Exhibit 33
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
| x | ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2015
OR
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from _______________ to ________________
Commission File Number: 000-52593
SAKER AVIATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 87-0617649 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| 20 South Street, Pier 6 East River | ||
| New York, NY | 10004 | |
| (Address of principal executive offices) | (Zip Code) |
(212) 776-4046
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
| Yes | ¨ | No | x |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
| Yes | ¨ | No | x |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Yes | x | No | ¨ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
| Yes | x | No | ¨ |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K.
| Yes | ¨ | No | x |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ | Non-accelerated filer | ¨ | Smaller Reporting Company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
| Yes | ¨ | No | x |
As of June 30, 2015 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the close of such business day was $2,979,685.
As of March 30, 2016, the Registrant had 33,157,610 shares of its Common Stock, par value $.001 per share, issued and outstanding.
Documents incorporated by reference: None
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
FORM 10-K
INDEX
THIS FORM 10-K CONTAINS 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. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE ARE DISCUSSED IN ITEM 1A, “RISK FACTORS” AND ITEM 7, “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION” OF THIS ANNUAL REPORT ON FORM 10-K. SEE ALSO “FORWARD-LOOKING STATEMENTS” WITHIN SUCH ITEM 7 OF THIS ANNUAL REPORT ON FORM 10-K.
PART I
| ITEM 1. | BUSINESS |
General
Saker Aviation Services, Inc. (“we”, “us”, “our”) is a Nevada corporation. Our common stock, $0.001 par value per share (the “common stock”), is publicly traded on the OTCQB Marketplace (“OTCQB”) under the symbol “SKAS”. Through our subsidiaries, we operate in the aviation services segment of the general aviation industry, in which we serve as the operator of a heliport, a fixed base operation (“FBO”), and as a consultant for a seaplane base that we do not own. FBOs provide ground-based services, such as fueling and aircraft storage for general aviation, commercial and military aircraft, and other miscellaneous services.
We were formed on January 17, 2003 as a proprietorship and were incorporated in Arizona on January 2, 2004. We became a public company as a result of a reverse merger transaction on August 20, 2004 with Shadows Bend Development, Inc., an inactive public Nevada corporation, and subsequently changed our name to FBO Air, Inc. On December 12, 2006, we changed our name to FirstFlight, Inc. On September 2, 2009, we changed our name to Saker Aviation Services, Inc.
Our business activities are carried out as the operator of the Downtown Manhattan (New York) Heliport, as an FBO at the Garden City (Kansas) Regional Airport, as a consultant to the operator of a seaplane base in New York City, and prior to our divestiture, as an MRO at the Bartlesville (Oklahoma) Municipal Airport.
The Garden City facility became part of our company as a result of our acquisition of the FBO assets of Central Plains Aviation, Inc. (“CPA”) in March 2005.
Our business activities at the Downtown Manhattan (New York) Heliport facility (the “Heliport”) commenced when we were awarded the Concession Agreement by the City of New York to operate the Heliport, which we assigned to our subsidiary, FirstFlight Heliports, LLC d/b/a Saker Aviation Services (“FFH”).
The Bartlesville facility became part of our company as a result of our acquisition of all of the outstanding stock of Phoenix Rising Aviation, Inc. (“PRA”) on August 15, 2013.
The FBO segment of the general aviation industry is highly fragmented. According to the National Air Transportation Association (“NATA”), there are over 3,000 FBOs that serve customers at one or more of over 3,000 airport facilities across the country that have at least one paved 3,000-foot runway. The vast majority of these companies are single location operators. NATA characterizes companies with operations at three or more airports as “chains.” An operation with FBOs in at least two distinctive regions of the country is considered a “national” chain while an operation with FBOs in multiple locations within a single region is considered a “regional” chain.
We believe the general aviation market has been historically cyclical, with revenue correlated to general U.S. economic conditions. Although not truly seasonal in nature, the spring and summer months tend to generate higher levels of revenue and our operations generally follow that trend.
Discontinued Operations
As disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on July 6, 2015, the Company entered into a Stock Purchase Agreement, dated June 30, 2015, by and between the Company and Warren A. Peck (the “Agreement”). Pursuant to the Agreement, Mr. Peck was to purchase all of the outstanding capital stock of the Company’s wholly-owned subsidiary Phoenix Rising Aviation, Inc. (“PRA”). The closing of the transactions contemplated by the Agreement occurred on September 30, 2015. At that time, in exchange for all of the outstanding capital stock of PRA, Mr. Peck agreed to pay (i) the Company $250,000 in cash; (ii) execute a $250,000 Secured Promissory Note in favor of the Company; and (iii) execute an Installment Payment Agreement giving the Company rights to earn-out payments based on EBITDA thresholds achieved by PRA post-closing. As a result of the sale, PRA results of operations have been reported as discontinued operations in the Condensed Consolidated Balance Sheets and Statements of Operations for 2015 and 2014.
1
The Agreement, Secured Promissory Note and Installment Payment Agreement were included as exhibits with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2015. On September 30, 2015 the Company and Mr. Peck executed the Closing Cash Agreement “the “Closing Agreement”, which was filed with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2015. The Closing Agreement provided for Mr. Peck to sign over to the Company title to an aircraft to defer the $250,000 cash consideration due at closing. As further described in the Closing Agreement, the Company shall receive the $250,000 closing cash payment, plus other identified costs, when the aircraft is subsequently sold. The $250,000 closing cash consideration plus receivables associated with the Note are therefore reflected as a Note Receivable in the Condensed Consolidated Balance Sheets as of December 31, 2015.
Suppliers and Raw Materials
Our principal materials are aviation fuel and aircraft parts. We obtain aviation fuel, component parts and other supplies from a variety of sources, generally from more than one supplier. Our suppliers and sources are both domestic and foreign, and we believe that our sources of materials are adequate to meet our needs for the foreseeable future. We do not believe the loss of any one supplier would have a material adverse effect on our business or results of operations. We generally purchase our supplies on the open market, where certain commodities have fluctuated in price significantly in recent years. We have not experienced any significant shortage of our key supplies.
Marketing and Sales
The main goal of our marketing and sales efforts is to increase traffic at our facilities, which would then drive revenue through the incremental sale of our products and services. Our primary marketing tactic in this regard is to focus advertising efforts in the environments (web, periodical and industry publications) where the pilot and aviation-user community might be introduced to our brand name and locations. We intend to continue to invest in improvements to our sales and marketing strategies to drive revenue growth.
Government Approvals
The aviation services that we provide are generally performed on municipal or other government owned real estate properties. Accordingly, at times we will need to obtain certain consents or approvals from governmental entities in conjunction with our operations. These consents and approvals are typically in the form of a lease agreement, as is the case at our Kansas facility, or a concession agreement, as is the case with our New York facility. There can be no assurance that we will obtain further consents or approvals on favorable terms or be able to renew existing consents or approvals on favorable terms, if at all.
Government Regulation
We are subject to a variety of governmental laws and regulations that apply to companies in the aviation industry. These include compliance with the Federal Aviation Administration (“FAA”) rules and regulations, and local, regional and national rules and regulations as they relate to environmental matters. We believe we are in compliance with, and intend to continue to comply with, all applicable government regulations. The adoption of new regulations could result in increased costs and have an adverse impact on our results of operations. In the event we are unable to remain compliant with applicable rules and regulations, our business may be adversely affected.
Customers
For the fiscal year ended December 31, 2015, four customers represented approximately 78.6% of our revenue. The loss of any of these four customers could represent a significant decrease in revenue that may adversely affect our business and result of operations. Additionally, four accounts represented approximately 93.9% of the balance of accounts receivable at December 31, 2015. Accounts receivable are carried at their estimated collectible amounts and are periodically evaluated for collectability. We depend significantly on our business with these four customers.
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Competition
The FBO segment of the aviation services industry is competitive in both pricing and service because aircraft in transit are able to choose from a number of FBO options within a 300-mile radius. The vast majority of FBO operators are independent, single location operators. We are the sole FBO at each of our current facilities. As such, we face no direct on-airport competition. However, we face competitive pressure on pricing and services from FBO facilities at other airports, depending on aircraft travel flexibility.
We plan to grow our business through both internal development of existing resources and facilities and through the potential acquisition of other related business. We anticipate that growing our business will provide us with greater buying power from suppliers and, therefore, result in lower costs. Lower costs would allow us to implement a more aggressive pricing policy against some competitors. We believe that the higher level of customer service offered in our facilities will allow us to draw additional aircraft traffic and thus compete successfully against other FBOs of all sizes. However, there can be no assurance that we will be able to compete successfully in the highly competitive aviation industry.
Costs and Effects of Complying With Environmental Laws
We are subject to a variety of federal, state and local environmental laws and regulations, including those that govern health and safety requirements, the discharge of pollutants into the air or water, the management and disposal of hazardous substances and wastes and the responsibility to investigate and clean-up contaminated sites that are or were owned, leased, operated or used by us or our predecessors. Some of these laws and regulations require us to obtain permits, which contain terms and conditions that impose limitations on our ability to emit and discharge hazardous materials into the environment and may be periodically subject to modification, renewal and revocation by issuing authorities. Fines and penalties may be imposed for non-compliance with applicable environmental laws and regulations and the failure to have or to comply with the terms and conditions of required permits. We intend to comply with these laws and regulations. However, from time to time, our operations may not be in full compliance with the terms and conditions of our permits or licenses. We periodically review our procedures and policies for compliance with environmental laws and requirements. We believe that our operations are in material compliance with applicable environmental laws and requirements and that any potential non-compliance would not be expected to result in us incurring material liability or cost to achieve compliance. Although the cost of achieving and maintaining compliance with environmental laws and requirements has not been material, we can provide no assurance that such cost will not become material in the future.
Employees
As of December 31, 2015, we employed 37 persons, 33 of which were employed on a full-time basis, and one of which was an executive officer. All of our personnel are employed in connection with our operations in New York and Kansas.
Available Information
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Therefore, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). Such reports may be read and copied at the SEC’s Public Reference Room at 100 F Street NE, Washington, D.C. 20549. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at (800) SEC-0330. The SEC also maintains a website (www.sec.gov) that includes our reports, proxy statements and other information. We maintain a website at www.sakeraviation.com where we make available, free of charge, documents that we file with, or furnish to, the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, registration statements and any amendments to those reports. Our SEC reports can be found under “Financial Reporting” tab on our website. The other information found on our website is not part of this or any other report we file with, or furnish to, the SEC.
3
| ITEM 1A. | RISK FACTORS |
The following risk factors relate to our operations:
Additional financing to expand our business.
Certain potential aviation services firms which we may seek to acquire in the future may accept shares of our common stock or other securities as payment by us for the acquisition. However, we believe that most will likely prefer cash payments, whether paid at the closing or in post-closing installment payments. There can be no assurance that our operations will generate sufficient cash flow to meet these acquisition obligations. Accordingly, we anticipate the need to seek additional equity or debt financing to meet any cash requirements for acquisitions. Any such financing will be dependent on general market conditions and the stock market’s evaluation of our performance and potential. Accordingly, we can give no assurance that we will obtain such equity or debt financing and, even if we do, that the terms would be satisfactory to us.
We could be adversely affected by increases in the price, or decreases in the availability, of jet fuel.
Our operations could be significantly affected by the availability and price of jet fuel. A significant increase in the price of jet fuel would most likely have a material impact on our ability to achieve and maintain profitability unless we are able to pass on such costs to our customers. Due to the competitive nature of the industry, our ability to pass on increased fuel prices by increasing our rates is uncertain. Likewise, any potential benefit of lower fuel prices may be offset by increased competition and lower revenue, in general. While we do not currently anticipate a significant reduction in fuel availability, dependency on foreign imports of crude oil and the possibility of changes in government policy on jet fuel production, transportation and marketing make it impossible to predict the future availability of jet fuel. If there are new outbreaks of hostility or other conflicts in oil producing areas or elsewhere, there could be a reduction in the availability of jet fuel or significant increases in costs to our business, as well as to the entire aviation industry, which in turn would adversely affect our business and results of operations.
We could be adversely affected by the loss of certain key customers or the inability of such key customers to pay amounts due to us.
For the fiscal year ended December 31, 2015, four customers represented approximately 78.6% of our revenue. Additionally, these four accounts represented approximately 93.9% of the balance of accounts receivable at December 31, 2015. Accounts receivable are carried at their estimated collectible amounts and are periodically evaluated for collectability. The loss of any of our key customers, or the inability of such customers to pay amounts due to us, could result in a significant decrease in revenue that may adversely affect our business and result of operations.
The continued threat of terrorist actions may result in less demand for private aviation and, as a result, our revenue may be adversely affected and we may not be able to continue successful operations.
Terrorist actions involving public and private aircraft may have a significant adverse impact on us. As a result of these actions, individuals and corporate customers may cease using private aircraft as a means of transportation or reduce their use of such aircraft, or we could become subject to burdensome regulations that would have an adverse effect on our results of operations. In either event, we would be unable to maintain sales and may be unable to continue our operations on a successful basis.
The FBO segment of the aviation services industry in which we operate is fiercely competitive.
We compete with national, regional, and local FBO operators. Many of our competitors have been in business longer than we have and have greater financial resources available to them. Having greater financial resources will make it easier for these competitors to absorb an increase in fuel prices and other expenses. In addition, these competitors might seek acquisitions in regions and markets competitive to us, which could have an adverse effect on our business and results of operations. Accordingly, we can give no assurance that we will be able to successfully compete in our industry.
4
Our business as an FBO is subject to extensive governmental regulation.
FBOs are subject to extensive regulatory requirements that could result in significant costs. For example, the FAA, from time to time, issues directives and other regulations relating to the management, maintenance and operation of facilities. Compliance with those requirements may cause us to incur significant expenditures. The proposal and enactment of additional laws and regulations, as well as any charges that we have not complied with any such laws and regulations, could significantly increase the cost of our operations and reduce overall revenue. We cannot provide assurance that compliance with existing laws and regulations or that laws or regulations enacted in the future will not adversely affect our business and results of operations.
We must maintain and add key management and other personnel.
Our future success is heavily dependent on the performance of our managers. Our growth and future success depends, in large part, on the continued contributions of management and our ability to retain management. Our growth and future success also depends on other key individuals, as well as our ability to motivate and retain these personnel or hire other persons. Although we believe we will be able to retain and hire qualified personnel, we can give no assurance that we will be successful in retaining and recruiting such personnel in sufficient numbers to increase revenue, maintain profitability or successfully implement our growth strategy. If we lose the services of management or any of our key personnel or are not able to retain or hire qualified personnel, our business could be adversely affected.
We are subject to environmental laws that could impose significant costs on us and the failure to comply with such laws could subject us to sanctions and material fines and expenses.
We are subject to a variety of federal, state and local environmental laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances and wastes and the responsibility to investigate and clean-up contaminated sites that are or were owned, leased, operated or used by us or our predecessors. Some of these laws and regulations require us to obtain permits, which contain terms and conditions that impose limitations on our ability to emit and discharge hazardous materials into the environment and may be periodically subject to modification, renewal and revocation by issuing authorities. Fines and penalties may be imposed for non-compliance with applicable environmental laws and regulations, the failure to have required permits or the failure to comply with the terms and conditions of such permits. We intend to comply with all laws and regulations, however, from time to time, our operations may not be in full compliance with the terms and conditions of our permits. We periodically review our procedures and policies for compliance with environmental laws and requirements. We believe that our operations are in material compliance with applicable environmental laws, requirements and permits and any lapses in compliance are not expected to result in us incurring material liability or cost to achieve compliance. However, there can be no assurance that our operations will remain in material compliance with applicable environmental laws and requirements. Historically, the costs of achieving and maintaining compliance with environmental laws, requirements and permits have not been material; however, the operation of our business entails risks in these areas and a failure by us to comply with applicable environmental laws, regulations or permits could result in civil or criminal fines, penalties, enforcement actions, third party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup and/or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures. Moreover, if applicable environmental laws and regulations, or the interpretation or enforcement thereof, become more stringent in the future, we could incur capital or operating costs beyond those currently anticipated and our business and results of operations could be harmed.
The following risk factors relate to our common stock:
There is no active market for our common stock, which makes our common stock less liquid.
To date, trading of our common stock has been sporadic and nominal in volume. In addition, there are only a limited number of broker-dealers trading our common stock. As a result, there is little, if any, liquidity in our common stock. We can provide no assurance that an active trading market will ever develop.
5
Our common stock is subject to the penny stock rules, which makes our common stock less liquid.
The Securities and Exchange Commission (the “Commission”) has adopted a set of rules called the “penny stock rules” that regulate broker-dealers with respect to trading in securities with a bid price of less than $5.00. These rules do not apply to securities registered on certain national securities exchanges (including the Nasdaq Stock Market), provided that current price and volume information regarding transactions in such securities is provided by the exchange or system. Our stock is not listed on such an exchange and we have no expectation that our common stock will be listed on such an exchange in the future. The penny stock rules also require a broker-dealer to deliver to the customer a standardized risk disclosure document prepared by the Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. Additionally, the broker-dealer must provide the customer with other information. The penny stock rules require that, prior to a transaction in a penny stock, the broker-dealer must determine in writing that the penny stock is a suitable investment for the purchaser. The broker-dealer must also receive the purchaser’s written agreement to the transaction. These disclosure requirements have the effect of reducing the level of trading activity in the secondary market for a stock such as ours that is subject to the penny stock rules.
Potential additional financings, the granting of additional stock options and anti-dilution provisions in our warrants could further dilute our existing stockholders.
As of March 30, 2016, there were 33,157,610 shares of our common stock outstanding. If all of our outstanding common stock purchase warrants and options were exercised, there would be 35,357,610 shares outstanding, an increase of approximately 6.6%. Any further issuances due to additional equity financings, the granting of additional options or the anti-dilution provisions in our warrants could further dilute our existing stockholders, which could cause the value of our common stock to decline.
We do not anticipate paying dividends on our common stock in the foreseeable future.
We intend to retain future earnings, if any, to fund our operations and to expand our business. Accordingly, we do not anticipate paying cash dividends on shares of our common stock in the foreseeable future and an investment in our common stock might not generate any return.
Our Board of Directors’ right to issue shares of preferred stock could adversely impact the rights of holders of our common stock.
Our Board of Directors currently has the right to authorize the issuance of up to 9,999,154 shares of one or more series of our preferred stock with such voting, dividend and other rights as our directors determine. Such action can be taken by our Board of Directors without the approval of our shareholders. Accordingly, the holders of any new series of preferred stock could be granted voting rights that reduce the voting power of the holders of our common stock. For example, the preferred holders could be granted the right to vote on a merger as a separate class even if the merger would not have an adverse effect on their rights. This right, if granted, would give such preferred holders a veto with respect to any merger proposal. Alternatively, such preferred holders could be granted a large number of votes per share while voting as a single class with the holders of our common stock, thereby diluting the voting power of the holders of our common stock. In addition, the holders of any new series of preferred stock could be given the option to redeem their shares for cash in the event of a merger. This would make acquiring us less attractive to a potential buyer. Thus, our board could authorize the issuance of shares of the new series of preferred stock in order to defeat a proposal for the acquisition of our company that a majority of the holders of our common stock otherwise favor.
Our common stock may not continue to be traded on the OTCQB.
We cannot provide any assurance that our common stock will continue to be eligible to trade on the OTCQB Marketplace (“OTCQB”). Should our common stock cease to trade on the OTCQB and fail to qualify for listing on a stock exchange (including Nasdaq), our common stock would only trade in the “pink sheets” which generally provides an even less liquid market than the OTCQB. In such event, stockholders may find it more difficult to trade their shares of our common stock or to obtain accurate and current information concerning market prices for our common stock.
6
Our management team currently has influential voting power.
As of March 30, 2016, our executive officers, directors and their family members and associates, collectively, are entitled to vote 10,424,740 shares, or 31.4%, of the 33,157,610 shares of our outstanding shares of common stock. Accordingly, and, because there is no cumulative voting for directors, our executive officers and directors are currently in a position to influence the election of all of our Board of Directors. The management of our company is controlled by our Board of Directors, which is currently comprised of two independent directors, a director who is a managing partner of a law firm which provides legal services to us, and two executive officer/directors.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
| ITEM 2. | PROPERTIES |
As of March 30, 2016, we lease office space at the following locations:
| Location | Purpose | Space | Annual Rental | Expiration | ||||||
|
2117 S. Air Service Road
Garden City, Kansas |
Kansas
FBO location |
17,640
square feet |
$ | 26,244 | December 31, 2030 | |||||
|
600 Hayden Circle
Allentown, Pennsylvania |
Pennsylvania
Office location |
360
square feet |
$ | 6,214 |
Month-to-
Month |
|||||
We believe that our space is adequate and suitable for our immediate needs. Additional hangar space may be required for our operations in the future. No definitive plans to lease any additional space have been developed at the time of this report. Should additional hangar space be required, there can be no assurance that such space will be available or available on commercially reasonable terms or at all.
| ITEM 3. | LEGAL PROCEEDINGS |
From time to time, we may be a party to one or more claims or disputes which may result in litigation. We do not, however, presently expect that any such matters will have a material adverse effect on our business, financial condition or results of operations.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
7
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market for Common Equity
Our common stock is traded on the OTCQB Marketplace (“OTCQB”) under the symbol SKAS. The OTCQB is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter (“OTC”) equity securities. Our common stock is only traded on a limited or sporadic basis and should not be deemed to constitute an established public trading market. OTC quotations reflect intra-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
The following table sets forth the high and low closing sale prices for the common stock as reported on the OTCQB for the past two most recent fiscal years.
| Common Stock | ||||||||
| Quarterly Period Ended | High | Low | ||||||
| March 31, 2014 | $ | 0.098 | $ | 0.080 | ||||
| June 30, 2014 | $ | 0.095 | $ | 0.050 | ||||
| September 30, 2014 | $ | 0.070 | $ | 0.040 | ||||
| December 31, 2014 | $ | 0.088 | $ | 0.050 | ||||
| March 31, 2015 | $ | 0.140 | $ | 0.060 | ||||
| June 30, 2015 | $ | 0.140 | $ | 0.080 | ||||
| September 30, 2015 | $ | 0.130 | $ | 0.070 | ||||
| December 31, 2015 | $ | 0.110 | $ | 0.050 | ||||
Holders
As of March 30, 2016, there were approximately 280 holders of record of our common stock. This number does not include beneficial owners of the common stock whose shares are held in the names of various broker-dealers, clearing agencies, banks and other fiduciaries.
Dividends
Since our inception we have never declared or paid any cash dividends on our common stock. We intend to retain future earnings to finance the growth and development of our business and future operations. Therefore, we do not anticipate paying any cash dividends on shares of our common stock in the foreseeable future.
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| ITEM 6. | SELECTED FINANCIAL DATA |
Not applicable.
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION |
Forward-looking Statements
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods. These statements may include projections of revenue, provisions for doubtful accounts, income or loss, capital expenditures, repayment of debt, other financial items, statements regarding our plans and objectives for future operations, acquisitions, divestitures and other transactions, statements of future economic performance, statements of the assumptions underlying or relating to any of the foregoing statements and statements other than statements of historical fact.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by such forward-looking statements. We therefore caution you against relying on any of these forward-looking statements because they are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include our services and pricing, general economic conditions, our ability to raise additional capital, our ability to obtain the various approvals and permits for the acquisition and operation of FBOs and the other risk factors contained in Item 1A of this report.
Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
Overview
Our long-term strategy is to increase our sales through growth within our aviation services operations. To do so, we may expand our geographic reach and product offering through strategic acquisitions and improved market penetration within the markets we serve. We expect that any future acquisitions or product offerings would be to complement and/or augment our current aviation services operations.
If we are able to grow our business as planned, we anticipate that our larger size would provide us with greater buying power from suppliers, resulting in lower costs. We expect that lower costs would allow for a more aggressive pricing policy against some competition. More importantly, we believe that the higher level of customer service offered in our facilities will allow us to draw additional aircraft to our facilities and thus allow us to compete against other FBOs of varying sizes.
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Summary Financial Information
The summary financial data set forth below is derived from and should be read in conjunction with the consolidated financial statements, including the notes thereto, filed as part of this report.
| Consolidated Statement of Operations Data: |
Year Ended
December 31, 2015 |
Year Ended
December 31, 2014 |
||||||
| (in thousands, except for share and per share data) | ||||||||
| Revenue from Continuing Operations | $ | 15,974 | $ | 16,416 | ||||
| Income from Continuing Operations, before income tax expense | $ | 1,919 | $ | 1,741 | ||||
| Income tax (expense) | $ | 1,032 | $ | 910 | ||||
| Income from Continuing Operations, net of income taxes | $ | 886 | $ | 831 | ||||
| Loss from Discontinued operations, net of income taxes | $ | (191 | ) | $ | (697 | ) | ||
| Net income | $ | 695 | $ | 134 | ||||
| Net income per share – basic | $ | 0.02 | $ | 0.00 | ||||
| Net income per share – diluted | $ | 0.02 | $ | 0.00 | ||||
| Weighted average number of shares – basic | 33,112,542 | 33,106,788 | ||||||
| Weighted average number of shares – diluted | 33,598,544 | 33,327,817 | ||||||
| Balance Sheet Data: (in thousands) |
December 31,
2015 |
December 31,
2014 |
||||||
| Working capital surplus | $ | 1,987 | $ | 846 | ||||
| Total assets | $ | 6,243 | $ | 6,706 | ||||
| Total liabilities | $ | 2,324 | $ | 3,516 | ||||
| Stockholders’ equity | $ | 3,919 | $ | 3,190 | ||||
| Total liabilities and Stockholders’ equity | $ | 6,243 | $ | 6,706 | ||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Comparison of Continuing Operations for the Years Ended December 31, 2015 and December 31, 2014.
REVENUE
Revenue from continuing operations decreased by 2.7 percent to $15,974,307 for the twelve months ended December 31, 2015 as compared with corresponding prior-year period revenue of $16,416,170.
For the twelve months ended December 31, 2015, revenue from continuing operations associated with services and supply items increased by 4.8 percent to approximately $9,600,000 as compared to approximately $9,100,000 in the twelve months ended December 31, 2014. The increase was largely attributable to higher levels of activity in our Heliport operations.
For the twelve months ended December 31, 2015, revenue from continuing operations associated with the sale of jet fuel, aviation gasoline and related items decreased by 12.2 percent to approximately $6,300,000 as compared to approximately $7,100,000 in the twelve months ended December 31, 2014. The decrease was attributable to both a lower volume of gallons, particularly gallons associated with our general aviation fueling operations, and lower fuel costs, leading to lower average fuel prices. The general aviation category experienced a significantly higher demand in 2014, which demand did not recur during 2015. The cost of fuel in 2015 was less on average as compared to the cost of fuel in 2014. As our fuel pricing generally follows the cost of fuel, lower fuel costs translate to lesser revenue on comparable volume.
