<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1998.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------------
AVTEAM, Inc.
(Exact name of registrant as specified in its charter)
-----------------------------------
<TABLE>
<S> <C> <C>
FLORIDA 5088 65-0313187
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3230 EXECUTIVE WAY
MIRAMAR, FLORIDA 33025
(954) 431-2359
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
DONALD A. GRAW
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AVTEAM, INC.
3230 EXECUTIVE WAY
MIRAMAR, FLORIDA 33025
(954) 431-2359
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copy to:
NOEL H. NATION, ESQ.
KEITH WASSERSTROM, ESQ.
BAKER & MCKENZIE
701 BRICKELL AVENUE, SUITE 1600
MIAMI, FLORIDA 33131
(305) 789-8900
Approximate date of commencement of proposed sale to the public: AS
PROMPTLY AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ___________.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]____________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Amount of Registration
Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, par value $.01 per share.......... $(2,360,722 x 11.0625) $7,704.07
===================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
in accordance with Rule 457(c) under the Securities Act of 1933, based
on the average of the high and low prices of the Class A Common Stock as
reported on the Nasdaq Stock Market's National Market on May 28, 1998.
---------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 29, 1998
2,360,722 Shares
LOGO
AVTEAM, Inc.
Class A Common Stock
($.01 par value)
---------------
This Prospectus relates to 2,360,722 shares of Class A Common Stock,
$.01 par value per share (the "Class A Common Stock") of AVTEAM, Inc. ("AVTEAM"
or the "Company") being offered from time to time (the "Offering") by certain
shareholders of AVTEAM (the "Registering Shareholders") directly or through one
or more broker-dealers, in transactions on the Nasdaq Stock Market's National
Market ("Nasdaq"), in the over-the-counter market, in negotiated transactions,
or through a combination of such transactions. See "Plan of Distribution." The
Registering Shareholders are under no obligation to sell all or any portion of
the Class A Common Stock being offered hereby immediately or after the date of
this Prospectus. See "Principal and Registering Shareholders." The Company will
not receive any of the proceeds from the sale of the Class A Common Stock
offered by the Registering Shareholders. See "Use of Proceeds." All expenses
related to the Offering and the registration of the shares of Class A Common
Stock offered hereby will be paid by the Company (other than selling
commissions, and fees and expenses of advisors to the Registering Shareholders).
---------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE CLASS A COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE
6 HEREIN.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Class A Common Stock is traded on Nasdaq under the symbol
"AVTM". On May 20, 1998, the last sale price of the Class A Common Stock as
reported by Nasdaq was $11.00 per share.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
[PHOTOGRAPH]
<PAGE> 4
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR ANY
UNDERWRITER, AGENT OR DEALER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
RESALE MADE THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFERS OR
SOLICITATION IN SUCH JURISDICTION.
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS, INCLUDING THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. ALL STATEMENTS REGARDING THE COMPANY'S EXPECTED
FINANCIAL POSITION, BUSINESS AND FINANCING PLANS ARE FORWARD-LOOKING STATEMENTS.
ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE REASONABLE, THERE CAN BE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION,
THE INFORMATION UNDER "RISK FACTORS," "MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL SUCH
FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS.
INFORMATION CONTAINED IN THE PROSPECTUS
THE INFORMATION CONTAINED IN THIS PROSPECTUS HAS BEEN FURNISHED BY
THE COMPANY AND OBTAINED FROM INTERNAL COMPANY SURVEYS, INDUSTRY PUBLICATIONS
AND CURRENTLY AVAILABLE INFORMATION. REFERENCE IS MADE TO THE ACTUAL DOCUMENTS,
COPIES OF WHICH WILL BE MADE AVAILABLE UPON REQUEST, FOR THE COMPLETE
INFORMATION CONTAINED THEREIN. ALL SUCH SUMMARIES ARE QUALIFIED IN THEIR
ENTIRETY BY THIS REFERENCE.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information, including risk factors and financial statements and notes thereto,
located elsewhere in this Prospectus. Certain of the information contained in
this summary and elsewhere in this Prospectus including information with respect
to the Company's plans and strategy for its business, acquisitions and related
financings, are forward-looking statements within the meaning of the federal
securities laws, including the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements are subject to material risks, uncertainties and
contingencies, many of which are beyond the control of the Company. For a
discussion of important factors that could cause actual results to differ
materially from these forward-looking statements, see "Risk Factors."
THE COMPANY
GENERAL
AVTEAM is a global supplier of aftermarket aircraft engines, engine
parts and airframe components ("Engines and Components"). The Company has
historically focused on the purchase and resale of Engines and Components for
the Pratt & Whitney JT8D series of engines, which power approximately 33% of the
world's commercial aviation fleet. The Company has recently expanded its product
line to include the CFM56 series of engines, which had the highest production
volume of any commercial engine series in 1997. The Company works with its
worldwide network of industry contacts to identify and evaluate Engines and
Components and surplus aircraft for potential acquisition. Engines and
Components are either made available for immediate resale or repaired by
FAA-licensed repair facilities and then resold. Surplus aircraft are
disassembled and sold as parts by the Company. The Company resells Engines and
Components to other aftermarket suppliers, independent repair facilities,
aircraft operators and original equipment manufacturers. Since its inception,
the Company has substantially increased its revenue base, broadened the range of
products and services offered to include leasing and engine management and
on-wing maintenance services and taken consistent steps to ensure the quality of
its products and services. From $3.9 million in 1993, the Company's net sales
reached $52.9 million in 1997, when the Company supplied over 600 customers
worldwide. The Company's revenue growth from 1996 to 1997 was 66.7%. In November
1996, the Company became the first aftermarket supplier to receive quality
accreditation from the Airline Suppliers Association, an FAA-recognized
independent quality assurance organization. The Company believes that there are
currently fewer than 25 accredited aftermarket suppliers who compete directly
with AVTEAM.
The Company believes that the annual worldwide aftermarket for
Engines and Components is approximately $10 billion of which approximately $1
billion represents sales and leases of JT8D Engines and Components. The
aftermarket for Engines and Components is highly fragmented, with a limited
number of well-capitalized companies selling a broad range of products and
numerous smaller competitors serving distinct market niches. The Company
believes that the following factors will contribute to the continued growth of
the aftermarket for Engines and Components and will accelerate the trend towards
consolidation in the industry: (i) growth in air transit activity; (ii) increase
in the number of older commercial aircraft; (iii) aircraft operators' demand for
full service suppliers; and (iv) increased regulatory scrutiny.
BUSINESS STRATEGY
The Company believes that its industry experience and capabilities
position it to expand its market presence in the growing aftermarket for Engines
and Components. The Company intends to build upon its success and exploit
favorable industry dynamics by: (i) capitalizing on its worldwide sourcing
network; (ii) continuing its commitment to quality leadership; (iii) broadening
its product line; (iv) increasing sales to aircraft operators by providing
value-added services; and (v) pursuing strategic acquisitions.
2
<PAGE> 6
Capitalize on Worldwide Sourcing Network. The Company believes that
purchasing Engines and Components on a timely basis and at favorable prices is
critical. Although there are well-developed channels for distribution of Engines
and Components by aftermarket suppliers, there is no consistent, reliable and
organized market for aftermarket suppliers to acquire their inventory.
Accordingly, the Company has developed a sourcing network of independent agents
operating throughout the world that assists management in identifying available
products and facilitates quick evaluation of products and execution of
purchasing decisions.
Continue Commitment to Quality Leadership. The Company emphasizes
adherence to high quality standards at each stage of its operations (product
acquisitions, overhaul, documentation, inventory control and delivery). Of the
approximately 2,500 worldwide distributors offering parts to civil aviation
purchasers, the Company was the first aftermarket supplier to meet the voluntary
accreditation quality system standard of the Airline Suppliers Association as
endorsed by the FAA.
Broaden Product Line. The Company has recently expanded its product
line to include higher thrust models of the JT8D series of engines and other
high thrust engines, such as the CFM56 and CF6 engines. The CFM56 has been in
service since 1982 and an active aftermarket in this engine has begun to emerge.
The installed base of these engines is expected to approximate the size of the
current installed base of the JT8D within the next few years. The Company
acquired two CFM56 engines in 1997. One of these engines has been disassembled
to provide the Company with its initial inventory of CFM56 engine parts. The
other engine was sold as a whole engine. The Company purchased its first CF6
engine parts package in April 1998. The Company also has increased its
availability of airframe components as it continues to acquire surplus aircraft
for disassembly and additional supply of engine inventory.
Increase Sales to Aircraft Operators by Providing Value-Added
Services. The Company believes that aircraft operators' increased demand for
full service creates considerable opportunities for larger, well-capitalized
aftermarket suppliers. The Company intends to take advantage of this trend and
differentiate itself from other aftermarket suppliers by providing a full range
of products and services, including an expanded range of engine field services,
such as borescoping and hushkit installations, a full range of on-wing
maintenance services, engine and aircraft leasing programs and engine management
services.
Pursue Strategic Acquisitions. The Company's facilities, management
information systems and management structure have been designed to support
future growth and to enable the Company to benefit from the trend towards
industry consolidation. The Company may selectively acquire companies that
complement its existing business.
------------------
The Company's principal executive offices are located at 3230 Executive
Way, Miramar, Florida 33025, and its telephone number is (954) 431-2359.
3
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered by the
Registering Shareholders................................................................. 2,360,722 shares
Common Stock to be outstanding after the Offering (1):
Class A Common Stock......................................................... 10,665,739 Shares
Class B Common Stock, $.01 par
value per share (the "Class B
Common Stock) ......................................................... 439,644 Shares
----------
Total: ..................................................... 11,105,383 Shares
==========
Voting Rights............................................................................ Each share of Class A Common Stock
is entitled to one vote on all
matters submitted to a vote of
shareholders.The shares of Class B
Common Stock have no voting
rights, except with respect to the
right to vote as a class on
amendments to the Company's
Articles of Incorporation as
specified under Florida law. In
all other respects, the shares of
Class A Common Stock and Class B
Common Stock are identical. See
"Description of Capital Stock."
Nasdaq National Market Symbol............................................................ AVTM
</TABLE>
- --------------
(1) Does not include (i) 250,000 shares of Class A Common Stock issuable
upon the exercise of outstanding stock options and (ii) 350,000
shares of Class A Common Stock reserved for issuance upon the
exercise of stock options which may be granted under the Company's
1996 Stock Option Plan. See "Management -- 1996 Stock Option Plan."
4
<PAGE> 8
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------------- -------------------------------
1995 1996 1997 1997 1998
------------- -------------- --------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales .............................. $ 18,299 $ 31,724 $ 52,881 $ 8,413 $ 13,117
Gross profit ........................... 6,451 9,083 14,496 2,697 3,885
Income from operations ................. 1,289 4,771 7,184 1,348 2,196
Provision (credit) for income
taxes(1) ............................. -- (370) 2,259 444 794
Net Income (1) ......................... $ 1,098 $ 3,230 $ 3,934 $ 775 $ 1,352
========== =========== ========== ========== ===========
Pro forma net income (historical for 1997
and the three months ended March 31,
1998)(2) ............................. $ 681 $ 1,692 $ 3,934 $ 775 $ 1,352
========== =========== ========== ========== ===========
Pro forma net income per common
share-basic (historical for 1997
and the three months ended
March 31, 1998)(2) ................... $ 0.17 $ 0.34 $ 0.65 $ 0.16 $ 0.12
========== =========== ========== ========== ===========
Weighted average number of
common shares outstanding(3) ......... 4,000,000 5,000,000 6,073,694 5,000,000 11,105,383
========== =========== ========== ========== ===========
Pro forma net income per common
share-assuming dilution
(historical for 1997 and
the three months ended
March 31, 1998) ...................... $ 0.17 $ 0.33 $ 0.52 $ 0.12 $ 0.12
========== =========== ========== ========== ===========
Weighted average number of
common equivalent shares
outstanding - diluted ................ 4,000,000 5,121,096 7,622,194 6,700,000 11,135,631
========== =========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Working capital .................................................................................... $ 44,294
Inventory .......................................................................................... 39,333
Total assets ....................................................................................... 66,932
Total debt ......................................................................................... 1,942
Total shareholders' equity ......................................................................... 53,156
</TABLE>
- --------------------
(1) The Company was an S corporation for federal and state income tax purposes
for the taxable periods from January 1, 1994 through December 6, 1996. As
a result, the net income of the Company was taxed, for federal and state
income tax purposes, directly to the Company's shareholders rather than to
the Company. See Note 5 of Notes to Consolidated Financial Statements.
(2) Assumes that the Company was subject to federal and state income taxes
from January 1, 1995 through December 6, 1996.
(3) See Note 2 of Notes to Consolidated Financial Statements.
5
<PAGE> 9
RISK FACTORS
An investment in the Class A Common Stock involves a high degree of risk.
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Class A Common Stock offered hereby.
This Prospectus contains forward-looking statements the accuracy of which is
subject to many risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS RELATING TO FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," "projects," and words of similar import constitute
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: a decline in the demand for aftermarket aircraft
engines, engine parts and airframe components, which could materially adversely
affect the Company's revenues; the availability of aircraft engines, engine
parts and airframe components for resale, which could hamper the Company's
ability to maintain adequate levels of inventory and meet customer demand; the
possibility that regulatory changes and unforeseen events could impact the
Company's ability to provide products and services to its customers; existing
competition from national and regional competitors, which could result in
pricing and other pressures on profitability and market share; and other factors
referenced in this Prospectus. Certain of these factors are discussed in more
detail elsewhere in this Prospectus including, without limitation, under the
captions "Prospectus Summary;" "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligations to
update any such factors or publicly announce the result of any revisions to any
of the forward-looking statements contained herein to reflect future events or
developments.
DEPENDENCE ON THE JT8D ENGINE
The Company's business, financial condition and results of
operations are dependent upon the aftermarket for JT8D Engines and Components.
Approximately 91%, 95%, 84% and 68% of the Company's net sales during 1995,
1996, 1997 and the three months ended March 31, 1998, respectively, consisted of
sales of JT8D Engines and Components and 81% of the Company's inventory at March
31, 1998 consisted of JT8D Engines and Components. Aircraft utilizing JT8D
engines have been in service since the early 1960s. Aircraft utilizing older
engines are generally more expensive to maintain and to operate, due primarily
to higher fuel usage. Noise and other regulations in many countries also
significantly increase the cost of operating aircraft utilizing older engines.
Specifically, most JT8D engines will need to be hush-kitted or removed from
service in the United States and the European Union by 1999 and 2002,
respectively. A decline in passenger confidence in older aircraft could also
lead to a decline in the aftermarket for JT8D Engines and Components. Any of
these factors could cause the unanticipated retirement of aircraft utilizing
JT8D engines. Any significant decline in the aftermarket for JT8D engines would
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company has recently expanded its product line to
include the CFM56 and CF6 series engines and parts and other series and types of
engines and airframe parts and has limited experience with respect to the
purchase and sale of such engines and parts. There can be no assurance that the
Company will have the same level of success with CFM56, CF6 and other series and
types of engines and airframe parts that it has had with JT8D Engines and
Components. See "Business -- Regulation."
6
<PAGE> 10
IMPACT OF GOVERNMENT REGULATION
The aviation industry is highly regulated by the Federal Aviation
Administration (the "FAA") and similar regulatory agencies of other countries.
Before Engines and Components are installed on an aircraft, they must meet
certain standards as to their condition and have appropriate documentation, and
aircraft must also meet standards with respect to noise, emissions and
maintenance. While the Company's principal operations are not currently
regulated directly by the FAA, the independent facilities that repair and
overhaul the Company's products and the aircraft operators that ultimately
utilize the Company's products are subject to extensive regulation. In addition,
the Company is currently subject to a voluntary accreditation program
recommended by the FAA applicable to aftermarket parts suppliers and, through
AVTEAM Aviation Field Services, Inc., a subsidiary of the Company ("AAFS"), the
Company has recently expanded the services that it provides to include
activities that required AAFS to obtain FAA certification, which it obtained in
April 1997.
The Company is dependent on third-party FAA-licensed repair
facilities to perform repair services to bring aircraft engines held for resale
and Engines and Components into airworthiness condition. The FAA has recently
increased its scrutiny of third-party repair facilities and this increased
scrutiny may result in fewer FAA-licensed repair facilities and longer
turnaround times.
The repair facilities utilized by the Company are responsible for
inspecting and certifying Engines and Components to be of serviceable quality.
The Company does not have direct control over the quality of repair performed by
such repair facilities or the accuracy of airworthiness condition designated by
such facilities. It is possible that Engines and Components could pass
inspection by the Company, be sold by the Company and incorporated into an
aircraft, and subsequently be determined to be unsafe or in need of further
repair. In such event, the FAA has the authority to take actions which may
include the grounding of an aircraft which contains such parts. Additionally,
the customer who purchased such Engines or Components could demand a replacement
Engine or Component. While the Company has insurance coverage to cover related
losses, the effect of such a development on passenger confidence and customer
relations could have a material adverse effect upon the Company. See "Business
- -- Products," "-- Regulation" and "-- Insurance."
In September 1996, the FAA issued an advisory circular to support
the implementation of a voluntary accreditation program for civil aircraft parts
suppliers. This accreditation program establishes quality standards applicable
to aftermarket suppliers, such as the Company, and designates FAA-approved
organizations to perform quality assurance audits for initial and continued
accreditation of such aftermarket suppliers.
Standards established by the FAA and other regulatory agencies
relating to the operation and maintenance of aircraft have significant effects
on aircraft operators and the composition of their fleets. Noise and emission
regulations, and additional maintenance requirements for older aircraft, may
increase the cost of operating aircraft utilizing JT8D engines, which could lead
to a decline in the demand for the products and services provided by the
Company.
The inability of the Company to supply its customers with Engines
and Components on a timely basis, or any occurrence of the Company providing
products subsequently determined unsafe, may adversely affect the Company's
relationships with its customers and have a material adverse effect on its
business, financial condition and results of operations. There can also be no
assurance that new and more stringent government regulations will not be adopted
in the future or that any such new regulations, if enacted, would not have a
direct or indirect adverse impact on the Company. See "Business -- Products" and
"-- Regulation."
DEPENDENCE ON THIRD-PARTY REPAIR FACILITIES
The Company is dependent on third-party FAA-licensed repair
facilities to perform repair services to bring aircraft engines held for resale
and Engines and Components into airworthiness condition. The limited number of
such repair facilities has on occasion resulted in long turnaround times for the
repair and overhaul of aircraft engines and parts and such delays may continue
to occur. The limited availability of repair facilities together with the recent
closings of certain repair facilities has increased the likelihood of long
turnaround times for the repair and overhaul
7
<PAGE> 11
of Engines and Components, which could have an adverse effect on the Company's
business, financial condition and results of operations.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS; DEPENDENCE ON AVIATION INDUSTRY
The Company has a limited operating history upon which an evaluation
of the Company and its prospects can be based. The Company may experience
significant fluctuations in its operating results in the future, both on an
annual and a quarterly basis, caused by various factors, many of which are
beyond the control of the Company. These factors include: general economic
conditions; specific economic conditions affecting the commercial aviation
industry; the availability, timing and price of Engines and Components; the size
and timing of customer sales; the mix of products sold and services provided by
the Company; and unanticipated engine lease terminations or a default by a
lessee.
The demand for aftermarket Engines and Components is seasonal, with
increased demand during the summer months. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality." In
addition, the commercial aviation industry is cyclical and has been subject to
periodic fluctuations in its operating results. The Company has not operated
during a significant downturn in the aviation industry. During such a downturn,
there may be reduced overall demand for Engines and Components, lower selling
prices for the Company's products, and increased credit risk associated with
doing business with industry participants. Factors such as fuel prices may
affect the commercial aviation industry and the aftermarket for older model
Engines and Components. Increases in fuel prices may cause a decline in air
travel, and older, typically less fuel-efficient aircraft (into which the
Company's products are most often placed) become less desirable as fuel prices
increase.
The Company obtains its supply of Engines and Components principally
by purchasing surplus aircraft and parts inventory. There can be no assurance
that Engines and Components required by the Company's customers will be
available on acceptable terms or at the times required by the Company or that
economic and other factors which affect the aviation industry will not have a
material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations" and "Business -- Industry Overview."
RISKS ASSOCIATED WITH AIRCRAFT ENGINE LEASES
The Company leases Pratt & Whitney JT8D engines under operating
leases to a limited number of customers. The success of an operating lease
depends on the re-lease of engines on favorable terms on a timely basis and the
ability to sell engines at favorable prices at the end of the lease term. In
addition, the success of an operating lease depends in part upon having aircraft
engines returned to the Company in marketable condition as required by the lease
for such engines. Numerous factors, many of which are beyond the control of the
Company, may have an impact on the Company's ability to re-lease or sell Engines
and Components. These factors include general market conditions, regulatory
changes (particularly those imposing environmental, maintenance and other
requirements on the operation of aircraft engines), changes in the supply or
cost of aircraft engines and technological developments. Consequently, there can
be no assurance that the Company's estimated residual value for aircraft engines
will be realized. If the Company is unable to re-lease or sell its engines on
favorable terms on a timely basis upon expiration of the related lease, its
business, financial condition and results of operations may be adversely
affected. All engines currently leased by the Company are being leased, directly
or indirectly, to domestic passenger airlines which may be affected by numerous
factors, including the factors identified above and factors having an impact on
the airline industry generally. In the event that a lessee defaults in the
performance of its obligations, the Company may be unable to enforce its
remedies under a lease. The Company's inability to collect lease payments when
due or to repossess engines in the event of a default by a lessee could have an
adverse effect on the Company's business, financial condition and results of
operations.
8
<PAGE> 12
MANAGEMENT OF GROWTH
The rapid growth experienced by the Company to date has placed, and
could continue to place, significant demands on the Company's administrative,
operational and financial resources. The Company has recently begun to broaden
its product line and services and may in the future undertake acquisitions that
could present further challenges to and demands upon the Company's resources.
There can be no assurance that the Company will be able to anticipate business
demand accurately, attract and retain the personnel required or manage any such
growth successfully, and the failure to do so could have a material adverse
effect on the Company. The Company's growth strategy includes the acquisition of
complementary businesses. As the aftermarket industry continues to consolidate,
the Company expects to face increasing competition from other companies for
available acquisition opportunities. There can be no assurance that suitable
acquisition candidates will be available, that financing for such acquisitions
will be obtainable on terms acceptable to the Company, that such acquisitions
can be consummated or that acquired businesses can be integrated successfully
into the Company's operations. Further, the Company's results of operations in
fiscal quarters immediately following a material acquisition may be materially
adversely affected while the Company integrates the acquired business into its
existing operations. Any acquisition, depending on its size, could result in the
use of a significant portion of the Company's available cash, or if such
acquisition is made utilizing the Company's securities, could result in
significant dilution to the Company's shareholders. There are no current
agreements with respect to any material acquisitions.
CUSTOMER CONCENTRATION
The Company sells its products and provides its services primarily
to other aftermarket suppliers of Engines and Components, repair facilities,
OEMs, aircraft operators and others. While the Company sold Engines and
Components to over 600 different customers during 1997, sales of products and
services to the Company's five largest customers accounted for 47%, 44% and 52%
of the Company's net sales during 1997, 1996 and 1995, respectively. Sales of
products and services to the Company's five largest customers for the three
months ended March 31, 1998 accounted for 47% of the Company's net sales. One
customer, United Airlines, Inc., accounted for 19% of the Company's 1997 net
sales. Another customer, Aerothrust Corporation, accounted for 12% of the
Company's 1997 net sales. A small number of customers may account for a
significant portion of the Company's revenues from period to period due to the
substantial cost of acquiring aircraft and certain parts and a significant
portion of the Company's sales are expected to continue to be concentrated in a
small number of customers. The loss of or significant curtailment of purchases
by any of the Company's, significant customers could have a material adverse
effect upon the Company. See "Business - Customers."
PRODUCT LIABILITY
The commercial aviation industry periodically experiences
catastrophic losses which may exceed insurance policy limits. The Company
currently has in force aviation products insurance, with coverage limits for
each occurrence and in the aggregate which it believes to be in amounts and on
terms that are generally consistent with industry practice. To date, the Company
has not experienced any aviation-related claims, and has not experienced any
product liability claims related to its products or services. However, an
uninsured or partially insured claim, or a claim for which third-party
indemnification is not available, could have a material adverse effect upon the
Company. See "Business -- Insurance."
COMPETITION
The aftermarket for Engines and Components is highly fragmented,
with a limited number of well-capitalized companies selling a broad range of
products, and numerous smaller competitors serving distinct market niches, and
is characterized by intense competition. The Company believes that the range and
depth of inventories, full product traceability, product knowledge, quality,
service and price are key factors in distinguishing the Company from other
aftermarket suppliers. Certain of the Company's competitors have substantially
greater financial, marketing and other resources than the Company. In addition,
OEMs, aircraft maintenance providers, leasing companies and FAA-licensed repair
facilities may vertically integrate into the aftermarket supply industry,
thereby significantly increasing competition. There are established competitors
that provide many of the services the
9
<PAGE> 13
Company intends to offer, many of whom have substantially greater financial,
marketing and other resources than the Company. There can be no assurance that
the Company will continue to compete effectively against present and future
competitors or that competitive pressures will not have a material adverse
effect on the Company. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's success is substantially dependent on the performance,
contributions and expertise of its executive officers and key employees. The
Company's success to date has been significantly dependent on the contributions
of Donald Graw, its President and Chief Executive Officer, and Jaime Levy, its
Executive Vice President, each of whom has entered into an employment agreement
with the Company expiring December 1999. The Company does not carry substantial
key man life insurance on its executive officers. The Company is also dependent
on its ability to attract, retain and motivate additional personnel, especially
in management. The loss of the services of any of its executive officers or
other key employees or the Company's inability to attract, retain or motivate
the necessary personnel could have a material adverse effect on the Company. See
"Management."
CONTROL BY CERTAIN SHAREHOLDERS
At May 19, 1998, 14% of the outstanding shares of Class A Common
Stock was owned by Donald Graw, Jaime Levy and Richard Preston (the "Existing
Common Shareholders"); 18.5% of the outstanding shares of Class A Common Stock
was owned by The Clipper Group partnerships ("The Clipper Group"); and 22.1% of
the outstanding shares was of Class A Common Stock were owned by the Registering
Shareholders. The Existing Common Shareholders, The Clipper Group and the
Registering Shareholders, if they were to act together, would have the power to
elect all of the members of the Company's Board of Directors, amend the Articles
of Incorporation of the Company (the "Articles") and the Bylaws of the Company
(the "Bylaws") and effect or preclude fundamental corporate transactions
involving the Company, including the acceptance or rejection of proposals
relating to a merger of the Company or the acquisition of the Company by another
entity. Accordingly, the Existing Common Shareholders, The Clipper Group and the
Registering Shareholders are able to exert significant influence over the
Company, including the ability to control decisions on all matters on which
shareholders are entitled to vote. See "Principal and Registering Shareholders,"
"Description of Capital Stock" and "Certain Transactions."
FACTORS INHIBITING TAKEOVER
Certain provisions of the Articles and Bylaws may delay or prevent a
takeover attempt that a shareholder might consider in its best interest. These
provisions establish certain advance notice procedures for shareholder proposals
to be considered at the shareholders' meetings and provide that only the Board
of Directors may call special meetings of the shareholders. In addition, the
Board of Directors can authorize and issue shares of Preferred Stock, par value
$.01 per share (the "Preferred Stock"), issuable in one or more series, with
voting or conversion rights that could adversely affect the voting or other
rights of holders of the Class A Common Stock. The terms of the Preferred Stock
that might be issued could potentially prohibit the Company's consummation of
any merger, reorganization, sale of substantially all of its assets, liquidation
or other extraordinary corporate transaction without the approval of the holders
of the outstanding shares of such stock. Furthermore, certain provisions of the
Florida Business Corporation Act may have the effect of delaying or preventing a
change in control of the Company. See "Description of Capital Stock."
In addition, the Board of Directors has approved, and recommended
for shareholder approval, an amendment (the "Board Amendment") to Article V
"Board of Directors" set forth in the Company's Articles to classify the
Company's Board of Directors into three classes of directors serving staggered
three-year terms; and to make technical amendments to the Articles to adjust
certain of the Company's corporate governance procedures to accommodate the
existence of a classified board of directors and staggered three-year terms for
directors. Registering Shareholder approval of the Board Amendment may have the
effect of further delaying or preventing a change of control of the Company. See
"Description of Capital Stock-Proposed Amendment to the Company's Articles of
Incorporation."
10
<PAGE> 14
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Class A Common Stock in
the public market following the Offering, including the sale of shares of Class
A Common Stock of the Registering Shareholders, could adversely affect the
market price for the Class A Common Stock. On the date of this Prospectus,
7,196,339 shares of Class A Common Stock will be eligible for sale in the public
market. An additional 3,469,400 shares of Class A Common Stock will become
eligible for sale in the public market, subject to compliance with the
provisions of Rule 144 ("Rule 144") under the Securities Act of 1933, as amended
(the "Securities Act"). Of such 3,469,400 shares, 500,000 shares are held by Mr.
Graw, the Company's President and Chief Executive Officer and a director of the
Company, 500,000 shares are held by Mr. Levy, the Company's Executive Vice
President and a director of the Company, 494,758 shares are held by Mr. Preston,
the Company's Secretary and a director of the Company, and 1,974,642 shares are
held by The Clipper Group, each of whom are affiliates of the Company
("Affiliates") within the meaning of Rule 144, and may, therefore, only be sold
in the public market in compliance with the volume limitations and other
requirements of Rule 144. See "Shares Eligible for Future Sale".
YEAR 2000
The Company believes that it has prepared its computer systems and
related software to accommodate data sensitive information relating to the Year
2000. The Company expects that any additional costs related to ensuring such
systems and software to be Year 2000-compliant will not be material to the
financial condition or results of operations of the Company. In addition, the
Company is discussing with its vendors and customers the possibility of any
difficulties which may affect the Company as a result of its vendors and
customers ensuring that their computer systems and software are Year
2000-compliant. To date, no significant concerns have been identified. However,
there can be no assurance that no Year 2000-related computer operating problems
or expenses will arise with the Company's computer systems and software or in
the computer systems and software of the Company's vendors and customers.
11
<PAGE> 15
USE OF PROCEEDS
The Offering is intended to satisfy certain obligations of the
Company to the Registering Shareholders. The Company will not receive any of the
proceeds from the sale of the shares of Class A Common Stock offered hereby. All
expenses related to the Offering and the registration of the shares of Class A
Common Stock offered hereby will be paid by the Company (other than selling
commissions, and fees and expenses of the advisors to the Registering
Shareholders).
PRICE RANGE OF COMMON STOCK
The following information relates to the Class A Common Stock, which
currently is listed on the Nasdaq Stock Market's National Market under the
symbol "AVTM." At April 20, 1998, there were approximately 979 shareholders of
record of the Class A Common Stock. The high and low sales prices of the Class A
Common Stock for each quarter since the effective date of the Company's initial
public offering, October 31, 1997 (the "IPO"), as reported by Nasdaq Stock
Market, are set forth below:
<TABLE>
<CAPTION>
1997
HIGH LOW
---- ---
<S> <C> <C>
1997
Fourth Quarter ................................................................... $ 9.00 $8.12
<CAPTION>
1998
HIGH LOW
---- ---
<S> <C> <C>
1998
First Quarter .................................................................... $12.12 $8.50
Second Quarter (through May 20, 1998) ............................................ $12.50 $9.87
</TABLE>
DIVIDEND POLICY
The Company anticipates that earnings will be retained for use in
developing and growing its business and therefore does not anticipate paying any
cash dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of the Board of Directors and will be
dependent upon the Company's financial condition, results of operations, capital
requirements, restrictions in financing arrangements and such other factors as
the Board of Directors deems relevant. The Company's ability to pay dividends or
make distributions to shareholders is also restricted by the terms of Syndicated
Credit Facility Agreement dated as of April 30, 1998, between the Company,
NationsBank N.A. and certain other lenders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
12
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as
of March 31, 1998. This table should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------
(IN THOUSANDS)
<S> <C>
Current portion of notes payable lease financing and capital lease obligations ....... $ 249
=======
Long-term capital lease obligation .............................................. 161
Long-term notes payable ......................................................... 1,532
Shareholders' equity (1):
Preferred stock, par value $.01 per share; 20,000,000 shares authorized;
and no shares Outstanding ....................................................
