-----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, E2WCXYjVpDSQLtCJUVgRGUCi90ZgbfhFnbX+Yd6ofTlWaKY88qtgDmVtsaWuFxG0 yxWQsMpP5LAzwZ2nluxbLw== 0000859307-97-000003.txt : 19970416 0000859307-97-000003.hdr.sgml : 19970416 ACCESSION NUMBER: 0000859307-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970415 SROS: NASD 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: 000-18352 FILM NUMBER: 97581270 BUSINESS ADDRESS: STREET 1: 8095 NW 64TH ST CITY: MIAMI STATE: FL ZIP: 33166 BUSINESS PHONE: 3055932658 MAIL ADDRESS: STREET 1: 8095 NW 64TH STREET CITY: MIAMI STATE: FL ZIP: 33166 10-Q 1 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 February 28, 1997 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. 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 April 15, 1997 was 2,395,095. FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES INDEX Page No. Part I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets 3 May 31, 1996 and February 28, 1997 Condensed Consolidated Statements of Operations 4 Three Months and Nine months Ended February 29, 1996 and February 28, 1997 Condensed Consolidated Statements of Cash Flows 5 Nine months Ended February 29, 1996 and February 28, 1997 Notes to Condensed Consolidated Financial 6 Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II OTHER INFORMATION Item 1. Legal Proceedings 13 Item 3. Defaults upon Senior Securities 13 Item 6. Exhibits and Reports on Form 8-K 13 Form 10-Q International Airline Support Group, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
ASSETS February 28, May 31, 1997 1996* (unaudited) Current assets ----------- ---------- Cash and cash equivalents $ 940,274 $ 681,107 Accounts receivable, net of allowance for doubtful accounts of approximately $735,000 at May 31, 1996 and $881,000 at February 28, 1997 2,014,691 2,078,877 Inventories 9,277,315 12,075,983 Deferred tax benefit - current, net of valuation allowance of $960,000 at May 31, 1996 and February 28, 1997 - - Other current assets 68,798 240,682 ----------- ---------- Total current assets 12,301,078 15,076,649 Property and equipment Aircraft and engines held for lease 2,974,760 1,214,458 Building and leasehold improvements 36,815 - Machinery and equipment 972,507 887,359 ---------- ---------- 3,984,082 2,101,817 Accumulated depreciation 2,051,620 980,825 Land and building held for sale 750,000 750,000 ---------- ---------- Property and equipment, net 2,682,462 1,870,992 Other assets Deferred debt costs, net 762,431 597,952 Deferred tax benefit, net of valuation allowance of $3,011,000 at May 31, 1996 and February 28, 1997 - - Deferred restructuring fees 334,860 - Deposits and other assets 51,500 - ---------- ---------- Total other assets 1,148,791 597,952 ---------- ---------- $ 16,132,331 $ 17,545,593 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Current maturities of long-term obligations $ 3,695,108 $ 846,880 Long-term obligations in default classified as current 14,041,667 - Accounts payable 2,171,496 1,037,851 Accrued expenses 3,233,231 1,923,918 ---------- ---------- Total current liabilities 23,141,502 3,808,649 Long-term obligations, less current maturities Credit Facility - revolver - 7,494,438 Credit Facility - term loan - 2,433,336 Other long-term obligations 406,760 - ---------- ---------- Total long-term obligations, less current maturities 406,760 9,927,774 Commitments and contingencies Stockholders' equity (deficit) Preferred stock - $.001 par value; authorized 2,000,000 shares; 0 shares outstanding at May 31, 1996 and February 28, 1997. - - Common stock - $.001 par value; authorized 20,000,000 shares; issued and outstanding 149,695 shares at May 31, 1996 and 2,395,095 shares at February 28, 1997. 150 2,395 Additional paid-in capital 2,658,224 13,033,686 Accumulated deficit (10,074,305) (9,226,911) ---------- ---------- Total stockholders' equity (deficit) (7,415,931) 3,809,170 ---------- ---------- $ 16,132,331 $ 17,545,593 ========== ==========
*Condensed from audited Financial Statements Form 10-Q International Airline Support Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Nine months Ended February 29, February 28, February 28, 1996 1997 1996 1997 ----------- ----------- ---------- ---------- Revenues Net sales $ 7,318,730 $ 5,398,573 $ 16,247,134 $ 14,240,684 Lease revenue 529,133 279,667 1,277,169 573,000 ----------- ----------- ---------- ---------- Total revenues 7,847,863 5,678,240 17,524,303 14,813,684 Cost of sales 4,369,628 3,662,379 9,761,700 8,880,392 Selling, general and administrative expenses 1,141,055 943,219 3,046,450 2,598,178 Financial restructuring costs 112,776 - 305,685 - Provision for doubtful accounts 317,084 55,351 317,084 146,790 Depreciation and amortization 183,232 167,702 613,737 585,840 ----------- ----------- ---------- ---------- Total operating costs 6,123,775 4,828,651 14,044,656 12,211,200 ----------- ----------- ---------- ---------- Income from operations 1,724,088 849,589 3,479,647 2,602,484 Interest expense 475,306 283,568 1,511,700 1,189,761 Interest and other income (578) (24,814) (4,557) (67,899) ----------- ----------- ---------- ---------- Earnings before income taxes 1,249,360 590,835 1,972,504 1,480,622 Provision for income taxes - 87,833 - 102,632 Net earnings before extraordinary loss on debt restructuring 1,249,360 503,002 1,972,504 1,377,990 ----------- ----------- ---------- ---------- Extraordinary loss on debt restructuring - - - (530,596) Net earnings $ 1,249,360 $ 503,002 $ 1,972,504 $ 847,394 ========== ========= ========== ========= Per share data: Earnings per common and common equivalent share before loss on debt restructuring $ 8.35 $ 0.21 $ 13.18 $ 1.04 Extraordinary loss on debt restructuring - - - (0.40) ----------- ----------- ---------- ---------- Earnings per share $ 8.35 $ 0.21 $ 13.18 $ 0.64 =========== =========== ========== ========== Weighted average shares outstanding used in calculation 149,696 2,395,095 149,696 1,330,608 =========== =========== ========== ==========