10
For the twelve months ended December 31, 2015, all other revenue from continuing operations decreased by 1.8 percent to approximately $131,000 as compared to approximately $134,000 in the twelve months ended December 31, 2014.
GROSS PROFIT
Total gross profit from continuing operations increased 12.2 percent to $8,711,637 in the twelve months ended December 31, 2015 as compared to $7,766,921 in the twelve months ended December 31, 2014. Gross profit as a percent of revenue was 55 and 47 percent in the twelve months ended December 31, 2015 and 2014, respectively. The increase in gross profit and gross margin is related to higher levels of gross profit in our fuel sales in 2015 as compared to the prior year.
OPERATING EXPENSE
Selling, General and Administrative
Total selling, general and administrative, or SG&A, expenses were $6,668,533 in the twelve months ended December 31, 2015, an increase of approximately $662,000 or 11.0 percent, as compared to the same period in 2014.
SG&A associated with our FBO operations were approximately $6,300,000 in the twelve months ended December 31, 2015, an increase of approximately $600,000, or 10.8 percent, as compared to the twelve months ended December 31, 2014. SG&A associated with our FBO operations, as a percentage of revenue, was 39.4 percent for the twelve months ended December 31, 2015, as compared with 34.6 percent in the corresponding prior year period. The increased operating expenses were largely attributable to additional costs related to the higher levels of activity in our Heliport operations.
Corporate SG&A was approximately $374,000 for the twelve months ended December 31, 2015, representing an increase of approximately $50,000 as compared with the corresponding prior year period.
OPERATING INCOME
Operating income from continuing operations for the year ended December 31, 2015 was $2,043,104 as compared to $1,760,284 in the year ended December 31, 2014. The increase on a year-over-year basis was driven by higher levels of gross margin and gross profit, which offset higher SG&A expenses.
Depreciation and Amortization
Depreciation and amortization was approximately $569,000 and $627,000 for the twelve months ended December 31, 2015 and 2014, respectively.
Interest Income/Expense
Interest income for the year ended December 31, 2015 was $0, as compared to $6,693 in year ended December 31, 2014. Interest expense for the year ended December 31, 2015 was $25,024, as compared to $47,326 in the same period in 2014. The decrease in interest expense is largely attributable to paydown of the line of credit and notes payable.
Impairment of Goodwill and Other Intangibles
We had $530,000 of goodwill at December 31, 2015 and 2014 relating to our FBO operations. We assessed our goodwill using the qualitative approach and determined it was more likely than not that the fair value of its goodwill resulting from the purchase of PRA was less than its carrying value and, therefore, recorded a $550,380 impairment charge in 2014. Due to macroeconomic, industry and market conditions, the PRA facility had not been able to establish positive cash flow and future cash flows were insufficient to support any value of goodwill or indefinite live intangibles so the company recorded the impairment charge in the 2014 audited financial statements for their remaining value.
11
As of December 31, 2015, intangible assets consisted of a charter certificate ($35,000). As of December 31, 2014, intangible assets consisted of a non-compete agreement ($107,500) and a charter certificate ($35,000). At December 31, 2014, we recorded an impairment charge of $139,583 for the trade name and customer relationships at the PRA facility using the aforementioned procedures. In connection with our divestiture of PRA at September 30, 2015, we recorded a $107,500 charge for the full value of the PRA non-compete agreement .
Income Tax
Income tax expense from continuing operations for the twelve months ended December 31, 2015 was $1,032,000, as compared to $910,000 in the same period in 2014. Included in these amounts are paid actual or estimated federal, state and local income taxes along with a charge for deferred income tax at our estimated blended effective tax rate of 54 percent. Paid actual or estimated tax expenses were $388,000 and deferred income tax expense was $190,000 for the twelve months ended December 31, 2015. Paid actual or estimated tax expenses were $260,000 and deferred income tax benefits were $503,000 for the twelve months ended December 31, 2014.
Net Income Per Share
Net income for the twelve months ended December 31, 2015 was $695,208 as compared to net income of $133,747 in the twelve months ended December 31, 2014.
Basic and diluted net income per share was $0.02 and $0.00 for the twelve months ended December 31, 2015 and December 31, 2014, respectively.
Liquidity and Capital Resources
As of December 31, 2015, we had cash and cash equivalents of $414,661 and a working capital surplus of $1,986,997. We generated revenue from continuing operations of $15,974,307 and had net income from continuing operations before taxes of $1,918,696 for the twelve months ended December 31, 2015. For the twelve months ended December 31, 2015, cash flows included net cash provided by operating activities of $990,545, net cash used in investing activities of $152,375, and net cash used in financing activities of $954,512.
On May 17, 2013, we entered into a loan agreement with PNC Bank (the “PNC Loan Agreement”). The PNC Loan Agreement contained three components: (i) a $2,500,000 non-revolving acquisition line of credit (the “PNC Acquisition Line”); (ii) a $1,150,000 working capital line (the “PNC Working Capital Line”); and (iii) a $280,920 term loan (the “PNC Term Loan”).
Proceeds of the PNC Acquisition Line were able to be dispersed, based on parameters defined in the PNC Loan Agreement, until May 17, 2014 (the “Conversion Date”). As of the Conversion Date, there was $1,350,000 outstanding under the PNC Acquisition Line. The payment terms provided that 30 days following the Conversion Date, and continuing on the same day of each month thereafter, we are required to make equal payments of principal over a 60 month period. Interest on the outstanding principal continues to accrue at a rate equal to one-month LIBOR plus 275 basis points (2.947% as of December 31, 2015). An unused commitment fee had been applied at a rate of 1.5% on the unused portion of the PNC Acquisition Line and was charged for each fiscal quarter through the Conversion Date. As of December 31, 2015, there was $922,500 outstanding under the PNC Acquisition Line.
The PNC Working Capital was to have been dispersed for working capital and general corporate purposes. Interest on outstanding principal accrued at a rate equal to daily LIBOR plus 250 basis points (2.697% as of December 31, 2015). The PNC Working Capital Line expired on December 31, 2015, with $0 outstanding.
The PNC Term Loan was utilized to retire our previously outstanding miscellaneous debt of the same amount. Interest on outstanding principal accrued at a rate equal to one-month LIBOR plus 275 basis points and principal and interest payments were to be made over a thirty-four month period. At December 31, 2015, all amounts under the PNC Term loan have been repaid.
12
We are party to a concession agreement, dated as of November 1, 2008, with the City of New York for the operation of the Downtown Manhattan Heliport (the “Concession Agreement”). Pursuant to the terms of the Concession Agreement, we must pay the greater of 18% of the first $5,000,000 in program year gross receipts and 25% of gross receipts in excess of $5 million or minimum annual guaranteed payments. We paid the City of New York $1,200,000 in the first year of the term and minimum payments are scheduled to increase to approximately $1,700,000 in the final year of Concession Agreement, which was set to expire on October 31, 2018. During the twelve months ended December 31, 2015 and 2014, we incurred approximately $2,900,000 and $2,800,000, respectively, in concession fees which are recorded in the cost of revenue.
As disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on February 5, 2016, on February 2, 2016, we and the New York City Economic Development Corporation (the “NYCEDC”) announced new measures to reduce helicopter noise and impacts across New York City (the “Agreement”).
Under the Agreement, filed as an exhibit with this report, we may not allow its tenant operators to conduct tourist flights from the Downtown Manhattan Heliport on Sundays beginning April 1, 2016. We must also ensure its tenant operators reduce the total allowable number of tourist flights from 2015 levels by 20 percent beginning June 1, 2016, by 40 percent beginning October 1, 2016 and by 50 percent beginning January 1, 2017. Additionally, beginning on June 1, 2016, we are required to provide monthly written reports to the NYCEDC and the New York City Council detailing the number of tourist flights conducted out of the Downtown Manhattan Heliport compared to 2015 levels, as well as information on any tour flight that flies over land and/or strays from agreed upon routes.
The Agreement also extends our Concession Agreement with the City of New York for 30 months, resulting in a new expiration date of April 30, 2021. The City of New York has two one year options to further extend the Concession Agreement. The Agreement also provides that the minimum annual guarantee payments we are required to pay to the City of New York under the Concession Agreement will be reduced by 50%, effective January 1, 2017.
These reductions will negatively impact our business and financial results and our management company at the Heliport, Empire Aviation which, as previously disclosed, is owned by the children of Alvin Trenk, our CEO and a member of our Board of Directors. The Company incurred management fees with Empire Aviation of approximately $3,700,000 and $3,300,000 during the twelve months ended December 31, 2015 and 2014, respectively, which is recorded in administrative expenses. We and Empire have also contributed to the Helicopter Tourism and Jobs Council (“HTJC”), an association that lobbies on behalf of the helicopter air tour industry, and which had engaged in discussions with the Mayor’s office. Mr. Trenk is also an active participant with HJTC, which is managed by his grandson.
Our anticipated capital expenditures in 2016 are approximately $50,000 - $100,000.
During the twelve months ended December 31, 2015, we had a net decrease in cash of $116,342. Our sources and uses of funds during this period were as follows:
Cash from Operating Activities
For the year ended December 31, 2015, net cash provided by operating activities was $990,545. This amount included an increase in operating cash related to net income of $695,208 and additions for the following items: (i) depreciation, $568,821; (ii) stock-based compensation expense, $33,946; (iii) impaired goodwill and other intangibles, $107,500; (iv) prepaid expenses and other current assets, $170,457; (v) deposits, $28,227; (vi) deferred income taxes, $190,000; and (vii) accrued expenses, $84,347. The increase in cash provided by operating activities in 2015 was offset by the following items: (i) gain on sales of assets, $73,305; (ii) accounts receivable, $471,113; (iii) inventories, $21,524; (iv) accounts payable, $313,515; and (v) customer deposits, $8,504. For the year ended December 31, 2014, net cash provided by operating activities was $1,156,041. This amount included an increase in operating cash related to net income of $133,747 and additions for the following items: (i) depreciation and amortization, $626,919; (ii) stock-based compensation expense, $36,675; (iii) inventories, $39,174; (iv) accounts payable, $126,463, (v) deposits, $4,873; (vi) accrued expenses, $408,893; (vii) impaired goodwill and other intangibles, $689,963, and (viii) prepaid expenses, $15,537. The increase in cash provided by operating activities in 2014 was offset by the following items: (i) accounts receivable, $423,203; and (ii) deferred income taxes, $503,000.
13
Cash from Investing Activities
For the year ended December 31, 2015, net cash used in investing activities was $152,375 attributable to the purchase of property and equipment. For the year ended December 31, 2014, net cash provided by investing activities was $1,373 and was attributable to the purchase of property and equipment that cost $190,956 offset by the payment of notes receivable of $192,329.
Cash from Financing Activities
For the year ended December 31, 2015, net cash used in financing activities was $954,512, consisting of (i) repayment of notes payable, $404,562; (ii) repayment of borrowings on the line of credit, $550,000; and (iii) issuance of common stock, $50. For the year ended December 31, 2014, net cash used in financing activities was $772,816, consisting of (i) repayment of notes payable, $947,866; (ii) offset by borrowings on the line of credit, $175,000; and (iii) issuance of common stock, $50.
Off-Balance Sheet Arrangements
We have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.
Critical Accounting Estimates
Discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the amounts reported in the consolidated financial statements and the accompanying notes. We evaluate our estimates on an ongoing basis, including those estimates related to product returns, product and content development expenses, bad debts, inventories, intangible assets, income taxes, contingencies and litigation. We base our estimates on experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The critical accounting policies which we believe affect our more significant judgments and estimates used in the preparation of our consolidated financial statements are provided as follows:
Accounts Receivable, Trade
We extend credit to large and mid-size companies for products and services. We have concentrations of credit risk in that 93.9% of the balance of our accounts receivable at December 31, 2015 is made up of only four customers. At December 31, 2015, accounts receivable from our four largest accounts amounted to approximately $491,033 (19.5%), $957,886 (38.0%), $676,632 (26.8%), and $242,633 (9.6%), respectively. We have in place a security deposit in connection with each of these receivables. Accounts receivable are carried at their estimated collectible amounts. Accounts receivable are periodically evaluated for collectability and the allowance for doubtful accounts is adjusted accordingly. We determine collectability based on our management experience and knowledge of the customers.
Goodwill and Intangible Assets
Goodwill and intangibles that are deemed to have indefinite lives are not amortized but, instead, are to be reviewed at each reporting period for impairment. We assessed potential impairment of goodwill using qualitative factors by considering various factors including macroeconomic conditions, industry and market conditions, cost factors, a sustained share price or market capitalization decrease and any reporting unit specific events. We performed an analysis of our goodwill and intangible assets at December 31, 2015 and 2014. In addition to amounts recorded in 2015 with respect to discontinued operations, we recorded an impairment charge in 2015 and 2014 related to intangibles recorded in connection with the purchase of PRA.
14
Income Taxes
We account for income taxes under “Accounting for Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between their financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Deferred tax assets are subject to a valuation allowance because it is more likely than not that certain of the deferred tax assets will not be realized in future periods. We file income tax returns in the United States (federal) and in various state and local jurisdictions. In most instances, we are no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2012.
Stock Based Compensation
Stock-based compensation expense for all share-based payment awards are based on the grant-date fair value. We recognize these compensation costs over the requisite service period of the award, which is generally the option vesting term.
Option valuation models require the input of highly subjective assumptions, including the expected life of the option. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
Recent Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update No. 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) – Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (ASU 2014-08) which requires entities to change the criteria for reporting discontinued operations and enhance convergence of the FASB’s and International Accounting Standard Board’s (IASB) reporting requirements for discontinued operations so as not to be overly complex or difficult to apply to stakeholders. Only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on the entity’s operations and financial results will be reported as discontinued operations in the financial statements. ASU 2014-08 is effective for fiscal years beginning on or after December 15, 2014 and interim periods thereafter. ASU 2014-08 became effective for our financial statements for fiscal years beginning January 1, 2015. Based on our evaluation of ASU 2014-08, the adoption of this statement on January 1, 2015 did not have a material impact on our financial statements.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
15
| ITEM 8. | FINANCIAL STATEMENTS |
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Table of Contents to Consolidated Financial Statements
16
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
To the Audit Committee of the Board of Directors and Stockholders of
Saker Aviation Services, Inc.
We have audited the accompanying consolidated balance sheets of Saker Aviation Services, Inc. and Subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Saker Aviation Services, Inc. and Subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
| /s/ Kronick Kalada Berdy & Co. | |
| Kingston, PA | |
| April 4, 2016 |
17
| SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
|
December 31,
2015 |
December 31,
2014 |
|||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 414,661 | $ | 531,003 | ||||
| Accounts receivable | 2,520,955 | 2,049,842 | ||||||
| Inventories | 67,860 | 299,339 | ||||||
| Notes receivable – current portion | 300,000 | — | ||||||
| Prepaid expenses and other current assets | 354,485 | 524,942 | ||||||
| Total current assets | 3,657,961 | 3,405,126 | ||||||
| PROPERTY AND EQUIPMENT, net | ||||||||
| of accumulated depreciation and amortization of $2,116,676 and $1,711,543 respectively | 1,496,656 | 2,086,794 | ||||||
| OTHER ASSETS | ||||||||
| Deposits | 150,297 | 178,524 | ||||||
| Note receivable, less current portion | 200,000 | — | ||||||
| Intangible assets | 35,000 | 142,500 | ||||||
| Goodwill | 530,000 | 530,000 | ||||||
| Deferred income taxes | 173,000 | 363,000 | ||||||
| Total other assets | 1,088,297 | 1,214,024 | ||||||
| TOTAL ASSETS | $ | 6,242,914 | $ | 6,705,944 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 682,916 | $ | 996,431 | ||||
| Line of credit | — | 550,000 | ||||||
| Customer deposits | 126,257 | 134,761 | ||||||
| Accrued expenses | 589,417 | 505,070 | ||||||
| Notes payable – current portion | 272,374 | 372,457 | ||||||
| Total current liabilities | 1,670,964 | 2,558,719 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Notes payable - less current portion | 652,500 | 956,979 | ||||||
| Total liabilities | 2,323,464 | 3,515,698 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock - $.001 par value; authorized 9,999,154; none issued and outstanding | — | |||||||
|
Common stock - $.001 par value; authorized 100,000,000; 33,157,610 and 33,107,610 shares
issued and outstanding
in 2015 and 2014, respectively |
33,157 | 33,107 | ||||||
| Additional paid-in capital | 19,996,428 | 19,962,482 | ||||||
| Accumulated deficit | (16,110,135 | ) | (16,805,343 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | 3,919,450 | 3,190,246 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 6,242,914 | $ | 6,705,944 | ||||
See accompanying notes to consolidated financial statements.
18
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
For the Years Ended
December 31, |
||||||||
| 2015 | 2014 | |||||||
| REVENUE | $ | 15,974,307 | $ | 16,416,170 | ||||
| COST OF REVENUE | 7,262,670 | 8,649,249 | ||||||
| GROSS PROFIT | 8,711,637 | 7,766,921 | ||||||
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 6,668,533 | 6,006,637 | ||||||
| OPERATING INCOME FROM CONTINUING OPERATIONS | 2,043,104 | 1,760,284 | ||||||
| OTHER INCOME (EXPENSE): | ||||||||
| OTHER (EXPENSE) INCOME, net | (99,384 | ) | 21,194 | |||||
| INTEREST INCOME | — | 6,693 | ||||||
| INTEREST EXPENSE | (25,024 | ) | (47,326 | ) | ||||
| TOTAL OTHER EXPENSE, net | (124,408 | ) | (19,439 | ) | ||||
| INCOME FROM CONTINUING OPERATIONS, before income taxes | 1,918,696 | 1,740,845 | ||||||
| INCOME TAX EXPENSE (BENEFIT) | ||||||||
| CURRENT | 842,000 | 1,413,000 | ||||||
| DEFERRED | 190,000 | (503,000 | ) | |||||
| INCOME TAX EXPENSE | 1,032,000 | 910,000 | ||||||
| INCOME FROM CONTINUING OPERATIONS | 886,696 | 830,845 | ||||||
| LOSS FROM DISCONTINUED OPERATIONS, net of income taxes | (191,488 | ) | (697,098 | ) | ||||
| NET INCOME | $ | 695,208 | $ | 133,747 | ||||
| Basic Net Income Per Common Share | $ | 0.02 | $ | 0.00 | ||||
| Diluted Net Income Per Common Share | $ | 0.02 | $ | 0.00 | ||||
| Weighted Average Number of Common Shares – Basic | 33,112,542 | 33,106,788 | ||||||
| Weighted Average Number of Common Shares – Diluted | 33,598,544 | 33,327,817 | ||||||
See accompanying notes to consolidated financial statements.
19
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2015 and 2014
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| BALANCE – January 1, 2014 | 33,057,610 | $ | 33,057 | $ | 19,925,807 | $ | (16,939,090 | ) | $ | 3,019,774 | ||||||||||
| Issuance of common stock | 50,000 | 50 | 50 | |||||||||||||||||
| Amortization of stock based compensation | 36,675 | 36,675 | ||||||||||||||||||
| Net income | 133,747 | 133,747 | ||||||||||||||||||
| BALANCE – December 31, 2014 | 33,107,610 | $ | 33,107 | $ | 19,962,482 | $ | (16,805,343 | ) | $ | 3,190,246 | ||||||||||
| Issuance of common stock | 50,000 | 50 | 50 | |||||||||||||||||
| Amortization of stock based compensation | 33,946 | 33,946 | ||||||||||||||||||
| Net income | 695,208 | 695,208 | ||||||||||||||||||
| BALANCE – December 31, 2015 | 33,157,610 | $ | 33,157 | $ | 19,996,428 | $ | (16,110,135 | ) | $ | 3,919,450 | ||||||||||
See accompanying notes to consolidated financial statements.
20
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
For the Years Ended
December 31, |
||||||||
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 695,208 | $ | 133,747 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 568,821 | 626,919 | ||||||
| Gain on sale of assets | (73,305 | ) | — | |||||
| Stock based compensation | 33,946 | 36,675 | ||||||
| Impaired goodwill and other intangibles | 107,500 | 689,963 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, trade | (471,113 | ) | (423,203 | ) | ||||
| Inventories | (21,524 | ) | 39,174 | |||||
| Prepaid expenses and other current assets | 170,457 | 15,537 | ||||||
| Deposits | 28,227 | 1,660 | ||||||
| Deferred income taxes | 190,000 | (503,000 | ) | |||||
| Accounts payable | (313,515 | ) | 126,463 | |||||
| Customer deposits | (8,504 | ) | 3,213 | |||||
| Accrued expenses | 84,347 | 408,893 | ||||||
| TOTAL ADJUSTMENTS | 295,337 | 1,022,294 | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 990,545 | 1,156,041 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Payment of notes receivable | — | 192,329 | ||||||
| Purchase of property and equipment | (152,375 | ) | (190,956 | ) | ||||
| NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | (152,375 | ) | 1,373 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Issuance of common stock | 50 | 50 | ||||||
| Repayment of line of credit, net | (550,000 | ) | 175,000 | |||||
| Repayment of notes payable | (404,562 | ) | (947,866 | ) | ||||
| NET CASH USED IN FINANCING ACTIVITIES | (954,512 | ) | (772,816 | ) | ||||
| NET CHANGE IN CASH | (116,342 | ) | 384,598 | |||||
| CASH – Beginning | 531,003 | 146,405 | ||||||
| CASH – Ending | $ | 414,661 | $ | 531,003 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the periods for: | ||||||||
| Interest | $ | 49,599 | $ | 85,929 | ||||
| Income taxes | $ | 387,561 | $ | 260,287 | ||||
| Non-cash investing Activities: | ||||||||
| Sale of assets through issuance of notes receivable | $ | 500,000 | ||||||
See accompanying notes to consolidated financial statements.
21
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 1 - Nature of Operations
Saker Aviation Services, Inc. (“Saker”), through its subsidiaries (collectively the “Company”), operates in the aviation services segment of the general aviation industry, in which it serves as the operator of a heliport and a fixed base operation (“FBO”). FBOs provide ground-based services, such as fueling and aircraft storage for general aviation, commercial and military aircraft, and other miscellaneous services.
FirstFlight Heliports, LLC d/b/a Saker Aviation Services (“FFH”), a wholly-owned subsidiary, operates the Downtown Manhattan Heliport via a concession agreement with the City of New York. FBO Air Garden City, Inc. d/b/a Saker Aviation Services (“FBOGC”), a wholly-owned subsidiary provides FBO services in Garden City, Kansas. Phoenix Rising Aviation, Inc. (“PRA”), a wholly-owned subsidiary previously provided MRO services in Bartlesville, Oklahoma – see Discontinued Operations below.
NOTE 2 – Management’s Liquidity Plans
As of December 31, 2015, the Company had cash of $414,661 and had a working capital surplus of $1,986,997. The Company generated revenue from continuing operations of $15,974,307 and income from continuing operations before income taxes of $1,918,696 for the twelve months ended December 31, 2015.
On May 17, 2013, the Company entered into a loan agreement with PNC Bank (the “PNC Loan Agreement”). The PNC Loan Agreement contains three components: (i) a $2,500,000 non-revolving acquisition line of credit (the “PNC Acquisition Line”); (ii) a $1,150,000 working capital line (the “PNC Working Capital Line”); and (iii) a $280,920 term loan (the “PNC Term Loan”). Substantially all assets of the Company are pledged as collateral under the PNC Loan Agreement.
Proceeds of the PNC Acquisition Line were able to be dispersed, based on parameters defined in the PNC Loan Agreement, until May 17, 2014 (the “Conversion Date”). As of the Conversion Date, there was $1,350,000 outstanding under the PNC Acquisition Line. The payment terms provide that 30 days following the Conversion Date, and continuing on the same day of each month thereafter, the Company is required to make equal payments of principal over a 60 month period. Interest on the outstanding principal continues to accrue at a rate equal to one-month LIBOR plus 275 basis points (2.947% as of December 31, 2015). An unused commitment fee had been applied at a rate of 1.5% on the unused portion of the PNC Acquisition Line and was charged for each fiscal quarter through the Conversion Date. As of December 31, 2015, there was $922,500 outstanding under the PNC Acquisition Line.
The PNC Working Capital was to have been dispersed for working capital and general corporate purposes. Interest on outstanding principal accrued at a rate equal to daily LIBOR plus 250 basis points (2.697% as of December 31, 2015). The PNC Working Capital Line expired on December 31, 2015, with $0 outstanding.
The PNC Term Loan was dispersed to settle miscellaneous Company debt of the same amount. Interest on outstanding principal accrued at a rate equal to one-month LIBOR plus 275 basis points and principal and interest payments were to be made over a 34 month period. At December 31, 2015, all amounts outstanding under the PNC Term Loan had been repaid.
The Company is party to a concession agreement, dated as of November 1, 2008, with the City of New York for the operation of the Downtown Manhattan Heliport (the “Concession Agreement”). Pursuant to the terms of the Concession Agreement, the Company must pay the greater of 18% of the first $5,000,000 in program year gross receipts and 25% of gross receipts in excess of $5 million or minimum annual guaranteed payments. The Company paid the City of New York $1,200,000 in the first year of the term and minimum payments are scheduled to increase to approximately $1,700,000 in the final year of Concession Agreement, which was set to expire on October 31, 2018. During the twelve months ended December 31, 2015 and 2014, the Company incurred approximately $2,900,000 and $2,800,000 in concession fees, respectively, which is recorded in the cost of revenue.
As disclosed in a Current Report on Form 8-K filed on February 5, 2016 with the Securities and Exchange Commission (the “SEC”), on February 2, 2016, the New York City Economic Development Corporation (the “NYCEDC”) and the Company announced new measures to reduce helicopter noise and impacts across New York City (the “Agreement”).
Under the Agreement, filed as an exhibit with this report, the Company may not allow its tenant operators to conduct tourist flights from the Downtown Manhattan Heliport on Sundays beginning April 1, 2016. The Company must also ensure its tenant operators reduce the total allowable number of tourist flights from 2015 levels by 20 percent beginning June 1, 2016, by 40 percent beginning October 1, 2016 and by 50 percent beginning January 1, 2017. Additionally, beginning on June 1, 2016, the Company is required to provide monthly written reports to the NYCEDC and the New York City Council detailing the number of tourist flights conducted out of the Downtown Manhattan Heliport compared to the Company’s 2015 levels, as well as information on any tour flight that flies over land and/or strays from agreed upon routes.
