Aircraft, including Subcontractor's (or Sub-Subcontractor's) job
number, the registration number and factory serial number of the
Aircraft on which the Services were performed, the Delivery Date
and Redelivery Date of the Aircraft;
3) For time and material Additional Services, an identification
of all Parts used in performing the Services including
nomenclature, part number, quantity, Aircraft and generating
item.
Such identification shall be set forth on the ASRs, copies of
which will be attached to the invoice;
4) For time and material Additional Services, a separate,
itemized account recorded on the ASR of all charges associated with
performance of such Additional Services, identifying the direct labor man-
hours, materials and fees separately for all such Services and Additional
Services; and
5) For time and material Additional Services, an itemized
account of all charges associated with Subcontractor's use of Sub
Subcontractors and suppliers, including direct labor, materials
and
transportation, with an attached invoice from each
SubSubcontractor
and supplier identifying the nature of the Additional Services
performed and the date(s) and location(s) at which the Additional
Services were performed and the price to Subcontractor of any
Parts
or equipment purchased by Subcontractor from any supplier or Sub-
Subcontractor.
F. Subcontractor shall keep full and accurate records of all
man-hours, material cost, subcontractor's charges and any related
charges incurred and billed in connection with the time and
material Additional Services performed for each Aircraft under
this Agreement, which record shall be open to audit by MDC,
Customer(s) or any authorized representative of MDC approved by
Subcontractor until one (1) year after Redelivery of such
Aircraft. Subcontractor will require its Sub-Subcontractors to
maintain similar records which shall also be open to audit by MDC,
Customer(s) or any authorized representative of MDC until one (1)
year after Redelivery of each applicable Aircraft; provided,
however, that the foregoing shall not apply to parts manufactured
by Sub-Subcontractors.
5) DELIVERY OF SERVICES
A. Delivery and Redelivery of the Aircraft.
1) MDC shall cause each Aircraft to be delivered to the
Conversion Facility. Subcontractor agrees that delivery by MDC of
Aircraft to a storage site located at the Conversion Facility
shall not constitute Delivery to the Conversion Facility under
this Agreement. Subcontractor agrees that Delivery of Aircraft
directly into the Conversion Facility (without delivery to the
storage site) shall constitute Delivery of Aircraft by MDC.
Subcontractor agrees that Delivery of Aircraft from the storage
site to the Conversion Facility shall constitute Delivery of
Aircraft by MDC. At the time of Delivery each Aircraft shall be
configured in its then current configuration. Subcontractor
shall
complete the Services and Redeliver each Aircraft to MDC at the
Conversion Facility in accordance with the Schedule.
2) In the event any discrepancies are identified prior to or
during the flight to the Conversion Facility which are not
required to be corrected as a part of the performance of the
Services, the parties acknowledge and agree that, as between MDC and
Subcontractor, the cost of correcting such discrepancies
shall be borne by and be the responsibility of MDC. In the event
that MDC engages Subcontractor to correct such deficiencies, such
engagement shall be pursuant to a request for Additional Services.
3) If a relocation of the Conversion Facility is requested by
Subcontractor, Subcontractor shall be responsible for any and all
commercially reasonable costs and expenses incurred by MDC and/or
Customer as a result of (i) the relocation of the Conversion
Facility or (ii) the performance of the Services at more than one
Conversion Facility.
4) Such costs and expenses shall specifically include, but not
be limited to:
a) relocation of any Aircraft, Customer or MDC Supplied Parts,
or any other part, item or material from the Conversion Facility
to another facility approved by MDC, and
b) any incremental costs incurred by MDC as a result of the
Services being performed at more than one Conversion Facility
(i.e. expenses related to additional employees required on site,
etc.).
Nothing contained in this Section 5.A.3) shall be
construed (i) as the consent of MDC to the
performance of any of the Services at any facility other
than the Conversion Facility and said relocation shall
only be permitted with the prior written consent of MDC,
which shall not be unreasonably withheld or (ii)
as requiring Subcontractor to reimburse MDC for any costs
other than those solely related to the Services provided
hereunder.
5) Upon Delivery of each Aircraft, MDC and Subcontractor shall
make a ground inspection of such Aircraft. Following such
inspection, Subcontractor shall complete, execute and deliver to MDC an
Aircraft Delivery Receipt.
6) Prior to the performance of the Services, Subcontractor
shall remove all fixtures, instruments and other equipment from
the applicable Aircraft determined by Subcontractor to be
susceptible to damage or theft during the performance of the
Services. Subcontractor shall promptly provide to MDC a list of
such items and Subcontractor agrees, at no additional charge to
MDC and at Subcontractor's risk of loss, to provide adequate
security and storage space for such items until completion of the
Services on such Aircraft or, if requested by MDC, to return such
items to MDC or its agents at MDC' expense. Prior to Redelivery,
Subcontractor shall re-install all such items required by the
Specifications in its possession on the applicable Aircraft as
required by the SOW(s) and/or Specifications.
7) As between MDC and Subcontractor, MDC shall be responsible
for the costs and expense of providing a vendor to de-fuel the
Aircraft at Delivery and re-fuel the Aircraft at Redelivery and to
de-fuel and re-fuel the Aircraft at any other time during an
Aircraft Visit. As between MDC and Subcontractor, the cost of any
fuel required shall be paid by MDC. Subcontractor shall provide
all personnel and support necessary for all re-fueling and de-
fueling required of the Aircraft.
B. Redelivery of the Aircraft.
1) Upon completion of the Services on an Aircraft and the
testing described in Article 20, Subcontractor shall Redeliver the
Aircraft to MDC at the Conversion Facility in accordance with the
provisions of this Agreement. At the time of Redelivery,
Subcontractor shall assist MDC in verifying that all applicable
attachments and supporting documentation for such Aircraft are
complete. Upon Redelivery, MDC shall execute and deliver to
Subcontractor a Certificate of Acceptance for the redelivered
Aircraft. Subcontractor's Redelivery of an Aircraft to MDC and
MDC's signature constituting the airworthiness release shall
constitute a certification by MDC that:
a) The Aircraft's Maintenance Log will have received all
appropriate entries required by applicable law, the GMM
and this
Agreement, including the airworthiness release signature
and a
maintenance release each signed by MDC's duly authorized
representative;
b) All requested Services shall have been completed and
appropriately documented and shall have been performed in
conformance with all applicable FARs and the GMM; and
c) All Services shall have been performed in accordance with
the provisions of the SOWs and all provisions of this
Agreement
and the Services performed shall not have adversely
affected the
operation of systems or components not encompassed within
the
Services.
C. Flight Maintenance Services
1) As part of the Services, Subcontractor shall provide, at no
additional cost to MDC, the following services:
a) required preflight preparation consisting of, but not
limited to, a general cleaning of the interior of the
Aircraft,
servicing of the lavatory and the cleaning of the exterior
windows and those areas required for inspection of the
Aircraft
following execution by MDC of a Certificate of Acceptance;
b) at Delivery and Redelivery, the ground handling, including
towing and repositioning of an Aircraft and the provision of
sufficient ground support equipment at Delivery and
Redelivery;
and
c) at Redelivery, completion of the
Customer's Service Check.
D. Damages Due to Redelivery Delays
In addition to any other rights and remedies
to which MDC may be entitled, in the event of a
delay in Redelivery of any Aircraft that is not
due to an Excusable Delay or attributable to MDC or
its Customer, and MDC pays a late fee to its
Customer, Subcontractor shall pay to MDC a late fee,
as follows:
1) FOR FEDERAL EXPRESS AIRCRAFT:
Equal to Ten Thousand Dollars
($10,000.) per day per Aircraft not to exceed
Three Hundred Thousand Dollars
($300,000.-) per Aircraft;
provided, however, that such fee shall not
apply to the first five (5) Business Days
which any Aircraft is delayed beyond
the applicable
Redelivery Date.
2) FOR KOREAN AIR AIRCRAFT:
Equal to Twenty Thousand
Dollars ($20,000.-) per day per Aircraft not
to exceed Five Hundred Thousand Dollars
($500,000.-) per Aircraft; provided, however,
that such fee shall not apply to the
first five (5) Business Days
which any Aircraft is delayed beyond
the applicable Redelivery Date.
3) FOR NEW (TBD) CUSTOMER(S):
To be negotiated on an individual
case basis.
All such fees shall be payable to MDC upon
demand and MDC shall be permitted to deduct any such
late fee from any amounts owed to MDC under this
Agreement or otherwise.
6) TAXES, CUSTOMS, AND DUTIES
A. Subcontractor's price for Services and Additional Services
shall be inclusive of any and all Taxes, (currently imposed or
subsequently enacted) pertaining to goods and services provided by
Subcontractor that are imposed by any taxing jurisdiction in
connection with this Agreement, including but not limited to Taxes
occasioned by the sale, lease, delivery, transfer, storage, use,
consumption, manufacture, production, importation, or
exportation of any goods or services for the purpose of any
Services and Additional Services, provided that MDC furnishes
Subcontractor a valid state tax exemption certification.
B. Notwithstanding the preceding, Subcontractor shall not be
required to pay to MDC any United States (federal, state or
local) taxes measured by MDC's net income, capital or both; or
payroll or employment taxes imposed on MDC with respect to MDC's
employees.
C. In addition, Subcontractor's price for Services
and Additional Services shall be inclusive of any
customs, duties, and related brokerage, freight, and
other charges or fees (including related interest and
penalties) which are imposed in connection with any
goods or services provided by Subcontractor to MDC
pursuant to this Agreement. MDC will apply and/or
arrange for any licenses or documentation necessary to
support or permit the importation aircraft, materials, or
components delivered hereunder to Subcontractor's
modification center or work site. Subcontractor will
furnish such data and information and render such
assistance as may reasonably be requested in connection
therewith.
D. It shall be Subcontractor's responsibility to
promptly pay to or reimburse MDC, upon MDC's demand,
any Taxes, customs, or duties that are imposed on MDC by
any taxing jurisdiction or customs authority that
Subcontractor has agreed to pay. Subcontractor shall
promptly notify MDC, in writing, if a claim is made by
any jurisdiction for any Taxes, customs, or duties for
which Subcontractor has assumed responsibility for
payment pursuant to this Article 6. In the event that
such Taxes, customs or duties are levied, assessed, or
imposed on MDC, MDC shall promptly give Subcontractor
notice of such Taxes, customs, or duties, whereupon
Subcontractor shall promptly pay and discharge the
same, or if permitted by law and requested by MDC,
shall contest such liability before payment. MDC also
shall have the right to participate in any contest
conducted by Subcontractor with respect to a Tax,
custom, or duty for which Subcontractor has assumed
responsibility for payment pursuant to this Article 6,
including without limitation, the right to attend
conferences with taxing or customs authorities and the
right to review submissions to the taxing or customs
authorities or any court to the extent such contest
does not involve, or can be separated from, the contest of
any other Taxes or issues unrelated to the Services and
Additional Services described in this Agreement.