-------
Class A Common Stock, par value $.01 per share; 77,000,000 shares
authorized; 10,665,739 shares issued and outstanding ......................... 107
Class B Common Stock, par value $.01 per share; 3,000,000 shares
authorized; 439,644 shares issued and outstanding ............................ 4
Additional paid-in capital ........................................................... 47,444
Retained earnings .................................................................... 5,601
-------
Total shareholders' equity ...................................................... 53,156
-------
Total capitalization ......................................................... $54,849
=======
</TABLE>
- -------------------------
(1) Does not include (i) 250,000 shares of Class A Common Stock issuable upon
the exercise of outstanding stock options and (ii) 350,000 shares of Class
A Common Stock reserved for issuance upon the exercise of stock options
which may be granted under the Company's 1996 Stock Option Plan. See
"Management -- 1996 Stock Option Plan."
13
<PAGE> 17
SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31,
1994, 1995, 1996 and 1997 and as at December 31, 1995, 1996 and 1997 are
derived from the Financial Statements of the Company, which have been audited
by Ernst & Young LLP, independent certified public accountants. The selected
financial data for the year ended December 31, 1993 and for the three months
ended March 31, 1997 and 1998 and as at December 31, 1993 and March 31, 1997
and 1998 are derived from unaudited Financial Statements prepared by the
Company. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for a fair presentation of the financial position and the results of operations
for these periods. The selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements of the Company and Notes thereto
included elsewhere in this Prospectus.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1994 1995 1996 1997
------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales ........................................ $ 3,891 $ 9,062 $ 18,299 $ 31,724 $ 52,881
Cost of sales .................................... 3,489 6,373 11,848 22,641 38,385
------- ----------- ----------- ----------- -----------
Gross profit ..................................... 402 2,689 6,451 9,083 14,496
Operating expenses (1) ........................... 588 1,941 5,162 4,312 7,312
------- ----------- ----------- ----------- -----------
Income (loss) from operations .................... (186) 748 1,289 4,771 7,184
Offering expenses(2) ............................. -- -- -- 1,154 --
Interest (expense) income, net ................... (14) 6 (191) (757) (991)
------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary item .......... (200) 754 1,098 2,860 6,193
Extraordinary item(3) ............................ 150 -- -- -- --
------- ----------- ----------- ----------- -----------
Income (loss) before income taxes ................ (50) 754 1,098 2,860 6,193
Provision (credit) for income taxes(4) ........... -- -- -- (370) 2,259
------- ----------- ----------- ----------- -----------
Net income (loss)(4) ............................. (50) 754 1,098 3,230 3,934
Adjustments for pro forma (provision) credit
for income taxes (5) ............................ 18 (286) (417) (1,538) --
------- ----------- ----------- ----------- -----------
Pro forma net income (loss) (historical for 1997
and the three months ended March 31,
1998) ........................................... $ (32) $ 468 $ 681 $ 1,692 $ 3,934
======= =========== =========== =========== ===========
Pro forma net income (loss) per common share
(historical for 1997 and the three months
ended March 31, 1998)(5) ........................ $ 0.12 $ 0.17 $ 0.34 $ 0.65
=========== =========== =========== ===========
Weighted average number of common shares
outstanding(6) .................................. 4,000,000 4,000,000 5,000,000 6,073,694
=========== =========== =========== ===========
Pro forma net income per common share -
assuming dilution (historical for 1997 and the
three months ended March 31, 1998)(5) ........... $ 0.12 $ 0.17 $ 0.33 $ 0.52
=========== =========== =========== ===========
Weighted average number of common
equivalent shares outstanding -
diluted(6) ...................................... 4,000,000 4,000,000 5,121,096 7,622,194
=========== =========== =========== ===========
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1998
---- ----
(UNAUDITED)
<S> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales ........................................ $ 8,413 $ 13,117
Cost of sales .................................... 5,716 9,232
---------- ------------
Gross profit ..................................... 2,697 3,885
Operating expenses (1) ........................... 1,349 1,689
---------- ------------
Income (loss) from operations .................... 1,348 2,196
Offering expenses(2) ............................. -- --
Interest (expense) income, net ................... (129) (50)
---------- ------------
Income (loss) before extraordinary item .......... 1,219 --
Extraordinary item(3) ............................ -- --
---------- ------------
Income (loss) before income taxes ................ 1,219 2,146
Provision (credit) for income taxes(4) ........... 444 794
---------- ------------
Net income (loss)(4) ............................. 775 1,352
Adjustments for pro forma (provision) credit
for income taxes (5) ............................ -- --
---------- ------------
Pro forma net income (loss) (historical for 1997
and the three months ended March 31,
1998) ........................................... $ 775 $ 1,352
========== ============
Pro forma net income (loss) per common share
(historical for 1997 and the three months
ended March 31, 1998)(5) ........................ $ 0.16 $ 0.12
========== ============
Weighted average number of common shares
outstanding(6) .................................. 5,000,000 11,105,383
========== ============
Pro forma net income per common share -
assuming dilution (historical for 1997 and the
three months ended March 31, 1998)(5) ........... $ 0.12 $ 0.12
========== ============
Weighted average number of common
equivalent shares outstanding -
diluted(6) ...................................... 6,700,000 11,135,631
========== ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1993 1994 1995 1996 1997 1997 1998
------- ------ ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency) .................... $ (40) $2,433 $ 2,312 $16,930 $47,425 $17,620 $44,294
Inventory ....................................... 3,304 2,771 8,563 14,505 24,480 21,300 39,333
Total assets .................................... 4,149 6,439 13,793 22,417 58,954 30,000 66,932
Total debt ...................................... -- 350 3,287 3,048 4,446 10,767 1,942
Total shareholders' equity (capital deficiency) . (40) 2,634 2,613 14,993 51,804 15,769 53,156
</TABLE>
14
<PAGE> 18
- ---------------------
(1) From inception and until July 21, 1994, the Company consigned all of its
inventory to Turbine Engine Sales Group, Inc. ("Turbine"), and paid
Turbine compensation equal to one half of the gross profit on consigned
materials sold. The Company had no facilities and limited staffing during
this period. Accordingly, income (loss) from operations prior to 1995 may
not reflect the full level of operating expenses necessary to support the
Company's operations during such periods.
(2) Represents a one-time charge against earnings in the third quarter of 1996
in the approximate amount of $1.2 million for the write-off of the costs
associated with a public offering which was withdrawn in August 1996 due
to market conditions. See Note 4 of Notes to Consolidated Financial
Statements.
(3) Represents gain on the extinguishment of debt to a related party.
(4) The Company was an S corporation for federal and state income tax purposes
for the taxable periods from January 1, 1994 through December 6, 1996. As
a result, the net income of the Company was taxed, for federal and state
income tax purposes, directly to the Company's shareholders rather than to
the Company. See Note 5 of Notes to Consolidated Financial Statements.
(5) Assumes that the Company was subject to federal and state income taxes
during 1995 and 1996 (at an effective tax rate of approximately 38%).
(6) See Note 2 of Notes to Consolidated Financial Statements.
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Financial Statements
of the Company and the Notes thereto, and other financial information included
elsewhere in this Prospectus. This Prospectus contains certain statements
regarding future trends, the accuracy of which is subject to many risks and
uncertainties. Such trends, and their anticipated impact on the Company, could
differ materially from those discussed in this Prospectus. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
The Company's net sales and its sales practices have been
substantially affected by the amount of capital available to acquire its
inventory of Engines and Components. In developing its business, the Company has
emphasized the rapid sale of whole engines rather than obtaining maximum profit
margins on each particular sale. The Company anticipates that the proceeds of
its recent bank financing will enable it to continue to build its inventory to
support increased sales and to sell its inventory on a more strategic basis to
capitalize on the fluctuations in demand for Engines and Components caused by
seasonal and other factors.
In order to enable the Company to sell Engines and Components which
it did not have the capital to acquire, the Company entered into an agreement on
September 5, 1995 with Parati Corporation ("Parati") providing for Parati's
acquisition of new and surplus aircraft engines for disassembly and resale by
the Company (the "Parati Agreement"). The parties acquired Pratt & Whitney
engines under the Parati Agreement. The Parati Agreement provided for an equal
sharing of gross profits between the Company and Parati following the recovery
by Parati of all costs borne by Parati and the recovery by the Company of all
overhaul costs borne by the Company. Accordingly, since such date, the Company's
cost of sales include the portion of the gross profit due Parati from the sale
of engine parts of disassembled aircraft engines subject to the Parati
Agreement. Net sales under the Parati Agreement were approximately $224,000,
approximately $1.9 million and approximately $495,000 in 1995, 1996 and 1997,
respectively. The cost of the engines acquired by Parati under the Parati
Agreement was approximately $1.7 million. The Company and Parati terminated the
Parati Agreement on August 21, 1997 and the Company does not intend to utilize
similar agreements to acquire Engines or Components in the future.
The Company records whole engines held for resale at the lower of
cost or market. Gross margin on whole engine sales has fluctuated significantly
from period to period, and can be expected to do so in the future, as a result
of the conditions and circumstances under which whole engines are sold. For
example, the Company may opportunistically sell whole engines at margins lower
than those realized by the Company on its component sales to capitalize on
market demand or to broaden its customer base.
Engine parts and airframe components acquired by the Company are
initially recorded at cost. Cost of sales relative to engine parts and airframe
components shipped are recorded during an initial period following disassembly
of the related whole engine or aircraft at the Company's historical ratio of
cost of sales to net sales for engine parts from such engine types or at the
Company's estimated ratio of cost of sales to net sales for airframe components.
Thereafter, management evaluates the remaining engine parts and airframe
components, estimates future sales and related overhaul costs and, if necessary,
adjusts the ratio of costs of sales to net sales on a prospective basis.
Thereafter, the Company records the cost of each engine part and airframe
component sold at the time the related net sales are recognized, based on such
ratios.
The Company has recently expanded its product line to include higher
thrust models of the JT8D series of engines and other high thrust engines, such
as the CFM56 engine. These higher thrust engines are more expensive than the
engines historically sold by the Company. As the Company's net sales increase,
the Company expects that related operating expenses will increase at a lower
rate, thereby creating higher operating margins.
On December 6, 1996, the Company amended its employment agreements
with Donald Graw and Jaime Levy. The rate of compensation for each of them was
reduced from the prior level of 20% of adjusted net income as
16
<PAGE> 20
defined in such agreements (approximately $430,000 and $1.3 million,
respectively, for each of them in 1994 and 1995), to provide for annual base
salaries of $260,000 and $220,000 for Messrs. Graw and Levy, respectively, for
an initial term of three years expiring December 1999. The Company also
terminated its status as an S corporation on this date and became subject to
federal and state income taxes. Historically, the Company did not record a
provision for income taxes as a result of its S corporation status for 1994 and
1995 and recorded a $370,000 net benefit for income taxes in 1996.
On November 3, 1997, the Company completed the IPO at an offering
price of $8.50 per share of Class A Common Stock. Of the shares of Class A
Common Stock offered thereby, 3,033,000 shares were sold by the Company and
1,467,000 shares were sold by Sragowicz Foundation, Inc. On December 3, 1997,
the Company sold an additional 330,325 shares of its Class A Common Stock at an
offering price of $8.50 per share price upon the exercise of an underwriters'
over-allotment option. The Company received aggregate net proceeds from the
Offering of approximately $25.5 million. Of this amount, $12.5 million was used
to repay outstanding indebtedness, $200,000 was used for payment of accrued
compensation and the remainder is being used for working capital and general
corporate purposes, including the purchase of surplus aircraft and Engines and
Components for the Company's inventory and the funding of the acquisition of
complementary businesses. See "Liquidity and Capital Resources."
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
items contained in the Company's statements of operations expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
FIRST QUARTER YEAR ENDED DECEMBER 31,
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales ................................... 100% 100% 100% 100% 100%
Cost of sales ............................... 70 68 73 71 65
--- --- --- ---- ----
Gross profit ................................ 30 32 27 29 35
Operating expenses .......................... 13 16 13 14 28
--- --- --- ---- ----
Income from operations ...................... 17 16 14 15 7
Offering expenses(1) ........................ -- -- -- 4 --
Interest expense, net ....................... 1 2 2 2 1
--- --- --- ---- ----
Income before income taxes .................. 16 14 12 9 6
Provision (credit) for income taxes(2) ...... 6 5 4 (1) --
--- --- --- ---- ----
Net income(2) ............................... 10 9 8 10 6
Adjustment for pro forma provision for income
taxes(3) .................................... -- -- -- (5) (2)
--- --- --- ---- ----
Pro forma net income (historical for
1997 and the three months ended
March 31, 1998)(3) ........................ 10% 9% 8% 5% 4%
=== === === ==== ====
</TABLE>
(1) Represents a one-time charge against earnings in the third quarter
of 1996 in the approximate amount of $1.2 million for the write-off
of the costs associated with a public offering which was withdrawn
in August 1996 due to market conditions. See Note 4 of Notes to
Consolidated Financial Statements.
(2) The Company was an S corporation for federal and state income tax
purposes for the taxable periods from January 1, 1994 through
December 6, 1996. As a result, the net income of the Company was
taxed, for
17
<PAGE> 21
federal and state income tax purposes, directly to the Company's
shareholders rather than to the Company. See Note 5 of Notes to
Consolidated Financial Statements.
(3) Assumes that the Company was subject to federal and state income
taxes during 1995 and 1996 (at an effective tax rate of
approximately 38%).
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net Sales. Net sales increased 55.9% to $13.1 million in 1998 from
$8.4 million in 1997. This increase is primarily due to an increase in whole
engine sales of 128.6% over whole engine sales in 1997. In addition, revenue
from leasing and field services increased to $1.3 million from $47,000.
Gross Profit. Gross profit increased 44.0% to $3.9 million in 1998
from $2.7 million in 1997. Gross margin decreased to 29.6% in 1998 from 32.1% in
1997 principally because of the lower margins generated from the sale of whole
engines, which accounted for 32.9% of the Company's net sales.
Operating Expenses. Operating expenses increased 25.2% to $1.7
million in 1998 from $1.3 million in 1997. As a percentage of net sales, such
expense decreased to 12.9% in 1998 from 16.0% in 1997. The expense increase is
primarily attributable to increased personnel expense resulting from additional
staffing in the Florida headquarters office, increased insurance expense as a
result of higher inventory levels and volume of shipments and additional
occupancy costs associated with the acquisition of an additional 50,000 square
feet of rental warehouse space, offset by the reversal of a $100,000 reserve
associated with a lapsed repair commitment to one customer.
Net Interest Expense. Net interest expense decreased 61.2% to
$50,000 in 1998 from $129,000 in 1997. As a percentage of net sales, such
expense decreased to .4% in 1998 from 1.5% in 1997. The decreased interest
expense is a result of lower borrowing levels, subsequent to the initial public
offering of shares of Class A Common Stock of the Company in October 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales. Net sales increased 66.7% to $52.9 million in 1997 from
$31.7 million in 1996. This increase is primarily due to an increase in whole
engine sales of 183.0% over whole engine sales in 1996. In addition, airframe
component sales increased significantly due to higher levels of inventory
resulting from the disassembly of recently purchased whole aircraft.
Gross Profit. Gross profit increased 59.6% to $14.5 million in 1997
from $9.1 million in 1996. Gross margin decreased to 27.4% in 1997 from 28.6% in
1996 principally because of the lower margins achieved through the quick sale of
the Company's first CFM56 engine and the purchase and immediate sale of two
engines as an accommodation to a first tier airline.
Operating Expenses. Operating expenses increased 69.6% to $7.3
million in 1997 from $4.3 million in 1996. As a percentage of net sales, such
expense increased to 13.8% in 1997 from 13.6% in 1996. The expense increase is
primarily attributable to increased personnel expense resulting from additional
staffing in the Florida headquarters office, increased insurance expense as a
result of higher inventory levels and volume of shipments and start-up costs
related to the Company's new Texas-based field services operation. Officers'
compensation increased to $1.3 million in 1997 from $800,000 in 1996. The
increase in amount reflects the effect of the amendment to the employment
agreements of the two senior executives of the Company, which became effective
subsequent to December 6, 1996, the hiring of a Chief Financial Officer in April
1996, the appointment of an executive officer in the fourth quarter of 1996, and
the hiring of a vice president at the end of the first quarter of 1997.
Net Interest Expense. Net interest expense increased 30.9% to
$991,000 in 1997 from $757,000 in 1996. As a percentage of net sales, such
expense decreased to 1.9% in 1997 from 2.4% in 1996. The increased interest
expense is a result of higher borrowing levels, prior to the initial public
offering in October 1997, in order to increase the amount of inventory available
for sale.
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<PAGE> 22
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales increased 73.4% to $31.7 million in 1996 from
$18.3 million in 1995. This increase is primarily due to an increase in sales of
engine components related to a substantial increase in available inventory for
sale. In addition, average unit prices of the 17 whole engines sold in 1996
increased to $550,000, compared with $250,000 for the 22 whole engines sold in
1995. This unit price increase was primarily attributable to a change in the
product mix of whole engines to more expensive, higher thrust JT8D engines.
Gross Profit. Gross profit increased 40.8% to $9.1 million in 1996
from $6.5 million in 1995. Gross margin decreased to 28.6% in 1996 from 35.3% in
1995. The margin decline is attributable to higher margins from the sale of
engines acquired in a bulk purchase by the Company and sold in 1995 and an
increase in sales of certain engine parts subject to gross profit sharing under
the Parati Agreement.
Operating Expenses. Operating expenses decreased 16.5% to $4.3
million in 1996 from $5.2 million in 1995. Operating expense declined as a
percentage of net sales to 13.6% in 1996 from 28.2% in 1995. This decrease
reflects the effect of amendments to the employment agreements of Messrs. Graw
and Levy on December 6, 1996, and a one-time bonus to Messrs. Graw and Levy in
the amount of $1.2 million in 1995. Offsetting the decline in officers'
compensation expense were increases in other compensation resulting from recent
additions to staff, facility expenses resulting from the May 1995 relocation to
the company's current facility and the equipping of the disassembly facility
during the first quarter of 1996. See Note 11 of Notes to Consolidated Financial
Statements.
Net Interest Expense. Net interest expense increased to $757,000 in
1996 from $191,000 in 1995. Such expense increased as a percentage of net sales
to 2.4% in 1996 from 1.0% in 1995. The increase is a result of the Company's
increased borrowing to support the purchase of substantially more inventory.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity have been
from financing activities and cash flow generated by operations and, to a lesser
extent, from consignment sales and sales under the Parati Agreement. Net cash
provided by financing activities, derived primarily from the sale of common
stock in 1997 was $29.7 million, from the sale of preferred stock in 1996 was
$7.0 million and from bank lines of credit and advance from shareholders in 1995
was $2.3 million. The Company also obtained airframe components on consignment
and may enter into other consignment arrangements in the future. In May 1997,
the Company launched a program in conjunction with third-party financing sources
under which the Company leases aircraft engines to its customers, which has
increased the Company's liquidity and provide working capital for the purchase
of additional aircraft engines.
On December 6, 1996, the Company issued and sold 1,480,000 shares of
Class A Preferred Stock and 220,000 shares of Class B Preferred Stock to The
Clipper Group for an aggregate purchase price of $11.9 million. The net proceeds
of this sale were applied toward the payment of certain distributions to the
Company's shareholders in respect of earnings by the Company prior to the change
in its status from an S corporation to a C corporation for federal and state
income tax purposes, the repayment of advances to the Company from Messrs.
Sragowicz and Preston, the repayment of loans from Barnett Bank of South
Florida, N.A. to the Company, accrued bonuses payable to Messrs. Graw and Levy
and the purchase by the Company of surplus aircraft and Engines and Components.
On July 25, 1997, the Company entered into an agreement with
NationsBanc Leasing Corporation ("NBLC") whereby the Company sold three Pratt &
Whitney JT8D engines to NBLC for approximately $4.3 million and subsequently
leased-back such engines for a period of five years at fixed monthly payments.
The Company, at its option, may repurchase any of these engines at a
predetermined percentage of the original leased amount beginning in July 1998.
The engines subject to this agreement are currently on lease by the Company to
third parties. Payments under such leases provide sufficient cash flow to exceed
the Company's payments to NBLC. The proceeds from the sale of these engines were
used by the Company to reduce the outstanding balance of its credit facility
with NationsBank. On February 18, 1998, the Company repurchased one of the
engines in order to sell it to a third party leasing company.
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<PAGE> 23
On August 21, 1997, the Company issued and sold Class A Preferred
Stock and Class B Preferred Stock to The Clipper Group for an aggregate purchase
price of approximately $5.0 million, with the proceeds being used to reduce the
outstanding balance of its credit facility with NationsBank.
See Note 15 of Notes to Consolidated Financial Statements.
Also, on August 21, 1997, the Company issued and sold 327,772 shares
of Class A Common Stock to Mr. Sragowicz for an aggregate purchase price of
approximately $2.3 million as payment for loans made by Mr. Sragowicz to the
Company in the amount of approximately $2.0 million and payment for the
remaining inventory of Pratt & Whitney engine parts under the Parati Agreement
valued at $270,648. See Note 8 of Notes to Consolidated Financial Statements.
On November 3, 1997, the Company completed an initial public
offering of 4,500,000 shares of its Class A Common Stock at an offering price of
$8.50 per share. Of the shares of Class A Common Stock offered thereby,
3,033,000 shares were sold by the Company and 1,467,000 shares were sold by
Sragowicz Foundation, Inc. On December 3, 1997, the Company sold an additional
330,325 shares of its Class A Common Stock at an offering price of $8.50 per
share price upon the exercise of an underwriters' over-allotment option. The
Company received aggregate net proceeds from the Offering of approximately $25.6
million. Of this amount, $12.5 million was used to repay outstanding
indebtedness, $200,000 was used for payment of accrued compensation and the
remainder is being used for working capital and general corporate purposes,
including the purchase of surplus aircraft and Engines and Components for the
Company's inventory.
On April 30, 1998, AVTEAM, as borrower, and AAFS, as guarantor,
entered into a Credit Agreement (the "Credit Agreement") with a syndicate of
lenders led by NationsBank, N.A., as administrative agent (the "Lenders"),
pursuant to which the Lenders agreed to make available to the Company a
revolving credit facility (the "Revolving Credit Facility") in the maximum
aggregate principal amount of up to $70.0 million. The Revolving Credit Facility
includes (i) a working capital revolving loan facility (the "Working Capital
Revolving Loan Facility") in the aggregate principal amount of up to $45.0
million and a (ii) an acquisition revolving loan facility (the "Acquisition
Revolving Loan Facility") in the aggregate principal amount of up to $25.0
million. The Working Capital Revolving Loan Facility will be used by the Company
to finance working capital, capital expenditures and general corporate purposes.
The Acquisition Revolving Loan Facility will be used by the Company to finance
acquisitions permitted under the Credit Agreement. The Credit Agreement is
secured by a senior security interest in all of the assets of the Company. In
addition, the obligations of AVTEAM under the Credit Agreement are guaranteed by
AAFS. As of May 20, 1998, the Company has drawn an aggregate of $3.5 million
under the Working Capital Revolving Facility. AVTEAM may borrow, repay and
re-borrow funds under the Credit Agreement until April 30, 2001. The Credit
Agreement requires AVTEAM to make certain mandatory prepayments of principal and
interest and permits the Registrant to make optional prepayments of principal
and interest. The foregoing description of the terms of the Credit Agreement
does not purport to be complete and is qualified in its entirety by reference to
the Credit Agreement.
The Company has established a capital expenditure budget of
approximately $1.75 million during 1998, including approximately $750,000 for
additional engine tooling in the Company's disassembly operations, approximately
$150,000 for enhancements to the Company's management information systems,
approximately $400,000 for warehouse improvements, approximately $300,000 for
additional leasehold improvements related to planned increases in personnel,
approximately $100,000 for additional equipment to be utilized by the Company's
field service subsidiary and $50,000 for additional office furniture and
equipment.
The Company's principal working capital requirements relate to the
acquisition of inventory and carrying of receivables. The Company believes that
the current level of working capital and amounts available under the Credit
Facility will enable it to meet its liquidity requirements for the next twelve
months.
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<PAGE> 24
SEASONALITY
The Company believes that demand for Engines and Components is
seasonal, with increased demand during the summer months. This seasonality
exists because aircraft engine performance is directly related to ambient
temperature (as temperatures rise it is more difficult for aircraft engines to
perform properly). As a result, certain aircraft engines are removed from
service during the summer months due to the failure of those particular aircraft
engines to comply with exhaust gas temperature limitations. Aircraft engines of
the same type and model can have different performance capabilities. The summer
months also include peak travel periods during which aircraft utilization levels
are high. In addition, the timing of whole aircraft engines sold, which have a
substantially greater purchase price than the installed parts and components,
may cause significant fluctuations in the Company's quarterly operating results.
The Company has in the past and may in the future experience substantial
quarterly fluctuations in sales as a result of these seasonal effects.
IMPACT OF YEAR 2000
The Company believes that it has prepared its computer systems and
related software to accommodate data sensitive information relating to the Year
2000. The Company expects that any additional costs related to ensuring such
systems and software to be Year 2000-compliant will not be material to the
financial condition or results of operations of the Company. In addition, the
Company is discussing with its vendors and customers the possibility of any
difficulties which may affect the Company as a result of its vendors and
customers ensuring that their computer systems and software are Year
2000-compliant. To date, no significant concerns have been identified. However,
there can be no assurance that no Year 2000-related computer operating problems
or expenses will arise with the Company's computer systems and software or in
the computer systems and software of the Company's vendors and customers.
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<PAGE> 25
BUSINESS
GENERAL
AVTEAM is a global supplier of aftermarket Engines and Components.
The Company has historically focused on the purchase and resale of Engines and
Components for the Pratt & Whitney JT8D series of engines, which power
approximately 33% of the world's commercial aviation fleet. The Company has
recently expanded its product line to include the CFM56 series of engines, which
had the highest production volume of any commercial engine series in 1997. The
Company works with its worldwide network of industry contacts to identify and
evaluate Engines and Components and surplus aircraft for potential acquisition.
Engines and Components are either made available for immediate resale or
repaired by FAA-licensed repair facilities and then resold. Surplus aircraft are
disassembled and sold as parts by the Company. The Company resells Engines and
Components to other aftermarket suppliers, independent repair facilities,
aircraft operators and original equipment manufacturers. Since its inception,
the Company has substantially increased its revenue base, broadened the range of
products and services offered to include leasing and engine management and
on-wing maintenance services and taken consistent steps to ensure the quality of
its products and services. From $3.9 million in 1993, the Company's net sales
reached $52.9 million in 1997, when the Company supplied over 600 customers
worldwide. The Company's revenue growth from 1996 to 1997 was 66.7%. In November
1996, the Company became the first aftermarket supplier to receive quality
accreditation from the Airline Suppliers Association, an FAA-recognized
independent quality assurance organization. The Company believes that there are
currently fewer than 25 accredited aftermarket suppliers who compete directly
with AVTEAM.
INDUSTRY OVERVIEW
The Company believes that the annual worldwide aftermarket for
Engines and Components is approximately $10 billion of which approximately $1
billion represents sales and leases of JT8D Engines and Components. The
aftermarket for Engines and Components is highly fragmented, with a limited
number of well-capitalized companies selling a broad range of products and
numerous smaller competitors serving distinct market niches. The Company
believes that the following factors will contribute to the continued growth of
the aftermarket for Engines and Components and will accelerate the trend towards
consolidation in the industry: (i) growth in air transit activity; (ii) increase
in the number of older commercial aircraft; (iii) aircraft operators' demand for
full service suppliers; and (iv) increased regulatory scrutiny.
Growth in Air Transit Activity. According to Boeing's 1997 Market
Outlook, by the year 2006, global air travel will increase approximately 75%,
and the number of passenger and cargo aircraft in service will increase by
approximately 48%. The Company believes that growth in air transit activity will
continue to increase the demand for aftermarket Engines and Components.
Increase in the Utilization of Older Commercial Aircraft. Increased
demand for air travel and the need for aircraft operators to reduce operating
and capital costs have prompted many airlines to extend the useful life of older
equipment. The installation of FAA-approved hushkits and extended life
maintenance programs have increased the useful life of aircraft utilizing JT8D
engines for many operators. In addition, many second-tier foreign and domestic
aircraft operators are increasing their fleets through the acquisition of less
expensive used aircraft, which typically require more maintenance and
replacement parts than new aircraft.
Aircraft Operators' Demand For Full Service Suppliers. Cost
considerations are causing aircraft operators to reduce the size of their spare
parts inventories, while cost and quality concerns cause them to maintain
relationships with a more limited number of approved suppliers. As a result,
many airlines today require full service suppliers that provide a broad array of
products and services.
Increased Regulatory Scrutiny. Increased regulatory scrutiny by the
FAA of the airline industry has created opportunities for aftermarket parts
suppliers with the infrastructure and quality systems to satisfy increased
regulatory standards. In September 1996, the FAA issued an advisory circular
recommending voluntary industry oversight and accreditation of aftermarket parts
suppliers. In response to regulatory scrutiny, aircraft operators have increased
their documentation requirements for products purchased in the aftermarket. The
Company believes that regulatory
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<PAGE> 26
scrutiny will continue to increase, forcing aftermarket suppliers to meet higher
quality standards, which may strain the resources of smaller competitors.
BUSINESS STRATEGY
The Company believes that its industry experience and capabilities
position it to expand its market presence in the growing aftermarket for Engines
and Components. The Company intends to build upon its success and exploit
favorable industry dynamics by: (i) capitalizing on its worldwide sourcing
network; (ii) continuing its commitment to quality leadership; (iii) broadening
its product line; (iv) increasing sales to aircraft operators by providing
value-added services; and (v) pursuing strategic acquisitions.
Capitalize on Worldwide Sourcing Network. The Company believes that
purchasing Engines and Components on a timely basis and at favorable prices is
critical. Although there are well-developed channels for distribution of Engines
and Components by aftermarket suppliers, there is no consistent, reliable and
organized market for aftermarket suppliers to acquire their inventory.
Accordingly, the Company has developed a sourcing network of independent agents
operating throughout the world that assists management in identifying available
products and facilitates quick evaluation of products and execution of
purchasing decisions.
Continue Commitment to Quality Leadership. The Company emphasizes
adherence to high quality standards at each stage of its operations (product
acquisitions, overhaul, documentation, inventory control and delivery). Of the
approximately 2,500 worldwide distributors offering parts to civil aviation
purchasers, the Company was the first aftermarket supplier to meet the voluntary
accreditation quality system standard of the Airline Suppliers Association as
endorsed by the FAA.
Broaden Product Line. The Company has recently expanded its product
line to include higher thrust models of the JT8D series of engines and other
high thrust engines, such as the CFM56 and CF6 engines. The CFM56 has been in
service since 1982 and an active aftermarket in this engine has begun to emerge.
The installed base of these engines is expected to approximate the size of the
current installed base of the JT8D within the next few years. The Company
acquired two CFM56 engines in 1997. One of these engines has been disassembled
to provide the Company with its initial inventory of CFM56 engine parts. The
other engine was sold as a whole engine. The Company purchased its first CF6
engine parts package in April 1998. The Company also has increased its
availability of airframe components as it continues to acquire surplus aircraft
for disassembly and additional supply of engine inventory.
Increase Sales to Aircraft Operators by Providing Value-Added
Services. The Company believes that aircraft operators' increased demand for
full service creates considerable opportunities for larger, well-capitalized
aftermarket suppliers. The Company intends to take advantage of this trend and
differentiate itself from other aftermarket suppliers by providing a full range
of products and services, including an expanded range of engine field services,
such as borescoping and hushkit installations, a full range of on-wing
maintenance services, engine and aircraft leasing programs and engine management
services.
Pursue Strategic Acquisitions. The Company's facilities, management
information systems and management structure have been designed to support
future growth and to enable the Company to benefit from the trend towards
industry consolidation. The Company may selectively acquire companies that
complement its existing business.
