-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AxoAwXy/FJKb8HJlt89KmtAbuVQP4L5W9yhgobWlIIHGZr+Mflwv+TURxYfZhAvD 6j3C8objf9i30Nc2MgIYgA== 0000859307-02-000019.txt : 20021015 0000859307-02-000019.hdr.sgml : 20021014 20021015153637 ACCESSION NUMBER: 0000859307-02-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20020831 FILED AS OF DATE: 20021015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL AIRLINE SUPPORT GROUP INC CENTRAL INDEX KEY: 0000859307 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MACHINERY, EQUIPMENT & SUPPLIES [5080] IRS NUMBER: 592223025 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12893 FILM NUMBER: 02789192 BUSINESS ADDRESS: STREET 1: 1954 AIRPORT ROAD STREET 2: SUITE 200 CITY: ATLANTA STATE: GA ZIP: 30341 BUSINESS PHONE: 7704557575 MAIL ADDRESS: STREET 1: 1954 AIRPORT ROAD STREET 2: SUITE 200 CITY: ATLANTA STATE: GA ZIP: 30341 10-Q 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended August 31, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ________________ to __________________. Commission file number 0-18352 ------- INTERNATIONAL AIRLINE SUPPORT GROUP, INC. ----------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 59-2223025 -------- ---------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1954 Airport Road, Suite 200, Atlanta, GA 30341 - ----------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (770) 455-7575 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of the Company's common stock outstanding as of October 6, 2002 was 2,156,497. FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARYINDEX Page No. --------- Part I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of 3 May 31, 2002 and August 31, 2002 Condensed Consolidated Statements of Operations for the Three Months Ended August 31, 2001 and August 31, 2002 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended August 31, 2001 and August 31, 2002 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 Item 4. Controls and Procedures 17 Part II OTHER INFORMATION Item 1. Legal Proceedings 18 Item 3. Defaults with respect to Senior Securities 18 Item 6. Exhibits and Reports on Form 8-K 18 FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS ASSETS
May 31, August 31 2002* 2002 ------------ ----------- (unaudited) Current assets Cash and cash equivalents $ 80,316 $ 163,507 Accounts receivable, net of allowance for doubtful accounts of $116,295 at May 31, 2002 and $127,566 at August 31, 2002 991,535 636,457 Accounts receivable - related party, net of allowance for doubtful accounts of $618,987 at May 31, 2002 and $1,081,689 at August 31, 2002 225,000 47,750 Inventories, including aircraft and engines available for sale 7,836,564 7,413,479 Other current assets 194,401 219,386 Current portion note receivable - related party 141,818 141,818 ------- ------- Total current assets 9,469,634 8,622,397 Property and equipment Aircraft and engines held for lease 6,375,000 6,375,000 Aircraft and engines held for lease-related party 11,205,348 10,594,162 Leasehold improvements 166,991 166,991 Machinery and equipment 1,124,825 1,131,735 --------- --------- 18,872,164 18,267,888 Less accumulated depreciation 3,135,446 3,426,746 --------- --------- Property and equipment, net 15,736,718 14,841,142 ---------- ---------- Other assets Note Receivable - related party, net 158,182 158,182 Deferred debt costs, net 100,508 82,628 ------- ------ Total other assets 258,690 240,810 ------- ------- $ 25,465,042 $ 23,704,349 = ========== = ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term obligations in default 19,719,089 20,106,359 Accounts payable 1,137,645 903,104 Accrued expenses 445,594 392,188 ------- ------- Total current liabilities 21,302,328 21,401,651 Long-term obligations, less current maturities - - Stockholders' equity Preferred stock - $.001 par value; authorized 2,000,000 shares; no shares outstanding at May 31, 2002 and August 31, 2002. - - Common stock - $.001 par value; authorized 20,000,000 shares; issued and outstanding 2,661,723 shares at May 31, 2002 and 2,673,723 shares at August 31, 2002. 2,661 2,673 Additional paid-in capital 13,902,909 13,909,497 Deferred compensation (67,840) (56,320) Retained earnings (7,662,626) (9,540,762) Common stock in treasury, at cost - 515,226 and 517,226 shares at May 31, 2002 and August 31, 2002 (2,012,390) (2,012,390) ----------- ----------- Total stockholders' equity 4,162,714 2,302,698 --------- ---------- $ 25,465,042 $ 23,704,349 = ========== = ==========
*Condensed from audited Financial Statements The accompanying notes are an integral part of these condensed financial statements - 3 - FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended August 31, August 31, 2001 2002 ------------ ---------- Revenues Net sales $ 3,927,858 $ 1,705,361 Lease and service revenue 503,632 255,000 Lease revenue - related party 225,000 119,285 ------- ------- Total revenues 4,656,490 2,079,646 Cost of sales 2,899,126 1,418,946 Selling, general and administrative expenses 1,164,214 1,077,777 Depreciation - property and equipment 12,302 11,854 Depreciation - aircraft and engines held for lease - related party 224,637 306,557 ------- ------- Total costs 4,300,279 2,815,134 Equity in net earnings (loss) of unconsolidated joint ventures, net 156,381 (283,021) Impairment of aircraft - (611,186) ------- --------- Income (loss) from operations 512,592 (1,629,695) Interest expense 416,288 263,872 Interest and other income (11,217) (15,431) -------- -------- Earnings (loss) before income taxes 107,521 (1,878,136) Provision for income taxes 106,701 - ------- --------- Net earnings (loss) $ 820 $ (1,878,136) = === = =========== Per share data: Earnings (loss) per share available for common stockholders - Basic $ - $ (0.87) Weighted average number of common stock outstanding - Basic 2,021,497 2,147,562 ========= ========= Earnings (loss) per share available for common stockholders - Diluted $ - $ (0.87) Weighted average number of common stock outstanding - Diluted 2,023,654 2,147,562 ========= =========
The accompanying notes are an integral part of these condensed financial statements - 4 - FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three months ended August 31, August 31, 2001 2002 ---------- ---------- Cash flows from operating activities: Net earnings (loss) $ 820 $ (1,878,136) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 236,939 318,411 (Earnings) loss of joint ventures (156,381) 283,021 Provision for doubtful accounts 38,430 17,034 Change in inventory 153,637 423,085 Changes in other assets and liabilities 292,023 539,415 ------- ------- Total adjustments 564,648 1,580,966 Net cash provided by (used in) operating activities 565,468 (297,170) Cash flows from investing activities: Capital equipment additions (25,491) (6,909) Aircraft and engine expenditures (271,573) - Distributions from unconsolidated joint ventures 96,871 - Investment in unconsolidated joint ventures 28,133 - ------ ------- Net cash (used in) investing activities (172,060) (6,909) Cash flows from financing activities: Net increase (decrease) in debt obligations (363,455) 387,270 --------- ------- Net cash provided by (used in) financing activities (363,445) 387,270 --------- ------- Net increase in cash 29,963 83,191 Cash and cash equivalents at beginning of period 70,290 80,316 ------ ------ Cash and cash equivalents at end of period $ 100,253 $ 163,507 = ======= = =======
The accompanying notes are an integral part of these condensed financial statements. - 5 - INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain adjustments (consisting only of normal and recurring adjustments) necessary to present fairly International Airline Support Group, Inc. and Subsidiaries' condensed consolidated balance sheets as of May 31, 2002 and August 31, 2002, the condensed consolidated statements of operations for the three months ended August 31, 2001 and August 31, 2002, and the condensed consolidated statements of cash flows for the three months ended August 31, 2001 and August 31, 2002. The accounting policies followed by the Company are described in the May 31, 2002 financial statements. The results of operations for the three months ended August 31, 2002 are not necessarily indicative of the results to be expected for the full year. 2. Inventories consisted of the following: May 31,2002 August 31,2002 ------------ --------------- Aircraft parts $ 6,110,083 $ 5,714,109 Aircraft and Engines available for sale 1,726,481 1,699,370 ----------- ----------- $ 7,836,564 $ 7,413,479 =========== =========== 3. Earnings Per Share: The Company's basic earnings (loss) per share are calculated by dividing net earnings (loss) by the weighted average shares outstanding during the period. The computation of diluted earnings per share includes all dilutive common stock equivalents in the weighted average shares outstanding. Financial Accounting Standards Board (FASB) Statement 128 "Earnings Per Share" was adopted by the Company on January 1, 1998 and requires the dual presentation of basic and diluted earnings per share on the face of the statement of earnings. The reconciliation between the computations is as follows: Three Months Ended Net Basic Basic Diluted Diluted August 31, Earnings (loss) Shares EPS Shares EPS - ----------- ---------------- ------ --- ------ --- 2001 $ 820 2,021,497 $ - 2,023,654 $ - 2002 $ (1,878,136) 2,147,562 $(0.87) 2,147,562 $(0.87) INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. Earnings (loss) Per Share (cont.): Included in diluted shares are 2,157 common stock equivalents relating to stock options for the three months ended August 31, 2001. Common stock equivalents have been excluded from the diluted per share calculation for the three months ended August 31, 2002, as the Company incurred a net loss and their inclusion would have been anti-dilutive. Potential common stock equivalents at August 31, 2002 were outstanding stock options to purchase 668,796 shares of the Company's common stock with exercise prices ranging from $0.55 to $3.31 per share. 4. Reclassifications: Certain prior year amounts have been reclassified to conform with the current year presentation. 