22
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
The Agreement also extends the Company's Concession Agreement with the City of New York for 30 months, resulting in a new expiration date of April 30, 2021. The City of New York has two one year options to further extend the Concession Agreement. The Agreement also provides that the minimum annual guarantee payments required to be made by the Company to the City of New York under the Concession Agreement will be reduced by 50%, effective January 1, 2017.
These reductions will negatively impact the business and financial results of the Company and its management company at the Heliport, Empire Aviation which, as previously disclosed, is owned by the children of Alvin Trenk, the Company’s CEO and a member of its Board of Directors. The Company incurred management fees with Empire Aviation of approximately $3,700,000 and $3,300,000 during the twelve months ended December 31, 2015 and 2014, respectively, which is recorded in administrative expenses. The Company and Empire have also contributed to the Helicopter Tourism and Jobs Council (“HTJC”), an association that lobbies on behalf of the helicopter air tour industry, and which had engaged in discussions with the Mayor’s office. Mr. Trenk is also an active participant with HJTC, which is managed by his grandson.
NOTE 3 – Discontinued Operations
As disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on July 6, 2015, the Company entered into a Stock Purchase Agreement, dated June 30, 2015, by and between the Company and Warren A. Peck (the “Agreement”). Pursuant to the Agreement, Mr. Peck was to purchase all of the outstanding capital stock of the Company’s wholly-owned subsidiary Phoenix Rising Aviation, Inc. (“PRA”). The closing of the transactions contemplated by the Agreement occurred on September 30, 2015. At that time, in exchange for all of the outstanding capital stock of PRA, Mr. Peck was required to (i) pay the Company $250,000 in cash; (ii) execute a $250,000 Secured Promissory Note in favor of the Company; and (iii) execute an Installment Payment Agreement giving the Company rights to earn-out payments based on EBITDA thresholds achieved by PRA post-closing. As a result of the sale, PRA results of operations have been reported as discontinued operations in the Condensed Consolidated Balance Sheets and Statements of Operations for 2015 and 2014.
The Agreement, Secured Promissory Note and Installment Payment Agreement were included as exhibits with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2015. On September 30, 2015 the Company and Mr. Peck executed the Closing Cash Agreement “the “Closing Agreement”, which was filed with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2015. The Closing Agreement provided for Mr. Peck to sign over to the Company title to an aircraft to defer the $250,000 cash consideration due at closing. As further described in the Closing Agreement, the Company shall receive the $250,000 closing cash payment, plus other identified costs, when the aircraft is subsequently sold. The $250,000 closing cash consideration plus receivables associated with the Note are therefore reflected as a Note Receivable in the Consolidated Balance Sheets as of December 31, 2015.
Components of discontinued operations are as follows:
As of December 31, 2015 and 2014, assets principally consisting of $0.00 and $667,617, respectively, and liabilities of $0.00 and $1,224,281, respectively, were included in the consolidated balance sheets.
|
For the Twelve Months Ended
December 31, |
||||||||
| 2015 | 2014 | |||||||
| Revenue | $ | 1,763,944 | $ | 1,871,615 | ||||
| Cost of revenue | 1,346,760 | 1,419,923 | ||||||
| Gross profit | 417,184 | 451,692 | ||||||
| Operating expenses | 766,281 | 1,086,017 | ||||||
| Operating loss from discontinued operations | (349,097 | ) | (634,325 | ) | ||||
| Interest expense, net | (24,575 | ) | (38,603 | ) | ||||
| Impairment of goodwill, intangible and fixed assets | (107,500 | ) | (689,963 | ) | ||||
| Other income (expense), net | 24,684 | (54,206 | ) | |||||
| Income tax benefit | 265,000 | 719,999 | ||||||
| Net loss from discontinued operations | $ | (191,488 | ) | $ | (697,098 | ) | ||
| Basic net loss per common share | $ | (0.01 | ) | $ | (0.02 | ) | ||
| Weighted average number of common shares outstanding, basic | 33,157,610 | 33,057,610 | ||||||
23
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 4 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, FirstFlight Heliports, LLC (“FFH”), its FBO at Garden City (Kansas) Regional Airport (“FBOGC”) and Phoenix Rising Aviation, Inc. (“PRA”), see Note 3, Discontinued Operations. All significant inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include depreciation, amortization, impairment of goodwill and intangibles, stock-based compensation, allowance for doubtful accounts and deferred tax assets.
Cash
The Company maintains its cash with various financial institutions. As part of its cash management process, the Company periodically reviews the relative credit standing of these financial institutions.
Accounts Receivable, Trade and Revenue Concentration
The Company extends credit to companies for products and services. The Company has concentrations of credit risk because 93.9% of the balance of accounts receivable, trade at December 31, 2015 was incurred by only four customers. At December 31, 2015, accounts receivable from the Company’s four largest accounts amounted to approximately $957,886 (38.0%), $676,632 (26.8%), $491,033 (19.5%), and $242,633 (9.6%), respectively. In addition, four customers represented approximately $12,560,000 (78.6%) of revenue in 2015. At December 31, 2014, accounts receivable from the Company’s four largest accounts amounted to approximately $685,000 (33.4%), $359,000 (17.5%), $292,000 (14.2%), and $233,000 (11.4%), respectively. In addition, three customers represented approximately $10,400,000 (57%) of revenue in 2014. The Company has in place a security deposit in connection with each of these four receivables but its receivables are otherwise not collateralized. Accounts receivable are carried at their estimated collectible amounts. Accounts receivable are periodically evaluated for collectability and the allowance for doubtful accounts is adjusted accordingly. Management determines collectability based on their experience and knowledge of the customers. As of December 31, 2015 and 2014, the Company has recorded an allowance for doubtful accounts of $0.
Inventories
Inventories consist primarily of maintenance parts and aviation fuel and are stated at the lower of cost or market determined by the first-in, first out method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided primarily using the straight-line method over the estimated useful lives as set forth in footnote 6. Amortization of leasehold improvements is provided using the straight-line method over the shorter of their estimated useful life or lease term, including renewal option periods expected to be exercised. Maintenance and repairs are charged to expense as incurred; costs of major additions and betterments are capitalized. When property and equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in income.
Goodwill and Intangible Assets
Goodwill and intangibles that are deemed to have indefinite lives are not amortized but, instead, are to be reviewed at each reporting period for impairment. The Company assessed potential impairment of goodwill using qualitative factors by considering various factors including macroeconomic conditions, industry and market conditions, cost factors, a sustained share price or market capitalization decrease and any reporting unit specific events. The Company performed an analysis of its goodwill and intangible assets at December 31, 2015 and 2014. In addition to amounts recorded in 2013 with respect to discontinued operations, the Company recorded an impairment charge in 2015 and 2014 relating to intangibles recorded in connection with the Company’s purchase of its MRO in Oklahoma.
Revenue Recognition
Revenue for the sales of products is recognized at the time products are delivered to customers. Revenue for services is recognized at the time the services are performed and provided to customers.
24
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Reclassifications
Certain reclassifications were made to prior year amounts to conform to the current year presentation. None of the reclassifications affected the Company’s net (loss) income in any period.
Customer Deposits
Customer deposits consist of amounts that customers are required to remit in advance to the Company in order to secure payment for future purchases and services.
Advertising
The Company expenses all advertising costs as incurred. Advertising expense for the years ended December 31, 2015 and 2014 was approximately $45,250 and $117,401, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between their financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income or loss in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Deferred tax assets are subject to a valuation allowance because it is more likely than not that certain of the deferred tax assets will not be realized in future periods. The Company files income tax returns in the United States (federal) and in various state and local jurisdictions. In most instances, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2012.
Fair Value of Financial Instruments
The reported amounts of the Company’s financial instruments, including accounts receivable, accounts payable and accrued liabilities, approximate their fair value due to their short maturities. The carrying amounts of debt approximate fair value because the debt agreements provide for interest rates that approximate market. The carrying value of the note receivable approximated fair value because it was discounted at a current market rate.
Net Income Per Common Share
Basic net income per share applicable to common stockholders is computed based on the weighted average number of shares of the Company’s common stock outstanding during the periods presented. Diluted net income per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities, consisting of options and warrants, are excluded from the calculation of the diluted income per share when their exercise prices are greater than the average market price of the common stock during the period or when their inclusion would be antidilutive.
The following table sets forth the components used in the computation of basic and diluted income per share:
|
For the Year Ended
December 31, |
||||||||
| 2015(1) | 2014(1) | |||||||
| Weighted average common shares outstanding, basic | 33,112,542 | 33,106,788 | ||||||
| Common shares upon exercise of options or warrants | 486,002 | 221,029 | ||||||
| Weighted average common shares outstanding, diluted | 33,598,544 | 33,327,817 | ||||||
| (1) | Common shares of 1,713,998 and 1,950,000 underlying outstanding stock options for the years ended December 31, 2015 and 2014, respectively, were excluded from the computation of diluted earnings per share as their inclusion would be antidilutive. |
25
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Stock-Based Compensation
Stock-based compensation expense for all share-based payment awards are based on the estimated grant-date fair value. The Company recognizes these compensation costs over the requisite service period of the award, which is generally the option vesting term. For the years ended December 31, 2015 and 2014, the Company incurred stock based compensation of $33,946 and $36,675, respectively. Such amounts have been recorded as part of the Company’s selling, general and administrative expenses in the accompanying consolidated statements of operations. As of December 31, 2015, the unamortized fair value of the options totaled $29,333 and the weighted average remaining amortization period of the options approximated 5 years.
Option valuation models require the input of highly subjective assumptions, including the expected life of the option. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
The fair value of each share-based payment award granted during the years ended December 31, 2015 and 2014 were estimated using the Black-Scholes option pricing model with the following weighted average fair values:
|
For the Year Ended
December 31, |
||||||||
| 2015 | 2014 | |||||||
| Dividend yield | 0% | 0% | ||||||
| Expected volatility | 692% | 678% | ||||||
| Risk-free interest rate | 1.6% | 1.5% | ||||||
| Expected lives | 5.0 years | 5.0 years | ||||||
The weighted average fair value of the options on the date of grant, using the fair value based methodology during the years ended December 31, 2015 and 2014, was $0.074 and $0.068, respectively.
Recently Issued Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update No. 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) – Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (ASU 2014-08) which requires entities to change the criteria for reporting discontinued operations and enhance convergence of the FASB’s and International Accounting Standard Board’s (IASB) reporting requirements for discontinued operations so as not to be overly complex or difficult to apply to stakeholders. Only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on the entity’s operations and financial results will be reported as discontinued operations in the financial statements. ASU 2014-08 is effective for fiscal years beginning on or after December 15, 2014 and interim periods thereafter. ASU 2014-08 was effective for the Company’s financial statements for fiscal years beginning January 1, 2015. Based on the Company’s evaluation of ASU 2014-08, the adoption of this statement on January 1, 2015 did not have a material impact on the Company’s financial statements.
NOTE 5 – Inventories
Inventory consists primarily of aviation fuel which the Company dispenses to its customers. The Company also maintains fuel inventories for commercial airlines, to which it charges into-plane fees when servicing commercial aircraft.
Inventories consist of the following:
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| Parts inventory | $ | 0 | $ | 219,374 | ||||
| Fuel inventory | 52,475 | 68,891 | ||||||
| Other inventory | 15,385 | 11,074 | ||||||
| Total inventory | $ | 67,860 | $ | 299,339 | ||||
Included in fuel inventory are amounts held for third parties of $55,798 and $76,021 as of December 31, 2015 and 2014, respectively, with an offsetting liability included as part of accrued expenses.
26
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 6 – Property and Equipment
Property and equipment consist of the following:
| December 31, | Estimated | |||||||||
| 2015 | 2014 | Useful Life | ||||||||
| Aircraft | $ | 56,000 | $ | 45,872 | 7 – 12 years | |||||
| Vehicles | 274,384 | 386,604 | 5 – 10 years | |||||||
| Office furniture and equipment | 368,709 | 339,842 | 3 – 7 years | |||||||
| Tools and shop equipment | 61,290 | 233,912 | 3 – 10 years | |||||||
| Leasehold improvements | 2,652,949 | 2,592,107 | 10 – 20 years | |||||||
| Building/fuel farm | 200,000 | 200,000 | 7 – 17 years | |||||||
| Total | 3,613,332 | 3,798,337 | ||||||||
| Less: accumulated depreciation and amortization | (2,116,676 | ) | (1,711,543 | ) | ||||||
| Property and equipment, net | $ | 1,496,656 | $ | 2,086,794 | ||||||
Depreciation expense for the years ended December 31, 2015 and 2014 was approximately $569,000 and $549,000, respectively.
NOTE 7 – Goodwill and Intangible Assets
The Company had $530,000 of goodwill at December 31, 2015 and 2014 from its FBO operations. The Company had assessed its goodwill using the qualitative approach and determined it was more likely than not that the fair value of its goodwill resulting from the purchase of PRA was less than its carrying value and, therefore, recorded a $550,380 impairment charge in 2014. Due to macroeconomic, industry and market conditions, the PRA facility had not been able to establish positive cash flow and future cash flows were insufficient to support any value of goodwill or indefinite live intangibles so the Company recorded the impairment charge in the 2014 audited financial statements for their remaining value.
As of December 31, 2015, intangible assets consisted of a charter certificate ($35,000). As of December 31, 2014, intangible assets consisted of a non-compete agreement ($107,500) and a charter certificate ($35,000). At December 31, 2014, the Company recorded an impairment charge of $139,583 for the trade name and customer relationships at the PRA facility using the aforementioned procedures. In connection with the Company’s sale of PRA at September 30, 2015, the Company recorded a $107,500 charge for the full value of the PRA non-compete agreement.
NOTE 8 – Line of Credit
The Company had a working capital line aggregating $750,000, which was secured by substantially all assets of the Company. The line, which bore interest at a rate equal to daily LIBOR plus 250 basis points and was renewable at PNC Bank’s option, expired on December 31, 2015 with $0 outstanding.
27
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 9 – Notes Payable
Notes payable consist of:
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| PNC Bank Acquisition Line of Credit converted to a Promissory Note on May 17, 2014 – secured by assets of acquisition. One month LIBOR plus 275 bps, matures May 17, 2019. | $ | 922,500 | $ | 1,192,500 | ||||
| PNC Bank Term Loan – paid in full | — | 128,420 | ||||||
| Other | 2,374 | 8,516 | ||||||
| Subtotal | 924,874 | 1,329,436 | ||||||
| Less: current portion | (272,374 | ) | (372,457 | ) | ||||
| Total – long term | $ | 652,500 | $ | 956,979 | ||||
Aggregate annual maturities of debt are as follows:
| For the years ended December 31, | Total | |||
| 2016 | $ | 272,374 | ||
| 2017 | 270,000 | |||
| 2018 | 270,000 | |||
| 2019 | 112,500 | |||
| TOTAL | $ | 924,874 | ||
NOTE 10 – Income Taxes
The Company’s deferred tax assets and deferred tax liabilities consisted of the following:
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| Deferred tax assets: | ||||||||
| Stock based compensation | $ | 53,000 | $ | 44,000 | ||||
| Deferred start-up costs | 30,000 | 38,000 | ||||||
| Goodwill and intangibles | 39,000 | 388,000 | ||||||
| Property and equipment | 101,000 | — | ||||||
| Total deferred tax assets | 223,000 | 470,000 | ||||||
| Deferred tax liabilities: | ||||||||
| Property and equipment | — | (65,000 | ) | |||||
| Total deferred tax liabilities | 0 | (65,000 | ) | |||||
| Deferred tax assets – net | 223,000 | 405,000 | ||||||
| Valuation Allowance | (50,000 | ) | (42,000 | ) | ||||
| Deferred tax asset – net of valuation allowance | $ | 173,000 | $ | 363,000 | ||||
| Change in valuation allowance | $ | 8,000 | $ | 7,000 | ||||
28
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
The provision for income taxes using the statutory federal tax rate as compared to the Company's effective tax rate is summarized as follows:
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| Tax expense at statutory rate | 34.0 | % | 34.0 | % | ||||
| State and local income taxes, net of federal | 19.8 | % | 18.3 | % | ||||
| Effective income tax expense rate | 53.8 | % | 52.3 | % | ||||
NOTE 11 – Stockholders’ Equity
Stock Options
On December 12, 2006, at the Company’s Annual Meeting, the stockholders of the Company approved the Stock Option Plan of 2005 (the “Plan”). The Plan is administered by the Company’s Compensation Committee and provides for 7,500,000 shares of common stock to be reserved for issuance under the Plan. Directors, officers, employees, and consultants of the Company are eligible to participate in the Plan. The Plan provides for the awards of incentive and non-statutory stock options. The Committee determined the vesting schedule to be up to five years at the time of grant of any options under the Plan, and unexercised options will expire in up to ten years. The exercise price is to be equal to at least 100% of the fair market value of a share of the common stock, as determined by the Compensation Committee, on the grant date. As of December 31, 2015 and 2014, there were 5,300,000 and 5,600,000 shares, respectively, available for grant as options under the Plan.
Details of all options outstanding under the Plan are presented in the table below:
|
Number of
Options |
Weighted Average
Exercise Price |
|||||||
| Balance, January 1, 2014 | 1,800,000 | $ | 0.070 | |||||
| Granted | 300,000 | 0.085 | ||||||
| Exercised | (100,000 | ) | 0.050 | |||||
| Forfeited | (100,000 | ) | 0.120 | |||||
| Balance, December 31, 2014 | 1,900,000 | $ | 0.071 | |||||
| Granted | 400,000 | 0.080 | ||||||
| Exercised | (100,000 | ) | 0.040 | |||||
| Balance, December 31, 2015 | 2,200,000 | $ | 0.074 | |||||
On December 1, 2015, the Company granted a stock option under the Plan to each of the three non-employee directors plus the Chief Executive Officer, who otherwise accepts no compensation, to purchase 100,000 shares of common stock at $0.080 per share, the closing price of the Company’s common stock on December 1, 2015. Each option vests on December 1, 2016 and expires on December 1, 2020. These options are collectively valued at $32,000 and are being amortized over the vesting period.
On November 25, 2015, four sets of options of 25,000 shares each, representing a total of 100,000 shares, were exercised.
On December 1, 2014, the Company granted a stock option under the Plan to each of the two non-employee directors plus the Chief Executive Officer, who otherwise accepts no compensation, to purchase 100,000 shares of common stock at $0.085 per share, the closing price of the Company’s common stock on December 1, 2014. Each option vests on December 1, 2015 and expires on December 1, 2019. These options are collectively valued at $25,500 and are being amortized over the vesting period.
On December 1, 2014, four sets of options of 25,000 shares each, representing a total of 100,000 shares, expired.
On January 6, 2014, an option of 100,000 shares was exercised.
29
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
A summary of the Company’s stock options outstanding at December 31, 2015 is presented in the table below:
| Exercise Price | Outstanding |
Weighted average
remaining
contractual life of options (in years) |
Exercisable |
Intrinsic
Value |
||||||||||||||
| $ | 0.030 | 300,000 | 2.81 | 300,000 | $ | 19,372 | ||||||||||||
| $ | 0.077 | 400,000 | 2.92 | 400,000 | $ | 7,030 | ||||||||||||
| $ | 0.078 | 400,000 | 0.94 | 400,000 | $ | 6,470 | ||||||||||||
| $ | 0.080 | 400,000 | 4.92 | — | $ | 5,830 | ||||||||||||
| $ | 0.084 | 400,000 | 1.92 | 400,000 | $ | 4,230 | ||||||||||||
| $ | 0.085 | 300,000 | 3.92 | 300,000 | $ | 2,872 | ||||||||||||
| TOTALS | 2,200,000 | 1,800,000 | $ | 45,803 | ||||||||||||||
Warrants
Details of all warrants outstanding are presented in the table below:
|
Number of
Warrants |
Weighted Average
Exercise Price |
|||||||
| Balance, January 1, 2014 | 3,250,000 | $ | 0.06 | |||||
| Granted | — | — | ||||||
| Exercised | — | — | ||||||
| Forfeited | (2,900,000 | ) | 0.05 | |||||
| Balance, December 31, 2014 | 350,000 | 0.10 | ||||||
| Granted | — | — | ||||||
| Exercised | — | — | ||||||
| Forfeited | (350,000 | ) | 0.10 | |||||
| Balance, December 31, 2015 | 0 | 0.00 | ||||||
On December 31, 2015, a warrant for 350,000 shares expired.
On December 28, 2014, a warrant for 2,900,000 shares expired.
Preferred Stock
As of December 31, 2015 and 2014, the Company has 9,999,154 shares of preferred stock authorized and none of which is issued and outstanding. The Company’s Board of Directors currently has the right, with respect to the authorized shares of our preferred stock, to authorize the issuance of one or more series of preferred stock with such voting, dividend and other rights as the directors determine.
NOTE 12 – Employee Benefit Plan
The Company maintains a 401K Plan (the “401K Plan”), which covers all employees of the Company. The 401K Plan contains an option for the Company to match each participant's contribution. Any Company contribution vests over a five-year period on a 20% per year basis. Company contributions to the 401K Plan totaled approximately $41,000 and $45,000 for the years ended December 31, 2015 and 2014, respectively.
NOTE 13 – Commitments
Operating Leases
The Company leases facilities from Garden City, Kansas, which provides for: (a) a 21-year lease term expiring December 31, 2030, with one five-year renewal period, and (b) a base rent of $2,187 per month. In addition, the Company incurs a fuel flowage fee of $0.06 per gallon of fuel received. The fuel flowage fee is to be reviewed annually by the Garden City Regional Airport, the City of Garden City, and the Company.
The Company leases office space from the Lehigh Valley International Airport, which provides for approximately 360 square feet, at a monthly cost of $518. The lease may be terminated with 30-days’ advance notice.
30
SAKER AVIATION SERVICES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Fixed rent expense aggregated approximately $32,000 and $87,000 for the years ended December 31, 2015 and 2014, respectively. Flowage fees on fuel gallons purchased aggregated approximately $42,000 and $44,000 for the years ended December 31, 2015 and 2014, respectively.
Future minimum rental payments under the Company’s operating leases are as follows:
| For the year ended | ||||
| December 31, | Total | |||
| 2016 | $ | 26,244 | ||
| 2017 | 26,244 | |||
| 2018 | 26,244 | |||
| 2019 | 26,244 | |||
| 2020 | 26,244 | |||
| Thereafter | 262,440 | |||
| TOTAL | $ | 393,660 | ||
NOTE 14 – Related Parties
The law firm of Wachtel & Missry, LLP provides certain legal services to the Company and its subsidiaries from time to time. William B. Wachtel, Chairman of the Company’s Board of Directors, is a managing partner of this firm. During the twelve months ended December 31, 2015 and 2014, the Company was billed $0 for legal services by Wachtel & Missry, LLP.
On August 29, 2011, the Company entered into a redemption agreement with Empire Aviation (“Empire”), a non-controlling interest in a subsidiary of the Company (the “Redemption Agreement”). Pursuant to the terms of the Redemption Agreement, Empire relinquished its membership interest in the subsidiary in return for earn-out payments of its capital account of $2,769,000. Of that amount, $444,000 was paid upon the execution of the Redemption Agreement, and the remaining balance of $2,325,000 was paid in full as of December 31, 2014.
As described in more detail in Note 2, Liquidity, the Company is party to a management agreement with Empire, an entity owned by the children of Alvin S. Trenk, our CEO and a member of our Company’s Board of Directors.
NOTE 15 – Litigation
From time to time, the Company may be a party to one or more claims or disputes which may result in litigation. The Company’s management does not, however, presently expect that any such matters will have a material adverse effect on the Company’s business, financial condition or results of operations.
NOTE 16 – Subsequent Events
As disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on February 5, 2016, on February 2, 2016, the New York City Economic Development Corporation (the “NYCEDC”) and the Company announced new measures to reduce helicopter noise and impacts across New York City (the “Agreement”).
See Note 2, Liquidity, for relevant details.
31
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
None.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Management, including our President (principal financial officer) and Chief Executive Officer (principal executive officer), have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K. Based upon, and as of the date of that evaluation, our President and our Chief Executive Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports filed and submitted by us under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is (i) recorded, processed, summarized and reported as and when required, and (ii) is accumulated and communicated to our management, including our President and our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change to our internal control over financial reporting during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K that has materially affected, or that is reasonably likely to materially affect our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. All internal control systems, no matter how well designed and tested, have inherent limitations, including, among other things, the possibility of human error, circumvention or disregard. Therefore, even those systems of internal control that have been determined to be effective can provide only reasonable assurance that the objectives of the control system are met and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our Chief Executive Officer (principal executive officer) and our President (principal financial officer), we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment under this framework, management concluded that our internal control over financial reporting was effective as of December 31, 2015.
| ITEM 9B. | OTHER INFORMATION |
32
Part III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CORPORATE GOVERNANCE |
The following table contains certain information related to the directors and executive officers of the Company as of March 30, 2016:
| Name | Age | Position | ||
| William B. Wachtel | 61 | Director, Chairman of the Board | ||
| Alvin S. Trenk | 86 | Director, Chief Executive Officer | ||
| Ronald J. Ricciardi | 54 | Director, President | ||
| Marc Chodock | 37 | Director | ||
| Roy Moskowitz | 61 | Director |
Each of our directors is re-elected at the Annual Meeting of Stockholders to serve until the next Annual Meeting of Stockholders or until his successor is duly elected and qualified. Our officers are elected annually by the Board of Directors to serve at the discretion of the Board.
Business History
William B. Wachtel – Director, Chairman of the Board
Mr. Wachtel was elected as a director and our Chairman of the Board on March 31, 2005. Mr. Wachtel served as our Chairman until April 8, 2009, when he resigned from such capacity but remained a member of the Board. On October 27, 2011, Mr. Wachtel was reelected as our Chairman of the Board.
Mr. Wachtel has been a managing partner of Wachtel Missry LLP (previously Wachtel & Missry, LLP, and before that, its predecessor law firm Gold & Wachtel, LLP), since its founding in August 1984. Such firm has provided certain legal services to the Company in the past. He is a co-founder of the Drum Major Institute, an organization carrying forth the legacy of the late Reverend Martin Luther King, Jr.
Mr. Wachtel’s participation is important to our Board of Directors because of his extensive experience advising companies regarding legal issues provides him with a depth and breadth of experience that enhances our ability to navigate legal and strategic issues, and because of his extensive experience working with us.
Alvin S. Trenk – Director, Chief Executive Officer
Mr. Trenk was first elected as a director and our Chairman of the Board effective August 20, 2004, in connection with the reverse merger transaction pursuant to which we became a public company. He resigned as the Chairman of the Board on March 31, 2005, but has served as a director since August 20, 2004. On November 6, 2013, Mr. Trenk was appointed to the position of Chief Executive Officer of the Company.