PRODUCTS
The Company's product line includes Engines and Components for all
models of the JT8D series and airframe components for DC-9 and Boeing 707 and
727 aircraft. Although production of most models of the JT8D ceased in 1987, the
JT8D engine continues to power approximately 33% of the world's commercial
aircraft. Since there currently is no cost-effective replacement for the JT8D
engine with which to power existing narrow-body aircraft, operators continue to
maintain their older engines. The Company believes that there will be continuing
demand for JT8D products. The Company has recently expanded its product line to
include Engines and
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Components for higher thrust engines, such as the CFM56 and CF6 both
manufactured by CFM International, which are owned by approximately 210
companies worldwide. The Company acquired two CFM56 engines in 1997 and one CF6
parts package in April 1998. One of these engines has been disassembled to
provide the Company with its initial inventory of CFM56 engine parts. The other
engine was sold as a whole engine. The following chart indicates the Company's
estimate of the number of JT8D and CFM56 engines currently in service, as well
as the principal types of aircraft utilizing such engines.
<TABLE>
<CAPTION>
NUMBER
ENGINE TYPE IN SERVICE AIRCRAFT APPLICATION
- -------------- ------- --------------------
<S> <C> <C>
Pratt & Whitney
JT8D-7-17 ............................. 10,300 DC-9, B727, B737
-200 ............................. 2,700 B727, MD-80
CFM International
CFM56-3, -5............................ 7,700 B737, A319, A320, A321, A340
CF6 ............................. 1,696 A300, A310, DC-10, B747, B767,
MD-11
</TABLE>
Engines and Components are classified within the industry as
"factory new", "new surplus", "overhauled", "serviceable" and "as removed". A
new engine or part is one that has never been installed. Factory new Engines or
Components are purchased from manufacturers or their authorized distributors.
New surplus parts are purchased from excess stock of airlines, repair facilities
or other suppliers. An overhauled Engine or Component is one which has been
completely disassembled, inspected, repaired, reassembled and tested by an
FAA-licensed repair facility. An Engine or Component is classified as
serviceable if it is repaired by an FAA-licensed repair facility rather than
being completely disassembled and overhauled. An Engine or Component may also be
classified as serviceable if it is removed by the operator while operating under
an approved maintenance program, is functional and meets the manufacturer's time
and cycle restrictions applicable to the part. A new, overhauled or serviceable
designation indicates that the engine or part can be immediately placed in
service on an aircraft. An Engine or Component in "as removed" condition
requires functional testing, repair or overhaul by an FAA-licensed repair
facility prior to being returned to service in an aircraft and is classified as
"non-serviceable."
Engine Parts. The Company's inventory of engine parts consists
primarily of parts for the JT8D series of engines and includes a broad selection
of over 4,000 items. The Company obtains most of its components by purchasing
and disassembling engines. The Company prices individual components based upon
their classification, condition and general level of availability in the
aftermarket. Greater than 80% of the Company's engine parts inventory is
purchased in "as removed" condition and therefore requires inspection and
possible overhaul by FAA-licensed repair facilities prior to installation.
FAA-licensed repair facilities specialize in different inspection and overhaul
procedures and the Company has an approved vendor list consisting of over 50
FAA-licensed repair facilities.
The Company has designed and equipped a disassembly facility for
JT8D engines, with flexibility to accommodate substantial growth in volume and
expansion into other types of aircraft engines, and hired personnel to conduct
engine disassembly operations. As a result, the Company has significantly
improved aircraft engine disassembly turnaround time.
Whole Engines. The Company purchases either serviceable engines for
immediate resale or non-serviceable engines that are repaired and/or overhauled
for the Company by FAA-licensed repair facilities and then resold. In certain
cases, the Company specifies the workscope of repair based on the specifications
of its customers. The Company uses engine parts from its inventory to minimize
the repair costs to benefit its customers. Prices for engines depend on the
level of thrust, availability of the engine type at time of sale and the buyer's
circumstances. In the event that an aircraft requires a replacement engine, a
customer may be willing to pay a premium for a serviceable engine which can be
delivered immediately.
Airframe Components. The Company provides a full range of DC-9
rotable airframe components which it acquires through the purchase of whole DC-9
aircraft. A rotable is a component which is removed periodically as
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<PAGE> 28
mandated by an operator's maintenance procedure or on an "as needed" basis and
is typically repaired or overhauled and reused an indefinite number of times.
Sales of rotable airframe components include avionics equipment (for example,
fuel and altitude indicators) and actuators (for example, devices that perform
certain mechanical functions). The Company expects to increase its inventory of
airframe components as part of its growth strategy.
SERVICES
Field Services. The Company offers engine borescoping services, a
diagnostic procedure utilizing a video camera attached to the end of a thin tube
which is inserted into engine sections to analyze the condition of an engine
without disassembly. The service is performed by a Company technician certified
by the OEM. The Company also utilizes its borescoping capabilities to evaluate
substantially all engines which the Company has the opportunity to purchase. In
February 1997, the Company, through AAFS, its newly formed subsidiary, entered
into a 40-month lease of approximately 5,300 square feet in Dallas, Texas, from
which it began to conduct expanded borescope, repair and other service
operations. AAFS has received FAA certification to perform a broad range of
on-wing maintenance services, including the installation of hush-kits on JT8D
engines and the repair and replacement of a limited number of engine parts and
components. In March 1997, AAFS entered into a licensing agreement with Pratt &
Whitney pursuant to which Pratt & Whitney has designated AAFS as an approved
source of borescope, repair and certain on-wing maintenance services for Pratt &
Whitney engines (the "Pratt & Whitney Field Services Agreement"). See " --
Relationship with Pratt & Whitney." In August 1997, AAFS entered into an
agreement with Southwest Airlines Co. whereby AAFS was engaged on an exclusive
basis to install hushkits on its Pratt & Whitney JT8D-9A engines. As of March
1998, AAFS has 11 employees with an average of 21 years of industry experience
performing these activities.
Engine Management Services. In 1998, the Company began offering
engine management services to its customers. Services provided by the Company
includes arranging for volume discounts and competitive bids for third party
services, preparing workscopes for the repair of engines, monitoring engines
through the entire repair process, providing cost-effective replacement parts,
and auditing repair invoices. By offering engine management services, the
Company is able to leverage the expertise it has developed in managing the
repair of engines which it has acquired.
Engine and Aircraft Leasing Services. In May 1997, the Company began
to offer operating leases of aircraft engines. In February 1998, the Company
began to offer operating leases of aircraft to airlines. The Company intends to
capitalize on the increasing demand by aircraft operators for operating leases
which are being used as an alternative to traditional aircraft and aircraft
engine financing arrangements. By entering into such leases, the Company will be
better able to control its future supply of engines and aircraft and retain the
potential benefit of the residual value of such engines and aircraft.
QUALITY ASSURANCE
The Company adheres to stringent quality control standards and
procedures in the purchase and sale of its products. In November 1996, the
Airline Suppliers Association, an FAA-recognized independent quality assurance
organization, accredited the Company as an aftermarket supplier after the
completion of an extensive operational audit and numerous meetings with the
Company's management. The Company was the first aftermarket supplier to receive
such accreditation, and the Company believes that there are [currently] fewer
than 25 accredited aftermarket suppliers who directly compete with the Company.
Because aircraft operators require a readily available and
identifiable source of inventory meeting regulatory requirements, the Company
has implemented a total quality assurance program. This program consists of
numerous quality procedures, including the following:
- Inspection procedures mandating that procured Engines and
Components be traceable to a source approved by the Company
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- Detailed inspections of overhauled Engines and Components
- Training and supervision of personnel to properly carry out the
total quality assurance program
- On-going quality review board meetings to oversee the total
quality assurance program
In addition, as part of its total quality assurance program, the
Company has implemented a repair facility performance monitoring program which
requires each FAA-licensed repair facility used by the Company to perform a
self-audit of its operations on a regular basis and to submit to a facility
audit performed by an independent quality assurance organization retained by the
Company.
PURCHASING
The Company's business is substantially dependent on its purchasing
activities because its net sales are directly influenced by the level of
inventory available for sale. Accordingly, senior management of the Company
takes a significant role in identifying, negotiating and acquiring surplus
aircraft and Engines and Components. Because the size of the Company's inventory
is critical to its results of operations and because there is no organized
market to procure surplus inventory, the Company's operations are materially
dependent on the success of management in identifying potential sources of
inventory and effecting timely purchases at acceptable prices. In order to
acquire inventory effectively, the Company's purchasing procedures include:
- Deploying field personnel to identify potentially available
surplus aircraft and Engines and Components
- Appointing representatives domestically and abroad to identify
purchase opportunities
- Purchasing for cash rather than seeking extended payment terms
- Maintaining a streamlined review process in order to make timely
offers
- Involving senior management in negotiating and closing purchases
The Company historically acquired its inventories of Engines and
Components primarily through the purchase of surplus aircraft and engines and
engine parts inventories and acquired its airframe component inventory on a
consignment basis. The Company's experience is that, while consignments are a
means to obtain inventory with a minimum commitment of capital, outright
purchases generally result in higher gross margins on sales of such inventory.
Accordingly, the Company is seeking to increase its outright purchase of
airframe components to supplement its consignment inventory. "Bulk" purchase
opportunities often arise when airlines, in order to reduce expenses or change
fleet, sell large amounts of inventory in a single transaction. The Company has
completed four large bulk inventory purchases since 1992 and intends to pursue
additional bulk inventory purchase opportunities if and as they become
available.
SALES AND MARKETING
The majority of the Company's day-to-day sales are accomplished
through its sales force, which currently consists of 14 employees, supplemented
by eight consultants and representatives worldwide for attracting and
maintaining relationships with customers. The Company is a member of various
trade and business organizations which provides appropriate industry exposure.
The Company advertises its available inventories held for sale on
the Inventory Locator System "ILS," an aviation parts information network which
enables approximately 2,300 buyers, including major airlines and repair
facilities, to access the Company's inventory. The Company is able to market all
available Engines and Components through the ILS and customers can locate the
Company's inventory noting quantities, part numbers, and condition.
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<PAGE> 30
Customers may request quotes for any specific part through direct electronic
interface with the Company. Pricing information is not available on the ILS and
the Company bases its pricing for particular parts on its extensive industry
knowledge.
RELATIONSHIP WITH PRATT & WHITNEY
In connection with the Pratt & Whitney Field Services Agreement,
AAFS is recognized by Pratt & Whitney as an approved source of borescope, repair
and certain on-wing maintenance services for Pratt & Whitney engines. The
Company believes that AAFS was selected by Pratt & Whitney primarily because of
the significant industry experience of AAFS' employees in performing these field
services. Pratt & Whitney has agreed to list AAFS in engine manuals as an
approved source of such field services, direct inquiries for such field services
to AAFS and provide on going qualification training to AAFS' employees. In
return, Pratt & Whitney is entitled to a fee based on AAFS' revenues related to
such field services. The Pratt & Whitney Field Services Agreement expires
December 1999. As of March 1998, the Company was one of only three companies
worldwide recognized by Pratt & Whitney as an approved source of these field
services.
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems include a customized
inventory information technology system which is fully integrated with the
Company's accounting system and assists management in planning, operating and
controlling its business activities.
The information system contains the most current information
regarding each item in the Company's inventory. By accessing the information
system, the Company can document: (i) full traceability to the FAA-approved
point of origin for any part (whether to the OEM, an approved agent of the OEM
or an FAA-licensed repair facility); (ii) the aircraft or engine from which the
part originated; (iii) the availability and condition of parts in the Company's
inventory and, if at an FAA-licensed repair facility, when such parts are due to
be returned; (iv) the sales history regarding the type of parts sold to the
Company's customers (including dates and sales prices); (v) the status of
customer orders; and (vi) any relevant purchase commitments. The information
system also provides time and usage cycles for life-limited parts.
The information system has an automatic interface that transfers
sales and customer accounts receivable transactions to the primary accounting
records and subsidiary ledger. Purchase and sales commitment data, real-time
inventory levels, recording of inventory movements and current assessment of
supply and demand for various parts are the subject of daily reports to
management.
The Company recently completed an upgrade which increased the
capacity of its management information system to accommodate higher inventory
levels and additional users. The Company is in the process of upgrading its
management information system to include a state-of-the-art document scanning
system, thereby allowing for improved accuracy and faster retrieval of inventory
traceability documents that must accompany all sales for regulatory compliance.
The Company believes that it has prepared its computer systems and
related software to accommodate data sensitive information relating to the Year
2000. The Company expects that any additional costs related to ensuring such
systems and software to be Year 2000-compliant will not be material to the
financial condition or results of operations of the Company. In addition, the
Company is discussing with its vendors and customers the possibility of any
difficulties which may affect the Company as a result of its vendors and
customers ensuring that their computer systems and software are Year
2000-compliant. To date, no significant concerns have been identified. However,
there can be no assurance that no Year 2000-related computer operating problems
or expenses will arise with the Company's computer systems and software or in
the computer systems and software of the Company's vendors and customers.
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<PAGE> 31
REGULATION
The aviation industry is highly regulated in the United States by
the FAA and in other countries by similar regulatory agencies. These regulations
are designed to insure that all aircraft and aviation equipment are continuously
maintained in proper condition for the safe operation of aircraft. While the
Company's principal operations are not currently regulated directly by the FAA,
the independent facilities that repair and overhaul the Company's products and
the aircraft operators that ultimately utilize the Company's products are
subject to extensive regulation. Accordingly, the Company must consider the
regulatory requirements of its customers and provide them with Engines and
Components that comply with airworthiness standards established by the FAA and
the OEMs, together with required documentation which enables these customers to
comply with other applicable regulatory requirements. The inspection,
maintenance and repair procedures for the various types of aircraft and aviation
equipment are prescribed by regulatory authorities and can be performed only by
FAA-licensed repair facilities utilizing certified technicians. Compliance with
the applicable FAA and OEM standards is required prior to installation of a part
on an aircraft. The Company only utilizes FAA-licensed repair facilities to
repair and certify aircraft engines and parts. The Company has recently expanded
the range of services that it offers to include on-wing engine maintenance
consisting of the installation of hush-kits on JT8D engines and the repair and
replacement of a limited number of engine parts and components that required
AAFS to obtain FAA certification, which it obtained in April 1997.
In June 1996, the FAA articulated a series of changes in the FAA's
inspection policies to enhance its oversight of aircraft operators that rely on
third-party maintenance. The effect on the Company of such changes to the FAA's
inspection policies may be to reduce the number of third-party maintenance
providers that provide services to the Company. To date, the Company's
operations have not been materially adversely effected as a result of such
regulations.
In September 1996, the FAA issued an advisory circular to support
the implementation of a voluntary accreditation program for civil aircraft parts
suppliers. This accreditation program establishes quality standards applicable
to aftermarket suppliers, such as the Company, and designates FAA approved
organizations to perform quality assurance audits for initial accreditation of
aftermarket suppliers. Quality assurance audits are required on an on-going
basis to maintain accreditation. In November 1996, the Airline Suppliers
Association, an FAA-recognized independent quality assurance organization,
accredited the Company as an aftermarket supplier after the completion of an
extensive facilities audit and numerous meetings with the Company's management.
The Company was the first aftermarket supplier to receive such quality
accreditation, and the Company believes that there are currently fewer than 25
accredited aftermarket suppliers who compete directly with AVTEAM. The FAA
considers that obtaining civil aircraft parts through accredited suppliers is a
sound safety practice. Parts procured from an accredited supplier convey
assurance to the purchaser that the quality is as stated and the appropriate
documentation is on a file at the supplier's place of business. Furthermore,
accreditation provides assurance that the supplier has implemented an
appropriate quality assurance system and has demonstrated the ability to
maintain that system. The Company believes that ongoing quality assurance audits
and strict adherence to its quality assurance system is essential to meeting the
needs of its existing and future customers.
Because the Company's sales consist largely of older series JT8D
engines and parts, regulations promulgated by the FAA governing noise emission
standards for older aircraft and the FAA's Aging Airplane Program Plan (the
"Aging Airplane Program") have a material impact on the market for the Company's
products. Substantially all of the aircraft powered by the JT8D engine must
install hush-kits pursuant to such noise emission standards or be phased out of
operation in the United States by December 31, 1999 and in the European Union by
April 1, 2002. The Aging Airplane Program requires aircraft operators to perform
structural modifications and inspections to address airframe fatigue and to
implement corrosion prevention and control programs, which increase the
operating and maintenance costs of JT8D-powered aircraft. Furthermore, the EPA
and the various agencies of the European Union have sought the adoption of
stricter standards limiting the emission of nitrous oxide from aircraft engines.
The Company believes that notwithstanding the substantial costs imposed by noise
emission standards and the Aging Airplane Program on older aircraft powered by
JT8D engines, estimated by the Company to average approximately $4 million per
aircraft, certain aircraft operators will continue to utilize older aircraft due
to the substantially greater cost of acquiring new replacement aircraft.
28
<PAGE> 32
The core operations of the Company may in the future be subject to
FAA or other regulatory requirements. The Company closely monitors the FAA and
industry trade groups in an attempt to understand how possible future
regulations might impact the Company.
PRODUCT LIABILITY
The Company's business exposes it to possible claims for personal
injury or death which may result from the failure of an aircraft spare part sold
by it. While the Company maintains what it believes to be adequate liability
insurance to protect it from such claims, and while no material claims have, to
date, been made against the Company, no assurance can be given that claims will
not arise in the future or that such insurance coverage will be adequate.
Additionally, there can be no assurance that insurance coverages can be
maintained in the future at an acceptable cost. Any such liability not covered
by insurance could have a material adverse effect on the financial condition of
the Company.
CUSTOMERS
The Company sells its products and provides its services primarily
to other aftermarket suppliers of Engines and Components, repair facilities,
OEMs, aircraft operators and others. While the Company sold Engines and
Components to over 600 different customers during 1997, sales of products and
services to the Company's five largest customers accounted for approximately
47%, 44% and 52% of the Company's net sales during 1997 1996 and 1995,
respectively. Sales of products and services to the Company's five largest
customers for the three months ended March 31, 1998 accounted for 47% of the
Company's net sales. One customer, United Airlines, Inc., accounted for 19% of
the Company's 1997 net sales. Another customer, Aerothrust Corporation,
accounted for 12% of the Company's 1997 net sales. A small number of customers
may account for a significant portion of the Company's revenues from period to
period due to the substantial cost of acquiring aircraft engines and certain
parts and a significant portion of the Company's sales are expected to continue
to be concentrated in a small number of customers.
COMPETITION
The aftermarket for Engines and Components is highly fragmented,
with a limited number of well-capitalized companies selling a broad range of
products; and numerous smaller competitors serving distinct market niches and is
characterized by intense competition. The Company believes that range and depth
of inventories, full product traceability, product knowledge, quality, service
and price are the key factors in distinguishing the Company from other
aftermarket suppliers. Certain of the Company's competitors have substantially
greater financial, marketing and other resources than the Company. In addition,
OEMs, aircraft maintenance providers, leasing companies and FAA-licensed repair
facilities may vertically integrate into the supply industry, thereby
significantly increasing competition. There are established competitors that
provide many of the services the Company intends to offer, many of whom have
substantially greater financial, marketing and other resources than the Company.
BACKLOG
The Company's backlog of unfilled orders at May 1, 1998 was
approximately $9.0 million. A substantial portion of the Company's backlog is
typically scheduled for delivery within 60 days. Moreover, variations in the
size and delivery dates of orders received by the Company, as well as changes in
customers' delivery requirements, may result in substantial backlog fluctuations
from period to period. Accordingly, the Company believes that backlog cannot be
considered a meaningful indicator of future financial results.
ENVIRONMENTAL MATTERS
The Company has registered its aircraft engine disassembly facility
in Miramar, Florida with the U.S. Environmental Protection Agency (the "EPA")
and the State of Florida Department of Environmental Protection as a
29
<PAGE> 33
potential small quantity generator of hazardous materials. During the
disassembly of used aircraft engines, residual oil is removed from aircraft
engines and engine parts are cleaned with a mineral spirits based solvent,
resulting in the generation of certain waste materials which require disposal.
An EPA approved laboratory has reviewed the Company's cleaning operations and
determined that the cleaning solvent and the waste materials generated during
the cleaning operations are non-hazardous substances. The Company is therefore
not required to obtain permits for the generation, handling, storage,
transportation or disposal of the cleaning solvent or the waste materials. The
Company believes it is in material compliance with applicable environmental laws
and regulations.
INSURANCE
The Company is a named insured under various policies which include
the following coverage: (i) products liability; (ii) personal property,
inventory and business income at the Company's two principal facilities; (iii)
commercial general; (iv) hangarkeepers' liability (damages due to loss of
aircraft occurring while such aircraft is in the care, custody or control of the
Company for safekeeping, storage or repair); (v) employee benefit liability;
(vi) international commercial liability (including contractual liability) for
bodily injury or property damage; (vii) umbrella liability; (viii) directors'
and officers' liability coverage; and (ix) employment practices' liability
coverage. The Company believes that the extent of these coverages is consistent
with industry standards and adequate to insure against the various liability
risks of its business.
EMPLOYEES
As of May 14, 1998, the Company had 78 full-time employees. None of
its employees are represented by a union. The Company has not experienced any
labor-related work stoppages and considers its relations with employees to be
good.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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<PAGE> 34
MANAGEMENT
The following table sets forth certain information concerning each
of the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Donald A. Graw..........................................................43 Chairman of the Board, President and
Chief Executive Officer
Jaime J. Levy...........................................................42 Executive Vice President and Director
Bryan Thomas McFarland..................................................44 Vice President - Business Development
Mark S. Koondel.........................................................51 Chief Financial Officer, Treasurer and
Assistant Secretary
Dallas Cobb.............................................................53 Vice President - Operations
Paula Sparks............................................................45 Vice President - Quality Assurance
Richard Preston.........................................................51 Secretary and Director
Robert Munson...........................................................62 Director
Eugene P. Lynch.........................................................36 Director
Sanford Miller..........................................................45 Director
</TABLE>
Donald A. Graw joined the Company in January 1994 and has served as
its Chief Executive Officer, President and a member of its Board of Directors
since that time. Mr. Graw became Chairman of the Board of Directors in March
1998. From February 1991 to November 1993, Mr. Graw served as Vice President and
Chief Operating Officer of Scamp Auto Rental I, Inc., a subsidiary of Dollar
Rent-A-Car System, Inc., with 42 retail locations throughout Florida. From July
1982 to October 1990, Mr. Graw was employed by Diversified Services, Inc., a
franchisee of Budget Rent-A-Car, starting as the Chief Financial Officer and
becoming the Executive Vice President in February 1989.
Jaime J. Levy joined the Company in July 1994 and has served as its
Executive Vice President and a member of its Board of Directors since that time.
From February 1991 to July 1994, he served as President of Turbine Engine Sales
Group, Inc. ("Turbine") which was acquired in July 1994 by Richard Preston and
Leon Sragowicz, co-founders of the Company. From March 1986 to January 1991, he
served as the Director of Sales and Marketing for BET Air, Inc., an aviation
surplus parts company.
Bryan Thomas McFarland joined the Company in July 1994 as the Vice
President -- Technical Operations, and he became Vice President -- Business
Development in February 1997. From August 1992 to July 1994, he served as Vice
President -- Technical Operations of Turbine. Prior thereto, Mr. McFarland
served as the Quality Manager for International Aircraft Associates, a customer
sales manager for Aerothrust Corp. and a purchasing agent for Eastern Airlines,
Inc. He holds an Airframe and Powerplant license issued by the FAA.
Mark S. Koondel joined the Company in April 1996 as the Chief
Financial Officer and Treasurer. From November 1995 to April 1996, he served as
the Controller of AEC One Stop Group, Inc., a pre-recorded music distributor.
From November 1992 to October 1995, Mr. Koondel served as the Vice President of
Finance of Buenos Aires Embotelladora, S.A., a publicly traded Pepsi-Cola
franchisee. From January 1985 to November 1992, he served as the Controller of
Florida Coca-Cola Bottling Co., Inc. Prior thereto, Mr. Koondel worked in public
accounting with Main Hurdman and Coopers & Lybrand for an aggregate of seven
years.
Dallas Cobb joined the Company in July 1995 as the Director of
Airframe Sales and he became Vice President -- Quality Assurance in September
1996. In February 1997, Mr. Cobb was named Vice President -- Operations. From
February 1980 to July 1995, Mr. Cobb served in various capacities with BET Air,
Inc., including President, Vice President, General Manager and Marketing
Manager. From April 1968 to February 1980, Mr. Cobb served as Purchasing Agent
for Eastern Airlines, Inc.
Paula Sparks joined the Company in March 1997 as Vice President --
Quality Assurance. For more than 21 years prior thereto, Ms. Sparks was employed
by Pratt & Whitney, most recently as a Quality Assurance Manager. While at Pratt
& Whitney Overhaul and Repair, she was one of two holders of an Organizational
Designated Airworthiness Representative Certificate. Ms. Sparks is an active
member of the Quality Assurance Committee of the Airline Suppliers Association
and the American Society for Quality Control.
Richard Preston is a co-founder of the Company and has served as the
Company's Secretary and a member of its Board of Directors since October 1991
and, until April 1996, as its Treasurer. For more than the past 20 years, he has
served as a partner in the public accounting firm of Gerson Preston & Company,
P.A., located in Miami, Florida.
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<PAGE> 35
Executive officers serve at the pleasure of the Board of Directors,
except as otherwise provided below. See "Executive Compensation - Employment
Agreements."
Robert Munson joined the Company's Board of Directors in January
1996. From 1992 to the present, Mr. Munson has been an independent consultant to
various companies in the commercial aviation industry. Mr. Munson served for 33
years at Pratt & Whitney, and was a Vice President of Pratt & Whitney during the
period from 1980 to 1992.
Eugene P. Lynch joined the Company's Board of Directors in December
1996. Mr. Lynch is a Managing Director of The Clipper Group. He currently serves
on the Board of Directors of Owosso Corp., a corporation whose shares of common
stock are quoted on the Nasdaq National Market, TravelCenters of America, Inc.
and several other privately held companies.
Sanford Miller joined the Company's Board of Directors in March
1998. From 1994 to present, Mr. Miller has been the Chairman of the Board and
Chief Executive Officer of Budget Group, Inc., owner of Budget Rent A Car Corp.
Prior to 1994, he was a principal of various Budget Rent A Car franchises. Mr.
Miller served as president of the American Car Rent Association in 1993 and as
chairman of the Licensee Local Market Advisory Board of the Budget System in
1989 and 1990. He is also a director of MoneyGram Payment Systems, Inc.,
Colonial Bank of Volusia County, and Tranex Credit Corp.
Directors are elected annually to serve until the next annual
meeting of shareholders and until their successors are elected and qualified.
However, under a proposal approved and recommended by the Company's Board of
Directors for shareholder approval at the Company's 1998 annual meeting of
shareholders, Article V of the Company's Articles would be amended to provide
for three classes of the Company's Board of Directors with staggered terms. See
"Description of Capital Stock - Proposal for Amendment of the Company's Articles
of Incorporation". Executive officers are elected by and serve at the discretion
of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has an Executive Committee,
Audit Committee and Compensation Committee. The members of each committee have
been appointed by the Board of Directors to serve until their respective
successors are elected and qualified.
Executive Committee. The Executive Committee is authorized, subject
to Florida law, to exercise the power and authority of the Board of Directors in
the management of the business and affairs of the Company between meetings of
the full Board of Directors. The Executive Committee is composed of Messrs.
Graw, Levy, Lynch and Preston. The Executive Committee did not meet in 1997.
Audit Committee. The Audit Committee's function is to review the
scope and results of the audit of the financial statements of the Company and
the internal accounting, financial and operating control procedures of the
Company. The Audit Committee is composed of Messrs. Lynch, Munson and Miller,
each of whom is independent of management and free from any relationship that,
in the opinion of the Board of Directors, would interfere with the exercise of
independent judgment as a committee member. The Audit Committee did not meet in
1997.
Compensation Committee. The Compensation and Committee's function is
to determine the cash and other incentive compensation, if any, to be paid to
the Company's executive officers. The Compensation Committee's function is to
administer and award stock options under the Company's stock option plan. The
Compensation Committee is composed of Messrs. Lynch, Munson and Miller, each of
whom is a "disinterested person" within the meaning of Rule 16b-3 under the
Exchange Act and not employed by the Company. The Compensation Committee met two
times in 1997.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company is entitled to be paid
such compensation for his services and reimbursed for such expenses as fixed by
the Board of Directors.
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<PAGE> 36
EXECUTIVE COMPENSATION
The following table shows for 1995, 1996 and 1997 the compensation
earned by the Chief Executive Officer and the other four mostly highly
compensated officers of the Company (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS
------------------- ------
OTHER
ANNUAL RESTRICTED NUMBER OF
NAME AND PRINCIPAL COMPEN- STOCK OPTIONS/
POSITION(S) YEAR SALARY($) BONUS($) SATION($)(1) AWARDS($) SARS(#)
- ----------- ---- --------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Donald A. Graw.................... 1997 260,000 135,200 51,000(2)
Chairman of the 1996 288,737 -- -- --
Board, President and 1995 136,000 1,074,218 -- --
Chief Executive
Officer
Jaime J. Levy..................... 1997 220,000 114,400 -- -- 42,000(2)
Executive Vice 1996 286,430 -- -- --
President 1995 136,000 1,074,218 -- --
Bryan T. McFarland................ 1997 110,000 57,200 -- -- 20,000(2)
Vice President - 1996 80,000 40,000 -- --
Business Development 1995 98,000 70,000 -- --
Mark S. Koondel................... 1997 115,000 40,000 -- -- 18,000(2)
Chief Financial 1996 63,646 22,500 -- --
Officer 1995 -- -- -- --
and Treasurer (3)
Dallas Cobb....................... 1997 108,077 28,600 -- -- 12,500(2)
Vice President - 1996 63,635 15,000 -- --
Operations (4) 1995 34,500 -- -- --
</TABLE>
<TABLE>
<CAPTION>
PAYOUTS
LONG-TERM ALL OTHER
INCENTIVE COMPEN-
NAME AND PRINCIPAL PLAN SATION
POSITION(S) PAYOUTS($) ($)(1)
- ----------- ---------- ------
<S> <C> <C>
Donald A. Graw....................
Chairman of the -- --
Board, President and -- --
Chief Executive
Officer
Jaime J. Levy..................... -- --
Executive Vice -- --
President -- --
Bryan T. McFarland................ -- --
Vice President - -- --
Business Development -- --
Mark S. Koondel................... -- --
Chief Financial -- --
Officer -- --
and Treasurer (3)
Dallas Cobb....................... -- --
Vice President - -- --
Operations (4) -- --
</TABLE>
- ----------
(1) Perquisites to each officer did not exceed the lesser of $50,000 or 10%
of the total salary and bonus for such officer.
(2) The options have an exercise price of $8.50 per share and become
exercisable in increments of 35% on October 31, 1998 and 1999 and 30% on
October 31, 2000.
(3) Effective as of April 1996.
(4) Effective as of July 1995.
STOCK OPTION GRANTS IN FISCAL 1997
The following table sets forth information regarding the grant of stock
options during 1997 to the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK PRICE
TOTAL OPTIONS APPRECIATION FOR
NUMBER OF GRANTED TO OPTION TERM($)(1)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------
NAME GRANTED FISCAL 1997 PER SHARE($) DATE 5% 10%
- ---- ------- ----------- ------------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Donald A. Graw...................... 51,000 20.4% 8.50 Oct. 30, 2007 272,340 691,050
Jaime J. Levy....................... 42,000 16.8% 8.50 Oct. 30, 2007 224,280 569,100
Bryan Thomas McFarland.............. 20,000 8.0% 8.50 Oct. 30, 2007 106,800 271,000
Mark S. Koondel..................... 18,000 7.2% 8.50 Oct. 30, 2007 96,120 243,900
Dallas Cobb......................... 12,500 5.0% 8.50 Oct. 30, 2007 66,750 169,375
</TABLE>
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<PAGE> 37
(1) The dollar amounts under these columns are the result of
calculations at the assumed compounded market appreciation rates of
5% and 10% as required by the Commission over the five-year term
and, therefore, are not intended to forecast possible future
appreciation, if any, of the Class A Common Stock.