5. Credit Facility: The Company obtains working capital and long-term financing for inventory and aircraft acquisitions pursuant to the Credit Facility. The Credit Facility includes a revolving credit facility that permits the Company to borrow up to $14 million. It also includes two term loans that totaled approximately $7.8 million as of August 31, 2002. The Credit Facility matures in December 2005. The Company is required to make monthly repayments of the principal of the term loans. The interest rate that the Company pays on borrowings pursuant to the Credit Facility is subject to fluctuation and may change based upon certain financial covenants. As of September 1, 2002, the effective interest rate under the Credit Facility was the lender's base rate plus 1.75% (6.5%), which is based on the default rate specified in the Credit Facility. The Credit Facility is secured by substantially all of the assets of the Company and availability of amounts for borrowing is subject to certain limitations and restrictions. As of the date hereof, the Company is not in compliance with certain covenants included in the Credit Facility and has defaulted on the payment of certain installments of principal of the term loans. The Company ceased to be in compliance with the covenants during the second quarter of fiscal 2002 when it recorded a non-cash impairment charge to eliminate the Company's investment in Air 41 LLC. A payment default occurred on August 31, 2002, upon the Company's failure to make a principal payment in the amount of approximately $216,000 with respect to the term loans. As a result of these defaults, the entire principal amount of the indebtedness outstanding under the Credit Facility has been classified as current in the accompanying balance sheet at August 31, 2002. - 6 - INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. Credit Facility (cont.): The Company and its lender have entered into a forbearance letter, pursuant to which the lender has agreed that it will not exercise the remedies available to it under the Credit Facility and that it will continue to advance funds to the Company in accordance with the terms of the Credit Facility. The lender's agreements terminate if the Company defaults on the performance of the terms of the Credit Facility other than the default that occurred when the Company failed to make a principal payment on August 31, 2002. The Company is required, pursuant to the forbearance letter, to provide weekly cash flow budgets to the lender, to cooperate with a consultant hired by the lender to evaluate the Company's prospects and to pay the lender's fees and expenses in connection with its evaluation of the Company. The forbearance letter expires if the Company and the lender have not entered into a formal forbearance agreement by October 31, 2002. Upon the expiration or earlier termination of the forbearance letter, the Company's lender could accelerate the Company's obligation to repay the amount of all borrowings outstanding under the Credit Facility, could refuse to extend additional credit to the Company and could foreclose on its lien on the Company's assets. The Company would be unable to continue operations if the lender took such actions. The report of the independent certified public accountants on the financial statements that accompany the Company's Annual Report on Form 10-K, for the year ended May 31, 2002, includes a paragraph that indicates the uncertainty about the Company's ability to continue as a going concern. The Company and its lender are negotiating the terms of a revised credit facility. In the negotiations, the Company is, among other things, seeking to delay the repayment of principal amounts due with respect to the term loans. The Company's lender had agreed that the Company would not be required to pay the monthly repayment of principal amounts for the month of September 2002. The Company has not made the payment for October 2002. The Company's lender is continuing to extend credit under the Credit Facility, although the Company has had no availability under the Credit Facility since September 15, 2002. As of October 6, 2002, the Company's lender had over advanced the Company approximately $115,000 pursuant to the revolving Credit Facility. The Company has no assurances, however, that the lender will continue to do so. The Company is continuing its negotiations with its lender but has no assurances that it will be able to consummate a revised credit facility with the lender. Accordingly, the Company is pursuing other alternatives. Such alternatives include discussions with other potential sources of financing and with companies that might pursue a business combination transaction with the Company. The Company has no assurance that any of such alternatives will materialize. - 7 - INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6. Supplemental Cash Flow Disclosures: Cash payments for interest were $416,000 and $263,000 for the three months ended August 31, 2001 and August 31, 2002, respectively. Cash and cash equivalents include $29,000 and $69,000 of restricted cash at May 31, 2002 and August 31, 2002, respectively. Restricted cash includes customer receipts deposited into the Company's lockbox account, which are applied the next business day against the outstanding amount of the Credit Facility, and customer deposits on aircraft and engines leases. 7. Related Party Transactions: The Company had notes receivables from affiliate in the principal amount of $300,000, net of reserves, as of August 31, 2002 and May 31, 2002 relating to loans provided to North-South Airways (North-South) (see Note 8), which are secured by aircraft operated by the airline. The loans bear interest at 9.50% per annum, with monthly principal payments extending through August 2004. The Company believes that the interest rate on the loans is consistent with the market for similar loans. For more information, see Note 8 - Unconsolidated Subsidiaries. As of August 31, 2002, the Company leased three EMB-120 aircraft to North-South. The leases originated from September 2000 to February 2001 and have three-year terms. The leases contain similar terms and conditions to other EMB-120 aircraft leases entered into by the Company. Total lease revenue from these aircraft leases was approximately $119,000 and $225,000 for the three months ended August 31, 2002 and 2001, respectively. The Company performs certain administrative services on behalf of North-South, for which the Company charges North-South $5,000 per month. As of August 31, 2002 and May 31, 2002, the Company has receivables due, net of reserves, from North-South of approximately $47,000 and $225,000, respectively. - 8 - INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 8. Unconsolidated Subsidiaries: In April 2000, the Company purchased all of the outstanding stock of North-South, a small regional airline that operates under an Air Carrier Certificate under Part 135 of the regulations of the Federal Aviation Administration. The Company purchased North-South for approximately $125,000 in cash and approximately $880,000 in assumed debt. The acquisition was accounted for as a purchase and accordingly, the assets and liabilities were recorded at their estimated fair values at the date of acquisition. No goodwill was recorded as a result of this acquisition. The results of operations of North-South are included in the accompanying consolidated statement of operations as of the date of the acquisition. In September 2000, North-South sold shares of its common stock raising approximately $1,000,000. This sale of stock reduced the Company's ownership interest in North-South from 100% to approximately 33%. Accordingly, commencing September 2000, the Company began accounting for its investment in North-South under the equity method. Equity in net loss of unconsolidated joint ventures related to North-South was approximately $283,000 and $173,000 for the three months ended August 31, 2002 and 2001, respectively. The Company is in negotiations with certain third parties who have expressed an interest in providing equity capital to North-South. There can be no assurances that such parties will provide any equity capital. The Company has fully reserved all advances, trade accounts receivable and notes receivable due from North-South other than $47,750 that has been collected in September 2002. 9. Recent Developments: In fiscal 1999, the Company entered into a joint venture called Air 41 LLC for the acquisition of 20 DC-9-41H aircraft from Scandinavian Airlines System ("SAS"). The aircraft were leased back to SAS. The Company's initial investment in the joint venture was approximately $1.5 million. The aircraft were financed through the joint venture, utilizing non-recourse debt to the partners. In connection with the financing, the Company was required to post a $1.15 million letter of credit. As a result of the September 11, 2001 terrorist attacks on the U.S. and its impact on the aviation industry, Air 41 LLC re-evaluated the market value of its aircraft and wrote down the carrying value of its aircraft. In the second quarter of fiscal 2002, the Company recorded a non-cash impairment charge in the amount of $6,024,320 related to its investment in the joint venture. The impairment charge eliminated the Company's investment in the joint venture. During the fourth quarter of fiscal 2002, the lender to the joint venture drew the full amount of the letter of credit, which increased the amount of indebtedness outstanding under the Company's credit agreement by $1.15 million. Accordingly, the Company increased its impairment charge by this amount. During the first quarter of fiscal 2003, the joint venture reached an agreement with its lender to transfer its aircraft to the lender in exchange for the cancellation of the joint venture's indebtedness. The lender and the Company executed mutual releases in connection with the agreement between the lender and the joint venture. During the first quarter of fiscal 2003, the Company received a payment of $185,000 from the lender upon the consummation of the agreement between the lender and the joint venture. In exchange for this payment, the Company released any and all claims it may have had against the lender and the joint venture. - 9 - INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 9. Recent Developments (cont.): As of September 30, 2002, the Company received a notice of default and demand for payment under the Term Loan Agreement dated December 20, 2000, between the Company and Bombardier Capital. The loan, the principal amount of which is approximately $1,560,000, is secured by one of the Company's EMB-120 aircraft. The Company has not been able to make the monthly installments of principal and interest with respect to this loan since August 2002. The total amount past due is approximately $44,000. The lender has demanded payment in full of the amounts in default within 30 days from the date of the notice. It has stated that it may pursue and enforce all rights and remedies to which it is entitled under the loan agreement, including the repossession and sale of the aircraft if the amounts due are not repaid within such period. The Company does not have sufficient funds to repay the amount due and cannot obtain them by means of an advance under the Credit Facility. Accordingly, the Company expects that Bombardier Capital will repossess the aircraft and sell it for the best price obtainable. The Company will be liable to Bombardier Capital for any amount of the loan remaining unpaid after the aircraft is sold. As a result of this default under the Term Loan Agreement, the Company recorded an impairment charge of $611,186 related to the aircraft collateralizing the indebtedness owed to Bombardier Capital during the three months ended August 31, 2002 in order to write down the value of the aircraft to its estimated selling price upon foreclosure. 