Mr. Trenk has served as Chairman and CEO of Air Pegasus since 1981 and, from 1997 to 2003, as Chairman, President and CEO of Sightseeing Tours of America, Inc. and Liberty Helicopters, Inc., privately held corporations operating public use heliports in New York, and providing helicopter air tours and charter and air services. From 1976 to 1980, Mr. Trenk was Vice Chairman of Kenton Corporation, a diversified publicly-traded corporation, where he also served as President and CEO of Charles Town Turf Club, owner and operator of thoroughbred race tracks in West Virginia and Chairman and CEO of International Health Company, which owned and operated a national chain of artificial kidney centers.
33
Mr. Trenk’s participation is important to our Board of Directors because of his deep knowledge of the aviation industry gained from his thirty year career as an executive officer in the aviation industry.
Ronald J. Ricciardi – Director, President
Mr. Ricciardi had served as the President and a director of Arizona FBO Air, Inc. since its inception in 2003 and was designated as its Chief Executive Officer on January 2, 2004. He was appointed our President and a director of the Company and designated as our Chief Executive Officer on August 20, 2004 effective with the reverse merger transaction, pursuant to which we became a public company. On March 2, 2009, he was re-appointed as our President and continues to serve in that capacity.
Mr. Ricciardi is a senior executive with extensive general management experience in entrepreneurial and large companies. Before joining Arizona FBO Air and from 2000 - 2003, Mr. Ricciardi was President and CEO of P&A Capital Partners, Inc., an entertainment finance company established to fund the distribution of independent films. From 1999 – 2000, Mr. Ricciardi was also co-founder, Chairman and CEO of eTurn, Inc., a high technology service provider, for which he developed a consolidation strategy, negotiated potential merger and acquisition candidates, prepared private placement materials and executed numerous private, institutional and venture capital presentations. After a management career at Pepsi-Cola Company and the Perrier Group of America, Mr. Ricciardi was President and CEO of Clearidge, Inc., a leading regional consumer products company, where he provided strategic and organizational development, and led a consolidation effort that included 14 transactions, which more than tripled the revenue of Clearidge, Inc. over four years.
Mr. Ricciardi’s participation is important to our Board of Directors because of his almost 13 years of experience working in a variety of roles with us, including his service on our Board of Directors, combined with his knowledge of the aviation industry and his extensive management experience. All of which demonstrate his strong commitment to us and make him a valued member of our Board of Directors.
Marc Chodock – Director
Mr. Chodock was appointed as a director on June 25, 2015.
Mr. Chodock has been acting as a private investor since February 2013. Previously, he was a consultant in the New York office of McKinsey & Company and a Principal at MatlinPatterson Global Advisors, where he served on the Board of Directors of four companies. He holds a Bachelor of Science in Economics from the University of Pennsylvania’s Wharton School of Business and a Bachelor of Applied Science in Biomedical Science from the School of Engineering and Applied Science of the University of Pennsylvania.
Mr. Chodock's participation is important to our Board of Directors because of his extensive experience in advising companies by serving on Boards as well as his knowledge in depth and breadth of the aviation industry.
Roy P. Moskowitz – Director
Mr. Moskowitz was appointed as a director on June 25, 2015.
Mr. Moskowitz has been the Chief Legal Officer of The New School since September 2006. From 1988 – 2004, Mr. Moskowitz held senior positions of legal oversight for New York educational institutions, including the New York State Education Department, City University of New York, Community School District #2, and the Regional Superintendent of Region 9.
Mr. Moskowitz’ participation is important to our Board of Directors because his extensive experience analyzing legal issues enables Mr. Moskowitz to advise the Company on potential courses of action, particularly when legal topics are involved.
34
Family Relationships
There are no family relationships among our directors and officers.
Other Directorships
None of our directors serves as a director of a company (1) with a class of securities registered pursuant to Section 12 of the Exchange Act, (2) subject to Section 15(d) of the Exchange Act, or (3) registered as an investment company under the Investment Company Act of 1940.
Code of Ethics
On May 19, 2006, our Board of Directors adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions as well as to all of our other employees and directors. We will provide to any person, without charge, upon request, a copy of our Code of Ethics upon written or oral request to Ronald J. Ricciardi, President, Saker Aviation Services, Inc., 20 South Street, Pier 6 East River, New York, NY 10004, or by telephone at: (212) 776-4046.
Our Code of Ethics is posted on our website at www.sakeraviation.com under the “Investor Relations” tab, and then under the “Corporate Governance” sub-tab. We intend to satisfy any disclosure requirements pursuant to Item 5.05 of Form 8-K regarding any amendment to, or a waiver from, certain provisions of our Code of Ethics by posting such information on our website under the “Investor Relations” section.
Committees of the Board of Directors
There are three committees of the Board of Directors: the Audit Committee comprised of Roy P. Moskowitz and Marc Chodock; the Nominating Committee comprised of William B. Wachtel, Alvin S. Trenk, and Ronald J. Ricciardi; and the Compensation Committee, the members of which will be assigned by the Board of Directors.
Section 16(a) of the Exchange Act Beneficial Ownership Reporting Compliance
Based solely on a review of Forms 3 and 4 and amendments thereto, furnished to us during the fiscal year ended December 31, 2015 and Forms 5 and amendments thereto, furnished to us with respect to the fiscal year ended December 31, 2015, each director and officer timely reported all of his transactions during that most recent fiscal year as required by Section 16(a) of the Exchange Act or has since rectified any necessary filings.
Corporate Governance
There have been no changes to the procedures by which our security holders may recommend nominees to its Board of Directors since our Board of Directors set forth such policy in our proxy statement for our Annual Meeting of Stockholders held on November 6, 2013.
Our Board of Directors has determined that, of its Audit Committee, Marc Chodock qualifies as a financial expert as such term is defined in applicable Commission rules, and Roy P. Moskowitz and Marc Chodock qualify as “independent” as such term is defined by the rules of The Nasdaq Stock Market, Inc. (“Nasdaq”).
| ITEM 11. | EXECUTIVE COMPENSATION |
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the annual and long-term compensation paid by us for services performed on our behalf with respect to the person who served as our President during the fiscal years ended December 31, 2015 or 2014. The person named in the table is the only person who served as our principal executive officer or principal financial officer in fiscal 2013. Alvin S. Trenk, who was named as our Chief Executive Officer effective November 6, 2013, has taken no compensation for either of fiscal years ended 2015 or 2014, except as it relates to his status as a Director of the Company.
35
SUMMARY COMPENSATION TABLE
| Name and Principal Position | Year |
Salary
($)(1) |
Bonus
($) |
Option
Awards ($)(2) |
All Other
Compensation ($)(3) |
Total
($) |
||||||||||||||||||
| Ronald J. Ricciardi, President | 2015 | 150,000 | — | — | 18,132 | 168,132 | ||||||||||||||||||
| 2014 | 150,000 | — | 16,152 | 166,092 | ||||||||||||||||||||
| 1. | Mr. Ricciardi received a base salary of $150,000 in 2015 and 2014. |
| 2. | Mr. Ricciardi received on October 21, 2010 an option for 300,000 shares at $0.03 per share, the closing price of the common stock on October 20, 2010, which option vested on October 21, 2013 and is exercisable until October 21, 2018. |
| 3. | Mr. Ricciardi receives health insurance coverage estimated at a value of approximately $1,136 per month in 2015 and approximately $971 in 2014. Mr. Ricciardi received a match to his 401K contributions from us amounting to approximately $4,500 in both 2015 and 2014. |
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2013
| Name |
Number of
Securities Underlying Unexercised Options Exercisable (#)(1) |
Option
Exercise Price ($) |
Option
Expiration Date |
|||||||
| Ronald J. Ricciardi | 300,000 | 0.03 | 10/21/2018 | |||||||
| 1. | As part of his employment agreement, Mr. Ricciardi received on October 21, 2010 an option for 300,000 shares at $0.03 per share, the closing price of the common stock on October 20, 2010, which option vested on October 21, 2013 and is exercisable until October 21, 2018. |
2015 DIRECTOR COMPENSATION TABLE
| Name |
Fees
Earned in Cash ($)(1) |
Option
Awards ($)(2) |
Total
($) |
|||||||||
| Alvin S. Trenk | 2,000 | 8,000 | 10,000 | |||||||||
| William B. Wachtel | 2,000 | 8,000 | 10,000 | |||||||||
| Marc Chodock | 1,000 | 8,000 | 9,000 | |||||||||
| Roy P. Moskowitz | 1,000 | 8,000 | 9,000 | |||||||||
| 1. | Non-employee Directors are each entitled to a fee of $1,000 per board meeting and $750 and $500 per committee meeting for committee chairman and committee members, respectively. Each director is also entitled to reimbursement for expenses incurred in connection with attendance at meetings of the Board of Directors. |
| 2. | Each non-employee director is eligible to be granted an annual option to purchase shares of our common stock. On December 1, 2015, the Board of Directors granted each non-employee director, and CEO Alving S. Trenk, an option for their service in 2015. Each option was for 100,000 shares and was priced at $0.080 per share, which was the closing sales price of our common stock on December 1, 2015. The options vest on December 1, 2016 and may be exercised until December 1, 2020. |
36
Employment Agreements
We do not have any current employment agreements.
Additional Narrative Disclosure
We do not offer a defined benefit retirement or pension plan. Our 401k Plan (the “401K Plan”) covers all of our employees. The 401K Plan contains an option for us to match each participant's contribution. Any contributions by us vest over a five-year period on a 20% per year basis. In January 2011, we set our match of participant contributions at a rate of 50% of the first 6% of participant deferrals. Our contributions to the 401K Plan totaled approximately $41,000 and $45,000 for the years ended December 31, 2015 and 2014, respectively.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Beneficial Owners
The following table presents certain information as of March 30, 2016 regarding the beneficial ownership of our common stock by:
| · | each of our current executive officer and directors; and | |
| · | all of our current directors and executive officer as a group; and | |
| · | each other person or entity known by us to own beneficially 5% or more of our issued and outstanding common stock; |
| Name of Beneficial Owner |
Number of Shares
of Common Stock Beneficially Owned |
Percentage of
Common Stock Beneficially Owned (1) |
||||||
| William B. Wachtel (2) | 5,584,407 | (3) | 16.6 | % | ||||
| Ronald J. Ricciardi (4) | 1,343,575 | (5) | 4.0 | % | ||||
| Alvin S. Trenk (6) | 1,285,444 | (7) | 3.8 | % | ||||
| Marc Chodock (8) | 3,000,000 | (9) | 9.0 | % | ||||
| Roy P. Moskowitz (10) | 70,000 | (11) | 0.2 | % | ||||
| All directors and officers as a group (5 in number) | 11,283,426 | 32.9 | % | |||||
| Ronald I. Heller (12) | 1,922,545 | (12) | 5.8 | % | ||||
|
All Beneficial Holders
as a group (6 in number) |
13,205,971 | 39.5 | % | |||||
| (1) | The percentages computed in the table are based upon 33,157,610 shares of our common stock, which were outstanding on March 31, 2016. Effect is given, pursuant to Rule 13-d(1)(i) under the Exchange Act, to shares of our common stock issuable upon the exercise of options or warrants currently exercisable or exercisable within 60 days of March 31, 2016. |
| (2) | William B. Wachtel is our Chairman of the Board and a director. Mr. Wachtel’s address is 20 South Street, Pier 6 East River, New York, New York 10004. |
| (3) | The shares of our common stock reported in the table include: (a) 100,000 shares issuable upon the exercise of an option expiring December 1, 2016, which option is currently exercisable; (c) 100,000 shares issuable upon the exercise of an option expiring December 1, 2017, which option is currently exercisable; (d) 100,000 shares issuable upon the exercise of an option expiring December 1, 2018, (e) 100,000 shares issuable upon the exercise of an option expiring December 1, 2019, which option is currently exercisable. The shares of our common stock reported in the table do not reflect (x) 100,000 shares issuable upon the exercise of an option granted on December 1, 2015, which shall become exercisable on December 1, 2016; and (y) 333,400 shares of our common stock acquired by Wachtel Missry, LLP, which has provided certain legal services for us. Mr. Wachtel is a managing partner of such firm, but does not have sole dispositive or voting power with respect to such firm’s securities. |
| (4) | Ronald J. Ricciardi is our President and a director. Mr. Ricciardi’s address is 20 South Street, Pier 6 East River, New York, New York 10004. |
| (5) | The shares of our common stock reported in the table include 300,000 shares issuable upon the exercise of an option expiring October 21, 2018, which is currently exercisable. |
| (6) | Alvin S. Trenk is our Chief Executive Officer and a Director. Mr. Trenk’s address is 20 South Street, Pier 6 East River, New York, New York 10004. |
| (7) | The shares of our common stock reported in the table include: (a) 100,000 shares issuable upon the exercise of an option expiring December 1, 2016, which option is currently exercisable; (c) 100,000 shares issuable upon the exercise of an option expiring December 1, 2017, which option is currently exercisable; (d) 100,000 shares issuable upon the exercise of an option expiring December 1, 2018, (e) 100,000 shares issuable upon the exercise of an option expiring December 1, 2019, which option is currently exercisable. The shares of our common stock reported in the table do not reflect (x) 100,000 shares issuable upon the exercise of an option granted on December 1, 2015, which shall become exercisable on December 1, 2016; and (y) 241,314 shares of our common stock held by Trenk Family Partners. Mr. Trenk does not have sole dispositive or voting power with respect to such firm’s securities. |
| (8) | Marc Chodock is a Director. Mr. Chodock’s address is 20 South Street, Pier 6 East River, New York, New York 10004. |
| (9) | This information is based on a Schedule 13D filed with the SEC on February 9, 2015. The reporting person is ACM Value Opportunities Fund I, LP, a Delaware limited partnership (the “Fund”), with respect to the shares of Common Stock directly owned by it; (ii) ACM Value Opportunities Fund I GP, LLC, a Delaware limited liability company (the “General Partner”), as general partner of the Fund, with respect to the shares of Common Stock directly owned by the Fund, (iii) Arvice Capital Management, LLC, a Delaware limited liability company (the “Manager”), as manager of the Fund, with respect to the shares of Common Stock directly owned by the Fund; and (iv) Mr. Marc Chodock (“Mr. Chodock”), as managing member of the Manager, with respect to the shares of Common Stock directly owed by the Fund. The business address of each of the Reporting Persons is 110 East 25th St., 3rd Floor, New York, New York 10011. |
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| (10) | Roy P. Moskowitz is a Director. Mr. Moskowitz’s address is 20 South Street, Pier 6 East River, New York, New York 10004. |
| (11) |
The shares of our common stock reported in the table include 70,000 shares purchased by Mr. Moskowitz in the open market. The shares of our common stock reported in the table do not reflect 100,000 shares issuable upon the exercise of an option granted on December 1, 2015, which shall become exercisable on December 1, 2016
|
| (12) | Ronald I. Heller’s address is c/o Heller Capital Partners, 700 E. Palisade Avenue, Englewood, NJ 07632. Mr. Heller is the beneficial owner of 1,992,545 shares of common stock. The Heller Family Foundation holds 1,372,545 shares of common stock and the Ronald I. Heller IRA holds 550,000 shares of common stock. Mr. Heller controls the voting and disposition of such securities held by the Heller Family Foundation and Ronald I. Heller IRA. |
Securities Authorized for Issuance under Equity Compensation Plans
The following table set forth certain information, as of December 31, 2015, with respect to securities authorized for issuance under equity compensation plans. The only security being so offered is our common stock.
|
Number of Securities to
be issued upon exercise of outstanding options, warrants and rights |
Weighted-average
exercise price of outstanding options, warrants and rights |
Number of securities
remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
||||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 2,200,000 | $ | 0.074 | 5,300,000 | ||||||||
| Equity compensation plans not approved by security holders | — | $ | — | — | ||||||||
| Total | 2,200,000 | $ | 0.074 | 5,300,000 | ||||||||
We received stockholder approval on December 12, 2006 for the Saker Aviation Services, Inc. Stock Option Plan of 2005 which relates to 7,500,000 shares of our common stock.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Certain Relationships and Related Transactions
Our Board of Directors adopted a Policy and Procedure Governing Related Party Transactions on April 26, 2007, which policy delegates certain functions related to the review and approval of related party transactions to the audit committee and the compensation committee.
Director Independence
Our Board of Directors made the determination of director independence in accordance with the definition set forth in the Nasdaq rules. Under such definition, both Marc Chodock and Roy P. Moskowitz qualify as independent.
38
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Audit Fees. The aggregate fees billed for professional services rendered by the principal accountant were approximately $90,000 and $94,000 by Kronick Kalada Berdy & Co. for 2015 and 2014, respectively, for the audits of our annual financial statements for the fiscal years ended December 31, 2015 and 2014, and the reviews of the financial statements included in the Company’s Forms 10-Qs for those fiscal years.
Audit-Related Fees. The aggregate fees billed for professional services categorized as Audit-Related Fees rendered by the principal accountant were $0 for the fiscal years ended December 31, 2015 and 2014.
Tax Fees . For the years ended December 31, 2015 and 2014, the aggregate fees billed by a firm other than the principal accountant for services categorized as Tax Fees were $19,000 and $19,000, respectively.
All Other Fees . The aggregate fees billed for services categorized as All Other Fees rendered by the principal accountant were $0 and $9,900 for the fiscal years ended December 31, 2015 and 2014, respectively.
Audit Committee Policies and Procedures. The audit committee must pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent registered public accountants, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act, which nonetheless must be approved by our audit committee Board of Directors prior to the completion of the audit. Each year the audit committee approves the engagement of our independent registered public accountant to audit our financial statements, including the associated fee, before the filing of the previous year’s Annual Report on Form 10-K. At the beginning of the fiscal year, the audit committee will evaluate other known potential engagements of the independent registered public accountants, including the scope of work proposed to be performed and the proposed fees, and approve or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent registered public accountant’s independence from management. At each such subsequent meeting, the registered public accountants and management may present subsequent services for approval. Typically, these would be services such as due diligence for an acquisition, that would not have been known at the beginning of the year.
Since December 17, 2009 when our Board of Directors initially authorized the engagement of Kronick Kalada Berdy & Co., pursuant to the Commission rules stating that an auditor is not independent of an audit client if the services it provides to the client are not appropriately approved, each subsequent engagement of Kronick Kalada Berdy & Co, has been approved in advance by the audit committee of the Board of Directors, and none of these engagements made use of the de minimus exception to the pre-approval contained in Section 10A(i)(1)(B) of the Exchange Act.
39
Part VI
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
| (a) | Financial Statements |
The consolidated financial statements of Saker Aviation Services, Inc. and subsidiaries as of December 31, 2015 and 2014 and for each of the years then ended, and the Report of Independent Registered Public Accounting Firm thereon, are included herein as shown in the “Table of Contents to Consolidated Financial Statements.”
| (b) | Financial Statement Schedules |
None.
| (c) | Exhibits |
| Exhibit No. | Description of Exhibit | |
| 3 (i) (2) | Certificate of Designations. (1) | |
| 3 (i) (3) | Articles of Merger (Changing name to Saker Aviation Services, Inc.) (Exhibit 3.1) (3) | |
| 3 (i) | Restated Articles of Incorporation.(2) | |
| 3(ii) | Bylaws of Saker Aviation Services, Inc. (3) (Exhibit 3.2) | |
| 4.1 | Form of Common Stock Certificate. (1) | |
| 31.1 | Certification pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act (principal financial officer). (4) | |
| 31.2 | Certification pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act (principal executive officer). (4) | |
| 32.1 | Certification pursuant to Section 1350 Certification of Sarbanes-Oxley Act of 2002. (4) | |
| 33.0 | NYEDC Air Tour Agreement. (4) | |
| 33.1 | Concession Agreement between FirstFlight, Inc. and the city of New York by and through New York City Department of Small Business Services dated October 7, 2008. (4) | |
| 10.1 | Stock Option Plan of 2005. (1) | |
| 101.INS | XBRL Instance Document (4) | |
| 101.SCH | XBRL Taxonomy Extension Schema Document (4) | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document (4) | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document (4) | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document (4) | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document (4) |
40
Footnotes:
(1) Incorporated by reference from Exhibit 3.1(a) to the Company’s Annual Report on Form 10-KSB filed on March 29, 2005.
(2) Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 18, 2006.
(3) Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 1, 2009.
(4) Filed herewith.
41
Pursuant to the requirements of Section 13 or 15(d) 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.
| Saker Aviation Services, Inc. | ||
| Date: April 4, 2016 | By: | /s/ Ronald J. Ricciardi |
| Ronald J. Ricciardi | ||
| President | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| SIGNATURE | TITLE | DATE | ||
| Chairman of the Board, | ||||
| /s/ William B. Wachtel | Director | April 4, 2016 | ||
| William B. Wachtel | ||||
| /s/ Alvin S. Trenk |
Chief Executive Officer, Director |
April 4, 2016 | ||
| Alvin S. Trenk | ||||
| /s/ Ronald J. Ricciardi | President, Director | April 4, 2016 | ||
| Ronald J. Ricciardi | ||||
| /s/ Marc Chodock | Director | April 4, 2016 | ||
| Marc Chodock | ||||
| /s/ Roy P. Moskowitz | Director | April 4, 2016 | ||
| Roy P. Moskowitz |
42
Saker Aviation Services, Inc. Form 10-K for the Year Ended December 31, 2015
Exhibits Filed with this Annual Report on Form 10-K:
INDEX
| Exhibit No. | Description of Exhibit | |
| 31.1 | Officer's Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act. | |
| 31.2 | Officer's Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act. | |
| 32.1 | Certifications Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. | |
| 33.0 | NYEDC Air Tour Agreement | |
| 33.1 | Concession Agreement between FirstFlight, Inc. and the city of New York by and through New York City Department of Small Business Services dated October 7, 2008. | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
E- 1
EXHIBIT 31.1
Certification of President (principal financial officer)
Pursuant To Rule 13a-14(a)/15d-14(a)
I, Ronald J. Ricciardi, certify that:
1. I have reviewed this Annual Report on Form 10-K of Saker Aviation Services, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: April 4, 2016 | |
| By: /s/ Ronald J. Ricciardi | |
| Ronald J. Ricciardi | |
| President (principal financial officer) |
EXHIBIT 31.2
Certification of President (principal executive officer)
Pursuant To Rule 13a-14(a)/15d-14(a)
I, Alvin S. Trenk, certify that:
1. I have reviewed this Annual Report on Form 10-K of Saker Aviation Services, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: April 4, 2016 | |
| By: /s/ Alvin S. Trenk | |
| Alvin S. Trenk | |
| Chief Executive Officer (principal executive officer) |
EXHIBIT 32.1
Section 1350 Certification
Pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), each of the undersigned (the principal executive officer and principal financial officer) of Saker Aviation Services, Inc. do hereby certify that:
| 1. | The Annual Report on Form 10-K for the year ended December 31, 2015 (the “Report”) of Saker Aviation Services, Inc. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of Saker Aviation Services, Inc. |
| Date: April 4, 2016 | By: | /s/ Ronald J. Ricciardi |
| Ronald J. Ricciardi | ||
|
President (principal financial officer) |
| Date: April 4, 2016 | By: | /s/ Alvin S. Trenk |
| Alvin S. Trenk | ||
|
Chief Executive Officer (principal executive officer) |
A signed original of this written statement required by Section 906 has been provided to Saker Aviation Services, Inc. and will be retained by Saker Aviation Services, Inc., and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 33
Exhibit 33.1
EXECUTION COPY
CONCESSION AGREEMENT
BETWEEN
THE CITY OF NEW YORK ACTING BY AND THROUGH THE NEW YORK CITY
DEPARTMENT OF SMALL BUSINESS SERVICES
AND
FIRSTFLIGHT, INC.