Option Exercises In Fiscal 1997 And
Option Values At The End Of Fiscal 1997
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during 1997 and
unexercised options held as of the end of 1997.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISABLE
UNEXERCISABLE IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997($)
NUMBER OF ----------------- --------------------
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- -------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Donald A. Graw.................................. -- -- --/51,000 --/19,125
Jaime J. Levy................................... -- -- --/42,000 --/15,750
Bryan Thomas McFarland.......................... -- -- --/20,000 --/7,500
Mark S. Koondel................................. -- -- --/18,000 --/6,750
Dallas Cobb..................................... -- -- --/12,500 --/4,688
</TABLE>
EMPLOYMENT AGREEMENTS
On December 6, 1996, Messrs. Graw and Levy entered into employment
agreements (collectively, the "Graw and Levy Employment Agreements") with the
Company providing for employment as the President and Chief Executive Officer
and Executive Vice President, respectively. The Graw and Levy Employment
Agreements provide that Messrs. Graw and Levy will receive an annual base salary
of $260,000 and $220,000, respectively, for an initial term of three years
expiring December 1999, as well as the right to participate in the Company's
1996 Stock Option Plan and the Incentive Plan. The Graw and Levy Employment
Agreements contain confidentiality and noncompete covenants from Messrs. Graw
and Levy in favor of the Company. Upon termination without cause, Messrs. Graw
and Levy will be entitled to receive two years' annual base salary paid in one
lump sum.
On January 5, 1998, Mr. McFarland entered into an employment agreement
(the "McFarland Employment Agreement") with the Company providing for employment
as the Vice President - Business Development. On March 1, 1998, Mr. Cobb entered
into an employment agreement (together with the McFarland Employment Agreement,
the "McFarland and Cobb Employment Agreements") with the Company providing for
employment as the Vice President Operations. The McFarland and Cobb Employment
Agreements provide that Messrs. McFarland and Cobb will receive an annual base
salary of $140,000 and $127,500, respectively, for a term of three years, as
well as the right to participate in the Company's 1996 Stock Option Plan and the
Incentive Plan. The base salary is subject to increase based on the individual
performance of the executive and competitive practices in the industry. The
McFarland and Cobb Employment Agreements contain confidentiality and noncompete
covenants from Messrs. McFarland and Cobb in favor of the Company. Upon
termination without cause, Messrs. McFarland and Cobb will be entitled to
receive one year's annual base salary paid in bi-weekly installments.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of three members, none of whom are
employed by the Company. Each member of the Compensation Committee is a
"disinterested person" within the meaning of Rule 16b-3 under the Exchange Act.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Option Plan") became effective
on April 15, 1996. As of the date of this Prospectus, 250,000 options have been
granted at $8.50, the initial public offering price of the Class A Common Stock
offered by the Company in October 1997, and options to purchase an additional
350,000 shares of Class A Common Stock remain available for issuance pursuant to
the Option Plan. The purpose of the Option
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<PAGE> 38
Plan is to attract and retain qualified personnel, to provide additional
incentives to employees, officers and consultants of the Company and to promote
the success of the Company's business. A reserve of 600,000 shares of the
Company's Common Stock has been established for issuance under the Option Plan.
The Option Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has complete discretion to determine which
eligible individuals are to receive option grants, the number of shares subject
to each such grant, the status of any granted option as either an incentive
stock option or a non-statutory option, the vesting schedule to be in effect for
the option grant and the maximum term for which any granted option is to remain
outstanding.
Each option granted under the Option Plan has a maximum term of ten years,
subject to earlier termination following the optionee's cessation of service
with the Company. Options granted under the Option Plan may be exercised only
for fully vested shares. The exercise price of incentive stock options and
non-statutory stock option granted under the Option Plan must be at least 100%
and 85% of the fair market value of the stock subject to the option on the date
of grant, respectively (or 110% with respect to incentive stock options granted
to holders of more than 10% of the voting power of the Company's outstanding
stock). The Board of Directors or the Compensation Committee has the authority
to determine the fair market value of the stock. The purchase price is payable
immediately upon the exercise of the option. Such payment may be made in cash,
in outstanding shares of Common Stock held by the participant, through a
promissory note payable in installments over a period of years or any
combination of the foregoing.
The Board of Directors may amend or modify the Option Plan at any time,
provided that no such amendment or modification may adversely affect the rights
and obligations of the participants with respect to their outstanding options or
vested shares without their consent. In addition, no amendment of the Option
Plan may, without the approval of the Company's stockholders: (i) modify the
class of individuals eligible for participation; (ii) increase the number of
shares available for issuance, except in the event of certain changes to the
Company's capital structure; or (iii) extend the term of the Option Plan. The
Option Plan will terminate on March 1, 2006, unless sooner terminated by the
Board.
INCENTIVE PLAN
The Company has adopted a Key Executive Annual Incentive Plan ("Incentive
Plan"), pursuant to which key executives of the Company may receive bonus
compensation based on the Company's performance during any fiscal year, as
determined by the Compensation Committee. Under the Incentive Plan, the
Company's President and Executive Vice President and other executives designated
by the Committee are assigned a target award expressed as a percentage of base
salary in varying amounts (not to exceed 100% of base salary for the President
and Chief Executive Officer, Executive Vice-President and Vice-President of
Business Development and 50% of base salary for other key executive officers).
The actual award is subject to achievement by the Company of minimum levels of
pre-tax income. The Committee has the authority to select participants other
than the President and Executive Vice President, to establish target awards and
to determine final awards in the event that the Company's pre-tax income is less
than the levels established under the Incentive Plan during any year the
Incentive Plan remains in effect.
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<PAGE> 39
CERTAIN TRANSACTIONS
THE CLIPPER GROUP PRIVATE PLACEMENTS
On December 6, 1996, the Company issued and sold to The Clipper Group in a
private sale 1,480,000 shares of Class A Preferred Stock and 220,000 shares of
Class B Preferred Stock for an aggregate purchase price of $11.9 million. On
August 21, 1997, the Company issued and sold to The Clipper Group in a private
sale 494,642 shares of Class A Preferred Stock and 219,644 shares of Class B
Preferred Stock for an aggregate purchase price of approximately $5.0 million.
All of the outstanding shares of Class A Preferred Stock automatically converted
into an aggregate of 1,974,642 shares of Class A Common Stock and all of the
outstanding shares of Class B Preferred Stock automatically converted into an
aggregate of 439,644 shares of Class B Common Stock upon the consummation of the
Company's IPO which occurred on October 31, 1997.
PARATI AGREEMENT
On September 5, 1995, the Company entered into the Parati Agreement with
Parati, a corporation wholly-owned by Leon Sragowicz, the former Chairman of the
Board of Directors of the Company, pursuant to which Parati purchased Pratt &
Whitney engines for disassembly. The Company handled all of the operational and
administrative aspects of the agreement and Parati remained the owner of the
engine parts from the disassembled aircraft engines purchased by Parati. Any
profit remaining after recovery by Parati of its cost of sales and by the
Company of any overhaul costs was divided equally by Parati and the Company. On
August 21, 1997, the Company and Parati terminated the Parati Agreement and the
Company purchased the remaining inventory of engine parts valued at $270,648
(the "Parati Balance"). On August 21, 1997, the Company issued and sold 38,664
shares of Class A Common Stock to Mr. Sragowicz as payment for the Parati
Balance. The Company does not intend to utilize similar agreements to acquire
Engines or Components in the future. Management believes that the agreement with
Parati was on terms which were no less favorable to the Company than those which
would have been obtained from independent third parties.
LOANS MADE BY EXISTING COMMON SHAREHOLDERS TO COMPANY
Messrs. Graw, Levy and Preston have each loaned and advanced money to the
Company on several occasions for inventory acquisitions and general corporate
purposes. Immediately prior to the consummation of the Company's IPO in October
1997, the Company had outstanding indebtedness to each of Messrs. Graw and Levy
in the amount of $100,182 which bore interest at a fluctuating rate tied to the
prevailing rate as established by the Internal Revenue Service. Upon the
completion of the Company's IPO in October 1997, the loans were repaid to
Messrs. Graw, Levy and Preston.
Mr. Sragowicz, a former Chairman and co-founder of the Company, loaned and
advanced money to the Company on several occasions for inventory acquisitions
and general corporate purposes. On August 21, 1997, the Company issued and sold
289,108 shares of Class A Common Stock to Mr. Sragowicz for an aggregate
purchase price of approximately $2.0 million as payment of the indebtedness
evidenced by these loans. The Company does not intend to enter into loan
arrangements with Mr. Sragowicz in the future.
PAYMENT OF DEFERRED COMPENSATION TO EXECUTIVE OFFICERS
On December 12, 1996, the Company paid to each of Messrs. Graw and Levy a
bonus of $589,718 for services rendered in 1995. See "Management -- Employment
Agreements." Upon completion of the IPO, the Company paid approximately $150,000
to Mr. Graw and $82,000 to Mr. Levy for services rendered in 1996.
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<PAGE> 40
AMOUNTS DUE TO COMPANY
Pursuant to the Employee Agreements, each of Messrs. Graw and Levy
exercised their options to purchase 500,000 shares of Class A Common Stock and,
as a result of the exercise of their options, incurred non-interest bearing
indebtedness to the Company in the aggregate of $809,638. All such indebtedness
was repaid in December 1996.
TAX INDEMNIFICATION AGREEMENTS
On December 6, 1996, the Company entered into the AVTEAM Tax Allocation and
Indemnification Agreements (the "Tax Indemnification Agreements") with each of
the Existing Common Shareholders relating to their respective income tax
liabilities and certain related matters. The Tax Indemnification Agreements
generally provide that the Existing Common Shareholders will be indemnified by
the Company with respect to federal and state income taxes (plus interest and
penalties) arising due to taxable income shifted from a C Corporation taxable
year to a taxable year in which the Company was an S Corporation, and that the
Company will be indemnified by the Existing Common Shareholders with respect to
federal and state income taxes (plus interest and penalties) arising due to
taxable income shifted from an S Corporation taxable year to a C Corporation
taxable year; provided, that only in the case of the Existing Common
Shareholders' obligation to indemnify the Company, such obligation shall be
limited to the tax benefit (if any) derived by the Existing Common Shareholders
due to the shift of taxable income from a taxable year in which the Company was
an S Corporation to a C Corporation taxable year. Any payment made by the
Company to the Existing Common Shareholders pursuant to the Tax Indemnification
Agreements may be considered by the Internal Revenue Service or the state taxing
authorities to be nondeductible by the Company for income tax purposes.
SALE OF RESTRICTED SHARES OF CLASS A COMMON STOCK
On May 6, 1998, Mr. Sragowicz, a co-founder and former Chairman of the
Board of the Company, sold an aggregate of 2,360,722 shares of the Company's
Class A Common Stock to the Registering Shareholders at a price of $10.75 per
share pursuant to Rule 144 under the Securities Act. The following shares of
Class A Common Stock were sold by Mr. Sragowicz to the following Registering
Shareholders: (i) 1,000,000 shares to The Equitable Life Assurance Society of
the United States Separate Account No. 3; (ii) 250,000 shares to the Baron Asset
Fund; (iii) 750,000 shares to the Baron Small Cap Fund; and (iv) 360,722 shares
to Credit Suisse First Boston Corporation. On May 6, 1998, the Company entered
into a Registration Rights Agreement (collectively, the "Registration Rights
Agreements") with each of the Registering Shareholders, pursuant to which the
Company agreed to register the shares of Class A Common Stock held by the
Registering Shareholders. The Offering is intended to satisfy the Company's
obligations to the Registering Shareholders under the Registration Rights
Agreements. See "Principal and Registering Shareholders".
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<PAGE> 41
PRINCIPAL AND REGISTERING SHAREHOLDERS
The following table sets forth, as of May 20, 1998, information with
respect to the beneficial ownership of the Company's Common Stock prior to the
Offering and as adjusted to give effect to shares registered hereby by (i) each
director of the Company (each of whom constitute nominees for election as
directors at the Company's 1998 annual shareholders' meeting), (ii) (A) the
Company's Chairman, President and Chief Executive Officer and (B) the other four
executive officers of the Company at the end of 1997 whose compensation exceeded
$100,000 (the persons referred to in (ii) (A) - (B) are hereinafter collectively
referred to as the "Named Executive Officers"), (iii) each person known to the
Company to own beneficially more than 5% of the outstanding Common Stock (iv)
the Registering Shareholders and (v) all directors and executive officers of the
Company, as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
NUMBER OF SHARES PRIOR % OF CLASS NUMBER OF SHARES % OF CLASS
NAME AND ADDRESS OF ---------------------- ---------- ---------------- ----------
BENEFICIAL OWNER (1) TO OFFERING OFFERRED HEREBY AFTER OFFERING
- -------------------- ----------- --------------- --------------
CLASS A CLASS B CLASS CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- -------- ------- ------- -------
A(2)
----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald A. Graw ............... 500,000 -- 4.7% -- -- -- 4.7%
Jaime J. Levy ................ 500,000 -- 4.7% -- -- -- 4.7%
Bryan Thomas McFarland ....... -- -- -- -- -- -- -- --
Mark S. Koondel .............. -- -- -- -- -- -- -- --
Robert Munson ................ -- -- -- -- -- -- -- --
Eugene P. Lynch .............. -- -- -- -- -- -- -- --
Sanford Miller ............... 40,000 -- * -- -- -- * --
Richard Preston .............. 494,758 -- 4.6% -- -- -- 4.6% --
The Clipper Group (3) ........ 1,974,642 439,644 18.5% 100% -- -- 18.5% 100%
Morgan Stanley, Dean
Witter, Discover & Co. ....... 830,500 -- 7.8% -- -- -- 7.8% --
All Directors
and Executive
Officers As A
Group (10 persons) ........... 1,534,758 -- 14.4% -- -- -- 14.4% --
Registering Shareholders (4)
- ----------------------------
The Equitable Life
Assurance Society of the
United States Separate
Account No.3 (5) ............. 1,000,000 -- 9.4% -- 1,000,000 -- 9.4% --
The Baron Asset Fund (6) ..... 250,000 -- 2.3% -- 250,000 -- 2.3% --
Baron Small Cap Fund (6) ..... 750,000 -- 7.0% -- 750,000 -- 7.8% --
Credit Suisse First Boston
Corporation (7) .............. 360,722 -- 3.4% -- 366,722 -- 7.4% --
</TABLE>
* Less than 1%.
38
<PAGE> 42
(1) The address of each shareholder other than The Clipper Group and
Morgan Stanley, Dean Witter, Discover & Co. and the Registering
Shareholders is the address of the Company, which is 3230 Executive
Way, Miramar, Florida 33025. The address of The Clipper Group is 650
Madison Avenue, New York, New York 10022. The address of Morgan
Stanley, Dean Witter, Discover & Co. is 1585 Broadway, New York, New
York 10036.
(2) Based on 10,665,739 shares of Class A Common Stock issued and
outstanding at May 20, 1998 plus shares of Class A Common Stock
which may be acquired pursuant to any options and warrants
exercisable within 60 days of the Record Date.
(3) Includes shares beneficially owned by Clipper/Merchant Partners,
L.P., Clipper Equity Partners I, L.P., and Clipper Capital
Associates, L.P. (whose address is 650 Madison Avenue, New York, New
York 10022), and Clipper/Merban, L.P. and Clipper/European Re, L.P.
(whose address is c/o CITCO, De Ruyterkade, 62, P.O. Box 812,
Curacao, Netherlands Antilles). Clipper Capital Associates, L.P. is
the general partner of all of The Clipper Group partnerships. The
general partner of Clipper Capital Associates, L.P. is Clipper
Capital Associates, Inc. Robert B. Calhoun is the sole shareholder
and a director of Clipper Capital Associates, Inc. As a result, each
of Mr. Calhoun, Clipper Capital Associates, L.P. and Clipper Capital
Associates, Inc. is deemed to beneficially own all shares of Class A
Common Stock and Class B Common Stock beneficially owned by The
Clipper Group. Merchant Capital, Inc., an affiliate of Credit Suisse
First Boston Corporation ("CSFBC"), is a 99% limited partner of
Clipper/Merchant Partners, L.P. Credit Suisse Group, an affiliate of
CSFBC, is an indirect 99% limited partner of Clipper/Merban, L.P.
None of Merchant Capital, Inc., CSFBC and Credit Suisse Group is an
affiliate of The Clipper Group or Clipper Capital Associates, L.P.
(4) The Offering is intended to satisfy certain obligations of the
Company to the Registering Shareholders. See "Certain Transactions -
Sale of Restricted Shares of Class A Common Stock". The Registering
Shareholders are under no obligation to sell all or any portion of
the Class A Common Stock being offered hereby, immediately or after
the date of this Prospectus. Because the Registering Shareholders
may sell all or part of their shares of Class A Common Stock, no
estimate can be given as to the number of shares of Class A Common
Stock that will be held by any Registering Shareholder upon
termination of the Offering made hereby.
(5) The address of this Registering Shareholder is 1345 Avenue of the
Americas, New York, New York 10105.
(6) The address of these Registering Shareholders is 767 5th Avenue,
24th Floor, New York, New York 10153.
(7) The address of this Registering Shareholder is 11 Madison Avenue,
3rd Floor, New York, New York 10010.
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<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
The following summary description relating to the Company's capital stock
does not purport to be complete and is qualified in its entirety by reference to
the Company's Articles and Bylaws.
The Company is authorized to issue 100,000,000 shares of capital stock
comprised of (i) 77,000,000 shares of Class A Common Stock (ii) 3,000,000 shares
of Class B Common Stock and (iii) 20,000,000 of Preferred Stock, issuable in one
or more series as hereinafter provided. As of the date of the Offering,
10,669,739 shares of Class A Common Stock and 439,644 shares of Class B Stock
were issued and outstanding. No shares of the Preferred Stock are outstanding.
CLASS A COMMON STOCK
The Class A Common Stock has no preemptive rights and no redemption,
sinking fund or conversion provisions. All shares of Class A Common Stock have
one vote on any matter submitted to the vote of shareholders. The Class A Common
Stock does not have cumulative voting rights. Upon any liquidation of the
Company, the holders of Class A Common Stock are entitled to receive, share for
share with the holders of Class B Common Stock on a pro rata basis, all assets
then legally available for distribution after payment of debts and liabilities
and preferences on Preferred Stock, if any. Holders of Class A Common Stock are
entitled to receive dividends share for share with the holders of shares of
Class B Common Stock on a pro rata basis when, as and if declared by the Board
of Directors out of funds legally available therefor (subject to the prior
rights of Preferred Stock, if any).
CLASS B COMMON STOCK
The Class B Common Stock has no preemptive rights and no redemption,
sinking fund or conversion provisions. Except as otherwise required by law, the
shares of Class B Common Stock have no voting rights. Under Florida law, holders
of Class B Common Stock are permitted to vote on amendments to the Company's
Articles, if such amendments would, among other things, alter or change powers,
preferences or special rights of such class. Upon any liquidation of the
Company, the holders of Class B Common Stock are entitled to receive, share for
share with the holders of shares of Class A Common Stock on a pro rata basis,
all assets then legally available for distribution after payments of debts of
liabilities and preferences on Preferred Stock, if any. Holders of Class B
Common Stock are entitled to receive dividends share for share with the holders
of shares of Class A Common Stock on a pro rata basis when, as and if declared
by the Board of Directors out of funds legally available therefor (subject to
the prior rights of Preferred Stock, if any).
CONVERSION RIGHTS
Conversion of Class A Common Stock. Each holder of Class A Common Stock is
entitled at any time, if such holder has or is reasonably expected to have a
Regulatory Problem (as defined below), to convert any or all of the shares of
such holder's Class A Common Stock into an equal number of shares of Class B
Common Stock. A holder is deemed to have a "Regulatory Problem" when such holder
and such holder's affiliates would own, control or have power over a greater
quantity of securities of any kind of the Company than are permitted under any
applicable requirement of any governmental authority, or would not be able to
hold an investment or provide financing to the Company in compliance with any
applicable requirement of any governmental authority.
Conversion of Class B Common Stock. Each holder of Class B Common Stock is
entitled at any time to convert any or all of the shares of such holder's Class
B Common Stock into an equal number of shares of Class A Common Stock unless, as
a result of such conversion, such holder would have a Regulatory Problem.
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<PAGE> 44
Conversion of Class B Common Stock Upon a Conversion Event.
(i) Each share of Class B Common Stock distributed, transferred or sold in
connection with any Conversion Event (as defined below) will, as of the date of
such Conversion Event, automatically be converted into and represent the right
to receive, and without any action on the part of any party, an equal number of
shares of Class A Common Stock. As of the effective date of the Conversion
Event, the rights of the holder of the converted Class B Common Stock as such
shall cease and the person or persons in whose name or names the certificate or
certificates for shares of Class A Common Stock are to be issued upon such
conversion shall be deemed to have become the holder or holders of record of the
shares of Class A Common Stock represented thereby.
(ii) A "Conversion Event" shall mean the sale, distribution or transfer of
Class B Common Stock in connection with and pursuant to the terms of (A) any
public offering or public sale of securities of the Company (including a public
offering registered under the Securities Act and a widely distributed public
sale pursuant to Rule 144 thereunder or any similar rule then in force),
including any sale of such securities to a person or persons acting as
underwriter with respect to such offering, (B) any sale of securities of the
Company to a person or group of persons (within the meaning of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") if, after such sale, such
person or group of persons in the aggregate would own or control securities of
the Company (excluding any securities being converted and disposed of in
connection with such conversion event) which possess in the aggregate the
ordinary voting power to elect a majority of the Company's directors, (C) any
sale of securities of the Company to a person or group of persons (within the
meaning of the Exchange Act) if, after such sale, such person or group or
persons would not, in the aggregate, own, control or have the right to acquire
more than two percent (2%) of the outstanding securities of any class of voting
securities of the Company, or (D) a merger, consolidation or similar transaction
involving the Company if, after such transaction, a person or group of persons
(within the meaning of the Exchange Act) would own or control securities which
possess in the aggregate the ordinary voting power to elect a majority of the
surviving corporation's directors (provided that the transaction has been
approved by the Company's Board of Directors or a committee thereof).
PREFERRED STOCK
The Board of Directors has the authority to issue up to 20,000,000 shares
of Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designation, preferences and
relative participation, optional or other special rights and qualifications,
limitations or restrictions thereof, including the dividend rights and dividend
rate, terms of redemption (including sinking fund provisions), redemption price
or prices, conversion rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the shareholders.
The issuance of Preferred Stock by the Board of Directors could affect the
rights of the holders of Common Stock. For example, such issuance could result
in a class of securities outstanding that would have preferences with respect to
voting rights and dividends, and in liquidation, over the Common Stock, and
could (upon conversion or otherwise) enjoy all of the rights appurtenant to
Common Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy contest or otherwise by making
such attempts more difficult to achieve or more costly. The Board of Directors
may issue the Preferred Stock with voting and conversion rights that could
adversely affect the voting power of the holders of Class A Common Stock. There
are no agreements or understandings for the issuance of Preferred Stock and the
Board of Directors has no present intention to issue Preferred Stock.
REGISTRATION RIGHTS
Under the terms of a Registration Rights Agreement dated as of December 6,
1996 and subject to certain conditions, The Clipper Group is entitled to certain
transferable registration rights with respect to its 1,974,642 shares of Class A
Common Stock and 439,644 shares of Class B Common Stock (collectively, the
"Registrable Securities"). If the Company proposes to register any of its
securities under the Securities Act, either for its own
41
<PAGE> 45
account or on behalf of the Company's shareholders (except in connection with a
demand registration or registration of shares on Form S-8), and such holders so
request, the Company is required to use its best efforts to include such
holders' Registrable Securities in such registration and to pay such
shareholders' registration expenses, excluding underwriting discounts and
commissions in connection with such registration. If the managing underwriter
advises the Company that the number of securities requested to be included in
such registration would exceed the number which can be sold in such offering
without materially and adversely affecting the offering, the Company must first
include the securities the Company proposes to sell and then the Registrable
Securities requested to be included in such registration by The Clipper Group.
If the registration by the Company is on behalf of the Company's shareholders,
then the Company must first include the securities that the Company's
shareholders who requested such registration propose to sell and then the
Registrable Securities requested to be included in such registration by The
Clipper Group. In addition, subject to certain conditions, the holders of
750,000 or more of the Registrable Securities may require the Company, on not
more than two occasions, to file a registration statement under the Securities
Act with respect to such Registrable Securities. The Company has agreed to
indemnify the holders of the Registrable Securities against certain liabilities,
including liabilities under the Securities Act, in connection with the
registration of their shares. See "Shares Eligible for Future Sale."
The holders of Registrable Securities have not included any Registrable
Securities in the Offering.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to (i) the Florida Control Share Act, which
generally provides that shares acquired in excess of thresholds equaling 20%,
33% and more than 50% of a corporation's voting power will not possess any
voting rights unless such voting rights are approved by a majority vote of the
corporation's disinterested shareholders, and (ii) the Florida Fair Price Act,
which generally requires approval by disinterested directors or supermajority
approval by shareholders for certain specified transactions between a
corporation and a holder of more than 10% of the outstanding shares of the
corporation (or its affiliates).
CERTAIN NOTICE AND VOTING PROVISIONS CONTAINED IN THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS
Certain provisions of the Articles and Bylaws summarized in the following
paragraphs may be deemed to have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a shareholder might consider in
its best interest, including those attempts that might result in a premium over
the market price for the shares held by shareholders.
Special Meeting of Shareholders. The Articles provide that special meetings
of shareholders of the Company may be called only by the Board of Directors or
upon the written demand of the holders of not less than fifty percent of all
votes entitled to be cast on any issue proposed to be considered at a special
meeting. This provision will make it more difficult for shareholders to take
actions opposed by the Board of Directors and can only be amended with the
approval of at least two-thirds of the outstanding shares entitled to be cast on
the issue.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Articles provide that shareholders seeking to bring business
before an annual meeting of shareholders, or to nominate candidates for election
as directors at an annual meeting of shareholders, must provide timely notice
thereof in writing. To be timely, a shareholder's notice must be delivered to or
mailed and received at the executive offices of the Company not less than 120
days nor more than 180 days prior to the first anniversary of the date of the
Company's notice of annual meeting provided with respect to the previous year's
annual meeting. The Articles also state that no shareholder actions may be taken
by written consent and specify certain requirements for a shareholder's notice
to be in proper written form. These provisions may preclude some shareholders
from bringing matters before the shareholders at an annual meeting or from
making nominations for directors at an annual meeting and can only be amended
with the approval of at least two-thirds of the outstanding shares entitled to
be cast on the issue.
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<PAGE> 46
PROPOSED AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
At the 1998 annual meeting of the Company's shareholders, the Company's
shareholders are being asked to consider and vote upon a proposal to approve an
amendment to the Company's Articles to create three classes of the Company's
Board of Directors, consisting of Class I, to be comprised of two directors,
each to serve for an initial term of one year and thereafter for a term of three
years; Class II, to be comprised of two directors each to serve for an initial
term of two years and thereafter for a term of three years; and Class III, to be
comprised of three directors, each to serve for a term of three years; or, in
each case, until their respective successors have been duly elected and
qualified.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Class A Common Stock is
American Stock Transfer & Trust Company. Its telephone number is (212) 936-5100.
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<PAGE> 47
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Class A Common Stock in the public
market, including the sale of the Company's Class A Common Stock offered hereby,
could adversely affect market prices prevailing from time to time and the
ability of the Company to raise equity in the future.
Upon completion of the Offering, the Company will have outstanding
10,665,739 shares of Class A Common Stock and 439,644 shares of Class B Common
Stock, of which 3,469,400 shares of Class A Common Stock and 439,644 shares of
Class B Common Stock will be "restricted securities" (the "Restricted Shares")
subject to the restriction under Rule 144 of the Securities Act. All 2,360,722
of the shares of Class A Common Stock sold in the Offering, together with the
4,500,000 shares of Class A Common Stock sold pursuant to the IPO, will be
freely transferable by persons other than "affiliates" of the Company without
restriction or registration under the Securities Act, except for shares of Class
A Common Stock purchased by "affiliates" of the Company within the meaning of
the rules and regulations under the Act, which may be sold in the public market
in accordance with Rule 144 under the Act ("Rule 144").
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an Affiliate, who has beneficially owned Restricted
Shares for at least one year (including the holding period of certain prior
owners), will be entitled to sell in "restricted brokers' transactions" or to
market markers, within any three-month period commencing 90 days after the
Company becomes subject to the reporting requirements of Section 13 of the
Exchange Act, a number of Restricted Shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Class A Common Stock (approximately
10,665 shares immediately after the Offering) or (ii) the average weekly trading
volume in the Class A Common Stock during the four calendar weeks immediately
preceding such sale, subject generally, to the filing of a Form 144 with respect
to such sales and certain other limitations and restrictions. In addition, a
person (or persons whose shares are aggregated), who is not deemed to have been
an Affiliate at any time during the 90 days immediately preceding the sale and
who has beneficially owned the Restricted Shares proposed to be sold for at
least two years, is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above.
As of the date hereof, 250,000 options to purchase shares of Class A Common
Stock, and options to purchase an additional 350,000 shares of Class A Common
Stock remain available for issuance pursuant to the Option Plan. See "Management
- -- 1996 Stock Option Plan." Sales of shares of Class A Common Stock issuable
upon exercise of stock options under the Option Plan are subject to the
limitations and restrictions under Rule 144.
Certain persons and entities are entitled to require the Company to
register their shares of Common Stock under the Securities Act under certain
circumstances. See "Description of Capital Stock -- Registration Rights."
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<PAGE> 48
PLAN OF DISTRIBUTION
The shares of Class A Common Stock registered hereunder and owned by the
Registering Shareholders may be offered from time to time directly or through
one or more broker-dealers, in transactions on Nasdaq, the over-the-counter
market, in negotiated transactions or through a combination of such
transactions. These shares may be sold by one or more of the following methods,
without limitation: (a) a block trade in which a broker or dealer so engaged
will attempt to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) face-to-face
transactions between sellers and purchasers without a broker/dealer. In
effecting sales, brokers or dealers engaged by the Registering Shareholders may
arrange for other brokers or dealers to participate. Such brokers or dealers may
receive commissions or discounts from the Registering Shareholders in amounts to
be negotiated.
Brokers-dealers, underwriters or agents participating in the sale of the
shares or Class A Common Stock may receive compensation in the form of
commissions, discounts or concessions from the Registering Shareholders and/or
purchasers of the shares of Class A Common Stock for whom such broker-dealers
may act as agent, or to whom they may sell as principal, or both (which
compensation to a particular broker-dealer may be less than or in excess of
customary commissions). The Registering Shareholders and any broker-dealers or
other persons who act in connection with the ale of the shares of Class A Common
Stock hereunder may be deemed to be "Underwriters" within the meaning of the
Securities Act, and any commission they receive and proceeds of any sale of the
shares of Class A Common Stock may be deemed to be underwriting discounts and
commissions under the Securities Act. Neither the Company nor any Registering
Shareholders can presently estimate the amount of such compensation. The Company
knows of no existing arrangements between any Registering Shareholder and any
other shareholders, broker, dealer, underwriter or agent relating to the sale or
distribution of the shares of Class A Common Stock.
The Registering Shareholders and any other persons participating in the
sale or distribution of the shares of Class A Common Stock will be subject to
applicable provision of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the timing of purchases and sales of any
of the shares of Class A Common Stock by the Registering Shareholders or any
other such persons. The foregoing may affect the marketability of the shares of
Class A Common Stock.
All of the expenses related to the Offering and the registration of the
shares of Class A Common Stock offered hereby will be paid by the Company (other
than selling commissions, and fees and expenses of advisors to the Registering
Shareholders). The Company has also agreed to indemnify certain of the
Registering Shareholders and certain related persons against certain liabilities
under the Securities Act.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for the Company by Baker & McKenzie, Miami, Florida.
45
<PAGE> 49
EXPERTS
The consolidated financial statements of the Company at December 31,
1996 and 1997, and for each of the three years in the period ended December 31,
1997, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent certified public accountants, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
AVTEAM has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with any amendments
thereto, the "Registration Statement") under the Securities Act with respect to
the shares of Class A Common Stock offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. For further
information with respect to AVTEAM and the shares of Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto and the financial statements, notes and schedules filed as a part
thereof. In addition, AVTEAM is subject to the informational and reporting
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy statements and other information with the Commission. The Registration
Statement, the exhibits and schedules thereto, reports and other information
filed with or furnished to the Commission by AVTEAM may be inspected at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7
World Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 6061-2511. Copies of such
materials may be obtained, at prescribed rates, by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 and such material may be accessed through the web site maintained by the
Commission at http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and a report thereon by its independent
public accountants and with quarterly reports for the first three quarters of
each fiscal year containing unaudited interim financial information.
46
<PAGE> 50
AVTEAM, INC.