10. New Accounting Pronouncements: In July 2002, the FASB issued Statement 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 nullifics EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The statement provides guidance on the accounting and disclosure requirements for companies that incur costs to exit an activity. SFAS 146 is effective for exit or disposal activities initiated after December 31, 2002. Early application is encouraged. Restatement of previously issued financial statements is prohibited. Management believes that this standard will not have a material impact on its current operations. - 10 - INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following is management's discussion and analysis of certain significant factors which have affected the Company's operating results and financial position during the periods included in the accompanying condensed consolidated financial statements. RESULTS OF OPERATIONS: - ------------------------ Revenues - -------- Total revenue decreased 54% from $4.6 million for the three months ended August 31, 2001 to $2.1 million for the three months ended August 31, 2002, primarily due to decreases in net sales and lease revenue. Net sales for the three months ended August 31, 2002 were $1.7 million compared to $3.9 million for the three months ended August 31, 2001, primarily relating to a decrease in part sales and engine sales. The decline in parts sales is attributable to the weaker economy, pricing pressure from our competition, a higher percentage of turboprop part sales compared to jet part sales and a higher percentage of expendable part sales compared to rotable part sales. Turboprop parts on average tend to have lower selling prices than equivalent jet parts, while expendable parts also tend to sell for less than rotable parts. Engine sales are unpredictable transactions and may fluctuate significantly from year to year, dependent, in part, upon the Company's ability to purchase an engine at an attractive price and resell it within a relatively brief period of time, as well as the overall market for used engines. Lease revenue for the three months ended August 31, 2002 was $255,000, compared to $504,000 for the three months ended August 31, 2001. Lease and service revenue to North-South decreased from $225,000 during the three months ended August 31, 2001 to $119,000 during the three months ended August 31, 2002. Cost of Sales - --------------- Cost of sales decreased 51% from $2.9 million during the three months ended August 31, 2001 to $1.4 million during the three months ended August 31, 2002, resulting primarily from a decrease in sales. As a percentage of total revenue, cost of sales for the three months ended August 31, 2002 was 68%, compared to 62% for the three months ended August 31, 2001. This increase was due primarily to a write off of a prepayment under an inventory agreement during the first quarter of fiscal 2003. The write off was approximately $106,000. The gross profit margin percentage on part sales decreased from 26% for the three months ended August 31, 2001 to 17% for the three months ended August 31, 2002. This decrease was due to the write off mentioned above, the weaker economy and pricing pressure from our competition. Selling, General and Administrative Expenses - ------------------------------------------------ Selling, general and administrative expenses decreased 8%, from $1.2 million for the three months ended August 31, 2001 to $1.1 million for the three months ended August 31, 2002, resulting from decreases in commissions, owned aircraft expense, and travel and entertainment expense, partially offset by higher insurance expense and legal and other professional fees. The decreases in commissions and travel and entertainment expense were primarily due to reduced sales. - 11 - INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY Depreciation and Amortization - ------------------------------- Depreciation and amortization increased from $237,000 for the three months ended August 31, 2001 to $318,000 for the three months ended August 31, 2002, primarily due to more assets being on lease during the quarter. Equity in Net Earnings (Loss) of Unconsolidated Joint Ventures - ---------------------------------------------------------------------- Equity in net loss of unconsolidated joint ventures for the three months ended August 31, 2002 was $283,000, compared to earnings of $156,000 for the three months ended August 31, 2001. The equity in net earnings of $156,000 for the three months ended August 31, 2001 consisted of earnings of $329,000 from Air 41 LLC and a loss of $173,000 from North-South. During the first quarter of fiscal 2003, Air 41 LLC reached an agreement, dated as of August 9, 2002, with its lender and ceased its operations on June 1, 2002 (see Note 9). Impairment of Aircraft - ------------------------ As of September 30, 2002, the Company received a notice of default and demand for payment under the Term Loan Agreement dated December 20, 2000, between the Company and Bombardier Capital. The loan, the principal amount of which is approximately $1,560,000, is secured by one of the Company's EMB-120 aircraft. The Company has not been able to make the monthly installments of principal and interest with respect to this loan since August 2002. The total amount past due is approximately $44,000. The lender has demanded payment in full of the amounts in default within 30 days from the date of the notice. It has stated that it may purse and enforce all rights and remedies to which it is entitled under the Loan Agreement, including the repossession and sale of the aircraft if the amounts due are not repaid within such period. The Company does not have sufficient funds to repay the amount due and cannot obtain them by means of an advance under the Credit Facility. Accordingly, the Company expects that Bombardier Capital will repossess the aircraft and sell it for the best price obtainable. The Company will be liable to Bombardier Capital for any amount of the loan remaining unpaid after the aircraft is sold. As a result of this default under the Term Loan Agreement, the Company recorded an impairment charge of $611,186 related to the aircraft collateralizing the indebtedness owed to Bombardier Capital during the three months ended August 31, 2002 in order to write down the value of the aircraft to its estimated selling price upon foreclosure. Interest Expense - ----------------- Interest expense for the three months ended August 31, 2001 was $416,000 compared to $263,000 for the three months ended August 31, 2002. This decrease in interest expense is due to a decrease in interest rates. Net Earnings (loss) - --------------------- Loss for the first quarter of fiscal 2002 was ($0.87) per share - diluted, based on 2,147,562 weighted average shares outstanding, compared to earnings for the first quarter of fiscal 2001 of $0.00 per share - diluted, based on 2,023,654 weighted average shares outstanding. - 12 - INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY Liquidity and Capital Resources - ---------------------------------- The Company obtains working capital and long-term financing for inventory and aircraft acquisitions pursuant to the Credit Facility. The Credit Facility includes a revolving credit facility that permits the Company to borrow up to $14 million. It also includes two term loans that totaled approximately $7.8 million as of August 31, 2002. The Credit Facility matures in December 2005. The Company is required to make monthly repayments of the principal of the term loans. The interest rate that the Company pays on borrowings pursuant to the Credit Facility is subject to fluctuation and may change based upon certain financial covenants. As of September 1, 2002, the effective interest rate under the Credit Facility was the lender's base rate plus 1.75% (6.5%), which is based on the default rate specified in the Credit Facility. The Credit Facility is secured by substantially all of the assets of the Company and availability of amounts for borrowing is subject to certain limitations and restrictions. As of the date hereof, the Company is not in compliance with certain covenants included in the Credit Facility and has defaulted in the payment of installments of principal of the term loans. The Company ceased to be in compliance with the covenants during the second quarter of fiscal 2002 when it recorded a non-cash impairment charge to eliminate the Company's investment in Air 41 LLC. A payment default occurred on August 31, 2002, upon the Company's failure to make a principal payment in the amount of approximately $216,000 with respect to the term loans. As a result of the defaults, the entire principal amount of the indebtedness outstanding under the Credit Facility has been classified as current in the accompanying balance sheet at August 31, 2002. The Company and its lender have entered into a forbearance letter, pursuant to which the lender has agreed that it will not exercise the remedies available to it under the Credit Facility and that it will continue to advance funds to the Company in accordance with the terms of the Credit Facility. The lender's agreements terminate if the Company defaults in the performance