Subcontractor agrees to comply with any reasonable
written request by MDC regarding payments under
protest, claims, litigation or proceedings with respect to
any such Taxes, customs, or duties. Any payment made
by MDC of such Taxes, customs, or duties will be
made upon protest if so directed by Subcontractor. If
payment is made, MDC will, at Subcontractor's expense,
take such action as Subcontractor may reasonably direct to
recover such payment.
7) EXCUSABLE DELAYS
A. Neither party shall be responsible to the other party for
any excusable delay ("Excusable Delay") in the performance of its
respective duties under this Agreement. An Excusable Delay shall
be deemed to have occurred if a party's delay in performance is
due to causes such as an act of God, partial or complete
destruction of the Aircraft, court actions and orders, acts of
public enemies, acts of any kind of the government of the United
States, or any state or other subdivision thereof, war, natural
disaster, insurrection or riots, civil commotion, fire, floods,
plagues, epidemics, strikes, lock-outs, organized labor action
resulting in a slowdown or interruption of work, inability after
due and timely diligence to seasonably procure material,
accessories, equipment or parts or qualified labor or without
limitation by enumeration of the foregoing any other causes beyond
such party's reasonable control and not occasioned by the
intentional acts or omissions or negligence of the relevant party.
None of the foregoing shall be considered an Excusable Delay if
the cause of any such delay can be cured by the applicable party
in any commercially reasonable legal way including, but not
limited to, the payment of commercially reasonable amounts of
money. Both parties shall use their best efforts to inform the
other by written notice in the event of the occurrence of an
Excusable Delay and the probable extent of such delay and shall
from time to time thereafter notify the other party of any
material development relating to such delay or the cause thereof.
The relevant party shall take all reasonable steps to mitigate the
effects of any such delay.
B. Notwithstanding any rights Subcontractor may have to take
other action, Subcontractor shall not be held responsible for, nor
be deemed to be in default on account of, delays in the
performance of this Agreement due to failure of MDC to deliver to
the Conversion Facility any Customer(s) Supplied Parts or MDC
Supplied Parts or to respond in a prompt manner under the terms of
Article 3. hereof or to take any other action required hereunder.
C. Upon the occurrence of an Excusable Delay, this Agreement
shall remain in full force and effect during the period of such
Excusable Delay so long as the same does not extend beyond thirty
(30) days, and the scheduled Redelivery Date of each Aircraft
affected by such Excusable Delay shall be extended and modified
accordingly. If any Excusable Delay lasts for more than thirty
(30) days,
1) this Agreement may be canceled by either party by written
notice as to one or more affected Aircraft in which case neither
party shall have any liability whatsoever other than in
respect of
work already performed and substantiated with respect to this
Agreement as to the terminated Aircraft; and
2) if the Agreement is not terminated, then both
parties shall use diligent efforts to ensure
that the time requirements of the Schedule are
amended to reflect a mutually acceptable
completion schedule.
D. Notwithstanding the foregoing or any
other
provision of this Agreement, MDC shall have
no obligation to Deliver any affected Aircraft
to Subcontractor in the event MDC or its
customer reasonably determines that an Excusable
Delay could arise during the Aircraft Visit of any
such Aircraft and that such Excusable Delay
would prevent such Aircraft from being Redelivered
in accordance with the Schedule. Any delay in
performance of this Agreement caused by MDC'
failure to Deliver an Aircraft pursuant to this
Paragraph D will be considered an Excusable Delay.
8) WARRANTY
A. Subcontractor's Warranties
1) With respect to the performance of the
Services,
Subcontractor warrants to MDC that such Services and all
Subcontractor Parts used in connection with the Services shall,
at the time of the Redelivery of each Aircraft to MDC, be free
from:
a) Defects in material and workmanship;
b) Defects in design, except to the extent the design was
furnished by MDC or Customer(s);
c) Defects caused by installation of any Part in a manner not
in accordance with the instructions of the manufacturer of such
Part; and
d) Defects arising from failure to conform to the description
of the Services set forth in the Specifications or any
ASR Form
executed by MDC and Subcontractor after the date of this
Agreement.
2) Additionally, Subcontractor warrants to MDC (a) that
Subcontractor has good title to all Subcontractor Supplied
Parts, and
other items otherwise supplied by Subcontractor under this
Agreement
to MDC and (b) that such Subcontractor Supplied Parts and
other items
otherwise supplied by Subcontractor under this Agreement to
MDC are
merchantable and fit for their intended purpose.
3) The warranty set forth herein will survive technical
acceptance of the Services only upon the conditions and subject
to the limitations set forth in this Article 8.
4) Subcontractor also warrants that at the time of Redelivery
by Subcontractor to MDC all documents provided to MDC pursuant to
this Agreement shall be free from errors and omissions,
excluding any
data provided in any form whose source is data and/or manuals
and/or
documents of any form obtained from the previous owner of the
Aircraft. Subcontractor's liability under this Paragraph
A.4) is limited to replacement during the first sixty (60) months
after redelivery of the last Aircraft to Customer(s) by MDC under
this Agreement with a similar Subcontractor document or page
thereof free from the error in question. If such an error
poses a
severe material operational limitation or restriction to MDC,
Subcontractor shall use its commercially reasonable efforts to
provide to MDC within twenty four (24) hours following receipt of
notification to Subcontractor by MDC and/or Customer that the
condition exists, a temporary page correction, or replacement
data
and if this is not possible, a corrective action plan indicating
when such data will be provided.
B. Condition of Warranties
1) Except as expressly set forth herein, Subcontractor's
warranties set forth shall be effective for the following
periods:
a) as to Subcontractor Supplied Parts and Sub-Subcontractor
Parts, the warranty period shall commence upon the
redelivery to
Customer by MDC of the Aircraft upon which the
Subcontractor Part
is installed, and shall continue for forty two (42) months
thereafter. With respect to Subcontractor or
Sub-Subcontractor
Parts repaired or overhauled by Subcontractor or any Sub
Subcontractor any remaining warranty period shall apply to a
repaired part and for an overhauled part either the
remaining
warranty period or twelve (12) months, whichever is longer,
shall
apply (with respect to Subcontractor Supplied Parts with
shelflife
limitations, the warranty period shall be the period of the
manufacturer's warranty, such period to commence upon
Redelivery
of the Aircraft); and
b) as to Services performed on an Aircraft, the warranty period
shall commence upon redelivery to Customer(s) by MDC of such
Aircraft and continue for forty two (42) months thereafter.
C. Limitations to Warranties.
Notwithstanding any other provisions hereof,
Subcontractor shall have no obligation under this
Article 8 if MDC or Customer(s):
1) following Redelivery, has not operated and maintained the
warranted item in accordance with the FARs, manufacturers
recommendations, and Federal Express' Engineering Maintenance
Program Specification (Federal Express Engineering Report 84-013)
or other Customer(s) Maintenance Programs; or
2) following Redelivery, has not used the warranted item under
normal operating conditions or has subjected such item to misuse,
abuse, improper installation or application, improper maintenance
or repair, alteration, accident or negligence in use, storage,
transportation or handling by anyone other than Subcontractor; or
3) has not notified Subcontractor in writing within ninety (90)
days of its or its agent's discovery of the defect in the
warranted item, provided, however, that a failure by MDC or
Federal Express to provide such notice shall not entitle
Subcontractor to reject any warranty claims unless such failure
has an adverse material impact on Subcontractor's obligation to
honor such warranty claim.
D. Wear and Tear
1) Normal wear and tear and the need for regular overhaul shall
not constitute a defect or failure under this warranty.
E. Warranty Repairs
1) Subcontractor shall replace or repair, at Subcontractor's
expense, any warranted Subcontractor Supplied Part and shall
correct any portion or all of the Services which in the reasonable
determination of Subcontractor and MDC are defective.
Subcontractor shall also be obligated to repair or replace any
other item which has suffered damage directly caused as a result
of a defective Subcontractor Supplied Part or Service which damage
occurs within sixty (60) days following the redelivery date of
each Aircraft to Customer(s) by MDC.
2) Notwithstanding any other provisions contained herein, MDC
reserves all of its rights and remedies under this Agreement and
in no event shall the acceptance of warranty services set forth in
this Article 8 be deemed to constitute a waiver of the right to
future warranty claims against the same Subcontractor Supplied
Parts or Services provided the defect and repair required are
still, in the reasonable judgment of Subcontractor and MDC, within
the scope of the warranty and the limitations set forth in Article
8.
F. MDC Warranty Repairs
1) If Subcontractor cannot perform within a reasonable time the
replacement or repair referred to in this Article 8 or if it is,
in the opinion of Subcontractor, not feasible for Subcontractor or
its Sub-Subcontractor to perform the replacement or repair, MDC
and/or Customer(s) will be authorized, upon Subcontractor's prior
written consent, to perform the replacement or repair or have the
replacement or repair performed at Subcontractor's expense ("MDC
Warranty Repairs").
2) Notwithstanding the foregoing, if for valid operational
reasons (in the reasonable business judgment of MDC and Federal
Express) there is insufficient time to obtain Subcontractor's
prior written consent, MDC and/or Customer(s) may perform such
replacement or repair without Subcontractor's prior written
consent. In all such events, it shall be MDC's and/or Customer's
responsibility to certify the business operational requirements
which rendered it impracticable to obtain Subcontractor's prior
written consent and to demonstrate to Subcontractor's reasonable
satisfaction that any warranty claim based upon such repair is a
valid warranty claim.
3) In the event that MDC and/or Customer(s) performs such
replacement or repair hereunder, Subcontractor shall have the
option of staffing such replacement or repair with such technical
representatives as it deems necessary to monitor the repairs. Upon
receipt of MDC's and/or Customer's claim for reimbursement with
respect to MDC Warranty Repairs, Subcontractor shall reimburse MDC
and/or Federal Express for an amount equal to the lesser of:
a) MDC and Customer(s) direct cost for all Parts and materials
incorporated in such repair or replacement plus all reasonable
direct labor cost and all reasonable transportation cost incurred
by MDC and/or Customer(s) in the performance of MDC Warranty
Repairs. Subcontractor will establish reasonable standard labor
hours therefore and will reimburse MDC and/or Customer(s) for
such standard hours at MDC's and/or Customer's direct labor rate
(average hourly labor rate, exclusive of fringe benefits,
applicable to employees performing warranty repairs) plus a
burden of not to exceed fifty percent, provided such amounts
shall in no event exceed two hundred percent of Subcontractor's
direct labor rate. If MDC's and/or Customer(s) actual labor
hours substantially exceed the standard labor hours established
by Subcontractor, the parties will negotiate to establish new
standard labor hours, taking into consideration the actual labor
hours incurred by MDC and/or Customer(s) and other operators of
DC-10 aircraft in making similar corrections, or
b) the amount which Subcontractor would have charged MDC and/or
Customer(s) for such repair or replacement had Subcontractor
performed such repair or replacement and if such repair or
replacement were not under warranty, which amount shall be
provided to MDC and/or Customer(s) with reasonable documentation
to verify such amount to MDC's and/or Customer's reasonable
satisfaction.