INDEX TO FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements for the Year Ended
December 31, 1997:
Report of Independent Certified Public Accountants......................................... F-2
Consolidated Balance Sheets................................................................ F-3
Consolidated Statements of Income.......................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity................................. F-5
Consolidated Statements of Cash Flows...................................................... F-6
Notes to Consolidated Financial Statements................................................. F-7
Condensed Consolidated Financial Statements for the Three-Months
Ended March 31, 1998 (unaudited):
Condensed Consolidated Balance Sheets...................................................... F-18
Condensed Consolidated Statements of Income................................................ F-19
Condensed Consolidated Statements of Cash Flows............................................ F-20
Notes to Condensed Consolidated Financial Statements....................................... F-21
</TABLE>
F-1
<PAGE> 51
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
AVTEAM, Inc.
We have audited the accompanying consolidated balance sheets of
AVTEAM, Inc. and Subsidiary (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These 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 generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of AVTEAM, Inc. and Subsidiary at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Miami, Florida
February 16, 1998
F-2
<PAGE> 52
AVTEAM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................................... $18,676 $ --
Trade accounts receivable, less allowance for doubtful
accounts of $274 and $189, and allowance for sales
returns of $428 and $211, in 1997 and 1996, respectively ............................. 5,751 5,030
Inventory ............................................................................... 24,480 14,505
Prepaid expenses ........................................................................ 1,153 219
Deposits ................................................................................ 432 1,250
Due from affiliate ...................................................................... -- 343
Deferred tax asset ...................................................................... 80 432
------- -------
Total current assets ....................................................................... 50,572 21,779
Revenue producing equipment, net ........................................................... 6,935 --
Property and equipment, net ................................................................ 938 502
Other assets ............................................................................... 509 136
------- -------
Total assets ................................................................... $58,954 $22,417
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank ................................................................... $ -- $ 404
Accounts payable ........................................................................ 706 2,540
Accrued expenses ........................................................................ 1,654 1,034
Customer deposit ........................................................................ 344 510
Current portion of notes payable-lease financing ........................................ 328 --
Current portion of capital lease obligations ............................................ 115 69
Due to shareholders and affiliates ...................................................... -- 292
------- -------
Total current liabilities ...................................................... 3,147 4,849
Capital lease obligations, net of current portion .......................................... 186 62
Notes payable - lease financing ............................................................ 3,817 --
Notes payable - shareholders ............................................................... -- 2,513
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 20,000,000 shares
authorized, no shares issued or outstanding in 1997, 1,974,642 shares of
Class A Preferred Stock and 439,644 shares of Class B Preferred Stock issued
and outstanding in 1996 ................................................................ -- 17
Class A Common Stock, $.01 par value, 77,000,000 shares
authorized, 10,665,739 shares issued and outstanding in
1997, 5,000,000 shares issued and outstanding in 1996 .................................. 107 50
Class B Common Stock, $.01 par value, 3,000,000 shares
authorized, 439,644 shares issued and outstanding in
1997, no shares issued and outstanding in 1996 .......................................... 4 --
Additional paid-in capital ................................................................. 47,444 14,611
Retained earnings .......................................................................... 4,249 315
------- -------
Total shareholders' equity ................................................................. 51,804 14,993
------- -------
Total liabilities and shareholders' equity ................................................. $58,954 $22,417
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 53
AVTEAM, INC. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales ............................................... $ 52,881 $ 31,724 $ 18,299
Cost of sales ........................................... 38,385 22,641 11,848
----------- ----------- -----------
Gross profit ............................. 14,496 9,083 6,451
Operating expenses ...................................... 7,312 4,312 5,162
----------- ----------- -----------
Income from operations .................................. 7,184 4,771 1,289
----------- ----------- -----------
Offering expenses ....................................... -- 1,154 --
Interest expense, net ................................... 991 757 191
----------- ----------- -----------
Income before provision (credit) for income taxes ....... 6,193 2,860 1,098
Provision (credit) for income taxes:
Current ............................................... 1,907 62 --
Deferred .............................................. 352 (432) --
----------- ----------- -----------
2,259 (370) --
----------- ----------- -----------
Net income ............................... 3,934 3,230 1,098
Adjustments for pro forma provision for
income taxes ........................................... -- (1,538) (417)
----------- ----------- -----------
Pro forma net income (historical for 1997) $ 3,934 $ 1,692 $ 681
=========== =========== ===========
Pro forma net income per common share -
basic (historical for 1997) ........................... $ 0.65 $ 0.34 $ 0.17
=========== =========== ===========
Weighted average number of common shares
outstanding - basic ................................... 6,073,694 5,000,000 4,000,000
=========== =========== ===========
Pro forma net income per common share -
diluted (historical for 1997) ......................... $ 0.52 $ 0.33 $ 0.17
=========== =========== ===========
Weighted average number of common
equivalent shares outstanding - diluted ............... 7,622,194 5,121,096 4,000,000
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 54
AVTEAM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
CLASS A CLASS B
PREFERRED CLASS A COMMON CLASS B COMMON
PREFERRED STOCK COMMON STOCK COMMON STOCK
SHARES AMOUNT SHARES SHARES SHARES AMOUNT
---------- -------- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994..... -- $ -- 4,000,000 $ 40 -- $ --
Class A Common Stock issued in
Connection with stock option
Plan........................... -- 1,000,000 10 -- --
Net income...................... -- -- -- -- -- --
Distributions................... -- -- -- -- -- --
---------- -------- ---------- ------- ------- --------
Balance at December 31, 1995..... -- -- 5,000,000 50 -- --
Issuance of Preferred Stock,
net of issuance costs of $543... 1,700,000 17 -- -- -- --
Cash received for notes
receivables from officers....... -- -- -- -- -- --
Net income....................... -- -- -- -- -- --
Distributions.................... -- -- -- -- -- --
---------- -------- ---------- ------- ------- --------
Balance at December 31, 1996..... 1,700,000 17 5,000,000 50 -- --
Issuance of Preferred Stock..... 714,286 7 -- -- -- --
Issuance of Class A Common
Stock for loans and inventory.. -- -- 327,772 3 -- --
Issuance of Class A Common
Stock, net of issuance
costs of $987.................. -- -- 3,363,325 34 -- --
Conversion of Preferred
Stock to Class A and Class B
Common Stock................... (2,414,286) (24) 1,974,642 20 439,644 4
Net income...................... -- -- -- -- -- --
---------- -------- ---------- ------- ------- --------
Balance at December 31, 1997..... -- $ -- 10,665,739 $ 107 439,644 $ 4
========== ======== ========== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
NOTES
ADDITIONAL RECEIVABLES
PAID-IN RETAINED FROM
CAPITAL EARNINGS OFFICERS TOTAL
---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Balance at December 31, 1994..... $ 2,594 $ -- $ -- $ 2,634
Class A Common Stock issued in
Connection with stock option
Plan........................... 1,609 -- (708) 911
Net income...................... -- 1,098 -- 1,098
Distributions................... (932) (1,098) -- (2,030)
--------- ------- ---------- --------
Balance at December 31, 1995..... 3,271 -- (708) 2,613
Issuance of Preferred Stock,
net of issuance costs of $543... 11,340 -- -- 11,357
Cash received for notes
receivables from officers....... -- -- 708 708
Net income....................... -- 3,230 -- 3,230
Distributions.................... -- (2,915) -- (2,915)
--------- ------- ---------- --------
Balance at December 31, 1996..... 14,611 315 -- 14,993
Issuance of Preferred Stock..... 4,993 -- -- 5,000
Issuance of Class A Common
Stock for loans and inventory.. 2,291 -- -- 2,294
Issuance of Class A Common
Stock, net of issuance
costs of $987.................. 25,549 -- -- 25,583
Conversion of Preferred
Stock to Class A and Class B
Common Stock................... -- -- -- --
Net income...................... -- 3,934 -- 3,934
--------- ------- ---------- --------
Balance at December 31, 1997..... $47,444 $ 4,249 $ -- $51,804
========= ======= ========== ========
</TABLE>
See accompanying Notes
F-5
<PAGE> 55
AVTEAM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ........................................................... $ 3,934 $ 3,230 $ 1,098
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization ...................................... 562 158 101
Bad debt expense ................................................... 136 88 145
Deferred tax provision (credit) .................................... 352 (432) --
Changes in operating assets and liabilities:
Trade accounts receivable ................................ (857) (457) (2,112)
Inventory ................................................ (9,975) (5,940) (5,792)
Prepaid expenses and deposits ............................ (116) (1,284) (164)
Due from affiliate ....................................... 343 (343) --
Other assets ............................................. (373) (50) (28)
Accounts payable ......................................... (1,978) (1,740) 2,540
Accrued expenses/Customer deposit ........................ 598 1,057 362
Due to shareholders and affiliates ....................... (292) (936) 916
-------- -------- -------
Net cash used in operating activities .................... (7,666) (6,649) (2,934)
Investing Activities
Purchases of revenue producing equipment ............................. (2,878) -- --
Purchases of property and equipment .................................. (516) (314) (103)
-------- -------- -------
Net cash used in investing activities ..................... (3,394) (314) (103)
FINANCING ACTIVITIES
Payments on capital leases ........................................... (95) (48) (22)
Net proceeds from (payments on) notes payable ........................ (129) 1,550 (350)
Net proceeds from (payments on) short-term
line of credit ..................................................... (404) (2,752) 3,156
Advances from shareholders ........................................... -- 2,250 4,203
Payments of shareholders' advances/loans ............................. (2,513) (2,479) (2,671)
Net proceeds from sale of preferred stock ............................ 5,000 11,357 --
Net proceeds from sale of common stock ............................... 27,877 -- --
Distributions ........................................................ -- (2,915) (2,030)
-------- -------- -------
Net cash provided by financing activities ................ 29,736 6,963 2,286
-------- -------- -------
Net (decrease) increase in cash and cash
equivalents ............................................ 18,676 -- (751)
Cash at beginning of year ................................ -- -- 751
-------- -------- -------
Cash and cash equivalents at end of year ................. $ 18,676 $ -- $ --
======== ======== =======
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid ........................................................ $ 1,097 $ 795 $ 145
======== ======== =======
Income taxes paid .................................................... $ 2,810 $ -- $ --
======== ======== =======
SCHEDULE OF NONCASH FINANCING AND INVESTING
ACTIVITIES
Notes receivable from officers offset against
amounts due to shareholders ........................................ $ -- $ 708 $ 912
======== ======== =======
Shareholder advances converted to notes
Payable ............................................................ $ -- $ 1,511 $ --
======== ======= =======
Revenue producing equipment acquired under
capital leases ..................................................... $ 4,274 $ -- $ --
======== ======== =======
Office furniture and equipment acquired
under capital leases ............................................... $ 265 $ 48 $ 153
======== ======== =======
Preferred shares converted to common shares .......................... $ 16,357 $ -- $ --
======== ======== =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 56
AVTEAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BUSINESS
AVTEAM, Inc. was incorporated in Florida in 1991 and is a global
supplier of aftermarket aircraft engines, engine parts and airframe components.
AVTEAM, Inc. supplies its products to other aftermarket suppliers, independent
repair facilities, aircraft operators and original equipment manufacturers.
Beginning in April, 1997, AVTEAM, Inc., through its wholly-owned subsidiary,
AVTEAM Aviation Field Services, Inc. ("AAFS"), began providing certain on-wing
maintenance and repair and borescope services. The accompanying consolidated
financial statements as of December 31, 1997 and for the year then ended include
the accounts of AVTEAM, Inc. and AAFS (the "Company") after elimination of
intercompany accounts and transactions.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company classifies as cash equivalents all highly liquid
investments with a maturity of three months or less at the time of purchase.
INVENTORY
Inventory of aircraft engines is stated at the lower of specific
cost (including overhaul costs) or market. Initially, cost of sales of engine
parts from disassembled engines are recognized based on margins realized from
recently sold, similar groups of engine parts. Once the remaining parts have
been fully inspected and their condition has been determined, the cost of
subsequent sales of engine parts from that engine are determined using the
relationship of the remaining costs of that engine to estimated sales. Cost of
sales for individual parts purchased for resale are reflected based on the
specific identification method. Cost of sales of airframe components are
recognized using margins based on the relationship of cost to revenue estimates
as determined by the Company through the analysis of the market price of such
airframe components.
REVENUE RECOGNITION
Revenues from the sale of engine parts and airframe components are
recognized when shipped.
Revenues from the sale of aircraft engines are recognized when title
and risk of ownership are transferred to the customer, which generally is upon
shipment or customer pick-up. In certain instances prior to shipment or customer
pick-up, certain customers request the Company to hold aircraft engines until
the customer determines the most economical means of taking possession. The
Company records revenues under such circumstances only if: (1) payment is
received or is receivable within 30 days; (2) title and risk of ownership is
transferred to the customer; (3) the customer's request that the transaction be
on a bill-and-hold basis is in writing; (4) there is a fixed schedule for
delivery of the engines that is within 30 days of the sale; (5) the Company does
not have any specific performance obligations; (6) the engines are segregated
from other engines and are not subject to being used to meet other customer's
needs and (7) the engines are ready for shipment.
The Company enters into consignment arrangements in which it
warehouses items, determines sales prices, arranges for shipment to customers,
and collects accounts receivable. The Company reflects sales under such
arrangements in net sales and the cost of such sales in cost of sales, since the
Company bears the risk of ownership once the items are sold.
WARRANTIES AND PRODUCT RETURNS
The Company does not provide service warranties in addition to those
provided by overhaul facilities and as a result does not record accruals for
warranties. The Company has established programs which, under specific
conditions, enable its customers to return inventory. The effect of these
returns is estimated based on a percentage of sales and historical experience
and sales are recorded net of a provision for estimated returns.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE
The Company buys inventory from certain of its customers and
periodically offsets amounts owed to customers for inventory purchases against
the accounts receivable for sales to such customers. For the years ended
December 31, 1997, 1996 and 1995, accounts payable totaling $5,709,000,
$3,175,000 and $980,000, respectively, were offset against accounts receivable.
F-7
<PAGE> 57
AVTEAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
PROPERTY AND EQUIPMENT
Property and equipment (including assets under capital leases) is
carried at cost and is depreciated using accelerated and straight-line methods
over the lesser of the lease terms or the estimated useful lives of the assets.
The lives used are as follows:
<TABLE>
<S> <C>
Office furniture and equipment 3-7 years
Warehouse and transport equipment 5-7 years
Leasehold improvements 3-5 years
</TABLE>
REVENUE PRODUCING EQUIPMENT
Revenue producing equipment is comprised of engines leased to users
on a short-term basis. Such engines are carried at cost and are depreciated
using the straight-line method over periods between five and ten years. Three of
such engines are the subject of a sale/leaseback arrangement. The proceeds under
the arrangement are recorded as a financing obligation and will be reduced by
payments under the lease over its five-year term. The lease agreement provides
the Company with an option to terminate the lease and to repurchase the engines
at any time after one year at varying rates based on the original sales price.
CONCENTRATION OF CREDIT RISK
Accounts receivable are primarily from domestic and foreign
passenger airlines, freight and package carriers, charter airlines, aircraft
leasing companies and service providers to such companies. The Company performs
ongoing evaluations of its trade accounts receivable customers, monitors its
exposure for credit losses and sales returns and does not require collateral.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE> 58
AVTEAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME INFORMATION
In conjunction with the closing of the private offering of its
preferred stock on December 6, 1996, the Company terminated its status as an S
corporation. Pro forma net income reflects adjustments for income taxes which
would have been recorded if the Company had not been an S corporation for the
years ended December 31, 1996 and 1995 (see Note 5).
PRO FORMA NET INCOME PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share" which requires the Company to replace its presentation
of primary earnings per share with a presentation of basic earnings per share
and requires dual presentation of basic and diluted earnings per share on the
face of the income statement. The principal difference between earnings per
share presented by the Company in its previous SEC filings and the presentation
required by the new statement and the new interpretation required by the SEC is
the inclusion of the 2,414,286 shares of preferred stock only from their date of
issue until their conversion to common shares on October 30, 1997, the date of
the Company's initial public offering, for the purposes of calculating diluted
earnings per share only. Previously these shares were included in the
calculation of both primary and fully diluted earnings per share for all periods
presented.
The following table sets forth the computation of basic and diluted net income
and pro forma net income per share:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Numerator:
Pro forma net income (historical for 1997)......................... $3,934,000 $1,692,000 $ 681,000
========== ========== ==========
Denominator:
Denominator for basic pro forma net income
per share - weighted - average shares.............................. 6,073,694 5,000,000 4,000,000
Effect of dilutive securities
Convertible preferred stock........................................ 1,546,849 121,096 --
Employee stock options............................................. 1,651 -- --
---------- ---------- ----------
Dilutive potential common shares..................................... 1,548,500 121,096 --
---------- ---------- ----------
Denominator for diluted earnings per share-
adjusted weighted - average shares and
assumed conversions................................................ 7,622,194 5,121,096 4,000,000
========== ========== ==========
Pro forma net income per common share - basic........................ $ 0.65 $ 0.34 $ 0.17
========== ========== ==========
Pro forma net income per common share -
diluted............................................................ $ 0.52 $ 0.33 $ 0.17
========== ========== ==========
</TABLE>
3. ACCOUNTS RECEIVABLE
On November 8, 1995, the Company entered into a Limited Recourse
Receivable Discount Facility Agreement with a bank (the "Agreement") under which
the bank agreed to purchase certain trade receivables older than 30 days, with a
maximum maturity of 100 days, for the principal amount of the trade receivables
less a discount rate of LIBOR plus 1/4% (5.88% at December 31, 1995). The
Agreement provided that the aggregate principal amount of uncollected purchased
receivables could not exceed $10,000,000 at any one time, provided for the
purchase of a maximum of $60,000,000 of receivables over the term of the
Agreement and included certain recourse provisions related to returned inventory
only. The Agreement expired on November 1, 1996. In 1996, the Company sold trade
receivables under the Agreement with a carrying amount of approximately
$5,272,000 for approximately $5,204,000.
4. OFFERING EXPENSES
During 1996, the Company initiated a public offering of its common
stock. Due to uncertain market conditions, the Company decided to withdraw the
offering. As a result, the costs associated with the offering were charged
against earnings in 1996.
F-9
<PAGE> 59
AVTEAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
5. INCOME TAXES
Historical
The Company accounts for income taxes under FASB Statement No. 109,
"Accounting for Income Taxes (FASB 109)". Deferred income tax assets and
liabilities are determined based upon differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
Current......................................................................... 1,907 $ 62
Deferred........................................................................ 52 (432)
------ -----
Total............................................................... $2,259 $(370)
====== =====
</TABLE>
Concurrent with the December 6, 1996 private placement (see Note 15), the
Company's S corporation election was terminated, making it subject to corporate
income taxes. The consolidated financial statements reflect a net income tax
benefit of approximately $370,000 for the year ended December 31, 1996,
comprised of the following two significant components:
- A net tax benefit of $432,000 representing the net deferred
tax asset recognized for the cumulative temporary differences
between the carrying amounts of assets and liabilities for
financial reporting and tax reporting purposes as of December
6, 1996.
- Current period expense of approximately $62,000 pertaining to
the Company's income before taxes of approximately $203,000
subject to taxation for the period from December 6, 1996 to
December 31, 1996.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets as of December 31, 1997 and 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996
---- ----
<S> <C> <C>
Allowance for doubtful accounts................................................. $ 100 $ 68
Allowance for sales returns..................................................... 155 77
Insurance....................................................................... (20) --
Depreciation.................................................................... (414) 11
Warranty provision.............................................................. 36 --
Accrued compensation............................................................ -- 130
Interest........................................................................ 3 --
Uniform inventory capitalization................................................ 220 146
----- ----
Net deferred tax asset.............................................. $ 80 $432
===== ====
</TABLE>
F-10
<PAGE> 60
AVTEAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
The reconciliation of the expected income tax expense at federal statutory
rates is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
DEC 6,
YEAR ENDED 1996 TO
DEC 31, DEC 31,
1997 1996
---- ----
<S> <C> <C>
Tax at federal statutory rate................................................... 34.00% 34.00%
State income taxes, net of federal benefit...................................... 2.35 2.19
Deferred tax benefit recorded in conjunction
with the conversion to a C corporation.......................................... -- (223.28)
Permanent differences........................................................... .13 4.81
----- -------
36.48% (182.28)%
===== =======
</TABLE>
Pro Forma
The adjustments for pro forma provision for income taxes for the two
years ended December 31, 1996, reflect the adjustments needed to reflect income
tax expense as if the Company had been taxed as a C corporation.
The pro forma provision (credit) for income taxes (including the
historical component in 1996) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Current......................................................................... $ 827 $1,138
Deferred........................................................................ 341 (721)
------ ------
Total............................................................... $1,168 $ 417
====== ======
</TABLE>
The pro forma income tax provision (credit) differs from the amounts
computed by applying the federal statutory rate of 34% to income before income
taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Tax at federal statutory rate................................................... 34.00% 34.00%
State income taxes, net of federal benefit...................................... 2.45 3.69
Permanent differences........................................................... 4.35 .28
----- -----
40.80% 37.97%
===== =====
</TABLE>
On December 6, 1996, the date of the termination of S corporation
status, the Company declared a cash distribution to the shareholders. The
distribution, paid prior to January 1, 1997, was determined based on the
Company's accumulated adjustment account, as defined in the Internal Revenue
Code, calculated through the date of termination of the Company's S corporation
status.
Also on December 6, 1996, the Company entered into a tax allocation
and indemnification agreement with the existing common shareholders relating to
their respective income tax liabilities and certain related matters. The tax
indemnification agreements generally provide that the existing common
shareholders will be indemnified by the Company with respect to federal and
state income taxes (plus interest and penalties) arising due to taxable income
shifted from a C corporation taxable year in which the Company was an S
corporation, and that the Company will be indemnified by the existing common
shareholders with respect to federal and state income taxes (plus interest and
penalties) arising due to taxable income shifted from an S corporation taxable
year to a C corporation taxable year.
F-11
<PAGE> 61
AVTEAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Office furniture and equipment.................................................. $ 649 $ 203
Warehouse and transport equipment............................................... 672 532
Leasehold improvements.......................................................... 222 54
------ ------
1,543 789
Less accumulated depreciation and amortization.................................. (605) (287)
====== ======
$ 938 $ 502
====== ======
</TABLE>
7. LEASES
On April 1, 1995, the Company entered into a lease agreement for new
warehouse and office space under an operating lease which expires on June 30,
2000. Effective January 1, 1998, the Company leased additional warehouse and
office space and together with the original space extended the lease term to
December 31, 2002. In addition, effective January 1, 1996, the Company signed a
lease agreement for additional warehouse and office space under an operating
lease which expires on December 31, 2000. Future minimum lease payments by year
and in the aggregate under operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1998....................................................................... $ 806
1999....................................................................... 813
2000....................................................................... 773
2001....................................................................... 615
2002....................................................................... 629
------
$3,636
======
</TABLE>
Rent expense for the years ended December 31, 1997, 1996 and 1995
was approximately $449,000 $390,000 and $266,000, respectively.
The Company has entered into various capital leases for office
furniture, computer equipment, and warehouse and transportation equipment
expiring in various years through 1999. Equipment under capitalized lease
obligations had an original cost of approximately $433,000 at December 31, 1997,
$201,000 at December 31, 1996, and $153,000 at December 31, 1995 and accumulated
amortization was approximately $148,000, $75,000 and $26,000 at December 31,
1997, 1996 and 1995, respectively.
Future minimum lease payments by year and in the aggregate under
these capital leases were as follows at December 31, 1997 (in thousands):
<TABLE>
<S> <C>
1998....................................................................... $145
1999....................................................................... 122
2000....................................................................... 70
2001....................................................................... 25
----
Total minimum lease payments............................................... 362
Less amounts representing interest at 13.9%................................ (61)
----
Present value of net minimum lease payments under capital
leases (including current portion of $115)................................. $301
====
</TABLE>
8. RELATED PARTY TRANSACTIONS
On September 5, 1995, the Company entered into an agreement (the
"Parati Agreement") with Parati Corporation ("Parati"), a corporation
wholly-owned by the Chairman of the Board of Directors of the Company, which
provided that Parati would purchase up to $10 million of certain aftermarket
engines and up to $40 million of new engines and that the Company would oversee,
disassemble and handle all of the operational and administrative aspects related
to such engines. The Parati
F-12
<PAGE> 62
AVTEAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
Agreement further provided that all proceeds from the sale of engines or parts
would be divided equally between Parati and the Company after payment to Parati
of amounts equal to Parati's investment in such engines less overhaul costs
incurred by the Company on behalf of Parati. Overhaul costs were incurred on a
component basis and were not incurred until a customer was interested in
purchasing a component upon its overhaul. The Company was reimbursed for
overhaul costs through a reduction of the Company's payable to Parati regardless
of whether such parts were sold. In 1997, 1996 and 1995, the Company recorded
sales under this agreement of approximately $495,000, $1,925,000 and $224,000,
respectively, with a gross profit of approximately $247,000, $395,000 and
$45,000, respectively. On August 21, 1997, the Company issued 38,664 shares of
Class A Common Stock as payment for the remaining inventory valued at $270,647
and terminated the Parati Agreement.
The Company purchased accounting services totaling $25,000, $50,000
and $38,000 for each of the three years 1997, 1996 and 1995, respectively, from
a firm that is owned in part by a shareholder of the Company.
Management believes that compensation received from or paid to
related parties under the Parati Agreement and in connection with purchased
accounting services, described above, materially approximate those which would
have been received from or paid to non-affiliated third parties.
At December 31, 1996, the Company owed two officers accrued
compensation of $292,000.
At December 31, 1996, notes payable-shareholders consist of the
following (in thousands):
<TABLE>
<S> <C>
Non-interest bearing notes payable to
shareholders due within sixty days of the
consummation of an initial public offering or
during the second fiscal quarter of 2000,
whichever is earlier(a).............................................. $1,511
Notes payable to shareholders bearing interest at
40% of the original issue discount as calculated
under the Internal Revenue Code (6.57% at
December 31, 1996) and due either within sixty
days of the consummation of an initial public
offering or during the second fiscal quarter
of 2000, whichever is earlier(b)..................................... 1,002
------
$2,513
======
</TABLE>
(a) On December 6, 1996, in conjunction with the private
placement, the Company agreed to convert the outstanding
balance of advances due to shareholders to notes
payable. See Note 15.
(b) On December 6, 1996, in conjunction with the private
placement, the existing common shareholders agreed to
lend a portion of the previously undistributed S
corporation earnings to the Company. See Note 15.
On August 21, 1997, the Company issued 289,108 shares of Class A
Common Stock to the Chairman of the Board of Directors as payment for notes
payable in the amount of $2,023,757. On November 5, 1997, the Company paid the
remaining outstanding amounts to the shareholders.
9. NOTES PAYABLE TO BANK AND NOTES PAYABLE - LEASE FINANCING
On February 20, 1997, the Company replaced its existing credit
facility with a new credit facility with a different bank which provides working
capital of up to $20.0 million with interest at either the lender's prime rate
or LIBOR plus 2.75% per annum, as determined by the Company at the time of each
advance, subject to its availability calculation based on the eligible borrowing
base. The eligible borrowing base includes certain receivables and inventories
of the Company. The credit facility also permits the bank to issue letters of
credit on behalf of the Company of up to $5.0 million, and the aggregate
principal amount of any letters of credit so issued will reduce amounts
available under the credit facility. The credit facility contains provisions
which: (I) restrict the Company's ability to make capital expenditures and
dispose of assets; (II) limit the payment of dividends or other distributions to
stockholders; (III) limit the incurrence of additional indebtedness, and; (IV)
prohibit the repurchase, redemption or retirement of any of the Company's stock.
The credit facility matures in May 1998 and the term of any letters of credit
issued thereunder must expire prior to May 1999. At December 31, 1997,
approximately $16.0 million was available under this credit facility and a
letter of credit of approximately $132,000 was outstanding.
F-13
<PAGE> 63
AVTEAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
On May 12, 1995, the Company executed a revolving line of credit
agreement with a bank. This line of credit was amended on September 29, 1995 and
again on June 13, 1996, and was paid in full on February 20, 1997.
The weighted average interest rate on short-term borrowings for the
years ended December 31, 1997, 1996 and 1995 was approximately 11%, 10% and 11%,
respectively.
On July 25, 1997, the Company entered into a sale/leaseback
arrangement in which three engines were sold for $4,274,000 and leased back by
the Company under a five-year lease which requires monthly payments of
approximately $56,300 plus applicable fees and taxes. The lease agreement
provides the Company with an option to terminate the lease and to repurchase the
engines at any time at varying rates based on the original sales price. This
transaction is accounted for as a financing, wherein the aircraft engines remain
on the books of the Company and are depreciated. The proceeds under the
sale/leaseback arrangement are recorded as a financing obligation and will be
reduced by payments under the lease. The aggregate annual maturities under this
agreement are approximately as follows: 1998, $328,000; 1999, $358,000; 2000,
$391,000; 2001, $426,000, and; 2002, $2,642,000.
10. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, short-term
borrowings and notes payable-lease financing in the accompanying financial
statements approximate their fair value because of the short-term maturity of
these instruments, and in the case of notes payable and notes payable-lease
financing because such instruments bear variable interest rates which
approximate market.
11. EMPLOYMENT AGREEMENTS
Effective January 1, 1994, the Company entered into employment
agreements with two key employees which were amended on December 31, 1995, as
described in the following paragraph. Under the terms of the original
agreements, each employee received through December 31, 1995 compensation equal
to 20% of Adjusted Net Income, as defined in such agreements. Additionally, each
of these key employees were granted options to purchase shares equivalent to up
to 10% of the Company's outstanding common shares at a price equal to the
Company's book value on the last day of the month subsequent to the exercise of
such options. On January 1, 1995, 33% of the options were exercised in exchange
for non-interest bearing notes receivable from the officers totaling
approximately $259,000.
On December 31, 1995, the employment agreements' terms were amended
to (1) reduce, effective January 1, 1996, the amount of Adjusted Net Income each
of these two officers may receive as compensation from 20% to 5%, effective
January 1, 1996; (2) pay an additional aggregate one time bonus of approximately
$1,179,000 to these officers and (3) change the exercise price of the
unexercised options to the fair market value of the Company's Class A Common
Stock as of the exercise date. The employees exercised their remaining options
on December 31, 1995 in return for noninterest bearing notes receivable from the
officers payable on demand at any time after May 31, 1996, totaling
approximately $1,360,000. On the same day, approximately $912,000 of these notes
from officers were offset against amounts due to the officers, resulting in an
outstanding balance on notes receivable from officers totaling $707,000, which
was repaid on December 12, 1996.
On December 6, 1996, the two key employees entered into the Amended
and Restated Employment Agreements (collectively, the "Employment Agreements")
with the Company. The Employment Agreements provide that the two key employees
will receive an annual base salary of $260,000 and $220,000, respectively, for
an initial term of three years expiring December 1999, as well as the right to
participate in the Company's 1996 Stock Option Plan (see Note 16) and the
Incentive Plan (as defined below). Upon termination without cause, the two key
employees will be entitled to receive two years' base salary.
The Company adopted a Key Executive Annual Incentive Plan (the
"Incentive Plan"), pursuant to which key executives of the Company may receive
bonus compensation based on the Company's performance during any fiscal year, as
determined by the Compensation Committee of the Board of Directors (the
"Committee"). Under the Incentive Plan, the Company's President and Chief
Executive Officer and Executive Vice President and other key executives
designated by the Committee are assigned a target award expressed as a
percentage of base salary in varying amounts (not to exceed 100% of the base
salary for the President and Chief Executive Officer and the Executive Vice
President and 50% for other key executives). The actual award is subject to
achievement by the Company of minimum levels of pre-tax income. The Committee
has the authority to select participants other than the President and Chief
Executive Officer and the Executive Vice President, to establish target awards
and to determine final awards in the event that the Company's operating income
is less than the level's established under the Incentive Plan during any year
the Incentive Plan remains in effect.
F-14
<PAGE> 64
AVTEAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
12. SIGNIFICANT CUSTOMERS
Pratt & Whitney accounted for 1%, 9% and 21% of the Company's net
sales for the years ended December 31, 1997, 1996 and 1995, respectively.
Accounts receivable from Pratt & Whitney accounted for 1%, 4% and 28% of total
accounts receivable at December 31, 1997, 1996 and 1995, respectively.
Dallas Aerospace accounted for 5%, 16% and 13% of net sales for the
years ended December 31, 1997, 1996 and 1995, respectively, and 10%, 10% and 24%
of total accounts receivable at December 31, 1997, 1996 and 1995, respectively.