of the terms of the Credit Facility other than the default that occurred when the Company failed to make a principal payment on August 31, 2002. The Company is required, pursuant to the forbearance letter, to provide weekly cash flow budgets to the lender, to cooperate with a consultant hired by the lender to evaluate the Company's prospects and to pay the lender's fees and expenses in connection with its evaluation of the Company. The forbearance letter expires if the Company and the lender have not entered into a formal forbearance agreement by October 31, 2002. Upon the expiration or earlier termination of the forbearance letter, the Company's lender could accelerate the Company's obligation to repay the amount of all borrowings outstanding under the Credit Facility, could refuse to extend additional credit to the Company and could foreclose on its lien on the Company's assets. The Company would be unable to continue operations if the lender took such actions. The report of the independent certified public accountants on the financial statements that accompany the Company's Annual Report on Form 10-K, for the year ended May 31, 2002, includes a paragraph that indicates the uncertainty about the Company's ability to continue as a going concern. - 13 - INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY Liquidity and Capital Resources (cont.) - ------------------------------------------- The Company and its lender are negotiating the terms of a revised credit facility. In the negotiations, the Company is, among other things, seeking to delay the repayment of principal amounts due with respect to the term loans. The Company's lender had agreed that the Company would not be required to pay the monthly repayment of principal amounts for the month of September 2002. The Company has not made the payment for October 2002. The Company's lender is continuing to extend credit under the Credit Facility, although the Company has had no availability under the Credit Facility since September 15, 2002. As of October 6, 2002, the Company's lender had over advanced the Company approximately $115,000 pursuant to the Credit Facility. The Company has no assurances, however, that the lender will continue to do so. The Company is continuing its negotiations with its lender but has no assurances that it will be able to consummate a revised credit facility with the lender. Accordingly, the Company is pursuing other alternatives. Such alternatives include discussions with other potential sources of financing and with companies that might pursue a business combination transaction with the Company. The Company has no assurance that any of such alternatives will materialize. Recent Developments - -------------------- In fiscal 1999, the Company entered into a joint venture called Air 41 LLC for the acquisition of 20 DC-9-41H aircraft from Scandinavian Airlines System ("SAS"). The aircraft were leased back to SAS. The Company's initial investment in the joint venture was approximately $1.5 million. The aircraft were financed through the joint venture, utilizing non-recourse debt to the partners. In connection with the financing, the Company was required to post a $1.15 million letter of credit. As a result of the September 11, 2001 terrorist attacks on the U.S. and its impact on the aviation industry, Air 41 LLC re-evaluated the market value of its aircraft and wrote down the carrying value of its aircraft. In the second quarter of fiscal 2002, the Company recorded a non-cash impairment charge in the amount of $6,024,320 related to its investment in the joint venture. The impairment charge eliminated the Company's investment in the joint venture. During the fourth quarter of fiscal 2002, the lender to the joint venture drew the full amount of the letter of credit, which increased the amount of indebtedness outstanding under the Company's credit agreement by $1.15 million. Accordingly, the Company increased its impairment charge by this amount. During the first quarter of fiscal 2003, the joint venture reached an agreement with its lender to transfer its aircraft to the lender in exchange for the cancellation of the joint venture's indebtedness. The lender and the Company executed mutual releases in connection with the agreement between the lender and the joint venture. During the first quarter of fiscal 2003, the Company received a payment of $185,000 from the lender upon the consummation of the agreement between the lender and the joint venture. In exchange for this payment, the Company released any and all claims it may have had against the lender and the joint venture. - 14 - INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY Recent Developments (cont.) - ----------------------------- During fiscal 2000, the Company acquired a regional cargo airline, which does business as North-South Airways (North-South). During the second quarter of fiscal 2001, North-South sold shares of its common stock, reducing the Company's ownership interest from 100% to approximately 33%. The Company sells parts to North-South and leases it three Embraer EMB-120 aircraft. The Company is in negotiations with certain third parties who have expressed an interest in providing equity capital to North-South. There can be no assurances that such parties will provide any equity capital. The Company has fully reserved all advances, trade accounts receivable and notes receivable due from North-South. As of September 30, 2002, the Company received a notice of default and demand for payment under the Term Loan Agreement dated December 20, 2000, between the Company and Bombardier Capital. The loan, the principal amount of which is approximately $1,560,000, is secured by one of the Company's EMB-120 aircraft. The Company has not been able to make the monthly installments of principal and interest with respect to this loan since August 2002. The total amount past due is approximately $44,000. The lender has demanded payment in full of the amounts in default within 30 days from the date of the notice. It has stated that it may purse and enforce all rights and remedies to which it is entitled under the Loan Agreement, including the repossession and sale of the aircraft if the amounts due are not repaid within such period. The Company does not have sufficient funds to repay the amount due and cannot obtain them by means of an advance under the Credit Facility. Accordingly, the Company expects that Bombardier Capital will repossess the aircraft and sell it for the best price obtainable. The Company will be liable to Bombardier Capital for any amount of the loan remaining unpaid after the aircraft is sold. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks that may impact the Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows due to changing interest rates. The Company does not currently participate in any significant hedging activities, nor does it currently utilize any significant derivative financial instruments. However, interest rate fluctuations expose the Company's variable-rate debt to changes in interest expense and cash flows. The Company's variable-rate debt, primarily short-term secured borrowings, amounted to approximately $20.1 million at August 31, 2002. Based on outstanding borrowings at quarter-end, a 10% adverse change in market interest rates at August 31, 2002 would result in additional after-tax interest expense of approximately $23,000 for the three months ended August 31, 2002. - 15 - INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY ITEM 4. CONTROLS AND PROCEDURES The Chief Executive Officer and the Vice President - Finance, who servers as the chief financial officer of the Company, have concluded, based on their evaluation of the Company's disclosure controls within the 90 days of the date of the filing of this Quarterly Report on Form 10-Q, that the Company's disclosure controls were effective to ensure that material information relating to the Company, including its consolidated subsidiary, was made known to them by others within the Company during the period in which this Quarterly Report on Form 10-Q was being prepared. Forward Looking Statements - ---------------------------- This Form 10-Q contains statements that may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements include statements regarding the negotiations between the Company and its lender regarding the terms of a new credit facility and statements regarding the possible consequences of the Company's defaults pursuant to its credit agreements. The statements reflect the intent, belief or current expectations of the Company and members of its management team. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. - 16 - INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company is from time to time subject to legal proceedings and claims that arise in the ordinary course of its business. On the date hereof, no such proceedings are pending and no such claims have been asserted. Item 3. DEFAULTS UPON SENIOR SECURITIES The Company is in default in the payment of principal and in the performance of certain covenants with respect to its senior secured credit facility. As of October 14, 2002, the Company was in default in the payment of $432,767 of principal. The Company is in default in the payment of principal and interest with respect to the Term Loan Agreement, dated December 20, 2000, between the Company and Bombardier Capital, Inc. As of October 14, 2002, the Company was in default in the payment of $44,594 of principal, interest and late fees. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits -------- 3.2 Restated and Amended Bylaws of the Registrant. Incorporated by --- ----------------------------------------------- --------------- reference to Exhibit 3.2 to the 1996 Form 10-K. - ------------------------------------------------------- 4.1 Specimen Common Stock Certificate. Incorporated by reference to --- ---------------------------------- ---------------------------- Exhibit 4.1 to the 1996 Form 10-K. - ---------------------------------------- 10.1.1 Second Amended and Restated Employment Agreement, dated July 25, ------ ---------------------------------------------------------------- 2001, between the Registrant and Alexius A. Dyer III. Incorporated by - ------------------------------------------------------------ --------------- reference to Exhibit 10.1.1 to the Company's Annual Report on Form 10-K for the - -------------------------------------------------------------------------------- fiscal year ended May 31, 2001. - ------------------------------------ 10.2.1 1996 Long-Term Incentive and Share Award Plan. Incorporated ------ ----------------------------------------------- ------------ by reference to Appendix B to the Proxy Statement/Prospectus included in the - -------------------------------------------------------------------------------- Company's Registration Statement on Form S-4 (File No. 333-08065), filed on July - -------------------------------------------------------------------------------- 12, 1996. - ---------- 10.2.2 401(k) Plan. Incorporated by reference to Exhibit 10-H to ------ ------------- ---------------------------------------------- the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1992 ------------------------------------------------------------------------------ (the "1992 Form 10-K"). - -------------------------- 10.2.3 Bonus Plan. Incorporated by reference to Exhibit 10.2.4 to ------ ------------ ----------------------------------------------- the 1992 Form 10-K. --------------------- 10.2.4 Cafeteria Plan. Incorporated by reference to Exhibit 10.2.5 ------ ---------------- ------------------------------------------- of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, - -------------------------------------------------------------------------------- 1993. - ----- 10.2.5 Form of Option Certificate (Employee Non-Qualified Stock ------ -------------------------------------------------------------- Option). Incorporated by reference to Exhibit 10.2.5 to the 1996 Form 10-K. --- ------------------------------------------------------------------- 10.2.6 Form of Option Certificate (Director Non-Qualified Stock ------ -------------------------------------------------------------- Option). Incorporated by reference to Exhibit 10.2.6 to the 1996 Form 10-K. --- ------------------------------------------------------------------- 10.2.7 Form of Option Certificate (Incentive Stock Option). ------ ---------------------------------------------------------- Incorporated by reference to Exhibit 10.2.7 to the 1996 Form 10-K. ----------------------------------------------------------------------- 10.14 Commission Agreement dated December 1, 1995 between the ----- -------------------------------------------------------------- Registrant and J.M. Associates, Inc. Incorporated by reference to Exhibit ---------------------------------- ------------------------------------ 10.14 to the 1996 Form 10-K. ------------------------------- 10.15 Office Lease Agreement dated January 31, 1997 between the ----- ----------------------------------------------------------------- Registrant and Globe Corporate Center, as amended. Incorporated by reference --------------------------------------------- ------------------------- to Exhibit 10.17 to the 1997 Form 10-K. - ---------------------------------------------- Incorporated by reference to Exhibit 10.18 to the 1997 Form 10-K. 10.16 Lease Agreement dated March 31, 1997 between the Registrant and ----- ----------------------------------------------------------------- Port 95-4, Ltd. ---------------- Incorporated by reference to Exhibit 10.20 to the Company's Quarterly Report for the quarter ending November 30, 2000. 10.17 Securities Purchase Agreement, dated September 18, 2000, among ----- ----------------------------------------------------------------- Diamond Aviation, Inc., the Registrant and the purchasers named therein. ------------------------------------------------------------------------------ Stockholders Agreement, dated September 18, 2000, among Diamond Aviation, Inc., the Registrant and the purchasers named therein. Incorporated by reference to Exhibit 10.19 to the Company's Quarterly Report for the quarter ending November 30, 2000. 10.18 ----- 10.19 Lease Extension and Modification Agreement dated December 10, ----- ----------------------------------------------------------------- 2001 between the Registrant and Port 95-4, Ltd. Incorporated by reference to -------------------------------------------- ---------------------------- Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year - -------------------------------------------------------------------------------- ended May 31, 2002. - ---------------------- 10.20 Term Loan Agreement dated December 20, 2000 between the ----- --------------------------------------------------------------- Registrant and Bombardier Capital Inc. Incorporated by reference to Exhibit ---------------------------------- ------------------------------------ 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended May - -------------------------------------------------------------------------------- 31, 2002. - ---------- Letter dated October 15, 2002 from GMAC Commercial Finance to the Company establishing the terms on which GMAC Commercial Finance will refrain from exercising remedies. 10.21 Filed herewith ----- --------------- 10.22 Letter dated September 20, 2002 from Bombardier Capital Inc. to ----- ----------------------------------------------------------------- the Company declaring an Event of Default under Term Loan Agreement Filed --------------------------------------------------------------------- ----- herewith ------- Settlement Agreement, dated as of August 9, 2002, by and between Finova Capital Corporation, Air 41, LLC, Aircorp, Inc. and the Company. 10.23 Filed herewith ----- --------------- Letter dated October 15, 2002 from GMAC Commercial Finance to the Company extending the expiration date of the September 20, 2002 forbearance ;etter 10.24 Filed herewith ---- --------------- Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the "Act") and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Act. 99.1 Filed herewith. ---- ---------------- 99.2 Certification of the Principal Financial Officer pursuant to ---- ------------------------------------------------------------------ Section 302 of the Sarbanes-Oxley Act of 2002 (the "Act") and pursuant to 18 --------------------------------------------------------------------------- U.S.C. Section 1350, as adopted pursuant to Section 906 of the Act. Filed ------------------------------------------------------------------- ----- herewith. ------- (d) Reports on Form 8-K. ---------------------- None INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES 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. INTERNATIONAL AIRLINE SUPPORT GROUP, INC. - -------------------------------------------- (Registrant) /s/Alexius A. Dyer III October 15, 2002 - ------------------------- ------------------ Alexius A. Dyer III Date Chairman, President and Chief Executive Officer /s/Qiang Wang October 15, 2002 - -------------- ------------------ Qiang Wang Date Vice President - Finance and Principal Accounting Officer CERTIFICATIONS I, Alexius A. Dyer III, certify that 1. I have reviewed this Quarterly Report on Form 10-Q of International Airline Support Group, Inc. 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and (c) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this Quarterly Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 15, 2002 /s/ Alexius A. Dyer III _____ --------------------------- Name: Alexius A. Dyer III Title: Chairman, President and Chief Executive Officer I, John Wang, certify that 1. I have reviewed this Quarterly Report on Form 10-Q of International Airline Support Group, Inc. 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and (c) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this Quarterly Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 15, 2002 /s/ Qiang Wang ---------------- Name: Qiang Wang Title: Vice President - Finance EX-10.24 3 doc7.txt GMAC CORRESPONDENCE EXHIBIT 10.24 [LETTERHEAD OF GMAC COMMERCIAL FINANCE] OCTOBER 15, 2002 International Airline Support Group, Inc. 1954 Airport Road, Suite 200 Atlanta, GA 30341 Attention: Mr. Alexius A. Dyer III Dear Mr. Dyer: Reference is hereby made to the Letter Agreement, dated as of September 20, 2002 (the "Letter Agreement"), between International Airline Support Group, Inc. ("Borrower") and GMAC Commercial Credit LLC as successor to BNY Financial Corporation ("Lender"). Capitalized terms not otherwise defined herein shall have the meanings given to them in the Letter Agreement. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree that subsection (iv) of the third paragraph of the Letter Agreement is hereby amended to change the date from "October 15, 2002" to "October 31, 2002." Except as expressly provided herein, the execution, delivery and effectiveness of this letter shall not operate as a waiver of any of Lender's rights, powers or remedies, nor constitute a waiver of any provision of the Letter Agreement, the Credit Agreement or any other documents, instruments or agreements executed and/or delivered thereunder or in connection therewith and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed. This letter may be executed by the parties hereto in one or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same consent letter. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto. Very truly yours, GMAC COMMERCIAL CREDIT LLC By: /s/ Alexander J. Chobot -------------------------- Name: Alexander J. Chobot Title: Vice President Acknowledged and Agreed to: INTERNATIONAL AIRLINE SUPPORT GROUP, INC. By: /s/ Alexis A. Dyer III -------------------------- Name: Alexius A. Dyer III Title: Chairman, President and Chief Executive Officer EX-10.21 4 doc6.txt GMAC LETTER EXHIBIT 10.21 [LETTERHEAD OF GMAC COMMERCIAL FINANCE] SEPTEMBER 20, 2002 International Airline Support Group, Inc. 1954 Airport Road, Suite 200 Atlanta, GA 30341 Attention: Mr. Alexius A. Dyer III Dear Mr. Dyer: Reference is hereby made to the Credit Agreement, dated as of September 30, 1996 (as amended, modified or supplemented, the "Credit Agreement"), between International Airline Support Group, Inc. ("Borrower") and GMAC Commercial Credit LLC as successor to BNY Financial Corporation ("Lender"). Capitalized terms not otherwise defined herein shall have the meanings given to them in the Credit Agreement. Borrower's failure to make principal payments in the aggregate amount of $216,383.33 on August 31, 2002 constitutes Events of Default (the "Designated Defaults"). Therefore, pursuant to the Credit Agreement, effective September 1, 2002, all Obligations shall bear interest at the default rate of interest as set forth in Section 3.1(c) of the Credit Agreement. Effective upon receipt by Lender of this Letter Agreement executed by Borrower, Lender hereby agrees that Lender will forbear from exercising its rights and remedies with respect to the Designated Defaults, other than the imposition of the default rate as stated above and will continue to advance Loans to the Borrower in accordance with the terms of the Credit Agreement so long as (i) no Event of Default other than the Designated Defaults occurs, (ii) Borrower provides Lender weekly cash flow budgets by Wednesday of each week, (iii) Borrower continues to assist, and provide information to, Lender's consultant, Stout Risius Ross, Inc. ("Stout"), so that Stout will be able to deliver its report to Lender no later than September 20, 2002, (iv) Borrower and Lender have entered into a forbearance agreement on terms and conditions satisfactory to Lender in its sole discretion no later than October 15, 2002, and (v) Borrower reimburses Lender for all of Lender's reasonable professional fees, costs and expenses; provided, however, that Borrower will not be obligated -------- ------- to reimburse Lender for the fees and expenses of Stout to the extent that such fees and expenses exceed $15,000. Lender further agrees that Lender will not extend the scope of Stout's engagement beyond the preparation of the report referred to in clause (iii) of the preceding sentence without the prior written consent of Borrower, which consent shall not be unreasonably withheld. By your signature below, Borrower hereby (i) releases, remises, acquits and forever discharges Lender and Lender's employees, agents, representatives, consultants, attorneys, fiduciaries, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, and related corporate divisions (all of the foregoing hereinafter call the "Released Parties"), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages and expenses of any and every character, known or unknown, direct and/or indirect, at law or in equity, of whatsoever kind or nature, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of execution hereof, and in any way directly or indirectly arising out of or in any way connected to the Credit Agreement, the Security Documents and all documents executed or delivered in connection therewith (collectively, the "Documents") and (ii) waives and affirmatively agrees not to allege or otherwise pursue any or all defenses, affirmative defenses, counterclaims, claims, causes of action, setoffs or other rights that it may have to contest (a) the Designated Defaults which could be declared by Lender; (b) any provision of the Credit Agreement, the Security Documents or the Documents; (c) the security interest of Lender in any property, whether real or personal, tangible or intangible, or any right or other interest, now or hereafter arising in connection with the Collateral; or (d) the conduct of Lender in administering the financing arrangements between Borrower and Lender. Lender hereby reserves all other rights and remedies under the Credit Agreement, the Security Documents, the Documents and applicable law, and Lender's election not to exercise any other such right or remedy at the present time shall not (a) limit in any manner whatsoever Borrower's obligation to comply with, and Lender's right to insist on Borrower's compliance with, each and every term of the Credit Agreement and the Security Documents and (b) constitute a waiver of any Event of Default or any right or remedy available to Lender under the Credit Agreement, any Security Document or applicable law, and Lender herby expressly reserves such rights with respect to the same. This Letter of Agreement shall be governed by and construed in accordance with the laws of the State of New York applied to contracts to be performed wholly within the State of New York. Any judicial proceeding brought by or against Borrower involving, directly or indirectly, any matter or claim in any way arising out of, related to or connected with this Agreement or any related agreement may be brought in any court of competent jurisdiction in the State of New York, County of New York, United States of America, and by execution and delivery of this Agreement, Borrower accepts for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. Nothing herein shall affect the right to serve process in any manner permitted by law or shall limit the right of Lender to bring proceedings against Borrower in the courts of any other jurisdiction. Borrower waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. ---------------------- EACH OF BORROWER AND LENDER HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS LETTER AGREEMENT, THE CREDIT AGREEMENT, THE SECURITY DOCUMENTS, THE DOCUMENTS OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF BORROWER OR LENDER OR ANY OF THEM WITH RESPECT TO THIS LETTER AGREEMENT, THE CREDIT AGREEMENT, THE SECURITY DOCUMENTS, THE DOCUMENTS OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH OF BORROWER AND LENDER HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT EITHER BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS LETTER AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF BORROWER AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. IN ADDITION, EACH OF BORROWER AND LENDER WAIVES THE RIGHT TO CLAIM OR RECOVER IN ANY SUIT, ACTION OR PROCEEDING ANY DAMAGES OTHER THAN OR IN ADDITION TO ACTUAL DAMAGES. Very truly yours, GMAC COMMERCIAL CREDIT LLC By: /s/ Alexander J. Chobot -------------------------- Name: Alexander J. Chobot Title: Vice President Accepted and Agreed to: INTERNATIONAL AIRLINE SUPPORT GROUP, INC. By: /s/ Alexis A. Dyer III -------------------------- Name: Alexius A. Dyer III Title: Chairman, President and Chief Executive Officer EX-10.22 5 doc4.txt BOMBARDIER CAPITAL EXHIBIT 10.22 [LETTERHEAD OF BOMBARDIER CAPITAL INC.] September 30, 2002 George Murnane, EVP & COO INTERNATIONAL AIRLINES SUPPORT GROUP, INC. 1954 AIRPORT ROAD, SUITE 200 ATLANTA, GEORGIA 30341 Re: Notice of default under Term Loan Agreement dated December 20, 2000, between International Airline Support Group. Inc. ("Borrower") and Bombardier Capital Inc. (the "Lender") and Promissory Note dated December 20, 2000 (collectively, the "Loan Agreement") and Demand for Payment Dear Mr. Murnane: Reference is hereby made to the Loan Agreement between Borrower and Lender. Except as otherwise defined herein, capitalized terms used herein shall have the respective meanings set forth in the Loan Agreement. Borrower has failed, despite repeated requests by Lender to tender monies in accordance with the terms and conditions set forth in the Loan Agreement. Specifically, Borrower has failed to make payment of (i) past due installments of principal and interest in the amount of $22,070.86 each due on each of August 20, 2002 and September 20, 2002 and (ii) late fees in the amount of $452.56. Lender hereby demands, and to avoid acceleration of obligations and payments under the Loan Agreement and repossession of the Aircraft, Borrower must pay in full, within 30 days from the date of this letter, (i) past due installments of principal and interest in the aggregate amount of $44,141.72 plus (ii) late fees in the amount of $452.56, or total amount equal to $44,594.28, payable by wire transfer only: Please remit payment to: Bank of America Texas ABA# 111000012 Acct# 3752133785 Ref: International Airlines Although the undersigned may be prepared to discuss the matters referred to herein, please be aware that the notices and demands made herein and the provisions of the Credit Documents cannot be waived, varied or modified by Lender or any of its officers, employees or agents unless such waiver, variation or modification is made by written instruments duly executed by Lender. Payment pursuant to this letter shall neither constitute nor be construed as having created a custom or course of business in any way or manner contrary to the specific terms of the Loan Agreement. Acceptance of the payment by Lender shall not constitute a waiver or be in substitution of its rights and remedies as provided under the Credit Documents. Please be aware that any further breach or failure by you to observe or perform any of the obligations, covenants or undertakings arising under any of the Credit Documents shall constitute a default under the Loan Agreement and Lender may pursue and enforce all rights and remedies to which it is entitled under the Loan Agreement, including the repossession and sale of the Aircraft. If you have any questions, please call me at (802) 654-8202 or, you may call our attorney Julia Males at (802) 654-8364. Sincerely, BOMBARDIER CAPITAL INC. /s/ Darlene M. Bayko Darlene M. Bayko Collection Specialist cc: Julia Males, Senior Attorney Carolyn Gipson, Collection Supervisor Frank Imperato, GMAC Commercial Credit LLC EX-10.23 6 doc5.txt AIR41 SETTLEMENT AGREEMENT SETTLEMENT AGREEMENT This SETTLEMENT AGREEMENT ("Agreement") dated as of August 9, 2002, by and between FINOVA CAPITAL CORPORATION, a corporation organized and existing under the laws of the State of Delaware ("FINOVA"), AIR 41, LLC, a limited liability company formed under the laws of the State of Delaware ("Air 41"), AIRCORP, INC., a Texas corporation ("Aircorp"), and INTERNATIONAL AIRLINE SUPPORT GROUP, INC., a Delaware corporation ("IASG"). RECITALS -------- (1) Pursuant to the Secured Loan Agreement, dated as of September 16, 1998, between FINOVA and AIR 41 (the "Loan Agreement"), FINOVA loaned to Air 41 the amount of $76,000,000.00 in order to finance, among other things, the acquisition by Air 41 of 20 McDonnel Douglas DC-9-41 Aircraft described on Schedule A hereto (collectively, the "Aircraft"); (2) All capitalized terms used in this Agreement without definition shall have the meanings set forth in the Loan Agreement; (3) In order to secure the obligations of Air 41 under the Loan Agreement: (i) Air 41 granted to FINOVA a first priority security interest and second priority security interest in each of six Aircraft, identified in the Loan Agreement as the Norway Aircraft, pursuant to six first priority mortgages, each dated September 16, 1998 and six second priority mortgages, each dated December 8, 1998; (ii) Air 41 granted to FINOVA a first priority security interest in the beneficial interest of Air 41 in and to the Trust Estate, pursuant to the Beneficial Interest Security Agreement, dated as of September 16, 1998, between Air 41 and FINOVA, each