Subcontractor shall reimburse MDC and/or Customer(s)
within sixty (60) days for any amounts due and owing to
MDC and/or Customer(s) pursuant to this Article 8.
G. Assignment of Warranties
1) Subcontractor agrees to assign and does hereby assign to MDC
any and all assignable warranties, service life policies and
patent indemnities of manufacturers, suppliers and Sub
Subcontractors other than Subcontractor which arise in connection
with the Services or Additional Services, and, upon MDC request,
Subcontractor shall provide to MDC, reasonable assistance in
enforcing MDC' rights under such warranties, service life policies
and patent indemnities. Upon MDC request, Subcontractor shall
give notice to any such manufacturers, suppliers and Sub
Subcontractors of the assignment of such warranties, service life
policies and patent indemnities.
2) For those Subcontractor Supplied Parts that are acquired by
Subcontractor from Sub-Subcontractor installed on the Aircraft
during the performance of the Services, (the "Sub-Subcontractor
Warranty Parts"), in the event of a default by the supplier of
such Sub-Subcontractor Warranty Parts in the performance of any
material obligation under any applicable warranty from such
supplier, or in the event of a disclaimer of responsibility by
such supplier for any defect constituting a breach of such
warranty and upon timely notice thereof to Subcontractor, the
warranties and all other terms and conditions of this Article 8
shall become applicable as if such Supplier Warranty Parts had
been manufactured by Subcontractor except that the warranty period
shall be the warranty period as set forth herein or the suppliers
warranty period, whichever is shorter and all transportation costs
associated with such Sub-Subcontractor Warranty Parts shall be
borne by MDC. Subcontractor shall use commercially reasonable
efforts to obtain from its SubSubcontractor warranties at least as
favorable as those provided by Subcontractor to MDC herein.
H. Warranty Procedures
1) All warranty claims shall be submitted in writing to
Subcontractor's Warranty Administrator at Goodyear, Arizona, and
shall include the identity of the part or document involved,
including Subcontractor's part number or identification number,
nomenclature and the quantity claimed to be defective; the
identity of the Aircraft from which each Part was removed or which
document applies; the date the claimed defect became apparent to
MDC or its agents; the total flight hours accrued on the Part at
the time the claimed defect became apparent to MDC; and a
description of the claimed defect and circumstances.
2) MDC shall pay all costs of transportation of any defective
part or document returned to and from Subcontractor's facility in
Goodyear, Arizona. In the event such returned part or
document is
defective, Subcontractor shall reimburse MDC for its actual
transportation costs for such defective parts or documents to and
from MDC's facility.
3) Subcontractor shall approve or disapprove in writing MDC's
warranty claim within forty five (45) days following receipt of
such claim. In the event that Subcontractor does not respond to
such claim within a forty-five (45) day period, the claim
shall be
deemed accepted.
9) INDEMNIFICATION AND LIMITATION OF LIABILITY
A. Subcontractor shall indemnify, defend, and hold
harmless MDC, its officers, directors and
employees from any and all liabilities,
damages, losses, expenses, claims, suits or
judgments, including
reasonable attorneys' fees and expenses, for the
death of or bodily injury to any person and for the
loss of, damage to, or destruction of any property to
the extent arising out of the performance by
Subcontractor of its obligations hereunder or the
breach of the Warranty or any other provision of
this Agreement by Subcontractor, its agents,
employees or Sub-Subcontractors or any person for
whose acts or omissions Subcontractor, its agents,
employees or Sub-Subcontractors are
responsible; provided, Subcontractor shall not
be liable under the provisions of this Paragraph 9.A.
for any liabilities, damages, loss, expenses, claims,
suits or judgments arising solely from the
negligence or willful misconduct of MDC's
employees. The intent of this Article 9.A. is
that, if there is any liability attributable to
the joint negligence and/or willful misconduct of
Subcontractor and MDC, Subcontractor will, in the
first instance, assume responsibility for payment of
such liability. Notwithstanding anything in this
clause or Agreement to the contrary, however,
Subcontractor shall have the right to assert a
claim against and recover from MDC to the extent
of MDC's proportionate fault for any contributory
negligence or willful misconduct of MDC; provided,
however, that MDC will not be bound by the terms
of any underlying settlement or judgment with
respect to such liability unless MDC has
consented in writing to be bound thereby.
B. MDC shall indemnify, defend, and hold
harmless
Subcontractor, its officers, directors and
employees from any and all liabilities,
damages, losses, expenses, claims, suits or
judgments, including
reasonable attorneys' fees and expenses, for the
death of or bodily injury to any person and for the
loss of, damage to, or destruction of any property to
the extent arising solely from the negligence
or willful misconduct of MDC's employees in the
performance of MDC's obligations hereunder.
10) TECHNICAL DATA
A. Technical Data may be provided to Subcontractor during the
term of this Agreement. All information contained in the
Technical Data is owned by MDC, Customer(s) or a third party and is
proprietary and confidential to such party; and, except as expressly
provided herein, is furnished solely for use in the performance of
Subcontractor's obligations under this Agreement and not for disclosure to
any other party or for any other use. Subcontractor agrees to use its best
efforts to protect and maintain the proprietary and confidential status of
the Technical
Data. In the event it is necessary to disclose Technical Data to
third parties, Subcontractor agrees that it will impose upon third
parties to whom such disclosures are made obligations no less
stringent than those set forth in this Agreement. Subcontractor
agrees to furnish evidence of said third party Agreement to MDC.
Except as may otherwise be provided herein, any information in the
Technical Data which can be shown to be in any of the following
categories shall lose its confidential status upon such a showing:
1) that which is in the public domain at the time of
disclosure;
2) that which later becomes a part of the public domain by
publication or otherwise, except by breach of this Agreement or
any third party under an obligation of confidence;
3) that which Subcontractor can establish by competent proof
was in its possession at the time of disclosure and was not
acquired directly or indirectly from the disclosing party or from a
third party under an obligation of confidence:
4) that which Subcontractor lawfully receives from third
parties on a nonconfidential basis; and
5) that which is independently developed by Subcontractor
without the use of the Technical Data furnished by the disclosing
party under this Agreement.
Subcontractor agrees not to use any of the MDC
Technical Data for so long as such information remains in
a confidential status except for the performance of
Services under this Agreement. Technical Data shall be
identified with an appropriate legend, marking or stamp
or other positive written identification; provided,
however, that failure of the disclosing party to
mark, stamp or identify any Technical Data shall have
no effect on the confidential status of such Technical
Data if the recipient knew, or should reasonably have
known, that the disclosing party considers such
Technical Data to be confidential. Upon termination
or expiration of this Agreement, Subcontractor agrees
at its expense, upon the request of MDC, to destroy or
return all Technical Data of MDC and its Customer(s) and
all copies thereof in whatever form, except as necessary
for continuing aircraft maintenance and operations or
except as required by law, and not to make further use
of any such Technical Data. Subcontractor agrees to
certify that all copies of such Technical Data furnished
under this Agreement and the information derived therefrom
in any form have been returned or destroyed and that there
was no known unauthorized disclosure during the term
of this Agreement.
B. Injunctive Relief
1) The parties agree that in the event either party violates
or threatens to violate the provisions of this Article 10 as it
pertains to the Technical Data, MDC may be entitled to obtain
from a court of competent jurisdiction preliminary or permanent
injunctive relief as well as an equitable accounting of all
profits or benefits arising from such violation which rights and
remedies shall be cumulative and in addition to any other rights
or remedies at law or in equity to which MDC may be entitled.
11) NOTICES
All notices, approvals, requests, consents, invoices and
other communications given pursuant to this Agreement
shall be in writing and shall be deemed to have been
duly given when received if hand-delivered, sent by
telex, sent by courier or Federal Express service or
sent by certified or registered mail, addressed as
follows:
If to MDC:
McDonnell Douglas Corporation
3855 Lakewood Boulevard, Mail Code: D035-0035
Long Beach, CA 90846
Attn: Sam Fasheh, Supplier Management - Product
Support
Phone: (562)982-9309 or (562)593-9454 / Fax:
(562)593-4785 or (562)593-5709
If to Subcontractor:
Dimension Aviation, Inc.
Goodyear Municipal Airport
Hangar 52
1658 South Litchfield Road
Phoenix, AZ 85338
Attn: Thomas F. Derieg
Phone: TBD Fax: TBD
12) ASSIGNMENT
This Agreement shall inure to the benefit of and be binding upon
each of the parties and their respective successors and assigns
but, neither the rights nor the duties of either party under
this Agreement may be voluntarily assigned, in whole or part,
without the prior written consent of the other party, which is
not to be unreasonably withheld. Either party shall be entitled
to assign all or part of this Agreement to a wholly-owned
subsidiary, provided that under no circumstances shall the
foregoing be considered as releasing any party from any of its
obligations under this Agreement; and MDC may, without
Subcontractor's consent, assign all or part of its rights and
obligations under this Agreement, without recourse against MDC,
to an entity into which is placed all or part of MDC's
commercial aircraft business. Upon such assignment,
Subcontractor will look exclusively to such assignee for
performance under this Agreement.
13) CHANGES
A. The terms and conditions of this Agreement may be amended
from time to time by means of:
1) An ASR, pursuant to the provisions of Article 3.
2) by other written amendments duly signed by both parties; The ASR,
and such other written amendments shall not be binding on either party
until signed by the Customer representatives, MDC Representative and
Subcontractor,
and upon being so signed shall constitute amendments to this
Agreement in accordance with the provisions of this
Article 13.
B. MDC's Engineering and Technical personnel may, from time to
time, render assistance or give technical advice to, or effect an
exchange of information with Subcontractor's personnel in a
liaison effort concerning the Services. Such assistance, advice,
or exchange of information shall not be considered a request for
Additional Services nor shall such exchange allow Subcontractor to
deviate in any manner from the provisions of this Agreement.