DATED AS OF
JULY ____, 2008
TABLE OF CONTENTS
| ARTICLE I DEFINITIONS | 2 | |
| Section 1.01 | Definitions | 2 |
| ARTICLE II | TERM; GRANT OF RIGHTS TO USE | 6 |
| Section 2.01 | Term | 6 |
| Section 2.02 | Scope of Services | 6 |
| Section 2.03 | Right to Operate | 11 |
| Section 2.04 | Limitations on Grant | 11 |
| ARTICLE III | FEES AND PAYMENTS | 15 |
| Section 3.01 | Revenue Collection and Payment | 15 |
| Section 3.02 | Other Payment Obligations. | 17 |
| Section 3.03 | Accounting and Activity Reporting | 17 |
| ARTICLE IV | MAINTENANCE; CAPITAL IMPROVEMENTS | 20 |
| Section 4.01 | Management, Operation and Maintenance | 20 |
| Section 4.02 | Maintenance of Heliport and Equipment | 20 |
| Section 4.03 | Condition of Heliport | 21 |
| Section 4.04 | Improvements. | 22 |
| Section 4.05 | Code Compliance | 24 |
| Section 4.06 | Procurement of Bids, Services and Goods. | 24 |
| Section 4.07 | Hazardous Materials | 25 |
| Section 4.08 | Personnel | 25 |
| Section 4.09 | No Discrimination | 26 |
| Section 4.10 | Prohibition on Liens. | 26 |
| Section 4.11 | Prohibition on Security Interests | 27 |
| Section 4.12 | Access | 27 |
| Section 4.13 | Delegation | 27 |
| ARTICLE V | INDEMNIFICATION AND CASUALTY | 27 |
| Section 5.01 | Indemnification | 27 |
| Section 5.02 | Reporting of Accident/Incidents | 29 |
| ARTICLE VI | INSURANCE | 29 |
| Section 6.01 | Liability Insu rance | 29 |
| Section 6.02 | Pollution Insurance | 30 |
| Section 6.03 | Property Insurance | 30 |
| Section 6.04 | Builders’ Risk Insurance | 31 |
| Section 6.05 | Workers’ Compensation Insurance | 31 |
| Section 6.06 | Deductibles | 31 |
| Section 6.07 | Other Insurance | 31 |
| Section 6.08 | Insurance Policy Requirements. | 32 |
| Section 6.09 | Premiums; Evidence of Insurance | 32 |
| Section 6.10 | Cooperation | 33 |
| Section 6.11 | Additional Policies of Personal Liability Insurance | 33 |
| Section 6.12 | Adjustments for Claims | 33 |
| Section 6.13 | Compliance with Requirements of Insurance Carriers | 33 |
| Section 6.14 | Liability Insurance on an “Occurrence” Basis | 34 |
| Section 6.15 | Property Insurance Proceeds | 34 |
| i |
| Section 6.16 | Failure to Procure or Maintain Required Insurance | 34 |
| Section 6.17 | The City Rights under Insurance Purchased by Third Parties | 34 |
| Section 6.18 | Minimum Levels of Insurance Purchased by Certain Third Parties | 34 |
| Section 6.19 | Relationship between Insurance and Indemnification | 35 |
| Section 6.20 | Primary and Non-Contributory | 35 |
| Section 6.21 | Operator’s Breach | 35 |
| ARTICLE VII TERMINATION | 35 | |
| Section 7.01 | Events of Default | 35 |
| Section 7.02 | Expiration | 36 |
| Section 7.03 | Remedies | 37 |
| Section 7.04 | Termination Options | 37 |
| Section 7.05 | Condemnation | 37 |
| ARTICLE VIII COMPLIANCE WITH LAW, VENUE AND APPLICABLE LAW | 38 | |
| Section 8.01 | Compliance with Law | 38 |
| Section 8.02 | Governing Law; Waiver of Trial by Jury; Venue | 39 |
| Section 8.03 | Governmental Approval | 39 |
| Section 8.04 | Noise Control; Nuisance | 39 |
| Section 8.05 | Weight Control | 40 |
| Section 8.06 | Investigation. | 40 |
| Section 8.07 | Review and Approval | 43 |
| Section 8.08 | Conflict of Interest | 43 |
| ARTICLE IX MISCELLANEOUS PROVISIONS | 43 | |
| Section 9.01 | No Assurances as to Volume | 43 |
| Section 9.02 | Security | 44 |
| Section 9.03 | Binding Effect | 44 |
| Section 9.04 | Beneficiaries | 44 |
| Section 9.05 | Waivers and Consents | 44 |
| Section 9.06 | Notices | 45 |
| Section 9.07 | Severability | 45 |
| Section 9.08 | Headings | 45 |
| Section 9.09 | Entire Agreement; No Oral Modifications | 45 |
| Section 9.10 | Assignment | 45 |
| Section 9.11 | Dissolution, Merger or Sale of Operator | 46 |
| Section 9.12 | Representation and Warranties | 46 |
| Section 9.13 | Force Majure | 45 |
| Section 9.14 | Survival | 46 |
| ii |
| EXHIBIT A | SITE PLAN |
| EXHIBIT B | MAINTENANCE PLAN |
| EXHIBIT C | SCHEDULE OF DESIGN AND CONSTRUCTION COSTS FOR IMPROVEMENTS |
| EXHIBIT D | SCHEDULE OF DESIGN AND CONSTRUCTION COSTS FOR CODE COMPLIANCE |
| EXHIBIT E | FEE SCHEDULE |
| EXHIBIT F | ESPLANADE PROJECT |
| EXHIBIT G | PLANNED OPERATIONS |
| EXHIBIT H | INTENTIONALLY DELETED |
| EXHIBIT I | DISPUTE RESOLUTION PROCEDURES |
| EXHIBIT J | PIER/BARGE LOAD RESTRICTIONS |
| EXHIBIT K | NEGATIVE DECLARATION DATED MARCH 19, 2008 AND ENVIRONMENTAL ASSESSMENT STATEMENT, CEQR NO. 08SBS008M |
| iii |
CONCESSION AGREEMENT
THIS CONCESSION AGREEMENT (“ Agreement ”) made as of July ___, 2008, between THE CITY OF NEW YORK ACTING BY AND THROUGH THE NEW YORK CITY DEPARTMENT OF SMALL BUSINESS SERVICES having an address at 110 William Street, New York, New York 10038 (“ City ”), and FIRSTFLIGHT, INC. a Nevada corporation, having a corporate address at 236 Sing Sing Road, Horseheads, NY 14845 (“ Operator ”).
RECITALS:
WHEREAS, the City owns the premises known as the Downtown Manhattan Heliport consisting of (i) 6,300 total square feet of terminal space city lot (Block 2, part of Lot 23 on the Tax Map for the Borough of Manhattan) and (ii) 71,900 square feet of barge and pier space based on aerial measurement, as generally described in Exhibit A hereto (such real property, together with all appurtenances, buildings, facilities, other physical plants, improvements, fixtures and tangible personal property located thereon or to be constructed by Operator pursuant to this Agreement, hereinafter, the “ Heliport ”);
WHEREAS , pursuant to the annual amended and restated maritime contract between the City and New York City Economic Development Corporation (“ NYCEDC ”), the City has retained NYCEDC to engage in, inter alia , various activities intended to promote the economic development of the City’s waterfront property and related transportation facilities, including the operation of the Heliport;
WHEREAS , City concession agreements are subject to the City’s Franchise and Concession Review Committee (“ FCRC ”) rules;
WHEREAS , on behalf of the City and pursuant to FCRC rules, NYCEDC released a Request for Proposals on November 5, 2007 and subsequent addenda and on February 19, 2008 accepted the proposal submitted by the Operator to act as the fixed base operator for the Heliport,
WHEREAS , on March 19, 2008, the New York City Department of Small Business Services issued a Negative Declaration determining that a concession with a new Heliport Fixed Base Operator for the Heliport as described in an Environmental Assessment Statement, CEQR No. 08SBS008M, would result in no significant adverse environmental impacts,
WHEREAS , on June 2, 2008, FCRC held a public hearing concerning the selection of the Operator;
WHEREAS , the Operator now desires to act as the fixed base operator for the Heliport on the terms and conditions set forth herein; and
| 1 |
WHEREAS , the purpose of this Agreement is to grant the Operator the exclusive right to operate the Heliport for the purpose of promoting the helicopter public use at the Heliport and providing non-discriminatory commercial access to other companies that desire to utilize the Heliport;
NOW, THEREFORE, in consideration of the benefits accruing to each of the parties as recited to herein, the parties mutually agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. Unless otherwise noted, the following definitions shall apply throughout this Agreement:
“Accident/Incident” shall mean an event or situation related to helicopter use that (1) results in personal injury or material property damage on the Heliport, or (2) is required to be reported to the FAA pursuant to the rules and regulations of the FAA.
“Affiliate” shall mean with respect to any Person, any Person controlled by, controlling or under common control with such Person. “Person” shall mean any corporation, partnership, joint venture, joint stock company, limited liability company, trust, unincorporated organization or other entity. “Control” of a Person shall exist only when either of the following criteria are met: (i) the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; or (ii) the ownership, either directly or indirectly, of 10% or more of the voting stock or other equity interest of such Person.
“Agreement” shall have the meaning set forth in the opening paragraph.
“Agreement Administrator” shall mean NYCEDC, Apple Industrial Development Corp., or a successor that is an Affiliate of NYCEDC.
“Ancillary Agreement” shall have the meaning set forth in Section 2.04(a)(ii).
“City” shall have the meaning set forth in the recitals.
“Commencement Date” shall have the meaning set forth in Section 2.01.
“Commissioner” shall have the meaning set forth in Section 8.06(c).
“Confidential Information” shall have the meaning set forth in Section 3.03(c).
“Devices and Activities” shall have the meaning set forth in Section 8.04(a).
“Discrimination Laws” shall have the meaning set forth in Section 4.09.
“DOT” shall mean the United States Department of Transportation or any successor agency performing the same or similar functions.
| 2 |
“DSBS” shall have the meaning set forth in Section 8.03.
“EAS” shall mean the Environmental Assessment Statement, CEQR No. 08SBS008M, prepared by AKRF Inc. on behalf of The City of New York Department of Small Business Services. After review of such EAS, DSBS issued a Negative Declaration on March 19, 2008. The EAS and Negative Declaration are appended as Exhibit K.
“Employee” shall mean an officer, director, agent , employee, or contractor of any of the parties while engaged in any activity related to the Agreement.
“Environmental Laws” shall mean any applicable Federal, state, or local law, statute, ordinance, code, rule, or regulation, as the same may now exist or hereafter be enacted or promulgated or amended from time to time, which (i) relates to the operation, use or condition of the Heliport and (ii) pertains to health; safety; any Hazardous Material; air, water or land pollution; toxic wastes; solid wastes; or wetlands and shall include without limitation, the Resource Conservation and Recovery Act, as amended and codified at 42 U.S.C. Sec 6901 et seq.; the Comprehensive Environmental Response, Compensation and Liability Act, as amended and codified at 42 U.S.C. Sec 9601 et seq., including without limitation, as amended by the Superfund Amendments and Reauthorization Act of 1984; the Hazardous Materials Transportation Act, as amended and codified at 49 U.S.C Sec 1801 et seq.; the Federal Water Pollution Act, as amended and codified at 33 U.S.C. Sec 1251 et seq.; the Oil Pollution Act as amended and codified at 33 U.S.C. Sec 2701 et seq.; the Clean Air Act, as amended and codified at 42 U.S.C. Sec 7401 et seq.; and the Toxic Substances Control Act, as amended and codified at 15 U.S.C. Sec 2601 et seq.
“Event of Default” shall have the meaning set forth in Section 7.01.
“Expiration Date” shall have the meaning set forth in Section 2.01.
“FAA” shall mean the United States Federal Aviation Administration and any successor agency performing the same or similar functions.
“Force Majeure” shall have the meaning set forth in Section 9.14.
“Hazardous Material” shall have the meaning set forth in Section 5.01(b).
“Heliport” shall have the meaning set forth in the recitals.
“Improvements” shall have the meaning set forth in Section 2.02(f).
“Indemnified Parties” shall have the meaning set forth in Section 5.01(a).
“Information” shall have the meaning set forth in Section 3.03(b)(i).
| 3 |
“Loss or Damage” shall mean all claims, liabilities, costs and expenses of every kind or nature, including amounts paid under any State or Federal compensation law, and costs and attorneys fees incurred in the investigation, defense, or settlement of any actual or threatened legal proceeding related to personal injury or property loss or damage (including environmental loss or damage). Property loss or damage includes loss or damage to real property and improvements thereon, and personal property of any party or third persons. Personal injury includes injury to or illness or death of persons including employees of any party or third persons.
“Minimum Annual Guarantee (MAG)” shall have the meaning set forth in Exhibit E .
“Noise Control Code” shall have the meaning set forth in Section 8.04(a).
“Non-Operator Liability” shall have the meaning set forth in Section 4.03(a).
“ NYCEDC ” shall have the meaning set forth in the opening paragraph.
“Operator” shall have the meaning set forth in the opening paragraph.
“Person” as used in the definition of Prohibited Person herein shall mean any natural person, or any firm, partnership, corporation, association or other legal entity.
“Plans and Specifications” shall mean, collectively, the schematics, design development drawings, and construction drawings for the Improvements, as further described and approved pursuant to Section 2.02(f).
“Prohibited Person” shall mean:
| (i) | Any Person (A) that is in default or in breach, beyond any applicable notice and/or grace period, of its obligations under any material written agreement with the City or Agreement Administrator, or (B) that directly or indirectly controls, is controlled by, or is under common control with a Person that is in default or in breach, beyond any applicable notice and/or grace period, of its obligations under any material written agreement with the City or Agreement Administrator, unless such default or breach has been waived in writing by the City or Agreement Administrator, as the case may be. |
| (ii) | Any Person (A) that has been convicted in a criminal proceeding for a felony or any crime involving moral turpitude or that is an organized crime figure or is reputed to have substantial business or other affiliations with an organized crime figure, or (B) that directly or indirectly controls, is controlled by, or is under common control with, a Person that has been convicted in a criminal proceeding for a felony or any crime involving moral turpitude or that is an organized crime figure or is reputed to have substantial business or other affiliations with an organized crime figure. |
| 4 |
| (iii) | Any government, or any Person that is directly or indirectly controlled (rather than only regulated) by a government, that is finally determined to be in violation of (including, but not limited to, any participant in an international boycott in violation of), the Export Administration Act of 1979, as amended, or any successor statute, or the regulations issued pursuant thereto, or any government that is, or any Person that, directly or indirectly, is controlled (rather than only regulated) by a government that is subject to the regulations or controls hereof. |
| (iv) | Any government, or any Person that, directly or indirectly, is controlled (rather than only regulated) by a government, the effects or the activities of which are regulated or controlled pursuant to regulations of the United States Treasury Department or executive orders of the President of the United States of America issued pursuant to the Trading with the Enemy Act of 1917, as amended. |
| (v) | Any Person that is in default in the payment to the City of any real estate charges totaling more than $10,000 (or any person that directly controls, is controlled by, or is under common control with a Person in such default), unless such default is then being contested in good faith in accordance with the law. |
| (vi) | Any Person (A) that has owned at any time during the three (3) years immediately preceding a determination of whether such Person is a Prohibited Person any property which, while in the ownership of such Person, was acquired by the City by in rem tax foreclosure, other than a property in which the City has released or is in the process of releasing its interest pursuant to the Administrative Code of the City or (B) that, directly or indirectly controls, is controlled by, or is under common control with, such a Person. |
“Representatives” shall have the meaning set forth in Section 3.03(c).
“Retention Payments” shall have the meaning set forth in Section 3.01(b).
“Security Deposit” shall mean four hundred twenty five thousand dollars ($425,000) which is required for the duration of the Term of the Agreement and may be in the form of a letter of credit or other format approved by Agreement Administrator. If the Security Deposit is deposited in Agreement Administrator’s escrow account, Operator shall receive interest on such account.
“ State ” shall mean the state of New York.
“ TSA ” shall mean Transportation Security Administration.
“Term” shall have the meaning set forth in Section 2.01.
“Vehicles” shall have the meaning set forth in Section 2.04(b).
“Vendors” shall have the meaning set forth in Section 3.01(a).
| 5 |
ARTICLE II
TERM; GRANT OF RIGHTS TO USE
Section 2.01 Term . The term of this Agreement (“ Term ”) shall commence on the date set forth in a written notice to proceed from Agreement Administrator (“ Commencement Date ”) and continue for ten (10) years from such date unless sooner terminated in accordance with the provisions hereof (such date is hereinafter referred to as the “ Expiration Date ”).
Section 2.02 Scope of Services . Operator shall operate the Heliport as a public heliport and for any other purpose consistent with the terms of this Agreement, and perform or cause to be performed the services required for such operation. Operator shall manage the operations of the Heliport in a safe and efficient manner and maintain the Heliport in a clean, orderly, safe and operational condition in conformity with all applicable national safety guidelines, federal, state and local laws, rules, regulations and other requirements, including all Department of Environmental Protection (“ DEP ”) directives and restrictions. Operator will conduct such operations in a manner that is responsive to directives of the City and Agreement Administrator; confer with the community surrounding the Heliport and the users of the Heliport; and cooperate with the City and Agreement Administrator in resolving community complaints and concerns. Operator’s services shall include, but not be limited to, the following:
| (a) | Helicopter Services . Operator shall perform the following services in connection with the operation of the Heliport: |
| (i) | receipt and dispatch for landings and take-offs of helicopters owned or operated by corporations, persons or air carriers engaged in the air transportation of passengers and baggage and in connection with police, medivac, emergency or military services; |
| (ii) | boarding, deboarding, or transfer of such passengers and loading or unloading of baggage; |
| (iii) | provide access to parking spaces for employees and necessary service vehicles; |
| (iv) | accommodation of passengers, flight crews and baggage, including provision of associated heliport terminal services and amenities; |
| (v) | provide and store fuel and fuel only for incoming/outgoing helicopters operating at the Heliport, and provide storage, hangar or other parking and tie down areas for helicopters; |
| (vi) | accommodate, as appropriate, scheduled and nonscheduled flights on a legally non-discriminatory basis that is fair, safe and commercially reasonable; |
| 6 |
| (vii) | provide a dedicated rest area solely for pilots and crew separated from the passenger vicinity; |
| (viii) | provide at least one (1) staff member trained and certified by the TSA as the Airport Security Coordinator (“ASC”), according to TSA regulations. The ASC must be available during the Heliport’s operating hours; and |
| (ix) | provide such other helicopter services as may be requested or approved in writing by the City or Agreement Administrator from time to time. |
| (b) | Maintenance and Repair Services . Subject to the requirements and conditions set forth in Article IV hereof, Operator shall maintain and repair (structurally and otherwise) and repaint as appropriate for maintenance or appearances in a good, workmanlike manner: |
| (i) | All paved landing areas, including maintenance and repair of the surface of the barge and pier, all exterior lights on the barge and pier, markings and striping, and all navigational aids; any changes to the exterior lighting will be subject to Agreement Administrator’s prior written approval. |
| (ii) | All vehicles, equipment, machinery and tools provided by the Operator; and |
| (iii) | The Heliport, including all Heliport grounds (including, without limitation, maintaining perimeter fences, grass cutting and removing trees and shrubs where and when necessary) and all buildings, structures and fixtures located on the Heliport including, without limitation, fuel tanks, plumbing, electrical, sprinkler, heating and air conditioning systems, signs, apparatus and equipment. |
(c) Janitorial Services . The Operator shall provide all janitorial services for the Heliport including the cleaning and removal of all waste, garbage, refuse, rubbish and litter from the site and the area within fifty (50) feet of the site. The Operator must provide adequate waste and recycling receptacles, approved by Agreement Administrator, and have these receptacles emptied on a daily basis and removed by a private carter. The Operator must comply with all City, State, and Federal recycling regulations. Rubbish removal schedules are subject to Agreement Administrator’s approval. The Operator shall keep all site signs and structures in good condition and free of graffiti.
| (d) | Pest Control . The Operator shall provide regular pest control inspections and extermination. To the extent that the Operator applies pesticides to any property at the site, the Operator or any subcontractor hired by the Operator shall comply with Chapter 12 of Title 17 of the New York City Administrative Code . |
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| (e) | Aviation and Other Support Functions . In a manner consistent with sound aviation operating and safety practices, Operator shall: |
| (i) | Operate and manage aviation fuel stored at the Heliport having due regard for the operational requirements of the users of such products at the Heliport; |
| (ii) | Operate and manage the landing pad areas for the benefit of users thereof; |
| (iii) | Expeditiously remove or cause to be removed snow and ice, using sand or other salt substitutes, from all active landing pads, parking spaces and access ramps; |
| (iv) | Clean and remove all foreign objects from all landing pads, ramps and parking areas; |
| (v) | Implement customer service mechanisms as approved by Agreement Administrator; |
| (vi) | Provide such other services, and accommodate non-aeronautical uses or other commercially reasonable uses of the Heliport, as are consistent with good heliport, heliport terminal, FAA standards (including crash, fire and rescues operations and security measures), fixed based operators, aviation facility and commercial management practices as approved by City and Agreement Administrator; and |
| (vii) | Cooperate with Agreement Administrator and the City during special events and other unanticipated eventualities, including landing and take-offs for high level governmental officials and dignitaries. |
| (viii) | Maintain and repair the Heliport’s fire suppression system as required by the National Fire Code, as well as provide updates to these systems and submit monitoring plans as directed by Agreement Administrator. |
| (f) | Improvements . During the Term and subject to the terms of Article IV herein, Operator shall design and construct the facility and aeronautical improvements (the “ Improvements ”) on the timeline and as more fully described in Exhibit C . Agreement Administrator and Operator shall update and modify Exhibit C during the Term of the Agreement. |
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Upon receipt by Operator of a notice to proceed from Agreement Administrator, Operator shall diligently commence to design, construct and erect the Improvements and, provided Operator does not encounter undue delay in obtaining all necessary permits and approval or otherwise suffer undue delays due to event(s) of Force Majeure in the design, construction and erection of the same, Operator shall obtain a certificate of completion and/or any other permits or certificates required by the applicable governing agencies. Operator shall copy Agreement Administrator on all correspondence between Operator and any government regulatory agency involved in the permitting or approval of the Improvements or in Operator’s heliport operations at the Heliport.
Operator shall submit Plans and Specifications to Agreement Administrator for review and approval prior to the commencement of construction work on the Improvements.
Operator shall first submit draft schematic drawings for the Improvements to Agreement Administrator for Agreement Administrator’s review and comment. Agreement Administrator shall provide comment on the schematics within twenty (20) days after receipt thereof, and if directed by Agreement Administrator, Operator shall revise the schematics and submit the revised schematics for further Agreement Administrator review and comment. Within thirty (30) days following Operator’s receipt of Agreement Administrator’s comments on the schematics, Operator shall submit final schematics to Agreement Administrator, together with updated cost estimations for the Improvements, for Agreement Administrator’s approval, which approval shall not be unreasonably withheld. If Agreement Administrator has not given its approval or rejection of the schematics within twenty (20) days of receipt thereof, the schematics shall be deemed approved.
Following Agreement Administrator’s approval of the schematic drawings, Operator shall submit draft design development drawings for the Improvements to Agreement Administrator for Agreement Administrator’s review and comment. Agreement Administrator shall provide comment on the design development drawings within twenty (20) days after receipt thereof, and if directed by Agreement Administrator, Operator shall revise the design development drawings and submit the revised design development drawings for further Agreement Administrator review and comment. Within thirty (30) days following Operator’s receipt of Agreement Administrator’s comments on the design development drawings, Operator shall submit final design development drawings to Agreement Administrator, together with updated cost estimations for the Improvements, for Agreement Administrator’s approval, which approval shall not be unreasonably withheld. If Agreement Administrator has not given its approval or rejection of the design development drawings within twenty (20) days of receipt thereof, the design development drawings shall be deemed approved.
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Following Agreement Administrator’s approval of the design development drawings, and in all events prior to the commencement of construction work on the Improvements, Operator shall submit final construction drawings for the Improvements to Agreement Administrator, together with updated cost estimations for the Improvements for Agreement Administrator’s approval, which approval shall not be unreasonably withheld. Operator shall also submit copies of all necessary government regulatory permits for the Improvements and for Operator’s heliport operations at the Heliport together with the final construction drawings. If Agreement Administrator has not given its approval or rejection of the construction drawings within twenty (20) days of receipt thereof, the construction drawings shall be deemed approved.
Notwithstanding the foregoing, unless otherwise agreed in writing by both parties hereto, any revisions required by Agreement Administrator to the Plans and Specifications (A) shall be reasonable with respect to the scope, design, cost and specifications as proposed by Operator; and (B) shall not seek to revise aspects of the Plans and Specifications that have already been approved by Agreement Administrator at a prior approval stage.
Operator shall submit all three (3) sets each of the schematics, design development drawings, and construction drawings, in reduced size format.
| (g) | Cooperation and Community Relations . Operator shall: |
| (i) | Confer with the City and the Agreement Administrator when requested and attend meetings with City and/or Agreement Administrator officials and other persons as reasonably requested by the City and/or Agreement Administrator to discuss matters relating to the Heliport; and |
| (ii) | Confer and co-operate as required with representatives of the communities affected by Heliport operations, including issues involving noise complaints, and provide mechanisms for addressing same. |
| (h) | Esplanade Project . The Operator shall assist Agreement Administrator and City agencies in implementing the East River Esplanade Project (“ Esplanade Project ”), encompassing two miles of waterfront between the Battery Maritime Building and Pier 42 on the Lower East Side as described on Exhibit F . The purpose of the Esplanade Project is to enhance connections, improve the function and appearance of the waterfront and provide amenities and open space as well as appropriate retail, cultural and community uses to facilitate access to and use of the waterfront by adjacent communities and neighborhoods. The Operator will be required to provide the Agreement Administrator and the City with access across the Heliport property for the development and operation of the Esplanade Project. The Esplanade Project will include the installation of an electrical feed box on the northern side of the parking lot by the sidewalk (approximately 30 square feet of space required). In addition, the Esplanade Project will include widening of the current sidewalk outside the parking lot into the fence line of the Heliport. |
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Section 2.03 Right to Operate.
The City grants Operator the exclusive right to operate Heliport as a public use heliport in accordance with the provisions of this Agreement. Operator acknowledges that this Agreement does not convey or transfer a real property interest, but rather shall be deemed to be an agreement by the City to allow Operator to enter and operate facilities on the Heliport to perform the services that are the subject of this Agreement.
Subject to the provisions of this Agreement, Operator shall have the exclusive right and duty to manage, direct and control the Heliport without interference by nongovernmental third parties; provided , that Operator shall not enter into any contracts or other agreements relating to the Heliport that extend past the Term of this Agreement. All such agreements must be terminable upon a twenty five (25) day notice period.
Operator may, at its sole risk and expense, construct or relocate helicopter-related facilities and infrastructures (such as a hangar) within the Heliport subject to prior review and written approval by Agreement Administrator of Operator’s plans. All facilities constructed by Operator hereunder, improvements made thereon or improvements made to existing premises by Operator shall be made in compliance with all local, state and federal laws, rules and regulations, and shall, at the option of the City, be owned by the City as part of the Heliport.
Operator shall not unlawfully discriminate against any person or entity in the operation of the Heliport.
The City or Agreement Administrator may preclude certain types of helicopters during certain hours of operation. Operator acknowledges that the hours of operation of the Heliport for take-offs and landings shall be limited on Monday through Friday to 7:00 a.m. to 10:00 p.m.; no tourist flights will operate between the hours of 7PM to 10 PM seven days a week. The Heliport will operate from 7:00 a.m. to 5:00 p.m. on Saturdays and Sundays, unless otherwise modified by the City but no tourist flights will operate from 7AM to 9AM on Saturdays and Sundays other than for emergency landings and take-offs. Emergency landings and take-offs shall be those (i) used by any emergency service of any level of government (e.g., police, fire, military), (ii) used for time-critical medical treatment purposes, (iii) used in addressing any condition where a threat to human life or safety or damage to property is present or imminent, or (iv) by operators experiencing in-flight mechanical difficulties.
Section 2.04 Limitations on Grant.
| (a) | The grant of rights in Section 2.03 is specifically subject to all of the following: |
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| (i) | Property Encumbrances . Any rights to perform services on the Heliport are encumbered by encroachments, tenants, licensees, or other occupancies at the Heliport on the Commencement Date. Neither the City nor Agreement Administrator is obligated to take any action to remove the same, unless such encumbrance restricts the ability of the Heliport to reasonably function in accordance with the terms of this Agreement. |
| (ii) | Ancillary Agreements . Operator may not enter into any agreements that permit a third party to use or operate any portion of the Heliport, or provide a fee discount to a third party, through consultant agreements, side letters, and the like, (each, an “ Ancillary Agreement ”) except by written consent of Agreement Administrator or the City, which may be granted at their sole discretion and shall not be unreasonably withheld. Operator may, subject to the conditions below, with the prior written notice to Agreement Administrator, enter into Ancillary Agreements relating to the Heliport with aviation fuel providers, helicopter owners or operators, aircraft maintenance service providers, or others directly involved in the providing of services at the Heliport. In all cases, such signed Ancillary Agreements: |
| (A) | shall be subordinate and subject to the terms and conditions of this Agreement and shall not extend past the Term of this Agreement and must be terminable upon twenty five (25) days notice; |
| (B) | shall not purport to license, lease or convey any real property interest in the Heliport; |
| (C) | shall provide for insurance and indemnification of the City and Agreement Administrator to the same extent as provided under this Agreement; |
| (D) | shall not relieve Operator of any obligations or duties imposed on it by this Agreement; |
| (E) | shall be subject to the dispute resolution procedures provided in Exhibit I ; and |
| (F) | copies thereof shall be provided to Agreement Administrator at least ten (10) business days before the commencement of their term. |
Operator agrees that it will cause all such persons and parties to become familiar with such rules and policies prior to entering upon the Heliport.