A third customer accounted for 19% of 1997 net sales.
A fourth customer accounted for 12% of 1997 net sales.
13. CONSIGNMENT SALES
The Company has an agreement with an airline to sell certain
consigned inventory. Net sales related to this agreement include approximately
$2,032,000, $1,295,000 and $882,000 for the years ended December 31, 1995, 1996
and 1997, respectively.
14. GEOGRAPHIC AREA INFORMATION
The Company had export sales for the years ended December 31, 1997,
1996 and 1995 of approximately $3,613,000, $722,000 and $2,422,000,
respectively, primarily to customers in Latin America.
15. SHAREHOLDERS' EQUITY
On March 21, 1996, the Company amended and restated its Articles of
Incorporation pursuant to which each $1 par value outstanding share of Class A
Common Stock was converted to 4,000 shares of Class A Common Stock at a per
share par value of $.01. In addition, the Company authorized 20,000,000 shares
of $.01 per share par value preferred stock and increased the number of
authorized Class A Common Stock to 80,000,000 shares. On December 5, 1996, the
authorized shares of Common Stock was amended to be 77,000,000 shares of Class A
Common Stock and 3,000,000 shares of Class B Common Stock. All references in the
financial statements to number of shares, per share amounts and market prices of
the Company's outstanding shares have been retroactively restated to reflect the
effect of the stock conversion.
On December 6, 1996, the Company sold to a group of limited
partnerships (the "Clipper Group") in a private placement transaction an
aggregate of 1,480,000 shares of Class A Preferred Stock and 220,000 shares of
Class B Preferred Stock for an aggregate purchase price of $11,900,000 pursuant
to a Stock Purchase Agreement. Two of the limited partnerships are affiliates of
Credit Suisse First Boston Corporation. Pursuant to the Company's Second Amended
and Restated Articles of Incorporation, all of such shares of Class A Preferred
Stock have been automatically converted into an aggregate of 1,480,000 shares of
Class A Common Stock and all of such shares of Class B Preferred Stock were
converted into an aggregate of 220,000 shares of Class B Common Stock upon the
Company's initial public offering. The Clipper Group has transferable
registration rights for their shares of Common Stock.
On August 21, 1997, the Company issued and sold to The Clipper Group
in a private placement transaction an aggregate of 494,642 shares of Class A
Preferred Stock and 219,644 shares of Class B Preferred Stock for an aggregate
purchase price of $5,000,002. Pursuant to the Company's Second Amended and
Restated Articles of Incorporation, all of such shares of Class A Preferred
Stock have been automatically converted into an aggregate of 494,642 shares of
Class A Common Stock and all of such shares of Class B Preferred Stock were
converted into an aggregate of 219,644 shares of Class B Common Stock upon the
Company's initial public offering. The Clipper Group has transferable
registration rights for their shares of Common Stock.
Also, on August 21, 1997, the Company issued 327,772 shares of Class
A Common Stock valued at $2,294,404 to the Chairman of the Board of Directors of
the Company as payment for a $1,322,479 non-interest bearing note and a $701,278
interest bearing note included in notes payable to shareholders at June 30,
1997, and as payment for the purchase of the remaining inventory valued at
$270,647 under the Parati Agreement in connection with the termination of the
Parati Agreement.
F-15
<PAGE> 65
AVTEAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
On October 30, 1997, the Company, through an initial public
offering, sold 3.033 million shares of Class A Common Stock. The proceeds before
deduction of expenses amounted to $23,960,700. A portion of the proceeds was
used to repay the outstanding balance owned under the Company's existing Credit
Facility, to repay loans to shareholders and to pay officers' accrued
compensation.
Also on October 30, 1997, the Company granted to employees a total
of 250,000 options to purchase Class A Common Stock at $8.50 per share under the
Company" 1996 Stock Option Plan. The options vest over a three-year period and
are exercisable over a period of ten years. At December 31, 1997, 350,000 shares
of Class A Common Stock remain reserved for issuance under future option grants.
On November 28, 1997, the Company issued 330,325 additional shares
of Class A Common Stock pursuant to the exercise of the over-allotment option
granted to the underwriters. Net proceeds before deduction of expenses amounted
to approximately $2,611,000.
F-16
<PAGE> 66
AVTEAM, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1997
16. STOCK OPTIONS
The Company, under its 1996 Stock Option Plan, may grant a maximum
of 600,000 options to purchase Class A Common Shares at prices not less than
100% of the fair market value at the date of option grant. On October 31, 1997,
the date of its initial public offering, the Company granted a total of 250,000
options to all of its employees. Such options vest over a three-year period at
rates of 35%, 35% and 30%. The option exercise price is $8.50 per share. The
options have a maximum term of ten years. A total of 350,000 options remain
available for future grants.
The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for the
stock option plan. Had compensation cost for the Company's plan been determined
based on the fair value at the grant date for awards in 1997 consistent with the
provisions of SFAS No. 123, the Company's net earnings would have been changed
to the pro forma amounts indicated below (in thousands):
<TABLE>
<CAPTION>
1997
----
<S> <C> <C>
Net income As reported $3,934
Pro forma $3,861
Earnings per common share - As reported $ 0.65
basic Pro forma $ 0.64
Earnings per common share - As reported $ 0.52
assuming dilution Pro forma $ 0.51
</TABLE>
The fair value of each option grant is estimated at $8.21 on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions used: dividend yield of 0%, expected volatility of 1.849%; risk-free
interest rate of 5%; and expected lives of five years.
F-17
<PAGE> 67
AVTEAM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents ......................................................... $ 802 $ 18,676
Trade accounts receivable, net .................................................... 8,111 5,751
Inventory ......................................................................... 39,333 24,480
Prepaid expenses .................................................................. 541 1,153
Deposits .......................................................................... 7,488 432
Deferred tax asset ................................................................... 102 80
-------- --------
Total current assets ................................................................. 56,377 50,572
Revenue producing equipment, at cost 6,935 ........................................... 9,567 7,152
Accumulated depreciation .......................................................... (377) (217)
-------- --------
9,190 6,935
Property and equipment, at cost ...................................................... 1,783 1,543
Accumulated depreciation ......................................................... (688) (605)
-------- --------
1,095 938
Other assets ......................................................................... 270 509
-------- --------
Total assets ..................................................................... $ 66,932 $ 58,954
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................. $ 6,970 $ 706
Accrued expenses ................................................................. 903 1,654
Customer deposits ................................................................ 3,961 344
Current portion of notes payable-lease financing ................................. 140 328
Current portion of capital lease obligations ..................................... 109 115
Total current liabilities ............................................................ 12,083 3,147
Capital lease obligations, net of current portion .................................... 161 186
Notes payable - lease financing ...................................................... 1,532 3,817
Shareholders' equity:
Preferred stock, $.01 par value, 20,000,000 shares authorized, no shares issued
or outstanding in 1997, 1,974,642 shares of Class A Preferred Stock and
439,644 shares of Class B Preferred Stock issued and outstanding in 1996 ..... -- --
Class A Common Stock, $.01 par value, 77,000,000 shares authorized,
10,665,739 shares issued and outstanding ..................................... 107 107
Class B Common Stock, $.01 par value, 3,000,000 shares authorized, 439,644
shares issued and outstanding ................................................ 4 4
Additional paid-in capital ....................................................... 47,444 47,444
Retained earnings ................................................................ 5,601 4,249
-------- --------
Total shareholders' equity ........................................................... 53,156 51,804
-------- --------
Total liabilities and shareholders' equity ........................................... $ 66,932 $ 58,954
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-18
<PAGE> 68
AVTEAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
----------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales ............................................................... $ 13,117 $ 8,413
Cost of sales ........................................................... 9,232 5,716
----------- ----------
Gross profit ................................................... 3,885 2,697
Operating expenses ...................................................... 1,689 1,349
----------- ----------
Income from operations .................................................. 2,196 1,348
Interest expense, net ................................................... 50 129
----------- ----------
Income before provision (credit) for income taxes ....................... 2,146 1,219
Provision (credit) for income taxes:
Current ........................................................ 816 545
Deferred ....................................................... (22) (101)
----------- ----------
794 444
----------- ----------
Net income .............................................................. $ 1,352 $ 775
=========== ==========
Net income per common equivalent share - basic .......................... $ 0.12 $ 0.16
=========== ==========
Weighted average number of common equivalent shares outstanding ......... 11,105,383 5,000,000
=========== ==========
Net income per common equivalent share - diluted ........................ $ 0.12 $ 0.12
=========== ==========
Weighted average number of common equivalent shares outstanding - diluted 11,135,631 6,700,000
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-19
<PAGE> 69
AVTEAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
-------- -------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................................. $ 1,352 $ 775
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization ..................................... 352 36
Bad debt expense .................................................. 47 13
Deferred tax credit ............................................... (22) (101)
Changes in operating assets and liabilities:
Trade accounts receivable .................................. (2,407) 607
Inventory .................................................. (14,853) (6,797)
Prepaid expenses and deposits .............................. (6,444) (788)
Other assets ............................................... 239 (3)
Accounts payable ........................................... 6,264 (318)
Accrued expenses/customer deposits ......................... 2,866 378
Due to shareholders and affiliates ......................... -- 17
-------- -------
Net cash used in operating activities ............. (12,606) (6,181)
INVESTING ACTIVITIES
Purchases of revenue producing equipment .................................... (4,985) --
Purchases of property and equipment ......................................... (240) (108)
-------- -------
Net cash used in investing activities ............. (5,225) (108)
FINANCING ACTIVITIES
Payments on capital leases .................................................. (31) (14)
Net payments on notes payable ............................................... (12) --
Net proceeds from short-term line of credit ................................. -- 7,733
-------- -------
Net cash (used in) provided by financing activities (43) 7,719
-------- -------
Net (decrease) increase in cash and cash equivalents (17,874) 1,430
Cash and cash equivalents at beginning of period ... 18,676 --
-------- -------
Cash and cash equivalents at end of year ........... $ 802 $ 1,430
======== =======
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid ............................................................... $ 50 $ 122
-------- -------
Income taxes paid ........................................................... $ 31 --
-------- -------
</TABLE>
See notes to condensed consolidated financial statements.
F-20
<PAGE> 70
AVTEAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1998
1. GENERAL
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month periods
ended March 31, 1998, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further information, refer to
the financial statements and footnotes thereto included in the Company's 1997
Annual Report on Form 10-K for the year ended December 31, 1997.
The Company has in the past and may in the future experience
substantial fluctuations in its results of operations as a result of seasonal
effects. The Company believes that demand for aircraft engines, engine parts and
airframe components ("Engines and Components") is seasonal, with increased
demand during the summer months. This seasonality exists because aircraft engine
performance is directly related to ambient temperature (as temperatures rise it
is more difficult for aircraft engines to perform properly). As a result,
certain aircraft are removed from service during the summer months due to the
failure of those particular aircraft engines to comply with certain exhaust gas
temperature limitations. Aircraft engines of the same type and model can have
different performance capabilities. The summer months also include peak travel
periods during which aircraft utilization levels are high. In addition, the
timing of whole aircraft engine sales, at greater unit purchase prices than the
installed parts and components, may cause significant fluctuations in the
Company's quarterly results of operations.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company classifies as cash equivalents all highly liquid
investments with a maturity of three months or less at the time of purchase.
INVENTORY
Inventory of aircraft engines is stated at the lower of specific cost
(including overhaul costs) or market. Initially, cost of sales of engine parts
from disassembled engines are recognized based on margins realized from recently
sold, similar groups of engine parts. Once the remaining parts have been fully
inspected and their condition has been determined, the cost of subsequent sales
of engine parts from that engine are determined using the relationship of the
remaining costs of that engine to estimated sales. Cost of sales for individual
parts purchased for resale are reflected based on the specific identification
method. Cost of sales of airframe components are recognized using margins based
on the relationship of cost to revenue estimates as determined by the Company
through the analysis of the market price of such airframe components.
REVENUE RECOGNITION
Revenues from the sale of engine parts and airframe components are
recognized when shipped.
Revenues from the sale of aircraft engines are recognized when title
and risk of ownership are transferred to the customer, which generally is upon
shipment or customer pick-up. In certain instances prior to shipment or customer
pick-up, certain customers request the Company to hold aircraft engines until
the customer determines the most economical means of taking possession. The
Company records revenues under such circumstances only if: (1) payment is
received or is receivable within 30 days; (2) title and risk of ownership is
transferred to the customer; (3) the customer's request that the transaction be
F-21
<PAGE> 71
AVTEAM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-- CONTINUED
(UNAUDITED)
on a bill-and-hold basis is in writing; (4) there is a fixed schedule for
delivery of the engines that is within 30 days of the sale; (5) the Company does
not have any specific performance obligations; (6) the engines are segregated
from other engines and are not subject to being used to meet other customer's
needs and (7) the engines are ready for shipment.
The Company enters into consignment arrangements in which it warehouses
items, determines sales prices, arranges for shipment to customers, and collects
accounts receivable. The Company reflects sales under such arrangements in net
sales and the cost of such sales in cost of sales, since the Company bears the
risk of ownership once the items are sold.
WARRANTIES AND PRODUCT RETURNS
Generally, the Company does not provide service warranties in addition
to those provided by repair facilities and as a result does not record accruals
for warranties. The Company has established programs which, under specific
conditions, enable its customers to return inventory. The effect of these
returns is estimated based on a percentage of sales and historical experience
and sales are recorded net of a provision for estimated returns.
PROPERTY AND EQUIPMENT
Property and equipment (including assets under capital leases) is
carried at cost and is depreciated using accelerated and straight-line methods
over the lesser of the lease terms or the estimated useful lives of the assets.
The lives used are as follows:
<TABLE>
<S> <C>
Office furniture and equipment...................... 3-7 years
Warehouse and transport equipment................... 5-7 years
Leasehold improvements.............................. 3-5 years
</TABLE>
REVENUE PRODUCING EQUIPMENT
Revenue producing equipment is comprised of engines and aircraft leased to users
on a short-term basis. Such engines and aircraft are carried at cost and are
depreciated using the straight-line method over periods between five and ten
years. Two of such engines are the subject of a sale/leaseback arrangement. The
proceeds under the arrangement are recorded as a financing obligation and will
be reduced by payments under the lease over its five-year term. The lease
agreement provides the Company with an option to terminate the lease and to
repurchase the engines at any time after one year at varying rates based on the
original sales price.
CONCENTRATION OF CREDIT RISK
Accounts receivable are primarily from domestic and foreign passenger
airlines, freight and package carriers, charter airlines, aircraft leasing
companies and service providers to such companies. The Company performs ongoing
evaluations of its trade accounts receivable customers, monitors its exposure
for credit losses and sales returns and does not require collateral.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-22
<PAGE> 72
AVTEAM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
NET INCOME PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share" which requires the Company to replace its presentation of
primary earnings per share with a presentation of basic earnings per share and
requires dual presentation of basic and diluted earnings per share on the face
of the income statement. The principal difference between earnings per share
presented by the Company in its previous SEC filings and the presentation
required by the new statement and the new interpretation required by the SEC is
the inclusion of the 2,414,286 shares of preferred stock only from their date of
issue until their conversion to common shares on October 30, 1997, the date of
the Company's initial public offering, for the purposes of calculating diluted
earnings per share only. Previously these shares were included in the
calculation of both primary and fully diluted earnings per share for all periods
presented.
The following table sets forth the computation of basic and diluted net income
and net income per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
----------- ----------
<S> <C> <C>
Numerator:
Net income ........................................... $ 1,352,000 $ 775,000
=========== ==========
Denominator:
Denominator for basic net income per share - weighted
average shares .................................. 11,105,383 5,000,000
Effect of dilutive securities
Convertible preferred stock ......................... -- 1,700,000
Employee stock options .............................. 30,248 --
----------- ----------
Dilutive potential common shares ............................ 30,248 1,700,000
----------- ----------
Denominator for diluted earnings per share - adjusted
weighted - average shares and assumed conversions $11,135,631 $6,700,000
=========== ==========
Net income per common share - basic ......................... $ 0.12 $ 0.16
=========== ==========
Net income per common share - diluted ....................... $ 0.12 $ 0.12
=========== ==========
</TABLE>
DEPOSITS AND CUSTOMER DEPOSITS
The Company has entered into various contracts for the purchase and
sale of whole engines. Occasionally, these contracts require a substantial down
payment to fix the consideration of such engines and to allow the time to
perform due diligence work. These deposits are refundable.
SUBSEQUENT EVENT
On April 30, 1998, the Company entered into a Credit Agreement with a
syndicate of lenders. This agreement provides for a revolving credit facility in
the maximum aggregate principal of up to $70 million. The revolving credit
facility includes a working capital revolving loan facility of up to $45 million
and an acquisition revolving loan facility of up to $25 million. The Credit
Agreement expires on April 30, 2001.
F-23
<PAGE> 73
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
AVTEAM, Inc.
We have audited the consolidated financial statements of AVTEAM, Inc.
and Subsidiary as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, and have issued our report thereon dated
February 16, 1998 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed on Item 16(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Miami, Florida
February 16, 1998
S-1
<PAGE> 74
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AVTEAM, INC. AND SUBSIDIARY
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COSTS BALANCE AT
OF AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR
- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts ...... $ 53 $145 $ 84(1) $114
Allowance for sales returns .......... 162 669 162(2) 669
---- ---- ---- ----
Total ................ $215 $814 $246 $783
==== ==== ==== ====
Year Ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts ...... $114 $ 88 $ 13(1) $189
Allowance for sales returns .......... 669 211 669(2) 211
---- ---- ---- ----
Total ................ $783 $299 $682 $400
==== ==== ==== ====
Year Ended December 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts ...... $189 $136 $ 51(1) $274
Allowance for sales returns .......... 211 428 211(2) 428
---- ---- ---- ----
Total ................ $400 $564 $262 $702
==== ==== ==== ====
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Application of credit memos against reserve.
S-2
<PAGE> 75
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary .............................. 2
Risk Factors .................................... 6
Use of Proceeds ................................. 12
Price Range of Common Stock ..................... 12
Dividend Policy ................................. 12
Capitalization .................................. 13
Selected Financial Data ......................... 14
Management's Discussion and Analysis of Financial
Condition and Results of Operations ......... 16
Business ........................................ 22
Management ...................................... 31
Certain Transactions ............................ 36
Principal and Registering Shareholders .......... 38
Description of Capital Stock .................... 40
Shares Eligible For Future Sale ................. 44
Plan of Distribution ............................ 45
Legal Matters ................................... 45
Experts ......................................... 46
Additional Information .......................... 46
Index to Financial Statements ................... F-1
</TABLE>
-------------------
- --------------------------------------------------------------------------------
AVTEAM, Inc.
2,360,722 Shares
Class A Common Stock
($.01 par value per share)
PROSPECTUS
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of certain estimated
expenses incurred in connection with the registration of the securities being
registered hereby, other than selling commissions and fees and expenses of
advisors to the Registering Shareholders:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........................ $ 7,704.07
Printing and engraving expenses............................................ $ 1,500.00
Legal fees and expenses.................................................... $35,000.00
Accounting fees and expenses............................................... $10,000.00
Miscellaneous.............................................................. --
----------
Total............................................................ $54,204.07
==========
</TABLE>
All amounts except the Securities and Exchange Commission registration
fee are estimated. The Company intends to pay all expenses of registration with
respect to shares being registered hereby by the Registering Shareholders
hereunder, with the exception of selling commissions and fees and expenses of
advisors to the Registering Shareholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has authority under the Florida General Corporation Act to
indemnify all directors and officers to the extent provided in such statute. The
Company's Articles of Incorporation, as amended, provide that the Company shall
indemnify its directors to the fullest extent permitted by law either now or
hereafter. The Company has also entered into an agreement with each of its
directors and certain of its officers wherein it has agreed to indemnify each of
them to the fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On January 1, 1995, pursuant to the terms of certain stock options granted
by the Company, certain executive officers of the Company acquired an aggregate
of 71.35 shares of the then outstanding class of common stock, par value $1.00
per share, for an aggregate as evidenced by certain promissory notes each in the
amount of $259,097. Such securities were issued pursuant to exemptions set forth
in Section 3(b) of the Securities Act.
On December 31, 1995, pursuant to the terms of certain stock options granted
by the Company, certain executive officers of the Company acquired an aggregate
of 178.65 shares of the then outstanding class of common stock, par value $1.00
per share, as evidenced by certain promissory notes in the aggregate amount of
$1,120,245. Such securities were issued pursuant to exemptions set forth in
Section 3(b) of the Securities Act.
In March 1996, the Company amended and restated its Articles of
Incorporation, pursuant to which each share of the then outstanding class of
common stock, par value $1.00 per share, was converted into 4,000 shares of the
currently outstanding class of Common Stock, par value $.01 per share. The
Company issued an aggregate of 5,000,000 shares of Common Stock to the
stockholders of the Company for no additional consideration in connection with
such share conversion.
II-1
<PAGE> 77
On December 6, 1996, the Company issued and sold to The Clipper Group
in a private sale 1,480,000 shares of Class A Preferred Stock and 220,000 shares
of Class B Preferred Stock for an aggregate purchase price of $11.9 million. On
August 21, 1997, the Company issued and sold to The Clipper Group in a private
sale 494,642 shares of Class A Preferred Stock and 219,644 shares of Class B
Preferred Stock for an aggregate purchase price of approximately $5.0 million.
All of the outstanding shares of Class A Preferred Stock automatically converted
into an aggregate of 1,974,642 shares of Class A Common Stock and all of the
outstanding shares of Class B Preferred Stock automatically converted into an
aggregate of 439,644 shares of Class B Common Stock upon the consummation of the
Company's initial public offering of Class A Common Stock which occurred on
October 31, 1997.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
3.1 -- Third Amended and Restated Articles of Incorporation of Registrant
previously filed as an exhibit to Registrant's Registration Statement
on Form S-1, filed with the Commission on October 15, 1997
3.2 -- Second Amended and Restated By-Laws of Registrant previously filed
as an exhibit to Registrant's Registration Statement on Form S-1, filed
with the Commission on October 15, 1997
4.1 -- Specimen Certificate for the Class A Common Stock previously filed
as an exhibit to Registrant's Registration Statement on Form S-1, filed
with the Commission on March 24, 1997
5.1 -- Opinion of Baker & McKenzie*
10.1 -- Surplus Parts Supply Agreement dated June 12, 1995 between
Registrant and United Technologies Corporation (confidential treatment
of certain portions of Exhibit 10.02 was granted by the Commission)
previously filed as an exhibit to Registrant's Registration Statement
on Form S-1, filed with the Commission on March 24, 1997
10.2 -- Letter Agreement dated September 5, 1995 between Registrant and
Parati Corporation previously filed as an exhibit to Registrant's
Registration Statement on Form S-1, filed with the Commission on March
24, 1997
10.3 -- Amended and Restated Employment Agreement dated December 6, 1996
between Registrant and Donald A. Graw previously filed as an exhibit to
Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
10.4 -- Amended and Restated Employment Agreement dated December 6, 1996
between Registrant and Jaime J. Levy previously filed as an exhibit to
Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
10.5 -- AVTEAM Tax Allocation and Indemnification Agreement dated December
5, 1996 between Registrant and Donald A. Graw previously filed as an
exhibit to Registrant's Registration Statement on Form S-1, filed with
the Commission on March 24, 1997
10.6 -- Lease Agreement dated December 28, 1994 between Registrant and
Sunbeam Properties, Inc.
10.7 -- Lease Agreement dated November 13, 1995 between Registrant and
Sunbeam Properties, Inc. previously filed as an exhibit to Registrant's
Registration Statement on Form S-1, filed with the Commission on March
24, 1997
10.8 -- Indemnification Agreement between Registrant and Donald A. Graw
effective as of April 12, 1996 previously filed as an exhibit to
Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
</TABLE>
- ---------
* Filed herewith.
II-2
<PAGE> 78
<TABLE>
<S> <C>
10.9 -- Indemnification Agreement between Registrant and Jaime J. Levy
effective as of April 12, 1996 previously filed as an exhibit to
Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
10.10 -- Indemnification Agreement between Registrant and Mark S. Koondel
effective as of April 12, 1996 previously filed as an exhibit to
Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
10.11 -- Indemnification Agreement between Registrant and Leon Sragowicz
effective as of April 12, 1996 previously filed as an exhibit to
Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
10.12 -- Indemnification Agreement between Registrant and Robert Munson
effective as of April 12, 1996 previously filed as an exhibit to
Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
10.13 -- Indemnification Agreement between Registrant and Richard Preston
effective as of April 12, 1996 previously filed as an exhibit to
Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
10.14 -- Indemnification Agreement between Registrant and Dallas Cobb
effective as of March 20, 1996 previously filed as an exhibit to
Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
10.15 -- Indemnification Agreement between Registrant and Bryan Thomas
McFarland effective as of March 20, 1997 previously filed as an exhibit
to Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
10.16 -- Indemnification Agreement between Registrant and Eugene P. Lynch
dated effective as of March 20, 1997 previously filed as an exhibit to
Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
10.17 -- Indemnification Agreement dated as of March 30, 1998 between the
Registrant and Sanford Miller.*
10.18 -- AVTEAM, Inc. 1996 Stock Option Plan previously filed as an exhibit
to Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
10.19 -- AVTEAM, Inc. Key Executive Annual Incentive Plan previously filed as
all exhibit to Registrant's Registration Statement on Form S-1
previously filed with the Commission on March 24, 1997.
10.20 -- Stock Purchase Agreement dated December 6, 1996 between Registrant
and The Clipper Group previously filed as all exhibit to Registrant's
Registration Statement on Form S-1 previously filed with the Commission
on March 24, 1997.
10.21 -- Registration Rights Agreement dated December 6, 1996 between
Registrant and The Clipper Group previously filed as an exhibit to
Registrant's Registration Statement on Form S-1, filed with the
Commission on March 24, 1997
10.22 -- AVTEAM Tax Allocation and Indemnification Agreement dated December
5, 1996 between Registrant and Leon Sragowicz previously filed as an
exhibit to Registrant's Registration Statement on Form S-1, filed with
the Commission on March 24, 1997
10.23 -- AVTEAM Tax Allocation and Indemnification Agreement dated December
5, 1996 between Registrant and Richard Preston previously filed as an
exhibit to Registrant's Registration Statement on Form S-1, filed with
the Commission on March 24, 1997
10.24 -- AVTEAM Tax Allocation and Indemnification Agreement dated December
5, 1996 between Registrant and Jaime J. Levy previously filed as an
exhibit to Registrant's Registration Statement on Form S-1, filed with
the Commission on March 24, 1997
10.25 -- Lease Modification Agreement dated August 28, 1997 between
Registrant and Sunbeam Properties, Inc. previously filed as an exhibit
to Registrant's Registration Statement on Form S-1, filed with the
Commission on October 15, 1997
10.26 -- Agreement for Purchase of Additional Securities dated August 21,
1997 between Registrant and The Clipper Group previously filed as an
exhibit to Registrant's Registration Statement on Form S-1, filed with
the Commission on September 30, 1997
</TABLE>
- ---------
* Filed herewith.
II-3
<PAGE> 79
<TABLE>
<S> <C>
10.27 -- Agreement Dated August 21, 1997 between Registrant, Parati
Corporation and Leon Sragowicz previously filed as an exhibit to
Registrant's Registration Statement on Form S-1, filed with the
Commission on September 30, 1997
10.28 -- Indemnification Agreement between Registrant and Paula Sparks
previously filed as an exhibit to Registrant's Registration Statement
on Form S-1, filed with the Commission on October 15, 1997
10.29 -- Credit Agreement dated as of April 30, 1998 by and among the
Registrant, AVTEAM Aviation Field Services, Inc., NationsBank, N.A. and
certain lenders identified therein, previously filed on Registrant's
Quarterly Report on Form 10-Q, filed with the Commission on May 15,
1998
10.30 -- Employment Agreement dated as of March 1, 1998 between the
Registrant and Dallas Cobb previously filed as an exhibit to
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on May 15, 1998
10.31 -- Employment Agreement dated as of January 5, 1998 between the
Registrant and Bryan T. McFarland previously filed as an exhibit to
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on May 15, 1998
10.32 -- Employment Agreement dated as of March 24, 1997 between the
Registrant and Paula Sparks previously filed with the Commission as an
exhibit to Registrant's Quarterly Report on Form 10-Q, filed with the
Commission on May 15, 1998
10.33 -- Registration Rights Agreement dated as of May 6, 1998 between the
Registrant and the Equitable Life Assurance Society of the United
States Separate Account No. 3.*
10.34 -- Registration Rights Agreement dated as of May 6, 1998 between the
Registrant and Credit Suisse First Boston Corporation.*
10.35 -- Registration Rights Agreement dated as of May 26, 1998 between the
Registrant and the Baron Asset Fund.*
10.36 -- Registration Rights Agreement dated as of May 6, 1998 between the
Registrant and the Baron Small Cap Fund.*
11.1 -- Statement Regarding Computation of Per Share Earnings previously
filed as an exhibit to Registrant's Registration Statement on Form S-1,
filed with the Commission on September 30, 1997
21.1 -- List of Subsidiaries of the Company*
23.1 -- Consent of Baker & McKenzie (included in Exhibit 5.1)*
23.2 -- Consent of Ernst & Young LLP*
24.1 -- Powers of Attorney (as set forth on the signature page of the
Registration Statement)*
27.1 -- Financial Data Schedule for the Year Ended December 31, 1997
previously filed as an exhibit to Registrant's Annual Report on Form
10-K, filed with the Commission on March 31, 1998.
27.2 -- Financial Data Schedule for the Period Ended March 31, 1998
previously filed as an exhibit to Registrant's Quarterly Report on Form
10-Q, filed with the Commission on May 15, 1998.
</TABLE>
- ---------
* Filed herewith.
(b) Financial Statement Schedules:
<TABLE>
<CAPTION>
SCHEDULE
NUMBER SCHEDULE
------ --------
<S> <C>
Schedule II -- Valuation and Qualifying Accounts for the Years Ended
December 31, 1995, 1996 and 1997
</TABLE>
II-4
<PAGE> 80
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 14, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter, has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b), if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the Registrant has caused this Form S-1 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Miami, Florida, on the 28th day of May, 1998.
AVTEAM, INC.
By: /s/ Donald A. Graw
-------------------------------------
Donald A. Graw,
Chairman of the Board of Directors,
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below hereby authorizes
Donald A. Graw and Mark S. Koondel, and each of them acting individually with
full power of substitution, to file one or more amendments, including
post-effective amendments, to this Registration Statement or to file a new
registration statement pursuant to Rule 462(b) of the Securities Act for the
purpose of registering additional shares of Common Stock, which amendments may
make such changes, or new registration statement may contain such information,
as Donald A. Graw and Mark S. Koondel deem appropriate, and each person whose
signature appears below, individually and in each capacity stated below, hereby
appoints Donald A. Graw and Mark S. Koondel, and each of them acting
individually with full power of substitution, as Attorney-in-Fact to execute his
name and on his behalf, to file any such amendments to this Registration
Statement or any such new registration statement.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/Donald A. Graw Chairman of the Board of Directors, May 29, 1998
- --------------------------- President, Chief Executive Officer,
Donald A. Graw (Principal Executive Officer)
/s/Mark S. Koondel Chief Financial Officer, May 29, 1998
- --------------------------- Treasurer (Principal Financial
Mark S. Koondel and Accounting Officer)
/s/Jaime J. Levy Executive Vice President, May 29, 1998
- --------------------------- Director
Jaime J. Levy
/s/Richard Preston Secretary, Director May 29, 1998
- ---------------------------
Richard Preston
/s/Robert Munson Director May 29, 1998
- ---------------------------
Robert Munson
/s/Sanford Miller Director May 29, 1998
- ---------------------------
Sanford Miller
/s/Eugene P. Lynch Director May 29, 1998
- ---------------------------
Eugene P. Lynch
</TABLE>
<PAGE> 1
EXHIBIT 5.1
BAKER & MCKENZIE
May 28, 1998
AVTEAM, Inc.