Additional Services shall only be authorized if they are directed
in writing by those persons authorized to give such an order as
specified in Article 3. Subcontractor's compliance with any
order, direction, interpretation or determination either written
or oral, from someone other than a person designated as being
authorized to issue change orders shall be at Subcontractor's risk
and MDC shall not be liable or otherwise responsible for any
resulting cost increase, delay in performance or nonconformance by
Subcontractor with the provisions of this Agreement.
14) DOCUMENTATION
A. Right of Review
At all times during the term of this Agreement, on
a non-interference basis, MDC and Customer reserve
the right to review all available modification
and maintenance documentation including, but not
limited to, drawings, maintenance work cards,
engineering orders and manual revisions to ensure
compliance with the Specifications. At no
additional charge and at the request of MDC or
Customer, Subcontractor shall provide copies of such
documentation to the FAA if required by the FAA
for addition of the Aircraft onto MDC's or
Customer's operations specifications.
Subcontractor shall promptly provide, any additions
or clarifications to any applicable
Subcontractor documentation to the extent required by
this Agreement or the FAA related to the performance
of the Services.
15) APPLICABLE LAW
This Agreement shall be construed and the performance
hereof shall be determined according to the laws of the
State of New York, United States of America,
excluding its laws regarding conflict or choice of law.
16) PARTS AND MATERIALS
A. Parts
1) In the event that a Subcontractor Supplied Part is not
available in accordance with Subcontractor's modification plan,
Subcontractor shall use its commercially reasonable efforts to
establish a "work-around" plan which will enable such
Subcontractor Supplied Part to be installed at a later date prior
to the Scheduled Redelivery Date of the affected Aircraft,
provided, however, that nothing contained in this Article 16
shall
reduce, limit or negate Subcontractor's obligation to Redeliver
each Aircraft in accordance with the Schedule.
2) Subcontractor and its Sub-subcontractors shall supply all
available technical documentation, teardown data (including
maintenance release tags and repair findings), and testing
reports related to the Services or Additional Services. (Ref:
GMM 9-1-100 Item 3 E 1 through 6)
3) All Recoverable Parts or Rotable Parts removed from the
Aircraft by Subcontractor shall have a Federal Express Rotable or
Recoverable Parts Tag or FAA (8130-3) equivalent completed and
attached.
4) Unless otherwise approved in advance by MDC's Representative
in writing, all Subcontractor Supplied Parts provided by
Subcontractor for performance of the Services (excluding Parts
which are removed from the Aircraft and which will be returned to
the Aircraft) shall be new, unused Parts that conform to current
manufacturers' standards ("New Parts").
5) MDC's representative or its designee may in its sole
discretion, agree to accept USZTSO in lieu of Subcontractor
Supplied Parts, provided that the price for Subcontractor
Supplied Parts shall be reduced appropriately. Any USZTSO
Parts installed by Subcontractor shall be certified by a FAA
approved repair station on Customer's or MDC's approved vendor
list.
6) All Parts to be used in the performance of the Services
shall comply with applicable United States airworthiness
regulations, FARs, all requirements of the FAA, the
Specifications, and the GMM.
7) Subcontractor shall assist MDC in the accumulation,
inventory, storage, and record accountability including, but not
limited to, current Aircraft issues, for all Parts from receipt
to installation on an Aircraft. Subcontractor shall be
responsible for the replacement or repair of any Parts
(including, but not limited to, MDC Supplied Parts and
Customer(s) Supplied Parts) lost or damaged while in
Subcontractor's control.
a) For all Parts that are removed prior to or during
performance of the Services and are to be reinstalled on the
Aircraft, or permanently removed, or are unused Customer(s)
Supplied Parts or MDC Supplied Parts, Subcontractor shall
tag such
Part in accordance with the MDC FAA approved Repair Station
Manual. MDC shall determine the appropriate disposition of
such
Parts at or prior to the Redelivery of each Aircraft. The tag
shall indicate (i) the status of the Part when removed
(e.g. okay
to install, rework, or reject) which shall be determined
by either
operation of the Part during acceptance and ferry flights
to the
Conversion Facility or by an On Aircraft Test Procedure
(OATP)
after arrival at the Conversion Facility and (ii)
if available,
the time and cycles since new or last overhaul.
b) In addition to the tag referenced above, Parts that are
removed prior to or during performance of the Services and
are to
be reinstalled on the Aircraft or permanently removed, or are
unused Customer(s) Supplied Parts shall have the applicable
Customer(s) tag attached.
c) Subcontractor shall assist MDC in maintaining a material
management system adequately staffed with qualified
personnel to
handle receipt, inventory, warehousing, quality control,
inspection, storage, transportation, packaging, issue, and
disposition of Parts. MDC and its Customer(s) shall have the
right to request the assistance of Subcontractor in the
auditing
of the record keeping and storage management operations
established by MDC pertaining to Services or Additional
Services
on any Aircraft.
d) MDC and Subcontractor shall dispose of permanently removed
or unused Federal Express Supplied Parts as soon as
practicable in
accordance with the MDC Representative's instructions,
but in no
event more that three (3) days after the receipt of such
instructions.
e) All Customer(s) Supplied Parts and removed equipment shall
be stored, transported, and shipped in MDC supplied shipping
containers. If MDC does not provide shipping containers,
packaging appropriate to prevent damage to such Parts and in
accordance with aircraft industry standards shall be at the
expense of MDC.
8) All Rotable Parts and Recoverable Parts (in addition to
those included in the Customer(s) Supplied Parts) required for
the support of the Aircraft during the Services will be furnished
by MDC and maintained by Subcontractor, except as otherwise
mutually agreed to between MDC and Subcontractor. Such Rotable
Parts and Recoverable Parts will be furnished to the Conversion
Facility prior to the Subcontractor required date by MDC. A
listing of Rotable Parts and Recoverable Parts, if such components
are determined to be necessary, will be mutually agreed to by the
Parties.
B. Supply of Parts, and Materials
1) MDC shall provide all Parts except for Subcontractor
Supplied Parts. Subcontractor shall provide all Subcontractor
Supplied Parts and Expendable and Consumable Materials and all
tooling (except as provided in Exhibit "X"), equipment, facilities
and fixtures, which are necessary for the performance of the
Services and Additional Services. Subcontractor shall be
responsible for the timely procurement of the Subcontractor
Supplied Parts to ensure compliance with the terms and conditions
of this Agreement.
2) Subject to agreement by Customer(s), Subcontractor shall, if
necessary, have access to the Customer(s) parts and component
control system. MDC will furnish the equipment and training
required to make the entries. Subcontractor will perform all data
entry into the system for all Parts on the Aircraft which require
entry.
17) MDC AND/OR CUSTOMER(S) SUPPLIED PARTS
A. Subcontractor will assist MDC in the handling and storage
of Customer(s) Supplied Parts and MDC Supplied Parts to protect
them from damage or deterioration. Deterioration does not include
items deteriorated due to the lapse of shelf-life or other
inherent deterioration. Customer(s) Supplied Parts and MDC
Supplied Parts shall be isolated from Subcontractor's parts, and
Subcontractor shall ensure limited access to, and security for,
Customer Supplied Parts and MDC Supplied Parts.
B. MDC shall furnish the Parts (excluding the Subcontractor
Supplied Parts) to Subcontractor, at the Conversion Facility, no
later than fifteen (15) days prior to the Delivery Date of each
Aircraft. MDC shall also provide Technical Data in the form of
specifications for Customer(s) Supplied Parts ("Parts Technical
Data"), consisting of, but not limited to a written detailed
description of the dimensions, weight and all information
necessary for the installation and operation thereof. Such
dimensions and weight shall not thereafter be revised unless
authorized by an amendment to this Agreement. MDC may also
provide Technical Data in the form of engineering information for
the implementation of MDC Specifications and/or Customer(s)
Engineering Orders ("Engineering Technical Data"), consisting of,
but not limited to all instructions necessary for installation and
operation thereof. Specific data requirements unique to
Subcontractor's internal process which normally would not be
required in MDC operations shall be the responsibility of
Subcontractor unless MDC data exists which can be used to satisfy
Subcontractor's internal requirements or MDC has not imposed on
its suppliers either MDC's Commercial Product Support Agreement 12-
100 or a tailored version thereof. Notwithstanding any other
provision of this Agreement, MDC is not obligated to deliver any
Engineering Technical Data more than forty-five (45) days prior to
the Delivery Date of the applicable Aircraft.
C. MDC agrees, represents and warrants that each item of
Customer(s) Supplied Parts or MDC Parts to be furnished by MDC
shall be new, or if not new, shall have an FAA Serviceable Tag or
equivalent.
D. In the event that a Customer(s) Supplied Part or MDC
Supplier Parts or Engineering Technical Data or Parts Technical
Data is not available due to a late delivery, Subcontractor shall
use its commercially reasonable efforts to establish a "work
around" plan which will enable such Part to be installed at a
later date prior to the scheduled Redelivery Date of the affected
Aircraft. Subcontractor will minimize any resulting costs and
effects on schedule in developing a "work-around" plan. All
reasonable costs incurred by Subcontractor in establishing a "work-
around" plan shall be paid by MDC and the Redelivery date for the
affected Aircraft shall, if necessary, be adjusted accordingly.
An ASR form reflecting cost and schedule affects shall be signed
by both parties in accordance with Article 3 herein.
18) REGULATORY REQUIREMENTS
A. Subcontractor shall during the term of this Agreement, or in
respect of any Aircraft, during the period ending upon
Redelivery:
1) at all times assist MDC to ensure that Subcontractor's
facility meets the technical and operational requirements of an
MDC FAA certified repair station authorized to perform the
Services and Additional Services under an FAR Part 145
Certificate which shall include the appropriate ratings for
performance of the Services and Additional Services;
2) at all times perform the Services and Additional Services in
accordance with the requirements of the Specification, any
applicable ASR forms and MJCSs, this Agreement, all applicable
law and FARs, the FAA, and any other US governmental body having
jurisdiction over the Services or Additional Services;
3) promptly correct, in a manner reasonably satisfactory to
MDC
and satisfactory to the FAA, any discrepancies in the Services
that are not in compliance with the applicable regulations,
duly report all such discrepancies to MDC and if requested,
assist MDC in reporting such discrepancies to the FAA;
4) assist MDC to promptly provide a copy of the
items
reportable in accordance with FARs to MDC;
5) assist MDC to provide all appropriate records required to
comply with the FARs;
6) assist MDC in the preparation of an FAA Form 337 in
accordance with the FARs for the Services in order for MDC to
maintain or secure, as applicable, the FAA Certificate of
Airworthiness.
7) assist MDC in the classification of major and minor repairs
in accordance with the FAA regulations and the GMM.