Form 10-Q International Airline Support Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine months ended February 29, February 28, 1996 1997 ---------- ---------- Cash flows from operating activities: net earnings $ 1,972,504 $ 847,394 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 613,737 762,631 Provision for doubtful accounts 335,413 146,790 Increase in inventory (935,587) (2,479,066) Changes in accounts payable and accrued expenses 767,904 (1,169,624) Changes in other assets and liabilities (1,649,742) 199,236 --------- --------- Total adjustments (868,275) (2,540,034) Net cash provided by operating activities 1,104,229 (1,692,640) Cash flows from investing activities: Capital equipment additions (240,044) (93,973) --------- --------- Net cash used in investing activities (240,044) (93,973) Cash flows from financing activities: Repayments of debt obligations (1,481,803) (7,296,654) Proceeds of new borrowings - 9,927,774 Payment of deferred restructuring costs - (593,731) Payment of deferred debt issue costs - (509,943) --------- --------- Net cash used in financing activities (1,481,803) 1,527,446 --------- --------- Net decrease in cash (617,618) (259,167) Cash and cash equivalents at beginning of period 848,331 940,274 --------- --------- Cash and cash equivalents at end of period $ 230,713 $ 681,107 ========= =========
The accompanying notes are an integral part of these condensed financial statements. 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.'s condensed consolidated balance sheets as of May 31, 1996 and February 28, 1997, the condensed consolidated statements of operations for the three and nine months ended February 29, 1996 and February 28, 1997, and the condensed consolidated statements of cash flows for the nine months ended February 29, 1996 and February 28, 1997. The accounting policies followed by the Company are described in the May 31, 1996 financial statements. The results of operations for the three and nine months ended February 28, 1997 are not necessarily indicative of the results to be expected for the full year. 2. Inventories consisted of the following: May 31,1996 February 28,1997 ----------- ---------------- Aircraft parts $ 7,938,049 $ 9,997,722 Aircraft and Engines available for sale 1,339,266 2,078,261 --------- ----------- $ 9,277,315 $12,075,983 ========= =========== At February 28, 1997, approximately 99% of the ending inventory (including aircraft and engines held for sale) was costed under the specific identification method, and the remaining 1% was costed as part of pools of parts acquired through whole aircraft purchases. 3. On October 3, 1996, the Company completed a restructuring of its capital structure (the "Restructuring"). Pursuant to the Restructuring, the Company effected a 1-for-27 reverse split of its common stock, $.001 par value per share (the "Common Stock"); issued approximately 2,245,400 shares of its Common Stock, after giving effect to the reverse split, in exchange for the entire $10,000,000 principal amount outstanding of, and related accrued interest on, its 8% Convertible Debentures due November 30, 2003 (the "Debentures"); and redeemed the entire $7,700,000 principal amount outstanding of its 12% Senior Notes due July 17, 1997 (the "Senior Notes") with the proceeds of an advance under a credit agreement entered into on October 3 (the "Credit Agreement"). Consummation of the Restructuring cured all defaults with respect to the Debentures and the Senior Notes. All references to the number of common shares and per common share amounts throughout the financial statements have been restated to reflect the reverse split. INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. Primary earnings per share is computed for the three months and the nine months ended February 29, 1996 and February 28, 1997 by dividing net earnings by the weighted average number of common shares outstanding and common stock equivalents. Stock options and warrants are considered common stock equivalents unless their inclusion would be antidilutive. For the purpose of computing common stock equivalents for stock options and warrants, the modified treasury stock method was not used as the effect would be anti-dilutive. The Debentures are not considered common stock equivalents for the purpose of computing primary earnings per share as the effective yield on the securities exceeded 66-2/3% of the average Aa corporate bond rate at the time of issuance. 5. Credit Facility On October 3, 1996, the Company entered into the Credit Agreement, which provides for a $3 million term loan and up to an $11 million revolving credit (collectively referred to as 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. Such limitations and restrictions are discussed in the Company's Proxy Statement/Prospectus filed with the Securities and Exchange Commission on August 29, 1996. 6. Supplemental Cash Flow Disclosures: Cash payments for interest were $941,000 and $945,000 for the nine months ended February 29, 1996 and February 28, 1997, respectively. Cash and cash equivalents include $703,039 of restricted cash at February 28, 1997. 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. INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES 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 Parts sales (excluding the sale of aircraft and engines) for the three and nine months ended February 28, 1997 were $4.7 million and $13.6 million, respectively, compared to $5.9 million and $14.4 million, respectively, during the three and nine months ended February 29, 1996. Aircraft and engine sales were $650,000 for both the three and nine months ended February 28, 1997 compared to $1.5 million and $1.8 million, respectively, for the three and nine months ended February 29, 1996. Aircraft and engine sales are unpredictable transactions and may fluctuate significantly from period to period, dependent, in part, upon the Company's ability to purchase aircraft or engines at attractive prices and resell them, as well as the overall market for aircraft and engines. Lease revenue decreased to $280,000 and $573,000 during the three and nine months