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| (iii) | Security Plans . Operator shall operate the Heliport according to a security plan approved by Agreement Administrator, which security plan shall be consistent with industry best practices and all applicable Federal, State, and local laws and regulations, and which security plan may be amended from time to time in accordance with changes in such industry best practices and laws and regulations, including those of the United States Department of Homeland Security. City and Agreement Administrator reserves the right to inspect the Heliport during business hours in order to ensure the Operator’s compliance with its security manual and plan. |
| (iv) | Discount Policies . Operator shall prepare formal written discount policies, including the basis for such discounts. Such discount policies shall be uniformly applied to all carriers. |
| (v) | Disputes with Parties to Ancillary Agreements . Operator shall not unlawfully discriminate against any parties to Ancillary Agreements and shall settle all disputes between the Operator and Ancillary Agreements parties (“ Dispute(s) ”) as provided in Exhibit I . |
| (b) | Traffic and Access Limitations . Operator acknowledges and agrees to comply with the following limitations and restrictions on motor vehicle traffic and access in and to the Heliport: |
| (i) | Ingress and egress of all motor vehicles (hereinafter, “ Vehicles ”) to the Heliport shall be through the gate on the service road east of the FDR Drive. |
| (ii) | Agreement Administrator, at its sole discretion, may require Operator to comply with reasonable additional Vehicle traffic and access limitations in order to accommodate use of said service road. Operator acknowledges that the City, or any State or Federal agency may impose additional measures that delay or divert Vehicle traffic in the immediate vicinity of the Heliport. |
| (c) | Right to Inspect/Repai r . Inspectors from Agreement Administrator and the City will visit the Heliport unannounced to inspect operations and ensure proper maintenance of the Heliport. Based upon their inspections, Agreement Administrator and/or the City may issue directives regarding deficiencies which must be rectified in a timely manner as determined by the Agreement Administrator. Agreement Administrator may enter into the Heliport and correct any deficiencies (including repairs) and deduct the cost of same from the Security Deposit. Operator shall pay the Agreement Administrator an additional one thousand dollar ($1,000) administrative fee for each deficiency that the Agreement Administrator is required to rectify. Continued occurrence of such deficiencies (as determined solely by Agreement Administrator) shall constitute an Event of Default under Article VII of the Agreement. The Agreement Administrator and the City reserves the right to enter the Heliport to inspect and/or make repairs to the piles and decking. Except for gross negligence, inspection of the Heliport by Agreement Administrator and/or the City’s shall not give rise to any liability-based claim by Operator against the Agreement Administrator and/or the City. |
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| (d) | Advertisement . The Operator is prohibited from placing advertisements on the site without first obtaining Agreement Administrator’s approval. Any and all signage is subject to Agreement Administrator’s approval. |
| (e) | Marketing Partnership Agreements . The City currently has and is developing “marketing partnership” agreements. These agreements may identify specific brands as the “designated” or “official” products or services of the City. If the Operator sells goods in a category that is the subject of a marketing partnership, the Operator will be required to sell the specific products so identified on an exclusive basis. If directed by the City, the Operator may be required to purchase the products from designated distributors or suppliers. The City will use reasonable commercial efforts to work with designated distributors or suppliers to provide the products at a competitive price. Should the designated distributor or supplier be unable to furnish the Operator with a competitive price, then the Operator shall be permitted to obtain the designated product from any source. If the subject of any marketing partnership is a service, the Operator will be required to use the service identified if the Operator utilizes the service that is the subject of a marketing partnership. (For example, if the City enters into a marketing partnership with a financial institution that provides credit card service, the Operator will be required to accept payment by means of that credit card, but may in addition if the City’s marketing partnership is non-exclusive, accept payment by means of another credit card.) If a City marketing partnership for a service is exclusive, the Operator will be required to use that service on an exclusive basis. The Operator, working with the City’s marketing representative, may be required to give the City’s marketing representative priority in the placement and scheduling of advertising. Marketing partners will be required to pay the market rate for any such advertising. With respect to designated or official products, the City reserves the right to place vending machines on the site and to require the Operator to sell on an exclusive basis only specified products. The City shall not place a vending machine within reasonable proximity of an area that would conflict with the Operator’s operations. The City reserves the right to preclude the Operator from selling competing products (or using competing services) in those categories for which the City has entered into a marketing partnership agreement. Preclusion of any such product or service will not change the amount of payments to the City. The City has entered into a marketing partnership agreement with the Snapple Beverage Group, Inc. (“Snapple”), pursuant to which, Snapple has been granted the exclusive right to sell iced teas, bottled water and chocolate drinks in vending machines on City-owned or controlled property. |
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Accordingly, iced teas, bottled water and chocolate drinks are designated products. As such, the Operator is precluded from selling iced teas, water or chocolate drinks produced by a company other than Snapple via vending machines. The Operator shall remove any vending machine, except for any vending machine placed on the premises pursuant to the City’s marketing partnership agreement with Snapple at the direction of Agreement Administrator.
| (f) | The Operator may, with Agreement Administrator’s approval, install, operate and maintain two vending machines – one for the sale of snacks and one for the sale of carbonated beverages inside the terminal building and one additional snack vending machine outside the terminal building. The Operator will be required to remove any other vending machines, except for any vending machines placed on the premises pursuant to the City’s marketing partnership agreement with Snapple at the direction of the Agreement Administrator. |
| (g) | The selling and/or advertisement of cigarettes, cigars, or any other tobacco products are strictly prohibited. Smoking on-site is strictly prohibited. |
ARTICLE III
FEES AND PAYMENTS
Section 3.01 Revenue Collection and Payment . In consideration for the performance of operation services hereunder, the Operator shall have the sole and exclusive right to collect all revenue derived from its operation of the Heliport and the duty to pay to the City Retention Payments through Agreement Administrator in the following manner.
(a) Revenue Collection . Operator shall collect all revenues on behalf of the City as are payable to Operator or an Affiliate of Operator, as determined in accordance with generally accepted accounting principles, generated from, or in connection with any and all services and/or operations provided by Operator at the Heliport, including, without duplication, (i) amounts received from or in respect of licenses and use agreements, such as fixed rental or fees, minimum rental or fees, rental or fees computed on the basis of sales or other criteria, additional rental or fees, escalation rental or fees, security deposits applied in payment of any rental or fees, proceeds of insurance paid in lieu of rental or fees, and payments for electricity, air conditioning and cleaning; (ii) amounts received as landing and take-off fees, aircraft handling fees, fuel fees and aircraft storage fees; (iii) the sale of goods or services provided on the Heliport by vendors or other parties pursuant to agreements with Operator (collectively, “ Vendors ”); and (iv) amounts received as a result of activities performed by other users of the Heliport, including but not limited to use for receptions or other special events, advertising or for photography, including without limitation, fuel sales, landing fees, take-off fees, maintenance charges, passenger and aircraft handling fees, repair charges, ticket sales, parking revenues, storage and hangar charges, receipts from merchandise, food, beverages, receipts from vending machines and public telephones, derived from any use of the Heliport (collectively, “ Gross Receipts ”). If Operator or any Affiliate thereof operates any of its own aircraft at the Heliport, there shall be imputed as Gross Receipts an amount equal to landing and take-off fees, aircraft handling fees, fuel fees and aircraft storage fees as would then be charged by Operator to a non-affiliated operator in an arms length transaction. Gross Receipts shall exclude the amount of any federal, state or City taxes that are paid by the Operator against its sales. Operator shall retain its fees out of Gross Receipts subject to the terms and provisions of this Agreement.
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| (b) | Payment of Fees . Operator shall remit retention payments (“ Retention Payments ”) to Agreement Administrator as set forth in Exhibit E . MAG is based upon no more than 57,984 1 total movements per year. If the City determines that this number of movements may be increased, MAG will be increased by a corresponding percentage relative to the revised number of movements. |
| (c) | Security Deposit . Operator shall provide Agreement Administrator with a Security Deposit for the duration of the Agreement. Agreement Administrator may draw down on the Security Deposit for any non-payment or late payment of Retention Payments. The Operator shall replenish any draw down funds within thirty (30) days of any draw down detailed in the Agreement. Failure of Operator to replenish the Security Deposit within thirty (30) days of any draw down detailed in the Agreement shall constitute an Event of Default. |
| (d) | Payment Due Dates . If any payment under this Agreement is due on a holiday, Saturday or Sunday, the payment shall be made on the first business day following the holiday, Saturday or Sunday. |
| (e) | Late Payment Penalty . If Operator fails to remit the Retention Payments in full by the date due interest shall accrue on any unpaid amounts at five percent (5%) per annum. |
| (f) | Form of Payment . The Retention Payments and other payments due from Operator shall be paid in lawful money of the United States by check or wire transfer, accepted subject to collection, and payable to the order of Agreement Administrator, or such other entity as is designated in writing by Agreement Administrator. |
| (g) | Payment Address . All payments of the Retention Payments and other payments due from Operator to Agreement Administrator shall be directed to: |
Apple Industrial Development Corp.
P.O. Box 2770
New York, New York 10087-7700
1 Addendum 2 referenced 40,440 movement per year for the basis of MAG proposals; however, best and final offers were based upon the 2007 New York and New Jersey Port Authority projected annual movements of between 57,000 to 60,000. The EAS was based upon 57,984 actual annual movements in year 2007.
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or at such other location as Agreement Administrator may from time to time designate by written notice.
| (h) | No Billing Required . No invoices for the fees or payments described in Article III need be issued by the Agreement Administrator. Operator will submit all payments in respect thereof to Agreement Administrator together with the supporting documentation outlined herein. |
| (i) | Pro-rated Payments . If for any reason this Agreement is terminated or expires prior to any of the foregoing payment dates, Operator shall pay Agreement Administrator the accrued amount up to the date of termination of any Retention Payments or other required payment not then paid or due. Such payment, in the case of the Retention Payments, shall be pro-rated based on the number of business days elapsed in the monthly period in which such termination occurs. |
Section 3.02 Other Payment Obligations.
| (a) | Taxes and Assessments . Operator shall promptly pay any license fees or other charges, properly levied or assessed against the Heliport, the operation of the Heliport, or against Operator by virtue of Operator’s use or operation of the Heliport; provided, however, that this Section 3.02(a) shall not obligate Operator to pay any property taxes or special assessments levied or assessed against the Heliport. |
| (b) | Utilities, Maintenance and Service . Operator must provide and pay for all utilities including all sewer charges and for all water, gas, heat and electricity (including impressed current for barge maintenance) consumed and used in the Heliport, and Operator, at its sole cost and expense, shall maintain and repair all meters and procure all permits, agreements, approvals and licenses necessary to effectuate this provision, and shall provide and pay for all services necessary or convenient for the upkeep or operation of the Heliport, including but not limited to garbage removal, vermin extermination, cleaning, fuel storage and supply, and maintenance and repair of all ground surface, storage tanks and hangars. |
Section 3.03 Accounting and Activity Reporting.
(a) Monthly Reporting . Operator shall submit monthly Gross Receipts and operating statements to Agreement Administrator by the tenth (10 th ) day of the month following each month during the Term of this Agreement in a format and with sufficient details as determined by Agreement Administrator.
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| (b) | Books and Records. |
| (i) | During the term of this Agreement, Operator shall keep at the Heliport or a convenient location in Manhattan, NY in original or duplicate, full, complete and accurate books of accounts, and full, complete and accurate records of Gross Receipts and Improvements as aforesaid, including daily sales and receipts, correspondence, disks, receipts, vouchers and any written agreements entered into by Operator with carriers and other users of the Heliport including accurate hourly records of helicopter movements. (collectively, the “ Information ”) pertaining to calculations and revenue statements under this Agreement, which Information shall be collected and maintained in accordance with generally accepted accounting principles to show in detail, to the reasonable satisfaction of Agreement Administrator, the Retention Payments and Gross Receipts from sales made and services rendered on, in and about the Heliport. Operator, at its own expense, shall preserve such Information for a period of six years or such longer period required under State or Federal laws and regulations. |
| (ii) | The City, Agreement Administrator and the City Comptroller shall have the right at any time during business hours to examine said accounts and records and to make copies thereof, and Operator shall cooperate fully and aid in any examination or audit thereof. All transactions shall be registered and recorded in accordance with industry standard computerized sales recording devices, and the items thereof shall be posted daily on books of accounts and records that Agreement Administrator shall consider adequate to reveal the true, correct and entire business conducted on, in or from the Heliport. |
| (c) | Confidential Information . Operator agrees that in the course of preparing the statements referred to above, and the City and Agreement Administrator agree that in the course of analyzing the statements, the parties will treat confidentially all information and documents, including passenger manifests, furnished by helicopter owners, operators, and air carriers utilizing the Heliport subject to applicable law (such information and documents being collectively referred to as “ Confidential Information ”). The Operator and the City and Agreement Administrator agrees that each of them respectively will use the Confidential Information solely for the purposes described in this section, and that neither party will use the Confidential Information in any way detrimental to, or to competitive disadvantage of the other party. Operator and the City and Agreement Administrator further agree that such information will be kept confidential (i) by the Agreement Administrator, their respective directors, officials, employees, agents, consultants, and independent contractors and (ii) by Operator and its Affiliates, members, directors, officers, employees, counsel and other representatives (all such persons and entities being collectively referred to as “ Representatives “) and that, except as may be necessary for the enforcement of the City’s rights under this Agreement, neither the parties nor their Representatives will use, publish, divulge, disclose or allow to be disclosed the Confidential Information to any person, firm or entity whatsoever unless the other party consents in writing to the disclosure of such information or a court or other tribunal of competent jurisdiction orders such disclosure or it is otherwise required by applicable law, including but not limited to any Freedom of Information Laws. The City and/or Agreement Administrator agree to inform Operator of any requests they receive for any of the Confidential Information made pursuant to any Freedom of Information Law and to provide Operator with the opportunity to seek an appropriate order preventing the disclosure of any of the Confidential Information prior to making such disclosure. |
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| (d) | Certificate and Auditing . |
| (i) | Operator shall provide (A) quarterly operating statements for the operations of the Heliport (including the monthly Gross Receipts for that quarter), within 30 days after the end of each fiscal quarter, (B) annual audited statements of Gross Receipts, including revenue categories, segregated from any statements prepared for its Parent or other Affiliates, by the ninetieth (90th) day after the end of Operator’s fiscal year, and (C) Officer’s Certificates certifying as to the accuracy of the information and calculations submitted as part of the revenue documentation described herein. Such quarterly and annual statements shall be in a format and with sufficient details as determined by Agreement Administrator, and shall include accounting statements showing the basis for the Retention Payments and Gross Receipts calculation (including unresolved billing disputes and credit memos), which shall be supported by reasonably detailed written documentation supporting such calculation. In the event that an audit reveals that the total Retention Payments due to the City during any fiscal year are greater than the aggregate of Operator’s remitted monthly Retention Payments for such fiscal year, then Operator shall promptly pay to the City through Agreement Administrator the difference between the amounts due and the amounts paid. |
| (ii) | Operator shall bear the cost of the preparation and delivery of required operating statements and financial statements and of any auditing. Auditor’s certifications shall be submitted to Agreement Administrator with the annual financial statements at the end of each calendar year and at the termination or expiration of this Agreement. |
| (iii) | Operator shall prepare and provide to Agreement Administrator on or about the ninetieth (90 th ) day after the end of Operator’s fiscal year annual basis activity reports, which shall include the date of service, the type of service, the fee charged, the number of passengers, dates and fees received for non-aeronautical events and uses and any other relevant information in a form and with sufficient details as approved by Agreement Administrator. |
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| (iv) | The Operator must maintain a revenue control system, such as “FlightRev” as detailed in Exhibit G , to ensure the accurate and complete recording of all revenues in a form and manner acceptable to the City and Agreement Administrator. All fees, fares, prices and any subsequent increases must be approved in advance by Agreement Administrator. Operator shall provide Agreement Administrator will all information reasonably necessary for Agreement Administrator to make a determination as to the appropriateness of the proposed increase. Increases to fees, fares, or prices shall be considered approved by Agreement Administrator twenty (20) days after receipt of a notice of said increase by Agreement Administrator, unless Operator is otherwise notified that Agreement Administrator objects to such increase. Notwithstanding the foregoing, Operator may increase, on a non-discriminatory basis, the fees it charges for fuel without prior approval from Agreement Administrator, provided that the total increases in said fees together aggregate an increase of less than 25% of the fee (the “Base Fee”) charged by the Operator on the Commencement Date. Prior approval of the Agreement Administrator, in the manner set forth above in this Section 3.03(d)(iv), shall be required for increases in said fees totaling in the aggregate an amount equal to or greater than 25% of the Base Fee. Upon approval by Agreement Administrator of said increase, such increased fee shall be considered the Base Fee. Each subsequent 25% aggregate increase over the Base Fee will be subject to the approval requirements detailed above in this section 3.03(d)(iv). |
ARTICLE IV
MAINTENANCE; CAPITAL IMPROVEMENTS
Section 4.01 Management, Operation and Maintenance . Operator hereby agrees to manage, operate and maintain the Heliport as provided in Section 2.02, Exhibit G and as further set forth herein.
Section 4.02 Maintenance of Heliport and Equipment.
| (a) | General . Operator shall be responsible for operating, inspection, maintenance and repair costs for the landing surface, terminal facilities, and other fixtures on the Heliport, as more specifically set forth in Section 2.02(b) hereof. Operator’s obligation to maintain the Heliport shall continue until the Expiration Date. The foregoing notwithstanding, nothing herein shall require Operator to make any repairs, alterations or renovations to the substructure of the decking over the East River, which shall remain the responsibility of the City. The Operator shall cooperate with the City and grant access to the City for all repairs and maintenance to the decking. |
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| (b) | Role of Agreement Administrator . Operator shall provide written notice to Agreement Administrator within twenty-four (24) hours of any significant Loss or Damage to the landing surfaces, buildings or other fixtures at the Heliport. Agreement Administrator shall be the sole judge, acting in its reasonable discretion, to reasonably require the amount and quality of repairs, maintenance and painting required to restore the Heliport to substantially the same extent and quality as the Improvements constructed pursuant to this Agreement. Agreement Administrator retains the right, on notice to Operator, to inspect or have inspected such Loss or Damage to the Heliport. Copies of all physical inspection reports produced by or for Operator in connection with such Loss or Damage shall be promptly sent to Agreement Administrator upon Agreement Administrator’s written request. Under no circumstances shall Agreement Administrator be obligated to maintain or repair the Heliport, apart from obligations in paragraph (c) below relating to the substructure of the decking, at any time. Agreement Administrator shall use reasonable endeavors to alert New York State Department of Transportation or the appropriate public agency as to any concerns raised by Operator that the structural underpinning or physical condition of the FDR Drive has deteriorated significantly or has otherwise become unsafe and requires repair or other remedy. |
| (c) | Decking . If Agreement Administrator or the Operator determine that the use of the decking over the East River constituting a part of the Heliport is unsafe, based on a report by an Agreement Administrator-approved professional consultant, because of spalling of concrete pilings, corrosion of metal pilings, or any other cause, then Agreement Administrator or Operator, as the case may be, may notify the other party of such determination, and thereupon Operator shall cease using the decking and, upon the request of Agreement Administrator, shall install fencing along the bulkhead to prevent access to the decking. Nothing herein shall require Operator to make any repairs, alterations or renovations to the substructure of the decking over the East River constituting a part of the Heliport. Agreement Administrator has retained a consultant to provide an inspection report of the condition of the decking and concrete pilings. If any portion of the decking must be shut down because of repairs or replacements, the Retention Payments due the City shall be reduced pursuant to Section 9.01(b). |
Section 4.03 Condition of Heliport.
| (a) | Operator acknowledges that it has inspected the condition of the Heliport and conducted due diligence to its satisfaction prior to signing this Agreement. Operator acknowledges and agrees that its rights to operate the Heliport are granted hereunder on an “as is/where is” basis and Operator shall be responsible for the condition of the Heliport as of the Commencement Date, provided, however, that this assumption of responsibility by Operator shall not serve as the basis for the imposition of environmental liability against Operator for conditions identified in the EAS (“Non-Operator Liability”) . Neither Agreement Administrator nor the City has made or makes any representation or warranty as to the condition of the Heliport or its suitability for any particular use or as to any other matter affecting this Agreement. Operator is prohibited from selling, salvaging, demolishing or removing any part of the Heliport, including but not limited to the decking, without the prior written consent of Agreement Administrator. |
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| (b) | The EAS shall serve as a baseline for determining any liability of the Operator for environmental contamination on a going forward basis. Operator shall not be liable for any penalty, assessment or fine issued by any government agency or office nor for any claim or civil action which may be presented or initiated by any agency or officer of the Federal, State or local governments based in whole upon pre-existing environmental contamination identified in the EAS. Operator shall not be liable for any remediation costs for such pre-existing contamination identified in the EAS. Further, upon termination of this Agreement, Operator shall not be responsible for remediation of any environmental condition or form of contamination that is identified in the EAS. |
Section 4.04 Improvements.
| (a) | The Operator must obtain and maintain as valid any and all necessary approvals, permits, and licenses for the construction and lawful operation of this concession, and bear all costs in connection with such approvals and in connection with any environmental review(s). All necessary permits and approvals for capital work, operation and design must be obtained from the City Department of Buildings and all other agencies having jurisdiction. Additionally, all designs and work to be performed at the Heliport shall be prepared by licensed architects or engineers and will require prior approval from Agreement Administrator, the City Art Commission, the City Department of Buildings and any other agencies having jurisdiction. The Operator shall retain a professional New York State-licensed engineer or registered architect to design and file proposed capital work and to oversee the entire construction project. This supervising architect or engineer shall ensure that all construction conforms to the Plans and Specifications approved by Agreement Administrator. |
| (b) | A construction security deposit, in an amount and format approved by Agreement Administrator, will be required to ensure that all construction or renovation work is completed to the satisfaction of Agreement Administrator. The security deposit must be made before the commencement of any construction or renovation work. |
| (c) | Agreement Administrator and the City make no representations regarding the adequacy of current site utilities. The Operator must connect to and/or upgrade any existing utility service or create a new utility system, and obtain the appropriate permits and approvals for same. The Operator must pay for any and all utility costs for the concession during the term of the Agreement, including all water and sewer charges that the DEP may assess. |
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| (d) | The Operator must comply with all City, state and federal requirements to provide safe and accessible facilities, including for persons with disabilities. |
| (e) | Operator shall be solely responsible for the cost and payment for the Improvements described in Section 2.02 (f) hereof and shall develop such Improvements without any lien on the Heliport as follows: (i) the first one million dollars ($1,000,000) of Improvements must be completed by the second anniversary of Operator receiving all necessary permits for the Improvements and (ii) the second one million dollars ($1,000,000) of Improvements must be completed by the end of the fifth year of the Agreement. If the Operator’s total expenditures for the Improvements are less than two million dollars ($2,000,000) by the end of the fifth year of the Agreement, then the Operator shall pay the difference to the City in one lump sum payment within thirty (30) days of such determination by Agreement Administrator. The Improvements shall become the property of the City upon construction or installation at the option of the City. Notwithstanding the foregoing, and subject only to limited use exceptions set forth elsewhere in this Agreement, such Improvements shall be subject to Operator’s exclusive control and duty to maintain, repair or replace until this Agreement expires or is terminated. If the Agreement is terminated, the City will not reimburse Operator’s unamortized capital improvement costs as of the date of termination. Improvements may not be removed from the Heliport without the written approval of the City. |
| (f) | Operator, at its expense, and as a part of the Improvements shall supply and install at the Heliport, the equipment and materials reasonably necessary for use of Operator in the operation of the Heliport, it being understood and agreed that to the extent that this equipment and material becomes an integral part of the Heliport, it shall, at the option of the City, become and at all times remain the sole property of the City. |
| (g) | Operator, at its expense, and as a part of the Improvements may, with the prior written consent of Agreement Administrator, make any alterations or improvements to the Heliport that, in its opinion, are required or desirable to conduct its operations. |
| (h) | Operator shall obtain the prior written approval from Agreement Administrator for the selection, design and implementation of any material improvements (i.e. the cost of which exceeds ten thousand dollars ($10,000)) to the Heliport, including without limitation, appurtenances to the Heliport, repairs, replacements and Improvements to the Heliport, operating equipment, security equipment and signage, and shall respond to any objections to design, cost or selection which may be raised by Agreement Administrator and modify the plans or re-bid the work as ultimately agreed to by Agreement Administrator. Operator acknowledges that consistent with Section 4.04(e), Improvements, materials and equipment installation, shall become the property of the City, at the option of the City, and shall be administered on its behalf by Agreement Administrator or Agreement Administrator’s permitted assignee hereunder, and further that neither Agreement Administrator nor the City shall be liable to any contractor or material man for any repairs, replacements or Improvements made to the Heliport. |
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| (i) | Upon the Expiration Date, Operator shall restore the Heliport to its condition as of the Commencement Date (other than with respect to Improvements that have become the property of the City or other improvements approved by Agreement Administrator pursuant to this Section 4.04), at Operator’s sole cost and expense, to the reasonable satisfaction of Agreement Administrator. In the event Operator fails or neglects to do so, Agreement Administrator and the City shall have the right to remove any structures and improvements and effect restoration of the Heliport or any part thereof at the sole cost and expense of Operator. Agreement Administrator may draw down on the Security Deposit to enforce this paragraph 4.04(i). |
Upon reasonable notice to the Operator, Agreement Administrator reserves the right to enter the Heliport to make mutually agreed upon capital improvements to the Heliport.
Section 4.05 Code Compliance . The Operator shall be required to upgrade the Heliport to comply with the revised NYC Building Code standards (“Code”). In particular, the Operator must upgrade and/or install fire and safety systems that are Code compliant. All Code requirements shall be completed within the earlier of the first two (2) years of the Agreement or as scheduled on Exhibit D . Agreement Administrator and Operator shall update and modify Exhibit D during the Term of the Agreement. The Operator shall be allowed to deduct the Code compliance costs from the Retention Payments on a pro rated basis beginning in the third year of the Agreement. Agreement Administrator shall provide Operator with a schedule for the pro rated deductions. All expenditures must be approved by Agreement Administrator. Agreement Administrator shall have the sole authority to determine if an upgrade/improvement qualifies as a deductible code compliance expense or as a non-deductible Improvement cost.