8) assist MDC in maintaining the appropriate data and records
to prepare the maintenance records, alteration and repair reports
required by FAA Form 337 and all applicable FARs;
9) provide component serviceable tags for all repaired,
overhauled or exchanged components provided by Subcontractor in accordance
with all applicable FARs and the GMM;
10) be responsible for accomplishing all sign-offs for routine
work task card inspection items in accordance with the GMM;
11) provide service engineering and quality control to ensure
that the Specifications and requirements of this Agreement are
completely and accurately adhered to;
12) promptly report to MDC's representative any discrepancies
between FAA requirements and Subcontractor operations as noted or
reported to Subcontractor by the FAA;
13) be responsible for completing and reporting malfunction or
defect Reports for all items required under the FARs to its FAA
assigned airworthiness inspector per the FARs and provide one
(1) copy to MDC's Representative;
14) provide to MDC records of all Services, Additional
Services, discrepancies, defects, component and piece part
removals, along with the related teardown findings as required
by the GMM;
15) maintain the necessary Technical Data and records to assist
MDC and Customer(s) in the preparation of alteration and repair
reports required by the FARs;
16) not accomplish any Services or work other than the Services
specifically described in the Specifications of this Agreement
without prior written authorization from MDC's Representative in
the form of an ASR Form;
17) be responsible for accomplishing all buy-backs/sign-offs for
Customer(s) Required Inspection Items ("RIIs") as identified in
the GMM; and
18) complete (Customer(s) Special Non Routine Maintenance Form
(SNRM), Aircraft Maintenance Log (AML) and Component
Serviceable/Repair Tags for all service transactions
accomplished, discrepancies, defects, Part removals, along with
the related teardown findings and repair billing information.
Subcontractor shall complete these documents in accordance with
the related teardown findings and repair billing information.
Subcontractor shall complete these documents in accordance with
the GMM; and
B. FAA Fines/Civil Penalties
1) In the event that MDC and/or Customer(s) has a fine or civil
penalty assessed against it by the FAA for a FAR violation,
and it
is mutually determined through a joint investigation by MDC
Customer(s) and Subcontractor that:
a) Subcontractor had been contracted to perform the Services or
Additional Services under this Agreement and either
failed to
perform such Services or Additional Services or improperly
performed such Services or Additional Services; and any
act or
failure to act by the fined or penalized party did not
excuse
performance hereunder; and
b) the proper performance thereof would have avoided the
assessment of such fines or penalties;
then Subcontractor shall credit or pay the fined or penalized
party a dollar amount equal to such fine or penalty, as
reimbursement for the fine or penalty assessed against such party
by the FAA, provided that:
(i) MDC gives Subcontractor prompt notice (within three (3)
Business
Days after MDC receives a letter of investigation from the
FAA or
three (3) days after receipt of a fine or notice of a pending
fine, whichever occurs first of any fine or pending fine and
promptly furnishes to Subcontractor copies of all papers
served
upon or received by such party relating to such fine;
provided,
however, that a failure by such party to comply with this
Paragraph 18.B.1)(i) shall not relieve Subcontractor of its
obligations under this Section 18.B except to the extent
Subcontractors rights have been adversely affected by such
failure of such party; and, such party cooperates fully with
Subcontractor in the defense, including giving to
Subcontractor
all data, documents and information within such party's
possession or knowledge that is material to the defense,
all of
which shall be at the expense of Subcontractor.
19) INSURANCE
A. Coverage
1) Prior to the commencement of the Services, Subcontractor
shall provide MDC evidence of satisfactory insurance coverage.
Said
insurance coverage shall:
a) be maintained at Subcontractor's expense at all times during
the term of this Agreement and for a period of two (2) years
thereafter;
b) name MDC, Federal Express and their respective employees,
officers, directors, representatives and agents as additional
insureds under Subcontractor's third party liability insurance;
excluding gross negligence and willful misconduct of MDC.
c) name Federal Express and
their respective employees, officers,
directors, representatives and agents as
additional insureds under Subcontractor's
third party liability insurance excluding
operational liability, gross negligence and
willful misconduct of Federal Express;
d) contain a severability of interest clause; e)
provide that the insurance is
primary and without contribution from other
insurance which may be available to the
additional insureds; and,
f) include the following insurance in the
amounts noted:
(i) Comprehensive Aviation General Liability Insurance
with a combined
single limit of liability of not less than Three
Hundred Million
U.S. Dollars ($300,000,000.00) for Bodily Injury,
Property Damage,
Products Liability, Completed Operations Coverage
and Premises
Operation Liability;
(ii) Hangar Keeper's Liability Insurance providing property
damage coverage with limits of liability of Three
Hundred Million
U.S. Dollars ($300,000,000.00) per occurrence;
(iii) Worker's Compensation as required by applicable
law and
Employer's Liability Insurance of not less than One
Million U.S.
Dollars ($1,000,000.00) per occurrence unless a
greater amount is
required by law.
B. All insurance coverage set forth in Paragraph A above shall:
1) contain a waiver of subrogation by Subcontractor's insurers
of any rights they may have against MDC, Federal Express and
their employees, officers, directors, representatives, agents and
subcontractors; and
2) contain a clause which states that any cancellation,
restriction or reduction in coverage shall only be effective upon
thirty (30) days written notice to MDC of such cancellation,
restriction or reduction in coverage.
C. Subcontractor shall assume the risk of loss of
damage to an Aircraft or equipment resulting from
the negligence or intentional acts or
omissions
of
Subcontractor or Sub-Subcontractor for the
period beginning with Delivery and ending with the
Redelivery of
such Aircraft or equipment at the Conversion
Facility, provided that risk of loss or damage
to Aircraft shall pass to MDC for the period that
such Aircraft is operated by MDC prior to the
Redelivery of the Aircraft. As between MDC and
Subcontractor, the risk of loss or damage to an
Aircraft or equipment in all other cases remains
with MDC.
D. Letter of Credit
In addition to the insurance coverage
outlined above, the Subcontractor shall provide
MDC with an irrevocable letter of credit from
a financial institution acceptable to MDC. Such
letter of credit shall be in the form attached
hereto as Exhibit Z and shall be in the following
amounts:
1. 3/10/97 to 3/09/98 $3,000,000.-
2. 3/10/98 to 3/09/99 $3,000,000.-
3. 3/10/99 to 3/09/2000 $3,000,000.
MDC's realization of the Letter of Credit
proceeds
is limited to the occurrence of MDC's exercise of
its rights of termination for default as defined in
Article 21-B.1 (a) of the Agreement. The
redemption and resulting proceeds of the Letter of
Credit shall be offset against any amounts due MDC
in accordance with Article 21.
20) INSPECTION, DEMONSTRATION, ACCEPTANCE AND DELIVERY
A. Inspection and Demonstration
1) The performance of the Services by Subcontractor and all
materials and Parts procured by Subcontractor for this purpose as
well as log books, records and all other documentation may be
inspected by MDC's Representatives and/or Customer Representative
during normal business hours at the Conversion Facility. All
inspections by MDC's and/or Customer(s) Representative shall be
made in such a way that the performance of the Services is not
hindered or delayed.
2) Subcontractor will perform all functional tests and
inspections required in order to comply with this Agreement, the
Specifications and the FARs. Such tests will be performed, as
appropriate, inside or outside the hangar, and Subcontractor
shall
provide the schedule of the performance of any tests or
inspections to MDC's Representative. The results of these tests
will be provided in writing upon request to MDC and Customer(s),
and at no additional charge to MDC or its Customer(s). MDC and
Customer(s) shall have the right, but not the obligation, to
observe on a non-interference basis the performance of such
inspections and tests. MDC's or Customer(s) inspection of an
Aircraft prior to Redelivery shall not constitute an
acceptance of
Services not performed in accordance with this Agreement
nor shall
it release Subcontractor from its obligation to render the
Services or Additional Services free from defects. It is further
agreed that observance of or participation in such inspections
and
tests by MDC shall not be deemed to constitute an acceptance by
MDC hereunder.
3) MDC's representatives, at any time prior to tender for
technical acceptance of the Aircraft involved (as described in
this Article), may request correction of Parts or Services which
they believe (i) are not in accordance with the Specifications or
Subcontractor's standard engineering and quality manuals or (ii)
have material or workmanship which, if the Aircraft were
Redelivered and were within the applicable warranty period, would
entitle MDC and/or Customer(s) to warranty correction under
Article 8. MDC shall promptly notify Subcontractor after it
discovers any such nonconformance. Subcontractor shall correct or
replace all such Parts, Services or workmanship which are brought
to its attention and mutually determined to be nonconforming.
4) Subcontractor shall perform all such procedures (including,
without limitation, correction of discrepancies resulting from the
Services or Additional Services) upon completion of the Services
or Additional Services with respect to an Aircraft as required by
the applicable manufacturer's manuals, as well as applicable FARs
(tests required to be performed by Subcontractor are referred to
as the "Subcontractor Tests"). If mutually agreeable, flight tests
required by this Article 23 may be performed on the same flight as
MDC's Acceptance Tests, unless required otherwise by the FAA or
MDC.
B. Technical Acceptance
1) The Aircraft shall be tendered to MDC for Technical
Acceptance ("Technical Acceptance") after all Services and all
required tests have been completed in accordance with the
Specifications and the Schedule.
2) For Aircraft upon which the Services has been performed, an
acceptance procedure, including ground functional and flight
test(s), shall be performed on each Aircraft by MDC and/or
Customer(s) and shall be conducted in accordance with MDC's
standard PFPM and such other procedures as mutually agreed.
Subcontractor shall not be required to provide special
instrumentation for this Technical Acceptance procedure. MDC
and/or Customer(s) shall have complete control of all test flights
and shall bear all costs and expenses incident to Technical
Acceptance of an Aircraft.
3) MDC agrees to complete all inspections and testing
authorized or permitted under this Article during the Technical
Acceptance Period. MDC shall technically accept the Aircraft if
it meets the requirements of the Specifications and this
Agreement. Notwithstanding the provisions of this Paragraph, if
at the time an Aircraft is tendered by Subcontractor to MDC for
Technical Acceptance such Aircraft does not fully comply with the
Specifications or any other requirement of this Agreement, MDC
may, at its option, (i) accept such Aircraft after receiving
Subcontractor's written agreement (prior to acceptance of such
Aircraft by MDC) as to the manner and time such Aircraft will be
corrected by Subcontractor (or agreement on such other disposition
of deficiencies as MDC and Subcontractor agree), or (ii) refuse to
accept the Aircraft until such time as the Aircraft has been
corrected by Subcontractor. If MDC fails to conduct and to
complete its Technical Acceptance within the Technical Acceptance
Period which shall not exceed fifteen (15) days, the Aircraft
shall be deemed to have been technically accepted by MDC on the
scheduled Redelivery Date after tender as if MDC had expressly
indicated its Technical Acceptance as noted above. If during the
Technical Acceptance Period MDC determines and notifies
Subcontractor that there is a noncompliance with the
Specifications or this Agreement, the Technical Acceptance Period
shall be suspended until (i) Subcontractor corrects the
noncompliance or (ii) the condition is resolved to the
satisfaction of MDC and Subcontractor. Unless otherwise agreed,
within two Business Days after Technical Acceptance pursuant to
Paragraph B.2. or B.3. above, MDC shall accept Redelivery of the
Aircraft by endorsement of a Certificate of Technical Acceptance
for such Aircraft. MDC will designate, in writing, its
representative for the purpose of executing the Certificate of
Technical Acceptance.