ended February 28, 1997, respectively, compared to $529,000 and $1.3 million during the three and nine months ended February 29, 1996, respectively. The decrease in lease revenues was attributable to the termination of a lease during fiscal year 1996. Total revenue during the three months ended February 28, 1997 decreased to $5.7 million from $7.8 million during the three months ended February 29, 1996, while total revenues during the nine months ended February 28, 1997 decreased to $14.8 million from $17.5 million during the nine months ended February 29, 1996. This lower revenue was due primarily to extraordinary part sales during the February 29, 1996 quarter attributable to the introduction of a new aircraft type by one customer, lower lease revenue, and lower aircraft and engine sales. In addition, revenues during the nine months ended February 29, 1996 increased as a result of the settlement of certain disputes with a customer. Pursuant to the settlement, the customer paid the Company $660,000 and the Company canceled a note receivable from the customer. The Company also released all claims it had against the customer, which included among other things, claims for the purchase price of parts purchased by the customer on open account or pursuant to a consignment arrangement. The customer released certain claims it had against the Company as part of the settlement. The transaction resulted in a net gain to the Company of approximately $345,000, consisting of the excess of cash received over the net carrying value of the note receivable and cost of the inventory. The Company recorded as net sales the cost of the inventory plus the amount of the net gain. INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES Cost of Sales Cost of sales decreased 16.0% from $4.4 million during the three months ended February 29, 1996 to $3.7 million during the three months ended February 28, 1997, primarily as a result of lower revenues. Cost of sales decreased 9.0% from $9.8 million during the nine months ended February 29, 1996 to $8.9 million during the nine months ended February 28, 1997, primarily as a result of lower revenues. As a percentage of total revenues, cost of sales for the three and nine months ended February 28, 1997 was 64% and 60%, respectively, compared to 56% during both the three and nine months ended February 29, 1996. The increase in the cost of sales as a percentage of revenues is in large part due to lower aircraft and engine sales in fiscal year 1997. Excluding aircraft and engine transactions, which transactions are unpredictable and fluctuate from period to period, cost of sales as a percentage of part sales during the three and nine months ended February 29, 1996 was 65% and 62%, respectively, compared to 67% and 62% during the three and nine months ended February 28, 1997, respectively. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased from $1.1 million and $3.0 million during the three and nine months ended February 29, 1996, respectively, to $943,000 and $2.6 million during the three and nine months ended February 28, 1997, respectively. This decrease is due, in part, to lower levels of salary and bonuses, professional fees, commissions paid to outside representatives, and expenses relating to the Company's Texas operation. These lower levels of expenses resulted from the closure of the Company's Texas operation, a reduction in the Company's workforce from fiscal 1996 levels, and the capitalization of certain financial restructuring costs. Financial Restructuring Costs Included during the three and nine months ended February 29, 1996 were approximately $113,000 and $306,000, respectively, of legal, accounting and other consulting fees in connection with the Company's debt restructuring activities. Such costs were subsequently capitalized as deferred restructuring fees during the fourth fiscal quarter ended May 31, 1996. In connection with the successful completion of the Restructuring on October 3, 1996, as described in Note 3 of Notes to Condensed Consolidated Financial Statements, deferred restructuring costs were charged to additional paid-in capital, as of the closing date of the Restructuring. INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES Depreciation and Amortization Depreciation and amortization for the three and nine months ended February 29, 1996 totaled $183,000 and $614,000, respectively, compared to $168,000 and $586,000 for the three and nine months ended February 28, 1997, respectively. Interest Expense Interest expense for the three and nine months ended February 29, 1996 was $475,000 and $1.5 million, respectively, compared to $284,000 and $1.2 million for the three and nine months ended February 28, 1997, respectively. The decrease in interest expense from 1996 to 1997 was due to a net reduction in total debt outstanding during this period from $18.9 million at February 29, 1996 to $10.8 million at February 28, 1997. Income Taxes The Company recorded an income tax provision of $88,000 and $103,000 during the three and nine months ended February 28, 1997, respectively. No income tax provision or benefits were recorded during the three and nine months ended February 29, 1996, respectively, as the Company had net operating loss carryforwards sufficient to offset income. Loss on Debt Restructuring In connection with the Restructuring, the Company recorded an extraordinary loss of $530,596 relating to the exchange of the Debentures. Liquidity and Capital Resources On October 3, 1996, the Company completed a Restructuring of the Senior Notes and Debentures. The terms of the Restructuring and impact on the Company's liquidity and capital resources are discussed in the Company's Proxy Statement/Prospectus filed with the Securities and Exchange Commission on August 29, 1996. Concurrently with the Restructuring, the Company entered into the Credit Agreement, which provides for a $3 million term loan and up to an $11 million revolving credit (collectively referred to as 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. Such limitations and restrictions are discussed in the Company's Proxy Statement/Prospectus filed with the Securities and Exchange Commission on August 29, 1996. INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES At February 28, 1997, the Company was permitted to borrow up to an additional $2.5 million pursuant to the revolving credit facility. The Company believes that amounts available to be borrowed pursuant to the Credit Agreement and its working capital will be sufficient to meet the requirements of the Company's business for the foreseeable future. The Company had no material commitments for capital expenditures as of February 28, 1997. 