Section 4.06 Procurement of Bids, Services and Goods.
| (a) | Independent Contractor . Operator agrees to enter into, or cause to be entered into, all contracts for goods or services in connection with the Heliport independently and not as agent of Agreement Administrator or the City. During the Term of this Agreement, Operator shall manage and operate the Heliport as an independent contractor for the City. |
| (b) | Prohibited Persons . Operator shall not enter into any contract with a Prohibited Person with respect to the Heliport. If Operator believes that a party to a potential contract may be a Prohibited Person, Operator shall notify the Agreement Administrator and Agreement Administrator shall make a determination of same within thirty (30) days of such request by Operator. |
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| (c) | Approval of Subcontractors . All contractors, subcontractors and consultants of the Operator must be pre-approved by Agreement Administrator, and if required, be qualified under all FDNY certifications. Upon Agreement Administrator’s request, Operator shall ensure that all its proposed contractors, subcontractors and consultants submit completed original copies of two (2) VENDEX Questionnaires (Vendor and Principal Questionnaires) to the Mayor’s Office of Contract Services. |
Section 4.07 Hazardous Materials . Operator shall take all actions legally permissible to prevent the transportation or storage of any Hazardous Materials (as defined in section 5.01(b)), at, on or through the Heliport without the prior written approval of Agreement Administrator. Without limiting the foregoing, any transporting or storage of Hazardous Materials at, on or through the Heliport by Operator shall be subject to the conditions that: (i) no Hazardous Materials shall be stored on the Heliport; (ii) Operator shall take steps consistent with those taken on its other aviation properties to prevent the use, handling, transport, disposal or release of Hazardous Materials by unauthorized persons; (iii) if permitted by Agreement Administrator, all handling of Hazardous Materials at the Heliport shall be performed in compliance with all applicable laws and regulations. In the event of any release of Hazardous Materials occurring on any segment of the Heliport from storage facilities and regardless of the cause of such release, Operator at its sole expense shall immediately: (a) make any and all reports required by Federal, State or local authorities, and submit copies of such reports to Agreement Administrator; (b) advise both the owner/shipper and Agreement Administrator of the Hazardous Materials released and their location; and (c) arrange for and perform or cause the performance of any appropriate response action in connection with any release of Hazardous Materials from the Heliport, in accordance with all Federal, State, or local laws, rules or regulatory requirements, provided, however, that the foregoing shall in no way limit Operator’s ability to seek recovery from any responsible third parties of the costs incurred by Operator.
Section 4.08 Personnel . Operator shall employ at the Heliport a sufficient number of personnel capable of managing and maintaining the Heliport, which at a minimum shall be at levels described in Exhibit G . Such personnel shall be screened by Operator before hiring and shall be employed, disciplined, discharged, promoted, and directed in the performance of their duties solely by Operator. Operator shall negotiate and obtain any necessary labor agreements covering its employees at the Heliport.
| (b) | Subject to the limitations contained in the relevant collective bargaining agreement, or applicable laws, rules and regulations, Agreement Administrator shall have the right to require the removal of any employee from the Heliport whose conduct shall not reasonably satisfy Agreement Administrator. In addition, Operator hereby expressly agrees to inform Agreement Administrator immediately, in writing, upon the occurrence of any event at the Heliport that involves a security-related matter (e.g., trespass, property damage, or criminal activity reported to a law enforcement agency). |
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| (c) | Operator shall have sole discretion to select individuals and entities for the performance of its services at the Heliport; however, all such individuals and entities are subject to Agreement Administrator’s approval. Operator shall confer with Agreement Administrator in its selection of any temporary or permanent general manager for the Heliport (“ General Manager ”). The selection of General Manager is subject to Agreement Administrator’s approval. Operator shall only employ, use or contract with qualified individuals who are fit for duty and who meet the applicable requirements, if any, of any regulatory and/or administrative agency. Operator will ensure that its employees, agents, contractors and subcontractors comply with all laws and regulations promulgated by the FAA, the DOT, and other regulatory and/or administrative agencies, including regulations relating to drug/alcohol testing, equipment safety, and Hazardous Materials. |
Section 4.09 No Discrimination . Operator covenants that it will not violate any laws concerning discrimination, including but not limited to Title VII of the Civil Rights Act of 1964, Age Discrimination in Employment Act, as amended, Americans With Disabilities Act, Section 1981 of the Civil Rights Act of 1870, Section 1983 or 1985 of the Civil Rights Act of 1871, Equal Pay Act, Executive Order 11246, Rehabilitation Act of 1993, Vietnam-Era Veterans’ Readjustment Assistance Act, Immigration Reform and Control Act of 1985, the New York State Human Rights Law, the New York City Human Rights or Civil Rights Law, Executive Order 50 or any other Federal, State or local laws, statutes, regulations, ordinances or orders concerning discrimination (the “ Discrimination Laws ”). Operator further covenants to require any subcontractor to comply with the Discrimination Laws. Operator shall post conspicuously employment non-discrimination notices at the Heliport. In all advertisements for employment at the Heliport, Operator shall state expressly that it is an equal opportunity employer.
Section 4.10 Prohibition on Liens .
| (a) | Operator shall not create, cause to be created or allow to exist (i) any lien, encumbrance or charge upon the Heliport or any part thereof, (ii) any lien, encumbrance or charge upon any assets of, or funds appropriated to, Agreement Administrator or the City, or (iii) any other matter or thing whereby the estate, rights or interest of Agreement Administrator or City in and to the Heliport or any part thereof might be impaired. If any mechanic’s, laborer’s, vendor’s, materialman’s or similar statutory lien is filed against the Heliport or any part thereof, or if any public improvement lien is created, or caused or suffered to be created by Operator shall be filed against any assets of, or funds appropriated to, the City or Agreement Administrator, then Operator shall within thirty (30) days after receipt of notice of the filing of such mechanic’s laborer’s, vendor’s, materialman’s or similar statutory lien or public improvement lien, cause it to be vacated or discharged of record by payment, deposit, bond, order of court of competent jurisdiction or otherwise, subject to Operator’s right to dispute the validity of the lien, as addressed in Subsection (b) below. |
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| (b) | Should Operator elect to dispute the validity of any such lien or charge placed, filed or recorded against the Heliport, in lieu of canceling or discharging the same, Operator (i) shall furnish to Agreement Administrator a bond or bonds in connection therewith in such form and amount as shall be approved by Agreement Administrator and (ii) shall bring an appropriate proceeding to discharge such lien and shall prosecute such proceeding with diligence and continuity; except that if, despite Operator’s efforts to seek discharge of the lien, Agreement Administrator believes such lien is about to be foreclosed and so notifies Operator, Operator shall immediately cause such lien to be discharged as of record or Agreement Administrator may use the bond or other security (including the Security Deposit) furnished by Operator in order to discharge the lien. |
Section 4.11 Prohibition on Security Interests . Operator shall not pledge as security for any loan any of the assets or interests in the Heliport, including any revenue derived from the operation of the Heliport without the prior written consent of the City.
Section 4.12 Access . Operator shall permit inspection of the Heliport by agents, employees, consultants and representatives of the City and/or the Agreement Administrator and shall permit inspection thereof by or on behalf of prospective future operators or occupants.
Section 4.13 Delegation . The City or Agreement Administrator may delegate its rights and obligations hereunder to its Affiliate or other successor entity.
ARTICLE V
INDEMNIFICATION AND CASUALTY
Section 5.01 Indemnification .
| (a) | Operator shall forever defend, indemnify and hold harmless the City and Agreement Administrator, and their respective officers, agents, representatives and employees (collectively the “ Indemnified Parties ”) from and against any and all liabilities, claims, demands, penalties, fines, settlements, damages, costs, expenses and judgments of whatever kind or nature or unknown, contingent or otherwise: |
| (i) | arising from Loss or Damage to the extent said Loss or Damage is the result of any act(s) or omission(s) of Operator, or of Operator’s employees, guests, contractors, subcontractors, representatives or agents occurring on the Heliport or on roads or other accesses that adjoin the Heliport, or arising out of or as a result of actions taken by Operator pursuant to this Agreement or operations conducted on the Heliport, |
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| (ii) | relating to or arising from any and all liens and encumbrances which may be filed or recorded against the Heliport or any public improvement lien filed against any funds of the City or Agreement Administrator as a result of actions taken by or on behalf of Operator, its contractors, subcontractors, agents, representatives, employees, guests or invitees, with respect to the Heliport, or |
| (iii) | arising out of, or resulting from the presence, storage, transportation, disposal, or release of any Hazardous Materials (as hereinafter defined) over, under, in, on, from or affecting the Heliport during the Term of this Agreement, to the extent said presence, disposal, or release is the result of any act(s) or omission(s) of Operator or Operator’s employees, guests, contractors, subcontractors, representatives or agents. |
| (b) | Definitions . “ Hazardous Materials ” means (i) any “hazardous waste” as defined under the Resource Conservation and Recovery Act, 42 U.S.C. Section 9601 et seq ., or (ii) “hazardous substance” as defined under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq ., or (iii) “hazardous materials” as defined under the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq ., or (iv) “hazardous waste” as defined under New York Environmental Conservation Law Section 27-0901 et seq ., or (v) “hazardous substance” as defined under the Clean Water Act, 33 U.S.C. Section 1321 et seq ., or (vi) “Petroleum” as defined in N.Y. Environmental Conservation Law §15.0514, and any regulations promulgated thereunder, each as it may be in effect from time to time, or (vii) asbestos, or (viii) polychlorinated biphenyls. The provisions of this Section 5.01 shall survive the Expiration Date or other termination hereof. |
| (c) | Response to Claims . Each party shall provide written notice to the other party of the receipt of any notice of any claim or threatened claim, and provide to the other party a copy of the notice, any additional or other documents provided by the person making the claim, and any response to the claim. For any claim under this Section 5.01, Operator shall have the duty to defend or respond to any claim, and to take all actions required by applicable law, ordinance or governmental rule, regulation or order to respond to any such claim or the events leading to such a claim, all at its sole and exclusive cost. Subject to taking all actions necessary to maintain any applicable privilege, Operator shall promptly provide the City and Agreement Administrator with a copy of all studies, expert reports, and other documents related to such claim, and shall consult with the City and Agreement Administrator concerning any response. The City and Agreement Administrator may be represented at their own expense in a proceeding related to the claim by counsel or other representative, and Operator (and its agents, consultants and counsel) shall cooperate with the City and Agreement Administrator regarding such participation. |
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Section 5.02 Reporting of Accident/Incidents . In addition to notifying the appropriate police and other agencies, Operator shall report to Agreement Administrator any FAA reportable Accident/Incident or crime which arises in connection with the Heliport within twenty four (24) hours of such accident/incident. Operator will comply with all rules and regulations issued by the FAA and other agencies concerning the reporting of Accidents/Incidents.
ARTICLE VI
INSURANCE
Section 6.01 Liability Insurance.
(a) The Operator shall, at all times throughout the Term, provide and keep in force (x) Airport Liability Insurance and (y) Commercial General Liability Insurance and/or Public Liability Insurance covering the operations of the Operator at or near the Heliport, including the operation of mobile equipment, against liability for bodily injury, death and property damage, including the Heliport and all sidewalks adjoining or appurtenant to the Heliport. The City and Agreement Administrator shall be listed as an additional named insureds on the Airport Liability Insurance policies and as additional insureds (with coverage no narrower than that provided under ISO endorsement CG 20 26 11 85) on the Commercial General Liability and/or Public Liability Policies. The Airport Liability Insurance and Commercial General Liability Insurance and/or Public Liability Insurance shall each have limits applicable exclusively to operations under this Agreement of twenty million dollars ($20,000,000) per occurrence and twenty million dollars ($20,000,000) aggregate. If such insurance contains an aggregate limit, it shall apply separately to the operations and activities undertaken pursuant to this Agreement. All such insurance shall include the following protection:
(i) broad form liability, including (A) blanket contractual liability (covering the indemnification provisions assumed by the Operator hereunder, including bodily injury to employees or others assumed by the Operator under contract), which insurance shall cover all costs, expenses and/or liability (including, without limitation, attorneys’ fees and disbursements) arising out of or based upon any and all claims, accidents, injuries and damages required to be insured against hereunder), (B) personal injury and advertising injury liability, (C) premises medical payments, (D) host liquor liability, (E) fire legal liability on real property, (F) broad form property damage liability, including completed operations, (G) incidental medical malpractice, (H) non-owned watercraft liability, (I) limited world-wide coverage, (J) additional interests insured, (K) extended bodily injury coverage, and (L) automatic coverage on newly-acquired entities;
(ii) products and completed operations;
(iii) independent contractors;
(iv) blanket automatic contractual liability to include bodily injury to employees of others assumed by the Operator;
(v) water damage legal liability shall not be excluded;
(vi) waterfront activities shall not be excluded;
(vii) endorsement acknowledging aviation facility operations on the Heliport;
(viii) terrorism coverage; and
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(ix) XCU coverage.
(b) The Operator shall, at all times throughout the Term, provide and keep in force comprehensive Automobile Liability Insurance for all owned, non-owned, leased, rented and/or hired vehicles insuring against liability for bodily injury and death and for property damage in an amount as may from time to time be reasonably determined by the Agreement Administrator but not less than two million dollars ($2,000,000) per claim.
Section 6.02 Pollution Insurance . The Operator shall, at all times throughout the Term, provide and keep in force Pollution Legal Liability coverage with limits no less than five million dollars ($5,000,000) per occurrence and five million dollars ($5,000,000) aggregate or such higher amount as the Agreement Administrator may require following completion of the final design of the proposed fuel facility. If such insurance contains an aggregate limit, it shall apply separately to the operations and activities undertaken pursuant to this Agreement. Such insurance shall name the Operator as first named insured and the City and Agreement Administrator as additional named insureds, including coverage of Loss or Damage arising from (1) investigation, removal, clean-up costs, remediation, monitoring or response action, to the extent required by environmental laws and any repair, replacement or restoration of real or personal property to substantially the same condition it was in prior to any of the forgoing activities; (2) orders, decrees, directives, injunctions or judgments by any governmental authority; (3) third party claims for bodily injury (including without limitation medical monitoring) and property damage (including, without limitation, natural resource damages); and (4) business interruption; in each case, to the extent such Loss or Damage relate to Pollution Conditions. “Pollution Conditions” as used herein means the discharge, dispersal, migration, release or escape of any hazardous materials into or upon land, or any structure on land, subsurface, soils, sediments, the atmosphere or any watercourse or body of water, including groundwater, whether caused by a third party (including without limitation remediation contractors or consultants), an act of war or terrorism or otherwise, in each case, on, at, under, or migrating to or from, the Heliport.
Section 6.03 Property Insurance . The Operator shall, at all times throughout the Term, provide and keep in force comprehensive “All Risk” of direct physical loss or damage, insurance covering the Heliport, including, without limitation, coverage for loss or damage by acts of terrorism, water, flood, subsidence and earthquake (excluding, at the Operator’s option, from such coverage normal settling only) and for all buildings, structures, equipment and fixtures in or upon the Heliport in an amount of not less than twenty million dollars ($20,000,000) which amount shall increase relative to any increase in the value of the property as determined by Agreement Administrator. If such insurance contains an aggregate limit, it shall apply separately to the Heliport. Such insurance, shall cover the interests of both the City and Agreement Administrator and the Operator in such property, shall be valued at full replacement cost value, and shall include the following types of coverage: Automatic Coverage; Building Ordinance Coverage; Business Income ; Civil & Military Authority; Debris Removal; Decontamination Costs; Demolition and Increased Cost of Construction; Earth Movement; Extended Period of Liability; Extra Expense; Adjustment and Claim Expense; Flood; Ingress/Egress; On Premises Services; Property Damage; Service Interruption Property Damage; Service Interruption Time Element; Soft Costs; Terrorism; Business Interruption covering, at the least, all annual Retention Payments payable by Operator under this Agreement; and Time Element Interdependency.
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Section 6.04 Builders’ Risk Insurance . The Operator shall provide and keep in force during any construction activities a Builders’ Risk Insurance policy covering all risks in completed value form. Such policy shall cover the total value of the Improvements, as well as the value of any equipment, supplies and/or material that may be in storage (on or off the Heliport) or in transit. The policy shall cover the cost of removing debris, including demolition as may be legally necessary by the operation of any law, ordinance or regulation, and for loss or damage to any owned, borrowed, leased or rented capital equipment, tools, including tools of their agents and employees, staging towers and forms, and property of the City or Agreement Administrator held in their care, custody and/or control. Such policy shall name the City and the Agreement Administrator and the Operator as insureds. The Builders’ Risk Insurance policy shall contain the following endorsements.
| (i) | The City, the Agreement Administrator and the Operator shall be named as loss payees in order of precedence, as their interest may appear; and |
| (ii) | In the event the loss occurs at the Heliport, the policy shall permit occupancy without the consent of the insurance company; and |
| (iii) | In the event that the insurance policy has been issued by a mutual insurance company, the following language shall be included: “Neither the City of New York nor the New York City Economic Development Corporation is liable for any premium or assessment under this policy of insurance. The first named insured is solely liable therefor.” |
Section 6.05 Workers’ Compensation and Disability Insurance . The Operator shall, at all times throughout the Term, provide and keep in force workers’ compensation and disability coverage providing statutory New York State benefits for all persons employed by the Operator at or in connection with the Heliport and employer’s liability insurance in an amount not less than that required by New York State law.
Section 6.06 Deductibles . The insurance required in Sections 6.01, 6.02, 6.03, and 6.04 shall contain no deductibles in excess of twenty five thousand dollars ($25,000) per occurrence or claim (as applicable) for all policies except automobile, which may have not more than a ten thousand dollar ($10,000) deductible, unless otherwise specifically approved in each instance by Agreement Administrator.
Section 6.07 Other and Additional Insurance . Operator shall obtain policies with higher limits or carry such additional insurance coverage as the City or Agreement Administrator may reasonably require from time to time and to execute and deliver any additional instruments and to do or cause to be done all acts and things that may be requested by the City or Agreement Administrator to insure the City and Agreement Administrator properly and fully against all damage and loss as herein provided for and to effectuate and carry out the intents and purposes of this Agreement. Should other or additional types of insurance or clauses be procured, Operator shall furnish new certificates and policies on demand of City or Agreement Administrator.
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Section 6.08 Insurance Policy Requirements .
(i) All insurance provided by the Operator as required hereunder shall name the Operator as named insured and the City and Agreement Administrator as additional named insureds, additional insureds, and loss payees to the extent, where applicable, of their respective insurable interests in the Heliport and shall be primary with respect to any other coverage which the City and Agreement Administrator may obtain.
(ii) The liability insurance policies shall specifically state that it is issued “in accordance with the Agreement dated as of July ___, 2008 between The City Of New York acting by and through the New York City Department of Small Business Services and FirstFlight, Inc.”.
(iii) All insurance required by any provision of this Agreement shall be in such form and shall be issued by such responsible companies (i) rated by AM Best as at least A-(VII) (or comparable rating by Standard & Poors or other industry-recognized rating agency) unless the Operator obtains the prior written approval of the City or Agreement Administrator with regard to a particular policy or coverage, (ii) authorized to do business in the State of New York and (iii) otherwise reasonably acceptable to the City or Agreement Administrator.
(iii) Each policy of insurance required to be obtained by the Operator as herein provided shall contain to the extent obtainable and whether or not an additional premium shall be required in connection therewith (i) a provision that no act or omission or negligence of the Operator or any other named insured or violation of warranties, declarations or conditions by the Operator or any other named insured shall affect or limit the obligation of the insurance company to pay the amount of any loss sustained, (ii) an agreement by the insurer that such policy shall not be cancelled or modified without at least thirty (30) days prior written notice to the City and Agreement Administrator, (iii) an agreement that the coverage afforded by the insurance policy shall not be affected by the performance of any work in or about the Heliport or the occupation or use of the Heliport by the Operator for purposes more hazardous than those permitted by the terms of such policy, (iv) a waiver by the insurer of any claim for insurance premiums against the City or Agreement Administrator or any named insured other than the Operator, and (v) a waiver of subrogation by the insurer of any right to recover the amount of any loss resulting from the negligence of the Operator, the City, the Agreement Administrator, their agents, employees or licensees.
Section 6.09 Premiums; Evidence of Insurance . All policies referred to in this Agreement shall be procured by the Operator at no expense to the City or Agreement Administrator. Duplicate originals of such policies or, to the extent that such duplicate originals cannot be obtained, certificates of insurance with respect to such policies together with copies of such policies shall be delivered to the Agreement Administrator promptly upon receipt from the insurance company or companies, together with proof satisfactory to the Agreement Administrator that the then current installment of the premiums thereon have been paid; provided , that the City and Agreement Administrator shall not, by reason of custody of such policies, be deemed to have knowledge of the contents thereof and no claim will be asserted or prosecuted that such custody or access, or action or inaction by the City or Agreement Administrator with knowledge thereof or otherwise, is a waiver of any rights of the City or Agreement Administrator hereunder or a defense to any default or obligation of cooperation. New or renewal binders and policies to provide coverages or replace policies expiring during the Term, or duplicate originals thereof or certificates of insurance with respect thereto, together with copies of such policies (where available), shall be delivered as aforesaid within ten (10) days of the Operator’s receipt, together with proof satisfactory to the Agreement Administrator that the then current installment of the premiums thereon have been paid by the date required by the insurance company. Premiums on policies shall not be financed in any manner whereby the lender, on default or otherwise, shall have the right or privilege of surrendering or canceling the policies or reducing the amount of loss payable thereunder, unless agreed to by the City or Agreement Administrator; provided , however , that premiums may be paid in installments.
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Section 6.10 Cooperation . The Operator and the City and Agreement Administrator shall cooperate in the collection of any insurance moneys that may be due in the event of loss. The Operator shall execute and deliver such proofs of loss and other instruments as may be required for the purpose of obtaining the recovery of any such insurance moneys. When submitting a notice to an insurer regarding an occurrence, loss or claim under any policy, the Operator shall specify, to the extent necessary under such policy, that such notice is being made on behalf of the City and Agreement Administrator as well as itself, and shall thereafter provide the City and Agreement Administrator, upon demand, with any response or other correspondence received by it from the insurer regarding such notice, occurrence, loss or claim.
Section 6.11 Additional Policies of Personal Liability Insurance . The Operator shall not carry separate insurance (other than personal injury liability insurance) concurrent in form or contributing in the event of loss with that required by this Agreement to be furnished by the Operator, unless the City and Agreement Administrator are included therein as additional named insureds, additional insureds or loss payees, as appropriate. The Operator promptly shall notify the City and Agreement Administrator of the carrying of any such separate insurance and shall cause the policies therefor or duplicate originals thereof or certificates of insurance with respect thereto together with copies of such policies to be delivered as required in this Agreement.
Section 6.12 Claims under Property Insurance or Builder’s Risk Insurance . In the event the City sustains a loss as an insured or loss payee under the Property Insurance or Builder’s Risk Insurance policies, the Operator shall provide the insurers with all notices on a timely basis, take all other actions necessary or appropriate to protect the interests of the City, and provide the City and Agreement Administrator with all relevant documentation. The City and Agreement Administrator shall have the right, at the City and/or Agreement Administrator’s election, to control the prosecution and adjustment of any such claim and in the course of such prosecution and adjustment. The Operator shall execute all agreements the City and/or Agreement Administrator may request pursuant to this Section 6.12.
Section 6.13 Compliance with Requirements of Insurance Carriers . The Operator shall not violate or permit to be violated any of the conditions or provisions of any insurance policy required hereunder, and the Operator shall so perform and satisfy or cause to be performed and satisfied the requirements of the companies writing such policies so that at all times companies of good standing, reasonably satisfactory to the City and Agreement Administrator, shall be willing to write and continue such insurance.
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Section 6.14 Liability Insurance on an “Occurrence” Basis . All liability insurance required to be provided and kept in force by the Operator under this Agreement shall be written on an “Occurrence” basis; provided, however, that if (i) a basis other than such “Occurrence” basis shall be adopted throughout the insurance industry and (ii) such other basis shall be accepted by the operators of competitive heliports, then the Operator may provide and keep in force liability insurance written on such other basis reasonably satisfactory to the City and Agreement Administrator.
Section 6.15 Property Insurance Proceeds . All proceeds from the Property Insurance shall be applied, in the first instance, to satisfy the Operator’s obligation to pay the City or Agreement Administrator under this Agreement (if not otherwise satisfied by the Operator), and shall otherwise be applied to restore the Heliport or compensate the City or Agreement Administrator for its Loss or Damage.
Section 6.16 Failure to Procure or Maintain Required Insurance . If the Operator fails or refuses to procure or maintain insurance as required by this Agreement or fails upon request or refuses to furnish the City and Agreement Administrator with required proof that the insurance has been procured and is in force and paid for, the City and Agreement Administrator shall have the right, at the City and Agreement Administrator’s election, to procure and maintain such insurance, and pay premiums thereon, without further notice to the Operator, and the Operator shall be liable for all premiums and other costs incurred.
Section 6.17 The City Rights under Insurance Purchased by Third Parties . In all circumstances relating to Improvements or operations at the Heliport where a third party (including without limitation contractors or subcontractors of the Operator) is obligated to name the Operator as additional named insured, additional insured and/or loss payee under any insurance policy, the Operator shall, for all such policies, (a) obligate such third person to likewise name the City and Agreement Administrator as additional named insureds, additional insureds or loss payees to the extent where applicable, (b) take all reasonable measures to assure that the City and Agreement Administrator are named accordingly, (c) provide the Agreement Administrator upon demand with access to all Certificates of Insurance evidencing such insurance (including the City and Agreement Administrator’ coverage thereunder), (d) when it submits any notice to an insurer regarding an occurrence, loss or claim under such policy, specify, to the extent necessary under such policy, that such notice is being made on behalf of the City and Agreement Administrator as well as the Operator, and (e) provide the Agreement Administrator, upon demand, with any response or other correspondence received by it from the insurer regarding such notice, occurrence, loss or claim.
Section 6.18 Minimum Levels of Insurance Purchased by Certain Third Parties . The Operator shall obligate each of its contractors (and any such contractor’s subcontractors) that operate, maintain or service any fuel tanks or fuel distribution systems on the Heliport to provide contractor’s pollution liability insurance protecting itself, the Operator and the City and Agreement Administrator in an amount no less than five million dollars ($5,000,000) per occurrence and five million dollars ($5,000,000) aggregate or such higher amount as the Agreement Administrator may require following completion of the final design of the proposed fuel facility.