3230 Executive Way
Miramar, Florida 33025
Gentlemen:
AVTEAM, Inc., a Florida corporation (the "Company"), is filing with the
Securities and Exchange Commission a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"). Such Registration Statement relates to the registration by the Company
of 2,360,722 shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), of the Company pursuant to certain Registration Rights
Agreements (the "Registration Rights Agreements") dated as of May 6, 1998
between the Company and each of (i) The Equitable Life Assurance Society of the
United States Separate Account No. 3, (ii) the Baron Asset Fund, (iii) the Baron
Small Cap Fund and (iv) Credit Suisse First Boston Corporation (collectively,
the "Registering Shareholders"). We have acted as counsel to the Company in
connection with the preparation and filing of the Registration Statement.
In connection with the Registration Statement, we have examined, considered
and relied upon copies of the following documents (collectively, the
"Documents"): (i) the Company's Articles of Incorporation, as amended, and the
bylaws, as amended; (ii) resolutions of the Company's Board of Directors
authorizing the registration of the Class A Common Stock to be registered by the
Company on behalf of the Registering Shareholders; (iii) the Registration
Statement and schedules and exhibits thereto; and (iv) such other documents and
instruments that we have deemed necessary for the expression of the opinions
herein contained. In making the foregoing examinations, we have assumed without
investigation, the genuineness of all signatures and the authenticity of all
documents submitted to us as originals, the conformity to authentic original
documents of all documents submitted to us as copies, and the veracity of the
documents. As to various questions of fact material to the opinion expressed
below, we have relied, to the extent we deemed reasonably appropriate, upon the
representations or certificates of officers and/or directors of the Company and
upon documents, records and instruments furnished to us by the Company, without
independently verifying the accuracy of such certificates, documents, records or
instruments.
Based upon the foregoing, and subject to the qualifications set forth below,
we are of the opinion that the Class A Common Stock to be registered by the
Company pursuant to the Registration Statement on behalf of the Registering
Shareholders has been duly and validly authorized and issued and is fully paid
and non-assessable.
Although we have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement, our engagement has been
limited to certain matters about which we have been consulted. Consequently,
there may exist matters of a legal nature involving the Company in which we have
not been consulted and have not represented the Company. We express no opinion
as to the laws of any jurisdiction other than the laws of the State of Florida.
This opinion letter is limited to the matters stated herein and no opinions may
be implied or inferred beyond the matters expressly stated herein. The opinions
expressed herein are given as of this date, and we assume no obligation to
update or supplement our opinions to reflect any facts or circumstances that may
come to our attention or any change in law that may occur or become effective at
a later date.
<PAGE> 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations promulgated thereunder.
Sincerely,
BAKER & MCKENZIE
By: /s/ Andrew Hulsh
-----------------------------
Andrew Hulsh
2
<PAGE> 1
Exhibit 10.17
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is dated as of March
30, 1998 by and between AVTEAM, INC., a Florida corporation (the Company"), and
SANFORD MILLER (the "Indemnitee").
WITNESSETH:
WHEREAS, it is essential to the Company to retain and attract as
directors the most capable persons available;
WHEREAS Indemnitee is a director of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner and in part to provide Indemnitee with
specific contractual assurance that the indemnification protection provided by
the Articles of Incorporation of the Company, as amended (the "Articles of
Incorporation"), and Amended and Restated Bylaws of the Company, as amended,
(the "Bylaws") will be available to Indemnitee (regardless of, among other
things, any amendment to or revocation of such Articles of Incorporation and
Bylaws or any change in the composition of the Company's Board of Directors or
acquisition transaction relating to the Company), and in order to induce
Indemnitee to continue to provide services to the Company as a director thereof,
the Company wishes to provide in this Agreement for the indemnification of and
the advancing of expenses to Indemnitee to the fullest extent (whether partial
or complete) permitted by law and as set forth in this Agreement, and, to the
extent insurance is maintained, for the continued coverage of Indemnitee under
the Company's directors and officers' liability insurance policies.
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties agree as follows:
1. CERTAIN DEFINITIONS.
(a) CHANGE IN CONTROL: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly of securities of the Company representing twenty percent
(20%) or more of the total voting power represented
<PAGE> 2
by the Company's then outstanding Voting Securities, or (ii) during any period
of two (2) consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least eighty percent (80%) of
the total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company (in one transaction or a series of transactions) of all or substantially
all the Company's assets.
(b) CLAIM: any threatened, pending or completed action, suit,
proceeding or alternate dispute resolution mechanism, or any inquiry, hearing or
investigation, whether conducted by the Company or any other party, that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternate dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
(c) EXPENSES: include attorneys' fees and all other costs, travel
expenses, fees of experts, transcript costs, filing fees, witness fees,
telephone charges, postage, delivery service fees, expenses and obligations of
any nature whatsoever paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
(d) INDEMNIFIABLE EVENT: any event or occurrence that takes place
either prior to or after the execution of this Agreement related to the fact
that Indemnitee is or was a director, officer, employee, agent or fiduciary of
the Company, or is or was serving at the request of the Company as a director,
officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise, or
by reason of anything done or not done by Indemnitee in any such capacity.
(e) POTENTIAL CHANGE IN CONTROL: shall be deemed to have occurred if
(i) the Company enters into an agreement or arrangement, the consummation of
which would result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control; (iii)
any person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
who is or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing ten percent (10%) or more of the combined
<PAGE> 3
voting power of the Company's then outstanding Voting Securities, increases his
beneficial ownership of such securities by five percent (5%) or more over the
percentage so owned by such person on the date hereof; or (iv) the Board of
Directors adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control has occurred.
(f) REVIEWING PARTY: any appropriate person or body consisting of a
member or members of the Company's Board of Directors or any other person or
body appointed by the Board who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) INDEPENDENT LEGAL COUNSEL: Independent Legal Counsel shall refer to
an attorney, selected in accordance with the provisions of SECTION 3 hereof, who
shall not have otherwise performed services for the Company or Indemnitee within
the last five years (other than in connection with seeking indemnification under
this Agreement). Independent Legal Counsel shall not be any person who, under
the applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement, nor shall
Independent Legal Counsel be any person who has been sanctioned or censured for
ethical violations of applicable standards of professional conduct.
(h) VOTING SECURITIES: any securities of the Company which vote
generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT.
(a) In the event Indemnitee was, is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or other
participant in, a Claim by reasons of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
thirty (30) days after written demand is presented to the Company, against any
and all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim and any federal, state, local or
foreign taxes imposed on the Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement (including the creation of the
trust referred to in SECTION 4 hereof). If so requested by Indemnitee, the
Company shall advance (within five (5) business days of such request) any and
all Expenses to Indemnitee (an "Expense Advance"). Notwithstanding anything in
this Agreement to the contrary and except as provided in SECTION 5, prior to a
Change in Control Indemnitee shall not be entitled to indemnification pursuant
to this Agreement in connection with any Claim initiated by Indemnitee against
the Company or any director or officer of the Company unless the Company has
joined in or consented to the initiation of such Claim.
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under SECTION 2(A) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in SECTION 3
<PAGE> 4
hereof is involved) that Indemnitee would not be permitted to be indemnified
under applicable law, and (ii) the obligation of the Company to make an Expense
Advance pursuant to SECTION 2(A) shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced legal proceedings in a court of competent jurisdiction
to secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for Expense Advances shall be
unsecured and no interest shall be charged thereon. If there has not been a
Change in Control, the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control, (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control) the
Reviewing Party shall be the Independent Legal Counsel referred to in SECTION 3
hereof. If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation in any court in the State of Florida
having subject matter jurisdiction thereof and in which venue is proper seeking
an initial determination by the court or challenging any such determination by
the Reviewing Party or any aspect thereof, or the legal or factual bases
therefor and the Company hereby consents to service of process and to appear in
any such proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then Independent Legal Counsel shall be
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld) and such Independent Legal Counsel shall determine
whether the officer or director is entitled to indemnity payments and Expense
Advances under this Agreement or any other agreement of Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events. Such Independent Legal Counsel, among other
things, shall render its written opinion of the Company and Indemnitee as to
whether and to what extent the Indemnitee will be permitted to be indemnified.
The Company agrees to pay the reasonable fees of the Independent Legal Counsel
and to indemnify fully such Independent Legal Counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or the engagement of Independent Legal
Counsel pursuant hereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in
Control, the Company shall, upon written request by Indemnitee, create a trust
for the benefit of Indemnitee and from time to time upon written request of
Indemnitee shall fund such trust in an
<PAGE> 5
amount sufficient to satisfy any and all Expenses reasonably anticipated at the
time of each such request to be incurred in connection with investigating,
preparing for and defending any Claim relating to an Indemnifiable Event, and
any and all judgments, fines, penalties and settlement amounts of any and all
Claims relating to an Indemnifiable Event from time to time actually paid or
claimed, reasonably anticipated or proposed to be paid. The amount or amounts to
be deposited in the trust pursuant to the foregoing funding obligation shall be
determined by the Reviewing Party, in any case in which the Independent Legal
Counsel referred to above is involved. The terms of the trust shall provide that
upon a Change in Control (i) the trust shall not be revoked or the principal
thereof invaded, without the written consent of Indemnitee, (ii) the trustee
shall advance, within five (5) business days of a request by Indemnitee, any and
all Expenses to indemnitee (and Indemnitee hereby agrees to reimburse the trust
under the circumstances under which Indemnitee would be required to reimburse
the Company under SECTION 2(B) of this Agreement), (iii) the trust shall
continue to be funded by the Company in accordance with the funding obligation
set forth above, (iv) the trustee shall promptly pay to Indemnitee all amounts
for which Indemnitee shall be entitled to indemnification pursuant to this
Agreement or otherwise, and (v) all unexpended funds in such trust shall revert
to the Company upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that Indemnitee has been fully
indemnified under the terms of this Agreement. The trustee shall be chosen by
Indemnitee. Nothing in this SECTION 4 shall relieve the Company of any of its
obligations under this Agreement. All income earned on the assets held in the
trust shall be reported as income by the Company for federal, state, local and
foreign tax purposes.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within five business days of such request)
advance such expenses to Indemnitee, which are incurred by Indemnitee in
connection with any claim asserted against or in connection with any action
brought by Indemnitee for (i) indemnification or advance payment of Expenses by
the Company under this Agreement or any other agreement or Articles of
Incorporation or Bylaws of the Company now or hereafter in effect relating to
Claims for Indemnifiable Events and/or (ii) recovery under any directors' and
officers' liability insurance policies maintained by the Company, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
6. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgment, fines, penalties and amounts paid in
settlement of a Claim but not, however, for all of the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any or all Claims relating in whole or in party an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
<PAGE> 6
7. DEFENSE TO INDEMNIFICATION, BURDEN OF PROOF AND PRESUMPTIONS. It
shall be a defense to any action brought by the Indemnitee against the Company
to enforce this Agreement (other than an action brought to enforce a claim for
expenses incurred in defending a claim in advance of its final disposition where
the required undertaking has been tendered to the Company) that the Indemnitee
has not met the standards of conduct that make it permissible under the Florida
Business Corporation Act for the Company to indemnify the Indemnitee for the
amount claimed. In connection with any determination by the Reviewing Party or
otherwise as to whether the Indemnitee is entitled to be indemnified hereunder,
the burden of providing such a defense shall be on the Company. Neither the
failure of the Company (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action by the Indemnitee that Indemnification of the
claimant is proper under the circumstances because he or she has met the
applicable standard of conduct set forth in the Florida Business Corporation
Act, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the Indemnitee
had not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not mete the applicable
standard of conduct. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
8. NON-EXCLUSIVITY, ETC.. The rights of Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Articles of
Incorporation or Bylaws of the Company or the Florida Business Corporation Act
or otherwise. To the extent that a change in the Florida Business Corporation
Act (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Articles of Incorporation
and Bylaws of the Company and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change.
9. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained herein
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company or any of its subsidiaries.
10. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
11. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company or any
affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs,
executors, administrators or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company or its affiliate shall be
extinguished and deemed
<PAGE> 7
released unless asserted by the timely filing of a legal action within such
two-year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action such shorter period shall
govern.
12. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
13. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Articles of Incorporation or Bylaws of the Company
or otherwise) of the amounts otherwise indemnifiable hereunder.
15. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as a director or officer of the Company
or of any other enterprise at the Company's request.
16. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph of sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
<PAGE> 8
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed in such state without giving effect to the principles of
conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of December 6, 1996.
AVTEAM, INC.
By: /s/ Donald A. Graw
-------------------------------------
Donald A. Graw
President and Chief Executive Officer
INDEMNITEE:
/s/ Sanford Miller
-------------------------------------
Sanford Miller
<PAGE> 1
Exhibit 10.33
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered
into as of the 6th day of May, 1998, by and between AvTeam, Inc. (the "Company")
and the entity which is a signatory to this Agreement (the"Holder").
RECITALS
A. Pursuant to an agreement of even date herewith (the "Stock Purchase
Agreement"), the Holder is purchasing (the "Stock Purchase") from a shareholder
of the Company shares (the "Shares") of the Company's Common Stock, par value
$.01 per share ("Common Stock"), in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
in such amounts as set forth in the Stock Purchase Agreement.
B. The Holder has requested, and the Company has agreed, as a condition
to the Holder's obligation to effect the Stock Purchase, to register under the
Securities Act the Shares to be purchased by the Holder, upon the terms, and
subject to the conditions, hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and other good, valuable and
sufficient consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
AGREEMENT
1. DEMAND REGISTRATION.
(a) The Company agrees that the Company will, with reasonable
promptness, and in any case not later than thirty (30) days from the date of the
closing of the Stock Purchase (the "Closing Date"), file a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission ("Commission") relating to the Shares to be acquired by the Holder in
connection with the Stock Purchase. The Company shall use its best efforts to
cause such Registration Statement to promptly become effective under the
Securities Act and to qualify the same under the blue sky laws of such states as
may be requested; provided, however, that with respect to compliance with blue
sky laws, the Company shall not be obligated to qualify as a foreign corporation
or as a dealer in securities or to execute or file any general consent to
service of process under the laws of any such state where it is not so subject.
(b) The Company shall be obligated to effect registration and
qualification pursuant to a request of the Holder under this Section 1 no more
than one time subject to the terms and conditions hereof.
2. EXPENSES. Subject to the limitations contained in this Section 2 and
except as otherwise specifically provided in this Agreement, all of its costs
and expenses of the registration and qualifications pursuant to Section 1 hereof
shall be borne by the Company. Such costs and expenses shall include, without
limitation, the fees and expenses of counsel for the Company and of its
accountants, all other costs, fees and expenses of the Company incident to the
preparation, printing and filing under the Securities Act of the registration
statement and all amendments and supplements thereto, the cost of furnishing
copies of each preliminary prospectus, each final prospectus and each amendment
or supplement thereto to underwriters, dealers and other purchasers of the
Shares and the costs and expenses (including fees and disbursements of counsel)
incurred in connection with the qualification of the Shares under the blue sky
laws of various jurisdictions. The Company shall not, however, pay any
underwriting discount or commissions to the extent related to the sale of Shares
sold in any registration and qualification.
<PAGE> 2
3. PROCEDURES.
(a) In the case of a registration or qualification pursuant to
Section 1, the Company will keep the Holder advised in writing as to the
initiation of proceedings for such registration and qualification and as to the
completion thereof, and will advise the Holder, upon request, of the progress of
such proceedings.
(b) At the Company's expense, the Company will keep the
registration and qualifications under this Agreement effective (and in
compliance with the Securities Act) by such action as may be necessary or
appropriate until such time, if any as the Shares shall have been sold;
provided, that the Company intends to amend the Registration Statement on Form
S-3 at such time as the Company becomes eligible to use such form; and provided,
further, that the Company shall not be required to keep the Registration
Statement effective for a period of more than two years from the Closing Date.
The Company's obligations under this Section 3(b) shall include, without
limitation, the filing of post-effective amendments and supplements to any
registration statement or prospectus necessary to keep the Registration
Statement current and the further qualification under any applicable blue sky or
other state securities laws to permit such sale or distribution, all as
requested by the Holder. The Company will immediately notify the Holder at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.
(c) Without limiting any other provision hereof, in connection
with any registration of Shares under this Agreement, the Company will use its
best efforts to comply with the Securities Act, the Securities Exchange Act of
1934, as amended (the "Securities Exchange Act"), and all applicable rules and
regulations of the Commission.
(d) In connection with any registration of Shares under this
Agreement, the Company will provide, if appropriate, a transfer agent and
registrar for the Shares not later than the effective date of such Registration
Statement.
(e) In connection with any registration of Shares under this
Agreement, the Company will, if requested by the underwriters for any Shares
included in such registration, enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, provisions relating to
indemnification and contribution.
4. INDEMNIFICATION. The Company will indemnify and hold
harmless the Holder and each person, if any, who controls the Holder within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, and expenses (including reasonable attorneys'
fees and expenses and reasonable costs of investigation) to which the Holder or
such controlling person may be subject, under the Securities Act or otherwise,
insofar as any thereof arise out of or are based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in (A) the Registration
Statement under which the Holder's Shares were registered under the Securities
Act pursuant to Section 1 hereof, any prospectus or preliminary prospectus
contained therein, or any amendment or supplement thereto or (B) any other
document incident to the registration of the Shares under the Securities Act or
the qualification of the Shares under any state securities laws applicable to
the Company, (ii) the omission or alleged omission to state in any item referred
to in the preceding clause (i) a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Securities Act, the Securities
Exchange Act or any other federal or state securities law, rule or regulation
applicable to the Company and relating to action or inaction by the Company in
connection with any such registration or qualification, except insofar as such
losses, claims, damages, liabilities or expenses
2
<PAGE> 3
arise out of or are based upon any untrue statement or alleged untrue statement
or omission or alleged omission based upon information furnished to the Company
in writing by the Holder for the Holder expressly for use therein (with respect
to which information the Holder shall so indemnify and hold harmless the
Company, any underwriter for the Company and each person, if any, who controls
the Company or such underwriter within the meaning of the Securities Act).
5. NOTICES. All notices required or permitted to be given pursuant to
this Agreement shall be given in writing, shall be transmitted by personal
delivery, by registered or certified mail, return receipt requested, postage
prepaid, or by telecopier or other electronic means (with a confirming copy by
registered or certified mail, postage prepaid) and shall be addressed as
follows:
When the Holder is the intended recipient, to each Holder at
its address set forth in the Purchase Agreement.
When the Company is the intended recipient:
AvTeam, Inc.
3230 Executive Way
Miramar, Florida 33025
Attn: Donald Graw
WITH A COPY TO:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
ATTENTION: Andrew Hulsh, Esq.
Telecopy: (305) 789-8953
Any party to this Agreement (each a "Party") may designate a new address to
which notices required or permitted to be given pursuant to this Agreement shall
thereafter be transmitted by giving written notice to that effect to the other
Parties. Each notice transmitted in the manner described in this Section 5 shall
be deemed to have been given, received and become effective for all purposes at
the time it shall have been (i) delivered to the addressee as indicated by the
return receipt (if transmitted by mail), the affidavit of the messenger (if
transmitted by personal delivery) or the answer back or call back (if
transmitted by telecopier or other electronic means, but only if a confirmation
copy of such telecopied or electronically delivered notice is also delivered by
registered or certified mail, postage prepaid) or (ii) presented for delivery to
the addressee as so indicated during normal business hours, if such delivery
shall have been refused for any reason.
6. GOVERNING LAW; FORUM.
(a) The validity, interpretation, performance and enforcement
of this Agreement shall be governed by the laws the State of Florida (without
giving effect to the laws, rules or principles of the State of Florida regarding
conflicts of laws).
(b) Each party agrees that any proceeding arising out of or
relating to this Agreement or the breach or threatened breach of this Agreement
shall be commenced and prosecuted in a court in Miami, Florida. Each party
consents and submits to the non-exclusive personal jurisdiction of any court in
Miami, Florida in respect of any such proceeding. Each party consents to service
of process upon it with respect to any such proceeding by registered mail,
return receipt requested, and by any other means permitted by
3
<PAGE> 4
applicable laws and rules. Each party waives any objection that it may now or
hereafter have to the laying of venue of any such proceeding in any court in
Miami, Florida and any claim that it may now or hereafter have that any such
proceeding in any court in Miami, Florida has been brought in an inconvenient
forum.
(c) Final judgment against any party hereto in any suit or
proceeding shall be conclusive, and may be enforced in any other jurisdiction
(i) by suit, action or proceeding on the judgment, a certified or true copy of
which shall be conclusive evidence of the fact and the amount of indebtedness or
liability of the party hereto, or (ii) in any other manner provided by or
pursuant to the laws of such other jurisdiction.
(d) Nothing herein shall in any way be deemed to limit the
ability or right of any party to serve any legal process, summons, notices or
other documents in any other manner permitted by applicable law, or to obtain
jurisdiction over any other party, or to bring actions, suits or proceedings
against any other party in such other jurisdictions, and in such manner, as may
be otherwise permitted by applicable law.
7. BINDING EFFECT; ASSIGNMENT; THIRD PARTY BENEFICIARIES. This
Agreement shall be binding upon the parties and their respective successors and
assigns and shall inure to the benefit of the parties and their respective
successors and permitted assigns. No party shall assign any of its rights or
delegate any of its duties under this Agreement (by operation of law or
otherwise) without the prior written consent of the other parties. Any
assignment of rights or delegation of duties under this Agreement by a party
without the prior written consent of the other parties, if such consent is
required hereby, shall be void. No person (including, without limitation, any
employee of a party) shall be, or be deemed to be, a third party beneficiary of
this Agreement.
8. ENTIRE AGREEMENT; EFFECTIVE DATE OF AGREEMENT. This Agreement
constitutes the entire contract between the parties with respect to the subject
matter hereof and cancels and supersedes all of the previous contracts,
commitments, representations, warranties and understandings (whether oral or
written) by, between or among the parties with respect to the subject matter
hereof.
9. AMENDMENTS. No addition to, and no cancellation, renewal, extension,
modification or amendment of, this Agreement shall be binding upon a party
unless such addition, cancellation, renewal, extension, modification or
amendment is set forth in a written instrument which states that it adds to,
amends, cancels, renews, extends or modifies this Agreement and has been
approved by all of the parties hereto.
10. WAIVERS. No waiver of any provision of this Agreement shall be
binding upon a party unless such waiver is expressly set forth in a written
instrument which is executed and delivered by such party or on behalf of such
party by an officer of, or attorney-in-fact for, such party. Such waiver shall
be effective only to the extent specifically set forth in such written
instrument. Neither the exercise (from time to time and at any time) by a party
of, nor the delay or failure (at any time or for any period of time) to
exercise, any right, power or remedy shall constitute a waiver of the right to
exercise, or impair, limit or restrict the exercise of, such right, power or
remedy or any other right, power or remedy at any time and from time to time
thereafter. No waiver of any right, power or remedy of a party shall be deemed
to be a waiver of any other right, power or remedy of such party or shall,
except to the extent so waived, impair, limit or restrict the exercise of such
right, power or remedy.
11. REMEDIES.
(a) The rights, powers and remedies of the parties set forth
herein for a breach of or default under this Agreement are cumulative and in
addition to, and not in lieu of, any rights or remedies that any party may
otherwise have under this Agreement, at law or in equity.
(b) The parties acknowledge that the Shares are unique, and
that any violation of this Agreement cannot be compensated for by damages alone.
Accordingly, in addition to all of the other remedies which may be available
hereunder or under applicable law, any party shall have the right to any
4
<PAGE> 5
equitable relief which may be appropriate to remedy a breach or threatened
breach by any other party hereunder, including, without limitation, the right to
enforce specifically the terms of this Agreement by obtaining injunctive relief
in respect of any violation or non-performance hereof, and any party shall have
the right to seek recovery of and be awarded attorneys' fees and expenses in any
proceeding with respect to this Agreement as reasonably determined by the court
in which such proceeding is brought.
12. HEADINGS; COUNTERPARTS. The headings set forth in this Agreement
have been inserted for convenience of reference only, shall not be considered a
part of this Agreement and shall not limit, modify or affect in any way the
meaning or interpretation of this Agreement. This Agreement may be signed in any
number of counterparts, each of which (when executed and delivered) shall
constitute an original instrument, but all of which together shall constitute
one and the same instrument. It shall not be necessary when making proof of this
Agreement to account for any counterparts other than a sufficient number of
counterparts which, when taken together, contain signatures of all of the
parties.
13. SEVERABILITY. If any provision of this Agreement shall hereafter be
held to be invalid, unenforceable or illegal, in whole or in part, in any
jurisdiction under any circumstances for any reason, (i) such provision shall be
reformed to the minimum extent necessary to cause such provision to be valid,
enforceable and legal while preserving the intent of the parties as expressed
in, and the benefits to the parties provided by, this Agreement or (ii) if such
provision cannot be so reformed, such provision shall be severed from this
Agreement and an equitable adjustment shall be made to this Agreement
(including, without limitation, addition of necessary further provisions to this
Agreement) so as to give effect to the intent as so expressed and the benefits
so provided. Such holding shall not affect or impair the validity,
enforceability or legality of such provision in any other jurisdiction or under
any other circumstances. Neither such holding nor such reformation or severance
shall affect or impair the legality, validity or enforceability of any other
provision of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first above written.
AVTEAM, INC.
By: /s/ Donald A. Graw
-----------------------------------
Name: Donald A. Graw
Title: Chairman, President and CEO
HOLDER:
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES -
SEPARATE ACCOUNT NO. 3
By: /s/ Jeremy R. Kramer
---------------------------------
Name: Jeremy R. Kramer
Title: Investment Officer
5
<PAGE> 1
Exhibit 10.34
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered
into as of the 6th day of May, 1998, by and between AvTeam, Inc. (the "Company")
and the entity which is a signatory to this Agreement (the"Holder").
RECITALS
A. Pursuant to an agreement of even date herewith (the "Stock Purchase
Agreement"), the Holder is purchasing (the "Stock Purchase") from a shareholder
of the Company shares (the "Shares") of the Company's Common Stock, par value
$.01 per share ("Common Stock"), in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
in such amounts as set forth in the Stock Purchase Agreement.
B. The Holder has requested, and the Company has agreed, as a condition
to the Holder's obligation to effect the Stock Purchase, to register under the
Securities Act the Shares to be purchased by the Holder, upon the terms, and
subject to the conditions, hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and other good, valuable and
sufficient consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
AGREEMENT
1. DEMAND REGISTRATION.
(a) The Company agrees that the Company will, with reasonable
promptness, and in any case not later than thirty (30) days from the date of the
closing of the Stock Purchase (the "Closing Date"), file a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission ("Commission") relating to the Shares to be acquired by the Holder in
connection with the Stock Purchase. The Company shall use its best efforts to
cause such Registration Statement to promptly become effective under the
Securities Act and to qualify the same under the blue sky laws of such states as
may be requested; provided, however, that with respect to compliance with blue
sky laws, the Company shall not be obligated to qualify as a foreign corporation
or as a dealer in securities or to execute or file any general consent to
service of process under the laws of any such state where it is not so subject.
(b) The Company shall be obligated to effect registration and
qualification pursuant to a request of the Holder under this Section 1 no more
than one time subject to the terms and conditions hereof.
2. EXPENSES. Subject to the limitations contained in this Section 2 and
except as otherwise specifically provided in this Agreement, all of its costs
and expenses of the registration and qualifications pursuant to Section 1 hereof
shall be borne by the Company. Such costs and expenses shall include, without
limitation, the fees and expenses of counsel for the Company and of its
accountants, all other costs, fees and expenses of the Company incident to the
preparation, printing and filing under the Securities Act of the registration
statement and all amendments and supplements thereto, the cost of furnishing
copies of each preliminary prospectus, each final prospectus and each amendment
or supplement thereto to underwriters, dealers and other purchasers of the
Shares and the costs and expenses (including fees and disbursements of counsel)
incurred in connection with the qualification of the Shares under the blue sky
laws of various jurisdictions. The Company shall not, however, pay any
underwriting discount or commissions to the extent related to the sale of Shares
sold in any registration and qualification.
<PAGE> 2
3. PROCEDURES.
(a) In the case of a registration or qualification pursuant to
Section 1, the Company will keep the Holder advised in writing as to the
initiation of proceedings for such registration and qualification and as to the
completion thereof, and will advise the Holder, upon request, of the progress of
such proceedings.
(b) At the Company's expense, the Company will keep the
registration and qualifications under this Agreement effective (and in
compliance with the Securities Act) by such action as may be necessary or
appropriate until such time, if any as the Shares shall have been sold;
provided, that the Company intends to amend the Registration Statement on Form
S-3 at such time as the Company becomes eligible to use such form; and provided,
further, that the Company shall not be required to keep the Registration
Statement effective for a period of more than two years from the Closing Date.
The Company's obligations under this Section 3(b) shall include, without
limitation, the filing of post-effective amendments and supplements to any
registration statement or prospectus necessary to keep the Registration
Statement current and the further qualification under any applicable blue sky or
other state securities laws to permit such sale or distribution, all as
requested by the Holder. The Company will immediately notify the Holder at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.
(c) Without limiting any other provision hereof, in connection
with any registration of Shares under this Agreement, the Company will use its
best efforts to comply with the Securities Act, the Securities Exchange Act of
1934, as amended (the "Securities Exchange Act"), and all applicable rules and
regulations of the Commission.
(d) In connection with any registration of Shares under this
Agreement, the Company will provide, if appropriate, a transfer agent and
registrar for the Shares not later than the effective date of such Registration
Statement.
(e) In connection with any registration of Shares under this
Agreement, the Company will, if requested by the underwriters for any Shares
included in such registration, enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, provisions relating to
indemnification and contribution.
4. INDEMNIFICATION. The Company will indemnify and hold
harmless the Holder and each person, if any, who controls the Holder within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, and expenses (including reasonable attorneys'
fees and expenses and reasonable costs of investigation) to which the Holder or
such controlling person may be subject, under the Securities Act or otherwise,
insofar as any thereof arise out of or are based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in (A) the Registration
Statement under which the Holder's Shares were registered under the Securities
Act pursuant to Section 1 hereof, any prospectus or preliminary prospectus
contained therein, or any amendment or supplement thereto or (B) any other
document incident to the registration of the Shares under the Securities Act or
the qualification of the Shares under any state securities laws applicable to
the Company, (ii) the omission or alleged omission to state in any item referred
to in the preceding clause (i) a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Securities Act, the Securities
Exchange Act or any other federal or state securities law, rule or regulation
applicable to the Company and relating to action or inaction by the Company in
connection with any such registration or qualification, except insofar as such
losses, claims, damages, liabilities or expenses
2
<PAGE> 3
arise out of or are based upon any untrue statement or alleged untrue statement
or omission or alleged omission based upon information furnished to the Company
in writing by the Holder for the Holder expressly for use therein (with respect
to which information the Holder shall so indemnify and hold harmless the
Company, any underwriter for the Company and each person, if any, who controls
the Company or such underwriter within the meaning of the Securities Act).
5. NOTICES. All notices required or permitted to be given pursuant to
this Agreement shall be given in writing, shall be transmitted by personal
delivery, by registered or certified mail, return receipt requested, postage
prepaid, or by telecopier or other electronic means (with a confirming copy by
registered or certified mail, postage prepaid) and shall be addressed as
follows:
When the Holder is the intended recipient, to each Holder at
its address set forth in the Purchase Agreement.
When the Company is the intended recipient:
AvTeam, Inc.
3230 Executive Way
Miramar, Florida 33025
Attn: Donald Graw
WITH A COPY TO:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
ATTENTION: Andrew Hulsh, Esq.
Telecopy: (305) 789-8953
Any party to this Agreement (each a "Party") may designate a new address to
which notices required or permitted to be given pursuant to this Agreement shall
thereafter be transmitted by giving written notice to that effect to the other
Parties. Each notice transmitted in the manner described in this Section 5 shall
be deemed to have been given, received and become effective for all purposes at
the time it shall have been (i) delivered to the addressee as indicated by the
return receipt (if transmitted by mail), the affidavit of the messenger (if
transmitted by personal delivery) or the answer back or call back (if
transmitted by telecopier or other electronic means, but only if a confirmation
copy of such telecopied or electronically delivered notice is also delivered by
registered or certified mail, postage prepaid) or (ii) presented for delivery to
the addressee as so indicated during normal business hours, if such delivery
shall have been refused for any reason.
6. GOVERNING LAW; FORUM.
(a) The validity, interpretation, performance and enforcement
of this Agreement shall be governed by the laws the State of Florida (without
giving effect to the laws, rules or principles of the State of Florida regarding
conflicts of laws).