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 capital spending and future financing plans of the Company and 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. 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 Prior to the Restructuring, the Company was in default in the payment of principal and certain payments of interest on the Senior Notes and was in default in the payment of interest on the Debentures. On October 3, 1996, the Company completed the Restructuring. Pursuant to the Restructuring, the Company effected a 1-for-27 reverse split of its Common Stock; issued approximately 2,245,400 shares of its Common Stock, after giving effect to the reverse split, in exchange for the entire $10,000,000 principal amount outstanding of the Debentures; and redeemed the entire $7,700,000 principal amount outstanding of the Senior Notes with the proceeds of an advance under the Credit Agreement. Consummation of the restructuring cured all defaults with respect to the Debentures and the Senior Notes. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Page Number or Exhibit Number Description Method of Filing - -------------- ----------- ---------------- 2.1.1 Form of Standstill Incorporated by reference Agreement dated July 8, to exhibit 2.1.1 to the 1996 among the Registrant Company's Registration and the holders of the Statement on Form S-4 Registrant's 12% Senior (File No. 333-08065), Secured Notes due 1997 filed July 12,1996 who are signatories thereto. 2.1.2 Form of Standstill Incorporated by reference Agreement dated July 11, to Exhibit 2.1.2 to the 1996 among the Registrant Company's Annual Report and the holders of the on form 10-K for the fiscal Registrant's 12% Senior year ended May, 31 1996, Secured Notes due 1997 as amended (the "1996 Form who are signatories 10K"). thereto. 2.2 Form of Warrant Agreement Incorporated by reference Amendment No. 1, dated as to Exhibit 2.2 to the of July 9, 1996, among Company's Registration the Registrant and the Statement on Form S-4 holders of the Warrants, (File No. 333-08065), dated July 17, 1992, who filed on July 12, 1996 are signatories thereto. 2.3 Letter, dated June 7, Incorporated by reference 1996, from BNY Financial to Exhibit 2.3 to the Corporation to the Company's Registration Registrant with attached Statement on Form S-4 Term Sheet. (File No. 333-08065), filed on July 12, 1996. 2.4 Credit Agreement between Incorporated by reference BNY Financial Corporation to Exhibit 2.4 to the and the Registrant. 1996 Form 10-K. 3.1 Amended and Restated Incorporated by reference Certificate of to Exhibit 3.1 to the Incorporation of the 1996 Form 10-K. Registrant. 3.2 Restated and Amended Incorporated by reference Bylaws of the Registrant, to Exhibit 3.2 to the as amended. 1996 Form 10-K. 4.1 Specimen Common Stock Incorporated by reference Certificate. to Exhibit 4.1 to the 1996 Form 10-K. 4.2 Form of Warrant issued to Incorporated by reference holders of Senior Notes. to Exhibit 4-A to the Company's form 8-K dated July 17, 1992 (the "July 1992 Form 8-K"). 4.3 Form of 8% Convertible Incorporated by reference Subordinated Debentures to Exhibit 4.3 to the due August 31, 2003. 1993 Form 10-K. 4.4 Form of 12% Senior Incorporated by reference Secured Notes. to Exhibit 4.4 to the Company's Registration Statement on Form S-4 (File No. 333-08065), filed on July 12, 1996. 10.1.1 Employment Agreement, Incorporated by reference dated as of December 1, to Exhibit 10.1.1 to the 1995, between the 1996 Form 10-K. Registrant and Alexius A. Dyer III, as amended on October 3, 1996. 10.1.2 Employment Agreement, Filed herewith. dated as of October 3, 1996, between the Registrant and George Murnane III. 10.2.1 1996 Long-Term Incentive Incorporated by reference and Share Award Plan. to Appendix B to the Proxy Statement/Prospectus included in the Company's Registration Statement on Form S-4 (File No. 333-08065). 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 1993 Form 10-K. 10.2.5 Form of Option Incorporated by reference Certificate (Employee to Exhibit 10.2.5 to the Non-Qualified Stock 1996 Form 10-K. Option). 10.2.6 Form of Option Incorporated by reference Certificate (Director to Exhibit 10.2.6 to the Non-Qualified Stock 1996 Form 10-K. Option). 10.2.7 Form of Option Incorporated by reference Certificate (Incentive to Exhibit 10.2.7 to the Stock Option). 1996 Form 10-K. 10.7 Settlement Stipulation, Incorporated by reference dated January 31, 1995, to Exhibit 10.7.3 to the among Admark Company's Annual Report International, Ltd., in Form 10-K for the Plaintiff and Norville fiscal year ended Trading Company Ltd., May 31, 1995 (the "1995 International Airline Form 10-K"). Support Group, Inc., and Richard R. Wellman, Defendants. 10.8 Purchase Agreement, dated Incorporated by reference January 1995, among to Exhibit 10.1 to the International Airline Company's 10-Q/A for the Support Group, Inc., quarter ended August 31, Richard R. Wellman, Lynda 1994. Wellman, and Custom Air Holdings, Inc., including as an exhibit the "General Proxy" executed by Richard R. Wellman and Lynda Wellman. 10.10 Assignment and Assumption Incorporated by reference Agreement, dated January to Exhibit 10.2 to the 31, 1995, between Registrant's Form 10-Q/A International Airline for the quarter ended Service Center, Inc. and August 31, 1994. Express One International, Inc. 10.11 Notice of Payment Incorporated by reference Blockage, dated May 25, to Exhibit 10.11 to the 1995. 