of which Trust Estate consists of, among other things, one of the eight Aircraft, identified in the Loan Agreement as the Sweden Aircraft; (iii) Air 41 granted to FINOVA a first priority security interest in each of the six Aircraft, identified in the Loan Agreement as the Denmark Aircraft, pursuant to six letters of indemnity, each dated September 16, 1998; (iv) Air 41 granted to FINOVA a first priority security interest in each of the 12 Lease Agreements, each dated September 16, 1998 and each related to one of the six Norway Aircraft or one of the six Denmark Aircraft pursuant to 12 Collateral Assignments, each dated September 16, 1998; and (v) Air 41 and First Security Bank, National Association (now known as Wells Fargo Bank Northwest, National Association), as owner trustee, granted to FINOVA a first priority security interest in each of the eight Lease Agreements, each dated September 16, 1998 and each related to one of the Sweden Aircraft pursuant to eight Collateral Assignments, each dated September 16, 1998; (4) In March, 1999, the Norway Aircraft were deregistered from Norway and registered in Sweden and Air 41 subsequently granted to FINOVA a first priority security interest in each of the six Norway Aircraft in order to secure the obligations of Air 41 under the Loan Agreement; (5) In order to secure the obligations of Air 41 under the Loan Agreement Air 41 delivered to FINOVA a letter of credit, in the face amount of $1,150,000.00, for the account of Aircorp (the "Aircorp L/C"), and a letter of credit, in the face amount of $1,150,000.00, for the account of IASG (the "IASG L/C," and, together with the Aircorp L/C, the "L/Cs"); (6) Pursuant to a letter agreement dated September 16, 1998, between Air 41 and the Lessee (the "September, 1998 Letter"), the Lessee agreed, among other things, to return each Aircraft with a minimum time remaining until the next Heavy Maintenance Visits and to compensate Air 41 if any Aircraft is returned with less than such minimum time remaining; with the payment of such compensation to be made on October 1, 2002, and not later than 30 days after the delivery of the last Aircraft returned (the "D-Check Payments"); (7) As of the date hereof, the 11 Aircraft bearing the following manufacturer's serial numbers (the "US Aircraft") have been de-registered from the registries of Sweden or Denmark, as the case may be, and registered at the FAA, subject to mortgages in favor of FINOVA 47599, 47597, 47634, 47646, 47748 and 47778 (legal title to each of which is held by Air 41), and 47633, 47747, 47750 and 47777 (legal title to each of which is held by the Owner Trustee); (8) In connection with the termination of the Leases in respect of the US Aircraft, FINOVA, Air 41 and the Lessee entered into letter agreements (the "Return Letters") under which, among other things, the Lessee paid to Air 41 amounts (which amounts are held by FINOVA) in financial settlement of certain return conditions of the US Aircraft. (9) Under the Return Letter relating to the US Aircraft with msn 47633, the Lessee paid to Air 41 the amount of approximately $1,025,000.00 (the "47633 Payout") in financial settlement of certain return conditions of such US Aircraft, of which amount FINOVA has expended approximately $965,000.00 to make those repairs necessary to cause such US Aircraft to be in the appropriate return condition; (10) FINOVA intends to register the Current Scandinavian Aircraft (as defined below) at the FAA upon the termination of the respective Leases relating thereto and, at such time, negotiate, and enter into, letter agreements (also "Return Letters") with the Lessee under which the Lessee may pay additional amounts to Air 41 in financial settlement of certain return conditions of such Aircraft. (11) On the date hereof there is outstanding under the Loan Agreement the aggregate amount of principal of $49,567,853.11, together with accrued interest thereon (the "Indebtedness"); (12) As a result of the occurrence of Events of Default under the Loan Agreement arising from, among other things, the failure of Air 41 to make payments of principal and interest due and owing thereunder, by letter dated April 23, 2002, FINOVA declared the entire principal of the Loan, accrued interest thereon, and all other sums due FINOVA under the Loan Documents to be due and payable; (13) On May 3, 2002, FINOVA drew down the entire face amount of the IASG L/C; and (14) FINOVA wishes to accept all right, title and interest of Air 41 in the Aircraft, the Leases and the other Collateral, the amount drawn down under the IASG L/C (other than the amount of $165,000.00 to be paid to IASG hereunder), a new letter of credit for the account of Aircorp, the D-Check Payments to be made under the September, 1998 Letter and all payments made and to be made under the Return Letters, including the balance of the 47633 Payout (other than the amount of $20,000.00 thereof to be paid to IASG hereunder), in full satisfaction of the obligations of Air 41 under the Loan Agreement and the other Loan Documents (other than indemnification obligations) and Air 41, IASG and Aircorp wish to consent to and acknowledges such acceptance, all in accordance with the terms and conditions hereof. NOW, THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the adequacy and receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINED TERMS. The following capitalized terms used -------------- herein shall have the meanings set forth below: CURRENT SCANDINAVIAN AIRCRAFT means: (a) the six Aircraft currently registered in Sweden, consisting of: (i) the four Aircraft, legal title to which is held by the Owner Trustee, bearing manufacturer's serial numbers 47610, 47627, 47629 and 47779; and (ii) the two Aircraft, legal title to which is held by Air 41, bearing manufacturer's serial numbers: 47626 and 47630; and (b) the three Aircraft currently registered in Denmark, legal title to which is held by Air 41, bearing manufacturer's serial numbers: 47624, 47632 and 47725. EFFECTIVE DATE shall have the meaning set forth in Section 7(c) hereof. US AIRCRAFT shall have the meaning set forth in the Recital (7) hereof. 2. ACCEPTANCE BY FINOVA. As of the Effective Date, FINOVA -------------------- hereby accepts all right, title and interest of Air 41 in the Aircraft, the Leases and the other Collateral, all amounts drawn down under the IASG L/C (other than the amount of $165,000.00 to be paid to IASG hereunder), a new letter of credit from Aircorp (as more fully described in Section 6(c) hereof), the D-Check Payments to be made under the September, 1998 Letter and all payments made and to be made under the Return Letters, including the balance of the 47633 Payout (other than the amount of $20,000.00 to be paid to IASG hereunder) (all of the above, collectively, the "Transferred Property") in full satisfaction of all of the payment and performance obligations of Air 41 under the Loan Agreement and the other Loan Documents, other than obligations thereunder to indemnify FINOVA (the "Obligations"). 3. CONSENT BY AIR 41. As of the Effective Date, Air 41 hereby ------------------ consents to the acceptance by FINOVA of the Transferred Property in satisfaction of the Obligations, and hereby acknowledges that FINOVA has a first priority security interest in the Transferred Property, that the value of the Transferred Property does not exceed the Indebtedness, that this Agreement shall constitute an agreement of Air 41 after default consenting to the acceptance by FINOVA of the Transferred Property in satisfaction of the Obligations pursuant to Revised Section 9-620 of the Uniform Commercial Code in effect in any applicable jurisdiction (the "UCC"), and acknowledges that FINOVA has no obligation to dispose of any of the Transferred Property in accordance with Section 9-610 of the UCC, and from and after the date hereof, FINOVA is free to sell, lease or otherwise dispose of any and all of the Transferred Property unencumbered by and free of any interest, rights, liens or claims of Air 41 therein. 4. CONSENT BY AIRCORP AND IASG. Each of Aircorp and IASG ------------------------------- hereby consents to (i) the acceptance by FINOVA of the Transferred Property in satisfaction of the Obligations; (ii) the draw down by FINOVA of the ace amount of the IASG L/C; and (iii) the payment by FINOVA of the amounts to IASG hereunder. Notwithstanding the foregoing, IASG and Aircorp do not release with respect to one another and do hereby specifically preserve any and all claims and causes of action that they may have against one another arising from or related to the draw down by FINOVA of the face amount of the IASG L/C and the payment by IASG of certain expenses of Air 41. 5. ASSIGNMENT OF RIGHTS. Air 41 hereby assigns to FINOVA all ---------------------- Air 41's right, title and interest in and to the September, 1998 Letter and all Return Letters, including all amounts paid and payable by the Lessee thereunder. 6. ACTIONS TAKEN ON OR PRIOR TO THE DATE HEREOF. On or prior ---------------------------------------------- to the date hereof: (a) Air 41 shall: (i) execute and deliver to FINOVA seven warranty bills of sale, each in the form of Exhibit "A" hereto, conveying to FINOVA, or to any other Person at FINOVA's direction, title to each of the seven US Aircraft, legal title to which is held by Air 41, and execute and cause to be filed at the FAA an FAA Bill of Sale on form FAA 8030-2 with respect to each such US Aircraft; and (ii) cause the Owner Trustee to execute and deliver to FINOVA four warranty bills of sale, each in the form of Exhibit "A" hereto, conveying to FINOVA, or to any other Person at FINOVA's direction, title to each of the four US Aircraft, legal title to which is held by the Owner Trustee, and execute and cause to be filed at the FAA an FAA Bill of Sale on form FAA 8030-2 with respect to each such US Aircraft. (b) Air 41 shall execute and deliver to FINOVA an Assignment and Assumption Agreement, in the form of Exhibit "B" hereto, assigning to FINOVA, or to any other Person at FINOVA's direction, all the Lessor's interest under the Leases relating to the US Aircraft, and shall execute and deliver to FINOVA a letter, in form and substance acceptable to FINOVA, informing the Lessee that Air 41 has assigned to FINOVA all its interest under each such Lease; (c) FINOVA shall deliver to Air 41 the Note relating to each US Aircraft; (d) FINOVA shall deliver to Aircorp the Aircorp L/C; (e) Aircorp shall cause to be delivered to FINOVA a letter of credit replacing the Aircorp L/C, in the face amount of $1,035,000.00, with an expiration date of July 1, 2003, which FINOVA shall be permitted to draw upon on or after May 3, 2003 and prior to the expiry date thereof, and otherwise in form and substance, and issued by a domestic bank, satisfactory to FINOVA; and (f) FINOVA shall pay to IASG the aggregate amount of $185,000.00, consisting of the sum of $165,000.00 from the amount drawn under the IASG L/C and $20,000.00 from the balance of the 47633 Payout, by wire transfer of immediately available funds to such account as IASG may direct. 