(b) Each party agrees that any proceeding arising out of or
relating to this Agreement or the breach or threatened breach of this Agreement
shall be commenced and prosecuted in a court in Miami, Florida. Each party
consents and submits to the non-exclusive personal jurisdiction of any court in
Miami, Florida in respect of any such proceeding. Each party consents to service
of process upon it with respect to any such proceeding by registered mail,
return receipt requested, and by any other means permitted by
3
<PAGE> 4
applicable laws and rules. Each party waives any objection that it may now or
hereafter have to the laying of venue of any such proceeding in any court in
Miami, Florida and any claim that it may now or hereafter have that any such
proceeding in any court in Miami, Florida has been brought in an inconvenient
forum.
(c) Final judgment against any party hereto in any suit or
proceeding shall be conclusive, and may be enforced in any other jurisdiction
(i) by suit, action or proceeding on the judgment, a certified or true copy of
which shall be conclusive evidence of the fact and the amount of indebtedness or
liability of the party hereto, or (ii) in any other manner provided by or
pursuant to the laws of such other jurisdiction.
(d) Nothing herein shall in any way be deemed to limit the
ability or right of any party to serve any legal process, summons, notices or
other documents in any other manner permitted by applicable law, or to obtain
jurisdiction over any other party, or to bring actions, suits or proceedings
against any other party in such other jurisdictions, and in such manner, as may
be otherwise permitted by applicable law.
7. BINDING EFFECT; ASSIGNMENT; THIRD PARTY BENEFICIARIES. This
Agreement shall be binding upon the parties and their respective successors and
assigns and shall inure to the benefit of the parties and their respective
successors and permitted assigns. No party shall assign any of its rights or
delegate any of its duties under this Agreement (by operation of law or
otherwise) without the prior written consent of the other parties. Any
assignment of rights or delegation of duties under this Agreement by a party
without the prior written consent of the other parties, if such consent is
required hereby, shall be void. No person (including, without limitation, any
employee of a party) shall be, or be deemed to be, a third party beneficiary of
this Agreement.
8. ENTIRE AGREEMENT; EFFECTIVE DATE OF AGREEMENT. This Agreement
constitutes the entire contract between the parties with respect to the subject
matter hereof and cancels and supersedes all of the previous contracts,
commitments, representations, warranties and understandings (whether oral or
written) by, between or among the parties with respect to the subject matter
hereof.
9. AMENDMENTS. No addition to, and no cancellation, renewal, extension,
modification or amendment of, this Agreement shall be binding upon a party
unless such addition, cancellation, renewal, extension, modification or
amendment is set forth in a written instrument which states that it adds to,
amends, cancels, renews, extends or modifies this Agreement and has been
approved by all of the parties hereto.
10. WAIVERS. No waiver of any provision of this Agreement shall be
binding upon a party unless such waiver is expressly set forth in a written
instrument which is executed and delivered by such party or on behalf of such
party by an officer of, or attorney-in-fact for, such party. Such waiver shall
be effective only to the extent specifically set forth in such written
instrument. Neither the exercise (from time to time and at any time) by a party
of, nor the delay or failure (at any time or for any period of time) to
exercise, any right, power or remedy shall constitute a waiver of the right to
exercise, or impair, limit or restrict the exercise of, such right, power or
remedy or any other right, power or remedy at any time and from time to time
thereafter. No waiver of any right, power or remedy of a party shall be deemed
to be a waiver of any other right, power or remedy of such party or shall,
except to the extent so waived, impair, limit or restrict the exercise of such
right, power or remedy.
11. REMEDIES.
(a) The rights, powers and remedies of the parties set forth
herein for a breach of or default under this Agreement are cumulative and in
addition to, and not in lieu of, any rights or remedies that any party may
otherwise have under this Agreement, at law or in equity.
(b) The parties acknowledge that the Shares are unique, and
that any violation of this Agreement cannot be compensated for by damages alone.
Accordingly, in addition to all of the other remedies which may be available
hereunder or under applicable law, any party shall have the right to any
4
<PAGE> 5
equitable relief which may be appropriate to remedy a breach or threatened
breach by any other party hereunder, including, without limitation, the right to
enforce specifically the terms of this Agreement by obtaining injunctive relief
in respect of any violation or non-performance hereof, and any party shall have
the right to seek recovery of and be awarded attorneys' fees and expenses in any
proceeding with respect to this Agreement as reasonably determined by the court
in which such proceeding is brought.
12. HEADINGS; COUNTERPARTS. The headings set forth in this Agreement
have been inserted for convenience of reference only, shall not be considered a
part of this Agreement and shall not limit, modify or affect in any way the
meaning or interpretation of this Agreement. This Agreement may be signed in any
number of counterparts, each of which (when executed and delivered) shall
constitute an original instrument, but all of which together shall constitute
one and the same instrument. It shall not be necessary when making proof of this
Agreement to account for any counterparts other than a sufficient number of
counterparts which, when taken together, contain signatures of all of the
parties.
13. SEVERABILITY. If any provision of this Agreement shall hereafter be
held to be invalid, unenforceable or illegal, in whole or in part, in any
jurisdiction under any circumstances for any reason, (i) such provision shall be
reformed to the minimum extent necessary to cause such provision to be valid,
enforceable and legal while preserving the intent of the parties as expressed
in, and the benefits to the parties provided by, this Agreement or (ii) if such
provision cannot be so reformed, such provision shall be severed from this
Agreement and an equitable adjustment shall be made to this Agreement
(including, without limitation, addition of necessary further provisions to this
Agreement) so as to give effect to the intent as so expressed and the benefits
so provided. Such holding shall not affect or impair the validity,
enforceability or legality of such provision in any other jurisdiction or under
any other circumstances. Neither such holding nor such reformation or severance
shall affect or impair the legality, validity or enforceability of any other
provision of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first above written.
AVTEAM, INC.
By: /s/ Donald A. Graw
----------------------------------
Name: Donald A. Graw
Title: Chairman, President and CEO
HOLDER:
CREDIT SUISSE FIRST BOSTON
CORPORATION
By: /s/ Michael Clark
----------------------------------
Name: Michael Clark
Title: Managing Director
5
<PAGE> 1
Exhibit 10.35
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered
into as of the 6th day of May, 1998, by and between AvTeam, Inc. (the "Company")
and the entity which is a signatory to this Agreement (the"Holder").
RECITALS
A. Pursuant to an agreement of even date herewith (the "Stock Purchase
Agreement"), the Holder is purchasing (the "Stock Purchase") from a shareholder
of the Company shares (the "Shares") of the Company's Common Stock, par value
$.01 per share ("Common Stock"), in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
in such amounts as set forth in the Stock Purchase Agreement.
B. The Holder has requested, and the Company has agreed, as a condition
to the Holder's obligation to effect the Stock Purchase, to register under the
Securities Act the Shares to be purchased by the Holder, upon the terms, and
subject to the conditions, hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and other good, valuable and
sufficient consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
AGREEMENT
1. DEMAND REGISTRATION.
(a) The Company agrees that the Company will, with reasonable
promptness, and in any case not later than thirty (30) days from the date of the
closing of the Stock Purchase (the "Closing Date"), file a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission ("Commission") relating to the Shares to be acquired by the Holder in
connection with the Stock Purchase. The Company shall use its best efforts to
cause such Registration Statement to promptly become effective under the
Securities Act and to qualify the same under the blue sky laws of such states as
may be requested; provided, however, that with respect to compliance with blue
sky laws, the Company shall not be obligated to qualify as a foreign corporation
or as a dealer in securities or to execute or file any general consent to
service of process under the laws of any such state where it is not so subject.
(b) The Company shall be obligated to effect registration and
qualification pursuant to a request of the Holder under this Section 1 no more
than one time subject to the terms and conditions hereof.
2. EXPENSES. Subject to the limitations contained in this Section 2 and
except as otherwise specifically provided in this Agreement, all of its costs
and expenses of the registration and qualifications pursuant to Section 1 hereof
shall be borne by the Company. Such costs and expenses shall include, without
limitation, the fees and expenses of counsel for the Company and of its
accountants, all other costs, fees and expenses of the Company incident to the
preparation, printing and filing under the Securities Act of the registration
statement and all amendments and supplements thereto, the cost of furnishing
copies of each preliminary prospectus, each final prospectus and each amendment
or supplement thereto to underwriters, dealers and other purchasers of the
Shares and the costs and expenses (including fees and disbursements of counsel)
incurred in connection with the qualification of the Shares under the blue sky
laws of various jurisdictions. The Company shall not, however, pay any
underwriting discount or commissions to the extent related to the sale of Shares
sold in any registration and qualification.
<PAGE> 2
3. PROCEDURES.
(a) In the case of a registration or qualification pursuant to
Section 1, the Company will keep the Holder advised in writing as to the
initiation of proceedings for such registration and qualification and as to the
completion thereof, and will advise the Holder, upon request, of the progress of
such proceedings.
(b) At the Company's expense, the Company will keep the
registration and qualifications under this Agreement effective (and in
compliance with the Securities Act) by such action as may be necessary or
appropriate until such time, if any as the Shares shall have been sold;
provided, that the Company intends to amend the Registration Statement on Form
S-3 at such time as the Company becomes eligible to use such form; and provided,
further, that the Company shall not be required to keep the Registration
Statement effective for a period of more than two years from the Closing Date.
The Company's obligations under this Section 3(b) shall include, without
limitation, the filing of post-effective amendments and supplements to any
registration statement or prospectus necessary to keep the Registration
Statement current and the further qualification under any applicable blue sky or
other state securities laws to permit such sale or distribution, all as
requested by the Holder. The Company will immediately notify the Holder at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.
(c) Without limiting any other provision hereof, in connection
with any registration of Shares under this Agreement, the Company will use its
best efforts to comply with the Securities Act, the Securities Exchange Act of
1934, as amended (the "Securities Exchange Act"), and all applicable rules and
regulations of the Commission.
(d) In connection with any registration of Shares under this
Agreement, the Company will provide, if appropriate, a transfer agent and
registrar for the Shares not later than the effective date of such Registration
Statement.
(e) In connection with any registration of Shares under this
Agreement, the Company will, if requested by the underwriters for any Shares
included in such registration, enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, provisions relating to
indemnification and contribution.
4. INDEMNIFICATION. The Company will indemnify and hold
harmless the Holder and each person, if any, who controls the Holder within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, and expenses (including reasonable attorneys'
fees and expenses and reasonable costs of investigation) to which the Holder or
such controlling person may be subject, under the Securities Act or otherwise,
insofar as any thereof arise out of or are based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in (A) the Registration
Statement under which the Holder's Shares were registered under the Securities
Act pursuant to Section 1 hereof, any prospectus or preliminary prospectus
contained therein, or any amendment or supplement thereto or (B) any other
document incident to the registration of the Shares under the Securities Act or
the qualification of the Shares under any state securities laws applicable to
the Company, (ii) the omission or alleged omission to state in any item referred
to in the preceding clause (i) a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Securities Act, the Securities
Exchange Act or any other federal or state securities law, rule or regulation
applicable to the Company and relating to action or inaction by the Company in
connection with any such registration or qualification, except insofar as such
losses, claims, damages, liabilities or expenses
2
<PAGE> 3
arise out of or are based upon any untrue statement or alleged untrue statement
or omission or alleged omission based upon information furnished to the Company
in writing by the Holder for the Holder expressly for use therein (with respect
to which information the Holder shall so indemnify and hold harmless the
Company, any underwriter for the Company and each person, if any, who controls
the Company or such underwriter within the meaning of the Securities Act).
5. NOTICES. All notices required or permitted to be given pursuant to
this Agreement shall be given in writing, shall be transmitted by personal
delivery, by registered or certified mail, return receipt requested, postage
prepaid, or by telecopier or other electronic means (with a confirming copy by
registered or certified mail, postage prepaid) and shall be addressed as
follows:
When the Holder is the intended recipient, to each Holder at
its address set forth in the Purchase Agreement.
When the Company is the intended recipient:
AvTeam, Inc.
3230 Executive Way
Miramar, Florida 33025
Attn: Donald Graw
WITH A COPY TO:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
ATTENTION: Andrew Hulsh, Esq.
Telecopy: (305) 789-8953
Any party to this Agreement (each a "Party") may designate a new address to
which notices required or permitted to be given pursuant to this Agreement shall
thereafter be transmitted by giving written notice to that effect to the other
Parties. Each notice transmitted in the manner described in this Section 5 shall
be deemed to have been given, received and become effective for all purposes at
the time it shall have been (i) delivered to the addressee as indicated by the
return receipt (if transmitted by mail), the affidavit of the messenger (if
transmitted by personal delivery) or the answer back or call back (if
transmitted by telecopier or other electronic means, but only if a confirmation
copy of such telecopied or electronically delivered notice is also delivered by
registered or certified mail, postage prepaid) or (ii) presented for delivery to
the addressee as so indicated during normal business hours, if such delivery
shall have been refused for any reason.
6. GOVERNING LAW; FORUM.
(a) The validity, interpretation, performance and enforcement
of this Agreement shall be governed by the laws the State of Florida (without
giving effect to the laws, rules or principles of the State of Florida regarding
conflicts of laws).
(b) Each party agrees that any proceeding arising out of or
relating to this Agreement or the breach or threatened breach of this Agreement
shall be commenced and prosecuted in a court in Miami, Florida. Each party
consents and submits to the non-exclusive personal jurisdiction of any court in
Miami, Florida in respect of any such proceeding. Each party consents to service
of process upon it with respect to any such proceeding by registered mail,
return receipt requested, and by any other means permitted by
3
<PAGE> 4
applicable laws and rules. Each party waives any objection that it may now or
hereafter have to the laying of venue of any such proceeding in any court in
Miami, Florida and any claim that it may now or hereafter have that any such
proceeding in any court in Miami, Florida has been brought in an inconvenient
forum.
(c) Final judgment against any party hereto in any suit or
proceeding shall be conclusive, and may be enforced in any other jurisdiction
(i) by suit, action or proceeding on the judgment, a certified or true copy of
which shall be conclusive evidence of the fact and the amount of indebtedness or
liability of the party hereto, or (ii) in any other manner provided by or
pursuant to the laws of such other jurisdiction.
(d) Nothing herein shall in any way be deemed to limit the
ability or right of any party to serve any legal process, summons, notices or
other documents in any other manner permitted by applicable law, or to obtain
jurisdiction over any other party, or to bring actions, suits or proceedings
against any other party in such other jurisdictions, and in such manner, as may
be otherwise permitted by applicable law.
7. BINDING EFFECT; ASSIGNMENT; THIRD PARTY BENEFICIARIES. This
Agreement shall be binding upon the parties and their respective successors and
assigns and shall inure to the benefit of the parties and their respective
successors and permitted assigns. No party shall assign any of its rights or
delegate any of its duties under this Agreement (by operation of law or
otherwise) without the prior written consent of the other parties. Any
assignment of rights or delegation of duties under this Agreement by a party
without the prior written consent of the other parties, if such consent is
required hereby, shall be void. No person (including, without limitation, any
employee of a party) shall be, or be deemed to be, a third party beneficiary of
this Agreement.
8. ENTIRE AGREEMENT; EFFECTIVE DATE OF AGREEMENT. This Agreement
constitutes the entire contract between the parties with respect to the subject
matter hereof and cancels and supersedes all of the previous contracts,
commitments, representations, warranties and understandings (whether oral or
written) by, between or among the parties with respect to the subject matter
hereof.
9. AMENDMENTS. No addition to, and no cancellation, renewal, extension,
modification or amendment of, this Agreement shall be binding upon a party
unless such addition, cancellation, renewal, extension, modification or
amendment is set forth in a written instrument which states that it adds to,
amends, cancels, renews, extends or modifies this Agreement and has been
approved by all of the parties hereto.
10. WAIVERS. No waiver of any provision of this Agreement shall be
binding upon a party unless such waiver is expressly set forth in a written
instrument which is executed and delivered by such party or on behalf of such
party by an officer of, or attorney-in-fact for, such party. Such waiver shall
be effective only to the extent specifically set forth in such written
instrument. Neither the exercise (from time to time and at any time) by a party
of, nor the delay or failure (at any time or for any period of time) to
exercise, any right, power or remedy shall constitute a waiver of the right to
exercise, or impair, limit or restrict the exercise of, such right, power or
remedy or any other right, power or remedy at any time and from time to time
thereafter. No waiver of any right, power or remedy of a party shall be deemed
to be a waiver of any other right, power or remedy of such party or shall,
except to the extent so waived, impair, limit or restrict the exercise of such
right, power or remedy.
11. REMEDIES.
(a) The rights, powers and remedies of the parties set forth
herein for a breach of or default under this Agreement are cumulative and in
addition to, and not in lieu of, any rights or remedies that any party may
otherwise have under this Agreement, at law or in equity.
(b) The parties acknowledge that the Shares are unique, and
that any violation of this Agreement cannot be compensated for by damages alone.
Accordingly, in addition to all of the other remedies which may be available
hereunder or under applicable law, any party shall have the right to any
4
<PAGE> 5
equitable relief which may be appropriate to remedy a breach or threatened
breach by any other party hereunder, including, without limitation, the right to
enforce specifically the terms of this Agreement by obtaining injunctive relief
in respect of any violation or non-performance hereof, and any party shall have
the right to seek recovery of and be awarded attorneys' fees and expenses in any
proceeding with respect to this Agreement as reasonably determined by the court
in which such proceeding is brought.
12. HEADINGS; COUNTERPARTS. The headings set forth in this Agreement
have been inserted for convenience of reference only, shall not be considered a
part of this Agreement and shall not limit, modify or affect in any way the
meaning or interpretation of this Agreement. This Agreement may be signed in any
number of counterparts, each of which (when executed and delivered) shall
constitute an original instrument, but all of which together shall constitute
one and the same instrument. It shall not be necessary when making proof of this
Agreement to account for any counterparts other than a sufficient number of
counterparts which, when taken together, contain signatures of all of the
parties.
13. SEVERABILITY. If any provision of this Agreement shall hereafter be
held to be invalid, unenforceable or illegal, in whole or in part, in any
jurisdiction under any circumstances for any reason, (i) such provision shall be
reformed to the minimum extent necessary to cause such provision to be valid,
enforceable and legal while preserving the intent of the parties as expressed
in, and the benefits to the parties provided by, this Agreement or (ii) if such
provision cannot be so reformed, such provision shall be severed from this
Agreement and an equitable adjustment shall be made to this Agreement
(including, without limitation, addition of necessary further provisions to this
Agreement) so as to give effect to the intent as so expressed and the benefits
so provided. Such holding shall not affect or impair the validity,
enforceability or legality of such provision in any other jurisdiction or under
any other circumstances. Neither such holding nor such reformation or severance
shall affect or impair the legality, validity or enforceability of any other
provision of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first above written.
AVTEAM, INC.
By: /s/ Donald A. Graw
--------------------------------
Name: Donald A. Graw
Title: Chairman, President and CEO
HOLDER:
THE BARON ASSET FUND
By: /s/ Morty Shaja
---------------------------------
Name: Morty Shaja
Title: Chief Operating Officer
5
<PAGE> 1
Exhibit 10.36
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered
into as of the 6th day of May, 1998, by and between AvTeam, Inc. (the "Company")
and the entity which is a signatory to this Agreement (the"Holder").
RECITALS
A. Pursuant to an agreement of even date herewith (the "Stock Purchase
Agreement"), the Holder is purchasing (the "Stock Purchase") from a shareholder
of the Company shares (the "Shares") of the Company's Common Stock, par value
$.01 per share ("Common Stock"), in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
in such amounts as set forth in the Stock Purchase Agreement.
B. The Holder has requested, and the Company has agreed, as a condition
to the Holder's obligation to effect the Stock Purchase, to register under the
Securities Act the Shares to be purchased by the Holder, upon the terms, and
subject to the conditions, hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and other good, valuable and
sufficient consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
AGREEMENT
1. DEMAND REGISTRATION.
(a) The Company agrees that the Company will, with reasonable
promptness, and in any case not later than thirty (30) days from the date of the
closing of the Stock Purchase (the "Closing Date"), file a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission ("Commission") relating to the Shares to be acquired by the Holder in
connection with the Stock Purchase. The Company shall use its best efforts to
cause such Registration Statement to promptly become effective under the
Securities Act and to qualify the same under the blue sky laws of such states as
may be requested; provided, however, that with respect to compliance with blue
sky laws, the Company shall not be obligated to qualify as a foreign corporation
or as a dealer in securities or to execute or file any general consent to
service of process under the laws of any such state where it is not so subject.
(b) The Company shall be obligated to effect registration and
qualification pursuant to a request of the Holder under this Section 1 no more
than one time subject to the terms and conditions hereof.
2. EXPENSES. Subject to the limitations contained in this Section 2 and
except as otherwise specifically provided in this Agreement, all of its costs
and expenses of the registration and qualifications pursuant to Section 1 hereof
shall be borne by the Company. Such costs and expenses shall include, without
limitation, the fees and expenses of counsel for the Company and of its
accountants, all other costs, fees and expenses of the Company incident to the
preparation, printing and filing under the Securities Act of the registration
statement and all amendments and supplements thereto, the cost of furnishing
copies of each preliminary prospectus, each final prospectus and each amendment
or supplement thereto to underwriters, dealers and other purchasers of the
Shares and the costs and expenses (including fees and disbursements of counsel)
incurred in connection with the qualification of the Shares under the blue sky
laws of various jurisdictions. The Company shall not, however, pay any
underwriting discount or commissions to the extent related to the sale of Shares
sold in any registration and qualification.
<PAGE> 2
3. PROCEDURES.
(a) In the case of a registration or qualification pursuant to
Section 1, the Company will keep the Holder advised in writing as to the
initiation of proceedings for such registration and qualification and as to the
completion thereof, and will advise the Holder, upon request, of the progress of
such proceedings.
(b) At the Company's expense, the Company will keep the
registration and qualifications under this Agreement effective (and in
compliance with the Securities Act) by such action as may be necessary or
appropriate until such time, if any as the Shares shall have been sold;
provided, that the Company intends to amend the Registration Statement on Form
S-3 at such time as the Company becomes eligible to use such form; and provided,
further, that the Company shall not be required to keep the Registration
Statement effective for a period of more than two years from the Closing Date.
The Company's obligations under this Section 3(b) shall include, without
limitation, the filing of post-effective amendments and supplements to any
registration statement or prospectus necessary to keep the Registration
Statement current and the further qualification under any applicable blue sky or
other state securities laws to permit such sale or distribution, all as
requested by the Holder. The Company will immediately notify the Holder at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.
(c) Without limiting any other provision hereof, in connection
with any registration of Shares under this Agreement, the Company will use its
best efforts to comply with the Securities Act, the Securities Exchange Act of
1934, as amended (the "Securities Exchange Act"), and all applicable rules and
regulations of the Commission.
(d) In connection with any registration of Shares under this
Agreement, the Company will provide, if appropriate, a transfer agent and
registrar for the Shares not later than the effective date of such Registration
Statement.
(e) In connection with any registration of Shares under this
Agreement, the Company will, if requested by the underwriters for any Shares
included in such registration, enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, provisions relating to
indemnification and contribution.
4. INDEMNIFICATION. The Company will indemnify and hold
harmless the Holder and each person, if any, who controls the Holder within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, and expenses (including reasonable attorneys'
fees and expenses and reasonable costs of investigation) to which the Holder or
such controlling person may be subject, under the Securities Act or otherwise,
insofar as any thereof arise out of or are based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in (A) the Registration
Statement under which the Holder's Shares were registered under the Securities
Act pursuant to Section 1 hereof, any prospectus or preliminary prospectus
contained therein, or any amendment or supplement thereto or (B) any other
document incident to the registration of the Shares under the Securities Act or
the qualification of the Shares under any state securities laws applicable to
the Company, (ii) the omission or alleged omission to state in any item referred
to in the preceding clause (i) a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Securities Act, the Securities
Exchange Act or any other federal or state securities law, rule or regulation
applicable to the Company and relating to action or inaction by the Company in
connection with any such registration or qualification, except insofar as such
losses, claims, damages, liabilities or expenses
2
<PAGE> 3
arise out of or are based upon any untrue statement or alleged untrue statement
or omission or alleged omission based upon information furnished to the Company
in writing by the Holder for the Holder expressly for use therein (with respect
to which information the Holder shall so indemnify and hold harmless the
Company, any underwriter for the Company and each person, if any, who controls
the Company or such underwriter within the meaning of the Securities Act).
5. NOTICES. All notices required or permitted to be given pursuant to
this Agreement shall be given in writing, shall be transmitted by personal
delivery, by registered or certified mail, return receipt requested, postage
prepaid, or by telecopier or other electronic means (with a confirming copy by
registered or certified mail, postage prepaid) and shall be addressed as
follows:
When the Holder is the intended recipient, to each Holder at
its address set forth in the Purchase Agreement.
When the Company is the intended recipient:
AvTeam, Inc.
3230 Executive Way
Miramar, Florida 33025
Attn: Donald Graw
WITH A COPY TO:
Baker & McKenzie
701 Brickell Avenue, Suite 1600
Miami, Florida 33131
ATTENTION: Andrew Hulsh, Esq.
Telecopy: (305) 789-8953
Any party to this Agreement (each a "Party") may designate a new address to
which notices required or permitted to be given pursuant to this Agreement shall
thereafter be transmitted by giving written notice to that effect to the other
Parties. Each notice transmitted in the manner described in this Section 5 shall
be deemed to have been given, received and become effective for all purposes at
the time it shall have been (i) delivered to the addressee as indicated by the
return receipt (if transmitted by mail), the affidavit of the messenger (if
transmitted by personal delivery) or the answer back or call back (if
transmitted by telecopier or other electronic means, but only if a confirmation
copy of such telecopied or electronically delivered notice is also delivered by
registered or certified mail, postage prepaid) or (ii) presented for delivery to
the addressee as so indicated during normal business hours, if such delivery
shall have been refused for any reason.
6. GOVERNING LAW; FORUM.
(a) The validity, interpretation, performance and enforcement
of this Agreement shall be governed by the laws the State of Florida (without
giving effect to the laws, rules or principles of the State of Florida regarding
conflicts of laws).
(b) Each party agrees that any proceeding arising out of or
relating to this Agreement or the breach or threatened breach of this Agreement
shall be commenced and prosecuted in a court in Miami, Florida. Each party
consents and submits to the non-exclusive personal jurisdiction of any court in
Miami, Florida in respect of any such proceeding. Each party consents to service
of process upon it with respect to any such proceeding by registered mail,
return receipt requested, and by any other means permitted by
3
<PAGE> 4
applicable laws and rules. Each party waives any objection that it may now or
hereafter have to the laying of venue of any such proceeding in any court in
Miami, Florida and any claim that it may now or hereafter have that any such
proceeding in any court in Miami, Florida has been brought in an inconvenient
forum.
(c) Final judgment against any party hereto in any suit or
proceeding shall be conclusive, and may be enforced in any other jurisdiction
(i) by suit, action or proceeding on the judgment, a certified or true copy of
which shall be conclusive evidence of the fact and the amount of indebtedness or
liability of the party hereto, or (ii) in any other manner provided by or
pursuant to the laws of such other jurisdiction.
(d) Nothing herein shall in any way be deemed to limit the
ability or right of any party to serve any legal process, summons, notices or
other documents in any other manner permitted by applicable law, or to obtain
jurisdiction over any other party, or to bring actions, suits or proceedings
against any other party in such other jurisdictions, and in such manner, as may
be otherwise permitted by applicable law.
7. BINDING EFFECT; ASSIGNMENT; THIRD PARTY BENEFICIARIES. This
Agreement shall be binding upon the parties and their respective successors and
assigns and shall inure to the benefit of the parties and their respective
successors and permitted assigns. No party shall assign any of its rights or
delegate any of its duties under this Agreement (by operation of law or
otherwise) without the prior written consent of the other parties. Any
assignment of rights or delegation of duties under this Agreement by a party
without the prior written consent of the other parties, if such consent is
required hereby, shall be void. No person (including, without limitation, any
employee of a party) shall be, or be deemed to be, a third party beneficiary of
this Agreement.
8. ENTIRE AGREEMENT; EFFECTIVE DATE OF AGREEMENT. This Agreement
constitutes the entire contract between the parties with respect to the subject
matter hereof and cancels and supersedes all of the previous contracts,
commitments, representations, warranties and understandings (whether oral or
written) by, between or among the parties with respect to the subject matter
hereof.
9. AMENDMENTS. No addition to, and no cancellation, renewal, extension,
modification or amendment of, this Agreement shall be binding upon a party
unless such addition, cancellation, renewal, extension, modification or
amendment is set forth in a written instrument which states that it adds to,
amends, cancels, renews, extends or modifies this Agreement and has been
approved by all of the parties hereto.
10. WAIVERS. No waiver of any provision of this Agreement shall be
binding upon a party unless such waiver is expressly set forth in a written
instrument which is executed and delivered by such party or on behalf of such
party by an officer of, or attorney-in-fact for, such party. Such waiver shall
be effective only to the extent specifically set forth in such written
instrument. Neither the exercise (from time to time and at any time) by a party
of, nor the delay or failure (at any time or for any period of time) to
exercise, any right, power or remedy shall constitute a waiver of the right to
exercise, or impair, limit or restrict the exercise of, such right, power or
remedy or any other right, power or remedy at any time and from time to time
thereafter. No waiver of any right, power or remedy of a party shall be deemed
to be a waiver of any other right, power or remedy of such party or shall,
except to the extent so waived, impair, limit or restrict the exercise of such
right, power or remedy.
11. REMEDIES.
(a) The rights, powers and remedies of the parties set forth
herein for a breach of or default under this Agreement are cumulative and in
addition to, and not in lieu of, any rights or remedies that any party may
otherwise have under this Agreement, at law or in equity.
(b) The parties acknowledge that the Shares are unique, and
that any violation of this Agreement cannot be compensated for by damages alone.
Accordingly, in addition to all of the other remedies which may be available
hereunder or under applicable law, any party shall have the right to any
4
<PAGE> 5
equitable relief which may be appropriate to remedy a breach or threatened
breach by any other party hereunder, including, without limitation, the right to
enforce specifically the terms of this Agreement by obtaining injunctive relief
in respect of any violation or non-performance hereof, and any party shall have
the right to seek recovery of and be awarded attorneys' fees and expenses in any
proceeding with respect to this Agreement as reasonably determined by the court
in which such proceeding is brought.
12. HEADINGS; COUNTERPARTS. The headings set forth in this Agreement
have been inserted for convenience of reference only, shall not be considered a
part of this Agreement and shall not limit, modify or affect in any way the
meaning or interpretation of this Agreement. This Agreement may be signed in any
number of counterparts, each of which (when executed and delivered) shall
constitute an original instrument, but all of which together shall constitute
one and the same instrument. It shall not be necessary when making proof of this
Agreement to account for any counterparts other than a sufficient number of
counterparts which, when taken together, contain signatures of all of the
parties.
13. SEVERABILITY. If any provision of this Agreement shall hereafter be
held to be invalid, unenforceable or illegal, in whole or in part, in any
jurisdiction under any circumstances for any reason, (i) such provision shall be
reformed to the minimum extent necessary to cause such provision to be valid,
enforceable and legal while preserving the intent of the parties as expressed
in, and the benefits to the parties provided by, this Agreement or (ii) if such
provision cannot be so reformed, such provision shall be severed from this
Agreement and an equitable adjustment shall be made to this Agreement
(including, without limitation, addition of necessary further provisions to this
Agreement) so as to give effect to the intent as so expressed and the benefits
so provided. Such holding shall not affect or impair the validity,
enforceability or legality of such provision in any other jurisdiction or under
any other circumstances. Neither such holding nor such reformation or severance
shall affect or impair the legality, validity or enforceability of any other
provision of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first above written.
AVTEAM, INC.
By: /s/ Donald A. Graw
---------------------------------
Name: Donald A. Graw
Title: Chairman, President and CEO
HOLDER:
BARON SMALL CAP FUND
By: /s/ Morty Shaja
----------------------------------
Name: Morty Shaja
Title: Chief Operating Officer
5
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES
------------
AVTEAM Aviation Field Services, Inc.
<PAGE> 1
Exhibit 23.02
Consent of Independent Certified Public Accountants
Ernst & Young LLP
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 16, 1998 in the Registration Statement (Form
S-1) and related Prospectus of AVTEAM, Inc. for the registration of 2,360,722
shares of its Class A Common Stock.
/s/ ERNST & YOUNG LLP
Miami, Florida
May 26, 1998