1995 Form 10-K. 10.12 Form of Engagement Letter Incorporated by reference dated February 16, 1996, to Exhibit 10.12 to the between the Registrant Company's Registration and Kirkland Messina, Statement on Form S-4 Inc. (filed herewith). (File No. 333-08065), filed on July 12, 1996. 10.14 Commission Agreement Incorporated by reference dated December 1, 1995 to Exhibit 10.14 to the between the Registrant 1996 Form 10-K. and J.M. Associates, Inc. 10.15 Aircraft Parts Purchase Incorporated by reference Agreement, dated May 16, to Exhibit 10.15 to the 1996, between Paxford Company's Registration Int'l, Inc. and the Statement on Form S-4 Registrant. (File No. 333-08065). 11 Statement regarding Incorporated by reference computation of per share to Exhibit 11 to the 1996 earnings. Form 10-K. 21 Subsidiaries. Incorporated by reference to Exhibit 21 to the 1996 Form 10-K. 27 Financial Data Schedule. Page no. 19 (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K on July 12, 1996. The date of the report was July 12, 1996. The report was with respect to Item 5. 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/George Murnane III April 15, 1997 George Murnane III -------------- Executive Vice President and Date Chief Financial Officer EX-10.1.2 2 GEORGE MURNANE III EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into as of this 3rd day of October, 1996, by and between GEORGE MURNANE III, an individual resident of the State of New York ("Executive"), and INTERNATIONAL AIRLINE SUPPORT GROUP, INC., a Delaware corporation ("Company"). W I T N E S S E T H WHEREAS, Company desires to employ Executive, and Executive desires to be employed by Company on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: Section 1. Employment. 1.1. Duties. Subject to the terms contained herein, Company hereby agrees to the continued employment of Executive, and Executive hereby accepts such continued employment. Executive shall serve as Executive Vice President and Chief Financial Officer of Company and as a Director. In his capacity as the Executive Vice President and Chief Financial Officer of the Company, Executive shall (i) be in charge of all financial, treasury and corporate finance activities and (ii) assume and perform such further reasonable responsibilities and duties assigned to him by the Board of Directors of the Company. Executive shall devote his full business time (except for periods of illness and incapacity) and best efforts to rendering services on behalf of Company. Nothing in this Agreement shall preclude Executive from engaging, so long as, in the reasonable determination of such Board of Directors, such activities do not interfere with his duties and responsibilities hereunder, in charitable and community affairs, from managing any passive investment made by him or from serving, subject to the prior approval of such Board of Directors, as a member of the board of directors or as a trustee of any other corporation, association or entity. 1.2. Directorship. The Executive shall serve as a member of the Board of Directors of the Company so long as he is employed by the Company. Executive shall serve as a member of the Board of Directors of the Company pursuant to this Agreement without any additional compensation. Section 2. Term. The employment of Executive hereunder shall commence as of the date hereof and shall continue for a period of five years (the "Employment Term") from the date hereof. Following the Employment Term, this Agreement shall continue in force for successive one-year terms (each, a "Renewal Term") unless either the Company or the Executive provides not less than ninety days' prior written notice to the other that this Agreement shall terminate at the end of the Employment Term. During any Renewal Term, either the Company or the Executive may terminate this Agreement effective at the end of a subsequent Renewal Term by giving the other party not less than ninety days' prior written notice of such termination. Section 3. Compensation; Expenses. 3.1. Salary. During the Employment Term and any Renewal Term, Executive shall be paid a salary by Company at the annual rate of not less than One Hundred Twenty Thousand Dollars ($120,000.00) (as from time-to-time increased in accordance with the terms of this Agreement, the "Salary"); provided, however, that (i) the Salary shall be increased to an annual rate of not less than One Hundred Fifty Thousand Dollars ($150,000) effective upon the consummation of a transaction pursuant to which the Company's payment obligations with respect to its outstanding indebtedness are restructured in a manner satisfactory to the Board of Directors (a "Restructuring"). The Salary shall be reviewed by the Board of Directors of the Company on an annual basis and the Salary may be increased based on the performance of Executive; provided that the Executive shall be entitled to annual cost of living increases. The Salary shall be paid to Executive in equal weekly installments, less all applicable withholding taxes in the same manner as other executive officers of the Company. 3.2. Relocation Expenses. The Company shall reimburse Executive for reasonable expenses incurred as a result of Executive relocating his private residence to the Atlanta, Georgia area. 3.3. Bonuses. In addition to the Salary, Executive shall be paid, subject to conditions set forth herein, an annual bonus ("Bonus") during the Employment Term and any Renewal Term in respect of each fiscal year of the Company commencing on or after May 31, 1996. The Bonus payable under this subsection 3.3 in each such fiscal year shall be not less than an amount equal to three percent (3%) of the Company's net income before extraordinary and non-recurring items and income taxes, and before giving effect to any bonuses paid to the Company's employees, including the Bonus, as reported on the Company's periodic filings with the Securities and Exchange Commission, subject to the following adjustments: (i) there shall be excluded from the computation of net income any item of revenue (including, without limitation, cancellation of indebtedness income) or expense attributable to the Restructuring or to any litigation commenced by or against the Company and (ii) items of revenue and expense attributable to the sale of aircraft (whether now owned or acquired in the future) shall not be considered extraordinary or non-recurring items regardless of the treatment accorded such items under generally accepted accounting principles or the rules of the Securities and Exchange Commission; provided that with respect to the fiscal year ending May 31, 1997, the amount due pursuant to this sentence shall be no less than $50,000. The Bonus shall be paid in cash not later than the ninetieth (90th) day following the last day of the fiscal year with respect to which such Bonus was earned and in a manner in accordance with the ordinary payroll practices of the Company. Notwithstanding anything to the contrary set forth in this Agreement, the Board of Directors of the Company shall be permitted to pay to the Executive a bonus in an amount in excess of the amount that would be paid pursuant to the formula described in the second sentence of this paragraph based on the performance of the Executive. 3.4. Participation in Employee Stock Option Plan. During the Term, Executive shall be entitled to participate in the Company's 1996 Long Term Incentive and Share Award Plan (the "Stock Option Plan"), a copy of which is attached hereto as Exhibit A. All Awards under the Plan shall be made in accordance with and subject to the terms of the Plan. Upon closing of the Restructuring and in accordance with the terms thereof, Executive shall be entitled to receive options for 104,787 shares of the Company's Common Stock (after giving effect to the reverse stock split to be effected in connection with the Restructuring), the terms of which shall be in accordance with the Option Agreement attached as Exhibit B. 3.5. Other Remuneration. Executive shall be entitled to such other remuneration as the Board of Directors of the Company may hereafter from time-to-time approve for payment to Executive. 3.6. Expenses. Executive is authorized to incur reasonable and necessary expenses in carrying out his duties and responsibilities under this Agreement, including, without limitation, expenses for travel and similar items related to such duties and responsibilities, including travel expenses to the Company's offices in Miami. The Company will reimburse Executive for all such expenses upon presentation by Executive from time- to-time of appropriately itemized and approved (consistent with the Company's policy) accounts of such expenditures. Section 4. Additional Employment Benefits. During the Employment Term and any Renewal Term, Company shall provide Executive with the following fringe benefits (collectively, the "Benefits"): 4.1. Medical Insurance. Executive shall be entitled to participate in such medical, dental, disability, hospitalization, life insurance and other benefit plans (such as pension and profit sharing plans) as shall be made available to similarly situated officers of the Company on the terms and subject to the conditions set forth in such plans. 4.2. Vacation. Executive shall receive four weeks of paid vacation time each fiscal year during the Employment Term. In the event that this Agreement is terminated by the Company other than for cause, Executive shall be paid for each unused vacation day at the rate of 1/365th of the Salary in effect during the year in which the vacation day accrued. 4.3. Other. In addition to the foregoing, Executive shall be entitled to the prerequisites and other fringe benefits made available to senior executives of the Company. Section 5. Termination. The following provisions relate solely to termination of the Executive's employment during the Employment Term and any Renewal Term: 5.1. Death or Disability. (a) Subject to Section 7 below, this Agreement shall terminate automatically upon the Executive's death. (b) Subject to Section 7 below, the Company shall at all times have the right to terminate the Executive's employment hereunder at any time after the Executive shall be absent from his employment, for whatever cause, including but not limited to mental or physical incapacity, illness or disability (collectively "Disability") for a continuous period of more than twenty-six (26) weeks. 5.2. Cause. The Company may terminate the Executive's employment for "Cause." For purposes of this Agreement, "Cause" means (i) if Executive is convicted by a court of competent jurisdiction of a felony, (ii) if Executive engages in illegal or other wrongful conduct substantially detrimental to the business or the reputation of the Company, or (iii) repeated violations by the Executive of the Executive's obligations under Sections 1.1 or 1.2 of this Agreement unless Executive corrects such violation within ten (10) days after written notice from the Company of such violation or if, having once received such notice of violation and having so corrected such violation, Executive at any time thereafter again violates Executive's obligations under Sections 1.1 or 1.2 of this Agreement. 5.3. Change of Control or Change of Responsibilities. Following a "Change of Control" (as defined below) of the Company or a "Change of Responsibilities" (as defined below), the Executive shall have the right to terminate his employment (i) by resignation on not less than ninety (90) days' prior written notice given within six (6) calendar months after the occurrence of such Change of Control or Change of Responsibilities, as the case may be, or (ii) by resignation on not less than ninety (90) days' prior written notice given within eighteen (18) calendar months after such Change of Control or Change of Responsibilities, as the case may be. A "Change of Control" means: (i) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of voting stock representing more that 35% of the total voting power of the total voting stock of the Company on a fully diluted basis; (ii) individuals who on the date hereof constitute the