C. Subcontractor Correction of Discrepancies.
1) Upon completion of the Subcontractor Tests and the
Acceptance Tests, Subcontractor shall, at no cost to MDC,
promptly
correct any defects or discrepancies in the Services or
Additional
Services performed by Subcontractor identified by
Subcontractor or
MDC during the Subcontractor Tests or Acceptance Tests.
Additional Subcontractor Tests and Acceptance Tests shall be
performed at Subcontractor's expense (except for the cost of
MDC's
flight crew) solely to inspect its correction of the defects or
discrepancies related to such Services or Additional Services
previously identified. In the event any additional defects or
discrepancies in the Services or Additional Services performed by
Subcontractor are noted during any required additional
Subcontractor Tests or Acceptance Tests (or if the original
defects or discrepancies are not satisfactorily corrected),
Subcontractor shall correct such defects or discrepancies at its
expense, and, as necessary, further Subcontractor Tests and
Acceptance Tests shall be performed at the expense of
Subcontractor until all defects or discrepancies related to such
Services or Additional Services have been corrected to meet the
requirements of this Agreement and the Specifications.
2) If other systems or components of the Aircraft are adversely
affected by Subcontractor's performance of the Services or
Additional Services and discrepancies pertaining to such systems
or components are identified by the Acceptance Tests,
Subcontractor shall restore such affected systems or
components to
a serviceable condition in accordance with the applicable
Maintenance Manual. For discrepancies discovered during
Redelivery flight testing, MDC is responsible for providing
replacement items or equipment on systems unchanged by the
Services for specific items on systems unchanged by the Services
(e.g. items simply removed and reinstalled as part of the
Services). Subcontractor shall be responsible for the labor only
to correct these discrepancies except that labor for engines
shall
be the responsibility of Customer(s) unless the cause can be
attributed to the Services performed by Subcontractor.
Subcontractor shall be responsible for labor and material
associated with the correction of all other discrepancies
discovered at Redelivery flight testing.
21) DEFAULT AND REMEDIES
A. Events of Default
1) The occurrence of one or more of the following events of
default (the "Events of Default") shall entitle the nondefaulting
party to exercise those rights and remedies described in this
Article:
a) If either party shall be in default in a material respect in
the performance of any of its material obligations
referred to in this Agreement, (including, but not
limited to any delay in the Delivery or Redelivery of
any Aircraft which is not due to an Excusable Delay)
which default shall continue uncured for a period of
thirty (30) days following written notice from the
other party, unless a default is not capable of being
cured within such thirty (30) day period, in which
case such default shall not constitute an Event of
Default if the defaulting party provides to the other
adequate assurance of its ability to cure such default
and diligently undertakes its best efforts to cure
such default and actually cures such default within
sixty (60) days following the aforementioned initial
written notice of default. Notwithstanding the
foregoing, Subcontractor agrees that with respect to
defaults not due to an Excusable Delay, the cure
periods with respect to any twelve-month period shall
be thirty (30) days for the first default, fifteen
(15) days for the second default, and zero (0) days
for any subsequent defaults in
such twelve-month period; or
b) If either party shall file a voluntary petition in
bankruptcy, or shall be adjudicated bankrupt or insolvent or
shall file any petition or answer seeking any reorganization,
composition, readjustment, liquidation or similar relief for
itself under any present or future statutes, law or regulation
of the United States, or shall seek consent to or acquiesce in
the appointment of any trustee, or shall make any general
assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts generally as they become
due; or
c) If a petition shall be filed against either party seeking
any reorganization, composition, readjustment,
liquidation or
similar relief under any present or future statute, law or
regulation of the United States and shall remain
undismissed or
unstayed for an aggregate of sixty (60) days (whether or not
consecutive), or if any trustee, receiver or liquidator
of either
party is appointed, which appointment shall remain
unvacated or
unstayed for an aggregate of sixty (60) days (whether or not
consecutive); or
d) If either party fails to make payments in the amounts and
under the terms defined in this Agreement and such failure
is not
cured within five (5) business days following written
notice from
the other party; or
e) Subcontractor experiences a material change in management
adversely affecting its ability to perform.
2) Any notice of default shall specifically state that it is a
notice of default and shall describe the default asserted and set
forth the provision(s) of the Agreement asserted to be in
default.
3) Notwithstanding the foregoing, no default shall be deemed to
have occurred under Paragraph 1. above if the party from which
payment or performance is required: (i) reasonably disputes that
a payment or performance is required or the amount of the payment
required, (ii) pays or performs that portion not in dispute,
(iii) within the cure period provided, responds to the other
party
in writing, detailing the reasons for the its position, and (iv)
diligently pursues a resolution of the dispute thereafter. This
provision shall not be applicable to default in the Redelivery of
Aircraft.
B. General Remedies
1) Upon the occurrence of an Event of Default by Subcontractor,
MDC shall be entitled to:
a) terminate this Agreement in its entirety;
b) cancel all or a portion of its commitments for Services or
Additional Services;
c) reschedule Subcontractor's performance of any or all of the
Services;
d) recover all amounts required to have the Services completed
by another person (including MDC itself), less (1) the
cost of all
materials purchased by Subcontractor hereunder and either
delivered to MDC or used in the performance of the
Services by
such other person and (2) the labor costs of Subcontractor
incurred in connection with the performance of the
Services prior
to the occurrence of the Event of Default but not
previously paid
for by MDC and provided that MDC shall use commercially
reasonable
efforts to mitigate the damages for which Subcontractor
is liable
under this Paragraph 21.B.1)d); and/or
e) pursue all other remedies available at law or in equity in
addition to those set forth in this Agreement, all of which
remedies shall be cumulative and not exclusive.
2) In addition to the foregoing, and notwithstanding any other
provision of this Agreement, in the event MDC or Customer(s)
terminates this Agreement for default, Subcontractor shall
immediately make available to MDC any Aircraft or equipment of
MDC
in Subcontractor's possession so that MDC may take possession of
such Aircraft, tooling, MDC/Federal Express owned parts and
equipment.
3) Upon the occurrence of an Event of Default by MDC,
Subcontractor shall be entitled to:
a) terminate this Agreement in its entirety;
b) cancel all or a portion of its commitments for Services or
Additional Services;
c) reschedule any or all of the Services or Additional
Services;
d) retain any and all sums theretofore paid by MDC; and/or
e) pursue all other remedies available at law or in equity in
addition to those set forth in this Agreement, all of which
remedies shall be cumulative and not exclusive;
4) In the event MDC terminates this Agreement pursuant to
Paragraph 21.B.1)a) above, Subcontractor hereby agrees, in the
alternative, and in lieu of any other remedies for Default
provided for under this Agreement and at law or equity to:
a) sell to MDC any requested complete or incomplete Parts,
equipment and/or Kits required by MDC to have the Services
performed on the Incomplete Aircraft by an alternative
vendor
(including MDC itself). The purchase price ("Purchase
Price") for
any such Kits, complete Parts and/or equipment shall be
the price
of such Kits, Parts and/or equipment to be charged to MDC
under
this Agreement. In the event that MDC does so elect to
purchase
any Kits as described in this Paragraph 21.B.4)a), then`
Subcontractor agrees, upon the request of MDC, to
complete the
production of any such Kits manufactured by
Subcontractor, and to
deliver the completed Kits to MDC as soon as commercially
reasonably possible. MDC shall have no obligation to pay
Subcontractor for any such Kits, Parts or equipment
purchased,
until such time as Subcontractor has delivered the
applicable
Kits, Parts or equipment to MDC. In the event of the
purchase of
Kits, Parts or equipment by MDC under this Paragraph
21.B.4)a),
the Subcontractor warranties provided in this Agreement
shall
apply and be in effect. MDC shall notify Subcontractor as
to the
exercise of its option provided in this Paragraph
21.B.4)a), by no
later than thirty (30) days following MDC's notice of
termination
to Subcontractor.
b) Subcontractor shall also provide, at no charge to MDC,
reasonable technical or other assistance required by MDC
to have
the Services performed on the Incomplete Aircraft by an
alternative vendor (including MDC itself) and rent to MDC
all
tooling required to have the Services performed on the
Incomplete
Aircraft by an alternative vendor (including MDC itself)
which
tooling shall be made available to MDC as soon as
available after
the request of MDC, but in any event by no later than
sixty (60)
days after such request.
22) PRODUCT SUPPORT
A. Subcontractor agrees to maintain capability
consistent with or better than the capability on
the date of this Agreement to respond to MDC'
technical inquiries, to conduct investigations
concerning repetitive maintenance problems and the
issuance of findings and recommended action. This
service shall be provided for as long as five (5) of
the Aircraft remain in commercial air
transport service. Any
investigations which Subcontractor reasonably,
normally and customarily deems to be extensive and
require more than routine effort by Subcontractor's
personnel shall be the subject of separate
contractual negotiations. B. Subcontractor will
provide MDC with a detailed
status report regarding the Aircraft on a weekly
basis. This report will include an update of the
following: (i) anticipated schedule deviations,
causes for such deviations, and actions being
taken to correct same; (ii) other problems which
may affect the performance of
any requirement of this Agreement; (iii)
estimated percentage of completion of the
Services; and (iv) Parts status. In addition to
these weekly reports, Subcontractor will provide
MDC with a detailed description of
Subcontractor's operational plan, including
without limitation the number of shifts, manpower
plans including supervision, production plans and
Part management system. The first such operational
plan description shall be due and presented to MDC
upon Delivery of the first Aircraft to the
Conversion Facility, and it shall be updated in
accordance with MDC's reasonable requests throughout
the performance of the Agreement.
23) OUTSIDE SERVICES
A. Use of Subcontractors
Subcontractor may have any of the Services
or Additional Services performed by Sub-
Subcontractors subject to the prior written
approval of
MDC.
Additionally, Subcontractor's use of Sub-
Subcontractors shall be subject in all respects to
any required FAA approval including, but not limited
to, the approval of such Subcontractor by the FAA
principal inspector assigned to MDC, if required.