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Section 6.19 Relationship between Insurance and Indemnification . The obligations of the Operator under Article V shall not be affected in any way by the absence in any case of covering insurance (whether or not required under this Article VI) or by the failure or refusal of any insurance carrier to perform any obligation on its part under insurance policies affecting the Heliport.
Section 6.20 Insurance Primary and Non-Contributory . All insurance required under this Article VI shall be primary and non-contributing with regard to both the City and Agreement Administrator and neither the City nor Agreement Administrator will be called upon to contribute to a loss that would otherwise be payable by Operator or Operator’s insurer.
Section 6.21 Operator’s Continuing Liability . Notwithstanding compliance with these insurance provisions, Operator shall be, continue and remain liable for any uninsured destruction, loss or damage resulting from Operator’s breach of the covenants of this Agreement. In the event of any such loss or damage for which Operator becomes liable as aforesaid, Operator shall, at its sole cost and expense, promptly repair or replace the property so lost or damaged in accordance with plans and specifications approved by Agreement Administrator; provided however , that such plans and designs shall be substantially identical to the original design of the applicable property. Notwithstanding the foregoing, Agreement Administrator and the City, at their sole discretion, may elect to receive either the actual cash value of the damages or request Operator to rebuild the property to its original condition and design.
ARTICLE VII
TERMINATION
Section 7.01 Events of Default . The occurrence of any of the following shall constitute an event of default (“ Event of Default ”) under this Agreement:
| (a) | Operator fails to remit Retention Payments or other payment pursuant to Article III or to make any other payments to Agreement Administrator when due; |
| (b) | Operator fails to perform any covenant or agreement under this Agreement; |
| (c) | Operator fails to comply with any applicable Federal, State or local safety standards and regulations, or any Environmental Laws with regard to the Heliport; |
| (d) | Operator abandons the Heliport operation or any part thereof; |
| (e) | Operator makes an assignment of this Agreement to another person without the City’s prior written consent (other than in accordance with Section 9.10), or assignment of this Agreement for the benefit of its creditors; |
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| (f) | Operator fails to meet any of the following deadlines: (i) apply for all necessary permits for the first one million dollars ($1,000,000) of Improvements within six (6) months of the Commencement Date, (ii) apply for all necessary permits for all code compliance improvements within six (6) months of the Commencement Date, (iii) commence the design and construction of the first one million dollars ($1,000,000) of Improvements within six (6) months of receipt of all necessary permits, (iv) commence the design and construction of all code compliance improvements within six (6) months of the receipt of all necessary permits, (v) complete construction of the first one million dollars ($1,000,000) of Improvements within two (2) years of the receipt of all necessary permits, (iv) complete the additional one million dollars ($1,000,000) of Improvements by the end of the fifth year of the Agreement or pay City any unspent funds as provided in section 4.04(e) of this Agreement, or (vii) complete construction of all code compliance improvements in accordance with section 4.05 of this Agreement; |
| (g) | Operator fails to perform substantially all the services as expressly provided under this Agreement; |
| (h) | Operator fails to maintain a drug testing program, including random testing as required by the FAA or any other authority with jurisdiction; |
| (i) | Operator becomes insolvent or any bankruptcy, insolvency, reorganization or receivership or similar proceeding is commenced against Operator and is not stayed, discharged or vacated for a period of more than thirty (30) days or Operator commences a voluntary case or proceeding within the meaning of any applicable bankruptcy or similar law; or |
| (j) | Failure to replenish the Security Deposit within thirty (30) days of any draw down. |
Section 7.02 Expiration . In addition to City’s right to terminate this Agreement under Section 7.03 and notwithstanding any other provision of this Agreement:
| (a) | Upon the Expiration Date, Operator shall vacate the Heliport. In the event that Operator abandons the Heliport or permits the same to become vacant during the Term of this Agreement, this Agreement shall terminate upon the date of such abandonment or vacatur as fully and completely as if that were the date originally set in this Agreement for such termination. Nothing herein contained shall be construed to prevent the City or Agreement Administrator from maintaining an action for damages against Operator by reason of such abandonment or vacatur. In the event that Operator so abandons the Heliport, Operator shall be liable for any and all damages to City resulting therefrom, including, without limitation, reasonable attorney’s fees, and any other monies paid or incurred by City or Agreement Administrator, for service of process, marshal’s fees, and all other costs incurred in summary proceedings and the like. |
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| (b) | In the event that Operator tenders any partial payments of Retention Payments or any additional charges to Agreement Administrator for a period subsequent to the Expiration Date, the same shall under no circumstances be construed to create or revive any right on the part of Operator to perform services under this Agreement. |
| (c) | In the event that Operator leaves any of its property including, without limitation, trade fixtures, in or upon the Heliport after the Expiration Date, Agreement Administrator may dispose of same and charge Operator for the cost of such disposal, or keep the property as abandoned property. |
Section 7.03 Remedies . The City may terminate this Agreement if the Operator fails to cure an Event of Default within thirty (30) days after a written notice of such Event of Default is given to the Operator or, if the default cannot reasonably be cured within such period, the Operator shall have failed to diligently begin to cure such Event of Default within such period. If this Agreement is terminated under this Article VII, Operator shall immediately cease performing all obligations under this Agreement upon the termination date specified in the notice of termination and vacate the Heliport pursuant to section 7.02(a). If the Operator fails to cease operations and vacate the Heliport on the date specified in the notice of termination, Operator shall forfeit the full amount of the Security Deposit to Agreement Administrator. The provisions of this Article VII are in addition to and not a limitation of any other right or remedy the City or Agreement Administrator may have under this Agreement, at law or equity, or otherwise. Failure to give notice of an Event of Default, or to terminate this Agreement for failure to timely cure an Event of Default, shall not constitute a waiver of any right afforded under this Agreement, nor shall any such failure constitute an approval of or acquiescence in any default, except as may be specifically agreed to in writing. Termination, whether for convenience or cause, shall not give rise to any cause of action against the City or Agreement Administrator.
Section 7.04 Termination Options .
| (a) | If the Heliport cease to function as an active heliport (i) for at least two (2) months as a result of government or legal ruling, or (ii) for at least six (6) consecutive months as a result of unsafe decking, as determined pursuant to Section 4.02(c), then Operator shall have the right to terminate this Agreement effective upon two (2) month’s written notice to Agreement Administrator, which may be given as soon as one week after said cessation begins, provided , however , that the parties agree to use commercially reasonable efforts to resolve any issues with respect to such cessation of operations prior to terminating this Agreement pursuant to this Section 7.04(a). |
| (b) | The City may terminate this Agreement upon twenty five (25) days prior written notice to Operator for any reason deemed by the City to be in its interest. |
Section 7.05 Condemnation . If the Heliport is subject to a condemnation proceeding started during the term of this Agreement, this Agreement shall be deemed to have terminated thirty (30) days before the start of such proceeding and Operator will not be entitled to any part of any award therein.
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ARTICLE VIII
COMPLIANCE WITH LAW, VENUE AND APPLICABLE LAW
Section 8.01 Compliance with Law.
| (a) | Operator covenants that it will comply, solely at its cost and expense, with all laws, ordinances, orders, requirements, rules and regulations (whether imposed upon Operator, Agreement Administrator or the City) of any and all administrations, departments, bureaus and boards of Federal, State and city authorities having jurisdiction over the Heliport and the slips, or water adjacent to the Heliport, and/or over the use, occupancy and maintenance thereof, including, without limitation, Environmental Laws and laws relating to Federal aviation, homeland security and transportation rules and regulations; sanitation, fire code, and environmental quality; equal opportunity employment; and Federal, State and municipal tax and withholding laws, except to the extent any such law, ordinance or regulation is preempted by State or Federal law. If steps are taken to enforce any law, ordinance, or regulation relating to the safety of any persons or property located in the vicinity of the Heliport, and Operator in good faith believes such law, ordinance or regulation is preempted, the Parties agree to meet promptly and Operator will take such measures that will adequately address any legitimate safety concerns. |
| (b) | Operator shall, at its own expense, procure from all governmental authorities having jurisdiction over the operations of Operator hereunder and shall maintain in full force and effect throughout the Term of this Agreement all licenses, certificates, permits or other authorizations which may be necessary for the conduct of such operations. |
| (c) | The obligation of Operator to comply with governmental requirements is provided herein for the purpose of assuring proper safeguards for the protection of persons and property on the Heliport. Such provision is not to be construed as an admission by City that such requirements are applicable to it. |
| (d) | The parties shall, during the Term of this Agreement, for one another’s information, deliver to one another, promptly after receipt of any notice, warning, violation, order to comply or other document in respect of the enforcement of any laws, ordinances, and governmental rules, regulations and orders, a true copy of the same. |
| (e) | Operator shall furnish to Agreement Administrator upon its written request copies of any studies or tests conducted to achieve or determine compliance with laws, ordinances and governmental rules, regulations and orders during the Term of this Agreement. |
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| (f) | Operator shall notify Agreement Administrator promptly of any inspections of the Heliport by the municipal authorities (including the Department of Transportation), and whenever possible, shall notify Agreement Administrator in advance of any scheduled inspections so that a representative of Agreement Administrator may be present. Operator shall deliver copies of any violations to Agreement Administrator within five (5) days of receipt. |
Section 8.02 Governing Law; Waiver of Trial by Jury; Venue . This Agreement will be performed in the State of New York and the parties consent to its interpretation according to the law of the State of New York. The parties agree to be subject to and hereby irrevocably consent to personal jurisdiction in the Supreme Court of New York State in New York County or the Federal Courts in the Southern District of New York in connection with any action, suit or proceeding arising out of this Agreement. To extent permitted by law, the parties shall waive trial by jury in any action or proceeding or counterclaim brought on any matter whatsoever arising out of or in any way connected with this Agreement, or the use or occupation of the Heliport. This provision shall survive the expiration or earlier termination of this Agreement.
Section 8.03 Governmental Approval . This Agreement does not grant authority for any operation or use that may require any permit or approval. Operator shall, at its own cost and expense, initiate by appropriate notice, application or petition and thereafter diligently and in good faith prosecute proceedings for the procurement of all necessary and appropriate consents, approvals, or authorizations (or exemptions therefrom) from any governmental agency for the sanction of this Agreement and the activities to be carried on by Operator hereunder. Such compliance includes, but is not limited to, any required review, permit, license or approval by the FAA or the New York City Department of Small Business Services (“ DSBS ”), and/or any other applicable governmental entity.
Section 8.04 Noise Control; Nuisance.
| (a) | Operator shall comply with 24.201 et. seq. of the Administrative Code of the City of New York (the “ Noise Control Code ”). Operator shall not permit or cause to be permitted, operated, conducted, constructed or manufactured on the Heliport devices and activities (“ Devices and Activities ”) that would cause a violation of the Noise Control Code. |
| (b) | Operator shall not permit or cause to be permitted, operated, conducted, constructed or manufactured on the Heliport Devices and Activities that would cause a private or public nuisance; provided, however, that nothing herein precludes Operator from taking the position that any action alleging private or public nuisance is preempted by Federal law. |
| (c) | Any such Devices and Activities shall incorporate advances in the art of noise control developed for the kind and level of noise emitted or produced by such devices or activities in accordance with the regulations issued by the Department of Environmental Protection of the City of New York, or its successor. |
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Section 8.05 Weight Control . Operator must comply with the pier/barge load restrictions detailed in the Halcrow Engineers, P.C. report entitled “Pier 6, Downtown Manhattan Heliport, NY” dated March 2008. Exhibit J set forth the maximum load per square foot for the decking/barge. The maximum single weight and skid or carriage therefore that may be accommodated thereon shall not cause stresses which are greater than normal design stresses for all elements of the decking nor cause lateral thrusts which will endanger the bulkhead wall inshore of the decking. Operator shall submit calculations for review and the load shall be approved by Agreement Administrator. Agreement Administrator may reduce the permitted load as structural and sub-structural conditions change as Agreement Administrator in its sole discretion shall determine, provided that if such reduction in permitted load materially interferes with Operator’s operation of the Heliport as Agreement Administrator in its sole discretion shall determine, then the parties shall negotiate in good faith a corresponding reduction in the Retention Payments.
Section 8.06 Investigation .
| (a) | Cooperation . The parties to this Agreement agree to cooperate fully with any investigation, audit, or inquiry conducted by a State or City governmental agency or authority that is empowered directly or by designation to compel the attendance of witnesses and to examine witnesses under oath, or conducted by the Inspector General of a governmental agency that is a party in interest to the transaction, submitted bid, submitted proposal, contract, permit, lease or license that is the subject of the investigation, audit or inquiry. |
| (b) | Refusal to Testify . |
| (i) | If any person has been advised that his or her statement, and any information from such statement, will not be used against him or her in any subsequent criminal proceeding and still refuses to testify before a grand jury or other governmental agency or authority empowered directly or by designation to compel the attendance of witnesses and to examine witnesses under oath concerning the award of or performance under any transaction, agreement, lease, agreement, contract or license entered into with the City, the State or any political subdivision or public authority thereof, or any local development organization within the City, or any public benefit corporation organized under the laws of the State, then Operator may be subject to a hearing or penalties as set forth in paragraphs (c) and (d) herein or; |
| (ii) | If any person refuses to testify for a reason other than the assertion of his or her privilege against self incrimination in an investigation, audit or inquiry conducted by a City or State governmental agency or authority empowered directly or by designation to compel the attendance of witnesses and to take testimony under oath, or by the Inspector General of the governmental agency that is a party in interest in, and is seeking testimony concerning the award of, or the performance under, any transaction, agreement, lease, permit, contract or license entered into with the City, the State, or any political subdivision thereof or any local development corporation within the City, then Operator may be subject to a hearing or penalties as set forth in Sections (c) and (d) herein. |
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| (c) | Hearing . |
| (i) | The Commissioner of DSBS (the “ Commissioner ”) or the agency head whose agency is a party in interest to the transaction, submitted bid, submitted proposal, contract, lease, permit or license may convene a hearing, upon not less than five (5) days’ written notice to the parties involved to determine if any penalties should attach for the failure of a person to testify. |
| (ii) | If any non-governmental party to the hearing requests an adjournment, the Commissioner or the agency head who convened the hearing may, upon granting the adjournment, suspend any contract, lease, permit or license pending the final determination pursuant to paragraph (e) below without the City incurring any penalty or damages for delay or otherwise. |
| (d) | Penalties . The penalties that may attach after the final determination by Agreement Administrator may include, but shall not exceed: |
| (i) | The disqualification for a period not to exceed five (5) years from the date of any adverse determination for any person or any entity of which such person was a member, shareholder, officer, director, employee or agent at the time the testimony was sought, from submitting bids for, or transacting business with, or entering into or obtaining any contract, lease, permit or license with or from the City; and/or |
| (ii) | The cancellation or termination of any and all existing City contracts, leases, permits or licenses that the refusal to testify concerns and that have not been assigned as permitted under this Agreement, nor the proceeds of which pledged to an unaffiliated and unrelated institutional lender for fair value prior to the issuance of the notice scheduling the hearing, without the City incurring any penalty or damages on account of such cancellation or termination; monies lawfully due for goods delivered, work done, rentals, or fees accrued prior to the cancellation or termination shall be paid by the City. |
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| (e) | Final Determination . The Commissioner or agency head shall consider or address in reaching his or her other determination and in assessing an appropriate penalty the factors in paragraphs (i) and (ii) below. He or she may also consider, if relevant and appropriate, the criteria established in paragraphs (iii) and (iv) below, in addition to any other information which may be relevant and appropriate. |
| (i) | The party’s good faith endeavors or lack thereof to cooperate, fully and faithfully with any governmental investigation or audit including, but not limited to the discipline, discharge, or disassociation of any person failing to testify, the production of accurate and complete books and records, and the forthcoming testimony of all other members, agents, assignees or fiduciaries whose testimony is sought. |
| (ii) | The relationship of the person who refused to testify to any entity that is a party to the hearing, including, but not limited to, whether the person whose testimony is sought has an ownership interest in the entity and/or the degree of authority and responsibility the person has within the entity. |
| (iii) | The nexus of the testimony sought to the subject entity and its contracts, leases, permits or licenses with the City. |
| (iv) | The effect a penalty may have on an unaffiliated and unrelated party or entity that has a significant interest in an entity subject to penalties under (d) above, provided that the party or entity has given actual notice to the Commissioner or agency head upon the acquisition of the interest, or at the hearing called for in (c) above gives notice and proves that such interest was previously acquired. Under either circumstance the party or entity must present evidence at the hearing demonstrating the adverse impact such a penalty would have on such person or entity. |
| (f) | Definitions Used In This Section 8.06 . |
| (i) | The term “license” or “permit” as used in this Section 8.06 shall be defined as a license, permit, franchise or concession not granted as a matter of right. |
| (ii) | The term “person” as used in this Section 8.06 shall be defined as any natural person doing business alone or associated with another person or entity as a partner, director, officer, principal or employee. |
| (iii) | The term “entity” as used in this Section 8.06 shall be defined as any firm, partnership, corporation, association or person that receives monies, benefits, licenses, leases or permits from or through the City or otherwise transacts business with the City. |
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| (iv) | The term “member” as used in this Section 8.06 shall be defined as any person associated with any other person or entity as a partner, director, officer, principal or employee. |
| (g) | In addition to and notwithstanding any other provision of this Agreement, the Commissioner or the agency head may, at his or her discretion, terminate this Agreement upon twenty four (24) hours’ written notice in the event Operator fails to promptly report in writing to the Commissioner of Investigation of the City of New York any solicitation of money, goods, requests for future employment or other benefit or thing of value, by or on behalf of any employee of the City, Agreement Administrator, or other person, firm, corporation or entity for any purpose which may be related to the procurement or obtaining of this Agreement by Operator, or affecting the performance of this Agreement. |
Section 8.07 Review and Approval . The granting of this Agreement is subject to the applicable government review and approval process including, but not limited to, approval of Operator based upon the information provided in either the required Business Disclosure Statement or the required Business Entity Questionnaire and the Principal Questionnaire, whichever is applicable. The aforementioned documents have been completed by Operator and submitted to City prior to or upon execution of this Agreement. In the event, subsequent to the execution of this Agreement, approval is not granted by the applicable authority, this Agreement shall be terminated upon twenty-four (24) hours’ notice to Operator.
Section 8.08 Conflict of Interest . Operator warrants and represents that no officer, agent, employee or representative of the City or Agreement Administrator has received any payment or other consideration for the granting of this Agreement and that no officer, agent, employee or representative of the City or Agreement Administrator has any interest, directly or indirectly in Operator, this Agreement, or the proceeds thereof. Operator acknowledges that the City and Agreement Administrator is relying on the warranty and representation contained in this Section 8.08 and that the City would not enter into this Agreement absent the same. It is specifically agreed that, in the event the facts hereby warranted and represented prove, in the opinion of the City or Agreement Administrator, to be incorrect, the City shall have the right to terminate this Agreement upon twenty-four (24) hours’ notice to Operator and to rescind this transaction in all respects.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.01 No Assurances as to Volume . Operator acknowledges and agrees that the City and Agreement Administrator have not made any representations or assurances with respect to the volume of business which Operator will or may have in the exercise of the rights granted herein during the Term of this Agreement. Except as otherwise expressly provided for in this Agreement, City or Agreement Administrator shall not be liable for diminution of fees due to Operator under this Agreement under Article III hereof, for or on account of any decrease in the volume of Operator’s business or any change in Operator’s expenses except in the case of the following conditions: (i) an event of Force Majeure that results in closure of the Heliport for more than five (5) operating days in any thirty (30) day period, (ii) in the event that the number of active helicopter landing or parking spaces that become unavailable for physically safe operations per operating day exceeds ten space-days (e.g., ten spaces for one operating day or one space for ten operating days or any combination thereof) in any thirty (30) day period (but only for events not caused by the Operator), or (iii) if local, State, or Federal governments issue terror alerts that close or limit local airspace for more than five (5) operating days in any thirty (30) day period.
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| (a) | If the conditions described in Section 9.01 (i) or (iii) occur, the prorated Retention Payments due to Agreement Administrator calculated on a daily operating basis shall be reduced to zero for each day that such conditions persist. |
| (b) | If the conditions described in Section 9.01(ii) occur, the Retention Payments due to Agreement Administrator shall be reduced by seventy five dollars ($75) per space-day for each occurrence. |
Section 9.02 Security . Operator is solely responsible for 24 hour security of the Heliport and its operation. Operator shall to the best of its ability ensure that the Heliport and its operations are secure and shall coordinate with other users of the Heliport to ensure the overall security of the Heliport. Nothing in the foregoing shall be construed to limit any right City police, investigators or other law enforcement persons may otherwise have to enter the Heliport at any time for official purposes in the exercise of their public duties, including but not limited to investigations, searches, inspections and examinations.
Section 9.03 Binding Effect . Subject to the specific restrictions and limitations set forth in other provisions herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective successors, lessees, assign, grantees, and legal representatives, but no sale, assignment, mortgage, grant, or lease by Operator of any interest or right given it under this Agreement shall be valid or binding without the prior written consent of the City, except for assignments made pursuant to Section 9.10 hereof.
Section 9.04 Beneficiaries . This Agreement and each and every provision hereof are for the exclusive benefit of the City and Operator and not for the benefit of any third party. Nothing herein contained shall be taken as creating or increasing any right in any third person to recover by way of damages or otherwise against either of the parties hereto.
Section 9.05 Waivers and Consents . No consent or approval by the City or Agreement Administrator shall be effective unless previously stated in writing, signed by an authorized officer of the City or Agreement Administrator, and subject to such conditions as the City or the Agreement Administrator may, in their sole and absolute discretion require or as otherwise provided for this Agreement. No consent or waiver, express or implied, by any party to this Agreement to or of any breach or default by another party to this Agreement in the performance of its obligations hereunder, shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by the breaching party of the same or any other obligations hereunder. Failure on the part of any party to complain of any act or failure to act by another party, irrespective of how long such failure continues, shall not constitute a waiver of any rights hereunder.
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Section 9.06 Notices . Except for payments to be made by Operator in accordance with Article III above, all notices, demands, requests, submissions, or other communications which are required to be served pursuant to this Agreement shall be in writing and shall be deemed to have been properly served when mailed by certified or registered mail, return receipt requested, or delivered personally or by overnight hand delivery or other courier service addressed: (a) in the case of Agreement Administrator or the City, to the Executive Vice President for Property Management, with a copy to the General Counsel of NYCEDC, at 110 William Street, 6 th Floor, New York, NY 10038, and (b) in the case of Operator, to the General Counsel of FirstFlight, Inc., 236 Sing Sing Road, Horseheads, NY 14845 with a copy to the General Manager at the Heliport. Each party may designate by notice in writing a substitute party or a new address to which any notices, demands, request, submissions, or communications shall thereafter be served.
Section 9.07 Severability . If any covenant or provision of this Agreement, or any application thereof, shall be invalid or unenforceable, the remainder of this Agreement, and any other application of such covenant or provision, shall not be affected thereby. No controversy concerning any covenant or provision shall delay the performance of any other covenant or provision.
Section 9.08 Headings . All headings and titles in this Agreement are for purposes of identification and convenience only and shall not affect any construction or interpretation of this Agreement.
Section 9.09 Entire Agreement; No Oral Modifications . This Agreement (including the exhibits referred to in this Agreement, which are hereby incorporated in, and deemed to constitute a part of, this Agreement) sets forth the entire understanding of the parties and supersedes all prior and contemporaneous oral or written agreements and understandings with respect to the subject matter. This Agreement may not be amended or modified except by a writing signed by the parties.
Section 9.10 Assignment . The rights and obligations under this Agreement may not be subcontracted by Operator, without the prior written consent of Agreement Administrator, which shall not be unreasonably delayed or withheld. The rights and obligations under this Agreement may not be assigned by Operator, without the prior written consent of the City, which shall not be unreasonably delayed or withheld. If Operator makes such an assignment without the prior written consent of the City, the City shall have the right, but not the obligation, to terminate this Agreement. Merger, consolidation, purchase of a majority of assets, transfer of a majority of stock or of joint venture or partnership interests in Operator by operation of law or otherwise, are deemed to be an assignment of this Agreement for purposes of this Section 9.10. Additionally, Operator shall not mortgage or pledge this Agreement or any part thereof, or in any way charge or encumber the rights granted herein, or any part thereof, or issue or grant any agreement or license to use the Heliport or any part thereof without the prior written consent of the City.
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Section 9.11 Dissolution, Merger or Sale of Operator . Operator covenants and agrees that at all times during the Term of this Agreement, it will (i) maintain its corporate existence, (ii) continue to be subject to service of process in the State and either be organized under the laws of the State of New York, or under the laws of any other state of the United States and duly qualified to do business in the State, and (iii) not liquidate, wind-up or dissolve or otherwise dispose of all or substantially all of its property, business or assets, and (iv) not consolidate with or merge without the City’s consent into another entity or permit one or more entities to consolidate with or merge into it.
Section 9.12 Representation and Warranties . Operator hereby represents and warrants to City and Agreement Administrator, as of the Commencement Date, that it is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; and has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement and this Agreement shall be enforceable against it in accordance with its terms. Operator (i) warrants that the undersigned signatory for Operator has the power and authority to enter into this Agreement on behalf of Operator and to bind Operator to the terms and conditions of this Agreement and (ii) has presented to City a certified copy of the resolution of the board of directors of Operator granting and approving that power and authority.
Section 9.13 Force Majeure . Whenever a period of time is provided in this Agreement for either party to do or perform any act, said party shall not be liable for any delays due to or resulting from circumstances beyond its control after exercising due diligence to avoid or overcome such circumstances (“ Force Majeure ”), including without limitation: strikes, lockouts or other work stoppage s ; extraordinary weather conditions; acts of God; blackouts ; acts of war or terrorism; court orders, riots, public disorders and criminal acts of third parties; or other such Force Majeure events. The party experiencing Force Majeure shall take prompt actions to notify the other party of the Force Majeure, to remove the causes of Force Majeure and to resume normal operations immediately after such causes have been removed. Nothing in this Section 9.14 shall cause the party affected by the Force Majeure to unfavorably disrupt other operations or enter into what it considers to be any unfavorable labor agreement to remove the causes of the Force Majeure. The suspension of any obligations owing to a Force Majeure shall neither cause the term of this Agreement to be extended nor affect any rights accrued prior to the Force Majeure.
Section 9.14 Survival . Any and all obligations and/or liabilities of Operator, the City and Agreement Administrator accruing prior to the termination of this Agreement and then outstanding shall survive the termination of this Agreement.
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