Board of Directors (together with any new directors whose election by the Board of Directors or whose nomination for election by the Company's stockholders was approved by a vote of at least a majority of the members of the Board of Directors then in office who either were members of the Board of Directors on the closing date with respect to the Restructuring or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors then in office; or (iii) the sale of all or substantially all of the Company's assets in one transaction or a series of related transactions to any person or group. A "Change of Responsibilities" shall occur upon any of the following: (i) the making of any material change by the Company or a "Successor" (as defined below) in the Executive's function, duties or responsibilities with the Company or the Successor, as the case may be, that would cause the Executive's position to become of less dignity, responsibility, importance or scope; (ii) the relocation of the Company's headquarters from Miami, Florida (other than to Atlanta, Georgia); or (iii) the occurrence of any material breach of this Agreement by the Company, including, without limitation, the failure to pay any material amounts owed under this Agreement. "Successor" means the person, or group of persons, that (i) operates all or substantially all of the Company's business following a Change of Control or (ii) that survives a merger or consolidation of the Company that constitutes a Change of Control. Section 6. Notice of Termination. Any termination by the Company for Cause shall be communicated in writing to the Executive and if the termination date is other than the date of receipt, the notice shall specify the termination date. Section 7. Obligations of the Company Upon Termination. The following provisions apply only in the event the Executive's employment hereunder is terminated. 7.1. Death. If the Executive's employment is terminated by reason of the Executive's death, the Company shall pay, in addition to any accrued benefits payable hereunder, the Salary to the Executive's legal representatives for a period of eighteen months subsequent to such Termination. The Salary may be paid, at the option of the Company, either in a lump sum or in equal monthly installments. The Executive's family shall also be entitled to receive benefits at least equal to those provided by the Company to surviving families of executives of the Company in comparable positions under such plans, programs and policies relating to family death benefits, if any. The Executive's family shall also be entitled to receive the prior year's Bonus or any portion thereof unpaid at the time of Executive's death, plus a bonus equal to the product of the prior year's Bonus multiplied by a fraction, the numerator of which is the number of months Executive was employed during the year of death and the denominator of which is twelve. 7.2. Disability. If the Executive's employment is terminated by reason of the Executive's Disability, the Executive shall be entitled to receive, in addition to any accrued benefits payable hereunder, the Salary for a period of eighteen months subsequent to such termination. The Salary may be paid, at the option of the Company, either in a lump sum or in equal monthly installments. The Executive shall also be entitled to receive benefits at least equal to those provided by the Company to disabled employees of the Company in accordance with such plans, programs and policies relating to disability, if any. The Executive shall also be entitled to receive the prior year's Bonus or any portion thereof unpaid at the time of Executive's termination, plus a bonus equal to the product of the prior year's Bonus multiplied by a fraction, the numerator of which is the number of months Executive was employed during the year of termination and the denominator of which is twelve. 7.3. Cause. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive his Salary through the date of termination at the rate in effect at the time notice of termination is given and shall have no further obligation to the Executive under this Agreement. The Executive shall also be entitled to receive the prior year's Bonus or any portion thereof unpaid at the time of Executive's termination. 7.4. Termination Without Cause. If the Company shall terminate the Executive's employment with the Company without Cause: (a) the Company shall pay to the Executive at the time such payments would otherwise be payable hereunder, the Salary for the remaining Employment Term or any Renewal Term. The Executive shall also be entitled to receive the prior year's Bonus or any portion thereof unpaid at the time of Executive's termination, plus a bonus equal to the product of the prior year's Bonus multiplied by a fraction, the numerator of which is the number of months Executive was employed during the year of termination and the denominator of which is twelve; (b) the Company shall, promptly upon submission by the Executive of supporting documentation, pay or reimburse, or cause to be paid or reimbursed, to the Executive any business related costs and expenses paid or incurred by the Executive on or before the date of termination which would have been payable if the Executive's employment had not terminated; (c) until the eighteen-month anniversary of the Executive's termination, the Company shall continue benefits (or equivalent coverage) to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs and policies in effect as of the date of termination; and (d) until the eighteen-month anniversary of the Executive's termination, the Company shall furnish the Executive with office space that is comparable to the office space now occupied by the Executive; provided, however, that, the Company's obligation to provide such office space shall termination upon the Executive's commencement of other employment. 