B. Subcontractor Relationship
Nothing in this Agreement or otherwise shall create
any contractual relationship between MDC and any
SubSubcontractor and no subcontract entered into
relating to any part of Subcontractor's obligations
hereunder shall relieve Subcontractor of its
obligations to MDC hereunder, it being agreed that
Subcontractor shall be primarily liable to MDC for
the performance of its obligations hereunder
regardless of whether Subcontractor elects to
have any portion of such obligations performed by
a Sub-Subcontractor.
C. Payment to Sub-Subcontractors
Subcontractor's obligation to pay its
Sub-
Subcontractors is an independent obligation from
MDC's obligation to pay Subcontractor, and MDC shall
have no obligation to pay or to see to the
payment of any moneys to any Sub-Subcontractor.
Further, MDC's withholding of payments in
accordance with this
Agreement shall not be grounds for Subcontractor
to withhold payments properly due its Sub-
Subcontractors.
D. Subcontract Service Requirements
It is a condition of this Agreement that all
SubSubcontract Services shall be performed in
compliance with the requirements of this
Agreement, the Specifications, any applicable ASR
Forms, FARs and the FAA and any other regulatory
agency or governmental body having jurisdiction
over such Sub-Subcontract Services.
24) RECORDS
A. Previous Maintenance Records
1) Prior to the Delivery of each of the Aircraft by MDC to
Subcontractor, whether such Aircraft has been on a United
Airlines, American Airlines or a Federal Express storage
maintenance schedule, MDC shall ensure that the relevant and
available maintenance records for such Aircraft are made
available
to Subcontractor.
B. Recordkeeping
1) Subcontractor shall maintain the following records on the
Services and shall provide to MDC at the time of Redelivery of an
Aircraft all original records or copies of records, as
appropriate, on forms supplied by MDC acceptable to the FAA and
in accordance with the GMM and FAR 43 and 145:
a) component teardown finding reports as required by the FAA;
b) serviceable tags for components;
c) discrepancy reports;
d) documents describing tests and inspections, including test
result data, performed by Subcontractor, if any;
e) photographs of unusual conditions or catastrophic failures;
f) work task cards related to the performed aircraft
maintenance and/or modifications;
g) reports such as aircraft weighing reports, engine trimming
and run up reports, ground and flight test reports and other
special reports;
h) Aircraft Delivery and Acceptance Receipts;
i) summary list of alterations;
j) all engineering orders performed and all Engineering Order
Work Instruction Cards;
k) loose equipment inventory list;
l) Special or non-routine document and Aircraft Maintenance Log
pages;
m) FAA Form 337;
n) Engineering Authorizations and Fleet Campaign Directives
(FCDs) accomplished by Subcontractor; and
o) Complete Master Job Control sheets which account for all
routine and non-routine paperwork including Work Task Cards,
special or non-routine form document, special or non-routine
index form FEC-M-1810, Aircraft Maintenance Log pages and
components serviceable/repairable tags provided or generated
during each Aircraft visit.
2) Subcontractor shall assist MDC in maintaining all records
required by the FAA and the GMM.
3) Subcontractor shall deliver the original or copy, as
applicable, installation sign-offs of all Services and all
records
which substantiate the Services to MDC not later than Redelivery
of an Aircraft to MDC by Subcontractor. All other records
shall be
delivered to MDC within thirty (30) days following such
Redelivery.
4) If requested in writing to Subcontractor all data including,
but not limited to, Technical Data which is not otherwise
specified in this Agreement, and which is required by the FAA to transition
Aircraft into revenue service, will be provided by Subcontractor to MDC as soon
as practicable with a goal of five (5) days after receipt of the request.
C. Aircraft Modification Records
MDC and Subcontractor shall use and comply with the
Aircraft modification documents as required by the
Specifications. All entries in the Aircraft
modification and maintenance records shall be in
accordance with the GMM.
25) ONSITE REPRESENTATION
A. On-Site Personnel
1) MDC and Customer(s) shall have the right to place at the
Conversion Facility up to five (5) representatives for each
Customer (other than Federal Express; Federal Express
Representatives are covered in the MD-10 Agreement) or more than five (5), if
mutually agreed by both parties (who may be employees or agents of MDC and
Customer(s), for the purpose of monitoring the progress of the Services and
Additional Services on the Aircraft ("On-Site Personnel"), including but not
limited to representatives from the following areas in such numbers as are
reasonably required by MDC and Customer(s):
a) Quality Control;
b) Engineering and Modification Planning;
c) Material;
d) Fleet Development.
2) In addition to the MDC's Personnel, MDC and Customer(s)
shall have the right to place at the Conversion Facility
representatives of suppliers and vendors reasonably required by
MDC or Customer(s) and approved by Subcontractor.
B. Subcontractor's Accommodations
1) Subcontractor shall furnish, at no cost to MDC, Customer(s)
or their respective Personnel, standard office accommodations at
the Conversion Facility as required by MDC, and such
accommodations shall include:
a) Subcontractor shall provide suitable standard air-
conditioned office/cubicle space and furnishings, all in
reasonable proximity to the Aircraft;
b) telephones will be provided by Subcontractor on an as needed
basis with outside line access; computer and modem terminal
connections in each office;
c) conveniently located copy and facsimile
machines;
d) secretarial support during normal business
hours;
e) file cabinets and drawer
cabinets on an as needed basis; and
f) other office accommodations
mutually acceptable to MDC and Subcontractor.
2) MDC shall bear the expense of all long distance telephone
calls, under this Agreement, including telex and facsimile,
placed
by MDC's personnel, representatives, or MDC's Customers.
3) Subcontractor shall have no responsibility to pay any
salaries, lodging, travel and food expenses or any other personal
or business expenses relating to such personnel except as
expressly stated in this Article.
4) Notwithstanding anything in this Article
25)B. to the contrary, Subcontractor will have
no obligation to provide MDC more than a
total of thirty (30) offices/cubicles for
MDC's use in connection with this Agreement
and Agreement MSAFR1-SF-97-001 (MD-10).
26) CERTIFICATION
The Services, and each Aircraft upon which the Services
have been performed, shall at the time of Redelivery meet
the FAA requirements for airworthiness certification
and be so certified under all the conditions set
forth in the Specifications.
27) TITLE
A. At all times during the accomplishment of the
Services,
title to each of the Aircraft, shall remain with its registered
owner.
B. Customer(s) or Customer's lessor shall at all times have
full legal title and beneficial ownership in and to the Aircraft.
Subcontractor shall have no independent possessory right in the
Aircraft except as created hereby. Subcontractor shall: (a) be
responsible for any mechanic's or similar liens created pursuant
to the Services or Additional Services being performed hereunder
and any liens associated with the flights contemplated herein
other than in respect of any such liens arising from any act or
failure to act by MDC; and (b) remove any liens arising during and
related to Subcontractor's possession of the Aircraft pursuant to
the terms of this Agreement. At all times while any Aircraft is in
the possession and control of Subcontractor under this Agreement,
Subcontractor shall use reasonable efforts to identify such
Aircraft, including but not limited to material components or
parts that are not attached to or installed on such Aircraft, as
owned by Customer(s). To the extent commercially reasonable, any
material components or parts removed from an
Aircraft will not be commingled with any components or parts not
owned by each of the Customers.
C. Subcontractor acknowledges and agrees that the Aircraft are
owned by Customer(s) Corporation. In the event of any dispute
between MDC and Subcontractor hereunder, Subcontractor agrees
that the Aircraft will be released on schedule, without the
assertion of any possessory rights by Subcontractor, regardless
of such dispute. Subcontractor agrees to waive and hereby
waives, to the maximum extent permitted by law, any and all
liens, charges and claims against the Aircraft. Subcontractor
hereby grants to MDC an irrevocable power of attorney for the
purpose of releasing any such liens, charges and claims, which
power of attorney is coupled with an interest.
28) QUALITY AND STANDARDS
A. Quality Assurance
1) Subcontractor shall assist MDC and shall follow MDC's
instructions consistent with FAA repair station requirements in
maintaining and executing quality assurance procedures to assure
that Subcontractor's workmanship and materials are consistent and
in accordance with standard aircraft manufacturing and repair
practices as set forth in all applicable FARs and the GMM.
Additionally, any Sub-Subcontractor of Subcontractor must be
approved by MDC's Quality Audit Department prior to the
commencement of Services and at all times during the period on
which Services hereunder are being performed.
2) MDC shall have the right to inspect and audit
any work performed for the purpose of monitoring
compliance with FAA regulations and quality
assurance standards deemed applicable by MDC.
Subcontractor shall in no way be relieved of its
responsibilities for assisting MDC in ensuring
aircraft airworthiness and compliance with
appropriate quality assurance standards.
3) All inspections and audits by MDC's
Representative shall be performed in such a
manner as to not delay or hinder the performance
by Subcontractor or its Sub-Subcontractors of
its obligations under this Agreement.
29) PUBLIC DISCLOSURE
A. Each party covenants and agrees that it shall not disclose
the terms of this Agreement or any agreement amending this
Agreement to third parties except as required by law or any third
party in connection with any transaction for the financing of one
or more of the Aircraft. In the event such disclosure is required
by law or required for any third party in connection with any
transaction for the financing of one or more of the Aircraft, each
party further agrees to attach to each page of this Agreement and
supplemental agreements, if any, the following legend:
"This document contains trade secrets and commercial, financial
and proprietary information which are privileged and
confidential and which shall not be disclosed to any
person, governmental agency,
company, corporation or other party except as such
disclosure is required by law."
B. Each party agrees to notify the other party in writing of
any such disclosure they intend to make at least five (5) Business
Days in advance of the date the notifying party is required to
make the disclosure. Further, both parties agree to follow any
other or additional commercially reasonable procedure, if any,
necessary to protect this Agreement or any agreement amending this
Agreement from disclosure to third parties.
C. Subcontractor and MDC shall in each instance obtain the
prior written approval of the other concerning the exact text
and
timing of any and all news releases, articles, brochures,
advertisements, prepared speeches and other informational
releases concerning this Agreement or the Services provided
hereunder, except to the extent required by law.
30) MISCELLANEOUS
A. Independent Contractor
Subcontractor is an independent contractor
and personnel used or supplied by Subcontractor
in
performance of this Agreement shall be and
remain employees or agents of Subcontractor, and
under no circumstances are such personnel to be
considered employees or agents of MDC. Subcontractor
shall have the sole responsibility for supervision
and control of its personnel. Each party assumes
full responsibility for any and all liability on
account of bodily injury to or death of any of its
own employees occurring in the course of their
employment. Each party, with respect to its
own employees, accepts full and exclusive
liability in the payment of Worker's
Compensation or employer's liability insurance
premiums and for the payment of all taxes,
contributions, or other payments for unemployment
compensation or old age benefits, pensions
or annuities imposed by any
government or agency having jurisdiction.