7. ACTIONS TAKEN AFTER THE EXECUTION HEREOF. At the times ---------------------------------------- indicated below the parties hereto shall take the following actions: (a) From and after the date hereof, Air 41 and FINOVA shall cooperate to the extent necessary in order to facilitate the return of the Current Scandinavian Aircraft from the Lessee, including the negotiation and execution of Return Letters relating thereto. (b) Promptly after the arrival of a Current Scandinavian Aircraft in the United States in accordance with the applicable Return Letter, or after the occurrence of a Total Loss under, and as defined in, the Lease relating to a Current Scandinavian Aircraft. (i) Air 41 shall, or shall cause the Owner Trustee to, execute and deliver to FINOVA a warranty bill of sale, in the form of Exhibit "A" hereto, conveying to FINOVA, or to any other Person at FINOVA's direction, title to such Aircraft and shall, or shall cause the Owner Trustee to, execute and cause to be filed at the FAA an FAA Bill of Sale on form FAA 8030-2 with respect to each such Aircraft; (ii) Air 41 shall execute and deliver to FINOVA an Assignment and Assumption Agreement, in the form of Exhibit "B" hereto, assigning to FINOVA, or to any other Person at FINOVA's direction, all the Lessor's interest under the Lease relating to such Aircraft, including, without limitation, its interest to any hull and war risk insurance proceeds and claims therefore, and shall execute and deliver to FINOVA a letter, in form and substance acceptable to FINOVA, informing the Lessee that Air 41 has assigned to FINOVA all its interest under each such Lease; and (iii) FINOVA shall deliver to Air 41 the Note relating to such Aircraft; (c) On the date (the "Effective Date") of the execution and delivery of the documents referred to in Section 7(b) for the 20th and last Current Scandinavian Aircraft. (i) Air 41 shall execute and deliver to FINOVA a release, in the for of Exhibit "D-1" hereto, and FINOVA shall execute and deliver to Air 41 a release, in the form of Exhibit "D-2" hereto; (ii) Aircorp shall execute and deliver to FINOVA a release, in the form of Exhibit "E-1" hereto, and FINOVA shall execute and deliver to Aircorp a release, in the form of Exhibit "E-2"; and (iii) IASG shall execute and deliver to FINOVA a release, in the form of Exhibit "F-1" hereto, and FINOVA shall execute and deliver to IASG a release, in the form of Exhibit "F-2" hereto. 8. REMARKETING. (a) FINOVA appoints Air 41 as a ----------- non-exclusive remarketing agent for a period of 12 months from the date hereof to find, and conclude a binding agreement with, a purchaser or lessee of any of the Aircraft for a sale or lease thereof by FINOVA to such purchaser or lessee. Air 41 shall keep FINOVA reasonably informed of the marketing activities undertaken by it (including, without limitation, furnishing monthly written memorandum of such activities to FINOVA, participating in monthly telephone calls with FINOVA, and providing notice of any written or oral offers received and any potential purchasers or lessees to be contacted and of any advertisements to be placed regarding any of the Aircraft). (b) FINOVA may accept or reject an offer to purchase or lease an Aircraft (or to choose from two or more competing offers to purchase or lease an Aircraft) and the terms and provisions of any letter of intent, contract of sale or lease agreement, in its sole and absolute discretion. (c) Air 41 shall bear and be responsible for all its costs and expenses incurred in connection with such remarketing of the Aircraft. (d) Air 41 shall be paid a commission in the amount of three per cent (3%) of the net sale proceeds or net rent of any Aircraft sold or leased by FINOVA pursuant to an offer obtained by Air 41 in accordance with the provision of this Section 5. Such net sale proceeds or net rent shall be determined as the total sales proceeds or rent, less any costs or expenses (including attorneys' fees and expenses) of FINOVA incurred in connection with such sale or lease. 9. MISCELLANEOUS. ------------- (a) NOTICE. All notices required or permitted hereunder ------ shall be in writing and may be either telefaxed or sent by internationally recognized overnight courier service, addressed to Aircorp at the following address: 200 Crescent Court, Suite 650, Dallas, TX 75201, and to the other parties, at the addresses thereof set forth in the Loan Agreement, or to such other address as either party advises the other from time to time through a notice given in accordance with the provisions of this Section 9(a). Any notice sent by FINOVA to Air 41 shall also be sent to each of Aircorp and IASG. Any notice sent by either Aircorp or IASG to FINOVA shall also be sent to the other. Any such notice shall be effective and shall be deemed to have been given, in the case of a facsimile, upon confirmation of receipt of such facsimile by the addressee (provided that if the date of dispatch is not a Business Day, it shall be deemed to have been received at the opening of business on the next Business Day), and in the case of a notice sent by courier service, when delivered personally (provided that if delivery is tendered but refused, such notice shall be deemed effective upon such tender). (b) COUNTERPARTS. This Agreement may be executed in counterparts, ------------ and each counterpart shall be an original, and all counterparts together shall be but one and the same Agreement. (c) APPLICABLE LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN --------------- NEGOTIATED AND MADE IN, AND SHALL BE GOVERNED AND INTERPRETED UNDER THE LAWS OF, THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE BY RESIDENTS THEREOF TO BE ENTIRELY PERFORMED THEREIN. (d) CAPTIONS AND PARAGRAPH HEADINGS. Captions and paragraph ---------------------------------- headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it. (e) SEVERABILITY. In the event that any one or more of the ------------ provisions of this Agreement shall be invalid, illegal or unenforceable in any respect or in any jurisdiction, the validity, legality and enforceability of the remaining provisions contained herein or of the same provisions in any other jurisdiction shall not, in any way, be affected or impaired thereby. (f) FURTHER ASSURANCES. Each party will promptly, at any time ------------------- and from time to time, execute and deliver to each other party hereto such further instruments and documents and take such further action as may be required by law or as they may each reasonably request to establish, maintain and protect their respective rights and remedies and to carry out the intent of the parties under this Agreement, including, without limitation, the transfer of title and the de-registration of the Current Scandinavian Aircraft upon the termination of the respective Leases. (g) WRITTEN CHANGES ONLY. No term or provision of this Agreement -------------------- may be changed or waived orally, but only by an instrument in writing signed by the parties hereto. (h) EXCLUSIVENESS. This Agreement is the complete and exclusive ------------- statement of the parties hereto with respect to the subject matter hereof and supersedes all prior oral and written communications, proposals, agreements, representations, statements, negotiations and undertakings, whether express or implied, between the parties hereto with respect to the subject matter hereof. (i) TERMS AND DEFINITIONS. The terms and definitions, as ----------------------- herein contained, shall include the singular and/or plural, masculine, feminine and/or neuter, successors and/or permitted assigns wherever the context so requires or admits. (j) SUCCESSORS AND ASSIGNS. This Agreement shall be binding ------------------------ upon, and shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors and assigns. (k) EXPENSES. Each party hereto will bear and be responsible for -------- all costs and expenses incurred or to be incurred by it in connection with this Agreement and the transaction contemplated hereby, including but not limited to outside legal counsel and advisors. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Settlement Agreement as of the date first above written. FINOVA CAPITAL CORPORATION AIR 41 LLC By /s/ Pamela A. Hart By: /s/Alexius A. Dyer III --------------------- ------------------------- Name: Pamela A. Hart Name: Alexius A. Dyer III Title: Vice President Title: Manager AIRCORP, INC. INTERNATIONAL AIRLINE SUPPORT GROUP, INC. By /s/ James R. Wikert By: /s/ ---------------------------------------- --- Alexius A. Dyer III ------------------ Name: James R. Wikert Name: Alexius A. Dyer III Title: President Title: President EX-99.1 7 doc2.txt CERTIFICATION OF PRINCIPAL EXECUTIVE EXHIBIT 99.1 - ------------- CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER Pursuant to 18 U.S.C. 1350, the undersigned officer of International Airline Support Group, Inc. (the "Company") hereby certifies that the Quarterly Report on Form 10-Q of the Company for the quarter ended August 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: October 15, 2002 /s/ Alexius A. Dyer III_______ ---------------------------------- Name: Alexius A. Dyer III Title: Chairman, President and Chief Executive Officer EX-99.2 8 doc3.txt CERTIFICATION OF PRINCIPAL FINANCIAL EXHIBIT 99.2 - ------------- CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER Pursuant to 18 U.S.C. 1350, the undersigned officer of International Airline Support Group, Inc. (the "Company") hereby certifies that the Quarterly Report on Form 10-Q for the quarter ended August 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: October 15, 2002 /s/ John Wang________ ----------------------- Name: John Wang Title: Vice President - Finance -----END PRIVACY-ENHANCED MESSAGE-----