7.5. Change of Control. Upon the occurrence of a Change of Control (as defined in Section 5.3) or Change of Responsibilities, and an election by the Executive to terminate his employment, the Company (or the Successor) shall pay the Executive severance pay equal to one (1) times the "Base Amount" (as defined below). Upon the occurrence of a Change of Control pursuant to which the Successor does not assume the Company's obligations pursuant to this Agreement, the Company shall pay the Executive severance pay equal to one (1) times the Base Amount. The severance pay payable pursuant to this Section 7.5 shall be paid in a lump sum. In addition, the Executive shall be entitled to receive the benefits described in Section 7.4 for the period set forth in such Section. "Base Amount" means the Executive's average annual compensation (including Salary, bonus, fringe and pension benefits and deferred compensation) paid by the Company for the most recent two (2) years ending prior to the Change of Control. Section 8. Non-Disclosure. Except as expressly permitted by the Company, or in connection with the performance of his duties hereunder, the Executive shall not at any time during or subsequent to his employment by the Company, disclose, directly or indirectly to any person, firm, corporation, partnership, association or other entity any proprietary or confidential information relating to the Company or any information concerning the Company's financial condition or prospects, the Company's customers or suppliers, the Company's sources of leads and methods of obtaining new business, the Company's marketing plans or strategy or the Company's methods of doing and operating its business (collectively, "Confidential Information") except when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company or, as the case may be, an affiliate of the Company or by any administrative body or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information. Confidential Information shall not include information which, at the time of disclosure, is known or available to the general public by publication or otherwise through no act or failure to act on the part of the Executive. The Executive acknowledges and agrees that the Confidential Information is a valuable, special and unique asset of the Company's business. Section 9. Books and Records. All books, records and accounts relating in any manner to the Company's customers or suppliers, whether prepared by the Executive or otherwise coming into the Executive's possession, and all copies thereof in the Executive's possession, shall be the exclusive property of the Company and shall be returned immediately to the Company upon termination of the Executive's employment hereunder or upon the Company's request at any time. Section 10. Injunction. Executive acknowledges that if he were to breach any of the provisions of Sections 8 or 9, it would result in immediate and irreparable injury to the Company which cannot be adequately or reasonably compensated at law. Therefore, Executive agrees that the Company shall be entitled, if any such breach shall occur or be threatened or attempted, if it so elects, to a decree of specific performance and to a temporary and permanent injunction, without being required to post a bond, enjoining and restraining such breach by the Executive, his associates, his partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative to whatever remedies or actual damages the Company may possess. Section 11. Company's Covenant. The Company agrees that it shall not enter into any agreement pursuant to which a Change of Control would occur unless it makes provision in such agreement for the assumption by the Successor of the Company's obligations pursuant to this Agreement. Section 12. Miscellaneous. 12.1. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon Executive and his executor, administrator, heirs, personal representatives and assigns, and Company and its respective successors and assigns; provided, however, that Executive shall not be entitled to assign or delegate any of his rights or obligations hereunder without the prior written consent of Company. 12.2. Governing Law. This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed and governed by and in accordance with, the laws of the State of Georgia (without giving effect to the conflicts of law principles thereof). No provision of this Agreement or any related document shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or drafted such provision. 12.3. Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 12.4. Notices. Unless otherwise agreed to in writing by the parties hereto, all communications provided for hereunder shall be in writing and shall be deemed to be given when delivered in person (by courier service or otherwise) or seven days after being deposited in the United States mail, first class, registered or certified, return receipt requested, with proper postage prepaid, and addressed as follows: (a) If to Company: International Airline Support Group, Inc. 8095 Northwest 64th Street Miami, Florida 33166 (b) If to Executive, addressed to: Mr. George Murnane III International Airline Support Group, Inc. 8095 Northwest 64th Street Miami, Florida 33166 12.5. Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 12.6. Entire Agreement. This Agreement is intended by the parties hereto to be the final expression of their agreement with respect to the subject matter hereof and is the complete and exclusive statement of the terms thereof, notwithstanding any representations, statements or agreement to the contrary heretofore made. This Agreement may be modified only by a written instrument signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the date first above written. INTERNATIONAL AIRLINE SUPPORT GROUP, INC. By: Title: Chairman, Compensation Committee EXECUTIVE George Murnane III EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS MAY-31-1997 FEB-28-1997 681,107 0 2,959,877 881,000 12,075,983 15,076,649 2,851,817 980,825 17,545,593 3,808,649 9,927,774 2,395 0 0 3,809,170 17,545,593 14,240,684 14,813,684 8,880,392 12,211,200 0 146,790 1,189,761 1,480,622 102,632 1,377,990 0 530,596 0 847,394 .64 .64
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