B. Article Headings and Captions
All Article headings and captions used in
this Agreement are for convenient reference and
shall not affect the interpretation of this
Agreement.
C. Compliance with Laws
Both parties agree that in the performance of
this Agreement they will comply with all
applicable
statutes, rules, regulations and orders of the
United States, or of any state, other political
subdivision or agency thereof, including, but not
limited to, laws and regulations pertaining to
safety and other conditions of employment.
D. Exhibits
All Exhibits described in this Agreement shall
be deemed to be incorporated herein and made a
part of this Agreement, except that if there
is any inconsistency between this Agreement and the
provisions of any Exhibit, the provisions of this
Agreement shall control.
E. Entire Agreement
This Agreement supersedes all prior
understandings, representations, negotiations and
correspondence between the parties and
constitutes the entire agreement between the
parties with respect to the transaction
contemplated herein and, except as
otherwise provided, shall not in any manner
be
supplemented, amended or modified by any course
of dealing, course of performance or usage of trade
or by any other means except by a written instrument
executed on behalf of the parties by their duly
authorized officers or officials, as applicable.
F. Legality of Provisions
If any provision of this Agreement shall be held to
be invalid, illegal or unenforceable, the
validity, legality and enforceability of the
remaining provisions shall not in any way be affected
or impaired thereby.
G. No Waiver
The failure of either Party to enforce at any
time any of the provisions of this Agreement, or to
exercise any option herein provided, or to require
at any time performance by the other Party of any of
the provisions
hereof, shall in no way be construed to be a present
or future waiver of such provision, nor in any way
affect the validity of this Agreement or any part
hereof, or the right of the other Party at any
time to enforce each and every provision hereof.
Without limiting any of the foregoing, the waiver
(whether one or more times) by either party of
any provision, condition or requirement of this
Agreement shall not constitute a waiver of any
future obligation to comply with such provision,
condition or requirement.
H. Further Assurances
Each party agrees that it will take such
actions, provide such documents, do such things and
provide such further assurances as may reasonably be
requested by the other party during the term of
this Agreement. Each party agrees to provide to the
other, from time to time, such generally available
financial information as the other party may
reasonably request to determine their respective
ability to perform obligations under this Agreement
including, but not limited to, an annual financial
statement during each year of the term.
I. Survival
In addition to any other provisions in this
Agreement which by their terms shall survive this
Agreement, the obligations and duties set forth in
Articles 4, 6, 8, 9, 10, 14, 19, 27 and 30 shall
survive the expiration or earlier termination of this
Agreement.
J. Amendment
Except as otherwise provided, this Agreement shall
not be amended or modified except by written
agreement signed on behalf of MDC's and
Subcontractor's respective authorized officers.
K. Conflict
In the event of any conflict or inconsistency
between any provisions of Articles 1-33 of this
Agreement and the Specification or any other
Exhibit or document attached hereto or
incorporated herein, the provisions of this Agreement
shall control.
31) AFFIRMATIVE ACTION
A. Subcontractor's Responsibilities
1) To the extent applicable, Subcontractor agrees to comply
with the affirmative action requirements applicable to contracts
with U.S. government contractors as set forth in Title 41 of the
Code of Federal Regulations. The provisions of said regulations
are incorporated by reference into this Agreement.
2) Prior to performance of the Services, Subcontractor shall
provide evidence satisfactory to MDC that Subcontractor has in
place an Anti-Drug and Alcohol Program for its employees and the
employees of subcontractors who perform safety-sensitive or
security related services in compliance with 14 C.F. R. 121.429,
121.455, 121.457, 121.458, 121.459 and Appendix I and Appendix J
to 14 C.F.R. Part 121 If at any time during the term of this
Agreement MDC or the FAA discovers, and the FAA determines that
Subcontractor, its employees or Sub-Subcontractors are not
in full
compliance with 14 C.F.R. 121.429, 121.455, 121.457, 121.458,
121.459 and Appendix I and Appendix J to 14 C.F.R. Part 121, and
as a result of such determination the FAA Administrator issues an
order suspending or revoking MDC's or Subcontractor's or its Sub-
Subcontractor's repair station certificate, then MDC shall have
the right, in addition to any and all other remedies at law or in
equity, to immediately terminate the Agreement for default
(without regard to any cure periods set forth with regard to
default in this Agreement) and secure a replacement contractor.
Subcontractor acknowledges that MDC has entered into this
Agreement in reliance on Subcontractor's representation that
it is in compliance with the requirements of the Federal Aviation
Administration's drug and alcohol testing requirements for the
aviation industry.
3) Subject to the provisions of Article 9 of this Agreement,
Subcontractor agrees to indemnify, and defend and hold harmless
MDC, its officers, directors and employees from and against any
and all claims, liabilities, losses and expenses (including
reasonable attorneys' fees) arising in connection with
Subcontractor's failure to comply with the provisions of this
Article.
32. TERMINATION FOR CONVENIENCE
A. MDC may terminate in whole or in part performance
of work on the firm Aircraft or any Aircraft for
which an option has been exercised under this
Agreement, if MDC determines that a termination is
in its interest. MDC shall
terminate by delivering to Subcontractor a
"Notice of Termination", specifying the extent
of termination and the effective date.
B. Upon receipt of the Notice, Subcontractor
is
obligated to perform the following actions:
1) Stop Work as specified in the Notice.
2) Place no further subcontract or
orders
except as provided in the Notice of
Termination and as authorized by MDC.
3) Terminate all existing subcontracts
to the extent they relate to the work
terminated.
4) As directed by MDC, transfer title
and
deliver to MDC the fabricated or not
fabricated parts, work in process, completed
work, supplies or other material produced or
acquired for the work terminated.
5) Return, as soon as practicable,
the tools, equipment, MDC/Federal Express
furnished material and all other property
owned by
MDC/Federal Express used by Subcontractor in
the performance of the contract.
C. Upon issuing a Notice of Termination, MDC will
be
obligated to reimburse Subcontractor as follows:
1) Time and material repayment for all
work performed as authorized by MDC yet not
invoiced by MDC, at an agreed-to rate of
$41.00 per hour including any other work
authorized under ASRs; plus
2) If the Notice of Termination was
issued with respect to any of the initial four
(4) firm Aircraft, the lesser of $500,000.- or
the actual cost of plant disruption over the
following six (6) months. No payment shall be
made pursuant to this subparagraph (C) (2)
for terminations of exercised options.
D. Payment of termination settlements are
as
follows:
1) Time and material reimbursement for
work performed and authorized by MDC, but
not yet invoiced is payable to Subcontractor
thirty (30) days after receipt of an approved
invoice by MDC.
2) The remaining Termination
for
Convenience costs are reimbursed as follows:
a) An initial installment
of $250,000.- is to be paid thirty (30)
days after the receipt of Notice of
Termination.
b) The final payment
representing
remainder of the value defined in
32.C(2) above, shall be paid within 240
days of the receipt
of the Notice of Termination,
provided that all
MDC/Federal
Express/Customer Furnished material,
tooling, and aircraft with work in
process are returned within 180 days from
the date of the Notice of Termination or
per MDC's direction, whichever is sooner.
c) In the event that the
actual
costs of plant shutdown and
reactivation described in Paragraph
32.C(.2) above are less than $500,000.-
, the amount of any overpayment
shall be refunded by
Subcontractor to MDC within five (5)
Business Days, with interest from the
date of such overpayment.
33. PARENT COMPANY GUARANTEE
Subcontractor agrees to deliver to MDC within ten
(10) Business Days following execution of this
Agreement the Parent Company Guarantee in the form
attached hereto as Exhibit "Y," executed by a duly
authorized representative of its parent company,
Sabreliner Corporation.
34. DOCUMENTS INCORPORATED INTO MODIFICATION SERVICES
AGREEMENT The following documents are hereby
incorporated into and made a part of this Agreement.
Copies of actual documents are enclosed with this
Agreement.
A. Quality Assurance, MD-10 Program, Statement of
Work,
October 10, 1996
B. Seller DATA Requirements List (SDRL)
Administrative & General Provisions
DATA ITEM NO. TITLE
P-313 SUPPLIER MASTER SCHEDULE and
MONTHLY STATUS REPORT P-313A
PROBLEM REPORTS
P-336 KEY PERSONNEL
Q-327 QUALITY ASSURANCE PLAN -
HARDWARE
Q-328 LOWER-TIER SUPPLIER DATA
REQUIREMENTS
M-306A
PRODUCTION/MANUFACTURING/ASSE
MBLY MANAGEMENT PLAN
M-311 PACKING DATA
C. Section 1.8, Manufacturing Requirements
D. Section 1.9, DAC Document C652-74916-TDSI
35. EXHIBITS
The following Exhibits are hereby incorporated into and
made a part of this Modification Services Agreement.
NO. EXHIBIT TITLE
-- A RECONFIGURE FOR DELIVERY COMMERCIAL AIRCRAFT
STATEMENT OF WORK (GENERAL SOW)
-- B FEDERAL EXPRESS SOW
-- C KOREAN SOW
-- D EVA SOW
-- E RESERVED
-- F RESERVED
-- G RESERVED
-- H RESERVED
-- I RESERVED
-- J RESERVED
-- K RESERVED
-- K RESERVED
-- K RESERVED
-- K RESERVED
NO. EXHIBIT TITLE
-- K RESERVED
-- L RESERVED
-- M RESERVED
-- N RESERVED
-- O RESERVED
-- P MDC/CUSTOMER SUPPLIED PARTS LISTING
-- Q AIRCRAFT DELIVERY RECEIPT
-- R CERTIFICATE OF ACCEPTANCE AND REDELIVERY
-- S ADDITIONAL SERVICES REQUEST AUTHORIZATION
FORM
-- T SUPPLIER CHANGE PROPOSAL (SCP), DAC 26-
710
(REV. 7-88)
-- U SUPPLIER REQUIREMENTS SCHEDULE
-- V PRICE ADJUSTMENTS FOR FLUCTUATIONS IN
THE
ECONOMY
-- W PRICING
-- X MDC FURNISHED TOOLING
-- Y PARENT COMPANY GUARANTEE
-- Z LETTER OF CREDIT
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed, as of the date first above, by their
officers or agents there unto duly authorized.
DIMENSION AVIATION, INC.
BY:/s/ Thomas F. Derieg 2/14/97
_____________________________
ITS: Thomas F. Derieg
TITLE: V.P. and General Manager
MCDONNELL DOUGLAS CORPORATION
BY: /s/ Timothy T. Kuboshige
2/14/97
ITS: Timothy T. Kuboshige
TITLE: Director, Supplier
Management-Product Support
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